Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
SHONEY'S, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE 5812 62-0799798
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
organization) Code Number)
1727 ELM HILL PIKE
NASHVILLE, TENNESSEE 37210
(615) 391-5201
(Address, including ZIP code, and telephone number,
including area code, of registrant's principal executive offices)
W. CRAIG BARBER
SHONEY'S, INC.
1727 ELM HILL PIKE
NASHVILLE, TENNESSEE 37210
TELEPHONE (615) 231-2385
FACSIMILE (615) 231-2531
(Name, address, including ZIP code, and telephone number,
including area code, of agent for service)
WITH COPIES TO:
CYNTHIA W. YOUNG, ESQ. RICHARD A. GOLDBERG, ESQ.
WYATT, TARRANT & COMBS SHEREFF, FRIEDMAN, HOFFMAN
2800 CITIZENS PLAZA & GOODMAN, LLP
500 WEST JEFFERSON STREET 919 THIRD AVENUE
LOUISVILLE, KENTUCKY 40202 NEW YORK, NEW YORK 10022-9998
TELEPHONE (502) 5627292 TELEPHONE (212) 758-9500
FACSIMILE (502) 589-0309 FACSIMILE (212) 758-9526
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective and after conditions contained in the Reorganization Agreement have
been satisfied.
If any of the securities being registered on this Form are being offered
in connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box: <square>
<TABLE>
<CAPTION>
Calculation of Registration Fee under the Securities Act of 1933:
<S>
PROPOSED
TITLE OF PROPOSED MAXIMUM AMOUNT
SECURITIES AMOUNT MAXIMUM AGGREGATE OF
TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER UNIT <F1> PRICE FEE
<S> <C> <C> <C> <C>
Common Stock, 11,500,000 $12.4375 $143,031,250 $49,321.12
$1.00 par value
</TABLE>
<F1> Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933, as amended.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
SHONEY'S, INC.
Cross Reference Sheet
Pursuant to Regulation S-K, Item 501(b)
<TABLE>
<CAPTION>
Item
NUMBER ITEM IN S-4 LOCATION OR CAPTION IN PROXY STATEMENT-PROSPECTUS
<S> <C> <C>
1. Forepart of the Registration Facing page of Registration Statement;
Statement and Outside Front Cover Outside Front Cover Page
Page of Prospectus
2. Inside Front and Outside Back Cover Available Information; Incorporation of
Pages of Prospectus Certain Information by Reference; Table
of Contents
3. Risk Factors. Ratio of Earnings to Summary; Risk Factors; The Shoney's
Fixed Charges and Other Information Special Meeting; The Enterprises Special
Meeting; The Reorganization
4. Terms of the Transaction Summary; Incorporation of Certain
Documents by Reference; The
Reorganization
5. Pro Forma Financial Information Summary; Unaudited Pro Forma Condensed
Combined Financial Statements
6. Material Contracts with the Company The Reorganization; The Reorganization
Being Acquired Agreement
7. Additional Information Required for Not Applicable
Reoffering by Persons and Parties
Deemed to be Underwriters
8. Interests of Named Experts and Not Applicable
Counsel
9. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act
Liabilities
10. Information with Respect to S-3 Incorporation of Certain Documents by
Registrants Reference; The Reorganization Parties
11. Incorporation of Certain Information Incorporation of Certain Documents by
by Reference Reference
12. Information with Respect to S-2 or Not Applicable
S-3 Registrants
13. Incorporation of Certain Information Not Applicable
by Reference
14. Information With Respect to Not Applicable
Registrants Other than S-3 or
S-2 Registrants
15. Information with Respect to S-3 Incorporation of Certain Documents by
Companies Reference; The Reorganization Parties
16. Information with Respect to S-2 Not Applicable
or S-3 Companies
17. Information With Respect to Not Applicable
Companies Other Than S-3 or S-2
Companies
18. Information if Proxies, Consents or Outside Front Cover Page; Incorporation
Authorizations are to be Solicited of Certain Documents by Reference;
Summary; The Shoney's Special Meeting
The Enterprises Special Meeting; The
Reorganization; Experts
19. Information if Proxies, Consents or Not Applicable
Authorizations are not to be
Solicited or in an Exchange Offer
</TABLE>
<PAGE>
[Letterhead of Shoney's, Inc.]
, 1996
Dear Shoney's, Inc. Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of
Shoney's, Inc. ("Shoney's") to be held in the fifth floor auditorium of the
First American Center, Nashville, Tennessee, on Friday, June 28, 1996 at 1:00
P.M., local time (the "Shoney's Special Meeting").
At the Shoney's Special Meeting, you will be asked to approve: (1) a
proposed amendment to Shoney's charter increasing the authorized shares of
Shoney's common stock, par value $1.00 per share ("Shoney's Common Stock"),
from 100 million to 200 million shares (the "Charter Amendment"); (2) the Plan
of Tax-Free Reorganization Under Section 368(a)(1)(C) of the Internal Revenue
Code and Agreement, dated as of March 15, 1996 (the "Reorganization
Agreement"), by and among Shoney's, TPI Restaurants Acquisition Corporation, a
wholly-owned subsidiary of Shoney's, and TPI Enterprises, Inc. ("Enterprises");
and (3) proposed amendments to the Shoney's, Inc. 1981 Stock Option Plan (the
"Shoney's Option Plan"), as described in the accompanying Joint Proxy
Statement/Prospectus. Pursuant to the Reorganization Agreement, Shoney's will
acquire substantially all of the assets of Enterprises in exchange for the
issuance by Shoney's of shares and associated rights, stock options, warrants
and rights to purchase shares and associated rights, of Shoney's Common Stock
and the assumption of certain liabilities, contracts and other obligations of
Enterprises (the "Reorganization").
The accompanying Joint Proxy Statement/Prospectus provides information
about each of the proposals your Board of Directors will be recommending at the
Shoney's Special Meeting. It contains detailed information concerning the
proposed Reorganization and certain additional information, including, without
limitation, the information set forth under the heading "Risk Factors," which
describes, among other items, benefits to certain Enterprises directors and
executive officers, potential adverse effects to public shareholders of
Shoney's and other risks inherent in the proposed Reorganization, all of which
you are urged to read carefully. It is important that your Shoney's Common
Stock be represented at the Shoney's Special Meeting, regardless of the number
of shares you hold. Therefore, please sign, date and return your proxy card as
soon as possible, whether or not you plan to attend the Shoney's Special
Meeting. This will not prevent you from voting your shares in person if you
subsequently choose to attend the Shoney's Special Meeting.
Your Board of Directors believes that the Reorganization is fair to, and
in the best interests of, Shoney's and its shareholders. The Board has
approved the Reorganization Agreement, the proposed amendment to Shoney's
Charter and the proposed amendments to the Shoney's Option Plan. Accordingly,
the Board recommends that you vote to approve the Reorganization Agreement and
the issuance of Shoney's Common Stock pursuant to the Reorganization Agreement,
as well as the proposed amendment to Shoney's Charter and the proposed
amendments to the Shoney's Option Plan.
Sincerely,
C. Stephen Lynn,
Chairman of the Board, Chief Executive Officer
and President
<PAGE>
SHONEY'S, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD FRIDAY, JUNE 28, 1996
Notice is hereby given that a Special Meeting of Shareholders of Shoney's,
Inc. ("Shoney's") has been called by the Board of Directors and will be held in
the fifth floor auditorium of the First American Center, Nashville, Tennessee
on Friday, June 28, 1996 at 1:00 P.M., local time, for the following purposes:
1. To consider and vote upon a proposal to approve the Plan of Tax-Free
Reorganization Under Section 368(a)(1)(C) of the Internal Revenue Code and
Agreement dated as of March 15, 1996 among Shoney's, TPI Restaurants
Acquisition Corporation, a wholly-owned subsidiary of Shoney's, and TPI
Enterprises, Inc. (the "Reorganization Agreement"), including the issuance of
shares and associated rights, stock options, warrants and conversion rights to
purchase shares, and associated rights, of Shoney's common stock, par value
$1.00 per share ("Shoney's Common Stock"), contemplated thereby;
2. To consider and vote upon a proposed amendment to Shoney's charter
increasing the authorized capital stock of Shoney's from 100 million to 200
million shares of Shoney's Common Stock;
3. To consider and vote upon proposed amendments to the Shoney's, Inc.
1981 Stock Option Plan (the "Shoney's Option Plan"), as described in the
accompanying Joint Proxy Statement/Prospectus; and
4. To transact other business as may properly come before the meeting or
any adjournments or postponements thereof.
The Board of Directors of Shoney's has fixed the close of business on May
16, 1996 as the record date for the determination of the holders of Shoney's
Common Stock entitled to notice of and to vote at the Special Meeting. The
Reorganization Agreement and other related matters are more fully described in
the accompanying Joint Proxy Statement/Prospectus, and the Appendices thereto,
which form a part of this Notice.
ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING. TO
ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, HOWEVER, YOU ARE URGED TO
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE. A
POSTAGE-PREPAID ENVELOPE IS ENCLOSED FOR THAT PURPOSE. ANY SHAREHOLDER
ATTENDING THE SPECIAL MEETING MAY VOTE IN PERSON EVEN IF THAT SHAREHOLDER HAS
RETURNED A PROXY.
By Order of the Board of Directors,
Robert M. Langford
Executive Vice President, General Counsel and Secretary
Nashville, Tennessee
Dated: , 1996
<PAGE>
SHONEY'S, INC.
REVOCABLE PROXY
(SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF SHONEY'S, INC. FOR
A SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON FRIDAY, JUNE 28, 1996)
The undersigned hereby appoints C. Stephen Lynn and W. Craig Barber, and
either of them, with full powers of substitution, as attorneys and proxies for
the undersigned, to represent and vote shares of common stock of Shoney's, Inc.
("Shoney's") standing in my name on the books and records of Shoney's at the
close of business on May 16, 1996 which the undersigned is entitled to cast at
the Special Meeting of Shareholders to be held in the fifth floor auditorium of
the First American Center, Nashville, Tennessee on Friday, June 28, 1996 at
1:00 P.M., local time, and at any and all adjournments or postponements, as
follows:
1. To approve the Plan of Tax-Free Reorganization Under Section
368(a)(1)(C) of the Internal Revenue Code and Agreement dated as of March 15,
1996 among Shoney's, TPI Restaurants Acquisition Corporation, a wholly-owned
subsidiary of Shoney's, and TPI Enterprises, Inc., including the issuance of
shares and associated rights, and stock options, warrants and rights to
purchase shares, and associated rights, of Shoney's common stock, par value
$1.00 per share ("Shoney's Common Stock") contemplated thereby.
<square> FOR<square> AGAINST<square> ABSTAIN
2. To approve an amendment to the restated charter of Shoney's
increasing the authorized capital stock of Shoney's from 100 million to 200
million shares of Shoney's Common Stock.
<square> FOR<square> AGAINST<square> ABSTAIN
3. To consider and vote upon proposed amendments to the Shoney's, Inc.
1981 Stock Option Plan (the "Shoney's Option Plan"), as described in the
accompanying Joint Proxy Statement/Prospectus.
<square> FOR<square> AGAINST<square> ABSTAIN
THIS PROXY WILL BE VOTED FOR EACH OF THE PROPOSALS STATED ABOVE IF NO CHOICE IS
MADE HEREON.
To vote in their discretion upon such other matters as may properly come
before the meeting or any adjournment thereof.
Should the undersigned be present and elect to vote at the Special Meeting
or at any adjournment thereof and, after notification to the Secretary of
Shoney's at the Special Meeting of the shareholder's decision to terminate this
Proxy, then the power of said attorneys and proxies shall be deemed terminated
and of no further force and effect.
The undersigned acknowledges receipt of a Notice of Special Meeting called
for the 28th day of June, 1996 and the Joint Proxy Statement/Prospectus dated
the day of , 1996 prior to the execution of this Proxy.
DATE:
Print Name of Shareholder
Signature of Shareholder
DATE:
Print Name of Shareholder
Signature of Shareholder
(Please sign exactly as your name appears on the envelope
in which this card was mailed. When signing as attorney,
executor, administrator, trustee or guardian, please give
your full title. If more than one trustee, all should sign.
If shares are held jointly, each holder should sign.)
<PAGE>
[Letterhead of TPI Enterprises, Inc.]
, 1996
To the Shareholders of TPI ENTERPRISES, INC.:
You are cordially invited to attend a Special Meeting of Shareholders of
TPI Enterprises, Inc. ("Enterprises") to be held at , on
Friday, June 28, 1996 at the hour of P.M., local time (the "Enterprises
Special Meeting").
At the Enterprises Special Meeting, you will be asked to approve the Plan
of Tax-Free Reorganization Under Section 368(a)(1)(C) of the Internal Revenue
Code and Agreement dated as of March 15, 1996 (the "Reorganization Agreement"),
by and among Shoney's, Inc. ("Shoney's"), TPI Restaurants Acquisition
Corporation, a wholly-owned subsidiary of Shoney's ("TPAC"), and Enterprises,
including the dissolution and liquidation of Enterprises under the terms of a
plan of complete liquidation contemplated by the Reorganization Agreement.
Approval of the Reorganization Agreement requires the affirmative vote of a
majority of the votes cast by holders of the common stock, $0.01 par value per
share (the "Enterprises Common Stock"), entitled to vote at the Enterprises
Special Meeting.
The accompanying Joint Proxy Statement/Prospectus provides detailed
information concerning the proposed Reorganization and certain additional
information, including, without limitation, the information set forth under the
heading "Risk Factors," which describes, among other items, benefits to certain
Enterprises directors and executive officers, potential adverse effects to
public shareholders and other risks inherent in the proposed Reorganization,
all of which you are urged to read carefully. It is important that your
Enterprises Common Stock be represented at the Enterprises Special Meeting,
regardless of the number of shares you hold. Therefore, please sign, date and
return your proxy card as soon as possible, whether or not you plan to attend
the Enterprises Special Meeting. This will not prevent you from voting your
shares in person if you subsequently choose to attend the Enterprises Special
Meeting.
Your Board of Directors believes that the Reorganization is fair to, and
in the best interests of, Enterprises and its shareholders. The disinterested
members of the Board have unanimously approved the Reorganization Agreement and
the full Board unanimously recommends that you vote to approve the
Reorganization Agreement and the dissolution of Enterprises.
Sincerely,
J. Gary Sharp
President and Chief Executive Officer
<PAGE>
TPI ENTERPRISES, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 28, 1996
To all Shareholders of TPI ENTERPRISES, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of TPI
Enterprises, Inc., a New Jersey corporation ("Enterprises"), has been called by
the Board of Directors and will be held at on Friday, June
28, 1996 at the hour of P.M. local time, for the following purposes:
1. To consider and vote upon a proposal to approve the Plan of Tax-Free
Reorganization Under Section 368(a)(1)(C) of the Internal Revenue Code and
Agreement dated as of March 15, 1996 (the "Reorganization Agreement") by and
among Shoney's, Inc. ("Shoney's"), TPI Restaurants Acquisition Corporation, a
wholly-owned subsidiary of Shoney's, and Enterprises, including the dissolution
and liquidation of Enterprises under a plan of complete liquidation
contemplated by the Reorganization Agreement.
2. To transact such other business as may properly come before the meeting
or any adjournments or postponements thereof.
The Board of Directors of Enterprises has fixed the close of business on May
23, 1996 as the record date for the determination of the holders of the common
stock, $0.01 par value per share, of Enterprises entitled to notice of and to
vote at the Special Meeting or any adjournments or postponements thereof. The
Reorganization and other related matters are more fully described in the
accompanying Joint Proxy Statement/Prospectus, and the Appendices thereto,
which form a part of this Notice.
PLEASE DO NOT SEND IN ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
FREDERICK W. BURFORD,
Secretary
Palm Beach Gardens, Florida
, 1996
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE SIGN AND DATE THE
ENCLOSED PROXY WHICH IS SOLICITED BY THE BOARD OF DIRECTORS OF ENTERPRISES, AND
RETURN IT TO ENTERPRISES IN THE ENVELOPE PROVIDED FOR THAT PURPOSE. ANY
SHAREHOLDER MAY REVOKE HIS PROXY AT ANY TIME BEFORE THE SPECIAL MEETING BY
WRITTEN NOTICE TO SUCH EFFECT, BY SUBMITTING A SUBSEQUENTLY DATED PROXY OR BY
ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON.
<PAGE>
TPI ENTERPRISES, INC.
REVOCABLE PROXY
(SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
TPI ENTERPRISES, INC. FOR A SPECIAL MEETING
OF SHAREHOLDERS TO BE HELD ON JUNE 28, 1996)
The undersigned hereby appoints J. Gary Sharp and Frederick W. Burford,
and any one or more of them with full power of substitution, as attorneys and
proxies for the undersigned, to represent and vote shares of common stock of
TPI Enterprises, Inc., a New Jersey corporation ("Enterprises"), standing in my
name on the books and records of Enterprises at the close of business on May
23, 1996 which the undersigned is entitled to cast at the Special Meeting of
Shareholders to be held at on Friday, June 28, 1996 at the
hour of P.M., local time, and at any and all adjournments or
postponements, as follows:
1. To consider and vote upon a proposal to approve the Plan of Tax-Free
Reorganization Under Section 368(a)(1)(C) of the Internal Revenue Code and
Agreement dated as of March 15, 1996 (the "Reorganization Agreement") by and
among Shoney's, Inc. ("Shoney's"), TPI Restaurants Acquisition Corporation, a
wholly-owned subsidiary of Shoney's, and Enterprises, including the dissolution
and liquidation of Enterprises under the terms of a plan of complete
liquidation contemplated by the Reorganization Agreement.
<square> FOR<square> AGAINST<square> ABSTAIN
THIS PROXY WILL BE VOTED FOR THE PROPOSAL STATED ABOVE IF NO CHOICE IS MADE
HEREON.
To vote in their discretion upon such other matters as may properly come
before the meeting or any adjournment thereof.
Should the undersigned be present and elect to vote at the Special Meeting
or at any adjournment thereof and, after notification to the Secretary of
Enterprises at the Special Meeting of the shareholder's decision to terminate
this Proxy, then the power of said attorneys and proxies shall be deemed
terminated and of no further force and effect.
The undersigned acknowledges receipt of a Notice of Special Meeting called
for the day of , 1996 and the Joint Proxy
Statement/Prospectus dated the day of , 1996 prior to the execution
of this Proxy.
DATE:
Print Name of Shareholder
Signature of Shareholder
DATE:
Print Name of Shareholder
Signature of Shareholder
(Please sign exactly as your name appears on the envelope
in which this card was mailed. When signing as attorney,
executor, administrator, trustee or guardian, please give
your full title. If more than one trustee, all should sign
If shares are held jointly, each holder should sign.)
<PAGE>
SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED , 1996
Joint Proxy Statement
SHONEY'S, INC. AND TPI ENTERPRISES, INC.
Prospectus
SHONEY'S, INC.
This Joint Proxy Statement and Prospectus ("Joint Proxy
Statement/Prospectus") is being furnished to shareholders of Shoney's, Inc., a
Tennessee corporation ("Shoney's"), and TPI Enterprises, Inc., a New Jersey
corporation ("Enterprises"), in connection with the solicitation of proxies by
the Boards of Directors of Shoney's and Enterprises for use at their respective
Special Meetings of Shareholders, and any adjournments or postponements thereof
(collectively, the "Special Meetings"), to be held at the time and place and
for the purposes set forth in the accompanying notice. It is anticipated that
the mailing of this Joint Proxy Statement/Prospectus and the enclosed proxy
card will commence on or about , 1996.
At the Special Meetings, shareholders of Shoney's and Enterprises will,
among other things, be asked to approve a Plan of Tax-Free Reorganization Under
Section 368(a)(1)(C) of the Internal Revenue Code and Agreement (the
"Reorganization Agreement"), dated as of March 15, 1996, and the transactions
contemplated thereby. As more fully described herein, subject to the terms and
conditions of the Reorganization Agreement, Shoney's will acquire substantially
all of Enterprises' assets, including the subsidiaries through which
Enterprises conducts operations as Shoney's largest franchisee, in exchange for
the issuance of shares of common stock, $1.00 par value per share, of Shoney's
("Shoney's Common Stock") and the assumption, by Shoney's, of certain
liabilities, contracts and other obligations of Enterprises (the
"Reorganization"). The number of shares of Shoney's Common Stock to be issued
to Enterprises in the Reorganization is equal to the sum of: (a) 5,577,102;
plus (b) $10,000,000 divided by the average closing market price of the
Shoney's Common Stock on the New York Stock Exchange (the "NYSE") over the ten
day trading period ending on the day prior to the closing (the "Closing") of
the Reorganization (the "Average Closing Market Price"), subject to certain
adjustments as provided in the Reorganization Agreement (the "Exchange
Shares"). Shoney's Common Stock is traded on the NYSE under the symbol "SHN."
On April 16, 1996, the closing price for Shoney's Common Stock as reported by
the NYSE Composite Tape was $10.375 per share. Had the Closing occurred on such
date, the Average Closing Market Price would have been $9.8625, and Shoney's
would have issued approximately 6,696,035 shares of Shoney's Common Stock to
Enterprises, and Enterprises would have held, immediately after the
Reorganization, approximately 13.9% of the aggregate number of the then
outstanding shares of Shoney's Common Stock. Pursuant to the Reorganization
Agreement, Enterprises will retain in the Reorganization up to $7,350,000 in
cash, for the sole purpose of paying certain wind-up expenses, and up to an
additional $7,500,000 in cash. The closing price of Shoney's Common Stock on
May 10, 1996 was $13.25 as reported by the NYSE. Upon completion of the
Reorganization, Enterprises will wind-up its operations and, after paying or
making adequate provisions for its liabilities, will distribute the Exchange
Shares received in the Reorganization and any cash remaining, other than as
discussed in this Joint Proxy Statement/Prospectus, to its shareholders on a
pro rata basis based upon their ownership of shares of common stock of
Enterprises, $0.01 par value per share (the "Enterprises Common Stock").
FOR CERTAIN FACTORS WHICH SHOULD BE CONSIDERED IN
EVALUATING THE REORGANIZATION, SEE "RISK FACTORS",
LOCATED ON PAGES 20 THROUGH 24 OF THIS JOINT PROXY STATEMENT/PROSPECTUS.
All information contained in this Joint Proxy Statement/Prospectus with
respect to Shoney's and its subsidiaries has been provided by Shoney's. All
information contained in this Joint Proxy Statement/Prospectus with respect to
Enterprises and its subsidiaries has been provided by Enterprises.
THE SECURITIES TO BE ISSUED IN THE REORGANIZATION HAVE NOT BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION
OR BY ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Joint Proxy Statement/Prospectus, which also constitutes
Shoney's Prospectus for up to 11,500,000 shares of Shoney's Common Stock, is
, 1996.
1
<PAGE>
AVAILABLE INFORMATION
Shoney's (Commission File No. 0-4377) and Enterprises (Commission File No.
0-7961) are each subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549. In addition, such reports, proxy
statements and other information can be inspected and copied at the
Commission's Regional Offices at 7 World Trade Center, Suite 1300, New York,
New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such materials may be obtained by mail,
at prescribed rates, from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549. Shoney's Common Stock is listed on
the NYSE and material filed by Shoney's can be inspected at the offices of the
NYSE, 20 Broad Street, New York, New York 10005. Enterprises Common Stock is
listed on the Nasdaq Stock Market's National Market (the "Nasdaq National
Market") and material filed by Enterprises can be inspected at the offices of
the Nasdaq National Market, 9513 Key West Avenue, 3rd Floor, Rockville,
Maryland 20850.
This Joint Proxy Statement/Prospectus does not contain all the information
set forth in the Registration Statement on Form S-4 and exhibits relating
thereto, including any amendments (the "Registration Statement"), of which this
Joint Proxy Statement/Prospectus is a part, and which Shoney's has filed with
the Commission under the Securities Act of 1933, as amended (the "Securities
Act"). Reference is made to such Registration Statement for further information
with respect to Shoney's and the Shoney's Common Stock offered hereby.
Statements contained herein or incorporated herein by reference concerning the
provisions of documents are summaries of such documents and each statement is
qualified in its entirety by reference to the copy of the applicable document
if filed with the Commission or attached as an appendix hereto.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION WITH RESPECT TO THE MATTERS DESCRIBED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS OTHER THAN THOSE CONTAINED HEREIN OR IN THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY SHONEY'S OR
ENTERPRISES. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED
HEREBY, NOR DOES IT CONSTITUTE THE SOLICITATION OF A PROXY, IN ANY JURISDICTION
IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION OF AN OFFER OR PROXY SOLICITATION. NEITHER THE DELIVERY OF THIS
JOINT PROXY STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREBY SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF SHONEY'S OR ENTERPRISES SINCE THE DATE HEREOF, OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
2
<PAGE>
TABLE OF CONTENTS
AVAILABLE INFORMATION....................................................... 2
SUMMARY..................................................................... 6
The Reorganization Transaction and the Dissolution of Enterprises...... 6
Parties to the Reorganization.......................................... 7
Special Meetings....................................................... 8
Time, Place and Date.............................................. 8
Purpose of the Meetings........................................... 8
Votes Required; Record Date....................................... 8
Reasons for the Reorganization......................................... 9
Recommendation of the Shoney's Board................................... 9
Recommendation of the Enterprises Board................................ 10
Opinions of Financial Advisors......................................... 10
Enterprises Stock Options.............................................. 10
Enterprises Warrants................................................... 11
Liabilities Assumed or Satisfied....................................... 11
Interests of Certain Persons in the Reorganization..................... 12
Conditions to the Reorganization....................................... 12
Closing Date........................................................... 12
Termination of the Reorganization Agreement............................ 13
Certain Differences in Shareholders' Rights............................ 13
Dissenters' Rights..................................................... 13
Certain Federal Income Tax Consequences................................ 13
Accounting Treatment................................................... 14
Resale Restrictions.................................................... 14
Comparative Market Prices of Common Stock.............................. 14
Summary Financial Data................................................. 15
Comparative Per Share Data............................................. 18
RISK FACTORS................................................................ 20
Uncertainties Related to the Reorganization............................ 20
Interests of Certain Persons in the Reorganization..................... 20
Indebtedness and Interest Rate Sensitivity............................. 20
Stock Price Fluctuations; Fixed Exchange Ratio......................... 21
Possible Reductions to Retained Cash and Expense Allotment............. 21
Provision for Liabilities of Enterprises Before Distribution of Exchange
Shares and Cash................................................... 22
No Assurance of Public Market for Enterprises Common Stock Following the
Closing; Delisting and Deregistration of Enterprises Common Stock. 22
Litigation............................................................. 22
Tax Risks.............................................................. 23
Limitation on Liabilities Assumed...................................... 23
Differences in Rights of Shareholders.................................. 24
Limitations on Acquisition and Change in Control Could Deter a Takeover
Which Might Otherwise be in the Shareholders' Best Interests...... 24
Shares Available for Future Sale Could Adversely Affect Price of
Shoney's Common Stock............................................. 24
THE REORGANIZATION PARTIES.................................................. 24
Shoney's............................................................... 24
TPAC .................................................................. 25
Enterprises............................................................ 25
Combined Entity........................................................ 25
THE SHONEY'S SPECIAL MEETING................................................ 25
Purposes of the Shoney's Special Meeting............................... 25
Charter Amendment Increasing Number of Authorized Shares............... 26
Record Date; Voting Rights; Proxies.................................... 27
Solicitation of Proxies................................................ 28
Dissenters' Rights..................................................... 28
Quorum................................................................. 28
Required Vote.......................................................... 28
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THE ENTERPRISES SPECIAL MEETING............................................. 29
Purposes of the Enterprises Special Meeting............................ 29
Record Date; Voting Rights; Proxies.................................... 29
Required Vote.......................................................... 30
Solicitation of Proxies................................................ 30
Dissenters' Rights..................................................... 30
Quorum................................................................. 31
THE REORGANIZATION.......................................................... 31
The Reorganization Transaction......................................... 31
Obligations and Liabilities Assumed............................... 32
Adjustments to Consideration...................................... 32
Dissolution of Enterprises, Wind-up Expenses...................... 33
Background of the Reorganization....................................... 34
Reasons for the Reorganization; Recommendation of the Shoney's Board... 37
Reasons for the Reorganization; Recommendation of the Enterprises Board 39
Opinions of Financial Advisors......................................... 40
Opinion of Shoney's Financial Advisor............................. 40
Opinion of Financial Advisor to the Special Committee of the
Enterprises Board............................................ 44
Interests of Certain Persons in the Reorganization..................... 51
Class Action Settlement................................................ 52
Marlin Claims.......................................................... 53
Stock Options.......................................................... 53
Warrants............................................................... 54
Public Debentures...................................................... 55
Accounting Treatment................................................... 56
Certain Federal Income Tax Consequences................................ 56
Regulatory Approvals................................................... 57
Resale Restrictions.................................................... 57
NYSE Listing........................................................... 57
Shoney's Financing..................................................... 58
Plan of Complete Liquidation........................................... 58
Summary of the Plan of Complete Liquidation....................... 58
Powers of Directors After Dissolution............................. 59
Liquidating Distribution.......................................... 59
Reserve for Liabilities and Subsequent Liquidating Distributions.. 60
Liquidating Agent................................................. 60
Representations and Warranties......................................... 61
Certain Covenants...................................................... 62
No Solicitation of Transactions........................................ 65
Conditions to Consummation of the Reorganization....................... 65
Termination of the Reorganization Agreement............................ 68
Grounds for Termination........................................... 68
Break-up Fee...................................................... 69
Extension and Waiver................................................... 69
Amendment.............................................................. 69
Expenses............................................................... 69
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS........................................................ 70
DESCRIPTION OF SHONEY'S CAPITAL STOCK....................................... 78
Shoney's Common Stock.................................................. 78
Share Purchase Rights.................................................. 79
Business Combination Provisions of Shoney's Charter.................... 80
EFFECT OF THE REORGANIZATION ON RIGHTS OF SHAREHOLDERS...................... 81
Removal of Directors................................................... 81
Number of Directors.................................................... 81
Conflict-of-Interest Transactions...................................... 82
Special Meetings....................................................... 82
Required Vote for Authorization of Certain Actions..................... 82
Action by Written Consent.............................................. 83
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Inspection Rights...................................................... 84
Amendment of Bylaws.................................................... 84
Voluntary Dissolution.................................................. 84
Indemnification........................................................ 85
Business Combination Statute........................................... 85
Business Combination Provisions of Shoney's Charter.................... 86
Control Share Acquisition Act.......................................... 86
Investor Protection Act................................................ 87
Authorized Corporation Protection Act.................................. 88
Greenmail Act.......................................................... 88
Dividends and Other Distributions...................................... 88
Dissenters' Rights..................................................... 89
Preemptive Rights...................................................... 89
DESCRIPTION OF THE SHONEY'S OPTION PLAN..................................... 89
Federal Tax Consequences of Shoney's Option Plan....................... 92
SHONEY'S EXECUTIVE COMPENSATION............................................. 93
Summary Compensation................................................... 93
Option Grants in Last Fiscal Year...................................... 96
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End
Option Values..................................................... 96
Compensation of Directors.............................................. 97
Employment Contracts................................................... 98
Compensation Committee Interlocks and Insider Participation............ 99
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE........................... 99
LEGAL MATTERS.............................................................. 100
EXPERTS.................................................................... 100
APPENDIX A Plan of Tax-Free Reorganization Under Section 368(a)(1)(C)
of the Internal Revenue Code and Agreement
APPENDIX B Salomon Brothers Inc Opinion
APPENDIX C Alex. Brown & Sons Incorporated Opinion
APPENDIX D Plan of Complete Liquidation of TPI Enterprises, Inc.
APPENDIX E Shoney's, Inc. 1981 Stock Option Plan, As Amended and
Restated Through May 1, 1996
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SUMMARY
THIS SUMMARY IS NECESSARILY GENERAL AND ABBREVIATED AND HAS BEEN PREPARED
TO ASSIST SHAREHOLDERS IN THEIR REVIEW OF THIS JOINT PROXY
STATEMENT/PROSPECTUS. THIS SUMMARY IS NOT INTENDED TO BE A COMPLETE
EXPLANATION OF THE MATTERS COVERED IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND
IS QUALIFIED IN ALL RESPECTS BY REFERENCE TO THE MORE DETAILED INFORMATION
CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS, THE APPENDICES HERETO AND
THE DOCUMENTS INCORPORATED HEREIN, WHICH SHAREHOLDERS ARE URGED TO READ
CAREFULLY. SHAREHOLDERS OF SHONEY'S AND ENTERPRISES SHOULD CAREFULLY REVIEW
THE MATTERS SET FORTH UNDER "RISK FACTORS", BEGINNING ON PAGE 20 OF THIS JOINT
PROXY STATEMENT/PROSPECTUS, BEFORE VOTING UPON THE MATTERS TO BE CONSIDERED BY
SHAREHOLDERS HEREIN.
THE REORGANIZATION TRANSACTION AND THE DISSOLUTION OF ENTERPRISES
In accordance with, and subject to the terms and conditions of, the
Reorganization Agreement, a copy of which is attached to this Joint Proxy
Statement/Prospectus as APPENDIX A, Shoney's will acquire from Enterprises all
of the issued and outstanding shares of capital stock of TPI Restaurants, Inc.
("TPIR"), TPI Entertainment, Inc. ("TPIE") and TPI Insurance Corporation
("TPII"), certain intercompany accounts, and all of the cash and cash
equivalents of Enterprises, TPIR, TPIE and TPII (except as discussed below) in
exchange for the issuance of shares of Shoney's Common Stock and the
assumption, by Shoney's, of certain liabilities, contracts and other
obligations of Enterprises. The number of shares of Shoney's Common Stock to be
issued to Enterprises on the closing date under the Reorganization Agreement is
the sum of (a) 5,577,102, plus (b) $10,000,000 divided by the average closing
market price of Shoney's Common Stock on the NYSE over the ten-day trading
period ending on the day prior to the closing date (the Average Closing Market
Price), subject to certain adjustments. See "The Reorganization--The
Reorganization Transaction." At the Closing, Shoney's will issue Enterprises a
stock certificate or stock certificates representing the Exchange Shares.
Following the Reorganization, TPIR, TPIE and TPII will exist as wholly-owned
subsidiaries of Shoney's.
Pursuant to the Reorganization Agreement, Enterprises will be entitled to
retain up to $14,850,000 in cash, consisting of an amount (the "Expense
Allotment"), not to exceed $7,350,000, which is designated to pay certain
specified wind-up expenses, and up to an additional $7,500,000 (the "Retained
Cash"). If the wind-up expenses are less than the Expense Allotment,
Enterprises will be required to transfer the difference to Shoney's; if the
expenses are greater, the excess will be paid from the Retained Cash of up to
$7,500,000. See "The Reorganization--The Reorganization Transaction--
Dissolution of Enterprises; Wind-up Expenses." To satisfy the requirements for
a tax-free reorganization under the Internal Revenue Code of 1986, as amended
(the "Code"), the amount of the Retained Cash, when added to that portion of
the Expense Allotment representing unaccrued wind-up expenses for federal
income tax purposes as of the Closing (the "Unaccrued Expenses") (currently
estimated at $1,400,000, in the aggregate), cannot exceed 10% of the net asset
value of Enterprises as of the Closing Date. In addition, under the
Reorganization Agreement, the amount of the Retained Cash may not exceed an
amount which equals 10% of the value of the Exchange Shares, based on the
closing price of Shoney's Common Stock on the NYSE as reported by the WALL
STREET JOURNAL on the last trading day prior to the closing date. In the event
that, as a result of this limitation, Enterprises is unable to retain the
entire $7,500,000 as Retained Cash, Shoney's will issue additional shares of
Shoney's Common Stock to Enterprises, valued at the Average Closing Market
Price, to compensate Enterprises for the entire amount of the reduced Retained
Cash. If, notwithstanding such an adjustment, the amount of the Retained Cash
(as adjusted as set forth in the preceding sentence), when added to the Expense
Allotment for the Unaccrued Expenses, exceeds 10% of Enterprises' net asset
value on the Closing Date, the amount of cash that can be retained for wind-up
expenses will be reduced accordingly in order to satisfy conditions to Closing.
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Following the Reorganization, Enterprises will dissolve as a corporation
in the State of New Jersey under the terms of a plan of complete liquidation
(the "Plan of Complete Liquidation") adopted by the Board of Directors of
Enterprises (the "Enterprises Board"). In connection with its dissolution and
liquidation after the consummation of the Reorganization, Enterprises will
wind-up its operations and, after paying or making provision for its
liabilities, distribute the Exchange Shares received in the Reorganization and
any cash remaining to its shareholders on a pro rata basis based upon their
ownership of Enterprises Common Stock. Fractional shares of Shoney's Common
Stock will not be issued to the shareholders of Enterprises. A holder
otherwise entitled to a fractional share will be paid cash in lieu of such
fractional share in an amount equal to such holder's proportionate interest in
the net proceeds from the sale or sales in the open market on behalf of all
such holders. See "The Reorganization--Plan of Complete Liquidation."
If the Reorganization had been consummated as of April 16, 1996, the
Average Closing Market Price would have been $9.8625, and a total of
approximately 6,696,035 shares of Shoney's Common Stock, representing
approximately 13.9% of the aggregate number of then outstanding shares of
Shoney's Common Stock, would have been issued in the Reorganization. Based
upon the number of shares of Enterprises Common Stock outstanding at such date,
and assuming Enterprises could retain the total of $7,500,000 of Retained Cash
and would have had adequate cash on hand to satisfy its remaining liabilities,
Enterprises' shareholders would receive approximately .3247 shares of Shoney's
Common Stock in respect of each share of Enterprises Common Stock upon the
liquidation of Enterprises. See "The Reorganization--The Reorganization
Transaction."
PARTIES TO THE REORGANIZATION
Shoney's, Inc. Shoney's operates and franchises a chain of 1510
restaurants in 34 states as of April 14, 1996. The diversified food service
chain consists of three restaurant divisions: "Shoney's", "Captain D's" and a
casual dining group. As of April 14, 1996, Shoney's operated 722 restaurants
and franchised the operation of 788 restaurants. Shoney's principal concepts
are "Shoney's" full service family dining restaurants and "Captain D's" quick
service seafood restaurants. Shoney's also operates 34 casual dining
restaurants under the names "Fifth Quarter," "Pargo's" and "BarbWire's."
Shoney's was incorporated under the laws of the State of Tennessee in
1968. Its principal executive offices are located at 1727 Elm Hill Pike,
Nashville, Tennessee 37210, and its telephone number is (615) 391-5201. See
"The Reorganization Parties--Shoney's."
Additional information about Shoney's is included in documents
incorporated by reference in this Joint Proxy Statement/Prospectus. See
"Incorporation of Certain Documents by Reference. "
TPI Enterprises, Inc. Enterprises is principally engaged in the operation
of restaurants as a franchisee and, through its subsidiary TPIR, is one of the
largest restaurant franchisees in the United States and is the largest
franchisee of "Shoney's" and "Captain D's" restaurants. As of April 30, 1996,
TPIR owned and operated 253 restaurants, comprised of 186 "Shoney's"
Restaurants and 67 "Captain D's" restaurants in 11 states, primarily in the
southern United States.
Enterprises was incorporated under the laws of the State of New Jersey in
1970. Its principal executive offices are located at 3950 RCA Boulevard, Suite
5001, Palm Beach Gardens, Florida 33410, and its telephone number is (407)
691-8800. See "The Reorganization Parties--Enterprises."
Additional Information about Enterprises is included in documents
incorporated by reference in this Joint Proxy Statement/Prospectus. See
"Incorporation of Certain Documents by Reference."
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SPECIAL MEETINGS
TIME, PLACE AND DATE
The Special Meeting of Shoney's shareholders will be held in the fifth
floor auditorium of the First American Center, ,
Nashville, Tennessee on Friday, June 28, 1996, at 1:00 P.M., local time
(including any and all adjournments or postponements thereof, the "Shoney's
Special Meeting"). See "The Shoney's Special Meeting."
The Special Meeting of Enterprises' shareholders will be held at
, on Friday, June 28, 1996, at the hour of P.M., local time (including
any and all adjournments or postponements thereof, the "Enterprises Special
Meeting"). See "The Enterprises Special Meeting."
PURPOSE OF THE MEETINGS
The Shoney's Special Meeting. At the Shoney's Special Meeting, holders of
Shoney's Common Stock will consider and vote upon (1) a proposal to approve the
Reorganization Agreement, including the issuance of shares and associated
rights, stock options, warrants and rights to purchase shares and associated
rights, of Shoney's Common Stock contemplated thereby, (2) a proposal to amend
the restated charter of Shoney's ("Shoney's Charter") to increase the number of
authorized shares of capital stock from 100 million to 200 million shares of
Shoney's Common Stock, (3) proposed amendments to the Shoney's, Inc. 1981 Stock
Option Plan, as heretofore amended (the "Shoney's Option Plan"), and (4) any
other matter that may properly come before the Shoney's Special Meeting. See
"The Shoney's Special Meeting--Purposes of the Shoney's Special Meeting."
The Enterprises Special Meeting. At the Enterprises Special Meeting,
holders of Enterprises Common Stock will consider and vote upon (1) a proposal
to approve the Reorganization Agreement, including the dissolution and
liquidation of Enterprises under the terms of the Plan of Complete Liquidation
contemplated by the Reorganization Agreement, and (2) any other matter that may
properly come before the Enterprises Special Meeting. See "The Enterprises
Special Meeting--Purposes of the Enterprises Special Meeting."
VOTES REQUIRED; RECORD DATE
Shoney's. The affirmative vote of the holders of a majority of the shares
outstanding as of the Shoney's Record Date (defined below) of Shoney's Common
Stock at the Shoney's Special Meeting is required to approve the Reorganization
under the Reorganization Agreement. Approval of the amendment to Shoney's
Charter to increase the number of authorized shares of Shoney's Common Stock
and approval of the proposed amendments to the Shoney's Option Plan require
that more votes be cast for the proposal than votes cast against the proposal.
Abstentions and broker non-votes will have the effect of a vote against the
Reorganization Agreement but, assuming a quorum is present, will have no
effect on the outcome of the proposals to amend Shoney's Charter or approve
the proposed amendments to the Shoney's Option Plan. Holders of Shoney's
Common Stock are entitled to one vote per share. Only holders of Shoney's
Common Stock at the close of business on May 16, 1996 (the "Shoney's Record
Date") will be entitled to notice of and to vote at the Shoney's Special
Meeting. As of the Shoney's Record Date, directors and executive officers of
Shoney's and their affiliates were beneficial owners of shares of the
Shoney's Common Stock entitled to vote at the Shoney's Special Meeting,
representing approximately % of the total number of shares of Shoney's
Common Stock entitled to vote at the Shoney's Special Meeting. The affirmative
votes by the holders of these shares may affect the outcome of the vote. See
the "Shoney's Special Meeting--Record Date; Voting Rights; Proxies."
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Enterprises. The Reorganization requires approval of the Reorganization
Agreement by the affirmative vote of a majority of the votes cast by holders of
Enterprises Common Stock entitled to vote thereon at the Enterprises Special
Meeting. Holders of Enterprises Common Stock are entitled to one vote per
share. Only holders of Enterprises Common Stock at the close of business on May
23, 1996 (the "Enterprises Record Date") will be entitled to notice of and to
vote at the Enterprises Special Meeting. As of the Enterprises Record Date,
directors and executive officers of Enterprises and their affiliates and
persons and entities related to the foregoing were beneficial owners of
shares of Enterprises Common Stock representing approximately % of the
outstanding shares of Enterprises Common Stock. The affirmative votes by the
holders of these shares may affect the outcome of the vote. See "The
Enterprises Special Meeting--Record Date; Voting Rights; Proxies."
REASONS FOR THE REORGANIZATION
In the discussions which led to the signing of the Reorganization
Agreement, the respective managements of Shoney's and Enterprises identified a
number of potential benefits resulting from the Reorganization, including
expanded marketing, purchasing and distribution opportunities; shared industry
experience and expertise; more efficient operations and synergies in support
services and commissary operations; and expanded management depth. In addition,
the Board of Directors of Shoney's (the "Shoney's Board") believes that the
Reorganization offers Shoney's opportunities to implement more rapidly its
strategic operational improvement plan by increasing the number of restaurants
under Shoney's direct control, and reinforces Shoney's commitment to the family
dining segment. The Enterprises Board believes that the Reorganization (i)
represents the most attractive financial alternative available to Enterprises'
shareholders; (ii) will provide Enterprises' shareholders with better access to
the capital markets and greater liquidity; and (iii) giving effect to the
complementary operating efficiencies contemplated by the Reorganization, gives
Enterprises' shareholders, as holders of the combined company's common stock,
the potential for greater long-term appreciation. See "The Reorganization--
Reasons for the Reorganization; Recommendation of the Shoney's Board" and
"Reasons for the Reorganization; Recommendation of the Enterprises Board."
The number of Exchange Shares to be issued by Shoney's to Enterprises was
determined as a result of arm's-length negotiations between Shoney's and
Enterprises. The number of Exchange Shares was determined by analysis of (i)
the cash flow contribution of each company to the reorganized entity, (ii) the
prevailing equity values of Enterprises and Shoney's, and (iii) other factors
considered relevant. See "The Reorganization--Opinions of Financial Advisors."
RECOMMENDATION OF THE SHONEY'S BOARD
The Shoney's Board has approved the Reorganization Agreement and
recommends a vote for approval of the Reorganization by the shareholders of
Shoney's at the Shoney's Special Meeting. The Shoney's Board believes that the
terms of the Reorganization are fair to, and in the best interest of, Shoney's
and its shareholders. For a discussion of the factors considered by the
Shoney's Board in reaching its decision, see "The Reorganization--Background of
the Reorganization" and "The Reorganization--Reasons for the Reorganization--
Recommendation of the Shoney's Board."
The Shoney's Board has also approved the proposed amendment to the
Shoney's Charter and the proposed amendments to the Shoney's Option Plan and
recommends a vote for approval of these proposals at the Shoney's Special
Meeting.
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RECOMMENDATION OF THE ENTERPRISES BOARD
The disinterested members of the Enterprises Board have unanimously
approved the Reorganization Agreement and the full Enterprises Board has
unanimously approved the Plan of Complete Liquidation contemplated by the
Reorganization Agreement and recommends a vote for approval of the
Reorganization Agreement and the dissolution of Enterprises by the shareholders
of Enterprises at the Enterprises Special Meeting. Three directors abstained
from voting on the Reorganization Agreement due to a perceived conflict of
interest. See "The Reorganization--Interest of Certain Persons in the
Reorganization." The Enterprises Board believes that the terms of the
Reorganization are fair to, and in the best interests of, Enterprises and its
shareholders. For a discussion of the factors considered by the Enterprises
Board in reaching its decision, see "The Reorganization--Background of the
Reorganization" and "The Reorganization--Reasons for the Reorganization-
Recommendation of the Enterprises Board."
OPINIONS OF FINANCIAL ADVISORS
SALOMON BROTHERS INC FAIRNESS OPINION. Salomon Brothers Inc ("Salomon")
delivered to the Shoney's Board on February 26, 1996 the oral opinion of
Salomon to the effect that, as of that date, the consideration to be paid by
Shoney's in the Reorganization in exchange for the assets to be received from
Enterprises was fair to Shoney's and its shareholders from a financial point of
view. [On , 1996, Salomon delivered its written opinion to the
Shoney's Board confirming its previously delivered oral opinion.] A copy of
such written opinion is attached hereto as Appendix B and should be read
carefully by Shoney's shareholders in its entirety with regard to the
assumptions made, general procedures followed, other matters considered and the
limitations on the review undertaken in arriving at such opinion. See "The
Reorganization -- Opinions of Financial Advisers -- Opinion of Shoney's
Financial Advisor."
Alex. Brown Fairness Opinion. On March 15, 1996, Alex. Brown & Sons
Incorporated ("Alex. Brown") delivered its written opinion to the Enterprises
Board that, as of that date, and subject to certain assumptions, factors and
limitations as described herein, the consideration to be received by
Enterprises in exchange for the assets being transferred to Shoney's pursuant
to the terms and conditions of the Reorganization Agreement was fair, from a
financial point of view, to the shareholders of Enterprises. Alex. Brown
confirmed its March 15, 1996 opinion in a written opinion dated the date of
this Joint Proxy Statement/Prospectus. A copy of such opinion is set forth as
Appendix C and should be read carefully by Enterprises' shareholders in its
entirety with respect to the assumptions made, general procedures followed,
other matters considered and the limitations on the review undertaken in
arriving at such opinion. See "The Reorganization--Opinions of Financial
Advisors--Opinion of Financial Advisor to the Special Committee of the
Enterprises Board."
ENTERPRISES STOCK OPTIONS
Pursuant to the Reorganization Agreement, at the Closing, each employee of
Enterprises, TPIR, TPIE or TPII or of any of the subsidiaries of TPIR who has
outstanding an option to acquire shares of Enterprises Common Stock granted
under one of Enterprises' stock option plans (an "Enterprises Option") will be
issued an option to purchase shares, and associated rights, of Shoney's Common
Stock (a "Shoney's Option") in exchange for the Enterprises Option. Following
the Reorganization, Enterprises will remain obligated to each of these
optionholders to pay the optionholder, upon exercise of the Shoney's Option,
the amount of cash (but not the Exchange Shares) he or she would have been
entitled to receive in the liquidation and dissolution of Enterprises, had the
Enterprises Option been exercised immediately prior to the Reorganization.
In order to receive such a cash payment, the optionholder will
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be required to exercise the Shoney's Option prior to the Final Liquidating
Distribution Record Date, as defined in the Plan of Complete Liquidation.
See "The Reorganization--Plan of Complete Liquidation."
The number of shares of Shoney's Common Stock subject to a Shoney's Option
will be that number of shares subject to the Enterprises Option for which the
Shoney's Option was exchanged multiplied by a fraction, the numerator of which
is the number of Exchange Shares and the denominator of which is the number of
shares of Enterprises Common Stock outstanding on the closing date of the
Reorganization Agreement (the "Exchange Ratio"). The exercise price for the
shares subject to the Shoney's Option shall be the exercise price for the
shares subject to the Enterprises Option for which the Shoney's Option was
exchanged divided by the Exchange Ratio. In determining the vesting or
exercisability, as well as the term, of any Shoney's Option granted, the grant
date of the Shoney's Option will be the grant date of the Enterprises Option
for which the Shoney's Option was exchanged subject to any acceleration of
vesting or exercisability of the Enterprises Option for which the Shoney's
Option was exchanged which occurs as a result of the Closing. See "The
Reorganization--Stock Options."
ENTERPRISES WARRANTS
Pursuant to the Reorganization Agreement, at the Closing, the holders of
warrants to purchase shares of Enterprises Common Stock contained in the
Warrant Purchase Agreement dated March 19, 1993, by and among Enterprises and
The Bass Management Trust, Sid R. Bass Management Trust, TPI Investors, L.P.,
Lee M. Bass and The Airlie Group L.P. (the "Enterprises Warrants") will be
issued warrants to purchase shares, and associated rights, of Shoney's Common
Stock pursuant to a Warrant Purchase Agreement to be dated as of the closing
date of the Reorganization Agreement by and among Shoney's, The Bass Management
Trust, Sid R. Bass Management Trust, TPI Investors, L.P., Lee M. Bass and The
Airlie Group L.P. ("Shoney's Warrants"). Following the Reorganization,
Enterprises will remain obligated to each of these warrantholders, to pay the
warrantholder, upon exercise of the Shoney's Warrants, the amount of cash (but
not the Exchange Shares) he or she would have been entitled to receive in the
liquidation and dissolution of Enterprises, had the Enterprises Warrants been
exercised immediately prior to the Reorganization. In order to receive such a
cash payment, the warrantholder will be required to exercise the Shoney's
Warrant prior to the Final Liquidating Distribution Record Date under the Plan
of Complete Liquidation. See "The Reorganization--Plan of Complete
Liquidation."
The number of shares of Shoney's Common Stock subject to the Shoney's
Warrants will be the number of shares of Enterprises Common Stock subject to
the Enterprises Warrants multiplied by the Exchange Ratio. The exercise price
for the shares subject to the Shoney's Warrants will be the exercise price for
the shares subject to the Enterprises Warrants divided by the Exchange Ratio.
The term of the Shoney's Warrants will be the same as the term of the
Enterprises Warrants. See "The Reorganization--Warrants."
LIABILITIES ASSUMED OR SATISFIED
The Reorganization Agreement identifies those liabilities and obligations
of Enterprises which are being assumed or satisfied by Shoney's in the
Reorganization. In the Reorganization, Shoney's will assume the presently
outstanding 8 1/4% Convertible Subordinated Debentures Due 2002 issued by
Enterprises (the "Public Debentures"), having an outstanding aggregate
principal amount of approximately $51,563,000. Following the Reorganization,
each Public Debenture will be convertible into that number of shares of
Shoney's Common Stock, and the right to be paid that amount of cash, as the
holder thereof would have been entitled to receive in connection with the
Reorganization, had the holder thereof converted the Public Debenture to shares
of Enterprises Common Stock immediately prior to the Closing.
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See "The Reorganization--Public Debentures." In addition, at the Closing,
Shoney's will assume certain contractual obligations of Enterprises, including
certain capital leases. The 5% Convertible Debentures Due 2003 issued by
Enterprises (the "Private Debentures") in the aggregate principal amount
of $15,000,000, and the revolving credit facility of TPIR, which is evidenced
by that certain Second Amended and Restated Credit Agreement dated as of
January 31, 1995, and which is guaranteed by Enterprises (the "TPIR Bank
Debt"), will be discharged by Shoney's. See "The Reorganization--The
Reorganization Transaction--Obligations and Liabilities Assumed or Satisfied."
Following the Reorganization, Enterprises will be required to satisfy
its remaining liabilities and obligations as a part of its liquidation and
dissolution.
INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION
In considering the recommendation of the Enterprises Board to approve the
Reorganization Agreement and the transactions contemplated thereby,
shareholders should be aware that certain officers and directors of Enterprises
have interests in the Reorganization that are in addition to the interests of
shareholders of Enterprises, generally, and which may create perceived
conflicts of interest. These interests include the payment by Enterprises as a
wind-up expense, or the assumption by Shoney's, of certain employment and
severance obligations of Enterprises, the repayment and/or assumption of
certain debt held by investors related to certain directors of Enterprises, the
fact that such investors own equity and debt securities of Shoney's, the fact
that an affiliate of a director of Enterprises has been retained, effective
March 1, 1996, as a consultant to Shoney's, and the extended exerciseability
and acceleration of vesting of certain Enterprises Options, insurance and other
arrangements for certain officers and directors of Enterprises. The Enterprises
Board was aware of these interests and considered them, among other matters, in
approving the Reorganization. In addition, after the date of approval by the
Enterprises Board of the Reorganization Agreement, Haney Long, Vice
President of Procurement and Distribution of TPIR, has had preliminary
discussions with Shoney's regarding the possibility of becoming a consultant
to Shoney's prior to the Closing and has accepted an offer of employment with
Shoney's following the Closing and J. Gary Sharp, President, Chief Executive
Officer and a director of Enterprises, has had preliminary discussions
with Shoney's regarding the possibility of becoming a Shoney's franchisee
after the Closing. See "The Reorganization--Interests of Certain Persons in
the Reorganization."
CONDITIONS TO THE REORGANIZATION
The obligations of Shoney's and Enterprises to consummate the
Reorganization are subject to the satisfaction or waiver of certain conditions,
including among others (i) obtaining Enterprises' and Shoney's shareholder
approval; (ii) the effectiveness of the Registration Statement with the
Commission; (iii) the approval of the Exchange Shares for listing on the NYSE
upon official notice of issuance; (iv) the absence of any material adverse
change in the financial condition, business or operations of either party
(other than any such change that affects both parties in a substantially
similar manner); (vi) the absence of any injunction prohibiting consummation of
the Reorganization; (vii) the receipt of opinions of counsel to the effect that
the transactions contemplated by the Reorganization Agreement will constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code; and
(viii) obtaining all material consents, authorizations, orders and approvals of
governmental agencies and third parties. Shoney's and Enterprises each have
the right to waive any conditions to their respective obligations to consummate
the Reorganization. See "The Reorganization--Conditions to Consummation of the
Reorganization."
CLOSING DATE
The Closing will occur on the second business day following the date on
which the last of the conditions set forth in the Reorganization Agreement to
be fulfilled or
12
<PAGE>
waived shall have been fulfilled or waived or on such other date as Shoney's
and Enterprises may agree (the "Closing Date"). It is estimated that the
Reorganization will be consummated on or before June 30, 1996.
TERMINATION OF THE REORGANIZATION AGREEMENT
The Reorganization Agreement may be terminated and the Reorganization may
be abandoned at any time prior to the Closing Date, before or after the
approval of the shareholders of Shoney's and Enterprises, in the certain
circumstances specified in the Reorganization Agreement, including among
others, (i) with the mutual consent of Shoney's and Enterprises, (ii) if the
Reorganization is not consummated on or prior to June 30, 1996, and (iii) if
the conditions to the terminating party's obligations under the Reorganization
have not been satisfied or waived in full. For a discussion of such
circumstances, as well as of the break up fee that could become payable by
Enterprises under certain circumstances, see "The Reorganization
Agreement--Termination of the Reorganization Agreement."
CERTAIN DIFFERENCES IN SHAREHOLDERS' RIGHTS
The rights of shareholders of Enterprises, a New Jersey corporation, are
governed by the New Jersey Business Corporation Act (the "NJBCA") and by
Enterprises' Restated Certificate of Incorporation (as amended to date, the
"Enterprises Certificate") and Enterprises' Bylaws (as amended to date, the
"Enterprises Bylaws"). Upon completion of the Reorganization and Enterprises'
distribution of the Exchange Shares to its shareholders in accordance with the
Plan of Complete Liquidation, Enterprises' shareholders will become
shareholders of Shoney's, and their rights as shareholders of Shoney's will be
determined by the Tennessee Business Corporation Act (the "TBCA") and by
Shoney's Charter and Shoney's Bylaws (as amended to date, "Shoney's Bylaws").
The rights of shareholders of Shoney's differ from rights of the shareholders
of Enterprises with respect to certain important matters, including the ability
of shareholders to remove directors, the ability of shareholders to call
special meetings and the required vote of the shareholders for authorization of
certain actions. For a summary of these differences, see "Effect of the
Reorganization on Rights of Shareholders."
DISSENTERS' RIGHTS
Under the TBCA and the NJBCA, respectively, neither shareholders of
Shoney's nor shareholders of Enterprises will have the right to dissent from
the Reorganization if the Reorganization Agreement is approved and the
Reorganization is consummated. See "The Shoney's Special Meeting--Dissenters'
Rights" and "The Enterprises Special Meeting--Dissenters' Rights."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
It is intended that, for federal income tax purposes, the Reorganization
will be treated as a reorganization within the meaning of Section 368(a)(1)(C)
of the Code, and, accordingly, that for federal income tax purposes, no gain or
loss will be recognized by either Enterprises or Shoney's as a result of the
Reorganization, and Enterprises' shareholders will not recognize any loss in
connection with the Reorganization, and will recognize gain in connection with
the Reorganization only to the extent of any cash received in the
Reorganization. Consummation of the Reorganization is dependent upon, among
other conditions, receipt by each of Shoney's and Enterprises of an opinion of
their respective counsel, dated as of the Closing Date, that the Reorganization
will be treated as a reorganization within the meaning of Section 368(a)(1)(C)
of the Code. See "The Reorganization--Certain Federal Income Tax Consequences."
No ruling from the Internal Revenue Service ("IRS") has been or will be
requested regarding the federal income tax consequences of the Reorganization.
13
<PAGE>
ACCOUNTING TREATMENT
The Reorganization will be accounted for as a purchase under generally
accepted accounting principles ("GAAP"). See "The Reorganization--Accounting
Treatment."
RESALE RESTRICTIONS
All Shoney's Common Stock received by Enterprises' shareholders will be
freely transferable under the Securities Act except that Shoney's Common Stock
received by persons who are deemed to be "affiliates" (as such term is defined
under the Securities Act) of Enterprises at the time of the Enterprises Special
Meeting may be resold by them only in certain permitted circumstances. See
"The Reorganization--Resale Restrictions."
COMPARATIVE MARKET PRICES OF COMMON STOCK
Shoney's Common Stock has traded on the NYSE (symbol: SHN) since April 5,
1989. Enterprises Common Stock has traded on the Nasdaq National Market
(symbol: TPIE) since January 12, 1979. The following table sets forth the last
reported sales prices per share of the Shoney's Common Stock and the
Enterprises Common Stock on September 1, 1995, the last business day preceding
public announcement that a letter of intent with respect to the Reorganization
had been signed; on December 5, 1995, the last business day preceding public
announcement that the letter of intent had been modified; on March 15, 1996,
the last business day preceding public announcement that the Reorganization
Agreement had been executed; on April 16, 1996, the date used for purposes of
calculating the number of Exchange Shares and the preparation of the pro forma
financial information herein; and on May 10, 1996, the last practicable date
prior to the mailing of this Joint Proxy Statement/Prospectus. The table also
indicates, as of each such date, the market value on an equivalent per share
basis of the Enterprises Common Stock.
<TABLE>
<CAPTION>
Shoney's Enterprises Enterprises Common
COMMON STOCK COMMON STOCK STOCK EQUIVALENT<F1>
<S> <C> <C> <C>
September 1, 1995 $11.375 $ 4.750 $14.629
December 5, 1995 $11.375 $ 3.375 $10.394
March 15, 1996 $ 8.875 $ 2.438 $ 7.507
April 16, 1996 $10.375 $ 3.375 $10.394
May 10, 1996 $13.250 $ 4.125 $12.704
</TABLE>
<F>1 The Enterprises Common Stock Equivalent was determined utilizing an
exchange ratio of .3247 shares of Shoney's Common Stock for each outstanding
share of Enterprises Common Stock. The actual number of Exchange Shares will
vary from that assumed, and the distribution of the Exchange Shares to
Enterprises' shareholders will be subject to the terms and conditions of the
Plan of Complete Liquidation. See Note A.2 under the "Unaudited Condensed
Combined Pro Forma Financial Statements" and "The Reorganization--Plan of
Complete Liquidation."
14
<PAGE>
BECAUSE A SUBSTANTIAL MAJORITY OF THE NUMBER OF EXCHANGE SHARES IS FIXED AND
THE MARKET PRICE OF THE SHONEY'S COMMON STOCK IS SUBJECT TO FLUCTUATION, THE
MARKET VALUE OF THE SHONEY'S COMMON STOCK THAT HOLDERS OF ENTERPRISES COMMON
STOCK WILL RECEIVE IN THE REORGANIZATION MAY INCREASE OR DECREASE PRIOR
TO THE CLOSING DATE. IN ADDITION, THE MARKET VALUE OF THE SHONEY'S COMMON STOCK
MAY INCREASE OR DECREASE FOLLOWING THE REORGANIZATION. SHAREHOLDERS ARE
ENCOURAGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE SHONEY'S COMMON STOCK
AND THE ENTERPRISES COMMON STOCK.
SUMMARY FINANCIAL DATA
The following selected unaudited pro forma combined financial information
has been prepared giving effect to the Reorganization as if it had been
consummated at the beginning of the earliest period presented for statement of
operations data, and as of the date presented for the balance sheet data. The
information presented is derived from, should be read in conjunction with, and
is qualified in its entirety by reference to, the unaudited pro forma condensed
combined financial information and the notes thereto appearing elsewhere in
this Joint Proxy Statement/Prospectus and the separate historical financial
statements and the notes thereto incorporated in this Joint Proxy
Statement/Prospectus by reference. The unaudited pro forma condensed combined
financial information has been included for comparative purposes only and is
not necessarily indicative of the results of operations or financial position
which actually would have been obtained if the Reorganization had been effected
at the beginning of the periods or as of the date indicated or of the financial
position or results of operations which may be obtained in the future. See
"Incorporation of Certain Information by Reference," "Summary--Comparative Per
Share Data" and "Unaudited Pro Forma Condensed Combined Financial Statements."
15
<PAGE>
SHONEY'S, INC. AND TPI RESTAURANTS, INC.
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
(Amounts in thousands, except per share data)
The following Selected Unaudited Pro Forma Combined Financial Information
includes Shoney's and the acquired subsidiaries of Enterprises (consisting
principally of TPIR).
<TABLE>
<CAPTION>
Sixteen Fiscal
Weeks Year
Ended Ended
February 18, October 29,
1996 1995
------------- ----------
STATEMENT OF OPERATIONS DATA:
<S> <C> <C>
Revenues $ 378,092 $ 1,332,026
Income (loss) from continuing operations (616) 6,436
Income (loss) from continuing operations per
common share - primary <FA> $ (0.01) $ 0.13
Weighted average shares outstanding - primary <FA> 48,292 48,175
BALANCE SHEET DATA:
Current assets $ 113,001
Property, plant and equipment (net) 579,317
Total assets 759,458
Current liabilities $ 246,089
Long-term debt and obligations
under capital leases 466,705
Shareholders' equity (deficit) <FA> (21,595)
</TABLE>
<FA> This calculation assumes the issuance of an aggregate of 6,656 shares of
Shoney's Common Stock in connection with the Reorganization. The assumed
number of Shoney's shares to be issued when the Closing occurs is based on the
terms of the Reorganization Agreement providing for the issuance of 5,577
shares of Shoney's Common Stock, $10,000 of additional shares of Shoney's
Common Stock (1,014 shares) and an additional 65 shares issued to reflect an
assumed $637 reduction in Retained Cash pursuant to the Reorganization
Agreement. These calculations assume the Average Closing Market Price for
Shoney's Common Stock will be $9.8625 per share. This calculation excludes the
Enterprises Options and Enterprises Warrants assuming that none will be
exercised on the Closing Date, based on the respective exercise/conversion
prices. The Public Debentures are not considered common stock equivalents for
purposes of calculating primary earnings per share. Fully diluted earnings per
share were not presented because the effect of the assumed conversion of the
Public Debentures was anti-dilutive. The actual number of shares of Shoney's
Common Stock issuable in this Reorganization may vary.
Pursuant to the terms of the Reorganization Agreement, in the event that, after
November 7, 1995 and prior to the Closing, Enterprises issues additional shares
in connection with the NationsBank Defined
16
<PAGE>
Contribution Master Plan and Trust Agreement (the "Enterprises 401(k) Plan") or
the TPI Enterprises, Inc. 1995 Employee Stock Purchase Plan (the "Enterprises
Stock Purchase Plan") or in the event of exercise of Enterprises Options or
Enterprises Warrants granted prior to September 1, 1995, Shoney's will issue
additional shares of Shoney's Common Stock to Enterprises equal to such number
of additional shares of Enterprises Common Stock multiplied by the Exchange
Ratio. Shares issued after November 7, 1995 have not been reflected in the
condensed combined financial statements presented in this Joint Proxy
Statement/Prospectus. Between November 7, 1995 and April 16, 1996, Enterprises
issued approximately 125 shares of Enterprises Common Stock pursuant to the
Enterprises 401(k) Plan and the Enterprises Stock Purchase Plan, which would
have resulted in additional consideration of 40 shares of Shoney's Common Stock
had the Closing occurred on April 16, 1996. The final number of Exchange
Shares may vary.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth certain historical financial data for
Shoney's and Enterprises, presented on the basis of their respective fiscal
years and for the sixteen week period ended February 18, 1996, in the case of
Shoney's, and for the sixteen week period ended February 25, 1996, in the case
of Enterprises. The selected financial data for the past five fiscal years are
derived from the consolidated financial statements of Shoney's and Enterprises.
The financial data for the sixteen week periods presented are derived from the
unaudited financial statements and are not necessarily indicative of the
results of operations for the remainder of the year or any future period.
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Sixteen
Weeks FISCAL YEAR ENDED OCTOBER
Ended ----------------------------------------------------------------
February
18, 1996 1995 1994 1993 1992 1991
------- --------- ---------- ----------- ---------- --------
SHONEY'S<F1>
STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C>
Revenues $300,177 $1,053,332 $1,072,459 $1,051,747 $985,201 $917,572
Income (loss) from continuing operations 1,629 11,202 52,318 46,803 (37,335) 28,507
Income (loss) from continuing operations per share .04 .27 1.21 1.11 (.91) .70
BALANCE SHEET DATA:
Total assets $542,579 $ 535,016 $ 554,978 $ 525,520 $467,421 $427,668
Long-term debt and obligations under capital leases $395,000 406,032 414,026 389,898 460,546 542,359
Cash dividends per share -- -- -- -- -- --
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Sixteen
Weeks FISCAL YEAR ENDED DECEMBER
Ended ----------------------------------------------------------------------
February
25, 1996 1995 1994 1993 1992 1991
------- ---------- ---------- --------- --------- ---------
ENTERPRISES<F2>
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 80,487 $283,578 $287,384 $289,439 $277,390 $261,130
Income (loss) from continuing operations ( 11,395) ( 11,309) ( 3,717) ( 36,488) 662 ( 12,053)
Income (loss) from continuing operations per share (.55) (.55) (.18) (1.81) .04 (.63)
BALANCE SHEET DATA:
Total assets $245,544 $248,876 $254,496 $258,839 $255,607 $282,794
Long-term obligations including
minority interest 81,396 81,628 107,721 106,773 110,937 107,710
Cash dividends per share -- -- -- -- -- --
</TABLE>
Notes: <F1> Fiscal years ended October 29, 1995, October 30, 1994,
October 31, 1993, October 25, 1992, and October 29, 1991, and
sixteen weeks ended February 18, 1996.
<F2> Fiscal years ended December 31, 1995, December 25, 1994,
December 26, 1993, December 31, 1992, and December 31, 1991 and
the sixteen weeks ended February 25, 1996. The selected historical
consolidated financial data presented is that of Enterprises, the
parent of TPIR and the other subsidiaries to be acquired by
Shoney's in the Reorganization.
COMPARATIVE PER SHARE DATA
The following table sets forth for the periods indicated Shoney's and
Enterprises' historical per share data, unaudited pro forma per share data
giving effect to the Reorganization using the purchase method of accounting and
the equivalent pro forma combined per share amounts of Enterprises. The pro
forma combined data is presented for comparative purposes only and is not
necessarily indicative of what the actual financial position and results of
operations would have been as of and for the periods indicated had the
Reorganization been consummated nor does such data purport to represent results
for future periods after consummation of the Reorganization.
18
<PAGE>
<TABLE>
<CAPTION>
SHONEY'S ENTERPRISES
---------------------------- --------------------------------------
Historical Pro Forma<F1> Historical Equivalent Pro Forma<F2>
PER COMMON SHARE
<S> <C> <C> <C> <C>
Net Income (Loss) From Continuing Operations:
Year Ended October 29, 1995 $ .27 $ .13 $(.55) $ .04
Fiscal Quarter Ended February 18, 1996 $ .04 $( .01) $(.55) $ .00
Cash Distributions/Dividends <F3>:
October 29, 1995 -- -- -- --
February 18, 1996 -- -- -- --
Book Value:<F4>
October 29, 1995 $(2.61) N/A $3.26 N/A
February 18, 1996 $(1.97) (.45) $3.05 $(.15)
</TABLE>
<F1> The pro forma combined per share data for Shoney's and Enterprises has
been prepared assuming that, in the Reorganization, 6,656,000 shares of
Shoney's Common Stock have been issued to Enterprises and distributed to
Enterprises' shareholders, resulting in total weighted average outstanding
shares of Shoney's Common Stock of 48,175,000 shares for the year ended October
29, 1995 and 48,292,000 shares for the sixteen weeks ended February 18, 1996.
The actual number of Exchange Shares may vary. See Note A.2 under the
"Unaudited Condensed Combined Pro Forma Financial Statements."
<F2> The equivalent pro forma combined per share amounts of Enterprises are
calculated by multiplying pro forma Net Income From Continuing Operations and
pro forma Book Value per share for Shoney's by .3247 so that the per share
amounts are equated to the comparative values for each share of Enterprises
Common Stock.
<F3> Shoney's and Enterprises currently are restricted from making
distributions to shareholders and Shoney's has no plans to begin making
distributions. Enterprises will be making distributions to shareholders in
connection with its dissolution and liquidation. See "The Reorganization--Plan
of Complete Liquidation."
<F4> The pro forma Book Value per share has been computed assuming the number
of shares set forth in Note (1) above.
19
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS,
THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY BY SHAREHOLDERS OF
SHONEY'S AND ENTERPRISES BEFORE VOTING ON THE MATTERS DESCRIBED HEREIN AND IN
EVALUATING SHONEY'S AND ITS BUSINESS.
UNCERTAINTIES RELATED TO THE REORGANIZATION
Enterprises has incurred net losses during each of its last three fiscal
years. The "Shoney's" Restaurants operated by both Enterprises and Shoney's
have experienced declining comparable store sales and operating margins since
1993. There can be no assurance that the restructuring plan Shoney's
implemented in 1995 to improve its operational performance will be successful,
or that Shoney's will realize any of the anticipated benefits of the
Reorganization. There can be no assurance that Shoney's will be successful in
efficiently integrating the acquired business into its own, or that Shoney's
will retain key TPIR management personnel.
INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION
Although the Reorganization was unanimously approved by the independent
members of the Enterprises Board, in considering approval of the Reorganization
Agreement, Enterprises' shareholders should be aware that certain officers and
directors of Enterprises have interests in the Reorganization that are in
addition to the interests of shareholders of Enterprises, generally, and which
may create perceived conflicts of interest. These interests include the
payment by Enterprises as wind-up expenses, or the assumption by Shoney's, of
certain employment and severance obligations of Enterprises; the repayment
and/or assumption of certain debt held by investors related to certain
directors of Enterprises; the fact that such investors own equity and debt
securities of Shoney's; the fact that an affiliate of a director of Enterprises
has been retained, effective March 1, 1996, as a consultant to Shoney's; the
extended exerciseability and acceleration of vesting of certain Enterprises
Options; and certain insurance and other arrangements for certain officers and
directors of Enterprises. The Enterprises Board was aware of these interests
and considered them, among other matters, in approving the Reorganization. In
addition, after the date of approval by the Enterprises Board of the
Reorganization Agreement, Haney Long, Vice President of Procurement and
Distribution of TPIR, has had preliminary discussions with Shoney's regarding
the possibility of becoming a consultant to Shoney's prior to the Closing
and has accepted an offer of employment with Shoney's following the Closing
and J. Gary Sharp, President, Chief Executive Officer and a director of
Enterprises, has had preliminary discussions with Shoney's regarding the
possibility of becoming a Shoney's franchisee after the Closing. See "The
Reorganization--Interests of Certain Persons in the Reorganization."
INDEBTEDNESS AND INTEREST RATE SENSITIVITY
Shoney's is highly leveraged and is sensitive to interest rate changes.
In connection with the Reorganization, Shoney's will be obligated to assume or
discharge approximately $107,000,000 of aggregate indebtedness of Enterprises,
at an average interest rate of 8.34%. Shoney's indebtedness will increase by
approximately $107,000,000 in connection with the Reorganization.
At February 18, 1996, Shoney's had a shareholders' deficit of $81,836,000
and, except for certain property, plant and equipment with an appraised value
of approximately $170,000,000, substantially all of its assets are pledged to
secure its senior debt. The terms of Shoney's senior debt and the Public
Debentures being assumed by Shoney's in the Reorganization prohibit the payment
of dividends or distributions on Shoney's Common Stock.
20
<PAGE>
STOCK PRICE FLUCTUATIONS; FIXED EXCHANGE RATIO
The relative stock prices of the Shoney's Common Stock and the Enterprises
Common Stock at the Closing Date may vary significantly from the prices as of
the date of the execution of the Reorganization Agreement, the date hereof or
the date on which the shareholders vote on the Reorganization, due to changes
in the business, operations and prospects of Shoney's or Enterprises; market
assessments of the likelihood that the Reorganization will be consummated and
the timing thereof; general market and economic conditions; and other factors.
Although the relative stock prices of the Shoney's Common Stock and the
Enterprises Common Stock will change prior to the time the Reorganization is
consummated, a substantial majority of the number of shares of Shoney's Common
Stock to be issued to Enterprises is fixed, subjecting Enterprises'
shareholders to the risk of a decrease in the value of consideration to be
received by Enterprises' shareholders resulting from a decline in the market
price of Shoney's Common Stock and subjecting the Shoney's shareholders to the
risk of an increase in the value of consideration to be issued by Shoney's
resulting from an increase in the market price of Shoney's Common Stock. See
"The Reorganization -- The Reorganization Transaction."
POSSIBLE REDUCTIONS TO RETAINED CASH AND EXPENSE ALLOTMENT
Pursuant to the Reorganization Agreement, Enterprises will be entitled to
retain up to $14,850,000 in cash, consisting of the Expense Allotment, not to
exceed $7,350,000, which is designated to pay certain specified wind-up
expenses, and an additional amount of up to $7,500,000 in Retained Cash. The
$14,850,000 in Retained Cash and the Expense Allotment that Enterprises will be
entitled to retain is subject to reduction under certain circumstances. Under
the Reorganization Agreement, the amount of the Retained Cash may not exceed an
amount which equals 10% of the value of the Exchange Shares, based on the
closing price of Shoney's Common Stock on the NYSE as reported by the WALL
STREET JOURNAL on the last trading day prior to the Closing Date. In the event
that, as a result of this limitation, Enterprises is unable to retain the
entire $7,500,000 as Retained Cash, Shoney's will issue additional shares of
Shoney's Common Stock to Enterprises, valued at the Average Closing Market
Price, to compensate Enterprises for the entire amount of such reduction in
Retained Cash. If, notwithstanding such an adjustment, the amount of the
Retained Cash (as adjusted as set forth in the preceding sentence), when added
to the Expense Allotment for Unaccrued Expenses, exceeds 10% of Enterprises'
net asset value on the Closing Date, the amount of cash that can be retained
for wind-up expenses will have to be reduced accordingly to satisfy conditions
to Closing. Had the Closing occurred on April 16, 1996, based on the
assumptions set forth elsewhere in this Joint Proxy Statement/Prospectus,
Enterprises would be able to retain approximately $13,575,000 of the
$14,850,000 in cash, of which $6,863,000 would represent Retained Cash and
$6,712,000 would represent the Expense Allotment. See "The Reorganization
Agreement-Dissolution of Enterprises; Wind-up Expenses."
In addition, an aggregate of up to approximately $932,236 (assuming all
$7,500,000 will be retained by Enterprises in cash) is required to be retained
by Enterprises for the benefit of holders of Shoney's Options and Shoney's
Warrants to satisfy Enterprises' continuing obligations to the holders of such
options and warrants if they are exercised before they terminate or expire.
See the discussion under the heading "The Reorganization--Plan of Complete
Liquidation". The Plan of Complete Liquidation provides that any cash retained
for the benefit of holders of Shoney's Options and Warrants which are not
exercised prior to the Final Liquidating Distribution Record Date (as defined
therein) will be distributed to shareholders of Enterprises as of such record
date.
21
<PAGE>
PROVISION FOR LIABILITIES OF ENTERPRISES BEFORE DISTRIBUTION OF EXCHANGE SHARES
AND CASH
Prior to distributing to its shareholders the shares of Shoney's Common
Stock received by Enterprises in the Reorganization and the cash retained by
it, Enterprises must pay or make provision for its outstanding liabilities.
These liabilities include the amounts to be borne by Enterprises, as specified
wind-up expenses, for repair and maintenance expenses. Repair and maintenance
expenses include the sum of: (a) the amount by which actual repair and
maintenance expenses incurred by Enterprises or TPIR for the two periods ended
February 25, 1996 exceed $1,457,000; plus (b) the amount by which actual repair
and maintenance expenses incurred by Enterprises or TPIR for the year ended
December 31, 1995 exceed $13,235,000, as well as amounts, if any, payable under
pending litigation relating to repair and maintenance work. (See "The
Reorganization Agreement--Marlin Claims"). If the cash retained to pay
specified wind-up expenses is not sufficient to cover its liabilities,
Enterprises may be required to utilize all of its retained cash and distribute
shares of Shoney's Common Stock received by Enterprises in the Reorganization
in order to satisfy its creditors and therefore be unable to distribute to
Enterprises' shareholders such cash and shares of Shoney's Common Stock. See
"The Reorganization--the Reorganization Agreement--Dissolution of Enterprises;
Wind-up Expenses."
NO ASSURANCE OF PUBLIC MARKET FOR ENTERPRISES COMMON STOCK FOLLOWING THE
CLOSING; DELISTING AND DEREGISTRATION OF ENTERPRISES COMMON STOCK
Following the Closing, the Nasdaq National Market may delist the
Enterprises Common Stock as Enterprises will at that time be committed to
dissolve and liquidate under the terms of the Plan of Complete Liquidation.
Further, the assets of Enterprises may fall to a level whereby the Enterprises
Common Stock will no longer meet the continuing listing requirements of the
Nasdaq National Market. At such time as the Enterprises Common Stock is
delisted from the Nasdaq National Market, the Enterprises Common Stock would no
longer be eligible as a margin security. Moreover, Enterprises may deregister
the Enterprises Common Stock under the Exchange Act if its assets fall below
$5,000,000 as of a fiscal year end and the Enterprises Common Stock is no
longer traded on Nasdaq, or the number of Enterprises' shareholders falls below
300. Therefore, there is no assurance that an active trading market for
Enterprises Common Stock will continue or be sustained after the Closing, or
that Enterprises will continue to meet the requirements for continued quotation
of the Enterprises Common Stock on the Nasdaq National Market or continued
registration under the Exchange Act. In such event, the liquidity of the
Enterprises Common Stock after the Closing would be adversely affected.
Moreover, at such time as the Complete Liquidation Date, as defined in the Plan
of Complete Liquidation, occurs, which is expected to occur no later than the
first anniversary of the Enterprises Special Meeting, the stock transfer books
of Enterprises will be closed. After the Complete Liquidation Date, the
Enterprises Common Stock will no longer be transferable and the only rights of
the holders of Enterprises Common Stock thereafter will be to receive
liquidating distributions. See "The Reorganization -- Plan of Complete
Liquidation."
LITIGATION
During 1995, three shareholder suits (the "Class Action Lawsuits") were
filed against Enterprises and the Enterprises Board. The plaintiffs alleged,
among other things, that Enterprises' shareholders would receive inadequate
consideration in the proposed Reorganization, that the proposed Reorganization
was the result of unfair dealing and economic coercion and that the Enterprises
Board breached its fiduciary duties to Enterprises' shareholders to maximize
shareholder value. The plaintiffs sought class action status to enjoin the
proposed Reorganization and to recover damages. Concurrent with the execution
of the Reorganization Agreement, Enterprises signed a letter of understanding
on March 15, 1996 for the settlement (the "Class Action Settlement") of the
Class Action Lawsuits. The Class Action Settlement would entail the payment of
up to $250,000 in legal fees and expenses and the consolidation and settlement
of the Class Action Lawsuits and is subject to several conditions, including
confirmatory discovery, court approval of the Class Action Settlement and the
Closing. There can be no assurance
22
<PAGE>
that the Class Action Settlement will be consummated. See "The Reorganization-
- -Class Action Settlement."
In late February 1996, Enterprises concluded that Marlin Services, Inc.
and Marlin Electric, Inc., d/b/a Marlin Services, Inc. ("Marlin"), had been
significantly overcharging TPIR for restaurant maintenance services under an
agreement entered into in October 1995. On March 7, 1996, Enterprises filed a
civil action in the Circuit Court of Palm Beach County against Marlin and The
Aetna Casualty and Surety Company ("Aetna") contending, among other things,
that Marlin breached the terms of a maintenance service agreement that TPIR had
entered into with Marlin by failing to perform timely maintenance as required
by the agreement, overcharging for parts and materials, improperly billing for
labor and improperly charging for overhead (the "Marlin Claims"). Also, on
March 7, 1996, Marlin filed a separate action in the U.S. District Court of
Virginia against TPIR alleging, among other things, that TPIR breached its
contract with Marlin by failing to pay amounts owed under the contract and
claiming damages in excess of $2,200,000. Enterprises has since that time
terminated its agreement with Marlin. Any payments required as a result of
such litigation will be payable by Enterprises and will be treated as wind-up
expenses. See "The Reorganization--Marlin Claims."
As discussed in Shoney's Quarterly Report on Form 10-Q for the quarter
ended February 18, 1996, which is incorporated herein by reference, Shoney's is
a defendant in two federal court lawsuits alleging violations of the Fair Labor
Standards Act. On May 6, 1996, the court provisionally ordered that notice of
the lawsuit be sent to all hourly employees, as well as employees paid on a
fluctuating work week, of the Shoney's concept during the past three years
pertaining to the lawsuit filed on January 2, 1996. Shoney's has been ordered
to provide a list of names and addresses for such notice.
For a discussion of other litigation matters to which Enterprises is a
party, see the notes to the financial statements contained in Enterprises'
Annual Report on Form 10-K for the year ended December 31, 1995, as amended,
which is incorporated herein by reference. For a discussion of other
litigation matters to which Shoney's is a party, see the notes to the financial
statements contained in Shoney's Quarterly Report on Form 10-Q for the quarter
ended February 18, 1996.
TAX RISKS
The Reorganization is intended to be a tax-free reorganization for federal
income tax purposes. Neither Shoney's nor Enterprises intends to request a
ruling from the IRS that the Reorganization qualifies as a tax-free
reorganization. It is a condition of the Closing that Enterprises receive the
opinion of Shereff, Friedman, Hoffman & Goodman, LLP and that Shoney's receive
the opinion of Sullivan and Cromwell that, based on certain assumptions and
representations, the Reorganization will so qualify. Such assumptions will be
based in part upon actions to be taken following the Closing. Persons receiving
this Joint Proxy Statement/Prospectus should be aware that opinions of counsel
are not binding on the IRS or any court. If the Reorganization fails to qualify
as a tax-free reorganization, such transaction would be treated for federal
income tax purposes as a taxable sale by Enterprises of its assets to Shoney's,
followed by the taxable liquidation of Enterprises. In such event, Enterprises
would incur substantial federal income tax liability and Enterprises'
shareholders would be subject to federal tax on any gain realized on
distributions.
LIMITATION ON LIABILITIES ASSUMED
While the Reorganization Agreement limits the liabilities of Enterprises
being assumed by Shoney's, certain liabilities might still be imposed on
Shoney's through its acquisition and ownership of TPIR, TPIE and TPII as former
subsidiaries of Enterprises. Following Enterprises' dissolution and
liquidation, Shoney's recourse against Enterprises for such liabilities will be
limited.
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DIFFERENCES IN RIGHTS OF SHAREHOLDERS
The rights of Enterprises' shareholders are governed by the NJBCA and the
Enterprises Certificate and Enterprises Bylaws. After consummation of the
Reorganization, the rights of Enterprises' shareholders, as shareholders of
Shoney's, will be governed by the TBCA and the Shoney's Charter and Bylaws.
Certain material differences between the rights of shareholders of
Shoney's and the rights of shareholders of Enterprises include the following:
the ability of shareholders to remove directors, the ability of shareholders to
call special meetings and the required vote of the shareholders for
authorization of certain actions. See "Effects of the Reorganization on Rights
of Shareholders."
LIMITATIONS ON ACQUISITION AND CHANGE IN CONTROL COULD DETER A TAKEOVER WHICH
MIGHT OTHERWISE BE IN THE SHAREHOLDERS' BEST INTERESTS
Any acquisition or change in control of Shoney's would be limited by: (1)
various anti-takeover statutes of the state of Tennessee; (2) a Shareholder
Rights Agreement of Shoney's (the "Shareholder Rights Plan"), pursuant to which
rights, representing rights to acquire shares of Shoney's Common Stock, subject
to certain adjustments (the "Rights"), have been distributed with respect to
shares of Shoney's Common Stock; and (3) certain provisions of Shoney's Charter
which would have the effect of limiting a change in control. See "Effect of
the Reorganization on Rights of Shareholders" and "Description of Capital
Stock."
SHARES AVAILABLE FOR FUTURE SALE COULD ADVERSELY AFFECT PRICE OF SHONEY'S
COMMON STOCK
Sales of a substantial number of shares of Shoney's Common Stock, or the
perception that such sales could occur, could adversely affect prevailing
market prices for the Shoney's Common Stock. The Shoney's Common Stock to be
issued upon consummation of the Reorganization will be freely tradable, except
that the shares of Shoney's Common Stock to be received by persons who are
deemed to be "affiliates" of Enterprises at the time of the Enterprises Special
Meeting may be resold by them only in certain permitted circumstances. See
"The Reorganization--Resale Restrictions." No prediction can be made about the
effect that future sales of Shoney's Common Stock will have on the market
prices of the Shoney's Common Stock.
THE REORGANIZATION PARTIES
SHONEY'S
Shoney's, a Tennessee corporation, is principally engaged in the operation
and franchising of restaurants in the United States. As of April 14, 1996,
Shoney's operated 722 and franchised the operation of 788 restaurants in 34
states. Based on sales, Shoney's is the eighteenth (18th) largest restaurant
operator in the U.S.<F1> Shoney's principal concepts are "Shoney's", full
service family dining restaurants, and "Captain D's", quick service restaurants
specializing in seafood. Shoney's operates casual dining restaurants under the
names "Fifth Quarter", "Pargo's" and "BarbWire's." For a more complete
description of Shoney's, see "Incorporation of Certain Information By
Reference."
<F1> Based on a 1996 survey for U.S. food service revenues published by
Nation's Restaurant News (April 29, 1996).
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TPAC
TPAC is a Tennessee corporation that was recently organized by Shoney's
for the purpose of facilitating the Reorganization. The Reorganization
Agreement permits Shoney's to acquire the designated assets and assume the
specified liabilities of Enterprises directly or through its wholly-owned
subsidiary, TPAC. Shoney's intends to consummate the Reorganization directly,
rather than through TPAC.
ENTERPRISES
Enterprises, through its subsidiary, TPIR, is one of the largest
restaurant franchisees in the United States and is the largest franchisee of
Shoney's. As of April 30, 1996, TPIR owned and operated 253 restaurants,
comprised of 186 "Shoney's" Restaurants and 67 "Captain D's" restaurants in 11
states, primarily in the southern United States. TPIR is the largest "Shoney's"
and "Captain D's" franchisee, operating more than four times as many "Shoney's"
Restaurants as the next largest "Shoney's" franchisee and more than three times
as many "Captain D's" restaurants as the next largest "Captain D's" franchisee.
TPIR operates its "Shoney's" and "Captain D's" restaurants under license
agreements with Shoney's. Approximately 82% and 18% of Enterprises' revenues
from continuing operations in 1995 were from its "Shoney's" and "Captain D's"
restaurants, respectively. For a more complete description of Enterprises, see
"Incorporation of Certain Information By Reference." A copy of Enterprises'
annual report to shareholders for the fiscal year ended December 31, 1995
accompanies this Joint Proxy Statement/Prospectus.
COMBINED ENTITY
Following the Reorganization, Shoney's will own and operate approximately
62% of all "Shoney's" and "Captain D's" restaurants, increasing from 27 to 28
the number of states in which company-owned restaurants are located. Shoney's
will continue to pursue its programs designed to improve operational
performance and will seek to achieve synergies by combining, and reducing, the
number of distribution facilities and consolidating staff support functions.
Following the Reorganization, Shoney's presently intends to close
approximately 35 under-performing "Shoney's" Restaurants acquired as a part of
its operational improvement program. See "Unaudited Pro Forma Condensed
Combined Financial Statements," including the notes thereto. Otherwise,
Shoney's, through its subsidiaries, intends to employ substantially all of the
"Shoney's" and "Captain D's" restaurant personnel currently employed by TPIR
upon consummation of the Reorganization.
As a part of its strategy to improve operational performance and
concentrate on opportunities for long-term growth, Shoney's from time to time
investigates and holds discussions and negotiations concerning, among other
things, capital raising opportunities, acquisitions of restaurants and the
divestiture of lines of businesses. There are no material transactions
pending, and it is not anticipated that any such transaction of a material
nature will be entered into before the closing of the Reorganization. There
can be no assurance, however, that such transactions will not be pursued or
entered into prior to the Closing.
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THE SHONEY'S SPECIAL MEETING
PURPOSES OF THE SHONEY'S SPECIAL MEETING
The Reorganization. At the Shoney's Special Meeting, holders of Shoney's
Common Stock will consider and vote upon the Reorganization Agreement,
including the issuance of shares and associated rights, stock options, warrants
and conversion rights to acquire shares and associated rights of Shoney's
Common Stock in accordance with the Reorganization Agreement.
Charter Amendment. Shoney's shareholders will also consider and vote upon
a proposed amendment to the Shoney's Charter to increase authorized
capitalization from 100 million to 200 million shares of Shoney's Common Stock.
SHONEY'S OPTION PLAN AMENDMENT. Shoney's shareholders will also consider
and vote upon the proposed amendments to the Shoney's Option Plan described in
"Description of Shoney's Option Plan."
OTHER MATTERS. Shoney's shareholders will also consider and vote upon any
other matters that may properly come before the Shoney's Special Meeting.
THE SHONEY'S BOARD HAS APPROVED THE REORGANIZATION AGREEMENT AND THE
REORGANIZATION AND RECOMMENDS THAT SHONEY'S SHAREHOLDERS VOTE FOR APPROVAL OF
THE REORGANIZATION AGREEMENT. THE SHONEY'S BOARD HAS APPROVED THE PROPOSED
CHARTER AMENDMENT AND RECOMMENDS THAT SHONEY'S SHAREHOLDERS VOTE FOR APPROVAL
OF THE CHARTER AMENDMENT. THE SHONEY'S BOARD HAS APPROVED THE PROPOSED
AMENDMENTS TO THE SHONEY'S OPTION PLAN AND RECOMMENDS THAT SHONEY'S
SHAREHOLDERS VOTE FOR APPROVAL OF THE PROPOSED AMENDMENTS TO THE SHONEY'S
OPTION PLAN. SEE "THE REORGANIZATION--BACKGROUND OF THE REORGANIZATION" AND
"THE REORGANIZATION--REASONS FOR THE REORGANIZATION; RECOMMENDATION OF THE
SHONEY'S BOARD."
CHARTER AMENDMENT INCREASING NUMBER OF AUTHORIZED SHARES
Shoney's proposes to amend the Shoney's Charter to increase the number of
authorized shares of Shoney's Common Stock from 100 million to 200 million. If
the proposed amendment is adopted, paragraph 6 of Shoney's Charter will read as
follows:
6. Stock. The maximum number of shares that the corporation shall
have the authority to issue is two hundred million (200,000,000) shares of
common stock with a par value of One Dollar ($1.00) each, which shall have
the right to receive the net assets of the corporation upon dissolution.
Shoney's is now authorized to issue 100 million shares of Shoney's Common
Stock, of which shares were issued and outstanding on the Shoney's Record
Date. Shoney's has no specific plans or commitments for the issuance of the
additional shares proposed to be authorized except as discussed below. The
Shoney's Board believes that an increase in the authorized shares of Shoney's
Common Stock is desirable in order that shares will be available for issuance
from time to time as needed for corporate purposes deemed appropriate by the
Shoney's Board. Such corporate purposes might include the raising of additional
capital through public offerings, the acquisition by Shoney's of other
companies or assets, the declaration of stock splits or stock dividends, and
the issuance of stock under Shoney's employee benefit plans. Also, depending
upon the number of shares acquired in triggering the rights and the then market
price of Shoney's Common Stock, additional shares could be required to be
authorized in order to fully exercise the rights pursuant to Shoney's
Shareholder Rights Plan.
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Increasing the number of shares available for issuance might have the
effect of discouraging or making more difficult an attempt to remove incumbent
management or to gain control of Shoney's, even if such activities were
perceived by shareholders generally to be favorable to them. The shares could
be used to dilute the stock ownership of persons seeking to obtain control of
Shoney's. The shares also could be privately placed with purchasers opposed to
an effort to seek control. The proposed increase in authorized capitalization
is not designed to have an anti-takeover effect, to dilute the stock ownership
of any person seeking to obtain control of Shoney's nor are there any plans to
privately place any of the shares to be added to the authorized capitalization
by the proposed charter amendment.
The proposal to increase the authorized shares of Shoney's Common Stock
will, in effect, delegate authority to the Shoney's Board to issue the
additional shares without further approval of the shareholders, except when
shareholder approval is required under the rules of the NYSE or otherwise. If
the proposed amendment is adopted, the additional shares when properly issued
will have the same voting and other rights as Shoney's presently authorized
shares. The holders of shares do not and will not have preemptive rights to
subscribe for any additional stock of Shoney's that may be approved for
issuance in the future.
If the amendment is not approved, Shoney's will have a sufficient number
of authorized shares for issuance, or reservation for issuance, as provided for
in the Reorganization Agreement. However, except as noted above, without the
proposed increase, there may not be a sufficient number of authorized shares of
Shoney's Common Stock available to fully exercise the rights that have been
issued with respect to Shoney's Common Stock as contemplated by Shoney's
Shareholder Rights Plan if Shoney's were called upon to issue shares pursuant
to that plan. See "Description of Shoney's Common Stock."
RECORD DATE; VOTING RIGHTS; PROXIES
The Shoney's Board has fixed the close of business on May 16, 1996 as the
Shoney's Record Date for determining holders entitled to notice of and to vote
at the Shoney's Special Meeting.
As of the Shoney's Record Date, there were shares of Shoney's
Common Stock issued and outstanding, each of which entitles the holder thereof
to one vote. All shares of Shoney's Common Stock represented by properly
executed proxies will, unless such proxies have been previously revoked, be
voted in accordance with the instructions indicated in such proxies. IF A
PROPERLY EXECUTED PROXY HAS BEEN RETURNED AND NO INSTRUCTIONS ARE INDICATED,
SUCH SHONEY'S COMMON STOCK WILL BE VOTED IN FAVOR OF THE REORGANIZATION
AGREEMENT, IN FAVOR OF THE AMENDMENT TO SHONEY'S CHARTER AND IN FAVOR OF THE
AMENDMENT TO THE SHONEY'S STOCK OPTION PLAN. Shoney's does not know of any
matters other than as described in the accompanying Notice of Special Meeting
that are to come before the Shoney's Special Meeting. If any other matter or
matters are properly presented for action at the Shoney's Special Meeting, the
persons named in the enclosed form of proxy and acting thereunder will have the
discretion to vote on such matters in accordance with their best judgment. A
shareholder who has given a proxy may revoke it at any time prior to its
exercise by giving written notice thereof to the Secretary of Shoney's, by
signing and returning a later dated proxy, or by voting in person at the
Shoney's Special Meeting; however, mere attendance at the Shoney's Special
Meeting will not in and of itself have the effect of revoking the proxy.
Votes cast by proxy or in person at the Shoney's Special Meeting will be
tabulated by the election inspectors appointed for the meeting and will
determine whether or not a quorum is present. The election inspectors will
treat abstentions as shares that are present and entitled to vote for purposes
of determining the presence of a quorum but as shares not voted for purposes of
determining the approval of any matter submitted to the shareholders for a
vote. If a broker indicates on the proxy that it does not have discretionary
authority as to certain shares to vote on a particular matter, those shares
will not be considered as present and entitled to vote with respect
to that matter. Under the rules of the NYSE,
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brokers do not have discretionary authority to vote shares held by them on
the Reorganization or the amendment to Shoney's Charter or the Shoney's Option
Plan and, thus, such shares will not be considered as present and entitled to
vote on such matter.
SOLICITATION OF PROXIES
Shoney's will bear its own cost of solicitation of proxies. Brokerage
firms, fiduciaries, nominees and others will be reimbursed for their
out-of-pocket expenses in forwarding proxy materials to beneficial owners of
Shoney's Common Stock held in their names. In addition to the use of the
mails, Shoney's has
retained Georgeson & Company Inc., Wall Street Plaza, New York, New York 10005,
to assist in the solicitation of proxies, for a fee of $7,500 plus expenses.
Proxies may also be solicited by directors, officers and regular employees of
Shoney's, who will not be specifically compensated for such services, by means
of personal calls upon, or telephonic or telegraphic communications with,
shareholders or their representatives.
DISSENTERS' RIGHTS
No holder of Shoney's Common Stock will have any dissenters' rights in
connection with, or as a result of, the matters to be acted upon at the
Shoney's Special Meeting relating to the Reorganization, the proposed amendment
of Shoney's Charter or the proposed amendments to Shoney's Option Plan.
QUORUM
The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding Shoney's Common Stock entitled to vote
at the Shoney's Special Meeting is necessary to constitute a quorum at the
Shoney's Special Meeting.
REQUIRED VOTE
Under the Reorganization Agreement, approval of the Reorganization
Agreement requires the affirmative vote of the holders of the majority of the
outstanding shares of Shoney's Common Stock entitled to vote thereon at the
Shoney's Special Meeting. Approval of the Reorganization Agreement will
constitute approval of all of the transactions contemplated as a part of the
Reorganization, including the issuance of shares, and the associated rights, of
Shoney's Common Stock in exchange for assets of Enterprises, the issuance of
Shoney's Warrants in exchange for Enterprises Warrants, the adoption of a plan
pursuant to which Shoney's will issue Shoney's Options in exchange for
Enterprises Options (thereby assuming Enterprises' obligation to issue shares
of common stock thereunder), and the assumption by Shoney's of the Public
Debentures which thereafter will be convertible into shares and the associated
rights of Shoney's Common Stock, as required by the Reorganization Agreement.
Under the rules of the NYSE, the issuance of Shoney's Common Stock in
connection with the Reorganization is required to be approved by the
shareholders of Shoney's because the shares of Shoney's Common Stock that may
be issued in connection with the Reorganization, including shares issuable
under stock options, warrants and convertible debentures that will be granted
or assumed as a part of the Reorganization, may equal or exceed 20% of the
presently outstanding shares of Shoney's Common Stock as of the Closing Date.
Abstentions and broker non-votes will have the effect of a vote against the
proposal to approve the Reorganization Agreement. In addition, under Tennessee
law, approval of the rights associated with the securities to be issued
pursuant to Shoney's Shareholder Rights Plan may be required.
The approval of the proposed amendment to Shoney's Charter requires that
the number of votes cast in favor of the proposal at the Shoney's Special
Meeting exceed the number of votes cast against the proposal. Abstentions and
broker non-votes will have no effect on the outcome of the vote on the proposal
to approve the proposed amendment to Shoney's charter.
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The approval of the proposed amendments to the Shoney's Option Plan
requires that the number of votes cast in favor of the proposal at the Shoney's
Special Meeting exceed the number of votes cast against the proposal.
Abstentions and broker non-votes will have no effect on the outcome of the vote
on the proposal to approve the proposed amendments to Shoney's Option Plan.
Approval of the amendments to the Shoney's Option Plan is required if executive
officers and directors who receive options under the Shoney's Option Plan, as
amended, are to be eligible for the exemption provided under Rule 16b-3
promulgated by the Commission under Section 16(b) of the Exchange Act.
Only holders of Shoney's Common Stock on the Shoney's Record Date will be
entitled to notice of and to vote on the Reorganization Agreement. As of the
Shoney's Record Date, directors and executive officers and their affiliates
were beneficial owners of shares of the Common Stock entitled to vote at
the Shoney's Special Meeting, representing approximately % of the total
number of shares of Shoney's Common Stock entitled to vote at the Shoney's
Special Meeting. The affirmative votes by the holders of such shares may
affect the outcome of the vote.
THE MATTERS TO BE CONSIDERED AT THE SHONEY'S SPECIAL MEETING ARE OF GREAT
IMPORTANCE TO THE SHAREHOLDERS OF SHONEY'S. ACCORDINGLY, SHAREHOLDERS ARE URGED
TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED AND INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS, AND TO COMPLETE, DATE, SIGN
AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
THE ENTERPRISES SPECIAL MEETING
PURPOSES OF THE ENTERPRISES SPECIAL MEETING
The Reorganization and the Dissolution of Enterprises. At the Enterprises
Special Meeting, holders of Enterprises Common Stock will consider and vote
upon a proposal to approve the Reorganization Agreement, including the
dissolution and liquidation of Enterprises under the terms of the Plan of
Complete Liquidation.
THE DISINTERESTED MEMBERS OF THE ENTERPRISES BOARD UNANIMOUSLY APPROVED
AND ADOPTED THE REORGANIZATION AGREEMENT AND THE FULL ENTERPRISES BOARD HAS
UNANIMOUSLY APPROVED AND ADOPTED A PLAN OF COMPLETE LIQUIDATION FOR THE
DISSOLUTION OF ENTERPRISES AFTER THE REORGANIZATION AND RECOMMENDS THAT
ENTERPRISES' SHAREHOLDERS VOTE FOR APPROVAL OF THE REORGANIZATION AGREEMENT AND
THE DISSOLUTION OF ENTERPRISES. THREE DIRECTORS ABSTAINED FROM VOTING ON THE
REORGANIZATION AGREEMENT DUE TO A PERCEIVED CONFLICT OF INTEREST. SEE "THE
REORGANIZATION--BACKGROUND OF THE REORGANIZATION," "THE REORGANIZATION--REASONS
FOR THE REORGANIZATION; RECOMMENDATION OF THE ENTERPRISES BOARD," AND "THE
REORGANIZATION--INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION."
Other Matters. Enterprises' shareholders will also consider and vote upon
such other matters that may properly come before the Enterprises Special
Meeting.
RECORD DATE; VOTING RIGHTS; PROXIES
The Enterprises Board has fixed the close of business on May 23, 1996 as
the Enterprises Record Date for determining holders entitled to notice of and
to vote at the Enterprises Special Meeting.
As of the Enterprises Record Date, there were shares of Enterprises
Common Stock issued and outstanding, each of which entitles the holder thereof
to one vote. All shares of Enterprises Common Stock represented by properly
executed proxies will, unless such proxies have been previously revoked, be
voted in accordance with the instructions indicated in such proxies. IF A
PROPERLY EXECUTED PROXY HAS BEEN RETURNED AND NO INSTRUCTIONS ARE INDICATED,
SUCH SHARES OF
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ENTERPRISES COMMON STOCK WILL BE VOTED IN FAVOR OF THE REORGANIZATION
AGREEMENT IN ACCORDANCE WITH THE RECOMMENDATION OF THE ENTERPRISES
BOARD. Enterprises does not know of any matters other than as described
in the accompanying Notice of Special Meeting that are to come before the
Enterprises Special Meeting. If any other matter or matters are properly
presented for action at the Enterprises Special Meeting, the persons named
in the enclosed form of proxy and acting thereunder will have the discretion
to vote on such matters in accordance with their best judgment. A shareholder
who has given a proxy may revoke it at any time prior to its exercise by
giving written notice thereof to the Secretary of Enterprises, by signing and
returning a later dated proxy, or by voting in person at the Special
Meeting; however, mere attendance at the Enterprises Special Meeting will not
in and of itself have the effect of revoking the proxy.
REQUIRED VOTE
Assuming a quorum is present, the approval of the Reorganization Agreement
requires the affirmative vote of a majority of the votes cast by holders of
Enterprises Common Stock. As of the Enterprises Record Date, directors and
executive officers and their affiliates, and persons and entities related to
the foregoing, were beneficial holders of shares of Enterprises Common
Stock, representing approximately % of the issued and outstanding
Enterprises Common Stock entitled to vote at the Enterprises Special Meeting.
The affirmative votes by the holders of such shares may affect the outcome of
the vote.
Votes cast by proxy or in person at the Enterprises Special Meeting will
be tabulated by the election inspectors appointed for the meeting and will
determine whether or not a quorum is present. The election inspectors will
treat abstentions as shares that are present and entitled to vote for purposes
of determining the presence of a quorum but as shares not voted for purposes of
determining the approval of any matter submitted to the shareholders for a
vote. If a broker indicates on the proxy that it does not have discretionary
authority as to certain shares to vote on a particular matter, those shares
will not be considered as present and entitled to vote with respect to that
matter. Under the rules of the Nasdaq National Market, brokers do not have
discretionary authority to vote shares held by them on the Reorganization
Agreement and, thus, such shares will not be considered as present and entitled
to vote on such matter.
SOLICITATION OF PROXIES
Enterprises will bear its own cost of solicitation of proxies. Brokerage
firms, fiduciaries, nominees and others will be reimbursed for their
out-of-pocket expenses in forwarding proxy materials to beneficial owners of
Enterprises Common Stock held in their names. In addition to the use of the
mails, proxies may be solicited by directors, officers and regular employees of
Enterprises, who will not be specifically compensated for such services, by
means of personal calls upon, or telephonic or telegraphic communications with
shareholders or their representatives. Moreover, Enterprises may engage the
services of a professional firm experienced in the solicitation of proxies in
merger transactions such as the Reorganization, the fees of which will be paid
by Enterprises.
DISSENTERS' RIGHTS
No holder of Enterprises Common Stock will have any appraisal or
dissenters' rights in connection with, or as a result of, the matters to be
acted upon relating to the Reorganization at the Enterprises Special Meeting.
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QUORUM
The presence in person or by properly executed proxy of holders of a
majority of the issued and outstanding shares of Enterprises Common Stock
entitled to vote at the Enterprises Special Meeting is necessary to constitute
a quorum at the Enterprises Special Meeting. Abstentions will be counted for
purposes of determining whether a quorum is present at the Enterprises Special
Meeting.
THE MATTERS TO BE CONSIDERED AT THE ENTERPRISES SPECIAL MEETING ARE OF
GREAT IMPORTANCE TO THE SHAREHOLDERS OF ENTERPRISES. ACCORDINGLY, SHAREHOLDERS
ARE URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED AND
INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS, AND TO
COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
THE REORGANIZATION
This section of the Joint Proxy Statement/Prospectus describes certain
aspects of the Reorganization and the Reorganization Agreement. The following
description does not purport to be complete and is qualified in its entirety by
reference to the Reorganization Agreement which is attached as Appendix A to
this Joint Proxy Statement/Prospectus and is incorporated herein by reference.
Capitalized terms used in this section but not defined in this Joint Proxy
Statement/Prospectus have the meanings ascribed to them in the Reorganization
Agreement. All shareholders are urged to read the Reorganization Agreement in
its entirety.
THE REORGANIZATION TRANSACTION
The Reorganization Agreement provides for a business combination between
Shoney's and Enterprises in which, subject to the terms and conditions thereof,
at the Closing Date, Enterprises will transfer to Shoney's all of the issued
and outstanding shares of capital stock of TPIR, TPIE and TPII, certain
intercompany accounts and all cash and cash equivalents of Enterprises, TPIR,
TPIE, TPII and TPIR's subsidiaries (except as described below) in exchange for
the issuance of the Exchange Shares and the assumption of certain liabilities
of Enterprises by Shoney's. The Reorganization Agreement permits Shoney's to
acquire the assets and assume the designated liabilities directly or through
its wholly-owned subsidiary, TPAC. Upon consummation of the Reorganization,
TPIR, and its subsidiaries, and TPIE and TPII will continue to exist as
subsidiaries of Shoney's.
Pursuant to the Reorganization Agreement, Enterprises will be entitled to
retain up to $14,850,000 in cash, consisting of the Expense Allotment, not to
exceed $7,350,000, which is designated to pay certain specified wind-up
expenses, and an additional amount of up to $7,500,000 in Retained Cash. If
the wind-up expenses are less than the Expense Allotment, Enterprises will be
required to transfer the difference to Shoney's; if the expenses are greater,
the excess will be paid from the Retained Cash. See "The Reorganization--The
Reorganization Transaction--Dissolution of Enterprises; Wind-up Expenses." To
satisfy the requirements for a tax-free reorganization under the Code, the
amount of the Retained Cash, when added to that portion of the Expense
Allotment representing Unaccrued Expenses, cannot exceed 10% of the net asset
value of Enterprises as of the Closing Date. In addition, under the
Reorganization Agreement, the amount of the Retained Cash may not exceed an
amount which equals 10% of the value of the Exchange Shares, based on the
closing price of Shoney's Common Stock on the NYSE as reported by the WALL
STREET JOURNAL on the last trading day prior to the Closing Date. In the event
that, as a result of this limitation, Enterprises is unable to retain the
entire $7,500,000 as Retained Cash, Shoney's will issue additional shares of
Shoney's Common Stock to Enterprises, valued at the Average Closing Market
Price, to compensate Enterprises for the entire amount of the reduced Retained
Cash. If, notwithstanding such an adjustment, the amount of the Retained Cash
(as adjusted as set forth in the preceding sentence), when added to the Expense
Allotment for Unaccrued Expenses, exceeds 10% of Enterprises' net asset value
on the Closing Date, the amount of cash that can be retained for wind-up
expenses will
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have to be reduced accordingly to satisfy conditions to Closing. Had the
Closing occurred on April 16, 1996, based on the assumptions set forth
elsewhere in this Joint Proxy Statement/Prospectus, Enterprises would be able
to retain approximately $13,575,000 of the $14,850,000 in cash, of which
$6,863,000 would represent Retained Cash and $6,712,000 would represent the
Expense Allotment.
OBLIGATIONS AND LIABILITIES ASSUMED OR SATISFIED
Enterprises has outstanding options granted under the Telecom Equipment
Corp. Incentive Stock Option Plan, Telcom Plus International, Inc. 1983 Stock
Option Plan, Telcom Plus International, Inc. 1984 Stock Option Plan, 1992 TPI
Enterprises, Inc. Stock Option and Incentive Plan, and the TPI Enterprises,
Inc. Non-Employee Directors Stock Option Plan (the "Enterprises Option Plans").
There are also outstanding warrants to purchase Enterprises Common Stock
pursuant to that certain Warrant Purchase Agreement dated March 18, 1993, among
Enterprises and The Bass Management Trust, Sid R. Bass Management Trust, TPI
Investors, L.P., Lee M. Bass and The Airlie Group L.P. In the Reorganization,
Shoney's will assume Enterprises' obligations to issue shares under these
outstanding options and warrants by issuing, in exchange therefor, Shoney's
Options and Shoney's Warrants.
Under the Reorganization Agreement, Shoney's will also assume the Public
Debentures of Enterprises, pursuant to a supplemental indenture, as well as
certain specified contractual obligations and will cause the Private Debentures
of Enterprises and the TPIR Bank Debt to be discharged. As of April 16, 1996,
there were outstanding $15,000,000 Private Debentures, all of which were owned
by persons and entities related to certain directors of Enterprises, and
$23,900,000 principal amount of TPIR Bank Debt. Except as specifically
provided in the Reorganization Agreement, neither Shoney's nor any of its
affiliates will assume or be liable for any other liabilities or obligations of
Enterprises.
ADJUSTMENTS TO CONSIDERATION
The number of Exchange Shares to be issued to Enterprises on the Closing
Date, as consideration for its transfer of assets, is equal to: (a) 5,577,102;
plus (b) $10,000,000 divided by the Average Closing Market Price, subject to
adjustment as described below.
The number of Exchange Shares to be issued to Enterprises will be adjusted
in the event of any reclassification, stock split or stock dividend with
respect to Shoney's Common Stock, any change of the Shoney's Common Stock into
other securities or any other dividend or distribution with respect to the
Shoney's Common Stock, if the record or effective date with respect to any of
the foregoing should occur prior to the Closing.
In the event that, between March 15, 1996 and the Closing Date, any Person
exercises an Enterprises Option granted prior to September 1, 1995, exercises
any Enterprises Warrants or converts any Public Debentures or Private
Debentures into shares of Enterprises Common Stock, in each case in accordance
with the terms of the governing instruments, Shoney's shall issue to
Enterprises in the Reorganization an additional number of shares of Shoney's
Common Stock equal to: (a) the number of shares of Enterprises Common Stock
issued pursuant to the exercise of such options or warrants or the conversion
of debentures multiplied by (b) the Exchange Ratio (as determined without
reference to the adjustments described in this paragraph). From March 15, 1996
to April 16, 1996, no options or warrants have been exercised for, and no
debentures have been converted into, shares of Enterprises Common Stock.
In the event that, between November 7, 1995 and the Closing Date, any
shares of Enterprises Common Stock are issued, transferred from treasury or
allocated in connection with the Enterprises 401(k) Plan or the Enterprises
Stock Purchase Plan, Shoney's shall issue to Enterprises in the Reorganization
an additional number of shares of Shoney's Common Stock equal to: (a) the
number of shares of
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Enterprises Common Stock so issued multiplied by (b) the Exchange Ratio (as
determined without reference to the adjustment described by this paragraph).
From November 7, 1995 through April 16, 1996, 124,566 shares of Enterprises
have been issued, transferred from treasury or allocated in connection with
the Enterprises 401(k) Plan or the Enterprises Stock Purchase Plan.
The amount of the $7,500,000 in Retained Cash permitted to be retained by
Enterprises at the Closing may not exceed an amount which equals 10% of the
value of the Exchange Shares, based on the closing price of Shoney's Common
Stock on the NYSE as reported by the WALL STREET JOURNAL on the last trading
day prior to the Closing Date. In the event the amount of the $7,500,000 in
Retained Cash that Enterprises is otherwise entitled to retain is reduced in
order to satisfy the requirements specified above, Shoney's shall issue to
Enterprises an additional number of shares of Shoney's Common Stock equal to:
(a) $7,500,000 less the number of dollars retained divided by (b) the Average
Closing Market Price. Had the Closing occurred on April 16, 1996, based on the
number of shares of Shoney's Common Stock and Enterprises Common Stock
outstanding at April 16, 1996, and the then Average Closing Market Price,
Enterprises would be able to retain approximately $6,863,000 of the Retained
Cash allocated to Enterprises, of which a maximum of approximately $932,236
will be required to be retained by Enterprises for the benefit of holders of
Shoney's Options and Shoney's Warrants until such time as such options and
warrants are exercised, are terminated or expire. For a discussion of the
manner in which Enterprises intends to account for the cash allocated for the
benefit of such option and warrant holders, see "The Reorganization--Plan of
Complete Liquidation." For a discussion of further adjustments that may be
made to the amount of the Expense Allotment, see "The Reorganization--The
Reorganization Transaction--Dissolution of Enterprises, Wind-up Expenses."
In the event (and only to the extent) that the net proceeds (the "Net
Proceeds") of the Maxcell Settlement (as hereinafter defined) are required by
TPIR's lenders to be used to permanently retire all or any portion of the TPIR
Bank Debt, Shoney's shall issue to Enterprises an additional number of shares
of Shoney's Common Stock equal to: (a) the amount (not to exceed (x) $7,350,000
plus that amount of Retained Cash that may be retained by Enterprises pursuant
to the prior paragraph; minus (y) that amount of cash and cash equivalents held
by Enterprises at the Closing) by which the TPIR Bank Debt was reduced
permanently using the Net Proceeds, divided by (b) the Average Closing Market
Price. As of April 16, 1996, none of the Net Proceeds had been used to
permanently retire any of the TPIR Bank Debt.
DISSOLUTION OF ENTERPRISES, WIND-UP EXPENSES
Upon consummation of the Reorganization, Enterprises will liquidate and
dissolve in accordance with the Plan of Complete Liquidation adopted by the
Enterprises Board, as contemplated by the Reorganization Agreement. See "Plan
of Complete Liquidation." Enterprises will wind-up its operations and, after
paying or making provision for its liabilities, will distribute the Exchange
Shares received in the Reorganization and any of the up to $7,500,000 in
Retained Cash remaining to its shareholders on a pro rata basis based upon
their ownership of the Enterprises Common Stock.
An aggregate of up to approximately $932,236 (assuming all $7,500,000 of
the Retained Cash will be retained by Enterprises in cash) is required to be
retained by Enterprises for the benefit of holders of Shoney's Options or
Shoney's Warrants until such time as the options and warrants are exercised,
are terminated or expire. Under the Plan of Complete Liquidation, if Shoney's
Options or Shoney's Warrants are not exercised prior to the Final Liquidating
Distribution Record Date (as defined in "Plan of Complete Liquidation"), such
cash, after providing for the expenses of the distribution thereof, will be
distributed to Enterprises' shareholders.
Fractional shares of Shoney's Common Stock will not be issued to
Enterprises' shareholders. A holder otherwise entitled to a fractional share
will be paid cash in lieu of such fractional share in an
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amount equal to such holder's proportionate interest in the net proceeds from
the sale or sales in the open market on behalf of all such holders.
To pay specified wind-up expenses, the Reorganization Agreement permits
Enterprises to retain in cash on the Closing Date an Expense Allotment not to
exceed $7,350,000. To satisfy the requirements
for a tax-free reorganization, the amount of the Retained Cash, when added to
the Unaccrued Expenses (currently estimated at $1,400,000, in the aggregate),
cannot exceed 10% of the net asset value of Enterprises as of the Closing Date.
If, notwithstanding the adjustment in the additional $7,500,000 in Retained
Cash required by the Reorganization Agreement, the amount of the Retained Cash,
when added to the Expense Allotment for Unaccrued Expenses exceeds 10% of
Enterprises' net asset value on the Closing Date, the amount of cash that can
be retained for wind-up expenses will be reduced accordingly in order to
satisfy conditions to Closing. Had the Closing occurred on April 16, 1996,
based on the estimated amount of Unaccrued Expenses, the number of Exchange
Shares and the then closing market price of Shoney's Common Stock, Enterprises
would be able to retain approximately $6,712,000 of the $7,350,000 Expense
Allotment.
Included in the wind-up expenses of Enterprises are the acquisition of a
directors and officers liability policy, severance payments under employment
agreements to J. Gary Sharp, the President, Chief Executive Officer and a
director of Enterprises, and Frederick W. Burford, the Executive Vice
President, Chief Financial Officer, Secretary and a director of Enterprises,
and the legal and accounting fees and expenses of Enterprises for the
Reorganization and the dissolution of Enterprises.
Also included in the wind-up expenses is the sum of (a) the amount by
which actual repair and maintenance expenses incurred by Enterprises or TPIR
for the year ended December 31, 1995 exceed $13,235,000; plus (b) the amount by
which actual repair and maintenance expenses incurred by Enterprises or TPIR
for the two periods ended February 25, 1996 exceed $1,457,000. See "The
Reorganization--Marlin Claims."
If the specified wind-up expenses are less than the Expense Allotment,
Enterprises is required to transfer the difference to Shoney's; if the expenses
are greater, the excess will be paid from the Retained Cash Enterprises is
entitled to retain in the Reorganization or by transferring to creditors shares
of Shoney's Common Stock received by Enterprises in the Reorganization. Any
cash or shares of Shoney's Common Stock used to pay specified wind-up expenses
will not be available for distribution to Enterprises' shareholders.
BACKGROUND OF THE REORGANIZATION
In August 1993, the Enterprises Board authorized Enterprises' Executive
Committee, or designees thereof, to enter into discussions regarding a possible
merger with Shoney's, and a representative of Enterprises' Executive Committee
delivered to the Shoney's Board a letter requesting that Shoney's authorize a
full investigation of a merger between Enterprises and Shoney's. Based on a
variety of considerations, including an implied exchange ratio of over .5
shares of Shoney's Common Stock for each share of Enterprises Common Stock, the
Shoney's Board informed Enterprises' Executive Committee that Shoney's was not
interested in conducting such an investigation.
Following the selection of C. Stephen Lynn as the new Chief Executive
Officer of Shoney's, various meetings between representatives of Enterprises
and Shoney's occurred regarding the strategic partnership of the two companies.
On April 21, 1995 and again on May 25, 1995, representatives of Enterprises met
with Mr. Lynn to discuss various of these strategic issues, including synergies
between the two companies related to the consolidation of the two companies'
commissary operations. On June 1, 1995 and again on June 6, 1995,
representatives of Enterprises met with representatives of Shoney's to discuss
consolidation of the commissary operations.
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On June 22, 1995 and July 19, 1995, representatives of Shoney's and
Enterprises met and determined that an overall merger between Enterprises and
Shoney's should also be explored. Discussions continued thereafter as to the
synergies that could be obtained by consolidating commissary operations or by
merging the two entities.
On July 26, 1995, confidentiality agreements were executed by Enterprises
and Shoney's. Following the execution of the confidentiality agreements,
various information was exchanged between the parties. On July 27, 1995,
representatives of Enterprises met with representatives of Shoney's to discuss
in detail the commissary synergies.
From mid-August to August 31, 1995, various meetings and conversations
occurred among representatives of Shoney's and representatives of Enterprises
during which a proposed term sheet for the transaction was negotiated. Shoney's
Board reviewed the proposed terms of the transaction at a meeting held August
31, 1995, and, following a presentation by Salomon, authorized management to
proceed with a letter of intent. The term sheet was transmitted to all
Enterprises Board members prior to the Enterprises Board meeting held on
September 1, 1995.
On September 1, 1995, the Enterprises Board conducted a discussion of the
term sheet. The discussion included a financial analysis of the proposed
transaction. The term sheet described a proposed tax-free merger of Enterprises
into a wholly-owned subsidiary of Shoney's in which each holder of Enterprises
Common Stock would receive for each share thereof (i) .28 shares of Shoney's
Common Stock, (ii) a warrant to purchase .32 shares of Shoney's Common Stock
with an exercise price of $21.50 per share and a five-year term and (iii)
contingent rights to receive additional shares of Shoney's Common Stock up to a
maximum of .28 shares of Shoney's Common Stock based upon a formula intended to
provide to the shareholders of Enterprises the net proceeds of a judgment or
settlement of the then pending lawsuit filed by Enterprises and its
wholly-owned subsidiary, Maxcell Telecom Plus, Inc. ("Maxcell") against McCaw
Cellular Communications Corp. and various related parties (the "Maxcell
Lawsuit").
At the September 1, 1995 meeting of the Enterprises Board, Mr. Douglas K.
Bratton stated that he and Messrs. John L. Marion, Jr. and Thomas M. Taylor
would abstain from voting on the proposed transaction in light of the fact that
The Airlie Group L.P., of which Messrs. Bratton, Marion and Taylor are
designees on the Enterprises Board, and certain related persons and entities
held certain equity and debt securities of Shoney's and Enterprises. The
Enterprises Board, without Messrs. Bratton, Marion, Taylor and Lawrence F. Levy
(who was not present), then authorized continued negotiations of the proposed
transaction and approved the establishment of a special committee of the
Enterprises Board (the "Special Committee"). After certain perceived conflicts
of interest were disclosed to the Enterprises Board, on September 4, 1995, the
Enterprises Board determined that Messrs. Cisneros, Spievack and Siu should
serve on the Special Committee. See "The Reorganization--Interests of Certain
Persons in the Reorganization." On September 4, 1995 the Enterprises Board,
without Messrs. Bratton, Marion, Taylor (who abstained due to the above-
described conflict of interest), Levy (who was not present) and Cisneros (who
abstained in order to consult with his personal counsel, Shereff, Friedman,
Hoffman & Goodman, LLP, who was not present at the meeting), approved a letter
of intent.
On September 4, 1995, Shoney's and Enterprises entered into a letter of
intent, dated as of September 3, 1995 (the "Letter of Intent"), setting forth
the mutual understandings of the parties with respect to the proposed
transaction. The Letter of Intent provided that it was merely a statement of
the mutual intentions of the parties with respect to the proposed transaction
and that a binding commitment with respect to the proposed transaction would
result only after execution and delivery of a definitive agreement.
The Special Committee retained Alex. Brown to act as its investment
advisor and, in connection therewith, to render an opinion as to the fairness,
from a financial point of view, to Enterprises'
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shareholders of the consideration to be offered in the proposed acquisition
of Enterprises by Shoney's. The Special Committee also retained Shereff,
Friedman, Hoffman & Goodman, LLP to act as its legal counsel.
Over the next two months, the Special Committee, aided by its advisors,
commenced its legal and financial due diligence of Enterprises and Shoney's,
including visits to Shoney's, Enterprises and their commissary facilities, and
began to discuss with Shoney's and its advisors the necessary steps to be taken
to execute a definitive agreement. On October 30, 1995, the Special Committee
and Shoney's executed an amendment to the Letter of Intent, providing that all
provisions of the Letter of Intent would expire on November 30, 1995.
During September, October and December 1995, the Class Action Lawsuits
were filed, alleging, among other things, that Enterprises' shareholders would
receive inadequate consideration in the proposed transaction, that the proposed
transaction was the result of unfair dealing and economic coercion and that the
Enterprises Board breached its fiduciary duties to Enterprises' shareholders to
maximize shareholder value. See "The Reorganization--Class Action Settlement."
On November 1, 1995, the Enterprises Board approved the settlement of the
Maxcell Lawsuit (the "Maxcell Settlement") for an aggregate payment to
Enterprises of $30,000,000 resulting in a net payment, after expenses, of
approximately $17,000,000. The Maxcell Settlement resulted in certain issues
not specifically contemplated by the letter of intent, such as the need for
Enterprises to utilize net operating loss carryforwards prior to the Closing
which would otherwise have inured to the benefit of Shoney's to offset the gain
from the Maxcell Settlement and certain other tax driven structural issues.
On November 29 and 30, 1995, representatives of Shoney's and the Special
Committee met in Nashville, Tennessee to attempt to resolve the remaining
legal, tax, accounting and structural issues. Issues under discussion included
price, preserving the tax-free nature of the transaction, limitations on the
liabilities of Enterprises to be assumed by Shoney's in the transaction, the
treatment of net operating loss carry-forwards, the inclusion of warrants in
the transaction, the amount of wind-up expenses, the nature of the
representations and warranties, the conditions to closing and similar issues.
Following further discussions and negotiations of the issues, on December
5, 1995, Shoney's and Enterprises executed a revised non-binding letter of
intent for Shoney's to purchase substantially all of the assets of Enterprises,
including the capital stock of TPIR, TPII and TPIE, through a tax-free plan of
reorganization in exchange for an aggregate of 6,456,223 shares of Shoney's
Common Stock. In addition, Enterprises would be allowed to use its net
operating loss carry-forwards to offset the gain from the Maxcell Settlement,
discussed below in this Joint Proxy Statement/Prospectus, and retain up to
$7,500,000 (subject to the maximum allowable amount which could be retained
while still satisfying the requirements for a tax-free reorganization) in cash
to pay wind-up expenses, if necessary, or for distribution to its shareholders.
Enterprises was also allowed to retain up to $6,100,000 for payment of
specified wind-up expenses to be incurred in connection with the dissolution of
Enterprises after consummation of the transaction. Enterprises agreed that
this transaction structure would not involve its receipt of warrants to
purchase shares of Shoney's Common Stock, in part in order to preserve the
tax-free nature of the transaction.
From mid-December 1995 to mid-March 1996, the parties negotiated the terms
of a definitive Reorganization Agreement. Following the negotiations, the
terms of the transaction were revised as follows: in consideration for the sale
of substantially all of the assets of Enterprises, including the capital stock
of TPIR, TPII and TPIE, to Shoney's, Enterprises would receive 5,577,102 shares
of Shoney's Common Stock, subject to adjustment, and shares of Shoney's Common
Stock having a value of $10,000,000. Shoney's also agreed, to the extent that
Enterprises was required to reduce permanently the TPIR Bank Debt with proceeds
of the Maxcell Settlement, to issue shares of Shoney's Common Stock
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having equal value to the debt permanently reduced, subject to certain
restrictions. Shoney's agreed to a materiality threshold of $500,000 and the
representations and warranties were limited, for the most part, to knowledge
of the directors and executive officers on the date of signing of the
Reorganization Agreement. Given the agreement to structure the transaction as
a sale of assets, to be followed by the dissolution of Enterprises, Shoney's
agreed that the representations and warranties in the Reorganization
Agreement would not survive the Closing. Shoney's and Enterprises agreed to
form an operating committee (the "Operating Committee"), comprised of four
members of the Enterprises Board, two of which would be designated by Shoney's
and two designated by Enterprises, to resolve disputes as to operations
between signing and Closing. The provision for wind-up expenses was increased
to $7,350,000.
On February 20, 1996, after a presentation by Alex. Brown in which Alex.
Brown orally indicated to the Special Committee and the Enterprises Board that
it expected to be able to render an opinion to the effect subsequently rendered
(as summarized in "The Reorganization--Opinion of Financial Advisers--Opinion
of Financial Advisor to the Special Committee of the Enterprises Board"), the
Special Committee unanimously recommended to the Enterprises Board that it
approve the Reorganization Agreement, and the Enterprises Board, by a vote of
6-0 (with Messrs. Bratton, Taylor and Marion abstaining), approved the
Reorganization Agreement, with such non-material changes as management may
agree upon, subject to approval of the Reorganization Agreement by the Shoney's
Board. On February 26, 1996, after a presentation to the Shoney's Board,
Salomon advised the Shoney's Board of its opinion as to the fairness, from a
financial point of view, of the consideration to be paid in exchange for the
assets of Enterprises to be received in the Reorganization. After evaluating
the information provided, the Shoney's Board approved the Reorganization
Agreement, subject to its completion and the completion of other information as
required by the Reorganization Agreement.
On or about March 4, 1996, Enterprises notified Shoney's of the existence
of an issue concerning TPIR's repair and maintenance expenses which resulted in
TPIR being significantly overcharged by its supplier of restaurant maintenance
services. See "The Reorganization-Marlin Claims." After considering such facts,
Shoney's and Enterprises agreed to revise the Reorganization Agreement to
provide for a cap in the amount of repair and maintenance expense exposure to
be assumed by Shoney's, based on historical repair and maintenance costs, with
the remainder to be retained by Enterprises and offset against the Expense
Allotment set aside for specified wind-up costs or the additional Retained
Cash, if necessary.
On March 14, 1996, the Enterprises Board, by a vote of 6-0 (with Messrs.
Bratton, Taylor and Marion abstaining), approved the Reorganization Agreement,
as so revised, with such non-material changes as management may agree upon,
subject to the approval of shareholders and others. On March 15, 1996, the
parties completed the Reorganization Agreement and the other required
information and the Reorganization Agreement was executed.
From February to mid-March, representatives of the Special Committee had a
number of discussions with counsel to the plaintiffs in the three pending Class
Action Lawsuits. On March 15, 1996, a letter of understanding was executed for
the Class Action Settlement. See "The Reorganization-Class Action Settlement."
REASONS FOR THE REORGANIZATION; RECOMMENDATION OF THE SHONEY'S BOARD
The Shoney's Board believes that the terms of the Reorganization are fair
to, and in the best interests of, Shoney's and its shareholders. The primary
reasons that the Shoney's Board approved, and is recommending that Shoney's
shareholders approve the Reorganization Agreement are that it believes that the
Reorganization (a) provides Shoney's with the opportunity to enhance
shareholder value by capitalizing on the substantial opportunities to reduce
the combined company's overall general and
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administrative costs and the costs of operating its commissary operations; (b)
facilitates more rapid deployment and greater market penetration for Shoney's
operational performance improvement plan for its "Shoney's" Restaurants by
including the adjoining TPIR markets in Shoney's operational performance
improvement program; (c) provides Shoney's greater operational control over
its core concepts through its ownership of 62% of both the "Shoney's" and the
"Captain D's" restaurant systems; and (d) reinforces Shoney's commitment to the
family dining segment.
In approving the Reorganization Agreement and recommending approval of the
Reorganization, the Shoney's Board considered, among other things:
(a) information relating to the financial performance, condition,
business operations and prospects of Enterprises and Shoney's and current
industry, economic and market conditions;
(b) the terms of the Reorganization Agreement, including the Exchange
Ratio. In this regard, the Shoney's Board noted that the Exchange Ratio
was the result of arm's-length negotiations. The Shoney's Board also
considered in its analysis the opinion of Salomon as to the fairness, from
a financial point of view, to Shoney's and its shareholders of the
consideration to be paid to Enterprises in exchange for the Enterprises
assets being transferred to Shoney's. See "The Reorganization--Opinions of
Financial Advisors";
(c) the underperformance, based on comparable store sales and
average unit volumes, of the "Shoney's" Restaurants operated by TPIR
compared to those operated by Shoney's and certain other franchisees;
the net losses sustained by Enterprises and TPIR over the last seven
years; the lack of capital investment by Enterprises to improve its
"Shoney's" Restaurants along with concerns with the financial liquidity of
Enterprises; and, to the extent TPIR was unable to improve the operational
performance of its "Shoney's" Restaurants, the impact a significant number
of underperforming TPIR restaurants might have on the "Shoney's"
operational improvement program begun in 1995; and
(d) the ability to take advantage of the complementary strategy and
the opportunity for greater enhancement of the two companies, including
potential cost reductions, economies of scale and other operating
efficiencies, including a reduction in general and administrative costs.
The Shoney's Board also considered certain potentially negative factors in
its deliberations concerning the Reorganization, including, among others:
(a) the additional expense and potential management distraction
resulting from simultaneously integrating the TPIR "Shoney's" Restaurants
and "Captain D's" restaurants while Shoney's continues to implement a
performance improvement plan for its "Shoney's" Restaurants;
(b) the diversion of limited financial and human resources from
Shoney's performance improvement plan to activities associated with the
Reorganization and the assumption of management responsibility for the
TPIR restaurants;
(c) the risk that the cost reductions, economies of scale and other
operating efficiencies contemplated by the Reorganization will not be
realized or will not be realized as quickly as projected;
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(d) the risk that the turnaround in the operating performance of the
"Shoney's" Restaurants will not occur as quickly as if the transaction
were not consummated;
(e) the historical operating performance of TPIR, and the declines in
sales at its "Shoney's" Restaurants over each of the last three years; and
(f) the fact that, although the relative stock prices of the Shoney's
Common Stock and the Enterprises Common Stock will change prior to the
time the Reorganization is consummated, a substantial majority of the
number of shares of Shoney's Common Stock to be issued to Enterprises is
fixed, subjecting Shoney's shareholders to the risk of an increase in the
value of consideration to be paid to Enterprises' shareholders in the
Reorganization resulting from an increase in the market price of Shoney's
Common Stock.
The Shoney's Board considered all of the foregoing factors without
attaching a relative weight to any of them. However, the Shoney's Board
concluded that the positive factors outweighed the negative factors cited.
REASONS FOR THE REORGANIZATION; RECOMMENDATION OF THE ENTERPRISES BOARD
The Enterprises Board believes that the terms of the Reorganization are
fair to, and in the best interests of, Enterprises and its shareholders. The
primary reasons that the Enterprises Board approved the Reorganization
Agreement and is recommending its approval to the Enterprises' shareholders are
that it believes that the Reorganization (i) represents the most attractive
financial alternative available to Enterprises' shareholders, (ii) will provide
Enterprises' shareholders with better access to the capital markets, including
greater liquidity; and (iii) giving effect to the complementary strengths of
Shoney's and Enterprises, along with the potential cost reductions, economies
of scale and other operating efficiencies contemplated by the Reorganization,
gives the holders of Shoney's Common Stock after the Reorganization the
potential for greater long-term appreciation than the holders of the
Enterprises Common Stock.
In making its determination with respect to the Reorganization, the
Enterprises Board considered, among other things:
(a) information relating to the financial performance, condition,
business operations and prospects of Enterprises and Shoney's and current
industry, economic and market conditions;
(b) the terms of the Reorganization Agreement, including the Exchange
Ratio. In this regard, the Enterprises Board noted that the Exchange Ratio
was the result of arm's-length negotiations. The Enterprises Board also
considered in its analysis the opinion of Alex. Brown as to the fairness,
from a financial point of view, to the holders of Enterprises Common Stock
of the consideration to be received by Enterprises in exchange for the
assets being transferred to Shoney's. See "The Reorganization--Opinions of
Financial Advisors";
(c) the opportunity for Enterprises' shareholders to become
shareholders of a larger company, which would provide better access to the
capital markets. In addition, because the Shoney's Common Stock is traded
on the NYSE and has greater research coverage and institutional ownership
than the Enterprises Common Stock, the Enterprises Board concluded that
Enterprises' shareholders would have greater liquidity through ownership
of Shoney's Common Stock;
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(d) the fact that holding shares of Shoney's, the franchisor for the
restaurants operated by Enterprises, is a stronger position for
Enterprises' shareholders than holding shares of Enterprises, the
franchisee;
(e) the ability to take advantage of the complementary strategy of
the two entities, including potential cost reductions, economies of scale
and other operating efficiencies; and
(f) the fact that the financial performance of Enterprises had been
declining for some time and that there were concerns as to the liquidity
of Enterprises on a standalone basis, taking into account the need to
continue to open new restaurants and invest in existing restaurants and
the anticipated expiration of the TPIR Bank Debt on June 3, 1996.
The Enterprises Board also considered certain potentially negative factors
in its deliberations concerning the Reorganization, including, among others:
(a) the fact that a substantial majority of the total number of
Exchange Shares is fixed, subjecting Enterprises' shareholders to a risk
of a decline in the price of Shoney's Common Stock which would reduce the
value of the consideration to be received by Enterprises' shareholders in
the Reorganization;
(b) the risks that the complementary strengths of Shoney's and
Enterprises, and the cost reductions, economies of scale and other
operating efficiencies contemplated by the Reorganization, would not be
realized; and
(c) the risk that, if the Reorganization could not be consummated,
Enterprises would be in a weaker position to make the necessary changes to
survive on a standalone basis than if it were to pursue such changes
immediately.
In view of the wide variety of factors considered by the Enterprises
Board, the Enterprises Board did not quantify or otherwise attempt to assign
relative weights to the specific factors considered in making its
determination. However, in the view of the Enterprises Board, the potentially
negative factors considered by it were not sufficient, either individually or
collectively, to outweigh the positive factors it considered in its
deliberations relating to the Reorganization.
OPINIONS OF FINANCIAL ADVISORS
OPINION OF SHONEY'S FINANCIAL ADVISOR
SALOMON. Salomon has acted as a financial advisor to Shoney's in
connection with the Reorganization. In connection with such engagement,
Salomon delivered to the Shoney's Board on February 26, 1996 its oral opinion
to the effect that, as of that date, the consideration to be paid by Shoney's
in the Reorganization in exchange for the assets to be received from
Enterprises was fair to Shoney's and its shareholders from a financial point of
view. [The written opinion set forth as Appendix B to this Joint Proxy
Statement/Prospectus is Salomon's confirmation, as of , 1996, of the oral
opinion previously given to Shoney's Board.] No limitations were imposed by
the Shoney's Board upon Salomon with respect to the investigations made or the
procedures followed by Salomon in rendering its opinion.
[The full text of the written opinion of Salomon, dated , 1996,
which sets forth the assumptions made, matters considered and limits on the
review undertaken, is attached as Appendix B to this Joint Proxy
Statement/Prospectus and is incorporated herein in its entirety by reference.]
Shoney's shareholders are urged to read such opinion carefully and in its
entirety. Salomon's opinion is directed only to the fairness, from a financial
point of view, of the consideration to be paid by Shoney's in the
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Reorganization in exchange for the Enterprises assets to be received and has
been provided solely for the use of the Shoney's Board in its evaluation of the
Reorganization, does not address any other aspect of the Reorganization or
related transactions and does not constitute a recommendation to any Shoney's
shareholder as to how such shareholder should vote. Shoney's, the Shoney's
Board and Shoney's shareholders have the ultimate responsibility to decide
whether it is appropriate and reasonable to effect the Reorganization. The
summary of the opinion of Salomon set forth in this Joint Proxy
Statement/Prospectus is qualified in its entirety by reference to the full text
of such opinion.
In arriving at its opinion, Salomon reviewed certain publicly available
business and financial information relating to Shoney's and Enterprises, as
well as certain other information, including financial projections, provided to
Salomon by Shoney's and Enterprises. Salomon discussed the past and current
operations and financial condition and prospects of Shoney's and Enterprises
with members of senior management of Shoney's and, on a more limited basis,
with members of senior management of Enterprises. In arriving at its opinion,
Salomon conducted physical inspections of a limited number of Shoney's and
Enterprises' properties and facilities, but did not conduct physical
inspections of most of such properties or facilities and did not make or
obtain any evaluations or appraisals of any of the properties, facilities,
assets or liabilities of Shoney's or Enterprises. Salomon also considered
such other information, financial studies, analyses, investigations and
financial, economic, market and trading criteria as it deemed relevant.
Salomon assumed, and relied on, the accuracy and completeness of the
information reviewed by it for the purpose of its opinion and Salomon did not
assume any responsibility for independent verification of such information or
for any independent evaluation or appraisal of the assets of Shoney's or
Enterprises, including the assets to be acquired by Shoney's in the
Reorganization. With respect to Shoney's and Enterprises' financial
projections, including financial projections for the assets to be acquired in
the Reorganization, Salomon assumed that they had been reasonably prepared on
bases reflecting the best currently available estimates and judgments of
Shoney's and Enterprises' management and Salomon expressed no opinion with
respect to such forecasts or the assumptions on which they were based.
Salomon's opinion was necessarily based upon business, market, economic and
other conditions as they existed on, and could be evaluated as of, the date of
its opinion and did not address Shoney's underlying business decision to effect
the Reorganization or constitute a recommendation to any holder of Shoney's
Common Stock as to how such holder should vote with respect to the
Reorganization. Salomon's opinion does not imply any conclusion as to the
likely trading range for the Shoney's Common Stock following the consummation
of the Reorganization, which may vary depending on, among other factors,
changes in interest rates, dividend rates, market conditions, general economic
conditions and other factors, including performance, that generally influence
the price of securities. Salomon assumed that the transaction contemplated by
the Reorganization Agreement would constitute a "reorganization" within the
meaning of Section 368(a)(1)(C) of the Code and would be tax-free.
The following is a summary of the report (the "Salomon Report") presented
by Salomon to the Shoney's Board on February 26, 1996, in connection with the
delivery of the Salomon oral fairness opinion.
Discounted Cash Flow Analysis. Using a discounted cash flow analysis,
Salomon estimated the present value of the future cash flows that Enterprises
could produce over a five-year period from 1996 through 2000, if Enterprises
were to perform on a standalone basis in accordance with forecasts developed by
Shoney's management and certain variants thereof. Salomon determined certain
equity value per share reference ranges for Enterprises based upon the sum of
(i) the aggregate discounted value (using various discount rates ranging from
11.0% to 14.0%) of the five-year unleveraged free cash flows of Enterprises
plus (ii) the discounted value (using various discount rates ranging from 11.0%
to 14.0%) of the product of (a) the final year's projected earnings before
interest, taxes, depreciation and amortization ("EBITDA") multiplied by (b)
numbers representing various terminal or exit multiples (ranging
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from 5.0 x to 6.5x). This analysis resulted in an equity value per share
reference range of the assets being acquired from Enterprises of $4.25 to
$5.25.
Private Market Analysis. Salomon reviewed the consideration paid or
proposed to be paid in other recent acquisitions of restaurant companies.
Specifically, Salomon reviewed the following acquiror/target transactions: CKE
Restaurants, Inc./Summit Family Restaurants Inc.; RTM, Inc./Lee's Famous Recipe
Chicken (Shoney's, Inc.); Wendy's International, Inc./Tim Hortons (632687
Alberta Ltd.); Apple South, Inc./Applebee's (Marcus Corporation); Quality
Dining Inc./Grayling Corporation; Applebee's International, Inc./Pub Ventures
of New England; and DavCo Restaurants Inc./Southern Hospitality Corporation.
Based on Salomon's analysis of these transactions, Salomon determined the
following ranges of multiples of the firm value (defined as fully diluted
equity market value adjusted by adding total debt and subtracting cash and
marketable securities) of each such transaction to total revenues (range of
50.0% to 60.0%) and EBITDA (range of 6.0x to 7.0x) in each case for the last
twelve months. Salomon applied these multiples to Enterprises' total revenues
and EBITDA for the corresponding periods. This analysis resulted in an equity
value per share reference range of the assets being acquired from Enterprises
of $2.00 to $3.00. Salomon also applied these multiples to Enterprises'
results for the corresponding periods adjusted for the administrative synergies
that Shoney's management expects to achieve following the Reorganization.
This analysis resulted in an equity value per share reference range of the
assets being acquired from Enterprises of $3.00 to $4.50.
Asset Replacement Value Analysis. Salomon reviewed and analyzed the
estimated replacement value of the Enterprises assets being acquired, primarily
the 188 Shoney's restaurant units and 68 Captain D's restaurant units. In
accordance with estimates developed by Shoney's management, Salomon calculated
the aggregate replacement value of the land, building, equipment and leaseholds
associated with the following: 69 Shoney's units and 28 Captain D's units at
which Enterprises owns both the land and the building; 38 Shoney's units and 25
Captain D's units at which Enterprises leases the land and owns the building;
and the 81 Shoney's units and 15 Captain D's units at which Enterprises leases
both the land and the building. This analysis resulted in an equity value per
share reference range of the assets being acquired from Enterprises of $3.75 to
$4.75.
Exchange Ratio Analysis. Salomon reviewed and analyzed the historical
ratio of the daily closing prices of Enterprises Common Stock to Shoney's
Common Stock based on various averages during the five-year period preceding
the public announcement of the Reorganization. The exchange ratio of the daily
closing price of one share of Enterprises Common Stock to one share of Shoney's
Common Stock ranged from a low of 0.242 to a high of 0.546 over the period
analyzed. Based upon the trading prices of the Shoney's Common Stock during
the ten trading days preceding February 26, 1996, a total of 6,792,907 shares
of Shoney's Common Stock would have been issued pursuant to the Reorganization.
On a when and if distributed basis to the shareholders of Enterprises, this
corresponded to an Exchange Ratio of 0.331 of a share (excluding any cash
distribution to be made to Enterprises' shareholders).
Pro Forma Earnings Per Share Analysis. Salomon analyzed certain pro forma
effects on Shoney's resulting from the Reorganization for the projected twelve-
month period ending October 31, 1996. This analysis, based upon the
assumptions described above and estimates provided by Shoney's management of
Shoney's 1996 standalone earnings per share, showed dilution to the
shareholders of Shoney's in earnings per share for the period ending October
31, 1996, of (a) assuming the transaction occurred November 1, 1995, (i) 28.0%
without giving effect to the administrative synergies Shoney's management
expects to achieve following the Reorganization and (ii) 6.7% giving effect to
such synergies; or (b) assuming the transaction occurred May 1, 1996, (i) 14.5%
without giving effect to such synergies and (ii) 2.7% giving effect to such
synergies. The actual results achieved following the Reorganization may vary
from projected results and the variations may be material.
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Public Market Analysis. Salomon reviewed and compared the financial and
market performance of the following group of six publicly traded restaurant
companies with those of Enterprises and Shoney's: Bob Evans Farms, Inc.;
Cracker Barrel Old Country Store, Inc.; Flagstar Companies, Inc.; IHOP Corp.;
Perkins Family Restaurants, L.P.; and VICORP Restaurants, Inc. (collectively,
the "Comparable Group"). Salomon examined certain publicly available financial
data of the Comparable Group for the latest twelve months. Utilizing this
data, Salomon determined the following range of firm value multiples to total
revenues (range of 45.0% to 55.0%). Salomon applied these multiples to
Enterprises' results for the corresponding periods. This analysis resulted in
an equity value per share reference range of the assets being acquired from
Enterprises of $1.75 to $2.50.
In arriving at its opinion and in preparing the Salomon Report, Salomon
performed a variety of financial analyses, the material portions of which are
summarized above. The summary set forth above does not purport to be a
complete description of the analyses performed by Salomon. In addition,
Salomon believes that its analyses must be considered as a whole and that
selecting portions of such analyses and the factors considered by them, without
considering all such analyses and factors, could create an incomplete view of
the process underlying its analyses as set forth in the opinion and the Salomon
Report. The preparation of a fairness opinion is a complex process and
is not necessarily susceptible to partial analysis or summary description.
With regard to the private market analysis and the public market analysis
summarized above, Salomon selected comparable private and public companies on
the basis of various factors, including the size of the private or public
company and similarity of the line of business; however, no private or public
company or transaction utilized as a comparison is identical to Shoney's,
Enterprises or the Reorganization. An analysis of the foregoing is not merely
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
comparable companies and other factors that could affect the acquisition or
public trading value of the comparable companies and transactions to which
Shoney's, Enterprises and the Reorganization are being compared.
In performing its analyses, Salomon made numerous assumptions with respect
to industry performance, general business, economic, market and financial
conditions and other matters, many of which are beyond the control of Shoney's
and Enterprises. Any estimates contained in such analyses are not necessarily
indicative of actual past or future results or values, which may be
significantly more or less than such estimates. Actual values will depend upon
many factors, including events affecting the restaurant industry, general
economic, market and interest rate conditions and other factors, including
performance, which generally influence the price of securities.
Salomon is an internationally recognized investment banking firm and
regularly engages in the valuation of businesses and their securities in
connection with mergers and acquisitions and for other purposes. The Shoney's
Board selected Salomon to act as financial advisor on the basis of Salomon's
international reputation and Salomon's familiarity with Shoney's, Enterprises
and the restaurant industry. In the ordinary course of its business, Salomon
actively trades the securities of Shoney's and Enterprises for Salomon's own
account and for the accounts of customers and, accordingly, may at any time
hold a long or short position in such securities. Salomon is not affiliated
with Shoney's or Enterprises.
Pursuant to letter agreements dated December 8, 1994 and July 6, 1995,
between Shoney's and Salomon, Salomon agreed to act as financial advisor to
Shoney's. During the twelve months preceding the date of this Joint Proxy
Statement/Prospectus, Shoney's has paid Salomon investment banking fees in
connection with Shoney's divestiture of its Lee's Famous Recipe division and
Mike Rose Foods, Inc. Shoney's has agreed to pay Salomon fees of approximately
$1,300,000 (based on Shoney's closing stock price of $13.25 on May 10, 1996) in
connection with the Reorganization. Shoney's has also agreed to reimburse
Salomon for its out-of-pocket expenses, including fees and disbursements of
counsel, and to indemnify Salomon and its affiliates, their respective
directors, officers, partners, agents and employees
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and each person, if any, controlling Salomon or any of its affiliates
against certain liabilities, including liabilities under the federal
securities laws, relating to, or arising out of, its engagements.
As noted under the caption "The Reorganization--Reasons for the
Reorganization; Recommendations of the Shoney's Board," the fairness opinion of
Salomon was only one of many factors considered by the Shoney's Board in
determining to approve the Reorganization Agreement. The opinion of Salomon
does not address the relative merits of the Reorganization as compared to any
alternative business strategies that might exist for Shoney's or the effect of
any other transaction in which Shoney's might engage.
OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE OF THE ENTERPRISES BOARD
Alex. Brown has acted as a financial advisor to the Special Committee in
connection with the Reorganization. In connection with such engagement, the
Special Committee requested Alex. Brown to render to the Enterprises Board an
opinion as to the fairness, from a financial point of view, to the shareholders
of Enterprises of the consideration to be received by Enterprises in exchange
for the assets being transferred to Shoney's, including all of the issued and
outstanding shares of capital stock of TPIR, TPIE and TPII, all intercompany
accounts and all of the cash and cash equivalents of Enterprises and
its subsidiaries (other than (a) an amount not to exceed $7,350,000, to pay
specified wind-up expenses and (b) an amount of Retained Cash equal to
$7,500,000, subject to reduction in certain circumstances) being transferred
to Shoney's pursuant to the terms and conditions of the Reorganization
Agreement. Pursuant to the Reorganization Agreement, in exchange for
the transferred assets and the assumption or discharge of certain
liabilities of Enterprises by Shoney's as specified in the Reorganization
Agreement, Enterprises will receive (i) 5,577,102 shares of Shoney's
Common Stock (the "Base Exchange Shares") plus (ii) the number of shares
of Shoney's Common Stock determined by dividing $10,000,000 by the Average
Closing Market Price (the "Cash Exchange Shares"). The consideration
is subject to adjustment in certain circumstances as provided in the
Reorganization Agreement, including an increase in the event of (i) reduction
in the amount of Retained Cash pursuant to the Reorganization Agreement and
(ii) the use of any of the Net Proceeds to permanently retire any portion of
the TPIR Bank Debt.
On February 20, 1996, in connection with the evaluation of the
Reorganization Agreement by the Special Committee and the Enterprises Board,
Alex. Brown made presentations to the Special Committee and, at the Special
Committee's request, the Enterprises Board with respect to the Reorganization
Agreement. In connection with these presentations, the Special Committee and
the Enterprises Board reviewed written materials analyzing the Reorganization
Agreement which Alex. Brown had previously distributed. In addition, Alex.
Brown orally indicated that it expected to be able to render an opinion to the
effect subsequently rendered as set forth below. On March 15, 1996, Alex.
Brown rendered its oral opinion, subsequently confirmed in writing, that, as of
that date, and subject to certain assumptions, factors and limitations as
described below, the consideration to be received by Enterprises in exchange
for the assets being transferred to Shoney's pursuant to the terms and
conditions of the Reorganization Agreement was fair, from a financial point of
view, to the shareholders of Enterprises. Alex. Brown has delivered its written
opinion (the "Alex. Brown Opinion"), dated the date of this Joint Proxy
Statement/Prospectus, described below, which does not differ in any material
respect from its March 15, 1996 written opinion.
THE FULL TEXT OF THE ALEX. BROWN OPINION, WHICH SETS FORTH THE ASSUMPTIONS
MADE, GENERAL PROCEDURES FOLLOWED, OTHER MATTERS CONSIDERED AND THE LIMITATIONS
ON THE REVIEW UNDERTAKEN IN ARRIVING AT SUCH OPINION, IS INCLUDED AS APPENDIX
C TO THIS JOINT PROXY STATEMENT/PROSPECTUS. ENTERPRISES' SHAREHOLDERS ARE
URGED TO READ SUCH OPINION CAREFULLY IN ITS ENTIRETY. THE SUMMARY OF THE ALEX.
BROWN OPINION SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
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The Alex. Brown Opinion addresses only the fairness, from a financial
point of view, to the shareholders of Enterprises of the consideration to be
received by Enterprises in exchange for the assets being transferred to
Shoney's pursuant to the terms and conditions of the Reorganization Agreement,
and does not constitute a recommendation to any Enterprises shareholder as to
how to vote with respect to the Reorganization Agreement or the transactions
contemplated thereby.
Alex. Brown advised the Special Committee with respect to elements of the
negotiations between Enterprises and Shoney's pursuant to which the terms of
the Reorganization were determined, but the final terms were determined through
arm's-length negotiations and were not determined by Alex. Brown. Alex. Brown
was not requested or authorized to solicit, and did not solicit, interest from
any party with respect to the acquisition of the capital stock of TPIR, TPIE or
TPII, Enterprises or any of its constituent businesses or any other transaction
as an alternative to the Reorganization Agreement. In its analysis, however,
Alex. Brown took into consideration that since the public announcement of the
Letter of Intent and the public announcement of the engagement of Alex. Brown
by the Special Committee, Enterprises had not received any offers or proposals
relating to any such acquisition or any other transaction as an alternative to
the Reorganization Agreement.
In rendering its opinion, Alex. Brown reviewed certain publicly available
financial and other information concerning Enterprises and Shoney's and certain
internal financial analyses and other information with respect to the business,
operations and prospects of Enterprises furnished by the management of
Enterprises to Alex. Brown. Alex. Brown also held discussions with members of
the senior management of Enterprises and Shoney's regarding the business and
prospects of their respective companies. In addition, Alex. Brown (a) reviewed
the reported price and trading activity for Enterprises Common Stock and
Shoney's Common Stock; (b) compared certain financial and stock market
information for Enterprises and Shoney's with similar information for certain
selected companies within the restaurant industry whose securities are publicly
traded; (c) reviewed the financial terms of certain recent business
combinations which Alex. Brown deemed relevant in whole or in part; and (d)
performed such other studies and analyses and considered such other factors as
Alex. Brown deemed appropriate for the purpose of rendering the opinion. Alex.
Brown also reviewed the Reorganization Agreement.
In connection with its review, Alex. Brown assumed and relied upon the
accuracy and completeness of the financial and other information used by it in
arriving at its opinion, and did not assume any responsibility to independently
verify any of such information. With respect to the information relating to
the prospects of Enterprises and Shoney's provided to Alex. Brown by the
managements of Enterprises and Shoney's, in rendering its opinion and in making
its presentations to the Special Committee and the Enterprises Board described
below, Alex. Brown assumed that such information was reasonably prepared on
bases reflecting the best available estimates and judgments of the respective
managements of Enterprises and Shoney's at the time of preparation as to the
likely respective future financial performance of Enterprises and Shoney's.
Alex. Brown expressed no view as to such information or the assumptions on
which it was based. Alex. Brown assumed that the transactions contemplated by
the Reorganization Agreement would constitute a "reorganization" within the
meaning of Section 368(a)(1)(C) of the Code and that the Maxcell Lawsuit would
be settled in accordance with the terms of the Maxcell Settlement (and Alex.
Brown expressed no opinion with respect thereto). Alex. Brown further assumed
that pursuant to the Reorganization Agreement a substantial portion of the
Retained Cash would be distributed to shareholders of Enterprises. In arriving
at its opinion, Alex. Brown conducted physical inspections of a limited number
of Shoney's and Enterprises' properties and facilities, but did not conduct
physical inspections of most of such properties or facilities and did not make
or obtain any evaluations or appraisals of any of the properties, facilities,
assets or liabilities of Enterprises or Shoney's. Alex. Brown's opinion was
based upon market, economic and other conditions as they existed and could be
evaluated as of the date thereof.
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Alex. Brown did not express any opinion as to the price at which Shoney's
Common Stock will trade subsequent to consummation of the Reorganization.
In connection with its presentations to the Special Committee and the
Enterprises Board on February 20, 1996 and its oral and written opinions of
March 15, 1996, Alex. Brown performed certain financial and comparative
analyses, including those described below. The preparation of a fairness
opinion involves various determinations as to the most appropriate and relevant
methods of financial analysis and the application of those methods to the
particular circumstances, and therefore such an opinion is not readily
susceptible to summary description. Furthermore, in arriving at its fairness
opinion, Alex. Brown did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Alex.
Brown believes that its analyses must be considered as a whole and that
considering any portions of such analyses and of the factors considered,
without considering all analyses and factors, could create a misleading or
incomplete view of the process underlying the opinion. In its analyses, Alex.
Brown made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond
the control of Enterprises and Shoney's. Any estimates contained in Alex.
Brown's analyses are not necessarily indicative of actual values or predictive
of future results or values, which may be significantly more or less favorable
than as set forth therein.
In connection with the delivery of its written opinions dated March 15,
1996 and the date of this Joint Proxy Statement/Prospectus, Alex. Brown
utilized substantially the same types of analyses as it utilized in providing
its presentation on February 20, 1996.
OVERVIEW OF TERMS OF REORGANIZATION AGREEMENT AND VALUATION OF SHONEY'S
PROPOSAL. Alex. Brown reviewed the principal terms and conditions of the
Reorganization Agreement. Alex. Brown discussed the difficulties Shoney's and
Enterprises were experiencing with the Shoney's concept, and noted that (as is
the case with most franchisees) the overall success or failure of Enterprises
was linked to the overall success or failure of its franchisor, Shoney's, and
the Shoney's concept. In light of this, Alex. Brown noted that the
Reorganization, if consummated, potentially would enable Enterprises'
shareholders to participate in any benefits potentially arising out of cost
reductions, economies of scale and other operating efficiencies associated with
the Reorganization Agreement. See "Pro Forma Contribution Analysis."
Alex. Brown also analyzed the potential effects on Enterprises of
Enterprises continuing as an independent public entity. Alex. Brown noted that
the Reorganization Agreement potentially would enable Enterprises' shareholders
to benefit from the greater depth of management at Shoney's at a time when
Shoney's had committed itself to the revitalization of the Shoney's concept.
Alex. Brown also noted that Shoney's and Enterprises on a combined basis could
be expected to have significantly greater access to financing alternatives than
Enterprises would on a standalone basis. See "Liquidity Analysis."
Alex. Brown analyzed the implied exchange ratio of the Exchange Shares for
shares of Enterprises Common Stock under the Reorganization Agreement and noted
that such ratio was 0.331 (which consisted of 0.272 shares of Shoney's Common
Stock per share of Enterprises Common Stock constituting the Base Exchange
Shares and, based on the February 16, 1996 market price per share of Shoney's
Common Stock of $8.25, 0.059 shares of Shoney's Common Stock per share of
Enterprises Common Stock constituting the Cash Exchange Shares). In its
analysis, Alex. Brown noted that the actual number of Cash Exchange Shares
would be determined by dividing $10,000,000 by the Average Closing Market
Price. Alex. Brown further noted that, based on the February 16, 1996 market
price per share of Shoney's Common Stock, the aggregate implied exchange ratio
for the Exchange Shares plus the Retained Cash was 0.376 shares of Shoney's
Common Stock per share of Enterprises Common Stock (which consisted of 0.331
shares of Shoney's Common Stock per share of Enterprises Common Stock
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constituting all of the Exchange Shares plus 0.045 shares of Shoney's Common
Stock per share of Enterprises Common Stock assuming that all of the Retained
Cash was invested in Shoney's Common Stock at its February 16, 1996 market
price of $8.25).
Alex. Brown calculated the implied market value of the 0.331 shares of
Shoney's Common Stock per share of Enterprises Common Stock, based on the
February 16, 1996 market price per share of Shoney's Common Stock, as $2.73.
Alex. Brown noted that the Retained Cash would have a market value of $0.37 per
share of Enterprises Common Stock assuming (as it did throughout its analysis
described below) that Enterprises' actual wind-up expenses do not exceed the
cash amount to be retained to pay the specified wind-up expenses and that the
full amount of the Retained Cash would be available to Enterprises'
shareholders. This assumed cash amount per share, when combined with the $2.73
implied market value per share of Enterprises Common Stock of the Exchange
Shares, resulted in total implied consideration per share of Enterprises Common
Stock of $3.10.
HISTORICAL STOCK PRICE ANALYSIS. Alex. Brown reviewed and analyzed the
ratio of closing prices per share of the Enterprises Common Stock in relation
to the Shoney's Common Stock on a monthly basis during the period from December
31, 1990 through February 16, 1996, noting that the average historical ratio
was 0.385. Alex. Brown compared this ratio with the implied aggregate exchange
ratio under the Reorganization Agreement of 0.376 for the aggregate of all of
the Exchange Shares and the Retained Cash (assuming for such purposes that all
of the Retained Cash was invested in Shoney's Common Stock at its February 16,
1996 market price). Alex. Brown noted that the implied aggregate exchange
ratio of 0.376 was slightly lower than the average historical ratio of 0.385,
but was above the ratio of closing prices per share in effect at all times
subsequent to the November 1, 1995 announcement of the terms of the Maxcell
Settlement.
Alex. Brown reviewed and analyzed the performance of the per share market
prices of the Enterprises Common Stock and the Shoney's Common Stock with an
index of publicly traded stocks that Alex. Brown deemed to be relevant to
Enterprises and Shoney's (the "Index") and with composite indices of certain
publicly traded stocks of family dining companies and franchisee companies that
Alex. Brown deemed to be relevant to Enterprises and Shoney's (together, the
"Selected Company Indices"). Alex. Brown noted that since August 1994 the
Enterprises Common Stock and the Shoney's Common Stock generally did not
perform as well as the Index or any of the Selected Company Indices.
HISTORICAL AND PROJECTED INCOME STATEMENTS OF ENTERPRISES AND SHONEY'S.
Alex. Brown reviewed the projections for fiscal year 1996 of Enterprises and
Shoney's based on internal estimates provided by the management of each of
Enterprises and Shoney's, and on the basis of various scenarios as to assumed
increases and decreases in same store sales volumes and operating margins of
each of Enterprises and Shoney's. In performing its analyses, Alex. Brown
assumed, as stated above, that the projections and assumptions were reasonably
prepared on bases reflecting the best available estimates and judgments of the
managements of Enterprises and Shoney's at the time of preparation as to the
future financial performance of Enterprises and Shoney's. Alex. Brown
expressed no view as to the projections or the assumptions on which they were
based.
Alex. Brown also reviewed the performance of Enterprises and Shoney's on
an historical financial basis, noting that, in recent periods, Enterprises
experienced significant declines in revenues, EBITDA and net income. Alex.
Brown also noted that Shoney's had experienced declines in revenues, EBITDA and
net income, albeit to a lesser extent than Enterprises.
COMPARISON OF MULTIPLES. Alex. Brown compared selected financial data of
Enterprises with selected financial data of Shoney's, and compared such data
for Enterprises and Shoney's with certain data from publicly traded companies
engaged in businesses considered by Alex. Brown to be relevant to that of
Enterprises and Shoney's.
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Specifically, Alex. Brown calculated ratios for total market enterprise
value (equity market value plus long-term debt less cash) as a multiple of
EBITDA (the "Market EBITDA Multiples") for Enterprises and Shoney's for various
periods, including for fiscal year 1995, on a latest twelve months ("LTM")
trailing basis as of October 1995, for projected fiscal year 1996 and on a
projected LTM trailing basis as of October 1996. For Enterprises, Alex. Brown
also calculated ratios for the implied total enterprise value of Enterprises,
giving effect to the consideration under the Reorganization Agreement, as a
multiple of EBITDA (the "Reorganization EBITDA Multiples") for similar periods.
Alex. Brown calculated these ratios for Enterprises for 1995 as a multiple of
EBITDA, both including and excluding the Net Proceeds from the Maxcell
Settlement. Alex. Brown calculated the Reorganization EBITDA Multiples
excluding the Net Proceeds in order to analyze the valuation of Enterprises
exclusive of cash received from non-operating activities.
Based on this analysis, and as discussed more fully below, Alex. Brown
noted that the Reorganization EBITDA Multiples for Enterprises were higher than
each of (i) the Market EBITDA Multiples for Enterprises based on then-current
trading prices for the Enterprises Common Stock, (ii) the Market EBITDA
Multiples for Shoney's based on then-current trading prices for the Shoney's
Common Stock and (iii) the Market EBITDA Multiples for selected publicly traded
restaurant companies. Based upon Alex. Brown's analysis of the Market EBITDA
multiples for public franchisees and related franchisors, Alex. Brown also
noted that the franchisee Market EBITDA Multiples are generally lower than
those of franchisors.
Alex. Brown calculated that Enterprises' LTM October 1995 and fiscal 1995
Reorganization EBITDA Multiples (with EBITDA calculated on an as-reported
basis, adjusted for certain one-time events) excluding the Net Proceeds were
7.61x and 8.14x, respectively, which were higher than each of (i) the LTM
October 1995 and fiscal 1995 Market EBITDA Multiples for Enterprises (excluding
the Net Proceeds) of 6.89x and 7.37x, respectively, (ii) the LTM October 1995
Market EBITDA Multiple for Shoney's of 6.64x and (iii) the Market EBITDA
Multiples for the Family Dining Companies Group and the Franchisee Companies
Group (each as defined below) of 6.6x and 5.6x, respectively. In addition,
Alex. Brown calculated that Enterprises' LTM October 1995 and fiscal 1995
Reorganization EBITDA Multiples including the Net Proceeds were 8.47x and
9.04x, respectively, which were higher than the LTM October 1995 and fiscal
1995 Market EBITDA Multiples for Enterprises (including the Net Proceeds) of
7.82x and 8.35x, respectively. Alex. Brown noted that the Enterprises
Reorganization EBITDA Multiples calculated to include litigation proceeds also
were higher than the Market EBITDA Multiples for the Family Dining Companies
Group and the Franchisee Companies Group of 6.6x and 5.6x, respectively.
For purposes of the analysis described above, Alex. Brown separated
publicly traded companies engaged in businesses considered by Alex. Brown to be
relevant to that of Enterprises and Shoney's into two groups - family dining
companies and selected franchisee companies (the "Family Dining Companies
Group" and the "Franchisee Companies Group," respectively). The Family Dining
Companies Group consisted of the following companies: IHOP, Perkins Family
Restaurants, Ryan's Steakhouses and Shoney's. The Franchisee Companies Group
consisted of the following companies: DavCo Restaurants, Morgan's Foods, NPC
International and Family Steakhouses of Florida.
FUTURE ENTERPRISES STANDALONE STOCK PRICE ANALYSIS. Alex. Brown computed
hypothetical future trading values per share for the Enterprises Common Stock
based on four alternative projections, which were derived by Enterprises'
management, of future changes in same store sales volumes for the calendar
years 1996 to 1998 and multiples of EBITDA for such calendar years. Such
analysis showed, based on an illustrative multiple of 5.6x, trading prices per
share of Enterprises Common Stock for 1996 ranging from $0.99 to $2.91.
Although in certain of the projection alternatives trading values per share of
Enterprises Common Stock in 1997 and 1998 ranged higher than the implied market
value of the Exchange Shares (using the February 16, 1996 closing market price
of Shoney's Common Stock of
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$8.25), Alex. Brown noted that the reliability of the projections in such years
was significantly reduced, particularly in light of the fact that (i) the
projections had utilized assumptions of significant cost savings for which
no specific plans had yet been prepared and (ii) Enterprises' actual revenues
and earnings in the 1996 fiscal year-to-date period were below the
anticipated results used in such projections.
LIQUIDITY ANALYSIS. Alex. Brown discussed at length with the Special
Committee and the Enterprises Board Enterprises' cash needs, as well as
available financing alternatives. In analyzing the possibility that
Enterprises would continue to operate as an independent public entity, Alex.
Brown noted that based on then-current trends, Enterprises' management expected
that Enterprises could reach its cash flow coverage and net worth covenants
contained in long-term debt agreements in the first quarter of 1996 and that
the TPIR Bank Debt would expire in June 1996. Alex. Brown also noted that the
terms of refinancing of such indebtedness were likely to be costly, if
available at all.
MERGER PREMIUM ANALYSIS. Alex. Brown analyzed (i) the discount or premium
to the market price per share of Enterprises Common Stock of the implied value
per share of Enterprises Common Stock under the Reorganization Agreement and
(ii) the percentage change of such market price from the average market price
per share of Enterprises Common Stock for the 30 days prior to September 5,
1995 (the date of the Letter of Intent) and at various dates from November 1,
1993 (the date the Maxcell Lawsuit was filed) to February 16, 1996. Alex.
Brown noted that the implied value per share of Enterprises
Common Stock under the Reorganization Agreement represented (i) a 24.0% premium
to the market price per share of Enterprises Common Stock on February 16, 1996
and (ii) a 0.8% discount to the market price per share of Enterprises Common
Stock on November 6, 1995, one week after the Maxcell Settlement was announced.
As of those dates, the market prices per share of Enterprises Common Stock
represented decreases of 40.5% and 25.6%, respectively, from the average price
per share of Enterprises Common Stock for the 30 days prior to September 5,
1995. However, Alex. Brown discounted the significance of this analysis for a
number of reasons, including that the trading price of Enterprises Common Stock
was likely to have been significantly affected by Enterprises' weakening
financial performance and by the amount of the Maxcell Settlement. Alex. Brown
noted that the market price per share of the Enterprises Common Stock dropped
from $4.00 on November 1, 1995 (the date of announcement of the Maxcell
Settlement) to $3.13 on November 6, 1995, one week later.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES. Alex. Brown compared
selected financial data of Enterprises with certain financial data from the
Family Dining Companies Group, the Franchisee Companies Group and other
selected restaurant industry companies (including Apple South, Volunteer
Capital Corp., Cracker Barrel and Bob Evans). Based on a range of EBITDA
multiples of from 4.6x to 6.6x and Enterprises' 1995 EBITDA as reported, Alex.
Brown calculated that the implied value per share of Enterprises Common Stock
ranged from $0.10 to $1.83, which Alex. Brown noted was less than the implied
market value per share of the consideration payable under the Reorganization
Agreement (including the Exchange Shares and the Retained Cash).
DISCOUNTED CASH FLOW ANALYSIS. Alex. Brown performed a discounted cash
flow analysis with respect to Enterprises on a standalone basis, based on
various scenarios as to assumed increases and decreases in same store sales
volumes and operating margins. The discounted cash flow analysis is a standard
technique employed in the valuation of businesses. One important parameter in
such analysis is the terminal value (i.e., the long-term sale or disposal
value) of the relevant business, which can be determined, for the purposes of
such analysis, by a variety of techniques, including using an assumed multiple
of cash flow or earnings. Alex. Brown calculated the terminal values at the
end of 1998 by applying multiples of from 5.3x to 5.9x to the terminal year's
projected EBITDA. These terminal values reflected Alex. Brown's judgment as to
an appropriate range, based on its assessment of the trading multiples of LTM
EBITDA for the companies in the Franchisee Companies Group. The cash flow
streams and terminal values were then discounted using discount rates of from
18% to 22%. These discount rates reflected Alex. Brown's judgment as to an
appropriate range, based on its assessment of the trading
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price volatility and implied costs of capital for Enterprises, with
consideration given to the Capital Assets Pricing Model widely used in the
industry. Alex. Brown calculated the estimated unleveraged free cash flow
Enterprises is expected to generate over the three-year calendar period ending
December 31, 1998 based on management's projections.
Alex. Brown's discounted cash flow analyses resulted in present values
ranging from $(0.44) to $1.93 per share. Alex. Brown noted that these implied
values were less than the implied market value of the consideration payable
under the Reorganization Agreement (including the Exchange Shares and the
Retained Cash). Alex. Brown noted that these analyses did not purport to be
indicative of actual values or expected values of the shares of Enterprises
Common Stock. Alex. Brown noted that the discounted cash flow analysis is a
widely used valuation methodology, but noted that it relies on numerous
assumptions, including earnings, growth rates, dividend payout rates, terminal
values and discount rates.
ANALYSIS OF SELECTED MERGER TRANSACTIONS. Alex. Brown compared selected
financial data, including (where available) equity purchase price as a multiple
of LTM net income and book value, and total enterprise value (equity value plus
long-term debt less cash) as a multiple of LTM revenue, LTM EBITDA and LTM
EBIT, for selected restaurant industry acquisitions. Alex. Brown noted there
were very few relevant merger and acquisition transactions for which sufficient
financial data was available to enable relevant cash flow or earnings multiples
for the acquisitions to be derived. Alex. Brown noted that while
there were several acquisitions for which cash flow and earnings multiples were
available, Alex. Brown noted that the companies involved had significantly
different business strategies, significant differences in corporate size,
operating margins, operating trends and customer segments, and the existence of
intangible assets not reflected in earnings than those of Enterprises. While
Alex. Brown analyzed revenue multiples for selected restaurant industry
transactions, Alex. Brown noted that the use of such multiples would not
produce a reliable indication of the value of Enterprises, particularly
compared to cash flow and earnings multiples, which are regarded as more
appropriate indicators of value.
PRO FORMA EARNINGS PER SHARE ANALYSIS OF THE REORGANIZATION. Alex. Brown
analyzed the pro forma EPS of Shoney's and Enterprises on a combined basis
based on managements' projections, giving effect to certain synergies
anticipated to result from the Reorganization. Alex. Brown noted that
substantial synergies would need to be achieved if the transaction were to be
accretive to Shoney's earnings.
PRO FORMA CONTRIBUTION ANALYSIS. Alex. Brown analyzed the contribution of
each of Enterprises and Shoney's to the pro forma 1995 operating results and
projected pro forma 1996 operating results of the combined company based on
managements' projections under various scenarios for future same store sales
growth and margins. For fiscal 1995, Alex. Brown calculated that Enterprises
would have contributed 12.8% of pro forma EBITDA, 2.8% of pro forma EBIT and a
net loss for 1995 (assuming no synergies). For projected 1996, Alex. Brown
calculated that Enterprises would contribute a range of from 13.8% to 14.8% of
pro forma EBITDA, a range of from 4.8% to 7.6% of pro forma EBIT, and a net
loss (assuming no synergies). Alex. Brown then calculated that the Exchange
Shares would represent 14% of the pro forma market capitalization of
Enterprises and Shoney's on a combined basis, which Alex. Brown noted was
approximately equal to or greater than the relative earnings and cash flow
contribution made by Enterprises to the pro forma combined entity.
GENERAL. Alex. Brown is an internationally recognized investment banking
firm and, as a customary part of its investment banking activities, is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, private
placements, and valuations for other purposes. In the ordinary course of
business, Alex. Brown may actively trade the securities of Shoney's and
Enterprises for its own account and for the accounts of its customers and,
accordingly, at any time may hold a long or short position in such securities.
In addition, Alex. Brown regularly publishes research reports regarding the
businesses and securities of publicly owned companies in the restaurant
industry, including Shoney's. The Special Committee selected Alex. Brown as its
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financial advisor because of Alex. Brown's expertise, reputation and
familiarity with the restaurant industry.
Pursuant to the terms of the Alex. Brown engagement letter, in connection
with the Reorganization, Alex. Brown will be entitled to aggregate fees from
Enterprises of $600,000, of which (a) $100,000 was paid upon Alex. Brown's
engagement, (b) $250,000 was paid upon initial submission of its March 15, 1996
written opinion, (c) $50,000 is payable in connection with Alex. Brown's
providing testimony in connection with the plaintiffs' confirmatory discovery
agreed to as part of the Class Action Settlement and (d) the remainder of which
($200,000) will become payable upon consummation of the Reorganization.
Enterprises has also agreed to reimburse Alex. Brown for expenses incurred by
Alex. Brown (including the fees and disbursements of Alex. Brown's counsel) and
to indemnify Alex. Brown against certain liabilities, including liabilities
under the federal securities laws.
INTERESTS OF CERTAIN PERSONS IN THE REORGANIZATION
Certain directors and officers of Enterprises have interests in the
Reorganization that are in addition to the interests of shareholders of
Enterprises, generally, and which may create perceived conflicts of interests.
These interests include the payment by Enterprises, as wind-up expenses, or the
assumption by Shoney's of certain employment and severance obligations of
Enterprises, the repayment and/or assumption of certain debt held by
investors related to certain directors of Enterprises, the fact that
such investors own equity and debt securities of Shoney's, the fact that
a director of Enterprises has been retained, effective March 1, 1996, as a
consultant to Shoney's and the extended exerciseability and acceleration of
vesting of certain Enterprises Options held by officers and directors of
Enterprises. These interests are discussed below.
The employment agreements of J. Gary Sharp, the President, Chief Executive
Officer and a director of Enterprises, and Frederick W. Burford, the Executive
Vice President, Chief Financial Officer, Secretary and a director of
Enterprises, are with both Enterprises and TPIR, and the severance provisions
therein will be triggered by the Reorganization. To the extent that Mr. Sharp
and/or Mr. Burford do not continue his or their employment with Shoney's after
the Reorganization, such person or persons will be entitled to receive
severance payments, and such severance obligations will be paid out of the cash
allocated to Enterprises for wind-up expenses. The amounts payable to Messrs.
Sharp and Burford under their employment agreements would be approximately
$1,000,000 and $300,000, respectively. Mr. Burford could also be entitled to
certain additional payments under Enterprises' relocation policy.
Douglas K. Bratton, Thomas M. Taylor and John L. Marion, Jr., directors of
Enterprises, are affiliated with The Airlie Group L.P. Messrs. Bratton, Taylor
and Marion abstained from voting on the Reorganization Agreement in view of the
fact that (a) The Airlie Group L.P. and certain related investors
(collectively, the "Investor Group") own 1,899,120 shares of Enterprises Common
Stock and own Enterprises Warrants to acquire an additional 1,000,000 shares of
Enterprises Common Stock, (b) the Enterprises Warrants are proposed to be
exchanged for Shoney's Warrants in the Reorganization, (c) the Investor Group
owns all of the outstanding principal amount of the Private Debentures, which
are proposed to be redeemed by Shoney's at the Closing, and an aggregate of
$7,100,000 in principal amount of the Public Debentures, which are proposed to
be assumed by Shoney's at the Closing, and (d) the Investor Group owns an
aggregate of 901,300 shares of Shoney's Common Stock and $10,000,000 in
principal amount of Shoney's Subordinated Zero Convertible Debentures.
Lawrence F. Levy, a director of Enterprises, voted in favor of the
Reorganization Agreement after disclosing to the Enterprises Board that (a)
Levy Food Service Limited Partnership, a partnership affiliated with Mr. Levy,
was retained as a consultant to Shoney's in connection with "Shoney's"
Restaurants concept development and certain related issues on a month to month
basis, effective March 1, 1996, for a fee of $15,000 per month, (b) Levy
Restaurants, Inc., a corporation affiliated with Mr. Levy, has a
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consulting arrangement with The Airlie Group L.P. to provide general advice on
the restaurant industry (including advice relating to Enterprises) for which it
is compensated, and (c) a corporation owned by Mr. Taylor has had discussions
with Mr. Levy regarding the formation of a partnership for investment in
restaurant companies (other than Enterprises and Shoney's) in which both
Mr. Levy and such corporation would invest.
The officers and directors of Enterprises are owners of Enterprises
Options in varying amounts. The terms of the employment agreements of J. Gary
Sharp and Frederick W. Burford provide that each will be deemed to be an
"employee" for a period of one year following the termination of his employment
agreement solely for purposes of retaining the exerciseability of his
Enterprises Options during that period. Pursuant to the terms of a Termination
Agreement, Receipt and Release dated January 26, 1995, Stephen R. Cohen, the
former Chairman of the Board and a shareholder of Enterprises, will be deemed
an "employee" of Enterprises until July 31, 1998 solely for purposes of
retaining the exerciseability of his Enterprises Options. The December 26,
1983 employment agreement between TPIR and Gary W. Borth, the Vice President of
Operations of TPIR, provides that, upon a change in control of TPIR, Mr. Borth
may elect to surrender to TPIR all of his rights in outstanding Enterprises
Options and receive payment equal to the difference between: (a) the option
prices of the shares subject to the surrendered Enterprises Options; and (b)
the higher of the average aggregate price per share paid in connection with the
change in control or the then fair market value per share of such shares.
Substantially all of the Shoney's Options issued in exchange for the
Enterprises Options pursuant to the Reorganization Agreement will have
exercise prices which are significantly above the current market price of
Shoney's Common Stock, and, except as noted above, will be required to be
exercised within 90 days of the time such person ceases to be an officer or
director of Enterprises, TPIR or TPIR's successor.
In addition, after the date of approval by the Enterprises Board of the
Reorganization Agreement, Haney Long, Vice President of Procurement and
Distribution of TPIR and an executive officer of Enterprises, has had
preliminary discussions with Shoney's regarding the possibility of becoming a
consultant to Shoney's prior to the Closing and has accepted an offer of
employment with Shoney's following the Closing and J. Gary Sharp, President,
Chief Executive Officer and a director of Enterprises, has had preliminary
discussions with Shoney's regarding the possibility of becoming a Shoney's
franchisee after the Closing.
The members of the Special Committee are Osvaldo Cisneros, Paul James Siu
and Edwin B. Spievack. Members of the Special Committee each received a fee of
$2,000, plus out-of-pocket expenses, for each in-person meeting of the Special
Committee attended by such member and for each day (other than a day during
which an in-person meeting of the Special Committee occurred) from and after
September 12, 1995, the date the Special Committee was established, through
February 20, 1996, the date the Special Committee delivered its recommendation
of the Reorganization Agreement to the Enterprises Board, during which such
member devoted a substantial portion of the day to Special Committee affairs.
Mr. Cisneros received $0, Mr. Siu received $59,185 and Mr. Spievack received
$89,917 as compensation for their activities with respect to the Special
Committee.
CLASS ACTION SETTLEMENT
During 1995, the three Class Action Lawsuits were filed against
Enterprises and the Enterprises Board. The plaintiffs alleged, among other
things, that Enterprises' shareholders would receive inadequate consideration
in the proposed Reorganization, that the proposed Reorganization was the result
of unfair dealing and economic coercion and that the Enterprises Board has
breached its fiduciary duties to Enterprises' shareholders to maximize
shareholder value. The plaintiffs sought class action status and to enjoin the
proposed Reorganization and recover damages. Concurrent with the execution of
the Reorganization Agreement, Enterprises signed a letter of understanding on
March 15, 1996 for the Class Action Settlement of the Class Action Lawsuits.
The Class Action Settlement would entail the payment of
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up to $250,000 in legal fees and expenses and the consolidation and settlement
of the Class Action Lawsuits and is subject to several conditions,
including confirmatory discovery, court approval of the Class Action Settlement
and the closing of the Reorganization. There can be no assurance that the Class
Action Settlement will be consummated.
MARLIN CLAIMS
In late-February 1996, Enterprises concluded that Marlin had been
significantly overcharging TPIR for restaurant maintenance services under an
agreement entered into in October 1995. On or about March 4, 1996, Enterprises
notified Shoney's of the existence of the issue. On March 7, 1996, Enterprises
filed a civil action in the Circuit Court of Palm Beach County against Marlin
and Aetna. Enterprises contends, among other things, that Marlin breached the
terms of a maintenance service agreement that TPIR had entered into with Marlin
by failing to perform timely maintenance as required by the agreement,
overcharging for parts and materials, improperly billing for labor and
improperly charging for overhead (the "Marlin Claims"). Also, on March 7, 1996,
Marlin filed a separate action in the U.S. District Court of Virginia against
TPIR alleging, among other things, that TPIR breached its contract with Marlin
by failing to pay amounts owed under the contract and claiming damages in
excess of $2,200,000.
Shoney's and Enterprises agreed in the Reorganization Agreement to provide
for a cap in the amount of repair and maintenance expense exposure to be
assumed by Shoney's, based on historical repair and maintenance expenses, with
the remainder to be offset against the Expense Allotment set aside for
specified wind-up expenses or the additional Retained Cash, if necessary. The
amount of repair and maintenance expenses to be borne by Enterprises out of the
specified wind-up expenses is the sum of (a) the amount by which actual repair
and maintenance expenses incurred by Enterprises or TPIR for the year ended
December 31, 1995 exceed $13,235,000; plus (b) the amount by which actual
repair and maintenance expenses incurred by Enterprises or TPIR for the two
periods ended February 25, 1996 exceed $1,457,000.
At the Closing, pursuant to the terms of the Reorganization Agreement,
TPIR will assign to Enterprises all rights to prosecute the Marlin Claims,
which rights shall include the right to receive (i) payments from Marlin or its
affiliates as a result of the settlement of the Marlin Claims or a judgment
with respect thereto, (ii) payments under certain payment or performance bonds,
for which Marlin is the principal and Aetna is the surety, which were provided
for the benefit of TPIR in connection with the restaurant maintenance services
agreement and (iii) any insurance recovery under any insurance policy
maintained by Marlin or its affiliates, Enterprises or TPIR which covers
liabilities arising in connection with the Marlin Claims, including the right
to prosecute any claims in the name of TPIR arising under any policy.
STOCK OPTIONS
Pursuant to the Reorganization Agreement, at the Closing, each employee of
Enterprises, TPIR, TPIE or TPII or of any of the subsidiaries of TPIR who has
outstanding an Enterprises Option will be issued a Shoney's Option to purchase
shares of Shoney's Common Stock in exchange for the Enterprises Option.
The number of shares of Shoney's Common Stock subject to the Shoney's
Option will be that number of shares subject to the Enterprises Option for
which the Shoney's Option was exchanged multiplied by the Exchange Ratio, which
is calculated as a fraction. The numerator of the Exchange Ratio is the number
of Exchange Shares and the denominator of the Exchange Ratio is the number of
shares of Enterprises Common Stock outstanding on the Closing Date of the
Reorganization Agreement. The exercise price for the shares subject to the
Shoney's Option shall be the exercise price for the shares subject to the
Enterprises Option for which the Shoney's Option was exchanged divided by the
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Exchange Ratio. In determining the vesting or exercisability, as well as the
term, of any Shoney's Option granted, the grant date of the Shoney's Option
will be the grant date of the Enterprises Option for which the Shoney's Option
was exchanged subject to the extended exerciseability and the acceleration of
vesting of certain Enterprises Options for which Shoney's Options are exchanged
which occurs as a result of the Closing.
Following the Reorganization, Enterprises will remain obligated to each of
these optionholders to pay the optionholder, upon exercise of the Shoney's
Option, an amount of cash (but not Exchange Shares) he or she would have been
entitled to receive in the liquidation of Enterprises, had the Enterprises
Option been exercised immediately prior to the Reorganization. An aggregate of
up to approximately $613,736 (assuming all $7,500,000 will be retained by
Enterprises as Retained Cash) is required to be retained by Enterprises for the
benefit of holders of Shoney's Options until such time as such options are
exercised, are terminated or expire. Under the Plan of Complete Liquidation,
if Shoney's Options are not exercised prior to the Final Liquidating
Distribution Record Date, such cash, after providing for the expenses of the
distribution thereof, will be distributed to Enterprises' shareholders.
As of April 16, 1996, a total of 1,926,957 shares of Enterprises Common
Stock, with an average exercise price of approximately $7.21 per share, were
subject to outstanding Enterprises Options. Had the Closing occurred on that
date, Shoney's Options to purchase, in the aggregate, approximately 625,683
shares of Shoney's Common Stock with an average exercise price of
approximately $22.21 per share, would have been issued in exchange for the
Enterprises Options.
WARRANTS
Pursuant to the Reorganization Agreement, at the Closing, the holders of
the Enterprises Warrants to purchase shares of Enterprises Common Stock
contained in the Warrant Purchase Agreement dated March 19, 1993, by and among
Enterprises and The Bass Management Trust, Sid R. Bass Management Trust, TPI
Investors, L.P., Lee M. Bass and The Airlie Group L.P. will be issued Shoney's
Warrants to purchase shares of Shoney's Common Stock pursuant to a Warrant
Purchase Agreement to be dated as of the Closing Date by and among Shoney's,
The Bass Management Trust, Sid R. Bass Management Trust, TPI Investors, L.P.,
Lee M. Bass and The Airlie Group, L.P.
The number of shares of Shoney's Common Stock subject to the Shoney's
Warrants will be the number of shares of Enterprises Common Stock subject to
the Enterprises Warrants multiplied by the Exchange Ratio. The exercise price
for the shares subject to the Shoney's Warrants will be the exercise price for
the shares subject to the Enterprises Warrants divided by the Exchange Ratio.
As of April 16, 1996, a total of 1,000,000 shares of Enterprises Common
Stock, at an exercise price of $11.00 per share, were subject to the
Enterprises Warrants. Had the Closing occurred on that date, Shoney's Warrants
to purchase, in the aggregate, 324,700 shares of Shoney's Common Stock at an
exercise price of $33.88 per share, would have been issued in exchange for the
Enterprises Warrants.
Following the Reorganization, Enterprises will remain obligated to each of
these warrantholders to pay the warrantholder, upon exercise of the Shoney's
Warrants, an amount of cash (but not Exchange Shares) such warrantholders would
have been entitled to receive in the liquidation of Enterprises, had the
Enterprises Warrant been exercised immediately prior to the Reorganization. An
aggregate of up to approximately $318,500 (assuming all $7,500,000 will be
retained by Enterprises as Retained Cash) is required to be retained by
Enterprises for the benefit of holders of Shoney's Warrants until such time as
such options and warrants are exercised, are terminated or expire. Under the
Plan of Complete Liquidation, if Shoney's Warrants are not exercised prior to
the Final Liquidating Distribution Record Date, such cash, after providing for
the expenses of the distribution thereof, will be distributed to Enterprises'
shareholders.
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PUBLIC DEBENTURES
Enterprises has outstanding $51,563,000 in aggregate principal amount of
Public Debentures. The Public Debentures are convertible at the option of the
holder into shares of Enterprises Common Stock at any time prior to maturity,
except under certain circumstances when the Public Debentures have been called
for redemption or have become subject to repurchase, at a conversion price of
$6.50 per share, subject to adjustment in certain events. The Public
Debentures mature on July 15, 2002 and are redeemable, in whole or in part, at
the option of Enterprises at any time on or after July 15, 1995, initially at
105.775% of their principal amount, with such redemption price declining each
July 15th thereafter by .825% until the Public Debentures are redeemable at a
redemption price of 100% of their principal amount on July 15, 2002, together
with accrued and unpaid interest. The holders of the Public Debentures may
also require Enterprises to repurchase the Public Debentures, in whole or in
part, in certain circumstances involving a change in control of Enterprises as
defined in the indenture covering the Public Debentures (the "Indenture"). The
Reorganization is not deemed to be a change in control of Enterprises, as
defined in the Indenture. The Public Debentures are unconditionally guaranteed
(the "Guarantee") on a subordinated basis by TPIR. The Public Debentures and
the Guarantee are subordinated in right of payment to all existing and future
senior indebtedness, as defined in the Indenture, of Enterprises.
The Indenture does not prohibit or limit the ability of Enterprises or
any of its subsidiaries to incur additional indebtedness, including that which
will rank senior to the Public Debentures. The Indenture does, however,
prohibit Enterprises and its subsidiaries from making (i) any dividend
or any distribution on Enterprises Common Stock (other than dividends or
distributions payable solely in capital stock of Enterprises), or (ii) any
payment on the account of the purchase or redemption of Enterprises Common
Stock, or (iii) any payment on the account of the redemption, defeasance or
other acquisition or retirement for value of any Subordinated Indebtedness
(as defined in the Indenture); subject to exceptions for (x) the repurchase,
redemption defeasance or other acquisition of common stock or Subordinated
Indebtedness (as defined in the Indenture) in an amount not to exceed 100%
of the gross proceeds received by Enterprises or TPIR from the issuance of
common stock or Subordinated Indebtedness of Enterprises or TPIR, or (y)
pursuant to an employee benefit or savings plan or any employment or
termination agreement. The Indenture also restricts the ability of
Enterprises and its subsidiaries from making certain investments, including the
making of a loan or the purchase of stocks, bonds, or other securities issued
by any other person or any capital expenditure, but excluding certain other
investments, e.g. investments in the Restaurant Business (as defined in the
Indenture).
In the Reorganization, Shoney's will assume, by supplemental indenture,
the Public Debentures, and Enterprises will be released from obligations and
liabilities under the Public Debentures. Following the Reorganization, each of
the Public Debentures will be convertible into that number of shares of
Shoney's Common Stock, and the right to receive from Shoney's that amount of
cash as the holder of such Public Debenture would have been entitled to receive
in connection with the Reorganization, had the holder of such converted Public
Debentures converted his or her Public Debenture into shares of Enterprises
Common Stock immediately prior to the Closing, and Shoney's will be bound by
the terms of the Indenture governing the Public Debentures, as supplemented.
The assumption of the Public Debentures by Shoney's might have the effect of
discouraging or making more difficult an attempt to remove incumbent management
or to gain control of Shoney's, even if the transaction were perceived by
shareholders generally to be favorable to them. Persons and entities related
to certain directors of Enterprises own an aggregate of $7,100,000 in principal
amount of the Public Debentures.
As of April 16, 1996, the Public Debentures were convertible into an
aggregate of 7,932,769 shares of Enterprises Common Stock. Had the Closing
occurred on that date, the Public Debentures would, upon assumption by
Shoney's, be convertible into 2,575,770 shares of Shoney's Common Stock plus
the right to receive from Shoney's cash in an amount equal to their
proportionate share (assuming conversion
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of the Public Debentures immediately prior to the Closing) of the Retained
Cash, if any, distributed to Enterprises' shareholders pursuant to the Plan of
Complete Liquidation.
ACCOUNTING TREATMENT
The Reorganization will be accounted for as a purchase for accounting and
financial reporting purposes. Purchase accounting for a combination is similar
to the accounting treatment used in the acquisition of any asset group. The
fair market value of the consideration (cash, stock, debt securities, etc.)
given by the acquiring firm is used as the valuation basis of the combination.
The assets and liabilities of the acquired entity are revalued to their
respective fair market values at the combination date. The financial statements
of the acquiring company reflect the combined operations from the date of
combination.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
THE DISCUSSION BELOW IS LIMITED TO SHAREHOLDERS OF ENTERPRISES THAT ARE
U.S. PERSONS, WITHIN THE MEANING OF SECTION 7701(A)(30) OF THE CODE AND DOES
NOT APPLY TO SHAREHOLDERS, SUCH AS DEALERS IN SECURITIES, INSURANCE COMPANIES,
FINANCIAL INSTITUTIONS AND TAX-EXEMPT ORGANIZATIONS AND TRUSTS, THAT ARE
SUBJECT TO SPECIAL TAX REGIMES, OR SHAREHOLDERS WHO ACQUIRED SHARES OF
ENTERPRISES COMMON STOCK PURSUANT TO THE EXERCISE OF EMPLOYEE STOCK OPTIONS
OR RIGHTS OR OTHERWISE AS COMPENSATION. THE HOLDERS OF ENTERPRISES COMMON
STOCK, ENTERPRISES OPTIONS, ENTERPRISES WARRANTS, PUBLIC DEBENTURES AND
PRIVATE DEBENTURES ARE URGED TO CONSULT THEIR OWN TAX ADVISERS AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE REORGANIZATION, INCLUDING THE
APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL AND OTHER TAX LAWS.
General. The principal federal income tax consequence that is expected to
result from the Reorganization is that, for federal income tax purposes, the
Reorganization will be treated as a reorganization within the meaning of
Section 368(a)(1)(C) of the Code, and, accordingly, (a) no gain or loss will be
recognized by Shoney's or Enterprises as a result of the Reorganization; (b)
Enterprises' shareholders will realize gain or loss in connection with the
Reorganization in an amount equal to the difference between (i) the fair market
value of the Shoney's Common Stock plus the amount of any cash received in the
exchange, and (ii) their tax basis in the Enterprises Common Stock exchanged
therefor, but no loss will be recognized by Enterprises' shareholders in
connection with the Reorganization, and any gain realized will be recognized
only to the extent of any cash received in the Reorganization; (c) the tax
basis of the Shoney's Common Stock to be received by Enterprises' shareholders
in connection with the Reorganization will be the same as the basis in the
Enterprises Common Stock surrendered in exchange therefor, reduced by the
amount of any cash received in the Reorganization and increased by the amount
of any gain recognized in the Reorganization (other than gain recognized on the
amount allocable to a fractional share interest for which cash is received);
and (d) the holding period of the Shoney's Common Stock to be received by
Enterprises' shareholders in connection with the Reorganization will include
the holding period of the Enterprises Common Stock surrendered in exchange
therefor, provided that the Enterprises Common Stock is held as a capital
asset.
Consummation of the Reorganization is dependent upon, among other
conditions, receipt by Shoney's and Enterprises of opinions of counsel to each
of Shoney's and Enterprises, dated as of the Closing Date, that the
Reorganization will be treated as a reorganization within the meaning of
Section 368(a)(1)(C) of the Code. Persons receiving this Joint Proxy
Statement/Prospectus should be aware that opinions of counsel are not binding
on the IRS or any court. If the Reorganization fails to qualify as a tax-free
reorganization, it would be treated for federal income tax purposes as a
taxable sale by Enterprises of its assets to Shoney's, followed by a taxable
liquidation of Enterprises.
Consequences of Receipt of Cash in Lieu of Fractional Shares.
Shareholders of Enterprises who are entitled to receive cash in lieu of a
fractional share of Shoney's Common Stock in connection with the
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Reorganization generally will recognize, as of the Closing Date, gain (or loss)
equal to the difference between such cash amount and the shareholder's
basis in the fractional share interest. Any gain (or loss) recognized will be
capital gain (or loss) if the Shoney's Common Stock is held by such shareholder
as a capital asset. Any capital gain (or loss) will be a long term capital gain
(or loss) if the holding period for the shares of Enterprises Common Stock is
more than one year.
No IRS Rulings. The parties do not intend to request a ruling from the IRS
regarding the federal income tax consequences of the Reorganization.
REGULATORY APPROVALS
Shoney's and Enterprises have filed a notification with the Federal Trade
Commission (the "FTC") and the Antitrust Division of the Department of Justice
(the "Antitrust Division") pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"). A 30 day waiting period
is required under the HSR Act, unless earlier terminated by the FTC and the
Antitrust Division. On May 3, 1996, Shoney's and Enterprises were notified of
the early termination of the waiting period. At any time before or after the
Closing Date, any state could take such action under its own antitrust laws as
it deems necessary or desirable, including seeking to enjoin the consummation
of the Reorganization or seeking divestiture of substantial assets of Shoney's
or Enterprises. Private parties may also seek to take legal action under
antitrust laws under certain circumstances.
A filing with and the approval of the Hawaii Insurance Department will
also be required in connection with Shoney's acquisition of TPII and TPIR as a
part of the Reorganization. Shoney's has notified the Hawaii Insurance
Department of the Reorganization but, as of May 10, 1996, no approval has yet
been received.
RESALE RESTRICTIONS
The shares of Shoney's Common Stock issued pursuant to the Reorganization
Agreement will be freely transferable under the Securities Act except for
shares issued to any shareholder who may be deemed to be an "affiliate" of
Enterprises for purposes of Rule 145 under the Securities Act as of the date of
the Special Meeting. Affiliates may not sell their shares of Shoney's Common
Stock acquired in connection with the Reorganization except pursuant to an
effective registration statement under the Securities Act covering such shares
or in compliance with Rule 145 promulgated under the Securities Act or another
applicable exemption from the registration requirements of the Securities Act.
Persons who may be deemed to be affiliates of Enterprises generally include
individuals or entities that control or are controlled by or are under common
control with Enterprises and may include certain officers and directors of
Enterprises as well as principal shareholders of Enterprises.
Enterprises has agreed in the Reorganization Agreement to use its best
efforts to cause each director, executive officer and other person who is an
affiliate of Enterprises to enter into and deliver to Shoney's prior to closing
an agreement that such person will not, directly or indirectly, sell, pledge,
transfer or otherwise dispose of shares of Shoney's Common Stock to be received
by such person in the Reorganization except in compliance with the applicable
provisions of the Securities Act and rules and regulations thereunder.
NYSE LISTING
The Shoney's Common Stock is listed on the NYSE. It is a condition to
Enterprises' obligation to consummate the Reorganization that the Shoney's
Common Stock to be issued to Enterprises' shareholders in connection with the
Reorganization shall have been approved for listing on the NYSE, subject only
to official notice of issuance.
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SHONEY'S FINANCING
One condition of the Reorganization is that Shoney's receive a commitment
(to be funded at the Closing of the Reorganization) for up to $60,000,000 to
partially finance the transaction contemplated by the Reorganization.
To facilitate the acquisition, as well as ongoing working capital and
capital expenditure needs, Shoney's has secured a $100,000,000 senior secured
Bridge Loan ("Bridge") from Canadian Imperial Bank of Commerce ("CIBC"). The
Bridge bears interest at the London Interbank Offered Rate (LIBOR) plus 2.50%
with 0.50% increases in the rate of interest nine, twelve, and eighteen months
after Closing the Reorganization. The Bridge required an amendment to Shoney's
Reducing Revolving Credit Facility ("Revolver") and the approval of a majority
of the banks in the syndicate which underwrites that facility. Upon closing of
the Bridge and the Amendment to the Revolver, $20,000,000 under the Bridge was
made available to Shoney's. The remaining $80,000,000 will be made available
upon Closing of the Reorganization. The Bridge will be secured by assets
acquired from Enterprises in the Reorganization and a pledge of other
unencumbered assets of Shoney's.
Shoney's presently intends to repay the Bridge within twenty-four months
of Closing of the Reorganization with proceeds derived from debt or equity
issues and/or asset sales. If not repaid, the Bridge will convert into a term
loan on May 3, 1998. The term loan will have a bullet maturity of October 22,
1999. Upon conversion into a term loan, Shoney's must pay a fee representing
3% of the outstanding balance of the Bridge at the conversion date.
PLAN OF COMPLETE LIQUIDATION
The following is a brief summary of the material provisions of the Plan of
Complete Liquidation, a copy of which is attached as APPENDIX D to this Joint
Proxy Statement/Prospectus and is incorporated herein by reference. The summary
is qualified by reference to the full text of the Plan of Complete Liquidation.
SUMMARY OF THE PLAN OF COMPLETE LIQUIDATION
The Plan of Complete Liquidation provides for the voluntary dissolution
and complete liquidation of Enterprises in accordance with Chapter 12 of Title
14A of the NJBCA. The voluntary dissolution and complete liquidation is an
integral aspect of the Reorganization and is called for by the Reorganization
Agreement. As part of the approval of the Reorganization Agreement,
Enterprises' shareholders are approving the voluntary dissolution and complete
liquidation described in the Plan of Complete Liquidation. The approval of the
Reorganization, including the Plan of Complete Liquidation, shall be deemed
adopted and shall become effective upon its approval at the Enterprises Special
Meeting by the affirmative vote of a majority of the votes cast by the holders
of the Enterprises Common Stock, subject to the Closing, and upon filing of a
Certificate of Dissolution with the Secretary of State of New Jersey.
On and after the date of dissolution of Enterprises (the "Dissolution
Date"), Enterprises shall continue its corporate existence but shall carry on
no business except for the purpose of winding up its affairs by (a) collecting
its assets, (b) conveying for cash or upon deferred payment, with or without
security, such of its assets as are not to be distributed in kind to its
shareholders (including returning to Shoney's any of the Expense Allotment not
utilized for the payment of wind-up expenses), (c) paying, satisfying and
discharging its debts and other liabilities and (d) doing all other acts
required to liquidate its business and affairs. It is intended by the
Enterprises Board that the liquidation of Enterprises shall commence on the
Dissolution Date and that such liquidation, and the distribution of the net
assets of Enterprises, shall be completed as soon as practicable thereafter and
in any event within one year after the date of the Enterprises Special Meeting.
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Upon the dissolution of Enterprises, the officers, directors and
shareholders of Enterprises shall continue to function in the same manner as if
the dissolution had not occurred. Without limiting the generality of the
foregoing: (i) the directors of Enterprises shall not be deemed to be trustees
of its assets and shall be held to no greater standard of conduct than that
prescribed by Section 14A:6-14 of the NJBCA; (ii) title to Enterprises' assets
shall remain in Enterprises until transferred by it in the corporate name;
(iii) the dissolution shall not change quorum or voting requirements for the
Enterprises Board or Enterprises' shareholders, nor shall it alter provisions
regarding election, appointment, resignation or removal of, or filling
vacancies among, directors or officers, or provisions regarding amendment or
repeal of by-laws or adoption of new by-laws; (iv) shares of Enterprises Common
Stock may be transferred until the Final Liquidating Distribution Record Date;
(v) Enterprises may sue and be sued in its corporate name and process may issue
by and against Enterprises in the same manner as if dissolution had not
occurred, subject to the provisions of New Jersey law; and (vi) no action
brought against Enterprises prior to its dissolution shall abate by reason of
such dissolution.
POWERS OF DIRECTORS AFTER DISSOLUTION
Upon dissolution of Enterprises, the directors of Enterprises shall have
the following powers and authorities: (i) to employ, terminate the employment
of, and fix the compensation and other terms of employment of such officers,
employees, agents, attorneys, accountants and others as, in the discretion of
the directors, are necessary or appropriate to effect the purpose of the Plan
of Complete Liquidation; (ii) to fix the compensation and other terms of
employment of the directors; PROVIDED, HOWEVER, that the annual compensation
(excluding expenses) of the directors shall be no greater than the annual cash
compensation of the directors immediately prior to the Dissolution Date; (iii)
to purchase, lease, or otherwise provide such offices and other facilities as
in the discretion of the directors are necessary or appropriate to effect the
purpose of the Plan of Complete Liquidation; (iv) to (1) collect its assets,
(2) convey for cash or upon deferred payments, with or without security, such
of its assets as are not to be distributed in kind to its shareholders and (3)
pay, satisfy and discharge its debts and other liabilities; (v) to dispose of
and convey the properties and assets (on going-concern or other bases as deemed
by the directors to be in the best interests of the shareholders of
Enterprises) and, to the extent necessary to pay creditors, to transfer shares
of Shoney's Common Stock to creditors upon such terms and conditions as are
deemed by the directors to be in the ultimate best interests of the
shareholders of Enterprises but in a manner consistent with the Reorganization
Agreement and the requirements of applicable securities laws to maintain a
tax-free transaction; and (vi) to do all other acts required to liquidate its
business and affairs, including to take and effect all other actions deemed by
the directors to be necessary or appropriate to effect the purpose of the Plan
of Complete Liquidation.
LIQUIDATING DISTRIBUTION
As soon as practicable after the Dissolution Date and upon determination
by the directors that adequate provision has been made for payment of all
creditors of Enterprises and all costs and expenses of liquidation, Enterprises
shall make an initial liquidating distribution on a pro rata basis to the
holders of outstanding shares of Enterprises Common Stock. Under the Plan of
Complete Liquidation, holders of Enterprises Options and Enterprises Warrants
immediately prior to the Closing who receive Shoney's Options and Warrants at
the Closing (collectively, the "Derivative Securities") shall be entitled to a
cash distribution, provided that such options or warrants are exercised or
converted into shares of Shoney's Common Stock prior to the Final Liquidating
Distribution Record Date. The initial liquidating distribution to holders of
Enterprises Common Stock shall be comprised of cash and the Exchange Shares, or
such portions thereof as the directors shall determine should be distributed to
such holders of Enterprises Common Stock (and holders of Derivative Securities,
provided that such options or warrants are exercised or converted into shares
of Shoney's Common Stock prior to the Final Liquidating Distribution Record
Date) after adequate provision for payment of creditors and costs and expenses
of liquidation and a
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reserve for such cash distributions to the holders of Derivative Securities in
accordance with the terms of the Plan of Complete Liquidation.
Holders of Derivative Securities who exercise their Derivative Securities
after the Closing but before the Final Liquidating Distribution Record Date and
thereby acquire shares of Shoney's Common Stock in accordance with the terms of
the Derivative Securities as in effect upon the Closing of the Reorganization
Agreement, shall be entitled to receive, as soon as practicable after
Enterprises or the Liquidating Agent receives notice of such exercise, their
pro-rata portion of the cash portion of the initial liquidating distribution
and of the cash portion of any subsequent liquidating distribution to the
extent of such exercise. Holders of Derivative Securities shall not be
entitled to participate in any liquidating distribution of Exchange Shares or
other non-cash consideration received in the Reorganization. To become
entitled to the liquidating distributions of cash, holders of Derivative
Securities must exercise such Derivative Securities into shares of Shoney's
Common Stock prior to the record date for the final liquidating distribution
pursuant to the Plan of Complete Liquidation, which in no event shall be
earlier than December 31, 1998 (the "Final Liquidating Distribution Record
Date"); PROVIDED, HOWEVER, that the Final Liquidating Distribution Record Date
shall occur no later than the third anniversary after the Complete Liquidation
Date (as hereinafter defined under the caption "--Liquidating Agent"). Until
the Final Liquidating Distribution Record Date, Enterprises or the
Liquidating Agent shall retain in reserve the holder's pro rata portion of the
cash portion of the initial liquidating distribution and of any
subsequent liquidating distribution. Upon expiration or cancellation of any
of a holder's Derivative Securities, or if such Derivative Securities are not
exercised on or prior to the Final Liquidating Distribution Record Date, the
cash and other property reserved for such holder shall be available for
distribution to the holders of Enterprises Common Stock, provided that
Enterprises or the Liquidating Agent shall be entitled to delay such
distributions so that they may be reasonably aggregated.
RESERVE FOR LIABILITIES AND SUBSEQUENT LIQUIDATING DISTRIBUTIONS.
The directors shall be entitled, from time to time, to determine and pay,
or make adequate provision for the payment of, all liabilities, known,
contingent or potential, of Enterprises (including costs and expenses incurred
and anticipated to be incurred in connection with the complete liquidation of
Enterprises) and shall be entitled at all times to retain cash and other assets
determined by the directors to be adequate to provide for the payment of all
such liabilities. Subject to the foregoing, the directors from time to time
shall make distributions in such amounts or in such property, pro-rata to
holders of Enterprises Common Stock of record on such date or dates, as is
determined by the directors and, as applicable, in satisfaction of all
entitlements of holders of Derivative Securities. All such determinations shall
be made in the exercise of the absolute discretion of the directors and the
directors shall not be required to make, or be in any manner liable for not
making, any liquidating distribution to holders of Enterprises Common Stock
and, as applicable, in satisfaction of all entitlements of holders of
Derivative Securities except in accordance with the express requirements of the
Plan of Complete Liquidation.
The NJBCA provides a mechanism through which creditors of Enterprises may
assert claims against Enterprises' shareholders for their pro rata share of the
assets distributed by Enterprises in its dissolution and liquidation, provided
that the New Jersey Superior Court determines that good cause exists for the
claim not having been asserted.
LIQUIDATING AGENT
On or prior to the date that is one year after the date of the Enterprises
Special Meeting (the "Complete Liquidation Date"), the directors of Enterprises
shall appoint one or more of the directors (unless shareholder or court
approval of other persons is obtained) to serve as the liquidating agent for
the holders of the Enterprises Common Stock and Derivative Securities (herein
individually and collectively referred to as the "Liquidating Agent") pursuant
to an agreement (the "Agency Agreement") entered into
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between Enterprises (as authorized by its directors) and such Liquidating
Agent. On the Complete Liquidation Date, all then remaining monies,
properties and assets of Enterprises and all interests therein, subject to
any remaining claims against and liabilities of Enterprises, shall be
transferred to an account designated by the Liquidating Agent pursuant to the
Agency Agreement. The transfer books and other records of Enterprises will be
closed on the Complete Liquidation Date. The Liquidating Agent shall be, and
constituted as, the agent for the holders of Enterprises Common Stock and, as
applicable, holders of Derivative Securities (i) to determine and pay or
otherwise satisfy or finally provide for (whether by insurance or otherwise),
within three years after the Complete Liquidation Date, all then remaining
claims of creditors and other liabilities of Enterprises, including costs and
expenses of the Liquidating Agent, the return of any portion of the Expense
Allotment in cash not utilized for wind-up expenses to Shoney's and thereupon
to distribute any remaining money, property, or assets to the holders of
Enterprises Common Stock as provided below. The transfer books and other
records of Enterprises shall be closed on the Complete Liquidation Date. At
such time as the Liquidating Agent shall determine in the exercise of its
absolute discretion that all debts and liabilities, known, contingent and
potential, including the costs and expenses of completing the complete
liquidation, of Enterprises have been paid or provided for, the Liquidating
Agent shall thereupon fix the Final Liquidating Distribution Record Date and
give the holders of the Derivative Securities 30 days' prior written notice
of the Final Liquidating Distribution Record Date as it is so established.
Thereafter, on a date (on or after the Final Liquidating Distribution Record
Date) to be determined by the Liquidating Agent, the Liquidating Agent shall
satisfy the entitlements of the holders of the Derivative Securities exercised
on or prior to the Final Liquidating Distribution Record Date, and then
distribute any funds or other property then held by or for the account
of Enterprises pro rata to the holders of Enterprises Common Stock of record
as of the Final Liquidating Distribution Record Date. Under the Plan of
Complete Liquidation, there will be no funds available for payment of
holders of Derivative Securities who have not exercised their Derivative
Securities prior to the Final Liquidating Distribution Record Date.
REPRESENTATIONS AND WARRANTIES
The Reorganization Agreement contains various customary representations
and warranties relating to, among other things: (a) the due organization,
power, authority and standing of Shoney's and Enterprises and similar corporate
matters; (b) the authorization, execution, delivery and enforceability of the
Reorganization Agreement; (c) the capital structure of Shoney's and
Enterprises; (d) conflicts under charter, certificate of incorporation or
bylaws; (e) violations of any instruments or law; (f) required consents or
approvals; (g) certain documents filed by Shoney's with the Commission, and
certain financial information of Enterprises, and the accuracy of information
contained therein; (h) dissenters' rights; (i) litigation; (j) conduct of
business in the ordinary course and the absence of certain changes or events
that would have a Material Adverse Effect (as defined in the Reorganization
Agreement) on the business, results of operations or financial condition of
Enterprises or Shoney's, as the case may be; (k) insurance; (l) taxes; (m) bank
accounts; (n) books, records and other documents; (o) properties; (p)
environmental matters; (q) retirement and other employee benefit plans; (r)
labor matters; (s) brokers' and finders' fees with respect to the
Reorganization; (t) undisclosed liabilities; (u) receipt by Enterprises and
Shoney's of fairness opinions; (v) ownership of the capital stock in the other
company; (w) contracts and commitments; and (x) the issuance of Shoney's Common
Stock in the Reorganization.
For purposes of the Reorganization Agreement, "Material Adverse Change" or
"Material Adverse Effect" is defined to mean, subject to the qualifications or
limitations set forth in the definition, when used with respect to a Person,
any change or effect that is or would reasonably be expected (so far as can be
foreseen at the time) to be materially adverse to the assets, condition
(financial or otherwise) or results of operations of that Person. With respect
to Enterprises, a Material Adverse Change or Material Adverse Effect shall not
be deemed to have occurred unless a change, effect, condition or occurrence is
or would reasonably be expected to materially adversely affect the ability of
Enterprises to perform its obligations under the Reorganization Agreement. For
the purposes of the Reorganization Agreement, a Material
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Adverse Change shall not be deemed to have occurred or a Material Adverse
Effect shall not be deemed to exist with respect to TPIR, the TPIR
Subsidiaries, TPIE and TPII, taken as a whole, unless a change or effect causes
or results in a liability or expense in excess of $500,000. For the purposes
of the Reorganization Agreement, a Material Adverse Change shall not be
deemed to have occurred or a Material Adverse Effect shall not be deemed to
exist with respect to Shoney's and its subsidiaries, taken as a whole,
unless a change or effect causes or results in a liability or expense in
excess of $500,000.
CERTAIN COVENANTS
Shoney's and Enterprises have each agreed, among other things, prior to
the consummation of the Reorganization: (a) to use its reasonable efforts, and
to cause its subsidiaries and affiliates to use their reasonable efforts, to
preserve intact their business organizations and goodwill and keep available
the services of their respective officers and employees; (b) to notify promptly
the other of any material emergency or other material change in the condition
(financial or otherwise), business, properties, assets, liabilities, prospects
or the normal course of their businesses or in the operation of their
properties, any material governmental complaints, investigations, or hearings
(or communications indicating that the same may be contemplated), or the breach
in any material respect of any representation or warranty contained in the
Reorganization Agreement; and (c) promptly to deliver to the other true and
correct copies of any report, statement or schedule filed with the
Commission subsequent to the date of the Reorganization Agreement.
Enterprises has agreed that, among other things, prior to the Closing
Date, unless Shoney's has been notified at least five business days in advance
thereof and has not objected in writing thereto (in which case the matter shall
be resolved by the Operating Committee), it shall and shall cause TPIR, TPIE,
TPII and each TPIR Subsidiary to: (a) confer on a regular basis with
representatives of Shoney's to report operational matters of materiality and
any proposals to engage in material transactions; (b) conduct operations
according to their usual, regular and ordinary course in substantially the same
manner as theretofore conducted; (c) not acquire, enter into an option to
acquire or lease or exercise an option or contract to acquire or lease
additional real property, incur additional indebtedness for borrowed money,
encumber assets or commence construction of, or enter into any agreement or
commitment to develop or construct, restaurant or other real estate projects;
(d) maintain in the ordinary course of business their respective properties in
their current condition of repair, ordinary wear and tear excepted, and assure
that each of the Company Properties, at the Closing Date, has sufficient FF&E
and Inventories to enable it to be operated in the usual and ordinary course of
business; (e) maintain their books of account and records relating to their
respective operations in the usual, regular and ordinary manner on a basis
consistent with past practices and not make any changes in their accounting
methods, principles or practices, except as may be required by generally
accepted accounting principles; (f) pay when due and payable all Taxes and
assessments relating to their operations; (g) except in the ordinary course of
business in accordance with past practice, not withdraw, settle or otherwise
compromise any protest or reduction proceeding affecting real estate or
personal property Taxes assessed against any assets of the subsidiaries of
Enterprises for any fiscal period in which the Closing Date is to occur or any
subsequent fiscal period; (h) not amend its charter or bylaws; (i) not (1)
issue, transfer from treasury or allocate any additional shares of its capital
stock, effect any stock split, reverse stock split, stock dividend,
recapitalization or other similar transaction, (2) grant, confer or award any
option, warrant, conversion right or other right not existing as of the date of
the Reorganization Agreement to acquire any shares of TPIR, TPIE, TPII or any
TPIR Subsidiary, (3) increase any compensation or enter into or amend any
employment agreement with any of its present or future officers or directors,
or (4) adopt any new employee benefit plan (including any stock option, stock
benefit or stock purchase plan, supplemental employee retirement plan or
severance arrangement), amend any existing employee benefit plan, program or
practice or the individual benefits provided to any individual employee in any
material respect, except for changes which are less favorable to participants
in such plans or terminate any existing employee benefit plan; (j) not declare,
set aside or pay any dividend or make any other distribution or payment with
respect to any shares of
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the capital stock of TPIR, TPIE, TPII or any TPIR Subsidiary or make any
commitment for any such action; (k) not sell, lease or otherwise dispose of
(i) any Company Property; or (ii) except in the ordinary course of business,
any assets; (l) not make any loans, advances or capital contributions to, or
investments in, any other person; (m) not pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or satisfaction,
in the ordinary course of business consistent with past practice or in
accordance with their terms, of liabilities reflected or reserved against
in, or contemplated by, the most recent financial statements (or the notes
thereto) included in the Company Financial Information or incurred in the
ordinary course of business consistent with past practice; (n) not enter into
any commitment or series of related commitments to purchase goods or services
extending beyond July 31, 1996 which may result in total payments by or
liability to it in excess of $100,000 (excluding certain commitments to meet
anticipated needs); (o) not enter into any commitment with any officer,
director or consultant of Enterprises, any of the Remaining Subsidiaries, TPIR,
TPIE, TPII, any TPIR Subsidiary or any of their respective Affiliates; (p) (i)
not use, transport, store, dispose of or in any manner deal with Hazardous
Materials, except in compliance in all material respects with all applicable
Environmental Laws; (ii) comply in all material respects with all applicable
Environmental Laws, and to keep all Company Properties free and clear of any
liens imposed pursuant to such Environmental Laws; and (iii) not install, or
permit to be installed, Asbestos on any Company Property; (q) notify Shoney's
in writing as soon as possible upon receipt of any notices from any persons,
entities or Governmental Entities pertaining to Hazardous Materials on, from or
affecting any Company Property or to alleged illegal activities or conditions
at any of the Company Properties or operations; (r) not cancel any debts
owed to TPIR, TPIE, TPII or any TPIR Subsidiary other than intercompany
receivables due from Enterprises; (s) not enter into any contract or agreement
of the type described in Sections 5.21 and 5.22 of the Reorganization Agreement
(except using a $100,000 threshold for contracts or agreements which would
otherwise be subject to a $50,000 threshold); (t) not pay the specified wind-up
expenses in an amount in excess of the aggregate amount set forth in the
Enterprises Disclosure Letter; (u) except pursuant to Shoney's marketing plans
or Enterprises' marketing plans described in the Enterprises Disclosure Letter,
not issue any certificates or coupons that would entitle the bearer thereof to
receive a reduction in the price of food and/or beverages consumed at any of
the Restaurants or to receive such food and/or beverages free of charge;
(v) not invest cash in any investment other than a Cash Equivalent; (w)
not allow Accounts Receivable to exceed $1,500,000; (x) prior to the Closing
Date, to record on their books appropriate charges in accordance with generally
accepted accounting principles with respect to any Inventories that are
obsolete, spoiled or unusable and with respect to any Accounts Receivable that
are not anticipated to be collected; and (y) not do any act, omit to do any act
or permit any act within the control of TPIR, TPIE, TPII or any TPIR
Subsidiary which will cause a breach of any representation, warranty, covenant
or agreement contained in the Reorganization Agreement. Pursuant to the
Reorganization Agreement, the Operating Committee is composed of four persons,
two of whom are designated by the Shoney's Board and two of whom are
designated by the Enterprises Board. The present members of the Operating
Committee are Douglas K. Bratton, Lawrence F. Levy, J. Gary Sharp and Paul
James Siu.
Shoney's has agreed that, among other things, prior to the Closing Date,
it shall: (a) not, and shall not permit any of its Subsidiaries to, amend their
respective articles of incorporation or bylaws; provided that TPAC may amend
its articles of incorporation or bylaws for the sole purpose(s) of changing its
name and/or authorizing the issuance of preferred stock; (b) not: (i) except
pursuant to the exercise of options, warrants, conversion rights and other
contractual rights existing on the date hereof and disclosed pursuant to this
Agreement, issue any additional shares of Shoney's Common Stock, effect any
stock split, reverse stock split, stock dividend, recapitalization or other
similar transaction, or (ii) grant, confer or award any option, warrant,
conversion right or other right not existing on the date hereof to acquire any
Shoney's Common Stock, other than (x) options granted pursuant to and in
accordance with Shoney's Stock Plans as in effect on the date of the
Reorganization Agreement, (y) options, redemption or conversion rights granted
in connection with the acquisition of properties by Shoney's or (z) shares of
Shoney's Common Stock granted pursuant to existing employee benefit plans of
Shoney's; (c) not: (i) declare, set aside or
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pay any dividend or make any other distribution or payment with respect to the
Shoney's Common Stock, or (ii) except in connection with Shoney's Stock Plans
or the use of shares of Shoney's Common Stock to pay the exercise price or tax
withholding in connection with Shoney's Stock Plans, directly or indirectly
redeem, purchase or otherwise acquire any Shoney's Common Stock or any of the
shares of capital stock of any of its Subsidiaries, or make any commitment for
any such action; (d) not, and not permit any of its Subsidiaries to, sell,
lease or otherwise dispose of any of their respective properties other than (i)
in the ordinary course of business, or (ii) sales, leases or disposals of
assets which are not material, individually or in the aggregate; (e) cause TPAC
to take all necessary corporate action to consummate the transactions
contemplated by the Reorganization Agreement; (f) not, and not permit any of
its Subsidiaries to acquire or commit to acquire, from the date of the
Reorganization Agreement until the Closing Date, more than 20 restaurants from
third parties or make any other material acquisition; and (g) not, and not
permit any of its Subsidiaries, to do any act or permit any act within the
control of Shoney's or any of its Subsidiaries which will cause a breach
of any representation, warranty, covenant or agreement contained in the
Reorganization Agreement.
Shoney's and Enterprises will each take all action necessary in accordance
with applicable law, the rules and regulations of the NYSE, the Nasdaq National
Market and its respective certificate of incorporation or charter and bylaws to
convene a meeting of its shareholders as promptly as practicable to consider
and vote upon approval of the Reorganization Agreement and the transactions
contemplated hereby.
In addition, Enterprises and Shoney's are required to, and must cause each
of their respective Subsidiaries (a) to use all reasonable efforts to cooperate
with one another in (1) determining which filings are required to be made prior
to the Closing Date, and which consents, approvals, permits or authorizations
are required to be obtained prior to the Closing Date from any Governmental
Entities in connection with the execution and delivery of the Reorganization
Agreement and the consummation of the transactions contemplated hereby and (2)
timely make all such filings and timely seeking all such consents, approvals,
permits or authorizations; (b) to use their best efforts to obtain in writing
any consents and financing commitments required from third parties in form
reasonably satisfactory to Enterprises and Shoney's necessary to effectuate the
transactions contemplated by the Reorganization Agreement, including, without
limitation, the consent or approval of their respective lenders; and (c) to use
all reasonable efforts to take, or cause to be taken, all other action and do,
or cause to be done, all other things necessary, proper or appropriate to
consummate and make effective the transactions contemplated by the
Reorganization Agreement, including, without limitation, satisfaction of the
closing conditions set forth in the Reorganization Agreement.
Enterprises has agreed to use all reasonable efforts to deliver to
Shoney's certain letters from "affiliates," as defined under Rule 145
promulgated under the Securities Act. See "The Reorganization--Resale
Restrictions." Shoney's has agreed to file reports required to be filed by it
under the Exchange Act and the rules and reasonably request, and to the extent
required, from time to time, to enable such affiliate to sell Shoney's Common
Stock received by such affiliate in the Reorganization without registration
under the Securities Act pursuant to (i) Rule 145(d)(1) under the Securities
Act, as such Rule may be amended from time to time, or (ii) any successor rule
or regulation hereafter adopted by the Commission.
Shoney's and Enterprises have agreed that, during the period from the date
of the Reorganization Agreement until the Closing Date, neither Shoney's nor
Enterprises will knowingly take or knowingly fail to take any action that would
jeopardize qualification of the Reorganization as a reorganization within the
meaning of Section 368(a) of the Code.
64
<PAGE>
NO SOLICITATION OF TRANSACTIONS
Enterprises has agreed that neither it nor any of its Subsidiaries or
Affiliates shall, and each of them shall direct and use its best efforts to
cause its respective officers, directors, employees, agents and representatives
not to, initiate, solicit or encourage, directly or indirectly, any inquiries
or the making or implementation of any Acquisition Proposal (defined in the
Reorganization Agreement to include, among other things, a merger, acquisition,
tender offer or exchange offer for a significant portion of the assets or
equity securities of Enterprises or any of its subsidiaries or affiliates) or
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. Enterprises has agreed to cease immediately and cause to
be terminated any existing activities, discussions or negotiations with any
parties conducted prior to the date of the Reorganization Agreement with
respect to any of the foregoing and to take the necessary steps to inform the
individuals or entities referred to above of these obligations. Enterprises has
also agreed to notify Shoney's immediately 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 it;
provided that the Enterprises Board may (1) furnish information to or enter
into discussions or negotiations with any person or entity that makes an
unsolicited bona fide Acquisition Proposal, if, and only to the extent that,
(A) the Enterprises Board determines in good faith, based on the advice of
Shereff, Friedman, Hoffman & Goodman, LLP, counsel to Enterprises, or such
other counsel reasonably acceptable to Shoney's that such action is
required for the Enterprises Board to comply with its fiduciary duties to
shareholders imposed by law, and (B) subject to the exercise of fiduciary
duties of the Enterprises Board, the requirements of the federal securities
laws and any confidentiality agreement with such person or entity (which such
party determined in good faith was required to be executed in order for the
board of directors to comply with its fiduciary duties to shareholders imposed
by law), such party keeps the other party to the Reorganization Agreement
informed of the status (but not the terms) of any such discussions or
negotiations; and (2) to the extent applicable, complying with Rule 14e-2
promulgated under the Exchange Act with regard to an Acquisition Proposal.
CONDITIONS TO CONSUMMATION OF THE REORGANIZATION
The respective obligations of Shoney's and Enterprises to effect the
Reorganization are subject to the fulfillment or waiver of each of the
following conditions, among others: (a) the Reorganization Agreement shall have
been approved by the affirmative vote of the holders of a majority of the
outstanding shares of Shoney's Common Stock entitled to vote thereon and of the
affirmative vote of a majority of the votes cast by holders of Enterprises
Common Stock entitled to vote thereon; (b) all authorizations, consents or
approvals of third parties, of which the failure to obtain would have a
Material Adverse Effect on Enterprises or on Shoney's, as the case may be,
shall have been obtained without either the payment of any fee or the amendment
of any agreement; (c) the Registration Statement shall have been become
effective under the Securities Act and shall not be the subject of any stop
order and Shoney's shall have received all state securities laws or "Blue Sky"
permits and other authorizations necessary to issue the Exchange Shares and
otherwise consummate the transactions contemplated by the Reorganization
Agreement; (d) the Exchange Shares shall have been authorized for listing on
the NYSE, subject to official notice of issuance; (e) no temporary restraining
order, preliminary or permanent injunction or other order issued by any court
of competent jurisdiction or other legal restraint or prohibition preventing
the consummation of the transactions contemplated by the Reorganization
Agreement shall be in effect, nor shall any proceeding by any Governmental
Entity seeking any of the foregoing which has a reasonable likelihood of
success be pending, and no action shall have been taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
transactions contemplated
65
<PAGE>
by the Reorganization Agreement, which makes their consummation illegal; (f) no
holder of any of the outstanding shares of either Enterprises Common Stock or
Shoney's Common Stock shall be determined by a court of competent jurisdiction
to have been entitled to dissent from the transactions contemplated by the
Reorganization Agreement or to demand payment for his or her shares of
Enterprises Common Stock if the transactions contemplated by the
Reorganization Agreement are effectuated; and (g) the obligations of
Enterprises under the Public Debentures shall have been assumed by Shoney's in
accordance with their terms, and a supplemental indenture shall have been
entered into by Shoney's with respect to the Public Debentures and Shoney's
shall have received all authorizations necessary under the securities laws to
enter into and perform under such supplemental indenture.
The conditions to the obligations of Enterprises to effect the
Reorganization are subject to the satisfaction or waiver by Enterprises prior
to the Closing Date of the following conditions, among others: (a) each of the
representations and warranties of Shoney's set forth in Section 6.1 through
Section 6.9 of the Reorganization Agreement shall be true and correct on the
Closing Date; (b) each of the representations and warranties of Shoney's and
TPAC (other than those set forth in Section 6.1 through Section 6.9 of the
Reorganization Agreement) set forth in the Reorganization Agreement shall be
true and correct in all material respects as of the date of the Reorganization
Agreement and as of the Closing Date (without giving effect to any Material
Adverse Effect qualification within any individual representation or warranty)
as though made on and as of the Closing Date, except when any such breach of a
representation or warranty (determined without giving effect to any Material
Adverse Effect qualification within any individual representation or warranty),
individually or aggregated with any other breach or breaches of a
representation or warranty (determined without giving effect to any Material
Adverse Effect qualification within any individual representation or warranty)
would not have a Material Adverse Effect on Shoney's and its Subsidiaries,
taken as a whole; (c) Shoney's and TPAC shall have performed in all
material respects all obligations required to be performed by it under the
Reorganization Agreement at or prior to the Closing Date, and Enterprises
shall have received a certificate signed on behalf of Shoney's and TPAC
by the Chairman and Chief Executive Officer or President and by the Chief
Financial Officer of Shoney's to such effect; (d) Shoney's shall have
satisfied or otherwise discharged Enterprises from any liabilities
associated with or arising out of the TPIR Bank Debt and Shoney's shall
have satisfied all liabilities associated with or arising out of the Private
Debentures; (e) Enterprises shall have received the following: (i) a stock
certificate or stock certificates representing all of the Exchange Shares
issued, registered in the name of Enterprises (or Enterprises' designees),
(ii) copies of the charter and bylaws of Shoney's and of TPAC and of
resolutions adopted by the boards of directors and shareholders of each of
Shoney's and TPAC authorizing and approving the execution and performance
of the Reorganization Agreement and the agreements contemplated by the
Reorganization Agreement, all as certified by appropriate officers of
Shoney's and TPAC as of the Closing Date, (iii) a certificate indicating the
incumbency of each person executing the Reorganization Agreement and the other
agreements contemplated by the Reorganization Agreement on behalf of either
Shoney's or TPAC, (iv) Certificates of Existence with respect to Shoney's and
TPAC, neither of which shall be dated more than seven days prior to the Closing
Date, issued by the Tennessee Secretary of State, (v) a certificate signed on
behalf of Shoney's by the Chief Executive Officer of Shoney's and the Chief
Financial Officer of Shoney's certifying satisfaction of the conditions set
forth in Section 9.3.1 of the Reorganization Agreement, (vi) a certificate from
an officer of Shoney's dated the Closing Date as to certain factual matters
regarding Shoney's that will support, in part, the opinion referred to in
Section 9.3.5(b) of the Reorganization Agreement, and (vii) an assignment from
TPIR of the following: (1) all rights to prosecute the Marlin Claims, which
rights shall include the right to receive certain payments therefrom and (2)
the right to any insurance recovery under any insurance policy maintained by
Marlin or its affiliates, Enterprises or TPIR which covers liabilities arising
in connection with the Marlin Claims; (f) Enterprises shall have received the
opinion of Shoney's Counsel, dated the Closing Date, as to certain matters set
forth in the Disclosure Schedule; (g) Enterprises shall have received the
opinion of Enterprises' Counsel, dated the Closing Date, to the effect that the
transactions contemplated by the Reorganization Agreement constitute a
"reorganization" within the meaning of Section 368(a)(1)(C) of the Code; (h)
Enterprises shall have received a "comfort" letter from Ernst & Young, LLP
dated the Closing Date, with respect to the Shoney's financial statements
included in this Joint Proxy Statement/Prospectus; and (i) there shall be no
Material Adverse Change in Shoney's
66
<PAGE>
other than as a result of conditions or events (business or otherwise) that
also affect Enterprises and result in a Material Adverse Effect on Enterprises.
The conditions to the obligations of Shoney's to effect the transaction
contemplated by the Reorganization Agreement are subject to the fulfillment at
or prior to the Closing Date of the following conditions, unless waived by
Shoney's: (a) each of the representations and warranties of Enterprises set
forth in the Reorganization Agreement shall be true and correct on the Closing
Date; (b) each of the representations and warranties of Enterprises contained
in Section 5.1 through Section 5.9 of the Reorganization Agreement (other than
those set forth in Section 5.1 through 5.9 of the Reorganization Agreement and
with certain other exceptions) shall be true and correct on the Closing Date
(without giving effect to any Material Adverse Effect qualification within any
individual representation or warranty) as though made on and as of the Closing
Date, except when any such breach of a representation or warranty (determined
without giving effect to any Material Adverse Effect qualification within any
individual representation or warranty), individually or aggregated with any
other breach or breaches of a representation or warranty (determined without
giving effect to any Material Adverse Effect qualification within any
individual representation or warranty), would not have a Material Adverse
Effect on TPIR, TPIE, TPII and the TPIR Subsidiaries, taken as a whole; (c)
Enterprises shall have performed in all material respects all obligations
required to be performed by it under the Reorganization Agreement at or prior
to the Closing Date, and Shoney's shall have received a certificate signed on
behalf of Enterprises by the Chief Executive Officer and the Chief Financial
Officer of Enterprises to such effect; (d) Shoney's shall have received the
following: (i) a stock certificate or stock certificates representing all
of the issued and outstanding shares of TPIR, TPIE, TPII, registered in
the name of Enterprises and duly endorsed in blank or with executed stock
powers or assignments attached, in proper form for transfer and/or
cancellation, (ii) the stock certificates representing all of the issued and
outstanding shares of each TPIR Subsidiary, registered in the name of TPIR,
(iii) written resignations of all officers and directors of TPIR, TPIE, TPII
and each TPIR Subsidiary effective as of the Closing Date (which resignations
shall not affect or impair any, and shall be without prejudice to, contractual
rights of such officers or directors), (iv) the original minute books and stock
transfer records of each of TPIR, TPIE, TPII and each of the TPIR Subsidiaries,
(v) copies of the charter and bylaws of Enterprises and of TPIR, TPIE, TPII and
of resolutions adopted by the boards of directors and shareholders of
Enterprises authorizing and approving the execution and performance of the
Reorganization Agreement and the agreements contemplated by the Reorganization
Agreement, all as certified by appropriate officers of the respective
corporation as of the Closing Date, (vi) a certificate as to the incumbency of
each person executing the Reorganization Agreement and the other agreements
contemplated by the Reorganization Agreement on behalf of Enterprises, (vii) a
Certificate of Existence with respect to Enterprises, TPIR, TPIE, TPII, TPI-
West Palm Inc., TPI Transportation, Inc., TPI Commissary, Inc., The Insurex
Agency, Inc., and Insurex Benefits Administrations, Inc., none of which shall
be dated more than seven days prior to the Closing Date and each issued by its
respective Secretary of State; (viii) certificates of corporate good standing
(or equivalent) with respect to Enterprises, TPIR and TPIE, none of which shall
be dated more than seven days prior to the Closing Date, each issued by the
appropriate officers of the appropriate states; (ix) a certificate signed on
behalf of Enterprises by the Chief Executive Officer of Enterprises and the
Chief Financial Officer of Enterprises certifying satisfaction of the
representations and warranties as set forth in the Reorganization Agreement;
and (x) a certificate from an officer of Enterprises dated the Closing Date
with respect to certain factual matters regarding Enterprises (the form and
substance of such certificate to be mutually agreeable with Enterprises'
Counsel and Shoney's Counsel) that will support, in part, legal opinions with
respect to certain matters set forth in the Reorganization Agreement and the
schedules attached thereto; (e) Shoney's shall have received an Affiliate
Letter in the form attached to the Reorganization Agreement from each of the
Rule 145 Affiliates of Enterprises; (f) Shoney's shall have received a legal
opinion from Enterprises' Counsel, dated the Closing Date, as to the matters
set forth in the Reorganization Agreement; (g) Shoney's shall have received the
opinion of Shoney's Counsel, dated the Closing Date, to the effect that the
transactions contemplated by the Agreement constitute a "reorganization" within
the meaning of Section 368(a)(1)(C) of the Code; (h) there shall be no Material
Adverse Change in any of the Companies or the TPIR
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<PAGE>
Subsidiaries other than as a result of conditions or events (business or
otherwise) that also affect Shoney's and result in a Material Adverse
Effect on Shoney's; (i) the Enterprises Management Agreement shall have been
terminated and each of TPIR, TPIE, TPII and the TPIR Subsidiaries shall have
been released and discharged from any liabilities or obligations thereunder;
(j) the Enterprises Tax Sharing Arrangement shall have been terminated and each
of TPIR, TPIE, TPII and the TPIR Subsidiaries shall have been released and
discharged from any liabilities or obligations thereunder; and (k) on the
Closing Date, the Inventories at the Restaurants will be adequate for the
operation of the Restaurants and shall be at usual and customary levels in
accordance with past practice.
TERMINATION OF THE REORGANIZATION AGREEMENT
GROUNDS FOR TERMINATION
The Reorganization Agreement may be terminated and the Reorganization may
be abandoned at any time prior to the Closing Date, before or after the
approval of the shareholders of Shoney's and Enterprises, in the following
circumstances:
(1) by the mutual written consent of Shoney's and Enterprises in a written
instrument;
(2) by either Shoney's or Enterprises, if there has been a breach on the
part of the other of one or more representations, warranties, covenants or
agreements set forth in the Reorganization Agreement, which breach has not been
cured within five business days following receipt by the breaching party of
notice of such breach and that, individually or in the aggregate, causes or is
likely to cause a Material Adverse Effect;
(3) by either Shoney's or Enterprises upon written notice to the other
party if any court or Governmental Entity of competent jurisdiction shall have
issued a final permanent order enjoining or otherwise prohibiting the
consummation of the transactions contemplated by the Reorganization Agreement,
and in any such case the time for appeal or petition for reconsideration of
such other shall have expired without such appeal or petition being granted;
(4) by either Shoney's or Enterprises if the transactions contemplated by
the Reorganization Agreement shall not have been consummated on or before June
30, 1996, unless the failure to so consummate by such time is due to the breach
of the Reorganization Agreement by the party seeking to terminate;
(5) by either Shoney's or Enterprises if any approval of the shareholders
of either Shoney's or Enterprises required for the consummation of the
transactions contemplated by the Reorganization Agreement shall not have been
obtained by reason of the failure to obtain the required vote at a duly held
meeting of shareholders or at any adjournment thereof;
(6) by Shoney's, if prior to the Closing Date, the Enterprises Board shall
have approved, recommended or endorsed any Acquisition Transaction other than
that contemplated in the Reorganization Agreement;
(7) by Enterprises if, prior to the Closing Date, the Enterprises Board,
after consultation with its legal counsel and financial advisors, determines in
the good faith exercise of its fiduciary duties that a bona fide proposal or
offer by a third party to consummate an Acquisition Transaction is in the best
interest of its shareholders;
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<PAGE>
(8) by Enterprises if, prior to April 30, 1996, Shoney's has failed to
satisfy the conditions set forth in the Reorganization Agreement with respect
to Shoney's lenders or to receive the financing commitment referenced in the
Reorganization Agreement; and
(9) by Shoney's if, prior to the Closing Date, Enterprises makes, commits,
agrees to make or otherwise becomes obligated to make any payments of principal
on either the Public Debentures or the Private Debentures.
BREAK-UP FEE
If the Reorganization Agreement is terminated in accordance with clauses
(6) or (7) above, Enterprises will be required to pay Shoney's (within five
days of the date of termination) a break-up fee in the amount of $1,000,000.
Enterprises will also be required to pay Shoney's a break-up fee of
$1,000,000, within five days of the date the Reorganization Agreement is
terminated, if the Reorganization Agreement is terminated in accordance with
clause (5) above by reason of the failure of Enterprises' shareholders to
approve the Reorganization Agreement at the Enterprises Special Meeting after
any Third Party Acquisition Event has occurred.
EXTENSION AND WAIVER
At any time prior to the Closing Date, either Shoney's or Enterprises, by
action taken by its board of directors, may, to the extent legally allowed, (a)
extend the time for the performance of any of the obligations or other acts of
the other parties to the Reorganization Agreement, (b) waive any inaccuracies
in the representations and warranties of the other contained in the
Reorganization Agreement or in any document delivered pursuant thereto, and (c)
waive compliance with any of the agreements or conditions contained in the
Reorganization Agreement.
AMENDMENT
The Reorganization Agreement may be amended by the parties, by action
taken or authorized by their respective boards of directors, at any time before
or after approval of the matters presented in connection with the
Reorganization Agreement by the shareholders of Enterprises or Shoney's, but,
after any such approval, no amendment may be made that by law requires further
approval by such shareholders without such further approval.
EXPENSES
In the event the Reorganization Agreement is terminated for whatever
reason (other than a termination due to a breach of one or more
representations, warranties, covenants or agreements which causes, or is likely
to cause, a Material Adverse Effect) and the Reorganization is not consummated,
each party thereto shall be responsible for the payment or other satisfaction
of its own expenses incurred in connection therewith, except that (a) expenses
incurred in connection with filing, printing and mailing this Joint Proxy
Statement/Prospectus, and any portion thereof, (b) expenses incurred in
connection with the listing of the Exchange Shares on the NYSE and (c) the
filing fee associated with the filing under the HSR Act shall be shared equally
by Shoney's and Enterprises. If the Reorganization Agreement is terminated due
to a breach, as described above, the breaching party will be liable to the
terminating party for its costs and expenses. If the Reorganization is not
consummated, Shoney's and Enterprises will have incurred substantial expenses
in connection with the aborted transaction.
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As described above under "Termination of the Reorganization Agreement,"
Enterprises may be required to pay Shoney's a break-up fee of $1,000,000 if the
Reorganization Agreement is terminated on certain grounds.
UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements
for Shoney's are presented after giving effect to the Reorganization as if it
had been consummated, with respect to statement of operations data, at the
beginning of the earliest period presented, and, with respect to balance sheet
data, as of the date presented. These pro forma financial statements have been
prepared by the managements of Shoney's and Enterprises based on the historical
financial statements of Shoney's and the historical financial statements of:
TPIR, TPIE, and TPII (TPIE and TPII are collectively referred to as "TPI-Other"
and, together with TPIR, are collectively referred to as "TPI"), as well as
available information and certain assumptions which the managements believe are
reasonable, giving effect to the Reorganization under the purchase method of
accounting. Such pro forma assumptions and adjustments are described in the
accompanying notes to the unaudited pro forma condensed combined financial
statements.
The unaudited pro forma condensed combined financial statements were
derived from, should be read in conjunction with, and are qualified in their
entirety by reference to, the separate historical financial statements and the
notes thereto in the Annual Reports on Form 10-K of Shoney's and Enterprises
and, with respect to Shoney's, quarterly reports on Form 10-Q which have been
incorporated by reference in this Joint Proxy Statement/Prospectus. The
unaudited pro forma condensed combined statements of operations, which
include results of operations as if the Reorganization had been consummated, do
not reflect transaction costs anticipated to be incurred or the effects of
potential cost savings and operating synergies anticipated to result from the
Reorganization. The purchase price allocation utilized to prepare these pro
forma financial statements was based on estimates and managements' judgements.
The actual purchase price allocation will differ from these estimates. The
unaudited pro forma condensed combined financial statements have been included
for illustrative purposes only and are not necessarily indicative of the
results of operations or financial position that actually would have been
obtained if the Reorganization had been effected at the beginning of the
earliest period presented, or as of the date indicated or of the financial
position or results of operations which may be obtained in the future. See
"Incorporation of Certain Information by Reference," "Summary--Summary
Financial Data," and "Summary--Comparative Per Share Data."
70
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
REFLECTING SHONEY'S AFTER GIVING EFFECT TO THE REORGANIZATION
(Amounts in thousands)
February 18, February 25,
1996 1996
------------ -------------------------
Pro Forma Pro Forma
Shoney's TPIR TPI-Other Adjustments Combined
--------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 8,350 $ 7,942 $ 373 637 A2 $ 17,302
Notes and accounts receivable 13,553 1,166 0 14,719
Intercompany receivable 0 0 8,349 $ (8,349) B7 0
Inventories 32,273 11,941 0 44,214
Deferred income taxes and other current assets 32,213 4,553 0 36,766
--------------------------------------- ---------
Total current assets 86,389 25,602 8,722 113,001
Property, plant equipment 737,664 228,366 0 (76,266) B1 880,930
(8,834) B5
Less accumulated depreciation and amortization (301,613) (81,337) 0 81,337 B1 (301,613)
Net property, plant and equipment 436,051 147,029 0 579,317
Other assets:
Goodwill 5,298 19,199 0 (19,199) B2 48,822
43,524 B1
Deferred charges and other intangible assets 5,942 18,021 31 (15,589) B3 8,405
Other assets 8,899 1,014 0 9,913
--------------------------------------- ---------
Total other assets 20,139 38,234 31 67,140
--------------------------------------- ---------
$542,579 $210,865 $ 8,753 $759,458
======================================= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable, accrued expenses
and other current liabilities $110,852 $ 42,700 $ 1,937 $ 4,000 B5 $159,989
500 B9
Intercompany payable 0 19,237 0 (19,237) B7 0
Reserve for litigation settlement 23,183 0 0 23,183
Debt and capital lease obligations due within one year 33,976 28,941 0 62,917
--------------------------------------- ----------
Total current liabilities 168,011 90,878 1,937 246,089
Long-term senior debt and capital lease obligations 304,946 81,396 0 (5,930) B4 376,650
(3,762) B10
Zero coupon subordinated convertible debentures 90,055 0 0 90,055
Reserve for litigation settlement 32,977 0 0 32,977
Deferred income, taxes and other liabilities 28,426 12,916 0 12,940 B5 35,282
(10,434) B6
( 8,566) B11
Shareholders' equity (deficit):
Preferred stock 0 0 32,000 (32,000) B8 0
Common stock 41,622 0 258 ( 258) B8 48,278
6,591 A1
65 A2
Additional paid-in capital 61,761 120,216 1,851 572 A2 115,347
(122,067) B8
53,014 A1
Unrealized gain on securities available for sale 1,261 0 0 1,261
Retained earnings (deficit) (186,480) (94,541) (27,293) 121,833 B8 (186,481)
--------------------------------------- ----------
Total shareholders' equity (deficit) (81,836) 25,675 6,816 (21,595)
--------------------------------------- ----------
$542,579 $210,865 $ 8,753 $759,458
======================================= ==========
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
72
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
REFLECTING SHONEY'S AFTER GIVING EFFECT TO THE REORGANIZATION
(Amounts in thousands except for per share data)
For the Years Ended
-----------------------------------------
October 29, December 31,
1995 1995
------------ -------------------------
TPI TPI- Pro Forma Pro Forma
Shoney's Restaurants Other Adjustments Combined
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $1,053,332 $ 283,719 $ 84 $(5,109) C7 $1,332,026
Costs and expenses:
Cost of sales 922,545 257,095 (375) 2,654 C1 1,176,810
(5,109) C7
General and administrative expenses 63,905 24,611 198 (899) C2 88,277
462 C3
Interest expense 39,816 10,607 0 538 C4 51,486
525 C5
Provision for asset valuation 0 17,000 0 (17,000) C8 0
Restructuring expenses 7,991 (5,762) 0 2,229
---------------------------------------------------------------------
Total costs and expenses 1,034,257 303,551 (177) (18,829) 1,318,802
----------------------------------------------------------------------
Income (loss) from continuing operations before income taxes 19,075 (19,832) 261 13,720 13,224
Provision for income taxes 7,873 0 0 (1,085) C6 6,788
Income (loss) from continuing operations $ 11,202 $(19,832) $ 261 $14,805 $ 6,436
Income (loss) from continuing operations per common share:
Primary $ 0.27 $ 0.13
Fully diluted $ 0.27 $ 0.13
Weighted average shares outstanding
Primary 41,519 6,656 C9 48,175
Fully diluted 41,519 6,656 C9 48,175
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
73
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
REFLECTING SHONEY'S AFTER GIVING EFFECT TO THE REORGANIZATION
(Amounts in thousands except for per share data)
For the Sixteen Weeks Ended
February 18, February 25,
1996 1996
------------ -------------------------
Pro Forma Pro Forma
Shoney's TPIR TPI-Other Adjustments Combined
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $300,177 $ 79,461 $ 26 $(1,572) C7 $378,092
Costs and expenses:
Cost of sales 266,468 72,366 (141) 817 C1 337,938
(1,572) C7
General and administrative expenses 20,139 8,100 161 (277) C2 28,265
142 C3
Interest expense 10,818 3,283 0 166 C4 14,429
162 C5
Provision for asset valuation 0 17,000 0 (17,000) C8 0
Restructuring expenses 0 (2,713) 0 (2,713)
-----------------------------------------------------------------
Total costs and expenses 297,425 98,036 20 (17,562) 377,919
-----------------------------------------------------------------
Income (loss) from continuing operations before income taxes 2,752 (18,575) 6 15,990 173
Provision for income taxes 1,123 0 0 (334) C6 789
------------------------------------------------------------------
Income (loss) from continuing operations $ 1,629 $(18,575) $ 6 $ 16,324 $ (616)
==================================================================
Income (loss) from continuing operations per common share:
Primary $ 0.04 ($0.01)
Fully diluted $ 0.04 ($0.01)
Weighted average shares outstanding:
Primary 41,636 6,656 C9 48,292
Fully diluted 41,636 6,656 C9 48,292
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
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NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS
(Amounts in thousands except per share data)
NOTE A - PURCHASE PRICE
1. The accompanying unaudited pro forma condensed combined financial
statements show the pro forma effect of acquiring all of the outstanding
capital stock of TPI Restaurants, Inc. (TPIR), TPI Entertainment, Inc. and TPI
Insurance, Inc. (TPI-Other), collectively referred to as TPI, by issuing common
stock ($1 par value) of Shoney's (Shoney's Common Stock) as follows:
<TABLE>
<CAPTION>
Number Price Purchase
of Shares per Share Price
--------- --------- -------
<S> <C> <C> <C>
Base exchange shares 5,577 $ 8.5000 $ 47,405
Cash exchange shares 1,014 $ 9.8625 10,000
----- -------
6,591 57,405
Estimated transaction costs ===== 2,200
------
$ 59,605
========
</TABLE>
The purchase price is calculated using the closing price for Shoney's Common
Stock of $8.50 per share at the time the final terms of the definitive
Agreement were announced on March 15, 1996 for the base exchange shares. The
Reorganization Agreement calls for the issuance of 5,577 shares ("base exchange
shares") plus $10,000 of additional Shoney's Common Stock ("cash exchange
shares") to be issued at Closing based on the average closing market price ten
days prior to closing. The pro forma financial statements were prepared based
on an assumed market value of $9.8625 per share for these cash exchange shares
based on the average closing price from the ten trading days immediately
preceding April 16, 1996 resulting in the assumed issuance of 1,014 cash
exchange shares. The actual number of cash exchange shares will be determined
based on the Average Closing Market Price. The estimated transaction costs
primarily include professional fees for financial advisors, attorneys and
accountants, and other direct incremental costs of Shoney's.
2. The pro forma financial statements also reflect the issuance of an
additional $637 of Shoney's Common Stock at the average price of $9.8625 per
share (65 shares) to reflect the assumed reduction in Retained Cash by
Enterprises pursuant to the terms of the Reorganization Agreement and assuming
the Closing took place on April 16, 1996. The pro forma financials assume
Shoney's would receive an additional $637 cash in exchange for these shares.
See "The Reorganization--The Reorganization Transaction-Adjustments to
Consideration."
Pursuant to the terms of the Reorganization Agreement, in the event that, after
November 7, 1995 and prior to the Closing, Enterprises issues additional shares
in connection with the Enterprises 401(k) Plan or the Enterprises Stock
Purchase Plan or in the event of exercise of Enterprises Options or Enterprises
Warrants granted prior to September 1, 1995, Shoney's will issue additional
shares of Shoney's Common Stock to Enterprises equal to such number of
additional shares of Enterprises Common Stock multiplied by the Exchange Ratio.
No such shares have been reflected in the accompanying condensed combined
financial statements. As of April 16, 1996, Enterprises issued approximately
125 shares of Enterprises Common Stock pursuant to the Enterprises 401(k) Plan
and the Enterprises Stock Purchase Plan, which would have resulted in
additional consideration of 40 shares of Shoney's Common Stock had the Closing
occurred on April 16, 1996. The final number of Exchange Shares will vary.
75
<PAGE>
NOTE B - BALANCE SHEET
ADJUSTMENTS: The following adjustments have been made to show the pro forma
effect of applying the purchase method of accounting (i.e., adjust the carrying
values of net assets acquired to their estimated fair values) to the
Reorganization as of February 18, 1996:
Increase
(Decrease)
Net Assets
-----------
1. Revalue property, plant and equipment primarily based on
appraisals and eliminate TPI historical accumulated
depreciation $ 5,071
2. Eliminate TPI goodwill recorded (19,199)
3. Eliminate TPI other intangible assets (franchise related) (15,589)
4. Revalue 8.25% publicly traded subordinated convertible
debentures at a market value of $88.50 (total par value
of $51,563) 5,930
5. Provide for asset impairments and other costs of closing
35 of the acquired restaurants, costs of closing the TPI
corporate office and other leased facilities (including lease
termination costs, net of expected sublease revenue;
severance pay, and other related exit costs) (25,774)
6. Reflect deferred income tax benefit (asset) related to the
pro forma differences in book and tax assets and liabilities 10,434
7. Eliminate all intercompany balances with Enterprises
(per the Reorganization Agreement): TPIR has a payable of
$19,237, offset by the TPI-Other receivable of $8,349 10,888
8. Eliminate the historical carrying value of shareholder's equity:
TPIR - $25,676 and TPI-Other - $6,816 32,492
9. Provide for additional vacation and insurance related benefits
of TPI employees to conform to Shoney's policies (500)
10. Reduce capital lease obligations related to restaurants
slated for closure 3,762
11. Reduction of TPI deferred tax asset valuation reserve to
reflect probability of future realization of the asset 8,566
------
Excess of fair value of net assets over liabilities acquired 16,081
Purchase price (Note A) 59,605
------
12. Cost in excess of net assets acquired (goodwill) $ 43,524
========
Note: Shoney's also will be required to replace approximately $10,500,000 in
letters of credit that support TPIR self-insurance reserves, but which
are not reflected as debt in the accompanying pro forma condensed
combined financial statements.
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<PAGE>
NOTE C - STATEMENTS OF OPERATIONS
ADJUSTMENTS: The following adjustments have been made to show the pro forma
effect of applying the purchase method of accounting as if the Reorganization
occurred at the beginning of the earliest period presented (i.e., October 31,
1994):
1. Recognize additional depreciation and amortization of TPI property,
plant and equipment--to reflect adjustments to fair value, and to
conform to the Shoney's accounting policy for depreciation, which
generally resulted in shorter depreciable lives as compared to TPI's
historical practices.
2. Reduce amortization of other intangible assets of TPI, principally
resulting from the elimination of substantially all of the historical
carrying value of TPI intangible assets.
3. Adjust amortization of goodwill to reflect the elimination of the
historical TPI goodwill and reflect the amortization of $43,524 of
goodwill resulting from the Reorganization utilizing the straight-line
method over 25 years ($1,741 per year).
4. Increase interest expense to reflect the amortization of the $5,930
bond discount recorded to reflect the Public Debentures at market
value. The discount has been amortized utilizing the effective
interest method over the 92 month period from October 31, 1994 until
the scheduled maturity of the bonds on July 15, 2002.
5. Increase interest expense to reflect the refinancing of the $15,000 of
TPI's 5% senior debentures at Shoney's expected current interest rate
of 8.5% ($525 per year).
6. Recognize the deferred income tax effect of the above adjustments at an
assumed 38.5% tax rate for Shoney's.
7. Eliminate TPI franchise fees paid to Shoney's.
8. TPI recorded a $17,000 impairment of goodwill during December 1995 to
reduce the carrying value of their net assets to be exchanged to the
estimated fair value of the consideration to be received from Shoney's.
The accompanying pro forma condensed combined statements of operations
have been adjusted to eliminate this goodwill impairment because it is
considered to have been directly attributable to the Reorganization.
9. To reflect 6,656 shares of Shoney's Common Stock to be issued in
connection with the Reorganization (see Note A) as if they had been
outstanding during the periods indicated (6,591 shares of exchange
shares plus 65 shares to be issued in consideration for $637 reduction
in cash retained by Enterprises pursuant to the terms of the
Reorganization Agreement (See Note A-2). TPI stock options, warrants,
and convertible debt have not been considered in the calculation
of weighted average shares outstanding since they are considered to be
anti-dilutive based on the respective conversion/exercise prices.
FISCAL YEARS PRESENTED: Shoney's fiscal year consists of thirteen four week
periods and ends on the last Sunday in October. TPI's fiscal year consists of
thirteen four week periods and ends on the last Sunday in December. The
accompanying pro forma financial statements for the year ended October 29, 1995
were prepared using the TPI historical financial statements for their fiscal
year ended December 31, 1995, which contained 53 weeks.
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<PAGE>
The accompanying pro forma financial statements for the sixteen weeks ended
February 18, 1996 include the results of operations of TPI for the sixteen week
period ended February 25, 1996. As a result, the periods ended November 26 and
December 24, 1995 for TPI are included in both the pro forma operating results
presented for the fiscal year ended October 29, 1995 and the sixteen weeks
ended February 25, 1996. Revenue and (loss) from continuing operations for TPI
for these two periods (November and December 1995) were $45,658 and $(14,708),
respectively.
NOTE D - CERTAIN OTHER MATTERS
UNUSUAL ITEMS: The operating results for TPI included in the accompanying pro
forma financial statements for the year ended October 29, 1995 and the sixteen
weeks ended February 25, 1996, reflect the following material unusual items
that increased income from continuing operations during the periods indicated:
<TABLE>
<CAPTION>
Fiscal Sixteen
Year Weeks
Ended Ended
October 29, February 25,
1995 1996
------------------------------
<S> <C> <C>
Reduction of restructuring expenses $ 5,762 $ 2,713
Reduction of reserve for workers
compensation insurance 3,500 3,500
------ -------
$ 9,262 $ 6,213
======= =======
</TABLE>
ANTICIPATED SYNERGIES: The accompanying pro forma condensed combined statements
of operations do not reflect any "synergies" that are anticipated as a result
of the Reorganization. Shoney's management believes that operating cost
savings of approximately $11,300 annually can be achieved once the two
companies have combined their corporate offices and commissary operations.
These savings are expected to result from a $6,600 reduction in general and
administrative expenses and a $4,700 savings in commissary distribution and
purchasing related expenses. Shoney's anticipates that these savings will be
achieved over a six to nine month transition period. There are no assurances
that these cost savings will be achieved or that the anticipated savings will
occur as quickly as projected by management.
DESCRIPTION OF SHONEY'S CAPITAL STOCK
SHONEY'S COMMON STOCK
The authorized capital stock of Shoney's presently consists of 100
million shares of Shoney's Common Stock. See "The Shoney's Special Meeting--
Charter Amendment Increasing Number of Authorized Shares," concerning the
proposal to increase the number of authorized shares of Shoney's Common Stock
to 200 million.
Each outstanding share of Shoney's Common Stock will entitle the holder to
one vote on all matters presented to shareholders for a vote.
Holders of Shoney's Common Stock are entitled to receive ratably such
distributions as may be declared on the Shoney's Common Stock by the Shoney's
Board in its discretion from funds legally available therefor. In the event of
the liquidation, dissolution or winding up of Shoney's, holders of Shoney's
Common Stock are entitled to share ratably in all assets remaining after
payment of all debts
78
<PAGE>
and other liabilities. Holders of Shoney's Common Stock have no subscription,
redemption, conversion or preemptive rights. Matters submitted for shareholder
approval generally require a majority vote of the shares present and voting
thereon. The outstanding shares of Shoney's Common Stock are, and the Shoney's
Common Stock to be outstanding after the Reorganization will be, fully paid and
nonassessable.
SHARE PURCHASE RIGHTS
Pursuant to the Shareholder Rights Plan, each four shares of Shoney's
Common Stock, including the shares to be issued in the Reorganization, also
represent one Right. Until the Distribution Date (as defined below), the
certificates for Shoney's Common Stock will evidence one Right for each four
shares of Shoney's Common Stock represented thereby. The following summary does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all of the provisions of the Amended and Restated Rights
Agreement dated as of May 25, 1994 between Shoney's and Harris Trust and
Savings Bank, as Rights Agent, as amended by Amendment No. 1 dated as of April
18, 1995 (as amended, the "Shareholder Rights Plan").
The Rights are not represented by separate certificates and are not
exercisable or transferable apart from the Shoney's Common Stock until the
earlier to occur of (i) the tenth business day (or such later date as may be
determined by action of the Shoney's Board prior to the Distribution Date (as
hereinafter defined) that otherwise would have occurred) after the date of the
commencement of a tender or exchange offer by any person (other than Shoney's
or an employee benefit plan of Shoney's) which would, if consummated, result in
such person having beneficial ownership (as defined in the Shareholder Rights
Plan) of 30% or more of the issued and outstanding shares of Shoney's Common
Stock, and (ii) the tenth business day (or such earlier or later date as the
Shoney's Board may fix by resolution adopted before such date
79
<PAGE>
otherwise would have occurred) after a public announcement by Shoney's that a
person or group of affiliated or associated persons has acquired, or obtained
the right to acquire, beneficial ownership of 10% or more of the outstanding
shares of Shoney's Common Stock (any such person described in clause (ii)
being an "Acquiring Person") (the earlier of such dates being called the
"Distribution Date").
The Rights will first become exercisable on the Distribution Date and
could then begin trading separately from the Shoney's Common Stock. The Rights
will expire on the earliest of May 25, 2004, the date on which the Rights are
earlier redeemed by Shoney's, the date on which the Rights are exchanged, or
upon the merger of Shoney's into another corporation when there is no Acquiring
Person (such earliest date being the "Expiration Date").
In the event any person becomes an Acquiring Person, each Right would give
the holder thereof (other than such Acquiring Person and its transferees) the
right to buy, for the Purchase Price (presently $60), shares of Shoney's Common
Stock with a market value of two times the Purchase Price. In addition, at any
time after any person becomes an Acquiring Person, the Shoney's Board may, at
its option and in lieu of any transaction described in the preceding sentence,
exchange the outstanding and exercisable Rights (other than Rights held by any
such Acquiring Person and its transferees) for shares of Shoney's Common Stock
at an exchange ratio of four shares of Shoney's Common Stock per Right, subject
to certain adjustments.
In certain mergers, consolidation and other transactions involving
Shoney's after there is an Acquiring Person which controls the Shoney's Board,
each Right will be converted into the right to purchase, for the Purchase
Price, common stock of the other party to the transaction with a market value
of twice the Purchase Price.
The Shoney's Board may redeem the Rights for $.01 each at any time until
the tenth business day (or such earlier or later date as the Shoney's Board may
fix by resolution adopted before such date otherwise would have occurred)
after a public announcement by Shoney's that there is an Acquiring Person. The
Shoney's Board may amend the Shareholder Rights Plan from time to time to
eliminate ambiguities or to provide additional benefits to the holders of the
Rights, PROVIDED THAT, the amendment does not adversely affect the holders of
the Rights Certificates.
If Shoney's receives a tender offer for all outstanding shares of Shoney's
at the same price per share, for cash on a fully-financed basis or for New York
Stock Exchange listed shares on a tax-deferred basis, which offer is not
subject to conditions and Shoney's has not received advice from its financial
advisors that such offer is inadequate (such offer being a "Qualified Offer"),
the Shoney's Board shall either (i) within 60 days either redeem the Rights or
approve a financially superior transaction, or (ii) call a special meeting of
shareholders of Shoney's, at which a majority of outstanding shares (other than
those owned by the person making the Qualified Offer) may vote to require the
Shoney's Board to redeem the Rights.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of Shoney's, including, without limitation, the right
to vote or to receive dividends.
The Purchase Price payable, and the number of shares of Shoney's Common
Stock or other securities or property issuable, upon exercise of the Rights,
and the number of outstanding Rights, are subject to customary antidilution
adjustments.
The Rights have certain "anti-takeover" effects. The Rights may cause
substantial dilution to a person or group that attempts to acquire Shoney's on
terms not approved by the Shoney's Board, except pursuant to an offer
conditioned on a substantial number of Rights being acquired. The Rights should
not interfere with any merger or other business combination approved by the
Shoney's Board prior to the Distribution Date (at which time holders of the
Rights become entitled to exercise their Rights for shares of Shoney's Common
Stock), since until such time the Rights generally may be redeemed by the
Shoney's Board at $.01 per Right.
Based upon the number of shares of Shoney's Common Stock presently
outstanding, Enterprises will acquire more than 10% of the outstanding shares
of Shoney's Common Stock on the Closing Date of the Reorganization. To avoid
treatment as an Acquiring Person, thereby triggering a Distribution Date under
the Shareholder Rights Plan, Enterprises has agreed to deliver to Shoney's its
irrevocable commitment to promptly divest itself of sufficient Exchange Shares
in order to reduce below 10% the outstanding shares of Shoney's Common Stock
beneficially owned by it. To further avoid treatment as an Acquiring Person,
thereby triggering a Distribution Date under the Shareholder Rights Plan, the
Shoney's Board may amend the Shareholder Rights Plan to exclude Enterprises
from the definition of Acquiring Person, provided certain conditions (including
that Enterprises not exert control, directly or indirectly, or act in concert
with any person to exert control) are met. Failure of Enterprises to deliver
or comply with such a commitment to promptly divest itself of a sufficient
number of Exchange Shares and failure of the Shoney's Board to adopt such an
amendment to the Shareholder Rights Plan could result in the Rights becoming
exercisable.
BUSINESS COMBINATION PROVISIONS OF SHONEY'S CHARTER
Unless a Business Combination (as defined below) with a beneficial owner
of ten percent (10%) or more of Shoney's capital stock entitled to be voted (an
"Interested Stockholder") is approved by a majority of the members of the
Shoney's Board who are not, and are not affiliated with, the Interested
Stockholder and who were members of the Shoney's Board prior to the time the
Interested Stockholder became an Interested Stockholder (the "Continuing
Directors"), Shoney's Charter permits Shoney's to enter the Business
Combination only if such Business Combination is affirmatively approved by at
least eighty percent (80%) of the votes entitled to be cast by the holders of
Shoney's capital stock entitled to
80
<PAGE>
be voted (the "Voting Stock"), voting together as a single class. If approved
by a majority of the Continuing Directors, however, Shoney's may enter the
Business Combination upon only such affirmative approval, if any, as is
required by law.
For purposes of these provisions of Shoney's Charter, a Business
Combination is defined as: (i) any merger or consolidation of Shoney's, or one
of its majority-owned subsidiaries, with an Interested Stockholder or an
affiliate of an Interested Stockholder; (ii) any sale, lease, exchange,
transfer or other disposition with an Interested Stockholder or an affiliate of
an Interested Stockholder involving assets or securities having a fair market
value of $25,000,000 or more; (iii) the adoption of any plan or proposal for
the liquidation or dissolution of Shoney's proposed by or on behalf of an
Interested Stockholder or an affiliate of an Interested Stockholder; (iv) any
reclassification of Shoney's securities or recapitalization of Shoney's, or any
merger or consolidation of Shoney's with any of its majority-owned
subsidiaries, or any other transaction that has the effect of increasing the
proportionate share of any class or series of Shoney's capital stock, or of any
securities convertible into Shoney's capital stock or into equity securities of
a majority-owned subsidiary of Shoney's, that is beneficially owned by an
Interested Stockholder or an affiliate of an Interested Stockholder; or (v) any
agreement, contract or other arrangement providing for any one or more of the
foregoing specified actions.
These provisions may have the effect of discouraging or delaying a
takeover attempt or other offer to purchase or otherwise acquire outstanding
shares of Shoney's equity securities and, consequently, may cause the holders
of such securities to forego opportunities to sell such securities at an
attractive price.
EFFECT OF THE REORGANIZATION ON RIGHTS OF SHAREHOLDERS
Shoney's is a Tennessee corporation subject to the provisions of the
Tennessee Business Corporation Act (the TBCA). Enterprises is a New Jersey
corporation subject to the provisions of the New Jersey Business Corporation
Act (the NJBCA). Shareholders of Enterprises, whose rights are governed by the
Enterprises Certificate and Bylaws and by the NJBCA, will, upon consummation of
the Reorganization, become shareholders of Shoney's whose rights will then be
governed by the Shoney's Charter and Bylaws and by the TBCA. The following is a
summary of the material differences in the rights of shareholders of Shoney's
and Enterprise and is qualified in its entirety by reference to the governing
law and the Certificate of Incorporation or Charter and Bylaws of each of
Enterprises and Shoney's. Certain topics discussed below are also subject to
federal law and the regulations promulgated thereunder.
REMOVAL OF DIRECTORS
The Enterprises Bylaws provide that one or more or all of the directors
of Enterprises may be removed for cause by the shareholders by the affirmative
vote of the majority of votes cast by the holders of shares entitled to vote
for the election of directors.
Shoney's Bylaws provide that any or all of the directors of Shoney's may
be removed with or without cause, at any time, by vote of the shareholders.
NUMBER OF DIRECTORS
The Enterprises Bylaws provide that the number of the members of the
Enterprises Board may be increased or decreased from time to time by a vote of
the majority of the entire Enterprises Board, but may not exceed 11 nor be less
than three, except as permitted by law.
81
<PAGE>
By agreement dated March 19, 1993 between Enterprises, The Airlie Group
L.P., The Bass Management Trust, Sid R. Bass Management Trust, Lee M. Bass and
TPI Investors, L.P. (collectively, the "Purchasers"), Enterprises agreed to set
the size of the Enterprises Board at ten members and agreed to use its best
efforts to cause the Purchasers to have 30% representation on the Enterprises
Board. Since January 1995, the Enterprises Board has consisted of nine
directors with the agreement of the Purchasers.
The number of members of the Shoney's Board may be increased or decreased
from time to time by a vote of the majority of the entire Shoney's Board, but
may not exceed 15 nor be less than three, except as permitted by law. Directors
need not be shareholders of Shoney's.
CONFLICT-OF-INTEREST TRANSACTIONS
The NJBCA generally permits transactions involving Enterprises and an
interested director of Enterprises if (i) the contract or other transaction is
fair and reasonable as to Enterprises at the time it is authorized, approved or
ratified; (ii) the fact of the common directorship or interest is disclosed or
known to the Enterprises Board and the Enterprises Board authorizes, approves,
or ratifies the contract or transaction by unanimous written consent, provided
at least one director so consenting is disinterested, or by affirmative vote of
a majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or (iii) the fact of the common directorship
or interest is disclosed or known to the Enterprises' shareholders, and they
authorize, approve or ratify the contract or transaction. The Reorganization
was approved by the unanimous vote of the disinterested members of the
Enterprises Board after adequate disclosure by the interested members of the
Enterprises Board of all interests in the transaction. See "The
Reorganization--Interests of Certain Persons in the Reorganization."
The TBCA generally permits transactions involving Shoney's and an
interested director of Shoney's if (i) the material facts of the transaction
and the director's interest are disclosed to the Shoney's Board and a majority
of disinterested directors authorizes, approves or ratifies the transaction;
(ii) the material facts of the transaction and the director's interest are
disclosed to the shareholders entitled to vote and a majority of disinterested
shares entitled to vote thereon authorizes, approves or ratifies the
transaction; or (iii) the transaction is fair to Shoney's. The TBCA prohibits
loans to directors by Shoney's unless approved by a majority of the votes
represented by the outstanding voting shares of all classes held by of
disinterested shareholders or the Shoney's Board determines that the loan
benefits Shoney's and either approves the specific loan or a general plan of
loans by Shoney's.
SPECIAL MEETINGS
The Enterprises Bylaws provide that special meetings of shareholders may
be called at any time by the Enterprises Board or the President and shall be
called by the President or the Secretary at the request in writing of a
majority of the Enterprises Board or at the request in writing by shareholders
owning a majority of the shares issued and outstanding. Such a call shall
state the purpose or purposes of the proposed special meeting and no other
business may be considered at such meeting.
Under Shoney's Bylaws, special meetings of shareholders may be called by
the Chairman of the Shoney's Board, the Shoney's Board, or upon written request
of the holders of shares representing not less than one-tenth of the shares
entitled to vote at such special meeting. Notice of any special meeting of
Shoney's shareholders must state the purpose or purposes for which the special
meeting is called.
REQUIRED VOTE FOR AUTHORIZATION OF CERTAIN ACTIONS
The NJBCA provides that approval of a merger, consolidation or a sale,
lease, exchange or other disposition of all, or substantially all, of the
assets of a corporation (other than in the regular course of
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<PAGE>
business) requires the approval of the board of directors of each corporation
and the affirmative vote of a majority of the votes cast by the holders of
shares of each such corporation entitled to vote thereon, and, in addition, if
any class or series is entitled to vote thereon as a class, the affirmative
vote of a majority of the votes cast in each class.
Notwithstanding the foregoing, the approval of the shareholders of a
surviving corporation shall not be required to authorize a merger (unless its
certificate of incorporation otherwise provides) if (i) the plan of merger does
not make an amendment of the certificate of incorporation of the surviving
corporation which is required by the provisions of the NJBCA to be approved by
the shareholders; (ii) each shareholder of the surviving corporation whose
shares were outstanding immediately before the effective date of the merger
will hold the same number of shares, with identical designations, preferences,
limitations, and rights immediately after; (iii) the number of voting shares
outstanding immediately after the merger, plus the number of voting shares
issuable on conversion of other securities or on exercise of rights and
warrants issued pursuant to the merger, will not exceed by more than 40% the
total number of voting shares of the surviving corporation outstanding
immediately before the merger; and (iv) the number of participating shares
outstanding immediately after the merger, plus the number of participating
shares issuable on conversion of other securities or on exercise of rights and
warrants issued pursuant to the merger, will not exceed by more than 40% the
total number of participating shares of the surviving corporation outstanding
immediately before the merger.
The TBCA provides that a merger, consolidation or a sale, lease, exchange
or other disposition of all, or substantially all, of the assets of a
corporation (other than in the regular course of business) requires the
recommendation of the board of directors of the corporation (unless the board
of directors determines that because of conflict of interest or other special
circumstances that it should make no recommendation) and the affirmative vote
of a majority of the outstanding shares of each voting group. In accordance
with the TBCA, submission by the Shoney's Board of any such action may be
conditioned on any basis, including without limitation conditions regarding a
super majority voting requirement.
With respect to a merger, no vote of the shareholders of Shoney's would be
required if (i) Shoney's were the surviving corporation and the Shoney's
Charter would remain unchanged after the merger, subject to certain exceptions,
(ii) each shareholder of Shoney's immediately before the effective date of the
merger would hold an identical number of shares, with identical rights and
preferences, immediately after the effective date of the merger, (iii) the
number of voting shares outstanding immediately after the merger plus the
number of voting shares issuable as a result of the merger (either by
conversion of securities issued pursuant to the merger or the exercise of
rights and warrants issued pursuant to the merger), will not exceed by more
than 20% the number of voting shares of the surviving corporation outstanding
immediately before the merger, and (iv) the number of participating shares
outstanding immediately after the merger, plus the number of participating
shares issuable as a result of the merger (either by conversion of securities
issued pursuant to the merger or the exercise of rights and warrants issued
pursuant to the merger), will not exceed by more than 20% the total number of
participating shares outstanding immediately before the merger.
With respect to a sale, lease, exchange or other disposition of
substantially all the assets of Shoney's, no vote of the shareholders of
Shoney's would be required if such transfer were conducted in the regular
course of business or if such transfer were made to a wholly-owned subsidiary
of Shoney's.
ACTION BY WRITTEN CONSENT
Both the TBCA and the Enterprises Bylaws, as applicable to Shoney's and
Enterprises, respectively, provide that action may be taken without a
shareholder meeting if all shareholders entitled to vote on the action consent
to taking such action without a meeting. Action by written consent of
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<PAGE>
Shoney's and Enterprises' shareholders is impracticable given the number of
holders of Shoney's Common Stock and Enterprises Common Stock.
INSPECTION RIGHTS
Both the TBCA and the NJBCA contain provisions granting shareholders the
right to inspect certain records of each corporation. Under the NJBCA, upon the
written request of any shareholder, Enterprises shall mail such shareholder its
balance sheet as at the end of the preceding fiscal year, and its profit and
loss and surplus statements for such fiscal year. In addition, any person who
shall have been a shareholder of record of Enterprises for at least six months
immediately preceding his demand, or any person holding, or so authorized in
writing by the holders of, at least 5% of the outstanding shares of any class
or series, upon at least five days' written demand shall have the right for any
proper purpose to examine in person or by agent or attorney, during usual
business hours, its minutes of the proceedings of its shareholders and record
of shareholders and to make extracts therefrom, at the places where the same
are kept pursuant to the NJBCA.
Under the TBCA, Shoney's shareholders are also entitled to inspect and
copy, during regular business hours at Shoney's principal office, the minutes
of shareholder meetings, charter, bylaws, its most recent annual report, and
certain other records of the corporation, provided the shareholder gives the
corporation written notice of his demand at least five business days before the
date on which he wishes to inspect and copy the records. In addition, a
shareholder who makes a demand in good faith, for a proper purpose, and
describes with reasonable particularity his purpose and the records he desires
to inspect, and if the records are directly connected with his purpose, may,
upon five business days' written notice, inspect and copy: (i) accounting
records of the corporation, (ii) the records of shareholders and (iii) excerpts
from minutes of any meeting of the board of directors, records of any action of
a committee of the board of directors while acting in place of the board of
directors on behalf of the corporation, minutes of any meeting of the
shareholders, and records of action taken by the shareholders or board of
directors without a meeting.
AMENDMENT OF BYLAWS
Under the NJBCA and the Enterprises Bylaws, the Enterprises Bylaws may be
amended or repealed or new bylaws adopted (i) by vote of the shareholders at
the time entitled to vote in the election of any directors; or (ii) by the
Enterprises Board, provided that any bylaw adopted by the Enterprises Board may
be amended by the shareholders entitled to vote thereon.
The Shoney's bylaws provide that the shareholders of Shoney's may adopt
new bylaws and may amend or repeal any or all of Shoney's bylaws at any annual
or special meeting. In addition, the board of directors may adopt new bylaws
and may amend or repeal any or all of the bylaws by the vote of a majority of
the entire board, provided that any bylaw adopted by the board may be amended
or repealed by the shareholders. The board of directors may amend bylaws
adopted by the shareholders provided that the shareholders may from time to
time specify particular provisions of the bylaws that may not be amended by the
board of directors.
VOLUNTARY DISSOLUTION
The NJBCA provides that Enterprises may be dissolved if the Enterprises
Board recommends dissolution and an affirmative vote of a majority of the votes
cast by the holders of shares of Enterprises entitled to vote thereon approves
the dissolution, and, in addition, if any class or series is entitled to vote
thereon as a class, an affirmative vote of a majority of the votes cast in each
class vote to approve the dissolution.
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The TBCA provides that Shoney's may be dissolved if the Shoney's Board
recommends (unless the Shoney's Board determines that because of conflict of
interest or other special circumstances that it should make no recommendation)
dissolution and a majority of the shares of Shoney's entitled to vote thereon
approves. In accordance with the TBCA, the Shoney's Board may condition its
submission of a proposal for dissolution on any basis, including a greater
shareholder vote requirement.
INDEMNIFICATION
Both the NJBCA and the TBCA provide in certain situations for mandatory
and permissive indemnification of directors and officers in substantially the
same manner. Both the NJBCA and the TBCA state that statutory indemnification
is not to be deemed exclusive of any other rights to which a director or
officer seeking indemnification may be entitled; provided, however, that the
TBCA states that no indemnification may be made if a final adjudication adverse
to the director or officer establishes his liability (1) for any breach of
loyalty to the corporation or its shareholders; (2) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law; or (3) for unlawful distributions.
As permitted by the NJBCA, the Enterprises' Certificate of Incorporation
provides that a director or officer shall not be personally liable to
Enterprises or its shareholders for damages for breach of any duty owed by that
person if (i) such corporate agent acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and (ii) with respect to any criminal proceeding, such corporate
agent had no reasonable cause to believe his conduct was unlawful.
The TBCA permits a corporation to adopt in its charter a provision
eliminating or limiting the personal liability of a director to the corporation
or its shareholders for monetary damages for breach of fiduciary duty as a
director, provided that such provision shall not eliminate or limit the
liability of a director (i) for a breach of the director's duty of loyalty to
the corporation or its shareholders; (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, or
(iii) unlawful distributions under TBCA.
BUSINESS COMBINATION STATUTE
The New Jersey Shareholders Protection Act provides that no resident
domestic corporation shall engage in any business combination with any
interested shareholder (the beneficial owner of 10% or more of the voting power
of that resident domestic corporation or an affiliate or associate of such
beneficial owner) for a period of five years following that interested
shareholder's stock acquisition date unless the combination has been approved
by the board of directors of that resident domestic corporation prior to that
interested shareholder's stock acquisition date. Alternatively, the
combination may be approved by the affirmative vote of the holders of two-
thirds of the voting stock not beneficially owned by such interested
shareholder at a meeting called for such purpose or by meeting certain
aggregate dollar amount thresholds provided for in the NJBCA.
The Tennessee Business Combination Act (the "Business Combination Act")
provides that a party owning 10% or more of stock in a "resident domestic
corporation" (such party is called an "interested shareholder") cannot engage
in a business combination with the resident domestic corporation unless the
combination (i) takes place at least five years after the interested
shareholder first acquired 10% or more of the resident domestic corporation,
and (ii) either (A) is approved by at least two-thirds of the non-interested
voting shares of the resident domestic corporation at a meeting called for such
purpose or (B) satisfies certain fairness conditions specified in the Business
Combination Act.
These provisions apply unless one of two events occurs. A business
combination with an interested shareholder can proceed without delay when
approved by the resident domestic corporation's board of directors before that
interested shareholder becomes an interested shareholder, or the resident
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corporation enacts a charter amendment or bylaw to remove itself entirely from
the Business Combination Act. This charter amendment or bylaw must be approved
by a majority of the shareholders who have held shares for more than one year
prior to the vote and it may not take effect for at least two years after the
vote. Shoney's has not adopted a charter or bylaw amendment removing Shoney's
from coverage under the Business Combination Act.
The Business Combination Act further provides an exemption from liability
for officers and directors of resident domestic corporations who do not approve
proposed business combinations or charter amendments and bylaws removing their
corporations from the Business Combination Act's coverage as long as the
officers and directors act in "good faith belief" that the proposed business
combination would adversely affect their corporation's employees, customers,
suppliers, or the communities in which their corporation operates and such
factors are permitted to be considered by the board of directors under the
charter.
The United States Court of Appeals for the Sixth Circuit has held that the
Tennessee Business Combination Act is unconstitutional as it applies to target
corporations organized under the laws of states other than Tennessee (such as
Enterprises).
BUSINESS COMBINATION PROVISIONS OF SHONEY'S CHARTER
As discussed under the heading "Description of Shoney's Capital Stock--
Business Combination Provisions of Shoney's Charter," in addition to any other
approval required by law, Shoney's Charter imposes super-majority shareholder
approval requirements for any Business Combination with an Interested
Stockholder that is not affirmatively approved by a majority of the Continuing
Directors. See "Description of Shoney's Capital Stock--Business Combination
Provisions of Shoney's Charter."
These provisions may have the effect of discouraging or delaying a
takeover attempt or other offer to purchase or otherwise acquire outstanding
shares of Shoney's equity securities and, consequently, may cause the holders
of such securities to forego opportunities to sell such securities at an
attractive price.
CONTROL SHARE ACQUISITION ACT
The Tennessee Control Share Acquisition Act ("TCSAA") strips a purchaser's
shares of voting rights any time an acquisition of shares in a covered
Tennessee corporation brings the purchasers voting power to one-fifth,
one-third or a majority of all voting power. The purchaser's voting rights can
be established only by a majority vote of the other shareholders. The purchaser
may demand a special meeting of shareholders to conduct such a vote and must be
established at each of the specified levels. The purchaser can demand such a
meeting before acquiring a control share only if it holds at least 10% of
outstanding shares and announces a good faith intention to make the control
share acquisition. A target corporation may or may not redeem the purchasers
shares if the shares are not granted voting rights. The TCSAA applies only to
a Tennessee corporation whose charter or bylaws contain an express declaration
(which Shoney's Charter and Bylaws do not) that control share acquisitions in
respect of the shares of such corporation are governed by and subject to the
provisions of TCSAA and such corporation meets certain other requirements under
the TCSAA.
The United States Court of Appeals for the Sixth Circuit, however, has
held that the TCSAA is unconstitutional as it applies to target corporations
organized under the laws of states other than Tennessee (such as Enterprises).
There is no parallel provision to the TCSAA under New Jersey law.
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INVESTOR PROTECTION ACT
The New Jersey Corporation Takeover Bid Disclosure Law ("NJCTBDL") applies
to tender offers to purchase such number of shares of any class of equity
securities as would result in the offeror owning more than 10% of the
outstanding shares of such class, or in the aggregate (after giving effect to
all conversion and purchase rights held by the offeror), more than 10% of the
total outstanding stock, directed at corporations (called "target companies")
that are organized under the laws of the state of New Jersey or have their
principal place of business or a substantial portion of their total assets in
the state of New Jersey, unless such takeover offer is approved by the target
company, acting through its board of directors. The NJCTBDL requires an
offeror making a tender offer for a target company to file certain information
with the Bureau of Securities in the Division of Consumer Affairs in the
Department of Law and Public Safety (the "Bureau"). The Bureau chief may fix a
public hearing if he shall determine that it is necessary or if the board of
directors requests one, unless the Bureau chief finds that it is unnecessary.
In addition to requiring the offeror to file certain information with the
Bureau, the NJCTBDL requires the offeror and the target company to deliver to
the Bureau all solicitation materials used in connection with the tender offer.
The NJCTBDL prohibits "fraudulent, deceptive, or manipulative acts or
practices" by either the offeror or the target company, and gives the Bureau
standing to apply for equitable relief to any Superior Court of New Jersey,
whenever it appears to the Bureau that the offeror, the target company, or any
of its respective affiliates has engaged in or is about to engage in a
violation of the NJCTBDL. Upon proper showing, any Superior Court of New
Jersey may grant injunctive relief. The NJCTBDL further provides for civil and
criminal penalties for violations. At least one court has held that the
NJCTBDL is unconstitutional, and Enterprises is unable to predict whether the
constitutionality of the NJCTBDL law would ultimately be upheld against
constitutional challenge.
The Tennessee Investor Protection Act ("TIPA") provides that unless a
Tennessee corporation's board of directors has recommended a takeover offer to
shareholders, no offeror beneficially owning 5% or more of any class of equity
securities of the offeree company, any of which was purchased within one year
prior to the proposed takeover offer, may offer to acquire any class of equity
security of the offeree company pursuant to a tender offer if after the
acquisition thereof the offeror would be directly or indirectly a beneficial
owner of more than 10% of any class of outstanding equity securities of the
company unless the offeror, before making such purchase, (i) makes a public
announcement of his or her intention with respect to changing or influencing
the management or control of the offeree company, (ii) makes a full, fair and
effective disclosure of such intention to the person from whom he or she
intends to acquire such securities, and (iii) files with the Tennessee
Commissioner of Commerce and Insurance (the "Commissioner") and the offeree
company a statement signifying such intentions and containing such additional
information as may be prescribed by the Commissioner. Such an offeror must
provide that any equity securities of an offeree company deposited or tendered
pursuant to a takeover offer may be withdrawn by an offeree at any time within
seven days from the date the offer has become effective following filing with
the Commissioner and the offeree company and public announcement of the terms
or after 60 days from the date the offer has become effective. If the takeover
offer is for less than all the outstanding equity securities of any class, such
an offeror also must accept securities pro rata if the number of securities
tendered is greater than the number the offeror has offered to accept and pay
for. If such an offeror varies the terms of the takeover offer before its
expiration date by increasing the consideration offered to offerees, the
offeror must pay the increased consideration for all equity securities
accepted.
The TIPA does not apply to an offer involving a vote by holders of
equity securities of the offeree company, pursuant to its charter, on a merger,
consolidation or sale of corporate assets in consideration of the issuance of
securities of another corporation, or on a sale of its securities in exchange
for cash or securities of another corporation.
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The United States Court of Appeals for the Sixth Circuit has held that the
TIPA violates the commerce clause of the United States Constitution to the
extent that it applies to target corporations organized under the laws of
states other than Tennessee (such as Enterprises).
AUTHORIZED CORPORATION PROTECTION ACT
The Tennessee Authorized Corporation Protection Act ("TACPA") is the
vehicle through which the Tennessee statutes attempt to permit the Business
Combination Act and the TCSAA to govern foreign corporations. The TACPA
provides that an authorized corporation can adopt a bylaw or a charter
provision electing to be subject to the operative provisions of the Business
Combination Act and the TCSAA, which then become applicable to the same extent
as such provisions apply to a resident domestic corporation. Authorized
corporations are those that are required to obtain a Certificate of Authority
from the Tennessee Secretary of State and that satisfy any two or more of
certain tests, including having its principal place of business located in
Tennessee; having a significant subsidiary located in Tennessee; having a
majority of such corporation's fixed assets located in Tennessee; having more
than 10% of the beneficial owners of the voting stock or more than 10% of such
corporation's shares of voting stock beneficially owned by residents of
Tennessee; employing more than 250 individuals in Tennessee or having an annual
payroll paid to residents of Tennessee that is in excess of $5,000,000;
producing goods and/or services in Tennessee that result in annual gross
receipts in excess of $10,000,000; or having physical assets and/or deposits
located within Tennessee that exceed $10,000,000 in value.
The United States Court of Appeals for the Sixth Circuit, however, has
held the TACPA unconstitutional as it applies to target corporations organized
under the laws of states other than Tennessee (such as Enterprises).
There is no parallel provision to the TACPA under New Jersey law.
GREENMAIL ACT
The Tennessee Greenmail Act ("TGA") applies to any corporation chartered
under the laws of Tennessee which has a class of voting stock registered or
traded on a national securities exchange or registered with the Commission
pursuant to Section 12(g) of the Exchange Act. The TGA provides that it is
unlawful for any corporation or subsidiary to purchase, either directly or
indirectly, any of its shares at a price above the market value, as defined in
the TGA, from any person who holds more than 3 % of the class of the securities
purchased if such person has held such shares for less than two years, unless
either the purchase is first approved by the affirmative vote of a majority of
the outstanding shares of each class of voting stock issued or the corporation
makes an offer of at least equal value per share to all holders of shares of
such class.
There is no parallel provision to the TGA under New Jersey law.
DIVIDENDS AND OTHER DISTRIBUTIONS
The NJBCA provides that a New Jersey corporation generally may make
dividends or other distributions to its shareholders unless, after giving
effect thereto, either (i) the corporation would be unable to pay its debts as
they become due in the usual course of business, or (ii) the corporation's
total assets would be less than its total liabilities.
The TBCA provides that a Tennessee corporation generally may make
dividends or other distributions to its shareholders unless after the
distribution either (i) the corporation would not be able to pay its debts as
they become due in the usual course of business or (ii) the corporation's total
assets would be less than the sum of its total liabilities plus (unless its
charter provides otherwise, which the
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Shoney's Charter does not) the amount that would be needed if it were to be
dissolved at the time of such dividend or distribution to satisfy the
preferential dissolution rights of shareholders whose preferential rights are
superior to those receiving the distribution. Shoney's has no shares of
preferred stock authorized.
DISSENTERS' RIGHTS
The NJBCA generally provides dissenters' rights for mergers,
consolidations and any sale, lease, exchange or other disposition of all or
substantially all of the assets not in the usual or regular course of business.
Dissenters' rights are not available with respect to shares (i) of a class or
series which is listed on a national securities exchange or is held of record
by not less than 1,000 holders, or (ii) for which pursuant to the plan of
merger or consolidation, shareholders will receive (x) cash; (y) shares,
obligations or other securities which, upon consummation of the merger or
consolidation, will either be listed on a national securities exchange or held
of record by of less than 1,000 holders; or (z) cash and such securities.
The TBCA generally provides dissenters' rights for mergers and share
exchanges that would require shareholder approval, sales of substantially all
the assets (other than sales that are in the usual and regular course of
business and certain liquidations and court-ordered sales), and certain
amendments to the charter that materially and adversely affect rights in
respect of a dissenter's shares. Dissenters' rights are not available as to any
shares that are listed on an exchange registered under Section 6 of the
Exchange Act or are "national market system" securities as defined in rules
promulgated pursuant to the Exchange Act.
Because the Enterprises Common Stock outstanding is held of record by more
than 1,000 holders, and the Shoney's Common Stock is listed on the NYSE,
neither Enterprises' shareholders nor Shoney's shareholders have the right to
dissent under the NJBC or the TBCA, respectively.
PREEMPTIVE RIGHTS
Under the NJBCA, preemptive rights to shareholders apply only when so
provided in the certificate of incorporation of a corporation. The Enterprises
Certificate of Incorporation does not provide for preemptive rights.
Under the TBCA, shareholders of a Tennessee corporation do not have
preemptive rights unless the charter provides otherwise. Shoney's Charter does
not provide for preemptive rights.
DESCRIPTION OF THE SHONEY'S OPTION PLAN
THIS SECTION OF THE JOINT PROXY STATEMENT/PROSPECTUS DESCRIBES PROPOSED
AMENDMENTS TO THE SHONEY'S OPTION PLAN TO BE VOTED ON BY SHONEY'S SHAREHOLDERS
AT THE SHONEY'S SPECIAL MEETING. THE FOLLOWING DESCRIPTION IS QUALIFIED IN ITS
ENTIRETY BY THE SHONEY'S OPTION PLAN, RESTATED TO INCORPORATE THE PROPOSED
AMENDMENTS, A COPY OF WHICH IS ATTACHED AS APPENDIX E.
The Shoney's Option Plan was originally adopted by the Shoney's Board on
September 2, 1981 and approved by Shoney's shareholders at the 1982 annual
meeting of shareholders. The Shoney's Option Plan has subsequently been
amended, including amendments to: (i) extend the original expiration date from
September 2, 1991 until September 2, 1996; (ii) increase by 3,500,000 the
number of shares of Shoney's Common Stock authorized for issuance under the
Shoney's Option Plan; (iii) allow the Human Resources and Compensation
Committee (the "HRC Committee") to determine, within limits set forth in the
Shoney's Option Plan, when options become exercisable; (iv) extend the
expiration date from
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September 2, 1996 to September 2, 2001; (v) increase by 5,000,000 the number of
shares of Shoney's Common Stock authorized for issuance under the Shoney's
Option Plan; (vi) limit to 250,000 the number of shares to be optioned to any
employee during any fiscal year; and (vii) to provide for full vesting of
options upon death or disability.
The amendments to the Shoney's Option Plan adopted by the Shoney's Board,
and recommended for shareholder approval at the Shoney's Special Meeting,
effective with respect to options granted on and after May 1, 1996, are as
follows:
1. To permit the HRC Committee to grant performance-based options that
will vest, in whole or in part, at such time, or within such time period as the
HRC Committee shall designate, as the fair market value of Shoney's Common
Stock subject to the option increases by 75%, or such greater percentage as
determined by the HRC Committee, over the fair market value of such Shoney's
Common Stock at the time the option is granted, with said option to vest no
later than ten (10) years from the date the option is granted provided that the
HRC Committee may provide for expiration of the option upon termination of
employment.
2. To increase the maximum number of shares of Shoney's Common Stock
that can be optioned to any employee during any fiscal year of Shoney's from
250,000 to 2,500,000 shares.
3. To define the fair market value of Shoney's Common Stock based on
the trading price of Shoney's Common Stock, or, in the case of
performance-based options, the average of the trading prices of Shoney's
Common Stock for the immediately preceding twenty (20) consecutive trading
days, where trading price means: (i) the closing price of the Shoney's Common
Stock on the principal national securities exchange on which the Shoney's
Common Stock is traded; or (ii) if the Shoney's Common Stock is not then
traded on a national securities exchange, the average of the closing bid and
asked quotations or the closing high bid quotation, whichever is available, for
the Shoney's Common Stock in the over-the-counter market as reported by the
Nasdaq National Market; or (iii) if the Shoney's Common Stock is not then
reported on the Nasdaq National Market, the average of the closing bid and
asked prices last quoted by an established quotation service for
over-the-counter-securities.
4. To delete, effective with respect to options granted on or after May
1, 1996, the provision of the Shoney's Option Plan requiring incentive stock
options to be exercised in the order granted to reflect the repeal of such
requirement under the Code.
5. To extend the period of time during which an optionee may exercise an
option upon termination of employment other than for death or disability
from 10 days to 3 months.
6. To extend the period of time during which an optionee or the
optionee's representative may exercise an option upon termination of employment
for death or disability from 3 months to 12 months.
7. To amend the provision of the Shoney's Option Plan that provided for
full vesting of options upon death or disability to permit the HRC Committee to
provide at the time the option is granted for either full or partial vesting of
options upon death or disability.
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8. To limit, other than in the event of a change in control, the
exercise of an option to the extent exercise would cause loss of Shoney's
tax deduction under the Code provision denying deductions for compensation
in excess of $1,000,000, with such option continuing to be exercisable until
such time as Shoney's deduction would not be affected; provided, however that
an incentive stock option may not be exercised later than 10 years from date of
grant.
9. To provide for acceleration of the vesting of options upon a change
in control upon such terms and condition as deemed appropriate by the HRC
Committee.
Following is a description of the Shoney's Option Plan incorporating the
foregoing amendments:
The Shoney's Option Plan provides for the granting to employees, including
executive officers, of either "incentive" stock options, within the meaning of
Code Section 422, or "nonqualified" stock options. A total number of
13,685,180 shares of Shoney's Common Stock has been authorized for issuance
under the Shoney's Stock Option Plan. As of the Shoney's Record Date, there
were outstanding options to purchase 2,712,383 shares of Shoney's Common
Stock (with an aggregate fair market value of $34,243,835, based on the
closing price of Shoney's Common Stock as of said date) and 4,905,531 shares of
Shoney's Common Stock available for future grants under the Shoney's Option
Plan (with an aggregate fair market value of $61,932,328, based on the
closing price of Shoney's Common Stock as of said date).
The Shoney's Option Plan is administered by the HRC Committee. Subject to
the provisions of the Shoney's Option Plan, the HRC Committee has the authority
to select the employees to whom options are granted and to determine the terms
of each option, including: (i) the number of shares of Shoney's Common Stock
covered by the option, not to exceed 2,500,000 for any employee during any
fiscal year of Shoney's; (ii) when the option becomes exercisable, subject to
the limitations contained in the Shoney's Option Plan with respect to
exercisability; (iii) the duration of the option (which may not exceed 10 years
other than where the exercise of the option would preclude Shoney's
tax deduction in which case the option continues to be exercisable until such
time as Shoney's deduction is not affected; provided, however, that incentive
stock options may not be exercised later than 10 years from date of grant);
and (iv) the option exercise price, which must be at least 100% of the fair
market value of the shares as of the date of grant. The fair market value
of the Shoney's Common Stock is: (i) the closing price of the Common Stock
on the principal national securities exchange on which the Common Stock is
traded on the date of grant, if the Common Stock is then traded on a national
securities exchange; or (ii) if the Common Stock is not then traded on
a national securities exchange, the average of the closing bid and asked
quotations or the closing high bid quotation, whichever is available, in
the over-the-counter market as reported by the Nasdaq National Market on the
date of grant; or (iii) if the Common Stock is not then reported on the Nasdaq
National Market, the average of the closing bid and asked prices last quoted
by an established quotation service for over-the-counter-securities on the
date of grant. The option price of a performance-based option is determined
as discussed below.
Options are exercisable at such time as provided by the HRC Committee,
provided that: (i) no option may be exercised sooner than 3 equal annual
installments from the date of grant of the option except in the case of
performance-based options as explained below; and (ii) options must be
exercised no later than 10 years from the date of grant other than where the
exercise of the option would preclude Shoney's tax deduction in which case
the option continues to be exercisable until such time as Shoney's deduction
is not affected; provided, however, that incentive stock options may not be
exercised later than 10 years from date of grant. The HRC Committee may
provide for either full or partial vesting of an option upon death or
disability. The HRC Committee may provide for acceleration of the vesting of
an option upon a change in control.
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The HRC Committee may grant performance-based options that vest, in whole
or in part, at such time, or within such time period as the HRC Committee
designates, as the fair market value of the Shoney's Common Stock increases in
value by 75%, or such greater percentage as determined by the HRC Committee,
of the value on the date of grant of the option, provided that the option vests
in any event no later than 10 years from the date of grant subject to lapse
upon termination of employment if so provided by the HRC Committee. Fair market
value for purposes of determining the option price and for purposes of vesting
of a performance-based option is determined by the average of the trading
prices of the Shoney's Common Stock for the immediately preceding twenty (20)
consecutive trading days where trading price means (i) the average of the
closing price of the Shoney's Common Stock on the principal national
securities exchange on which the Shoney's Common Stock is traded; or (ii) if
the Shoney's Common Stock is not then traded on a national securities
exchange, the average of the closing bid and asked quotations or the closing
high bid quotation, whichever is available, for the Shoney's Common Stock in
the over-the-counter market as reported by the Nasdaq National Market; or (iii)
if the Shoney's Common Stock is not then reported on the Nasdaq National
Market, the average of the closing bid and asked prices last quoted by an
established quotation service for over-the-counter-securities.
The exercise of an option is limited, except in the event of a change in
control, to the extent exercise would cause loss of Shoney's tax deduction
under the Code provision denying deductions for compensation in excess of
$1,000,000, with such option continuing to be exercisable until such time as
Shoney's deduction would not be affected, provided, however, that an
incentive stock option may not be exercised later than 10 years from date of
grant.
All options are nontransferable other than by will or the laws of descent
and distribution. Upon termination of employment (other than by death or
disability), an optionee may exercise any options that are then exercisable at
any time before the earlier of the option's expiration date or the expiration
of 3 months from such employee's termination date. The optionee's
representative, in the event of death, or the optionee, in the event of
disability, may, subject to any option's earlier expiration, exercise any
option up to 12 months after the date of death or disability.
The Shoney's Option Plan may be amended by Shoney's shareholders or by the
Shoney's Board at any time, except that the Shoney's Board may not: (a) alter
or impair an optionee's rights under an outstanding option without the
optionee's consent; or (b) without shareholder approval, increase the total
number of shares that may be optioned under the plan, modify the requirements
for eligibility under the plan, reduce the exercise price of options issued
under the plan, or extend the expiration date of the plan beyond its current
expiration date of September 2, 2001.
FEDERAL TAX CONSEQUENCES OF SHONEY'S OPTION PLAN
INCENTIVE STOCK OPTIONS. Generally, no taxable income is recognized by an
optionee upon the grant or exercise of an incentive stock option, and no
corresponding expense deduction is available to Shoney's. However, the
difference between the exercise price of an incentive stock option and the fair
market value of the Shoney's Common Stock acquired on the date of exercise is
included in the optionee's alternative minimum taxable income at the time of
exercise for purposes of the alternative minimum tax on individuals.
Generally, if an optionee holds the Shoney's Common Stock acquired upon
the exercise of an incentive stock option until the later of (i) two years from
the grant of the option and (ii) one year from the date of transfer of the
purchased Shoney's Common Stock to him or her (the "Statutory Holding Period"),
any gain recognized by the optionee on a subsequent sale of the Shoney's Common
Stock will be treated as capital gain. The gain recognized upon the sale of
the Shoney's Common Stock is the difference between the option exercise price
and the sales price of the Shoney's Common Stock. The
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net federal income tax effect on the holder of incentive stock options is to
defer, until the Shoney's Common Stock is sold, taxation of any increase in
the value of the Shoney's Common Stock from the time of grant to the time of
exercise and to have such gain taxed at capital gains tax rates rather than
ordinary income tax rates.
If the optionee sells the Shoney's Common Stock before the expiration
of the Statutory Holding Period (a "disqualifying disposition"), he or she will
realize ordinary income in an amount equal to the lesser of: (i) the fair
market value of the Shoney's Common Stock on the date of exercise less the
option exercise price; or (ii) the amount realized on sale of the Shoney's
Common Stock less the option exercise price. Shoney's will receive a
corresponding tax deduction. Any additional gain will be treated as long-term
capital gain if the Shoney's Common Stock is held for more than one year before
the sale and as short-term capital gain if the Shoney's Common Stock is held
for a shorter period. If the optionee sells the Shoney's Common Stock for less
than the option exercise price, he or she will recognize a capital loss equal
to the difference between the sales price and the option exercise price. The
loss will be long-term capital loss if the Shoney's Common Stock is held for
more than one year before the sale and a short-term capital loss if the
Shoney's Common Stock is held for a shorter period.
NONQUALIFIED STOCK OPTIONS. No taxable income is recognized by the
optionee upon the grant of a nonqualified option. The optionee recognizes
ordinary income in the year the option is exercised in an amount equal to the
difference between the fair market value of the purchased Shoney's Common Stock
on the date of exercise and the option exercise price (and Shoney's may be
required to withhold an appropriate amount for tax purposes). Shoney's is
entitled to a tax deduction equal to the amount of ordinary income recognized
by the optionee. Any additional gain or any loss recognized upon the
subsequent disposition of the purchased Shoney's Common Stock will be a capital
gain or loss, and will be a long-term gain or loss if the Shoney's Common Stock
is held for more than one year.
SHONEY'S EXECUTIVE COMPENSATION
SUMMARY COMPENSATION
The following table summarizes the compensation paid or accrued by
Shoney's during the three fiscal years ended October 29, 1995 to those persons
who: (i) served as Shoney's CEO during the 1995 Fiscal Year; (ii) were Shoney's
four most highly compensated executive officers (other than the CEO) serving as
of the end of the 1995 Fiscal Year; and (iii) would have been included under
item (ii) but for the fact that they were not serving as executive officers at
the end of the 1995 fiscal year (collectively, the "Named Executive Officers").
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<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
Annual Compensation Awards
---------------------------------------------------------------------------------------------------------
SECURI-
OTHER RESTRICT- TIES
ANNUAL ED UNDER-
NAME COMPEN- STOCK LYING ALL OTHER
AND SATION AWARDS OPTIOS COMPEN-
PRINCIPAL POSITION YEAR SALARY($) BONUS ($) ($)<F1> (#)<F2> (#) SATION($)
<S> <C> <C> <C> <C> <C> <C> <C>
C. Stephen Lynn 1995 $226,122 $300,000 --- --- 250,000 $262,879<F3>
Chairman and
Chief Executive
Officer <F3>
- -----------------------------------------------------------------------------------------------------------------------------------
Charles E. Porter 1995 $279,460 $100,000 $319 <F4> --- 175,000 $ 33,389 <F5> <F6>
President <F8> <F7> <F8>
1994 $202,725 $ 60,128 --- 1,000 25,000 $ 23,735
1993 $185,863 $ 60,128 --- --- 10,500 $ 20,198
- -----------------------------------------------------------------------------------------------------------------------------------
W. Craig Barber 1995 $239,061 $ 90,000 --- --- 150,000 $ 6,755 <F5> <F7>
Senior Executive
Vice President and 1994 $185,661 $ 50,000 --- --- --- $ 3,964
Chief Financial
Officer 1993 $169,165 $ 76,275 --- --- 22,500 $ 3,251
- -----------------------------------------------------------------------------------------------------------------------------------
Daniel E. Staudt 1995 $159,292 $ 29,155 $319 <F4> --- 25,000 $ 11,545 <F5>
Executive Vice
President - Manu- 1994 $144,154 $ 22,475 --- 1,000 25,000 $11,893
facturing and
Distribution 1995 1993 $131,983 $ 21,515 --- --- 9,000 $ 9,752
- -----------------------------------------------------------------------------------------------------------------------------------
Charles P. Vaughn, Jr. 1995 $154,154 $ 34,125 $319 <F4> --- 15,000 $ 5,000 <F7>
Vice President -
Franchising and 1994 $136,646 $ 21,750 --- 1,000 4,000 ---
Development
1993 $100,323 $ 17,355 --- --- 6,500 ---
- -----------------------------------------------------------------------------------------------------------------------------------
Taylor H. Henry 1995 $200,385 --- --- --- --- $300,126 <F5> <F9>
Chairman and
Chief Executive 1994 $372,624 $100,000 --- --- --- $ 25,814
Officer <F3><F9>
1993 $293,462 $190,688 --- 90,000 $ 28,082
</TABLE>
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<F1> As to "Other Annual Compensation", although executive officers receive
perquisites and other personal benefits (e.g., company furnished automobiles),
the aggregate amount of such perquisites or other personal benefits does not
exceed the lesser of: (a) $50,000; or (b) 10% of the annual salary and bonus
for any of the "Named Executive Officers".
<F2> Awards made under the stock bonus plan vest and are distributed at the
rate of 10% per year for four years and in full after five years. An employee
receives no dividends and has no other rights as a shareholder with respect to
shares awarded under the stock bonus plan until the shares vest and are
distributed to the employee. At the time shares are distributed, the employee
also receives a cash award equal to 25% of the value of the shares then being
distributed to reimburse the employee for certain taxes. In December 1993,
Messrs. Porter, Staudt and Vaughn each received an award under the stock bonus
plan of 1,000 shares valued, as of that date, at $23,125. During the 1995
fiscal year, 100 shares were distributed to each of Messrs. Porter, Staudt and
Vaughn. At the time of the distribution during the 1995 fiscal year, the
distributions were valued at $1,275 each, which resulted in each of them
receiving a tax equalization bonus of $319 that is reflected in the column
labeled "Other Annual Compensation."
<F3> Mr. Lynn was elected as Shoney's CEO on April 11, 1995. At that time,
Taylor H. Henry, who had served as Shoney's CEO, retired. Mr. Lynn's employment
agreement is described below under "Employment Agreements." The amount set
forth in "All Other Compensation" represents the following: certain expenses
incurred by Mr. Lynn in connection with his relocation ($94,764); real estate
commissions and closing costs in connection with the sale of Mr. Lynn's former
residences ($133,115); and insurance premiums paid on Mr. Lynn's behalf
pursuant to his employment agreement ($35,000).
<F4> Includes tax equalization bonus paid with respect to the receipt of shares
under Shoney's stock bonus plan. See footnote 2.
<F5> Includes amounts paid pursuant to Shoney's restaurant group ownership
plans established in prior years, in which partnerships composed of employees
have acquired up to a 30% interest in groups of restaurants. During the 1995
fiscal year, the amounts paid to the Named Executive Officers, respectively,
were as follows: Mr. Henry ($21,280); Mr. Porter ($16,644); Mr. Barber
($4,755); and Mr. Staudt ($11,545).
<F6> Includes amounts accrued, but not paid, to provide for possible future
payments under a salary continuation plan that covers certain present and
former employees of Shoney's. The plan provides for payments of up to $37,500
per year for ten years following death, disability or retirement at age 55.
During the 1995 fiscal year, Mr. Porter was the only Named Executive Officer
for whom any amount was accrued, which amount was $6,745.
<F7> Includes matching contributions by Shoney's under Shoney's Supplemental
Executive Retirement Plan as follows: Mr. Porter ($10,000); Mr. Barber
($2,000); and Mr. Vaughn ($5,000).
<F8> Mr. Porter retired effective May 1, 1996.
<F9> Mr. Henry resigned as CEO and as a member of the Shoney's Board on April
11, 1995.
Mr. Henry's contract provides that he is to serve as a consultant to
Shoney's through December 31, 1996. His contract provides for him to receive
approximately $42,000 per month. All payments are less deductions for income
tax withholding, FICA and any other legal requirements. These payments also are
conditioned upon Mr. Henry's compliance with certain non-competition and
non-disclosure obligations.
95
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
Shown below is information concerning stock option grants to any Named
Executive Officer who was granted a stock option during the 1995 fiscal year:
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
- ------------------------------------------------------------------------------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
OF STOCK PRICE APPRECI-
INDIVIDUAL GRANTS ATION FOR OPTION TERM
- -------------------------------------------------------------------------------------------------------
% OF TOTAL
NUMBER OF OPTIONS
SECURITIES GRANTED TO EXERCISE
UNDERLYING EMPLOYEES OR BASE
OPTIONS GRANT- IN FISCAL PRICE EXPIRATION
NAME ED (#)<F1> YEAR ($/SH) DATE 5%($) 10%($)
<S> <C> <C> <C> <C> <C> <C>
Mr. Lynn 250,000 17.57% $10.75 4-11-2005 $742,507 $1,640,746
Mr. Porter 175,000 12.30% $10.63 6-8-2005 $513,711 $1,135,167
Mr. Barber 150,000 10.54% $10.63 6-8-2005 $440,324 $ 973,000
Mr. Staudt 25,000 1.76% $10.63 6-8-2005 $ 73,387 $ 162,167
Mr. Vaughn 15,000 1.05% $10.63 6-8-2005 $ 44,032 $ 97,300
</TABLE>
<F1> The exercise price of the options granted is equal to the market value of
the shares on the date of grant. These options vest (become exercisable) at a
cumulative rate of 20% per year and in full after five years.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
Shown below is information with respect to exercises by any Named Executive
Officer during the 1995 fiscal year of options to purchase shares pursuant to
Shoney's stock option plans and information with respect to unexercised options
to purchase shares held by such officers as of the end of the 1995 fiscal year:
96
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL AND FY-END OPTION/SAR VALUES
NUMBER OF SEC-
RITIES UNDERLYING VALUE OF UNEX-
UNEXERCISED OP- ERCISED IN-THE
TIONS/SARs AT MONEY OP-
OCTOBER 29, TIONS/SARs AT
1995 (#) OCTOBER 29, 1995 ($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Mr. Lynn 0 $ 0 0 / 250,000 $0 / $0
Mr. Porter 3,000 $ 9,375 11,200 / 202,300 $0 / $0
Mr. Barber 20,000 $ 48,125 25,850 / 165,400 $41,248 / $0
Mr. Staudt 5,000 $ 7,500 18,800 / 51,200 $18,998 / $0
Mr. Vaughn 650 $ 406 11,450 / 22,800 $20,249 / $0
</TABLE>
Shoney's has not awarded stock appreciation rights to any employee and has
had no long term incentive plans, as that term is defined in the Commission's
regulations. Also, Shoney's has had no defined benefit or actuarial plans
covering any employees of Shoney's.
COMPENSATION OF DIRECTORS
Each director who is also an officer of Shoney's receives no additional
compensation for service on the Shoney's Board. Directors who are not also
officers of Shoney's receive a quarterly retainer of $4,000 in addition to
$1,000 plus expenses for each meeting of the Shoney's Board they attend.
Members of Board committees receive $1,000 plus expenses for each committee
meeting they attend.
Also, each non-employee Director participates in the Shoney's, Inc.
Directors' Stock Option Plan (the "Directors' Plan"), which was approved by the
shareholders of Shoney's on March 19, 1991. Each non-employee Director received
an option for 5,000 of Shoney's Common Stock shares as of June 7, 1990, the
date the Shoney's Board adopted the Directors' Plan. Non-employee Directors
initially elected to the Shoney's Board subsequent to the adoption of the
Directors' Plan receive an option for 5,000 shares of Shoney's Common Stock
upon their election to the Shoney's Board. Non-employee Directors, upon the
fifth anniversary of the grant of their most recent option under the Directors'
Plan, will also be awarded an additional option for 5,000 shares of Shoney's
Common Stock. As of the end of the 1995 Fiscal Year, there were six
participants under the Directors' Plan who held options covering 30,000 shares
at an exercise price of $10.375 per share and two participants under the
Directors' Plan who held options covering 10,000 shares of Shoney's Common
Stock at an exercise price of $23.375 per Share. During 1995, there were no
exercises of options for shares granted under the Directors' Plan.
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<PAGE>
EMPLOYMENT CONTRACTS
Shoney's has employment agreements with Messrs. Lynn, Porter and Barber.
Mr. Lynn's employment agreement provides for a term from May 1, 1995 through
April 30, 1998. The employment agreements with Messrs. Porter and Barber
presently provide for initial terms terminating on January 16, 1997. In
addition, if a "Change in Control" (as defined in the employment agreements
generally to mean acquisition of 20% (50% in the case of Mr. Lynn) or more of
Shoney's outstanding voting securities by any person or the occurrence of
certain changes in the composition of the Shoney's Board) occurs with respect
to Shoney's, the employment terms contained in the employment agreements are
automatically extended for an additional one year term (two years in the case
of Mr. Lynn).
Consistent with the employment agreements, Messrs. Porter and Barber
presently are entitled to base salaries in the amounts of $300,000 and
$255,000, respectively, with increases to be in the sole discretion of the
Shoney's Board. Mr. Lynn is entitled to a base salary of $450,000 through April
30, 1996; $500,000 from May 1, 1996 through April 30, 1997; and $550,000 from
May 1, 1997 through April 30, 1998. In addition, the employment agreements
provide that Messrs. Lynn, Porter and Barber are entitled to annual bonuses.
During 1995 (or, in the case of Mr. Lynn, the first year of his contract),
these bonuses were to be determined by the HRC Committee but could not be less
than $300,000 with respect to Mr. Lynn, $100,000 with respect to Mr. Porter,
and $50,000 with respect to Mr. Barber. Thereafter, the bonuses will be based
upon a formula to be agreed upon by the employee and Shoney's, however,
provisions have been made whereby the annual bonus shall not be less than
$25,000 with respect to Mr. Barber. Mr. Porter has stated his intention to
retire effective May 1, 1996. Pursuant to an agreement with Shoney's, he will
receive one year's pay beginning May 1, 1996 through April 30, 1997.
Under Messrs. Lynn's, Porter's and Barber's employment agreements,
termination of the employee without cause will result in the employee's right
to receive the greater of (i) the salary and bonus paid or accrued on the
employee's behalf for the fiscal year of Shoney's immediately prior to the
fiscal year in which the termination took place or (ii) the amount due the
employee for salary and bonuses during the balance of the then current
employment term. In addition, termination without cause results in immediate
vesting of all stock options held by Mr. Lynn and entitles Messrs. Porter and
Barber to be paid a cash amount equal to the unrealized gain that they have in
any unvested stock options. In the event of the termination for cause or the
employee's resignation, the employee is entitled to no severance payments under
his employment agreement and all stock options that are not vested prior to the
effective date of the termination shall lapse and be void. Cause for
termination includes personal dishonesty, willful misconduct, breach of
fiduciary duty involving personal profit, conviction of any felony or crime
involving moral turpitude, material intentional breach of any provision of the
employment agreement, or unsatisfactory performance by the employee of his
duties as a result of alcohol or drug abuse.
Mr. Lynn's agreement also provides that if his employment is terminated
without cause, certain benefits (insurance, medical and automobile) continue
until expiration of the term of the agreement or his earlier coverage through
other employment. Also, in the event of a Change in Control (as defined above)
Mr. Lynn, at his option, may terminate his agreement within 90 days after such
Change in Control in which case he will receive the greater of: (i) two times
the base salary and bonus paid during the fiscal year immediately prior to that
in which the termination took place; or (ii) the amount due as base salary
during the then remaining employment term. Participation in other benefits is
treated the same as if Mr. Lynn's employment had been terminated without cause.
Mr. Lynn's agreement also provides that he will receive 50,000 shares of
restricted Shoney's Common Stock as follows: 16,500 shares of Shoney's Common
Stock on April 11, 1996; 16,500 shares of Shoney's Common Stock on April 11,
1997 and 17,000 shares on April 11, 1998. On these dates, Mr. Lynn also will
receive a tax equalization bonus determined by the value of the shares. Mr.
Lynn's agreement further provides that he will receive future options under
Shoney's stock option plan on
98
<PAGE>
November 1, 1996 as follows: 125,000 shares of Shoney's Common Stock at an
exercise price equal to the market price on that date; 75,000 shares at an
exercise price of $16.75 per share; and 50,000 shares at an exercise price of
$18.50 per share.
Mr. Lynn's contract provided for Shoney's to pay him certain relocation
expenses resulting from his accepting his position with Shoney's and for
Shoney's to acquire his former residences in Oklahoma City. Each of these
residences has been sold or resold to third parties with Shoney's incurring no
loss in connection with the transaction other than transaction expenses.
Each employment agreement terminates upon the death or disability of the
employee and the employee is entitled to certain benefits in the event of a
termination resulting from disability. Each employment agreement also contains
a covenant by the employee not to disclose any confidential information and
trade secrets of Shoney's. Each employment agreement also provides that, in the
event of a termination of the employee's employment for cause or the employee's
resignation, the employee may not compete with Shoney's within the United
States for one year.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The HRC Committee is composed of Directors Hoover (Chairperson), Jackson,
Shircliff and Turner. None of these persons has at any time been an officer or
employee of Shoney's or any of its subsidiaries. In addition, there are no
relationships among Shoney's executive officers, members of the HRC Committee
or entities whose executives serve on the Shoney's Board or the HRC Committee
that require disclosure under applicable regulations of the Commission.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This Joint Proxy Statement/Prospectus incorporates documents by reference
with respect to Shoney's and Enterprises that are not presented herein or
delivered herewith. Documents relating to Shoney's (excluding exhibits thereto,
unless such exhibits are specifically incorporated by reference into such
documents) are available without charge to any person, including any beneficial
owner, to whom this Joint Proxy Statement/Prospectus is delivered, upon written
or oral request to Robert M. Langford, Executive Vice President, General
Counsel and Secretary, Shoney's, Inc., 1727 Elm Hill Pike, Nashville, Tennessee
37210, telephone (615) 231-2548. Documents relating to Enterprises (excluding
exhibits thereto, unless such exhibits are specifically incorporated by
reference into such documents) are available without charge to any person,
including any beneficial owner, to whom this Joint Proxy Statement/Prospectus
is delivered, upon written or oral request to Frederick W. Burford, Secretary,
TPI Enterprises, Inc., 3950 RCA Boulevard, Suite 5001, Palm Beach Gardens,
Florida 33410, telephone (407) 835-8800. In order to ensure timely delivery of
the documents, any request should be made by , 1996 [date five
business days prior to the date on which the final investment decision must be
made -- see Form S-4, Item 2].
The following documents filed by Shoney's with the Commission are hereby
incorporated by reference into this Joint Proxy Statement/Prospectus and made a
part hereof: (a) Shoney's Annual Report on Form 10-K for the fiscal year ended
October 29, 1995, filed with the Commission on January 29, 1996; (b) Shoney's
Current Report on Form 8-K filed with the Commission on March 20, 1996; (c)
Shoney's Quarterly Report on Form 10-Q for the fiscal quarter ended February
18, 1996, filed with the Commission on April 13, 1996; (d) Shoney's Current
Report on Form 8-K filed with the Commission on May 15, 1996; and (e) the
description of Shoney's common stock, par value $1.00 per share, that is
contained in Shoney's registration statement on Form 10 filed under the
Exchange Act with the Commission on February 27, 1970, including any amendment
or report filed for the purpose of updating such description.
99
<PAGE>
The following documents filed by Enterprises with the Commission are
hereby incorporated by reference into this Joint Proxy Statement/Prospectus and
made a part hereof: (a) Enterprises' Annual Report on Form 10-K for the fiscal
year ended December 31, 1995, as filed with the Commission on April 1, 1996,
and the amendment thereto on Form 10-K/A, as filed with the Commission on April
29, 1996 and (c) the information furnished in Enterprises' annual report to
shareholders for the fiscal year ended December 31, 1995, in accordance with
Items 101(b), (c)(1) and (d) of Regulation S-K (classes of similar products or
services, foreign and domestic operations and export sales), Item 201 of
Regulation S-K (market price of dividends on Enterprises Common Stock and
related stockholder matters), Item 301 of Regulation S-K (selected financial
data), Item 302 of Regulation S-K (supplemental financial information), Item
303 of Regulation S-K (management's discussion and analysis of financial
condition and results of operations) and Item 304 of Regulation S-K (changes in
and disagreements with accountants on accounting and financial disclosure). The
other information in Enterprises' annual report to shareholders for the fiscal
year ended December 31, 1995 not otherwise incorporated by reference into this
Joint Proxy Statement/Prospectus is not part of the Registration Statement.
All documents filed by Shoney's pursuant to Sections 13(a), 13(c), 14 and
15(d) of the Exchange Act after the date of this Joint Proxy
Statement/Prospectus and prior to the Shoney's Special Meeting and the
Enterprises Special Meeting shall be deemed to be incorporated by reference
into this Joint Proxy Statement/Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained herein or in a
document incorporated or deemed to be incorporated herein by reference will be
deemed to be modified or superseded for the purpose of this Joint Proxy
Statement/Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is, or is deemed to be, incorporated
herein by reference modifies or supersedes such statement. Any such statement
so modified or superseded will not be deemed, except as so modified or
superseded, to constitute a part of this Joint Proxy Statement/Prospectus.
LEGAL MATTERS
The validity of the issuance of the shares of Shoney's Common Stock
offered pursuant to this Joint Proxy Statement/Prospectus will be passed upon
for Shoney's by Wyatt, Tarrant & Combs, counsel to Shoney's. In addition, the
description of federal income tax consequences contained in the section
entitled "The Reorganization--Certain Federal Income Tax Consequences" has been
reviewed by Shereff, Friedman, Hoffman & Goodman, LLP on behalf of Enterprises
and by Sullivan and Cromwell on behalf of Shoney's.
EXPERTS
The consolidated financial statements and schedule of Shoney's, Inc. at
October 29, 1995 and October 30, 1994 and for each of the fiscal years in the
three-year period ended October 29, 1995, incorporated by reference in the
Joint Proxy Statement of Shoney's, Inc., which is referred to and made a part
of this Prospectus and Registration Statement, have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon also
incorporated by reference herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements and the related financial statement
schedules of TPI Enterprises, Inc. as of December 31, 1995 and December 25,
1994 and for each of the years in the three-year period ended December 31,
1995 incorporated by reference in this Prospectus and Registration Statement,
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports
100
<PAGE>
incorporated by reference in this Prospectus and Registration Statement, and
are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS JOINT
PROXY STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION NOT CONTAINED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR THE SOLICITATION OF AN OFFER TO PURCHASE ANY OF THE SECURITIES
OFFERED BY THIS JOINT PROXY STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO OR FROM WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER, OR PROXY SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR
THE ISSUANCE OR SALE OF ANY SECURITIES HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION SET
FORTH OR INCORPORATED HEREIN SINCE THE DATE HEREOF.
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<PAGE>
APPENDIX A
PLAN OF TAX-FREE REORGANIZATION UNDER
SECTION 368(a)(1)(C)
OF THE INTERNAL REVENUE CODE
AND
AGREEMENT
This Plan of Tax-Free Reorganization under Section 368(a)(1)(C)
of the Internal Revenue Code and Agreement (hereinafter referred to as the
"Agreement") made and entered into as of the 15th day of March, 1996,
by and among Shoney's, Inc., a Tennessee corporation, (hereinafter
referred to as "Shoney's"), TPI Restaurants Acquisition Corporation, a
Tennessee corporation (hereinafter referred to as "TPAC"), and TPI
Enterprises, Inc., a New Jersey corporation (hereinafter referred to as
"Enterprises").
W I T N E S S E T H:
WHEREAS, Shoney's owns all of the issued and outstanding capital
stock of TPAC; and
WHEREAS, Shoney's, by itself or through subsidiaries, is engaged
in the business of franchising, owning and/or operating "Shoney's,"
"Captain D's" and casual dining restaurants in the United States; and
WHEREAS, Enterprises owns all of the issued and outstanding
capital stock of each of TPI Restaurants, Inc., a Tennessee corporation
("TPIR"), TPI Entertainment, Inc., a Delaware corporation ("TPIE"), and
TPI Insurance Corporation, a Hawaii corporation ("TPII") (each of TPIR,
TPIE and TPII being sometimes hereinafter referred to as a "Company" and
collectively as the "Companies"), which comprise substantially all of the
properties and assets of Enterprises; and
WHEREAS, the Companies and their respective subsidiaries (with the
exception of TPIE) are engaged in the business of owning and/or operating
or providing support services to one hundred eighty-eight (188) "Shoney's"
and sixty-eight (68) "Captain D's" restaurants located at the addresses
set forth on SCHEDULE 1A to the Enterprises Disclosure Letter (each a
"Restaurant" and, collectively, the "Restaurants"); and
WHEREAS, TPAC desires to acquire from Enterprises, and Enterprises
desires to transfer to TPAC, all of the issued and outstanding shares of
capital stock of each of the Companies in exchange for Shoney's $1.00 par
value voting common stock (hereinafter referred to as "Shoney's Common
Stock") to be delivered on the Closing Date and the assumption of certain
liabilities of Enterprises, all upon the terms and conditions hereinafter
set forth; and
<PAGE>
WHEREAS, the Boards of Directors of Shoney's, TPAC and Enterprises
deem it desirable, and in the best interest of their respective
corporations and their shareholders, that the transactions contemplated
by this Agreement be consummated and qualify as a "reorganization" under
Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, provisions, covenants and grants herein contained, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, in addition to the terms defined
elsewhere herein, unless the context otherwise requires, the following
terms shall have the meanings indicated:
"ACCOUNTS RECEIVABLE" means all of the accounts and notes
receivable owed to one of TPIR, TPIE, TPII or a TPIR Subsidiary.
"AFFILIATE" means, when used with respect to a specific Person,
another Person that directly, or indirectly through one or more
intermediaries, controls or is controlled by or is under common control
with the Person specified.
"ASBESTOS" shall have the meaning set forth in SECTION 5.20(b).
"AVERAGE CLOSING MARKET PRICE" means the average per share price
of the last trade of Shoney's Common Stock on the NYSE as reported by The
Wall Street Journal for the ten trading days immediately preceding the
Closing Date; provided, however, that, if there shall be any material
alteration in the present system of reporting sales of Shoney's Common
Stock, or if Shoney's Common Stock shall no longer be listed on the NYSE,
the market value per share of the Shoney's Common Stock as of a particular
date shall be determined in such a method as may be mutually agreeable to
the parties.
"CASH EQUIVALENT" means any item classified by Enterprises as a
cash equivalent in accordance with GAAP.
"CIVIL ACTION" means that certain litigation pending in the
Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach
County, Florida styled Maxcell Telecom Plus, Inc., et al., v. McCaw
Cellular Communications, Inc., et al.
"CLOSING" means the consummation of the purchase and sale of all
of the issued and outstanding shares of capital stock of the Companies as
provided in this Agreement.
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"CLOSING DATE" means the second business day after the last of the
conditions set forth in ARTICLE IX hereof shall have been fulfilled or
waived, or any other date that may be mutually agreed upon by the parties
hereto.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act
of 1985, Public Law 99-272, Title X.
"CODE" means the Internal Revenue Code of 1986, as amended from
time to time, and any regulations or published rulings promulgated or
issued thereunder.
"COMPANY" and "COMPANIES" shall have the meaning set forth in the
THIRD RECITAL OF THIS AGREEMENT.
"COMPANY PROPERTY" means either a Leased Property or an Owned
Property. "COMPANY PROPERTIES" means all such Leased Properties and
Owned Properties, collectively.
"CONTROLS" (including, with its correlative meanings, "CONTROLLED
BY" and "UNDER COMMON CONTROL WITH") means possession, directly or
indirectly, of power to direct or cause direction of management or
policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise).
"ENTERPRISES" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"ENTERPRISES COMMON STOCK" means Enterprises' $.01 par value
voting common stock.
"ENTERPRISES' COUNSEL" means Shereff, Friedman, Hoffman & Goodman,
LLP of New York, New York.
"ENTERPRISES' DISCLOSURE LETTER" means the Disclosure Letter
delivered to Shoney's by Enterprises on or before the date hereof.
"ENTERPRISES 401(k) PLAN" means the NationsBank Defined
Contribution Master Plan and Trust Agreement.
"ENTERPRISES' MANAGEMENT AGREEMENT" means the Management Services
Agreement dated as of October 5, 1988 between TPIR and Enterprises.
"ENTERPRISES' TAX SHARING ARRANGEMENT" means the Tax Sharing
Arrangement dated as of October 5, 1988 between TPIR (on its behalf and
on behalf of its U.S. Subsidiaries) and Enterprises.
"ENTERPRISES OPTION" means an option to acquire Enterprises Common
Stock granted under one of the Enterprises Stock Option Plans.
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"ENTERPRISES STOCK OPTION PLAN" means one of the following: Telcom
Equipment Corp. Incentive Stock Option Plan, Telcom Plus International,
Inc. 1983 Stock Option Plan, Telcom Plus International, Inc. 1984 Stock
Option Plan, 1992 TPI Enterprises, Inc. Stock Option and Incentive Plan
and the TPI Enterprises, Inc. Non-Employee Directors Stock Option Plan.
"ENTERPRISES STOCK OPTION PLANS" means all such plans collectively.
"ENTERPRISES STOCK PURCHASE PLAN" means the TPI Enterprises, Inc.
1995 Employee Stock Purchase Plan.
"ENTERPRISES WARRANTS" means the warrants contained in that
certain Warrant Purchase Agreement dated March 19, 1993 by and among
Enterprises and The Bass Management Trust, Sid R. Bass Management Trust,
TPI Investors, L.P., Lee M. Bass and The Airlie Group, L.P.
"ENVIRONMENTAL LAWS" shall have the meaning set forth in SECTION
5.20.
"ENVIRONMENTAL CONDITION" means any condition at a Company
Property which: (1) is in violation of applicable Environmental Laws; (2)
involves the disposal, discharge, placement, generation or emission of
Hazardous Materials prior to the Closing Date; or (3) is likely to result
in a claim by any governmental or regulatory authority under applicable
Environmental Laws.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and any regulations or published rulings
promulgated or issued thereunder.
"ERISA AFFILIATE" means any trade or business (whether
incorporated or unincorporated) which is a member of a group described in
Section 414(b), (c), (m) or (o) of the Code, of which TPIR, TPIE, TPII or
any TPIR Subsidiary also is a member.
"EXCESS REPAIR AND MAINTENANCE EXPENSES" means the sum of (a) the
amount by which actual repair and maintenance expenses incurred by
Enterprises or TPIR for the year ended December 31, 1995 exceed $13,235,000;
plus (b) the amount by which actual repair and maintenance expenses incurred
by Enterprises or TPIR for the two periods ended February 25, 1996 exceed
$1,457,000.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"EXCHANGE RATIO" shall mean the number of Exchange Shares divided
by the number of Enterprises Common Stock outstanding on the Closing Date.
"EXCHANGE SHARES" shall have the meaning set forth in SECTION 3.1.
"FF&E" means furniture, fixtures, equipment, machinery, signage,
inventories of china, glass and silver, utensils and small wares,
uniforms, spare and replacement parts, trucks, automobiles and all other
like personalty located at and/or used in connection with the operation
of the Restaurants or the business(es) of any of the Companies.
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"GAAP" means generally accepted accounting principles,
consistently applied.
"GROSS PROCEEDS" means the cash actually received by Enterprises
or its Affiliates from the defendants in the Civil Action through a final,
non-appealable judgment or settlement.
"HAZARDOUS MATERIALS" means and shall include, without limitation,
hazardous substances as defined in the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C. Sec. 9601(14),
as amended by the Superfund Amendments and Reauthorization Act of 1986,
hazardous wastes and hazardous constituents as defined in the Resource
Conservation and Recovery Act, 42 U.S.C. Sec. 6901, ET SEQ., substances or
chemicals regulated under TSCA, 15 U.S.C. Sec. 2601 ET SEQ., hazardous
substances as defined in the Clean Water Act, 33 U.S.C. Sec. 1321 (a)(14);
hazardous air pollutants as defined in the Clean Air Act, 42 U.S.C. Sec.
7412(a)(6); hazardous substances and chemicals and extremely hazardous
substances regulated under Emergency Planning and Community Right-to-know
Act, 42 U.S.C. Sec. 11001 ET SEQ.; gasoline, petroleum, petroleum products,
explosives, radioactive materials, polychlorinated biphenyls or related
or similar materials, or any other substance or material defined as of the
date hereof as hazardous or toxic by any federal, state or local law,
ordinance, rule or regulation, but excluding Asbestos.
"HSR ACT" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1977, as amended.
"INTERCOMPANY ACCOUNTS" means, collectively, all of the
intercompany accounts payable and intercompany accounts receivable among
Enterprises, the Remaining Subsidiaries, the Companies and the TPIR
Subsidiaries.
"INVENTORIES" means, collectively, the inventories of food, paper
and supplies, and other raw materials owned by one of the Companies or a
TPIR Subsidiary, whether stored on or away from a Company Property.
"KNOWLEDGE" means, with respect to any Person, to that Person's
actual knowledge as of the date of this Agreement and, if the Person is
a corporation, to the actual knowledge of the directors and executive
officers of that Person as of the date of this Agreement.
"LEASED PROPERTY" means a property, the land and/or building for
which is leased by one of TPIR, TPIE, TPII or a TPIR Subsidiary.
"LITIGATION EXPENSES" means any and all expenses incurred after
September 4, 1995 in instituting, prosecuting, defending any counterclaim
with respect to, and, if applicable, negotiating a settlement of and
settling the Civil Action (including, without limitation, attorneys' fees
and expenses, witness fees, consulting fees and settlement sharing
arrangements).
"MARLIN CLAIMS" means obligations or causes of action between Marlin
Services, Inc., Marlin Electric, Inc., d/b/a/ Marlin Services and their
respective affiliates (collectively
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"Marlin"), on the one hand, and Enterprises or TPIR, on the other hand,
arising in connection with that certain Maintenance Services Agreement
dated as of October 1, 1995 between Marlin and TPIR, including but not
limited to obligations arising from the settlement or any judgment
resulting from any such claims or as a result of any obligation to
subcontractors retained by Marlin, together with expenses arising from
the above, including attorney's fees incurred in prosecuting and
defending any dispute or litigation regarding such claims.
"MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT" means,
subject to the qualifications or limitations set forth in this definition,
when used with respect to a Person, any change or effect that is or would
reasonably be expected (so far as can be foreseen at the time) to be
materially adverse to the assets, condition (financial or otherwise) or
results of operations of that Person. With respect to Enterprises, a
Material Adverse Change or Material Adverse Effect shall not be deemed to
have occurred unless a change, effect, condition or occurrence is or would
reasonably be expected to materially adversely affect the ability of
Enterprises to perform its obligations hereunder. For the purposes of this
Agreement, a Material Adverse Change shall not be deemed to have occurred or
a Material Adverse Effect shall not be deemed to exist with respect to TPIR,
the TPIR Subsidiaries, TPIE and TPII, taken as a whole, unless a change
or effect causes or results in a liability or expense in excess of
$500,000. For the purposes of this Agreement, a Material Adverse Change
shall not be deemed to have occurred or a Material Adverse Effect shall
not be deemed to exist with respect to Shoney's and its Subsidiaries,
taken as a whole, unless a change or effect causes or results in a
liability or expense in excess of $500,000.
"NET PROCEEDS" means the Gross Proceeds minus the Litigation
Expenses.
"NYSE" means the New York Stock Exchange.
"OPERATING COMMITTEE" means a committee composed of four persons:
two members of the Board of Directors of Enterprises designated by
Shoney's, and two designees of Enterprises.
"OWNED PROPERTY" means a property, the land and/or building for
which is owned in fee simple by one of TPIR, TPIE, TPII or a TPIR
Subsidiary.
"PERSON" means an individual, partnership, corporation, trust or
other entity, or a government or agency or instrumentality thereof.
"PRIVATE DEBENTURES" means those $15,000,000 in principal amount
outstanding of 5.00% convertible senior subordinated debentures due 2003
issued by Enterprises under that certain debenture purchase agreement
dated as of March 19, 1993 among Enterprises, TPIR, as guarantor and the
purchasers named therein.
"PRIVATE INDENTURE" means that certain debenture purchase
agreement dated as of March 19, 1993 among Enterprises, TPIR, as guarantor
and the purchasers named therein pursuant to which the Private Debentures
are issued.
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"PUBLIC DEBENTURES" means those $51,563,000 in principal amount
outstanding of 8.25% convertible subordinated debentures due 2002 issued
by Enterprises under that certain indenture dated as of July 15, 1992
among Enterprises, TPIR, as guarantor and NationsBank of Tennessee, N.A.,
as Trustee.
"PUBLIC INDENTURE" means that certain indenture dated as of July
15, 1992 among Enterprises, TPIR, as guarantor and NationsBank of
Tennessee, N.A., as Trustee pursuant to which the Public Debentures are
issued.
"REMAINING SUBSIDIARY" means one of Telecom Plus Shared Tenants
Services Inc., a Delaware corporation, and Maxcell Telecom Plus, Inc., a
Delaware corporation. "REMAINING SUBSIDIARIES" means Telecom Plus Shared
Tenants Services Inc., a Delaware corporation, and Maxcell Telecom Plus,
Inc., a Delaware corporation.
"RESTAURANT" and "RESTAURANTS" shall have the meanings set forth
in the FOURTH RECITAL of this Agreement.
"RETAINED REPAIR AND MAINTENANCE EXPENSES" means the sum of (a)
actual repair and maintenance expenses incurred by Enterprises or TPIR
for the year ended December 31, 1995, not exceeding $13,235,000; plus
(b) actual repair and maintenance expenses incurred by Enterprises or
TPIR for the two periods ended February 25, 1996, not exceeding
$1,457,000.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SHONEY'S" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"SHONEY'S COMMON STOCK" shall have the meaning set forth in the
FIFTH RECITAL of this Agreement.
"SHONEY'S COUNSEL" means Tuke Yopp & Sweeney of Nashville,
Tennessee; provided, however, that with respect to the tax opinion
referred to in Section 9.2.6(b), Shoney's Counsel shall mean Sullivan &
Cromwell of New York, New York.
"SHONEY'S DISCLOSURE LETTER" means the Disclosure Letter delivered
to Enterprises by Shoney's on or before the date hereof.
"SHONEY'S STOCK PLAN" means one of the following: the Shoney's,
Inc. 1981 Stock Option Plan, the Shoney's Inc. Employee Stock Purchase
Plan, the Shoney's, Inc. Stock Bonus Plan and the Shoney's, Inc.
Non-Employee Director Stock Option Plan. "SHONEY'S STOCK PLANS" means
all such plans, collectively.
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"SPECIFIED WIND-UP EXPENSE" means one of the expenses in the
respective estimated amount as described on SCHEDULE 1(b) of the
Enterprises Disclosure Letter. "SPECIFIED WIND-UP EXPENSES" means all
such expenses, collectively.
"SUBSIDIARY" means any corporation, partnership, joint venture or
other legal entity of which a Person (either alone or through or together
with any other Subsidiary), owns, directly or indirectly, 50% or more of
the stock or other equity interests the holders of which are generally
entitled to vote for the election of the board of directors or other
governing body of such corporation or other legal entity.
"TAX" (and, with correlative meaning, "TAXES" and "TAXABLE") shall
mean: (a) any federal, state, local or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Section
59A of the Code), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability, real
property, personal property, sales, use, transfer, registration, value
added, alternative or add-on minimum, estimated or other tax of any kind
whatsoever, including any interest, penalty or addition thereto, whether
disputed or not; and (b) liability for the payment of amounts with respect
to payments of a type described in clause (a) as a result of being a
member of an affiliated, consolidated, combined or unitary group, or as
a result of any obligation under any Tax Sharing Arrangement or Tax
indemnity arrangement.
"TAX RETURN" shall mean any return, declaration, report, claim for
refund, or information return or statement relating to Taxes, including
any schedule or attachment thereto, and including any amendment thereof.
"TAX SHARING ARRANGEMENT" shall mean any written or unwritten
agreement or arrangement for the allocation of payment of Tax liabilities
or payment for Tax benefits with respect to a consolidated, combined, or
unitary Tax Return which Tax Return includes TPIR, TPIE, TPII or any TPIR
Subsidiary.
"TERMINATION DATE" means June 30, 1996.
"TPAC" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"TPAC OPTION" shall mean an option to purchase Shoney's Common
Stock under a TPAC Stock Option Plan embodying the terms set forth in
SECTION 3.4.2.
"TPAC WARRANTS" means the warrants to purchase Shoney's Common
Stock contained in that certain Warrant Purchase Agreement dated the
Closing Date by and among TPAC and The Bass Management Trust, Sid R.
Bass Management Trust, TPI Investors, L.P., Lee M. Bass and The Airlie
Group, L.P. embodying the terms set forth in SECTION 3.4.3.
"TPIE" shall have the meaning set forth in the THIRD RECITAL of
this Agreement.
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"TPIE COMMON STOCK" means the common stock, $.01 par value per
share, of TPIE.
"TPII" shall have the meaning set forth in the THIRD RECITAL of
this Agreement.
"TPII COMMON STOCK" means the issued and outstanding common stock,
$1.00 par value per share, of TPII.
"TPIR" shall have the meaning set forth in the THIRD RECITAL of
this Agreement.
"TPIR BANK DEBT" means that indebtedness of TPIR outstanding under
that certain second amended and restated credit agreement dated as of
January 31, 1995, by and among TPIR, the banks party thereto, The Bank of
New York, as Administrative Agent, and NationsBank of North Carolina,
N.A., as Collateral Agent.
"TPIR COMMON STOCK" means the common stock, $.01 par value per
share, of TPIR.
"TPIR PREFERRED STOCK" means the preferred stock, $.01 par value
per share, of TPIR.
"TPIR SUBSIDIARY" and "TPIR SUBSIDIARIES" shall have the meanings
set forth in SECTION 5.1(b).
"VOTING DEBT" means any bond, debenture, note or other
indebtedness having the right to vote (or convertible into or exercisable
for securities having the right to vote) on any matters on which
shareholders may vote.
All references herein to "Sections," "Schedules" and "Exhibits"
shall, unless otherwise indicated, refer to the sections, schedules and
exhibits which (through attachment, whether to this Agreement, the
Enterprises Disclosure Letter or the Shoney's Disclosure Letter or
incorporation by reference) are a part of this Agreement.
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ARTICLE II
TRANSFERS BY ENTERPRISES
SECTION 2.1 ENTERPRISES' ASSETS. On the Closing Date, Enterprises
shall transfer and deliver to Shoney's (or, if directed by Shoney's, to
TPAC), subject to the terms and conditions set forth in this Agreement,
free and clear of all liens, encumbrances, claims, pledges, or security
interests, all of the issued and outstanding shares of TPIR Common Stock,
TPIR Preferred Stock, TPIE Common Stock and TPII Common Stock, all
Intercompany Accounts and all of the cash and Cash Equivalents of
Enterprises and each of Enterprises' Subsidiaries, except the amount of
cash permitted to be retained by SECTION 2.2 and SECTION 2.3. Shoney's
agrees (and agrees to cause TPAC, if applicable) to accept the transfer
from Enterprises of said shares, Intercompany Accounts and cash and Cash
Equivalents subject to the terms and conditions of this Agreement.
SECTION 2.2 CASH RETAINED TO PAY EXPENSES. To pay the
Specified Wind-up Expenses, Enterprises may retain in cash on the Closing
Date an amount not to exceed $7,350,000.
SECTION 2.3 OTHER CASH RETAINED. Subject to SECTION 2.4,
Enterprises shall on the Closing Date retain from its assets the sum of
$7,500,000.
SECTION 2.4 LIMIT ON RETAINED CASH. In no event shall the
aggregate amount of cash retained by Enterprises pursuant to SECTION 2.3
exceed ten percent (10%) of the dollar amount determined by multiplying
the number of Exchange Shares by the price of the last trade of a share
of Shoney's Common Stock on the NYSE as reported by THE WALL STREET
JOURNAL on the last trading day prior to the Closing Date.
SECTION 2.5 TRANSFER OF EXCESS CASH TO SHONEY'S. Promptly
after payment of all of the Specified Wind-up Expenses that are to be paid
from the cash withheld pursuant to SECTION 2.2 hereof, Enterprises shall
deliver to Shoney's (or as directed by Shoney's, to TPAC) the cash
remaining, if any, from the amount so withheld.
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ARTICLE III
PAYMENT BY SHONEY'S
SECTION 3.1 TRANSFER OF SHONEY'S SHARES. On the Closing
Date, Shoney's shall, or shall cause TPAC to, deliver to Enterprises a
stock certificate or stock certificates representing a number of shares
of Shoney's Common Stock equal to: (a) Five Million Five Hundred Seventy
Seven Thousand One Hundred Two (5,577,102); plus (b) (x) $10,000,000
divided by (y) the Average Closing Market Price, subject to adjustment as
provided in SECTION 3.2 (the "Exchange Shares").
SECTION 3.2 ADJUSTMENTS.
SECTION 3.2.1 In the event of any reclassification,
stock split or stock dividend with respect to Shoney's Common
Stock, any change of the Shoney's Common Stock into other
securities or any other dividend or distribution with respect to
the Shoney's Common Stock, or if a record date with respect to
any of the foregoing should occur, prior to the Closing,
appropriate and proportionate adjustments, if any, shall be made
to the number of Exchange Shares to be issued pursuant to this
Agreement, and all references to such terms in this Agreement
shall be deemed to be to such terms as so adjusted.
SECTION 3.2.2 In the event that, prior to the Closing
Date, any Person exercises an option granted prior to September
1, 1995 under one of the Enterprises Stock Option Plans or
exercises any Enterprises Warrants or converts any Public
Debentures or Private Debentures into Enterprises Common Stock,
in each case in accordance with the terms of the governing
instruments and which were outstanding on the date hereof,
Shoney's shall issue to Enterprises an additional number of
shares of Shoney's Common Stock equal to: (a) the number of
shares of Enterprises Common Stock issued pursuant to the
exercise of such options, warrants or debentures multiplied by
(b) the Exchange Ratio (as determined without reference to the
adjustment required by this Section). In the event of such an
adjustment, all references to "Exchange Shares" in this Agreement
(except in the definition of Exchange Ratio) shall be deemed to
be to such term as so adjusted.
SECTION 3.2.3 In the event that, after November 7, 1995
and prior to the Closing Date, any shares of Enterprises Common
Stock are issued, transferred from treasury or allocated in
connection with the Enterprises 401(k) Plan or the Enterprises
Stock Purchase Plan, Shoney's shall issue to Enterprises an
additional number of shares of Shoney's Common Stock equal to:
(a) the number of shares of Enterprises Common Stock so issued
multiplied by (b) the Exchange Ratio (as determined without
reference to the adjustment required by this Section). In the
event of such an adjustment, all references to "Exchange Shares"
in this Agreement (except in the definition of Exchange Ratio)
shall be deemed to be to such term as so adjusted.
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SECTION 3.2.4 In the event that Enterprises, solely by
reason of SECTION 2.4, retains less than $7,500,000, Shoney's
shall issue to Enterprises an additional number of shares of
Shoney's Common Stock equal to: (a) the number of dollars less
than $7,500,000 that Enterprises retains divided by (b) the
Average Closing Market Price. In the event of such an
adjustment, all references to "Exchange Shares" in this Agreement
shall be deemed to be to such term as so adjusted.
SECTION 3.2.5 In the event (and only to the extent)
that the Net Proceeds are required by TPIR's lenders to be used
to permanently retire all or any portion of the TPIR Bank Debt,
Shoney's shall issue to Enterprises an additional number of
shares of Shoney's Common Stock equal to: (a) the amount (not to
exceed: (x) that amount that may be retained by Enterprises
pursuant to SECTION 2.2 and SECTION 2.3 (as adjusted by SECTION
2.4); minus (y) that amount of cash and Cash Equivalents held by
Enterprises at the Closing) by which the TPIR Bank Debt was
permanently reduced using the Net Proceeds divided by (b) the
Average Closing Market Price. In the event of such an
adjustment, all references to "Exchange Shares" in this Agreement
shall be deemed to be to such term as so adjusted.
SECTION 3.3 NO FRACTIONAL SECURITIES. No certificates or
scrip representing fractional shares of Shoney's Common Stock shall be
issued pursuant to SECTION 3.2., and no Shoney's dividend or other
distribution or stock split shall relate to any fractional security, and
such fractional interests shall not entitle Enterprises to vote or to any
rights of a security holder of Shoney's. In lieu of any such fractional
securities, Enterprises will be paid an amount in cash (without interest)
equal to the value of such fractional shares of Shoney's Common Stock.
SECTION 3.4 ASSUMPTION OF ENTERPRISES' LIABILITIES. At the Closing,
Shoney's shall (or at its option cause TPAC to) assume and pay,
discharge, and perform when lawfully due the following liabilities,
contracts, and other obligations of Enterprises as described below.
SECTION 3.4.1 PUBLIC DEBENTURES. At the Closing,
Shoney's shall (or at its option cause TPAC to) assume all of
Enterprises' duties and obligations under the Public Indenture
in accordance with its terms.
SECTION 3.4.2 EMPLOYEE STOCK OPTIONS. Each employee
of Enterprises, TPIR, TPIE or TPII or the TPIR Subsidiaries who
has outstanding at the Closing an Enterprises Option shall be
issued a TPAC Option in exchange for such Enterprises Option as
follows:
(a) The number of shares of Shoney's Common Stock subject to
the TPAC Option shall be that number of shares subject to
the Enterprises Option for which the TPAC Option was
exchanged multiplied by the Exchange Ratio.
(b) The exercise price for the shares subject to the TPAC
Option shall be the exercise price for the shares subject
to the Enterprises Option for which the TPAC Option was
exchanged divided by the Exchange Ratio.
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(c) In determining the vesting or exercisability, as well as
the term, of any TPAC Option granted hereunder, the Grant
Date of the TPAC Option shall be the original grant date
of the Enterprises Option for which the TPAC Option was
exchanged subject to any acceleration of vesting or
exercisability of the Enterprises Option for which the
TPAC Option was exchanged which occurs as a result of the
Closing.
SECTION 3.4.3 ENTERPRISES WARRANTS. The holder of
the Enterprises Warrants shall be issued TPAC Warrants in
exchange for such Enterprises Warrants as follows:
(a) The number of shares of Shoney's Common Stock subject to
the TPAC Warrants shall be that number of shares subject
to the Enterprises Warrants multiplied by the Exchange
Ratio.
(b) The exercise price for the shares subject to the TPAC
Warrants shall be the exercise price for the shares
subject to the Enterprises Warrants divided by the
Exchange Ratio.
SECTION 3.4.4 OTHER LIABILITIES. At the Closing,
Shoney's shall (or at its option cause TPAC to) assume all
of Enterprises' duties and obligations under the liabilities
set forth in SECTION 3.4.4 of the Enterprises Disclosure Letter
and shall (or at its option cause TPAC to) hold Enterprises
harmless from any liabilities deriving from any duties,
obligations or liabilities assumed pursuant to this SECTION 3.4.
SECTION 3.5 NO ASSUMPTION OF OTHER LIABILITIES. Except as
specifically set forth in SECTIONS 3.4, 8.4 and 8.6, none of Shoney's,
TPAC or any of their respective Affiliates shall assume or have any
liability for any other liability or obligation of Enterprises or any
of the Remaining Subsidiaries including, without limitation, any
liability for Taxes.
SECTION 3.6 RESTRICTION ON SALE AND DISTRIBUTION OF EXCHANGE SHARES.
Enterprises agrees that the Exchange Shares shall be distributed to
Enterprises' shareholders and creditors in one or more distributions in
connection with the complete liquidation of Enterprises, and that the
Exchange Shares shall not otherwise be sold, transferred or exchanged.
Any certificate issued to Enterprises representing all or any portion of
the Exchange Shares will bear a legend to the foregoing effects, and
Shoney's will instruct its transfer agent for the Shares to place
appropriate stop orders on the stock transfer record to reflect such
provisions. Upon request by Enterprises and certification that any
proposed transferee is either an Enterprises shareholder or creditor,
Shoney's shall instruct its transfer agent to execute any transfer
instructions duly received from Enterprises.
SECTION 3.7 PERFORMANCE BY SHONEY'S. If, pursuant to this
Agreement, Shoney's elects to acquire (rather than causing TPAC to
acquire) the assets and properties of Enterprises, all obligations and
liabilities of TPAC hereunder shall be assumed and performed by Shoney's.
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ARTICLE IV
CLOSING
The Closing shall occur at the offices of Shoney's Counsel, Suite
1100 NationsBank Plaza, Nashville, Tennessee at 10:00 a.m., Nashville
time, on the Closing Date.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ENTERPRISES
Enterprises represents and warrants to Shoney's and TPAC that:
SECTION 5.1 ORGANIZATION, STANDING AND POWER.
(a) Enterprises is a corporation duly organized, validly
existing and in good standing under the laws of the State of New Jersey
and has the requisite corporate power and authority to carry on its
business as now being conducted. Enterprises has no Subsidiaries other
than those listed on SCHEDULE 5.1(a) to the Enterprises Disclosure Letter.
Enterprises is duly qualified to do business and is in good standing in
each jurisdiction where the character of its properties owned or held
under lease or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified would not,
individually or in the aggregate, have a Material Adverse Effect on
Enterprises.
(b) TPIR is a corporation duly organized, validly existing
and in good standing under the laws of the State of Tennessee and has the
requisite corporate power and authority to carry on its business as now
being conducted. TPIR has no Subsidiaries other than those listed on
SCHEDULE 5.1(b) to the Enterprises Disclosure Letter (each a "TPIR
Subsidiary" and, collectively, the "TPIR Subsidiaries"). With the
exception of the TPIR Subsidiaries, TPIR does not own any interest in any
partnership or other entity. There are no outstanding contractual
obligations of TPIR to acquire any shares of capital stock or other
ownership interest of any corporation, partnership or other entity. With
the exception of the TPIR Subsidiaries, TPIR does not have any investment
(either debt or equity), or commitments to make such an investment, in any
corporation, joint venture, general or limited partnership, business
enterprise or other person or entity. Each TPIR Subsidiary is a
corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction in which it is incorporated (which is set
forth on SCHEDULE 5.1(b) to the Enterprises Disclosure Letter) and has the
requisite corporate power and authority to carry on its business as now
being conducted. Each of TPIR and the TPIR Subsidiaries is duly qualified
to do business and is in good standing in each jurisdiction where it owns
or leases property, conducts business or where the character of its
properties owned or held under lease or the nature of its activities makes
such qualification necessary, except where the failure to be so qualified
would not, individually or in the aggregate, have a Material Adverse
Effect on TPIR, TPIE, TPII and the TPIR Subsidiaries, taken as a whole.
(c) TPIE 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. TPIE has no Subsidiaries. TPIE does not own any interest
in any partnership or other entity. There are no outstanding contractual
obligations of TPIE to acquire any shares of capital stock or other
ownership interest of any corporation, partnership or other entity. TPIE
does not have any investment (either debt or equity), or commitments to make
such an investment, in any corporation, joint venture, general or limited
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partnership, business enterprise or other person or entity. TPIE is duly
qualified to do business and is in good standing in each jurisdiction
where it owns or leases property, conducts business or where the character
of its properties owned or held under lease or the nature of its
activities makes such qualification necessary, except where the failure
to be so qualified would not, individually or in the aggregate, have a
Material Adverse Effect on TPIR, TPIE, TPII and the TPIR Subsidiaries,
taken as a whole.
(d) TPII is a corporation duly organized, validly existing
and in good standing under the laws of the State of Hawaii and has the
requisite corporate power and authority to carry on its business as now
being conducted. TPII has no Subsidiaries. TPII does not own any
interest in any partnership or other entity. There are no outstanding
contractual obligations of TPII to acquire any shares of capital stock or
other ownership interest of any corporation, partnership or other entity.
TPII does not have any investment (either debt or equity), or commitments
to make such an investment, in any corporation, joint venture, general or
limited partnership, business enterprise or other person or entity. TPII
is duly qualified to do business and is in good standing in each
jurisdiction where it owns or leases property, conducts business or where
the character of its properties owned or held under lease or the nature
of its activities makes such qualification necessary, except where the
failure to be so qualified would not, individually or in the aggregate,
have a Material Adverse Effect on TPIR, TPIE, TPII and the TPIR
Subsidiaries, taken as a whole.
SECTION 5.2 CAPITAL STRUCTURE.
(a) TPIR has authorized capital consisting of one thousand
(1,000) shares of TPIR Common Stock, of which one hundred (100) shares are
issued and outstanding and ten thousand (10,000) shares of TPIR Preferred
Stock, all of which is issued and outstanding. TPIR has no other issued
or authorized securities. There are no shares of TPIR Common Stock held
in the treasury of TPIR. The issued and outstanding shares of TPIR Common
Stock are validly issued, fully paid and nonassessable. There are no
existing subscriptions, options, warrants, calls, commitments, agreements
or rights of any kind obligating TPIR to issue any shares of stock or
options or rights with respect thereto, and there are no existing or
outstanding securities of any kind convertible into or exchangeable for
shares of TPIR Common Stock. No former shareholder of TPIR or any
corporation heretofore merged with or into TPIR has any claim or cause of
action whatsoever against TPIR arising out of or in any way connected with
any occurrence or state of facts in existence prior to the date hereof
that would have a Material Adverse Effect on TPIR. To Enterprises'
Knowledge, no former shareholder of TPIR or any corporation heretofore
merged with or into TPIR has any claim or cause of action whatsoever
against TPIR not barred by the applicable statute of limitations arising
out of or in any way connected with any occurrence or state of facts in
existence prior to the date hereof. To Enterprises' Knowledge, no former
shareholder of TPIR or any corporation heretofore merged with or into TPIR
shall come to have any claim or cause of action whatsoever against TPIR,
Shoney's or TPAC, or any officer, director or shareholder of any such
corporations, by virtue of, or in any way connected with, the transactions
contemplated by this Agreement. All of the issued and outstanding TPIR
Common Stock has been issued and sold in compliance with all
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federal and state securities laws. There are no preemptive rights in
respect of TPIR Common Stock.
(b) TPIE has authorized capital consisting of three million
(3,000,000) shares of TPIE Common Stock, of which one thousand (1,000)
shares are issued and outstanding and one million (1,000,000) shares of
preferred stock, none of which is issued and outstanding. TPIE has no
other issued or authorized securities. There are no shares of TPIE Common
Stock held in the treasury of TPIE. The issued and outstanding shares of
TPIE Common Stock are validly issued, fully paid and nonassessable. There
are no existing subscriptions, options, warrants, calls, commitments,
agreements or rights of any kind obligating TPIE to issue any shares of
stock or options or rights with respect thereto, and there are no existing
or outstanding securities of any kind convertible into or exchangeable for
shares of TPIE Common Stock. No Person other than Enterprises has ever
been a shareholder of TPIE. No corporation has heretofore merged with or
into TPIE. All of the issued and outstanding TPIE Common Stock has been
issued and sold in compliance with all federal and state securities laws.
There are no preemptive rights in respect of TPIE Common Stock.
(c) TPII has authorized capital consisting of two hundred
fifty thousand (250,000) shares of TPII Common Stock, of one dollar
($1.00) par value each, all of which are issued and outstanding. TPII has
no other issued or authorized securities. There are no shares of TPII
Common Stock held in the treasury of TPII. The issued and outstanding
shares of TPII Common Stock are validly issued, fully paid and
nonassessable. There are no existing subscriptions, options, warrants,
calls, commitments, agreements or rights of any kind obligating TPII to
issue any shares of stock or options or rights with respect thereto, and
there are no existing or outstanding securities of any kind convertible
into or exchangeable for shares of TPII Common Stock. No Person other
than Enterprises has ever been a shareholder of TPII. No corporation has
heretofore merged with or into TPII. All of the issued and outstanding
TPII Common Stock has been issued and sold in compliance with all federal
and state securities laws. There are preemptive rights in respect of TPII
Common Stock.
(d) Each TPIR Subsidiary has authorized, issued and
outstanding capital as set forth on SCHEDULE 5.2(d) to the Enterprises
Disclosure Letter. None of the TPIR Subsidiaries has any other issued or
authorized securities. There are no shares of capital stock held in the
treasury of any of the TPIR Subsidiaries. The issued and outstanding
shares of each TPIR Subsidiary are validly issued, fully paid and
nonassessable. There are no existing subscriptions, options, warrants,
calls, commitments, agreements or rights of any kind obligating any TPIR
Subsidiary to issue any shares of stock or options or rights with respect
thereto, and there are no existing or outstanding securities of any kind
convertible into or exchangeable for shares of stock of any TPIR
Subsidiary. No former shareholder of any TPIR Subsidiary or any
corporation heretofore merged with or into any TPIR Subsidiary has any
claim or cause of action whatsoever against any TPIR Subsidiary arising
or in any way connected with any occurrence or state of facts in existence
prior to the date hereof, and no such former shareholder shall come to
have any claim or cause of action whatsoever against any TPIR Subsidiary,
TPIR, Enterprises, Shoney's or TPAC, or any officer, director or
shareholder of any such corporations, by virtue of, or in any
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way connected with, the transactions contemplated by this Agreement. All
of the issued and outstanding capital stock of each TPIR Subsidiary has
been issued and sold in compliance with all federal and state securities
laws. Except as set forth on SCHEDULE 5.2(d) to the Enterprises
Disclosure Letter, there are no preemptive rights in respect of the
capital stock of any TPIR Subsidiary.
(e) Enterprises owns of record and beneficially all of the
issued and outstanding TPIR Common Stock, TPIR Preferred Stock, TPIE
Common Stock and TPII Common Stock and has the right and power to transfer
and assign the TPIR Common Stock, TPIR Preferred Stock, TPIE Common Stock
and TPII Common Stock free and clear of all liens, encumbrances,
restrictions, claims, pledges or security interests or charges or
interests of any kind, whether voluntarily incurred or arising by
operation of law or otherwise, with the exception of those liens,
encumbrances, restrictions, claims, pledges or security interests or
charges or interests described in SCHEDULE 5.2(e) to the Enterprises
Disclosure Letter. Enterprises has the exclusive right, power and
authority to vote the TPIR Common Stock, the TPIR Preferred Stock, the
TPIE Common Stock and the TPII Common Stock. Enterprises is the sole
shareholder of each of TPIR, TPIE and TPII and will remain and continue
to be the sole shareholder of each of TPIR, TPIE and TPII through the
Closing Date and will not sell, pledge or otherwise transfer or assign any
of its stock in either of TPIR, TPIE or TPII prior to the Closing Date.
Upon and effective with the Closing, subject to TPAC's satisfaction of the
condition set forth in SECTION 9.3.3, TPAC will have good, valid and
marketable title to all of the issued and outstanding capital stock of
each of TPIR, TPIE and TPII free and clear of all liens, encumbrances,
restrictions, claims, pledges, security interests, charges or interests
of any kind, whether voluntarily incurred or arising by operation of law
or otherwise, with the exception of liens or encumbrances that may have
been created or granted by Shoney's or TPAC.
(f) TPIR owns of record and beneficially all of the issued
and outstanding capital stock of each TPIR Subsidiary and has the right
and power to transfer and assign shares of each TPIR Subsidiary free and
clear of all liens, encumbrances, restrictions, claims, pledges or
security interests or charges or interests of any kind, whether
voluntarily incurred or arising by operation of law or otherwise, with the
exception of those liens, encumbrances, restrictions, claims, pledges or
security interests or charges or interests described in SCHEDULE 5.2(f)
to the Enterprises Disclosure Letter. TPIR has the exclusive right, power
and authority to vote the shares of each TPIR Subsidiary. TPIR is the
sole shareholder of each TPIR Subsidiary, and will remain and continue to
be the sole shareholder through the Closing Date and will not sell, pledge
or otherwise transfer or assign any of its stock in any TPIR Subsidiary
prior to the Closing Date. Upon and effective with the Closing, subject
to TPAC's satisfaction of the condition set forth in SECTION 9.3.3, TPIR
will have good, valid and marketable title to all of the issued and
outstanding capital stock of each TPIR Subsidiary, free and clear of all
liens, encumbrances, restrictions, claims, pledges, security interests,
charges or interests of any kind, whether voluntarily incurred or arising
by operation of law or otherwise, with the exception of liens or
encumbrances that may have been created or granted by Shoney's or TPAC.
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(g) Since September 1, 1995, none of TPIR, TPIE or TPII has
declared, set aside, made or paid to Enterprises dividends or other
distributions on the outstanding shares of TPIR Common Stock, TPIE Common
Stock or TPII Common Stock, respectively, and none of TPIR, TPIE or TPII
has any obligation to declare, set aside, make or pay to Enterprises
dividends or other distributions on the outstanding shares of TPIR Common
Stock, TPIE Common Stock or TPII Common Stock, respectively. Except with
respect to the TPIR Preferred Stock, there are no amounts owed to
Enterprises by either of TPIR, TPIE or TPII as a result of any previous
declaration of any dividend or other distribution on any outstanding
securities of any of TPIR, TPIE or TPII.
SECTION 5.3 AUTHORITY; NON-CONTRAVENTION.
(a) Enterprises has all requisite corporate power and
authority to enter into this Agreement and, subject to approval of this
Agreement and the transactions contemplated hereby requiring approval by
its shareholders, Enterprises has all requisite corporate power and
authorization to consummate the transactions contemplated hereby.
Enterprises' execution and delivery of this Agreement and its consummation
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action, subject to such approval by Enterprises'
shareholders. This Agreement has been duly executed and delivered by
Enterprises and, subject to the satisfaction of the conditions applicable
to Enterprises as forth herein, constitutes a valid and binding obligation
of Enterprises, enforceable in accordance with its terms.
(b) Except as set forth on SCHEDULE 5.3(b) to the Enterprises
Disclosure Letter, the execution and delivery of this Agreement by
Enterprises does not and will not, and the consummation of the
transactions contemplated hereby and compliance with the provisions hereof
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 or acceleration of any obligation or
to the loss of a benefit under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or
assets of Enterprises or any of its Subsidiaries (including TPIR, TPIE,
TPII and each of the TPIR Subsidiaries) under:
(1) any provision of the Certificate of Incorporation or By-
laws of either Enterprises, TPIR, TPIE or TPII;
(2) any provision of the comparable charter or organization
documents of any of the Remaining Subsidiaries or of the
TPIR Subsidiaries;
(3) to Enterprises' Knowledge, any loan or credit agreement,
note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or
license applicable to Enterprises, any of the Remaining
Subsidiaries, TPIR, TPIE, TPII or any of the TPIR
Subsidiaries;
(4) to Enterprises' Knowledge, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to
Enterprises, any of the Remaining Subsidiaries,
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TPIR, TPIE, TPII or any of the TPIR Subsidiaries or any
of their respective properties or assets;
other than, in the case of clauses (3) or (4), any such conflicts,
violations, defaults, rights, loss of benefits, liens, security interests,
charges or encumbrances that, individually or in the aggregate, would not
have a Material Adverse Effect on Enterprises and the Remaining
Subsidiaries, taken as a whole, or on TPIR, TPII, TPIE and the TPIR
Subsidiaries, taken as a whole.
(c) To Enterprises' Knowledge, no filing or registration
with, or authorization, consent or approval of, any domestic (federal or
state), foreign or supranational court, commission, governmental body,
regulatory agency, authority or tribunal (a "Governmental Entity") is
required by or with respect to Enterprises, any of the Remaining
Subsidiaries, TPIR, TPIE, TPII or any of the TPIR Subsidiaries in
connection with the execution and delivery of this Agreement by
Enterprises or is necessary for the consummation of the transactions
contemplated by this Agreement, except:
(1) in connection, or in compliance, with the provisions of
the HSR Act;
(2) in connection, or in compliance, with the provisions of
the Securities Act, the Exchange Act and applicable state
securities or blue sky laws (the Securities Act, Exchange
Act and such applicable state securities laws being
hereinafter referred to collectively as "Securities
Laws");
(3) insurance regulatory filings with respect to TPII (the
"Insurance Regulatory Approvals");
(4) such filings, authorizations, orders and approvals as may
be required by the Interstate Commerce Commission (the
"ICC Filings"); and
(5) such other filings, registrations, authorizations,
consents or approvals, the failure to obtain which would
not have a Material Adverse Effect on Enterprises and the
Remaining Subsidiaries, taken as a whole, or on TPIR,
TPII, TPIE and the TPIR Subsidiaries, taken as a whole.
SECTION 5.4 VOTE REQUIRED. The affirmative vote of a
majority of the votes cast by holders of Enterprises Common Stock entitled
to vote thereon is the only vote of the holders of any class or series of
securities of either Enterprises or any of Enterprises' Subsidiaries
(including, without limitation, TPIR, TPIE, TPII or any of the TPIR
Subsidiaries) necessary to approve this Agreement and the transactions
contemplated by this Agreement (assuming for purposes of this
representation the accuracy of the representations contained in SECTION
6.6 (without giving effect to the knowledge qualification thereof)).
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SECTION 5.5 OPINION OF FINANCIAL ADVISOR. Enterprises has
received the opinion of Alex. Brown & Sons Incorporated (the "Enterprises
Financial Advisor") to the effect that, as of the date hereof, the
consideration to be received by Enterprises in exchange for the properties
being transferred to TPAC, pursuant to the terms and conditions of this
Agreement, is fair to Enterprises' shareholders from a financial point of
view.
SECTION 5.6 OWNERSHIP OF SHONEY'S COMMON STOCK. Except as
set forth on SCHEDULE 5.6 to the Enterprises Disclosure Letter, as of the
date hereof, none of Enterprises or Enterprises Subsidiaries, nor, to
Enterprises' Knowledge, any of their respective "Affiliates" or
"Associates" (as such terms are defined under the Exchange Act): (a)
beneficially owns, directly or indirectly, or (b) are parties to any
agreement, arrangement or understanding with any Person other than
Shoney's for the purpose of acquiring, holding, voting or disposing of,
in each case, any shares of Shoney's Common Stock.
SECTION 5.7 NON-APPLICABILITY OF CERTAIN PROVISIONS.
Assuming the accuracy of the representation and warranty of Shoney's
contained in SECTION 6.6, without giving effect to the knowledge
qualification thereof, the anti-takeover restrictions of the Tennessee
Investor Protection Act, the Delaware General Corporation Law, the Hawaii
Corporate Takeovers Act, the Florida 1989 Business Corporation Act and the
New Jersey Shareholders Protection Act do not apply to the execution and
delivery of this Agreement by Enterprises or the consummation of the
transactions contemplated by this Agreement.
SECTION 5.8 DISSENTERS' RIGHTS. As of the date of this
Agreement, there were in excess of one thousand five hundred (1,500)
holders of record of Enterprises Common Stock. No holder of Enterprises
Common Stock will have any right to dissent from the exchange by
Enterprises of the TPIR Common Stock, TPIR Preferred Stock, TPIE Common
Stock, TPII Common Stock and Enterprises' cash and Cash Equivalents for
the Exchange Shares or other consideration to be paid and/or assumed by
TPAC and/or have any appraisal rights with respect to this Agreement and
the transactions contemplated by this Agreement pursuant to any provision
of the New Jersey Business Corporation Act (the "NJBCA").
SECTION 5.9 CORPORATE DOCUMENTS. The copies of the
Articles of Incorporation or Charter, as the case may be, and By-laws of
Enterprises, TPIR, TPIE, TPII and each of the TPIR Subsidiaries, which
have been delivered to Shoney's and TPAC, are true, correct and complete
copies of each of such Articles of Incorporation or Charter, as the case
may be, and By-laws as in effect on the date hereof.
SECTION 5.10 COMPANY FINANCIAL INFORMATION. Enterprises has
delivered to Shoney's and TPAC true and complete copies of the following
(collectively, the "Company Financial Information"):
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Audited Annual Financial Statements:
ENTITY FISCAL
YEAR ENDED
TPI Enterprises, Inc. and Subsidiaries - Consolidated 12/25/94
TPI Restaurants, Inc. and Subsidiaries - Consolidated 12/25/94
TPI Insurance Corporation 12/25/94
UNAUDITED ANNUAL FINANCIAL STATEMENTS
(Balance Sheets, Statements of Operations and Statements of
Cash Flows for:)
PERIOD
ENTITY COVERED
TPI Enterprises, Inc. and Subsidiaries - Consolidated Year ended 12/31/95
TPI Restaurants, Inc. and Subsidiaries - Consolidated Year ended 12/31/95
TPI Insurance Corporation Year ended 12/31/95
TPI Entertainment, Inc. Year ended 12/31/95
OTHER
Consolidation worksheets for TPIR and Enterprises for the year
ended 12/31/95.
To Enterprises' Knowledge, none of the Company Financial Information
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which and as of
the respective dates they were made, not misleading, except for such
statements or omissions as would not have a Material Adverse Effect. To
Enterprises' Knowledge, the financial statements (including the
accompanying notes) included in any of the Company Financial Information,
as of their respective dates, were prepared in accordance with GAAP
applied on a consistent basis during the periods indicated (except as may
be indicated therein or in the notes thereto), subject, in the case of
unaudited financial statements, to the absence of footnotes and normal
year-end adjustments.
As of December 31, 1995 none of Enterprises or any of its Subsidiaries had
invested surplus cash in any investment other than a Cash Equivalent.
SECTION 5.11 INFORMATION SUPPLIED. None of the information
supplied or to be supplied by Enterprises, any of the Remaining
Subsidiaries, TPIR, TPIE, TPII or any TPIR Subsidiary for inclusion or
incorporation by reference in the Proxy Statement and the Registration
Statement (as defined below in SECTION 8.1) will, to Enterprises'
knowledge, at the time the Registration Statement is filed with the
Securities and Exchange Commission (the "SEC") and at the time it becomes
effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, except
for such statements or omissions as would not have a Material Adverse
Effect on Enterprises and the Remaining Subsidiaries,
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taken as a whole, or on TPIR, TPIE, TPII and the TPIR Subsidiaries, taken
as a whole; provided, however, that Enterprises is given a reasonable
opportunity to review such information prior to filing and effectiveness.
The Proxy Statement and the Registration Statement (except for such
portions thereof that relate only to or contain information supplied by
Shoney's), to Enterprises' knowledge, will comply as to form in all
material respects with the provisions of the Securities Act and the
Exchange Act and the rules and regulations thereunder. None of the
information furnished by Enterprises, any of the Remaining Subsidiaries,
TPIR, TPIE, TPII or any TPIR Subsidiary in connection with this Agreement
or the consummation of the transactions contemplated by this Agreement
(which information is described on SCHEDULE 5.11 to the Enterprises
Disclosure Letter), to Enterprises' knowledge, contains or will contain
any untrue statement of a material fact or omit to state a material fact
required to be stated in order to make any information so furnished, in
light of the circumstances under which it is so furnished and as of the
date it was furnished, not misleading.
SECTION 5.12 COMPLIANCE WITH APPLICABLE LAWS AND AGREEMENTS.
To Enterprises' Knowledge, TPIR, TPIE, TPII and each TPIR Subsidiary hold
all permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities which are material to the operation of the
businesses of TPIR, TPIE, TPII and the TPIR Subsidiaries, taken as a whole
(the "Company Permits"). To Enterprises' Knowledge, except as set forth
on SCHEDULE 5.12 to the Enterprises Disclosure Letter, each of TPIR, TPIE,
TPII and each TPIR Subsidiary are in compliance with the terms of the
Company Permits, except where the failure to be in compliance would not
have a Material Adverse Effect on TPIR, TPIE, TPII and the TPIR
Subsidiaries, taken as a whole. To Enterprises' Knowledge, the businesses
of Enterprises, TPIR, TPIE, TPII and each of the TPIR Subsidiaries are not
being conducted in conflict with, violation of or default under: (a) any
law, ordinance, regulation, judgment or order of any Governmental Entity;
or (b) any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise, or other instrument or obligation to which
Enterprises, TPIR, TPIE, TPII or any of the TPIR Subsidiaries is a party
or by which Enterprises, TPIR, TPIE, TPII or any TPIR Subsidiary or any
of their respective properties or assets is bound or affected, except for
conflicts, violations or defaults which individually or in the aggregate
would not result in a Material Adverse Effect on either Enterprises and
the Remaining Subsidiaries, taken as a whole, or TPIR, TPIE, TPII and the
TPIR Subsidiaries, taken as a whole. To Enterprises' Knowledge, no
investigation or review by any Governmental Entity with respect to
Enterprises, TPIR, TPIE, TPII or any TPIR Subsidiary is pending or
threatened, nor has any Governmental Entity indicated an intention to
conduct the same, other than, in each case, those the outcome of which
will not have a Material Adverse Effect on either Enterprises and the
Remaining Subsidiaries, taken as a whole or TPIR, TPIE, TPII and the TPIR
Subsidiaries, taken as a whole.
SECTION 5.13 LITIGATION. To Enterprises' Knowledge, except
as set forth on SCHEDULE 5.13 to the Enterprises Disclosure Letter:
(a) There is no pending or threatened litigation relating to
the TPIR Common Stock, the TPIR Preferred Stock, the TPIE Common Stock,
the TPII Common Stock or any of the
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stock of any of the TPIR Subsidiaries, except for such litigation as would
not have a Material Adverse Effect on TPIR, TPIE, TPII and the TPIR
Subsidiaries, taken as a whole.
(b) There is no litigation, claim, suit, action,
administrative or arbitration proceeding or controversy pending or
threatened (whether or not from a Governmental Entity), nor is Enterprises
in receipt of any inquiry, notice, citation, investigation or complaint
from any Governmental Entity, which would have a Material Adverse Effect
on Enterprises nor does Enterprises know of any occurrence or condition
that might properly constitute a basis for such litigation or proceeding
or such inquiry, notice, citation, investigation or complaint.
(c) Enterprises is not subject to any judgment, order, writ,
injunction or decree of any court or administrative agency which would
have a Material Adverse Effect on Enterprises.
(d) There is no litigation, claim, suit, action, administrative
or arbitration proceeding or controversy pending or, to Enterprises'
knowledge, threatened against TPIR, TPIE, TPII or any TPIR Subsidiary
(whether or not from a Governmental Entity), nor is TPIR, TPIE, TPII or
any TPIR Subsidiary in receipt of any inquiry, notice, citation,
investigation or complaint from any Governmental Entity, which would have
a Material Adverse Effect on TPIR, TPIE, TPII and the TPIR Subsidiaries,
taken as a whole, nor does Enterprises know or have reasonable grounds to
know of any occurrence or condition that might properly constitute a basis
for such litigation, proceeding or controversy or such inquiry, notice,
citation, investigation or complaint, except as would not have a Material
Adverse Effect on TPIR, TPIE, TPII and the TPIR Subsidiaries, taken as a
whole.
(e) None of TPIR, TPIE, TPII or the TPIR Subsidiaries is
subject to any judgment, order, writ, injunction or decree of any
Governmental Entity that would have a Material Adverse Effect on TPIR,
TPIE, TPII or the TPIR Subsidiaries, taken as a whole.
SECTION 5.14 INSURANCE. To Enterprises' Knowledge,
Enterprises, the Remaining Subsidiaries, TPIR, TPIE, TPII and the TPIR
Subsidiaries maintain insurance against such risks and in such amounts as
is customary (subject to reasonable deductibles) for Persons engaging in
the businesses of Enterprises, its Subsidiaries, TPIR, TPIE, TPII and the
TPIR Subsidiaries, except as would not have a Material Adverse Effect on
Enterprises and the Remaining Subsidiaries, taken as a whole, or on TPIR,
TPIE, TPII and the TPIR Subsidiaries, taken as a whole. To Enterprises'
Knowledge, there is in full force and effect policies of insurance, which
policies are described on SCHEDULE 5.14 to the Enterprises Disclosure
Letter, to cover the business, assets and properties of TPIR, TPIE, TPII
and each of the TPIR Subsidiaries from loss by fire, windstorm and
extended coverage as well as insurance for general liability, product
liability, automobile and workers' compensation. To Enterprises'
Knowledge, Enterprises has provided or made available a list of all claims
(including but not necessarily limited to workers' compensation,
automobile and general liability and products liability) filed by or on
behalf of TPIR, TPIE, TPII or any TPIR Subsidiary for insured losses prior
to the date hereof which are pending and have not been disposed of and
that are for amounts in excess of the applicable policy limits, except as
would not have a Material Adverse Effect on TPIR, TPIE, TPII and the
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TPIR Subsidiaries, taken as a whole. To Enterprises' Knowledge, none of
Enterprises, the Remaining Subsidiaries, TPIR, TPIE, TPII or any of the
TPIR Subsidiaries is in default with respect to any provisions or
requirements of any such policy, nor have any of them failed to give
notice or present any claim thereunder in a due and timely fashion, except
for such defaults or failures that would not have a Material Adverse
Effect on Enterprises and the Remaining Subsidiaries, taken as a whole,
or on TPIR, TPIE, TPII and the TPIR Subsidiaries, taken as a whole. To
Enterprises' Knowledge, none of Enterprises, the Remaining Subsidiaries,
TPIR, TPIE, TPII or any of the TPIR Subsidiaries has received any notice
of cancellation or termination in respect of any of its insurance policies
that currently are in force. To Enterprises' Knowledge, except as would
not have a Material Adverse Effect on Enterprises and the Remaining
Subsidiaries, taken as a whole, or on TPIR, TPIE, TPII and the TPIE
Subsidiaries, taken as a whole, no litigation is presently pending against
Enterprises, the Remaining Subsidiaries, TPIR, TPIE, TPII or any TPIR
Subsidiary is being defended by any insurance carrier under reservation
of rights. To Enterprises' Knowledge, Enterprises' captive insurance
Subsidiary, TPII, is adequately capitalized to insure against such risks
as Enterprises reasonably believes necessary to conduct its business in
accordance with the requirements of the Hawaii Insurance Code.
SECTION 5.15 PROPERTIES. To Enterprises' Knowledge:
(a) TPIR, TPIE, TPII and/or one of the TPIR Subsidiaries owns
fee simple absolute or leasehold title to each of the Owned Properties and
Leased Properties, respectively, identified in SCHEDULE 5.15(a) to the
Enterprises Disclosure Letter, which constitutes all of the real estate
properties owned by or leased by any of them, except as would not have a
Material Adverse Effect on TPIR, TPIE, TPII and the TPIR Subsidiaries,
taken as a whole.
(b) SCHEDULE 5.15(b) to the Enterprises Disclosure Letter sets
forth the term (including renewals), rent structure and other information
as described thereon with respect to each lease of a Leased Property.
(c) TPIR, TPIE, TPII and/or one of the TPIR Subsidiaries owns or
leases all of the FF&E used in the businesses conducted by the Companies
at the Company Properties reflected in the Company Financial Information
as being owned or leased by TPIR, TPIE, TPII or one of the TPIR Subsidiaries,
except as would not have a Material Adverse Effect on TPIR, TPIE, TPII and
the TPIR Subsidiaries, taken as a whole. Schedule 5.15(c) to the Enterprises
Disclosure Letter is a complete and accurate list and description of all
the FF&E that TPIR, TPIE, TPII and each of the TPIR Subsidiaries own,
lease, have agreed (or have an option) to purchase, sell or lease, or may
be obligated to purchase, sell or lease, in each case the cost of which
(on an individual item-by-item basis) exceeds $50,000. Each item of FF&E
is in operating order, ordinary wear and tear excepted, except as would
not have a Material Adverse Effect on TPIR, TPIE, TPII and the TPIR
Subsidiaries, taken as a whole. At the Closing, the FF&E at each Company
Restaurant will be adequate for the operation of such Company Restaurant,
and such FF&E will be in operating condition, normal wear and tear excepted,
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except as would not have a Material Adverse Effect on TPIR, TPIE, TPII
and the TPIR Subsidiaries, taken as a whole.
(d) Each of the Owned Properties, each of the Leased
Properties and each item of FF&E is owned or leased, as the case may be,
free and clear of liens, mortgages or deeds of trust, claims against
title, charges which may be liens, security interests or other
encumbrances on title ("Encumbrances"), and is not subject to any
easements, rights of way, written agreements, laws, ordinances and
regulations materially affecting business use or occupancy, or
reservations of an interest in title (collectively, "Property
Restrictions") except for:
(1) Encumbrances and Property Restrictions set forth in
SCHEDULE 5.15(d)(1) to the Enterprises Disclosure Letter;
(2) Property Restrictions imposed or promulgated by law or
any other Governmental Entity with respect to real
property, including zoning regulations, provided they do
not materially adversely effect the current use of the
property;
(3) Encumbrances and Property Restrictions disclosed in
existing title insurance policies or existing surveys (in
either case copies of which title insurance policies and
surveys have been made available to Shoney's and are
listed on SCHEDULE 5.15(d)(3)) to the Enterprises
Disclosure Letter.
(4) mechanics', carriers', workers' and repairmen's liens,
property taxes not yet delinquent and other Encumbrances,
Property Restrictions and limitations of any kind, if
any, which, in the aggregate or individually, are not
substantial in amount, do not materially interfere with
the current use of the Company Properties, taken as a
whole, subject thereto or affected thereby, and do not
otherwise materially impair business operations conducted
by TPIR, TPIE, TPII and the TPIR Subsidiaries, taken as
a whole, and which have arisen or been incurred only in
the ordinary course of business.
(e) SCHEDULE 5.15(d)(3) to the Enterprises Disclosure Letter
sets forth a schedule of existing policies of title insurance that have
been issued insuring the fee simple absolute or leasehold title, as the
case may be, to the Company Properties and the amounts of such policies.
Subject only to the matters disclosed above, such policies are, at the
date hereof, in full force and effect and no claim has been made against
any such policy, except as disclosed in SCHEDULE 5.15(e) to the
Enterprises Disclosure Letter.
(f) Except as disclosed in SCHEDULE 5.15(f) to the
Enterprises Disclosure Letter or as would not have a Material Adverse
Effect on TPIR, TPIE, TPII and the TPIR Subsidiaries, taken as a whole:
(1) there is no certificate, permit or license from
any Governmental Entity having jurisdiction over
any of the Company Properties or any agreement,
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easement or other right which is necessary to
permit the lawful use and operation of the
buildings and improvements on any of the Company
Properties or which is necessary to permit the
lawful use and operation of all driveways, roads,
and other means of egress and ingress to and from
any of the Company Properties that has not been
obtained and is not in full force and effect, or
any pending threat of modification or cancellation
of any of the same;
(2) there is no written notice of any violation of
any federal, state or municipal law, ordinance,
order, regulation or requirement affecting any
portion of any of the Company Properties issued
by any Governmental Entity;
(3) there is no:
(i) structural defect relating to the Company
Properties; or
(ii) Company Property whose building systems are
not in working order in any material respect; or
(iii) physical damage to any Company Property
for which there is no insurance in effect
covering the cost of the restoration;
in the case of any of (i), (ii) or (iii) that
would that would require the expenditure of in
excess of $100,000 at any one Company Property
or that, in the aggregate, would that would
require the expenditure of in excess of $250,000
at all Company Properties;
(4) there is no ongoing renovation or restoration of
any Company Property the cost of which is
reasonably expected to exceed $100,000; or
(5) there is no reason (by reason of any existing
condition) why any Company Property would fail
to satisfy ordinary and normal conditions and
requirements of prudent and knowledgeable real
estate lenders to qualify as a financeable
property.
(g) Except as described on SCHEDULE 5.15(g) to the
Enterprises Disclosure Letter, not one of Enterprises, any of the
Remaining Subsidiaries, TPIR, TPIE, TPII or any TPIR Subsidiary has
received any notice to the effect that:
(1) any condemnation or rezoning proceedings are
pending or threatened with respect to any of the
Company Properties; or
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(2) any zoning, building or similar law, code,
ordinance, order or regulation is or will be
violated by the continued maintenance, operation
or use of any buildings or other improvements on
any of the Company Properties or by the
continued maintenance, operation or use of the
parking areas.
(h) Except as would not have a Material Adverse Effect on
Enterprises and the Remaining Subsidiaries, taken as a whole, or on TPIR,
TPIE, TPII and the TPIR Subsidiaries, taken as a whole, all work to be
performed, payments to be made and actions to be taken by Enterprises, any
of the Remaining Subsidiaries, TPIR, TPIE, TPII or any TPIR Subsidiary
prior to the date hereof pursuant to any agreement entered into with a
Governmental Entity in connection with a site approval, zoning
reclassification or other similar action relating to any of the Company
Properties (e.g., Local Improvement District, Road Improvement District,
Environmental Mitigation) has been performed, paid or taken, as the case
may be, and there is no planned or proposed work, payments or actions that
may be required after the date hereof pursuant to such agreements.
(i) Except as would not have a Material Adverse Effect on
Enterprises and the Remaining Subsidiaries, taken as a whole, or on TPIR,
TPIE, TPII and the TPIR Subsidiaries, taken as a whole, the Inventories
of TPIR, TPIE, TPII and each of the TPIR Subsidiaries shown on the
financial statements included in the Company Financial Information and
which will be on hand on the Closing Date consist of items that are good
and usable in the normal course of business and the values at which such
inventories are carried at values that reflect the customary inventory
valuation policies consistently applied of valuing inventories at lower
of cost or market.
(j) Except as set forth in SCHEDULE 5.15 (j) to the
Enterprises Disclosure Letter or as would not have a Material Adverse
Effect on Enterprises and the Remaining Subsidiaries, taken as a whole,
or on TPIR, TPIE, TPII and the TPIR Subsidiaries, taken as a whole, all
Accounts Receivable other than intercompany receivables shown on the
financial statements are good and collectible and arose in the ordinary
course of business and reflect obligations of third party debtors.
SECTION 5.16 TAX MATTERS. To Enterprises' Knowledge, except as
set forth on SCHEDULE 5.16 to the Enterprises Disclosure Letter, and
except as would not have a Material Adverse Effect on TPIR, TPIE, TPII and
the TPIR Subsidiaries, taken as a whole:
(a) Each of TPIR, TPIE, TPII and each TPIR Subsidiary has filed
or obtained timely extensions to file all Tax Returns which are required
to be filed prior to the date of this Agreement, and such filed returns
were true, complete and correct in all material respects. Each of TPIR,
TPIE, TPII and each TPIR Subsidiary has paid all Taxes and other charges
due or claimed to be due (whether or not requiring the filing of a return)
to the extent that such Taxes are due prior to the date of this Agreement.
The Tax Returns filed reflected all Taxes due and payable by TPIR, TPIE,
TPII and each TPIR Subsidiary, as the case may be, with respect to
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the periods covered thereby and not one of TPIR, TPIE, TPII or any TPIR
Subsidiary has any liabilities for Taxes with respect to such periods.
(b) Each of TPIR, TPIE, TPII and the TPIR Subsidiaries are
members of the affiliated group (as defined in Section 1504 of the Code)
of which Enterprises is the common parent. Enterprises has included or
will include TPIR, TPIE, TPII and each of the TPIR Subsidiaries in its
consolidated federal income Tax Return and any combined state Tax Return
required for the taxable year ended December 31, 1995, and for the
taxable year of Enterprises that includes the Closing Date, and
Enterprises has included TPIR, TPIE, TPII and each of the TPIR
Subsidiaries in its consolidated, combined or unitary Tax Returns relating
to state Taxes. None of TPIR, TPIE, TPII or the TPIR Subsidiaries has
obtained an extension of time within which to file any Tax Return which
has not yet been filed. None of Enterprises, the Remaining Subsidiaries,
TPIR, TPIE, TPII or any of the TPIR Subsidiaries has received written
notice from any Governmental Entity in a jurisdiction in which any of them
does not file a Tax Return stating that it is subject to taxation by that
jurisdiction. None of TPIR, TPIE, TPII or any of the TPIR Subsidiaries
is required to file any Tax Return in any jurisdiction outside the United
States or is the tax matters partner of any partnership.
(c) The amounts accrued as liabilities for Taxes on the books of
TPIR, TPIE, TPII and each of the TPIR Subsidiaries and reflected on
financial statements included in the Company Financial Information are
adequate to satisfy all material unpaid liabilities for Taxes of TPIR,
TPIE, TPII and each TPIR Subsidiary through the date of such financial
statements. There is no agreement, waiver or other document extending,
or having the effect of extending, the period for assessment or collection
of any Taxes of any of TPIR, TPIE, TPII or any TPIR Subsidiary, which
extension or waiver is still in effect. Enterprises has delivered to
Shoney's and TPAC correct and complete copies of all examination reports,
statements or deficiencies and similar documents prepared by any Tax
authority that relate to the income, operations or business of any of
TPIR, TPIE, TPII and each TPIR Subsidiary with respect to any period
ending on or after December 30, 1992. All final adjustments made by the
Internal Revenue Service with respect to any federal Tax Return of TPIR,
TPIE, TPII or any TPIR Subsidiary (or which includes TPIR, TPIE, TPII or
any TPIR Subsidiary) have been reported to the relevant state Tax
authorities as required by law. Other than the Enterprises Tax Sharing
Arrangement, none of TPIR, TPIE, TPII or any TPIR Subsidiary is a party
to any Tax Sharing Arrangement allocation agreement with any entity. None
of TPIR, TPIE, TPII or any TPIR Subsidiary: (i) has been a member of an
affiliated group filing a consolidated federal Tax Return other than the
affiliated group of which Enterprises is the common parent; or (ii) has
liability for Taxes of any person other than Enterprises under Treasury
Regulation Sec. 1.1502-6 or any similar provision of state law, or as a
transferee or successor, by contract or otherwise.
SECTION 5.17 CERTAIN AGREEMENTS. To Enterprises'
Knowledge, except as disclosed on SCHEDULE 5.17 to the Enterprises
Disclosure Letter, none of Enterprises, any of the Remaining Subsidiaries,
TPIR, TPIE, TPII or the TPIR Subsidiaries is a party to any oral or
written agreement or plan, including any employment, consulting, or
severance agreement, any stock option plan, stock appreciation rights
plan, restricted stock plan or stock purchase plan,
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any of the benefits of which will be increased, or the vesting of the
benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement.
SECTION 5.18 BENEFIT PLANS.
(a) To Enterprises' Knowledge, except as disclosed on
SCHEDULE 5.18(a) to the Enterprises Disclosure Letter, none of
Enterprises, TPIR, TPIE, TPII or any TPIR Subsidiary provides, nor has an
obligation to provide, or makes, nor has had an obligation to make,
contributions to provide compensation or benefits of any kind or
description whatsoever (whether current or deferred and whether paid in
cash or in kind) to, or on behalf of, one, or more than one, current or
former employee or director of TPIR, TPIE, TPII or any TPIR Subsidiary or
any of their dependents, other than any plans, programs or other
arrangements which only provide for the payment of cash compensation
currently from the general assets of TPIR, TPIE, TPII or any TPIR
Subsidiary on a payday by payday basis as base salary or hourly wages for
current services (individually a "Benefit Plan" and collectively the
"Benefit Plans"). To Enterprises' Knowledge, each of the Benefit Plans
and each other plan pursuant to which any current or former employee or
director of TPIR, TPIE, TPII or any TPIR Subsidiary is entitled to any
compensation or benefits is listed on SCHEDULE 5.18(a) to the Enterprises
Disclosure Letter.
(b) To Enterprises' Knowledge, except as specifically
described on SCHEDULE 5.18(b) to the Enterprises Disclosure Letter:
(1) No ERISA Affiliate (other than TPIR, TPIE, TPII or any
TPIR Subsidiary) provides, or has an obligation to
provide, or makes, or has had an obligation to make,
contributions to provide, compensation or benefits of or
under any plan, program or arrangement which is subject
to Title IV of ERISA ("ERISA Affiliate Title IV Plan").
(2) Enterprises has furnished to Shoney's a true, complete
and current copy of each written Benefit Plan and any
amendments thereto, a complete description of each other
Benefit Plan, and all Internal Revenue Service,
Department of Labor or Pension Benefit Guaranty
Corporation rulings or determinations, annual reports,
summary plan descriptions, actuarial and other financial
reports and such other documentation with respect to any
Benefit Plan as is reasonably requested by Shoney's or
TPAC.
(3) No assets have been set aside in a trust or other
separate account to pay directly or indirectly any
benefits under any Benefit Plan or to the extent assets
have been set aside, all assets are shown on the books
and records of such trust or separate account at their
current fair market value.
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(4) Since January 1, 1991, each Benefit Plan and each ERISA
Affiliate Title IV Plan has been established, maintained
and administered in compliance with all applicable laws,
except for such noncompliance that would not have a
Material Adverse Effect upon TPIR, TPIE, TPII and the
TPIR Subsidiaries, taken as a whole. Not one of TPIR,
TPIE, TPII or any TPIR Subsidiary has any duty or obligation
to indemnify or hold any other person or entity harmless for any
liability attributable to any acts or omissions by such person or
entity with respect to any Benefit Plan or ERISA Affiliate
Title IV Plan, other than indemnification of Benefit Plan
fiduciaries under the terms of the Benefit Plan documents and
corporate charters, bylaws and state corporate law.
(5) Not one of TPIR, TPIE, TPII or any TPIR Subsidiary has
incurred and no facts exist which are reasonably likely
to result in any liability to TPIR, TPIE, TPII or any
TPIR Subsidiary for any tax or penalty with respect to
any Benefit Plan, ERISA Affiliate Title IV Plan or any
group health plan (as described in section 5000 of the
Code) of an ERISA Affiliate including, without
limitation, any tax or penalty under ERISA or under the
Code, any of which would have a Material Adverse Effect
upon TPIR, TPIE, TPII and the TPIR Subsidiaries, taken as
a whole, and any deductions claimed by TPIR, TPIE, TPII
or any TPIR Subsidiary with respect to contributions made
to any Benefit Plan have been deductible in full on the
income tax returns on which TPIR, TPIE, TPII or any TPIR
Subsidiary has claimed such deduction.
(6) Since January 1, 1991, not one of TPIR, TPIE, TPII or any
TPIR Subsidiary has terminated or withdrawn from or
sought a funding waiver with respect to, and no facts
exist which could reasonably be expected to result in
termination or withdrawal from or seeking a funding
waiver with respect to, any Benefit Plan which is subject
to Title IV of ERISA. Not one of TPIR, TPIE, TPII or any
TPIR Subsidiary has incurred, and no facts exist which
could reasonably be expected to result in, liability to
TPIR, TPIE, TPII or any TPIR Subsidiary as a result of a
termination, withdrawal or funding waiver with respect to
an ERISA Affiliate Title IV Plan.
(7) There are no pending or, to Enterprises' knowledge,
threatened claims under a Benefit Plan or ERISA Affiliate
Title IV Plan which could reasonably be expected to
result in liability to TPIR, TPIE, TPII or any TPIR
Subsidiary (other than routine claims made in the
ordinary course of plan or contract operations) or with
respect to the employment or termination of employment or
treatment of any employee or former employee, and not one
of Enterprises, any of the Remaining Subsidiaries, TPIR,
TPIE, TPII or any TPIR Subsidiary has any notice or
knowledge of any proposed or actual audit or
investigation by any Governmental Entity with respect to
any Benefit Plan or ERISA Affiliate Title IV Plan, any of
which would have a Material Adverse Effect upon TPIR,
TPIE, TPII and the TPIR Subsidiaries, taken as a whole.
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(8) TPIR, TPIE, TPII and each TPIR Subsidiary has the right
under the terms of each Benefit Plan and under applicable
law to terminate any of such plans at any time, subject
to applicable notice requirements, exclusively by action
of TPIR, TPIE, TPII or the TPIR Subsidiary, as
applicable, and no additional contributions would be
required in order to properly effect the termination
of such plan in accordance with the terms of any such
plan and applicable law.
(9) None of TPIR, TPIE, TPII or any TPIR Subsidiary makes or
has made, or has or has had an obligation to make, or
reimburses or has reimbursed, or has or has had an
obligation to reimburse, another employer, directly or
indirectly, for making, contributions to a multiemployer
plan as described in Title IV of ERISA.
(10) Section 280G of the Code shall not apply to any payments
made by TPIR, TPIE, TPII or any TPIR Subsidiary as a
result of the transactions contemplated by this
Agreement, and there are no additional payments to or
increase in vesting for any current or former employee or
director or their dependents under any Benefit Plan or
otherwise which will be triggered as a result of the
change in the control of TPIR, TPIE, TPII or any TPIR
Subsidiary contemplated by this Agreement.
SECTION 5.19 LABOR MATTERS. To Enterprises' Knowledge, not
one of Enterprises, any of the Remaining Subsidiaries, TPIR, TPIE, TPII
or any TPIR Subsidiary is a party to, or bound by, any collective
bargaining agreement, contract or other agreement or understanding with
a labor union organization. To Enterprises' Knowledge, there is no unfair
labor practice or labor arbitration proceeding pending or, to Enterprises'
knowledge, threatened against Enterprises, any of the Remaining
Subsidiaries, TPIR, TPIE, TPII or any TPIR Subsidiary relating to their
respective businesses that would result in a Material Adverse Effect on
Enterprises and the Remaining Subsidiaries, taken as a whole or on TPIR,
TPIE, TPII and the TPIR Subsidiaries, taken as a whole. To Enterprises'
Knowledge, there are no organizational efforts with respect to the
formation of a collective bargaining unit presently being made or
threatened involving employees of Enterprises, any of the Remaining
Subsidiaries, TPIR, TPIE, TPII or any TPIR Subsidiary, except as would not
have a Material Adverse Effect on Enterprises and the Remaining
Subsidiaries, taken as a whole, or on TPIR, TPIE, TPII and the TPIR
Subsidiaries, taken as a whole. To Enterprises' Knowledge, not one of
Enterprises, any of the Remaining Subsidiaries, TPIR, TPIE, TPII or any
TPIR Subsidiary has experienced within the last three years, any strike,
work stoppage or interruption or obvious slowdown of production due to
labor controversies of any material nature. To Enterprises' Knowledge,
not one of Enterprises, any of the Remaining Subsidiaries, TPIR, TPIE,
TPII or any TPIR Subsidiary has any labor controversy in existence with
respect to its business and operations that would result in a Material
Adverse Effect on Enterprises and the Remaining Subsidiaries, taken as a
whole, or on TPIR, TPIE, TPII and the TPIR Subsidiaries, taken as a whole.
To Enterprises' Knowledge, not one of Enterprises, any of the Remaining
Subsidiaries, TPIR, TPIE, TPII or any TPIR Subsidiary has reason to
believe that any strike, work stoppage, interruption or obvious slowdown
of production or labor controversy of any nature is imminent or threatened
with respect to its employees.
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SECTION 5.20 ENVIRONMENTAL MATTERS.
(a) To Enterprises' Knowledge, except as disclosed on
SCHEDULE 5.20 to the Enterprises Disclosure Letter and except as would not
have a Material Adverse Effect on TPIR, TPIE, TPII and the TPIR
Subsidiaries, taken as a whole, at all times during the use and occupancy
of any of the Company Properties by TPIR, TPIE, TPII or any of the TPIR
Subsidiaries, as applicable, through and including the date of this
Agreement:
(1) not one of TPIR, TPIE, TPII or the TPIR Subsidiaries has
used, stored or disposed of any Hazardous Materials,
except in compliance with all applicable federal, state
and local laws, rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings or
charges thereunder or other governmental requirements
(each, an "Environmental Law" and, collectively, the
"Environmental Laws");
(2) no former user of any Company Property or any third party
has used, stored or disposed of any Hazardous Materials
on or at any Company Property, except in compliance with
all applicable Environmental Laws;
(3) each of TPIR, TPIE, TPII and the TPIR Subsidiaries has
complied with all applicable Environmental Laws in
connection with its use and occupancy of each of the
Company Properties;
(4) not one of Enterprises, any of the Remaining
Subsidiaries, TPIR, TPIE, TPII or any TPIR Subsidiary has
received any notice, citation, inquiry or advice from any
Governmental Entity or any source whatsoever with respect
to Hazardous Materials on, from or affecting any Company
Property, other than with respect to matters that will
require no further action on the part of any of TPIR,
TPIE, TPII or any of the TPIR Subsidiaries;
(5) there are no underground storage tanks, either active,
out-of-service or abandoned, on any of the Company
Properties;
(6) there has been no "release" as that term is defined in
CERCLA, 42 U.S.C. Sec. 9601(22), of any Hazardous Material
at, on or adjoining any of the Company Properties; and
(7) not one of Enterprises, any of the Remaining
Subsidiaries, TPIR, TPIE, TPII or any TPIR Subsidiary has
received any notice, citation, inquiry or advice of any
claim or potential claim arising out of the
transportation, generation, use or disposal of Hazardous
Materials at any of the Company Properties or at any
other location, whether arising under the Environmental
Laws, common law principles or other legal standards.
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(b) To Enterprises' Knowledge, except as would not have a
Material Adverse Effect on Enterprises and the Remaining Subsidiaries,
taken as a whole, or on TPIR, TPIE, TPII and the TPIR Subsidiaries, taken
as a whole, there is no asbestos or material containing asbestos
("Asbestos") in the buildings located on any of the Company Properties,
and not one of Enterprises, any of the Remaining Subsidiaries, TPIR, TPIE,
TPII or any TPIR Subsidiary has received any notice, citation, inquiry or
advice from any Governmental Entity or any source whatsoever with respect
to Asbestos on, affecting or installed in the buildings located on any of
the Company Properties.
(c) To Enterprises' Knowledge, each of Enterprises,
Enterprises's Subsidiaries, TPIR, TPIE, TPII and the TPIR Subsidiaries has
obtained or procured, and is in substantial compliance with, all licenses,
permits, registrations, and governmental authorizations necessary to
operate its respective properties under all applicable Environmental Laws,
except where the failure to so comply would not have a Material Adverse
Effect upon TPIR, TPIE, TPII and the TPIR Subsidiaries, taken as a whole.
To Enterprises' Knowledge, SCHEDULE 5.20 to the Enterprises Disclosure
Letter lists all such material licenses, permits, registrations and
government authorizations maintained by TPIR, TPIE, TPII or any of the
TPIR Subsidiaries that are required by any Environmental Law.
SECTION 5.21 CONTRACTS AND COMMITMENTS. To Enterprises'
Knowledge, except: (i) with respect to contracts or agreements with
Shoney's or Shoney's Subsidiaries; (ii) set forth on SCHEDULE 5.21 to the
Enterprises Disclosure Letter; and (iii) as otherwise would not have a
Material Adverse Effect on TPIR, TPIE, TPII and the TPIR Subsidiaries,
taken as a whole, not one of TPIR, TPIE, TPII or any TPIR Subsidiary is
a party to or bound by any:
(a) contract or agreement involving amounts payable to or by
TPIR, TPIE, TPII or any TPIR Subsidiary during any 12-month period that
will aggregate $50,000 or more;
(b) management, consultant or employment contract under which
there are amounts payable by TPIR, TPIE, TPII or any TPIR Subsidiary
during any 12-month period that will aggregate $50,000 or more;
(c) contract obligating TPIR, TPIE, TPII or any TPIR
Subsidiary to make severance or similar payments to any employee or
officer of Enterprises, TPIR, TPIE, TPII or any TPIR Subsidiary upon
termination of employment or to make payments to any officer or employee
of Enterprises, TPIR, TPIE, TPII or any TPIR Subsidiary in excess of the
officer's or employee's regular salary and reimbursement of ordinary
business expenses;
(d) contract or agreement with any distributor, dealer or
sales representative that is not cancelable without liability to TPIR,
TPIE, TPII or any TPIR Subsidiary on a maximum of thirty (30) days notice
and under which there are amounts payable by TPIR, TPIE, TPII or any TPIR
Subsidiary during any 12-month period that will aggregate $50,000 or more;
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(e) contract or agreement of any nature whatsoever with
Enterprises, any Subsidiary of Enterprises or any of their respective
Affiliates, with any past or present director or officer of Enterprises,
any of the Remaining Subsidiaries, TPIR, TPIE, TPII or any TPIR
Subsidiary, or any of their respective Affiliates, or with any person
related to any past or present director or officer of Enterprises, any of
the Remaining Subsidiaries, TPIR, TPIE, TPII or any TPIR Subsidiary;
(f) contract or agreement relating to any loan, factoring or
credit line;
(g) lease of real property other than those described on
SCHEDULE 5.15(b) to the Enterprises Disclosure Letter;
(h) lease of personal or mixed property under which TPIR,
TPIE, TPII or any TPIR Subsidiary is a lessor or lessee involving payments
by or to TPIR, TPIE, TPII or any TPIR Subsidiary in excess of $50,000 in
any 12-month period;
(i) joint venture, partnership or other agreement involving
sharing of profits;
(j) contract preventing TPIR, TPIE, TPII or any TPIR
Subsidiary from carrying on its business anywhere in the world;
(k) outstanding power of attorney empowering any person or
entity to act on behalf of TPIR, TPIE, TPII or any TPIR Subsidiary;
(l) outstanding offer or bid that, if accepted, would result
in (x) a contract required to be disclosed pursuant to this SECTION 5.21,
or (y) any other material contract or commitment;
(m) purchase commitments, requirements or similar contracts
(or series of related purchase commitments, requirements or similar
contracts) involving amounts payable by TPIR, TPIE, TPII or any TPIR
Subsidiary during any 12-month period that will aggregate $50,000 or more;
(n) outstanding guaranty, subordination or other similar type
of agreement, whether or not entered into in the ordinary course of
business;
(o) contract, commitment, or obligation otherwise material to
the business of any of TPIR, TPIE, TPII or any TPIR Subsidiary or not made
in the ordinary course of business; or
(p) agreement with a Governmental Entity (including any
conciliation agreement, consent decree or letter of commitment) other than
agreements that are immaterial in amount or scope.
To Enterprises' Knowledge, SCHEDULE 5.21 to the Enterprises Disclosure
Letter describes the material terms of all oral contracts disclosed in
SCHEDULE 5.21 to the Enterprises Disclosure
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Letter. To Enterprises' Knowledge, TPIR, TPIE, TPII and each TPIR
Subsidiary has duly complied in all material respects with all provisions
of every contract listed on SCHEDULE 5.21 to the Enterprises Disclosure
Letter (whether written or oral) to which TPIR, TPIE, TPII or any TPIR
Subsidiary is a party and is not in default in any material respect as to
any such contract, except where the failure to so comply or such default
would not have a Material Adverse Effect upon TPIR, TPIE, TPII and the
TPIR Subsidiaries, taken as a whole. To Enterprises' Knowledge, no
condition or state of facts exists that, with notice or the passage of
time, or both, would constitute such a default under any such contract,
except for defaults that would not have a Material Adverse Effect on TPIR,
TPIE, TPII and the TPIR Subsidiaries, taken as a whole. To Enterprises'
Knowledge, all contracts and other agreements to which TPIR, TPIE, TPII
or any TPIR Subsidiary is a party are in full force and effect and are
enforceable by TPIR, TPIE, TPII or a TPIR Subsidiary, as applicable, in
accordance with their terms against all other parties thereto, subject as
to enforceability to bankruptcy, insolvency and similar laws affecting
creditors's rights generally, except where the unenforceability would not
have a Material Adverse Effect upon any of TPIR, TPIE, TPII, and the TPIR
Subsidiaries, taken as a whole. To Enterprises' Knowledge, except as
disclosed on SCHEDULE 5.21 to the Enterprises Disclosure Letter, no loan
payable by TPIR, TPIE, TPII or any TPIR Subsidiary provides for any
prepayment penalty or premium. Copies of each such document described on
SCHEDULE 5.21 to the Enterprises Disclosure Letter will be delivered or
made available to Shoney's and TPAC no later than ten (10) business days
after the date of this Agreement.
SECTION 5.22 ABSENCE OF CERTAIN CHANGES OR EVENTS. To
Enterprises' Knowledge, except as disclosed on SCHEDULE 5.22 to the
Enterprises Disclosure Letter and except as would not have a Material
Adverse Effect on Enterprises and the Remaining Subsidiaries, taken as a
whole, or on TPIR, TPIE, TPII, and the TPIR Subsidiaries, taken as a
whole, since September 1, 1995, there has not been:
(a) any declaration or payment of dividends on any capital
stock of Enterprises, any Subsidiary of Enterprises, TPIR, TPIE, TPII or
any TPIR Subsidiary or any distribution with respect to, or in redemption
of, any of the shares of capital stock of Enterprises, any Subsidiary of
Enterprises, TPIR, TPIE, TPII or any TPIR Subsidiary;
(b) any sale or transfer of any assets or properties of
Enterprises, any Subsidiary of Enterprises, TPIR, TPIE, TPII or any TPIR
Subsidiary except in the ordinary course of business consistent with past
practice;
(c) any damage, destruction or loss (whether or not covered
by insurance) materially and adversely affecting the properties, assets,
business or prospects of Enterprises, any Subsidiary of Enterprises, TPIR,
TPIE, TPII or any TPIR Subsidiary;
(d) any Material Adverse Change in the condition (financial
or otherwise) of properties, assets, liabilities, business or prospects
of TPIR, TPIE, TPII and the TPIR Subsidiaries, taken as a whole, except
as reflected in the Company Financial Information and
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except for declines in profitability subsequent to the date of the Company
Financial Information but prior to the date of this Agreement of which
Shoney's has been made aware;
(e) any transaction other than in the ordinary course of
business of TPIR, TPIE, TPII or any TPIR Subsidiary consistent with past
practice;
(f) any lease of personal or real property to or from any
person, firm or entity with respect to which TPIR, TPIE, TPII or any TPIR
Subsidiary is a party;
(g) any amendment of the charter or bylaws of TPIR, TPIE,
TPII or any TPIR Subsidiary;
(h) the granting or filing of any lien, encumbrance or
security interest against any of the shares of capital stock of either
TPIR, TPIE, TPII or any TPIR Subsidiary or any of their respective
properties or assets, real, personal or mixed, tangible or intangible;
(i) any payment, loan or advance of any amount to, or sale,
transfer or lease of any properties or assets (real, personal or mixed,
tangible or intangible) to, or execution of any agreement with, officers
or directors of Enterprises, any of the Remaining Subsidiaries, TPIR,
TPIE, TPII or any TPIR Subsidiary;
(j) any personal injury on any premises of TPIR, TPIE, TPII
or any TPIR Subsidiary or in connection with their respective businesses
that may give rise to a claim in excess of the applicable insurance
coverage;
(k) any increase in the compensation payable to or to become
payable by TPIR, TPIE, TPII or any TPIR Subsidiary to any officer,
employee or agent of Enterprises, TPIR, TPIE, TPII or any TPIR Subsidiary
(including, without limitation, any increase in the discretionary matching
under any 401(k) plan), except for normal compensation adjustments to
salaries or wages to non-officers of TPIR, TPIE, TPII or any TPIR
Subsidiary, and to officers of TPIR, TPIE, TPII or any TPIR Subsidiary as
required by an applicable employment agreement, in each case made in the
ordinary course of business consistent with past practice;
(l) any payment, other than in the ordinary course of
business of TPIR, TPIE, TPII or any TPIR Subsidiary consistent with past
practice, under any insurance, pension or other benefit plan, program or
arrangement made to, for or with any officer, employee or agent of
Enterprises, any of the Remaining Subsidiaries, TPIR, TPIE, TPII or any
TPIR Subsidiary;
(m) any change in the method of accounting or accounting
practice by TPIR, TPIE, TPII or any TPIR Subsidiary, except as required
by generally accepted accounting principles;
(n) issuance of any certificates or coupons that would
entitle the bearer thereof to receive a reduction in the price of food
and/or beverages consumed at any of the Restaurants or
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to receive such food and/or beverages free of charge, except in the
ordinary course of business consistent with past practice;
(o) any extension or modification of any agreement required
to be disclosed by SECTION 5.21;
(p) any investment of surplus cash by Enterprises or any of
its Subsidiaries in any investment other than a Cash Equivalent;
(q) any agreement, whether in writing or otherwise, to take
any action described in this SECTION 5.22.
SECTION 5.23 BANK ACCOUNTS. A true and correct list of all
bank accounts of TPIR, TPIE, TPII and each TPIR Subsidiary is set forth
on SCHEDULE 5.23 to the Enterprises Disclosure Letter.
SECTION 5.24 BOOKS AND RECORDS. Enterprises has delivered or
made available to Shoney's and TPAC what, to Enterprises' Knowledge, are
true, correct and complete copies of the following items:
(a) With respect to each parcel of real property listed in
SCHEDULE 5.15(a) to the Enterprises Disclosure Letter, the deed evidencing
ownership of such property, each mortgage or other encumbrance thereon
reflected in a written instrument, each instrument (if any) evidencing a
grant by or to TPIR, TPIE, TPII or any TPIR Subsidiary of an option to
purchase or lease such property, each lease and leasehold mortgage (if
any) with respect to such property, and any title policies or commitments
and surveys (if any) with respect to such property;
(b) Each of the contracts, lease agreements, plans,
instruments, reports or documents that are in writing and are listed in
the Schedules attached hereto;
(c) The pleadings and briefs filed in each pending suit or
proceeding listed in SCHEDULE 5.13 to the Enterprises Disclosure Letter
and the judgments, orders, injunctions, decrees, stipulations and awards
listed in said Schedule;
(d) All federal income Tax Returns filed by TPIR, TPIE, TPII
or any TPIR Subsidiary within the past four (4) years; and
(e) True and correct copies of all stock records and
corporate minutes of TPIR, TPIE, TPII and each TPIR Subsidiary.
SECTION 5.25 NO BROKERS. Except as disclosed on SCHEDULE
5.25 to the Enterprises Disclosure Letter, none of Enterprises, the
Remaining Subsidiaries, TPIR, TPIE, TPII, or any TPIR Subsidiary is a
party to or bound by any contract, arrangement or understanding with any
person or firm which may result in the obligation of TPIR, TPIE, TPII, any
TPIR Subsidiary,
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Shoney's or TPAC to pay any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions
contemplated hereby, and there will be no claim for payment of any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby.
SECTION 5.26 ABSENCE OF UNDISCLOSED LIABILITIES. To
Enterprises' Knowledge, except as and to the extent reflected or reserved
against in the most recent financial statements contained in the Company
Financial Information and since December 31, 1995, none of TPIR, TPIE,
TPII or any of the TPIR Subsidiaries has incurred any liabilities of any
kind whatsoever (including liabilities for Taxes, liabilities under ERISA,
liabilities arising out of litigation, or liabilities arising out of
violations of Environmental Laws), whether accrued, absolute, contingent,
determined, determinable or otherwise other than: (a) liabilities incurred
in the ordinary course of business in accordance with past practice since
December 31, 1995; (b) liabilities that have been repaid, discharged or
otherwise extinguished; (c) liabilities under or contemplated by this
Agreement; (d) liabilities disclosed on SCHEDULE 5.26 to the Enterprises
Disclosure Letter; (e) liabilities of a type not required to be recorded
or disclosed in accordance with GAAP; (f) other liabilities in an amount
not to exceed $500,000; and (g) liabilities described on any Schedule to
this Agreement or to the Enterprises Disclosure Letter.
SECTION 5.27 REPRESENTATIONS COMPLETE. None of the
representations or warranties made by Enterprises herein contains, to
Enterprises' Knowledge, or will contain at the Closing Date any untrue
statement of a material fact or omits, to Enterprises' Knowledge, or will
omit at the Closing Date to state any material fact necessary to make the
statements therein, in light of the circumstances under which made, not
misleading.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF SHONEY'S AND TPAC
Shoney's and TPAC, jointly and severally, represent and warrant
to Enterprises that:
SECTION 6.1 ORGANIZATION, STANDING AND POWER. Shoney's is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Tennessee and has the requisite corporate power and authority to carry
on its business as now being conducted. Each Subsidiary (as defined herein) of
Shoney's (including TPAC) is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction in which it is incorporated
and has the requisite corporate power and authority to carry on its
business as now being conducted. Each of Shoney's and its Subsidiaries
is duly qualified to do business and is in good standing in each
jurisdiction where the character of its properties owned or held under
lease or the nature of its activities makes such qualification necessary,
except where the failure
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to be so qualified would not, individually or in the aggregate, have a
Material Adverse Effect on Shoney's.
SECTION 6.2 CAPITAL STRUCTURE.
(a) As of the date hereof, the authorized capital stock of
Shoney's consists of 100,000,000 shares of Shoney's Common Stock. At the
close of business on January 22, 1996:
(1) 41,614,113 shares of Shoney's Common Stock were issued
and outstanding;
(2) 7,840,442 shares of Shoney's Common Stock were reserved
for issuance upon the exercise of outstanding stock
options granted pursuant to the Shoney's Stock Plans;
(3) 5,205,632 shares of Shoney's Common Stock were reserved
for issuance upon the conversion of certain outstanding
Liquid Yield Option Notes (the "LYONs"); and
(4) no shares of Shoney's Common Stock were held by Shoney's
in its treasury.
All outstanding shares of Shoney's Common Stock are validly issued, fully
paid and nonassessable and not subject to preemptive rights.
(b) As of the date hereof, all of the issued and outstanding shares
of capital stock of TPAC (the "TPAC Stock") are and, on the Closing Date,
will be, directly owned by Shoney's. All outstanding shares of TPAC Stock
are validly issued, fully paid and nonassessable and not subject to
preemptive rights. As of the date hereof, there are not, and there will
not be on the Closing Date, any outstanding options, warrants, calls,
rights, commitments or any other agreements of any character to which
TPAC is a party, or by which it is bound, requiring it to issue, transfer,
sell, purchase, redeem or acquire any shares of capital stock or any
securities or rights convertible into, exchangeable for, or evidencing the
right to subscribe for or acquire any shares of its capital stock, except
as provided under this Agreement.
(c) As of the date hereof, with the exception of the LYONs,
no Voting Debt of Shoney's is issued or outstanding.
(d) Except for those that are disclosed in the Shoney's SEC
Documents (as defined in SECTION 6.9), Shoney's does not have any
Subsidiaries or any interest in any other entity. All of the issued and
outstanding capital stock in each of Shoney's Subsidiaries (including
TPAC) is owned by Shoney's and is fully paid, nonassessable and not
subject to preemptive rights.
(e) As of the date hereof, except for options or awards
outstanding under certain of the Shoney's Stock Plans, the conversion
rights of the holders of the LYONs and as reflected in the Shoney's SEC
Documents, there are no options, warrants, calls, rights, commitments or
agreements of any character to which Shoney's or any of its Subsidiaries
is a party or by which
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any of them is bound obligating Shoney's or any of its Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, any
shares of Shoney's Common Stock or any Voting Debt of Shoney's or any
of its Subsidiaries, or obligating Shoney's or any of its Subsidiaries
to grant, extend or enter into any such option, warrant, call, right,
commitment or agreement obligating Shoney's or any of its Subsidiaries
to issue, deliver or sell, or cause to be issued, delivered or sold,
any shares of Shoney's Common Stock or any Voting Debt of Shoney's or
any of its Subsidiaries, or obligating Shoney's or any of its
Subsidiaries to grant, extend, or enter into any such option, warrant,
call, right or agreement. As of the date hereof, there are no
outstanding contractual obligations of Shoney's or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of
Shoney's Common Stock.
SECTION 6.3 AUTHORITY; NON-CONTRAVENTION.
(a) Each of Shoney's and TPAC has all requisite corporate
power and authority to enter into this Agreement and, subject to approval
of this Agreement and the transactions contemplated hereby by Shoney's and
TPAC's shareholders, each of Shoney's and TPAC has all requisite corporate
power and authorization to consummate the transactions contemplated
hereby. Shoney's and TPAC's execution and delivery of this Agreement and
their consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action, subject to such approval by
Shoney's shareholders. This Agreement has been duly executed and
delivered by Shoney's and TPAC and, subject to the satisfaction of the
conditions applicable to them as set forth herein, constitutes a valid and
binding obligation of Shoney's and TPAC, enforceable in accordance with
its terms.
(b) The execution and delivery of this Agreement by Shoney's
and TPAC do not and will not, and the consummation by them of the
transactions contemplated hereby and compliance with the provisions hereof
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 or acceleration of any obligation or
to the loss of a benefit under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or
assets of Shoney's or any of its Subsidiaries (including TPAC) under:
(1) any provision of the Charter or By-laws of Shoney's;
(2) any provision of the comparable charter or organization
documents of any of Shoney's Subsidiaries (including
TPAC);
(3) to Shoney's Knowledge, any loan or credit agreement,
note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or
license applicable to Shoney's or any of its Subsidiaries
(including TPAC);
(4) to Shoney's Knowledge, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to
Shoney's or any of its Subsidiaries (including TPAC) or
any of their respective properties or assets;
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other than, in the case of clauses (3) or (4), any such conflicts,
violations, defaults, rights, liens, security interests, charges or
encumbrances that, individually or in the aggregate, would not have a
Material Adverse Effect on Shoney's or TPAC or materially impair the
ability of either Shoney's or TPAC to perform their respective obligations
hereunder or prevent the consummation of any of the transactions
contemplated hereby.
(c) To Shoney's Knowledge, no filing or registration with, or
authorization, consent or approval of, any Governmental Entity is required
by or with respect to Shoney's or any of its Subsidiaries (including TPAC)
in connection with the execution and delivery of this Agreement by
Shoney's and TPAC or is necessary for the consummation of the transactions
contemplated by this Agreement, except for:
(1) in connection, or in compliance, with the provisions of
the HSR Act;
(2) in connection, or in compliance, with the Securities
Laws;
(3) the Insurance Regulatory Filings;
(4) the ICC Filings; and
(5) such other filings, registrations, authorizations,
consents or approvals, the failure to obtain which would
not have a Material Adverse Effect on Shoney's and its
Subsidiaries, taken as a whole.
SECTION 6.4 VOTE REQUIRED. The affirmative vote of the
holders of a majority of the outstanding shares of Shoney's Common Stock
entitled to vote thereon is the only vote of the holders of any class or
series of Shoney's securities necessary to approve this Agreement and the
transactions contemplated by this Agreement (assuming for purposes of this
representation the accuracy of the representations contained in SECTION
5.6 (without giving effect to the knowledge qualification thereof)). The
affirmative vote of the holders of a majority of the outstanding shares
of TPAC common stock entitled to vote thereon is the only vote of the
holders of any class or series of TPAC securities necessary to approve
this Agreement and the transactions contemplated by this Agreement.
SECTION 6.5 OPINION OF FINANCIAL ADVISOR. Shoney's has
received the opinion of Salomon Brothers Inc (the "Shoney's Financial
Advisor") to the effect that, as of the date hereof, the consideration to
be paid by Shoney's and/or TPAC in exchange for the properties being
transferred to TPAC, pursuant to the terms and conditions of this
Agreement, is fair to Shoney's shareholders from a financial point of
view.
SECTION 6.6 OWNERSHIP OF ENTERPRISES COMMON STOCK. As of the
date hereof, neither Shoney's, any of its Subsidiaries, nor, to Shoney's
Knowledge, any of their respective "Affiliates" or "Associates" (as such
terms are defined under the Exchange Act): (a) beneficially owns, directly
or indirectly, or (b) are parties to any agreement, arrangement or
understanding
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with any person other than Enterprises for the purpose of
acquiring, holding, voting or disposing of, in each case, any shares of
Enterprises Common Stock.
SECTION 6.7 NON-APPLICABILITY OF CERTAIN PROVISIONS.
Assuming the accuracy of the representation and warranty of Enterprises
contained in SECTION 5.6, without giving effect to the knowledge
qualification thereof, the restrictions on business combinations imposed
by the Tennessee Business Combination Act do not apply to the execution
and delivery of this Agreement by Shoney's or TPAC or the consummation of
the transactions contemplated by this Agreement by Shoney's or TPAC.
SECTION 6.8 CORPORATE DOCUMENTS. The copies of the
Charter and By-laws of Shoney's, which have been delivered to Enterprises,
are true, correct and complete copies of the Charter and By-laws of
Shoney's in effect on the date hereof.
SECTION 6.9 DISSENTERS' RIGHTS. As of the date of this
Agreement, Shoney's Common Stock was listed on the NYSE, which is a
"national securities exchange". No holder of Shoney's Common Stock will
have any right to dissent from the consummation of the transactions
contemplated by this Agreement and/or have any appraisal rights with
respect to the transactions contemplated by this Agreement pursuant to any
provision of the TBCA.
SECTION 6.10 SEC DOCUMENTS. Shoney's and TPAC have delivered
to Enterprises true and complete copies of each report, schedule,
registration statement and definitive proxy statement filed with the SEC
by or with respect to Shoney's or any of its Subsidiaries (as any such
document has since the time of its filing been amended, the "Shoney's SEC
Documents") since January 1, 1993, which are all the documents (other than
preliminary material) that were required to be filed with the SEC by
Shoney's or any of its Subsidiaries since such date. To Shoney's
Knowledge, each of the Shoney's SEC Documents, as of its respective date,
complied in all material respects with the requirements of the Securities
Act or the Exchange Act, as the case may be, and none of the Shoney's SEC
Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they
were made, not misleading, except for such statements or omissions as
would not have a Material Adverse Effect on Shoney's and its Subsidiaries,
taken as a whole. To Shoney's Knowledge, the financial statements
(including the accompanying notes) included in any of the Shoney's SEC
Documents, as of their respective dates, complied as to form in all
material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, were
prepared in accordance with generally accepted accounting principles
(except, in the case of unaudited statements, as permitted by Form 10-Q
of the SEC) applied on a consistent basis during the periods indicated
(except as may be indicated therein or in the notes thereto) and fairly
present the consolidated financial position of Shoney's and Shoney's
consolidated Subsidiaries as of the dates thereof and the consolidated
results of the operations and cash flows of Shoney's and Shoney's
consolidated Subsidiaries for the periods then ended (subject, in the
case of unaudited statements, to normal year-end adjustments described
therein). To Shoney's Knowledge, all material agreements, contracts
and other documents required to be filed as
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exhibits to any of the Shoney's SEC Documents have been so filed.
Since January 1, 1993, Shoney's has timely filed with the SEC all reports,
registration statements and other filings required to be filed by the
SEC's rules and regulations.
SECTION 6.11 INFORMATION SUPPLIED. None of the information
supplied or to be supplied by Shoney's or any of its Subsidiaries for
inclusion or incorporation by reference in the Proxy Statement and the
Registration Statement (as defined below in SECTION 8.1) will, to Shoney's
knowledge, at the time the Registration Statement is filed with the SEC
and at the time it becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading, except for such statements or omissions as would not have
a Material Adverse Effect on Shoney's and its Subsidiaries, taken as a
whole. The Proxy Statement and the Registration Statement (except for
such portions thereof that relate only to or contain information supplied
by Enterprises), to Shoney's knowledge, will comply as to form in all
material respects with the provisions of the Securities Act and the
Exchange Act and the rules and regulations thereunder. No information
furnished by Shoney's or any of its Subsidiaries in connection with this
Agreement or the consummation of the transactions contemplated by this
Agreement, to Shoney's knowledge, contains or will contain any untrue
statement of a material fact or omit to state a material fact required to
be stated in order to make any information so furnished, in light of the
circumstances under which it is so furnished and as of the date it was
furnished, not misleading.
SECTION 6.12 COMPLIANCE WITH APPLICABLE LAWS AND AGREEMENTS.
To Shoney's Knowledge, Shoney's and each of its Subsidiaries hold all
permits, licenses, variances, exemptions, orders and approvals of all
Governmental Entities which are material to the operation of the
businesses of Shoney's and each of its Subsidiaries, taken as a whole (the
"Shoney's Permits"). To Shoney's Knowledge, Shoney's and each of its
Subsidiaries are in compliance in all material respects with the terms of
the Shoney's Permits. To Shoney's Knowledge, the businesses of Shoney's
and each of its Subsidiaries are not being conducted in conflict with,
violation of or default under: (a) any law, ordinance, regulation,
judgment or order of any Governmental Entity; or (b) any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit,
franchise, or other instrument or obligation to which Shoney's or any of
its Subsidiaries is a party or by which Shoney's or any of its
Subsidiaries or any property or asset of Shoney's or any of its
Subsidiaries is bound or affected, except for conflicts, violations or
defaults which individually or in the aggregate would not result in a
Material Adverse Effect on Shoney's or materially impair the ability of
Shoney's to perform its obligations under this Agreement, or prevent the
consummation of any of the transactions contemplated hereby. To Shoney's
Knowledge, no investigation or review by any Governmental Entity with
respect to Shoney's or any of its Subsidiaries is pending or threatened,
nor has any Governmental Entity indicated an intention to conduct the
same, other than, in each case, those the outcome of which will not
have a Material Adverse Effect on Shoney's.
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SECTION 6.13 ABSENCE OF CERTAIN CHANGES OR EVENTS. To
Shoney's Knowledge, except as set forth in Shoney's SEC Documents and
except as would not have a Material Adverse Effect on Shoney's and its
Subsidiaries, taken as a whole, since January 22, 1996, there has not
been:
(a) any damage, destruction or loss, whether covered by
insurance or not, which has had a Material Adverse Effect on Shoney's;
(b) any declaration, setting aside or payment of any dividend
or other distribution (whether in cash, stock, or property) with respect
to any of Shoney's capital stock; or
(c) any transaction, commitment, dispute or other event or
condition (financial or otherwise) of any character (whether or not in the
ordinary course of business), individually or in the aggregate having a
Material Adverse Effect on Shoney's.
SECTION 6.14 ABSENCE OF UNDISCLOSED LIABILITIES. To
Shoney's Knowledge, except as and to the extent reflected or reserved
against in the most recent financial statements contained in or disclosed
in the Shoney's SEC Documents and since January 29, 1996, neither Shoney's
nor its Subsidiaries has incurred any liabilities of any kind whatsoever
(including liabilities for Taxes, liabilities under ERISA, liabilities
arising out of litigation, or liabilities arising out of violations of
Environmental Laws), whether accrued, absolute, contingent, determined,
determinable or otherwise, that, individually or in the aggregate, would
have a Material Adverse Effect on Shoney's and its Subsidiaries, taken as
a whole, other than: (a) liabilities incurred in the ordinary course of
business in accordance with past practice since January 29, 1996; (b)
liabilities that have been repaid, discharged or otherwise extinguished;
and (c) liabilities under or contemplated by this Agreement.
SECTION 6.15 NO BROKERS. Except for Shoney's Financial
Advisor, none of Shoney's or its Subsidiaries is a party to or bound by
any contract, arrangement or understanding with any person or firm which
may result in the obligation of Enterprises to pay any finder's fees,
brokerage or agent's commissions or other like payments in connection with
the negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby, and there will be no claim for payment
of any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or
the consummation of the transactions contemplated hereby.
SECTION 6.16 REPRESENTATIONS COMPLETE. None of the representations
or warranties made by Shoney's or TPAC herein contains, to Shoney's
Knowledge, or will contain on the Closing Date any untrue statement of a
material fact or omits, to Shoney's Knowledge, or will omit on the Closing
Date to state any material fact necessary to make the statements therein,
in light of the circumstances under which made, not misleading.
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ARTICLE VII
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 7.1 ACQUISITION PROPOSALS. Prior to the Closing
Date, Enterprises agrees:
(a) that neither it nor any of its Subsidiaries or Affiliates
shall, and each of them shall direct and use its best efforts to cause its
respective officers, directors, employees, agents and representatives
(including, without limitation, any investment banker, attorney or
accountant retained by it or any of its Subsidiaries or Affiliates) not
to, initiate, solicit or encourage, directly or indirectly, any inquiries
or the making or implementation of any proposal or offer (including,
without limitation, any proposal or offer to its shareholders) with
respect to a merger, acquisition, tender offer, exchange offer,
consolidation or similar transaction involving, or any purchase of all or
any significant portion of the assets or the equity securities of,
Enterprises or any of its Subsidiaries or Affiliates, other than the
transactions contemplated by this Agreement (any such proposal or offer
being hereinafter referred to as an "Acquisition Proposal") or 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;
(b) that it will immediately cease and cause to be terminated
any existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing and each will
take the necessary steps to inform the individuals or entities referred
to above of the obligations undertaken in this Section 7.1; and
(c) that it will notify Shoney's immediately 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, it;
PROVIDED, HOWEVER, that nothing contained in this SECTION 7.1 shall
prohibit the Board of Directors of Enterprises from:
(a) furnishing information to or entering into discussions or
negotiations with, any person or entity that makes an unsolicited bona
fide Acquisition Proposal, if, and only to the extent that:
(1) the Board of Directors of such party determines in good
faith, based on the advice of Enterprises' Counsel, or
such other counsel reasonably acceptable to the Shoney's,
that such action is required for the Board of Directors
to comply with its fiduciary duties to shareholders
imposed by law; and
(2) subject to the exercise of fiduciary duties of
Enterprises' Board of Directors, the requirements of the
federal securities laws and any confidentiality agreement
with such person or entity (which such party determined
in good faith was required to
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be executed in order for Enterprises' Board of Directors
to comply with its fiduciary duties to shareholders
imposed by law), such party keeps the other party to this
Agreement informed of the status (not the terms) of any
such discussions or negotiations; and
(b) to the extent applicable, complying with Rule 14e-2
promulgated under the Exchange Act with regard to an Acquisition Proposal.
Nothing in this SECTION 7.1 shall: (x) permit Enterprises to terminate
this Agreement (except as specifically provided in ARTICLE X hereof) or
(y) permit Enterprises or any of its Subsidiaries to enter into any
agreement with respect to an Acquisition Proposal during the term of this
Agreement (it being agreed that during the term of this Agreement, none
of Enterprises or its Subsidiaries shall enter into any agreement with any
person that provides for, or in any way facilitates, an Acquisition
Proposal (other than a confidentiality agreement in customary form)).
SECTION 7.2 CONDUCT OF BUSINESSES.
(a) Prior to the Closing Date, unless Shoney's has been
notified at least 5 business days in advance thereof and has not objected
in writing thereto, Enterprises shall and shall cause each of TPIR, TPIE,
TPII and each TPIR Subsidiary to:
(1) subject to SECTION 9.2.3(c) hereof, use their
reasonable efforts, and shall cause each of their respective
Subsidiaries and Affiliates to use their reasonable efforts, to
preserve intact their business organizations and goodwill and
keep available the services of their respective officers and
employees;
(2) confer on a regular basis with one or more
representatives of Shoney's to report operational matters of
materiality and, subject to SECTION 7.1, any proposals to engage
in material transactions;
(3) promptly notify Shoney's of any material
emergency or other material change in the condition (financial or
otherwise), business, properties, assets, liabilities, prospects
or the normal course of their businesses or in the operation of
their properties, any material governmental complaints,
investigations, or hearings (or communications indicating that
the same may be contemplated), or the breach in any material
respect of any representation or warranty contained herein;
(4) promptly deliver to Shoney's true and correct
copies of any report, statement or schedule filed with the SEC
subsequent to the date of this Agreement;
(5) conduct operations according to their usual,
regular and ordinary course in substantially the same manner as
heretofore conducted, subject to clause (6) below;
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(6) not acquire, enter into an option to acquire or
lease or exercise an option or contract to acquire or lease
additional real property, incur additional indebtedness for
borrowed money (other than under the TPIR Bank Debt to fund
operations in the ordinary course of business consistent with
past practice), encumber assets or commence construction of, or
enter into any agreement or commitment to develop or construct,
restaurant or other real estate projects;
(7) maintain in the ordinary course of business,
their respective properties in their current condition of repair,
ordinary wear and tear excepted, and assure that each of the
Company Properties, at the Closing Date, has sufficient FF&E and
Inventories to enable it to be operated in the usual and ordinary
course of business;
(8) maintain their books of account and records
relating to their respective operations in the usual, regular and
ordinary manner on a basis consistent with past practices and not
to make any changes in their accounting methods, principles or
practices, except as may be required by generally accepted
accounting principles;
(9) pay when due and payable all Taxes and
assessments relating to the operation of TPIR, TPIE, TPII and
each TPIR Subsidiary during taxable periods ending on or before
such Closing Date and file all Tax Returns relating to such Taxes
and assessments as required by SECTION 8.7;
(10) except in the ordinary course of business in
accordance with past practice, not withdraw, settle or otherwise
compromise any protest or reduction proceeding affecting real
estate or personal property Taxes assessed against any assets of
TPIR, TPIE, TPII or any TPIR Subsidiary for any fiscal period in
which the Closing Date is to occur or any subsequent fiscal
period;
(11) not amend their respective Articles of
Incorporation or Bylaws;
(12) not: (i) issue, transfer from treasury or
allocate any additional shares of capital stock (except pursuant
to the Enterprises Stock Purchase Plan, the Enterprises 401(k)
Plan, the exercise of options granted under one of the
Enterprises Stock Option Plans, the exercise of the Enterprises
Warrants or the conversion of any of the Public Debentures or the
Private Debentures), effect any stock split, reverse stock split,
stock dividend, recapitalization or other similar transaction;
(ii) grant, confer or award any option, warrant, conversion right
or other right not existing on the date hereof to acquire any
shares of the capital stock of TPIR, TPIE, TPII or any TPIR
Subsidiary; (iii) increase any compensation (except as may be
required by an applicable contract) or enter into or amend any
employment agreement with any of their respective present or
future officers or directors; (iv) adopt any new employee benefit
plan (including any stock option, stock benefit or stock purchase
plan, supplemental employee retirement plan or severance
arrangement), amend any existing employee benefit plan, program
or practice or the individual benefits provided to any individual
employee in any material respect,
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except for changes which are less favorable to participants in
such plans or terminate any existing employee benefit plan; or
(v) increase discretionary matching under any 401(k) Plan;
(13) not declare, set aside or pay any dividend or
make any other distribution or payment with respect to any shares
of the capital stock of TPIR, TPIE, TPII or any TPIR Subsidiary,
or make any commitment for any such action; PROVIDED, HOWEVER,
that, notwithstanding the foregoing, there is hereby permitted
the transfer of funds from any of TPIR, TPIE, TPII or the TPIR
Subsidiaries to Enterprises sufficient to satisfy when due all
payment obligations of Enterprises or TPIR in respect of the
Public Debentures (including, without limitation, the payment of
principal, premium, if any, interest or the Repurchase Price or
the Redemption Price (as such terms are defined in the Public
Indenture) or the Private Debentures (including, without
limitation, the payment of principal, premium, if any and
interest);
(14) not sell, lease or otherwise dispose of: (i) any
Company Property; or (ii) except in the ordinary course of
business, any assets with a value greater than $100,000;
(15) not make any loans, advances or capital
contributions to, or investments in, any other person or entity
(other than intercompany loans, advances, contributions or
investments in the ordinary course of business consistent with
past practice and as approved by the Operating Committee);
(16) except as set forth in SCHEDULE 7.2, not pay,
discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction, in
the ordinary course of business consistent with past practice or
in accordance with their terms, of liabilities reflected or
reserved against in, or contemplated by, the most recent
financial statements (or the notes thereto) included in the
Company Financial Information or incurred in the ordinary course
of business consistent with past practice;
(17) not enter into any commitment (or series of
related commitments) to purchase goods or services extending
beyond July 31, 1996 which may result in total payments by or
liability to it in excess of $100,000 (excluding commitments:
(a) to purchase food products in quantities that are necessary
to meet TPIR's anticipated needs to participate in product
promotions as part of the Shoney's system; or (b) that are
approved in writing by Shoney's);
(18) not enter into any commitment with any officer,
director or consultant of Enterprises, any of the Remaining
Subsidiaries, TPIR, TPIE, TPII, any TPIR Subsidiary or any of
their respective Affiliates;
(19) (i) not use, transport, store, dispose of or in
any manner deal with Hazardous Materials, except in compliance in
all material respects with all applicable
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Environmental Laws; (ii) comply in all material respects with
all applicable Environmental Laws, and to keep all Company
Properties free and clear of any liens imposed pursuant to
such Environmental Laws; and (iii) not install, or permit to
be installed, Asbestos on any Company Property;
(20) notify Shoney's and TPAC in writing as soon as
possible upon receipt of any notices from any persons, entities
or Governmental Entities pertaining to Hazardous Materials on,
from or affecting any Company Property or to alleged illegal
activities or conditions at any of the Company Properties or
operations;
(21) not cancel any debts owed to TPIR, TPIE, TPII or
any TPIR Subsidiary other than intercompany receivables due from
Enterprises;
(22) not enter into any contract or agreement of the
type described in SECTION 5.21 or SECTION 5.22 (except using a
$100,000 threshold for contracts or agreements which would
otherwise be subject to a $50,000 threshold);
(23) not pay the Specified Wind-up Expenses in an
amount in excess of the aggregate amount set forth in the
Enterprises Disclosure Letter;
(24) except pursuant to Shoney's marketing plans or
Enterprises' marketing plans described on SCHEDULE 7.2(a)(24) to
the Enterprises Disclosure Letter, not issue any certificates or
coupons that would entitle the bearer thereof to receive a
reduction in the price of food and/or beverages consumed at any
of the Restaurants or to receive such food and/or beverages free
of charge;
(25) not invest cash in any investment other than a
Cash Equivalent;
(26) not allow Accounts Receivable to exceed
$1,500,000;
(27) prior to the Closing Date, to record on their
books appropriate charges in accordance with GAAP with respect to
any Inventories that are obsolete, spoiled or unusable and with
respect to any Accounts Receivable that are not anticipated to be
collected; and
(28) not do any act, omit to do any act or permit any
act within the control of TPIR, TPIE, TPII or any TPIR Subsidiary
which will cause a breach of any representation, warranty,
covenant or agreement contained in this Agreement.
(b) If Shoney's is notified of a proposed action under
SECTION 7.2(a) and objects in writing within the time period set forth,
the matter shall be resolved by the Operating Committee.
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(c) Prior to the Closing Date, unless Enterprises has
consented in writing thereto, Shoney's:
(1) shall use its reasonable efforts, and shall cause
each of its respective Subsidiaries and Affiliates to use their
reasonable efforts, to preserve intact their business
organizations and goodwill and keep available the services of
their respective officers and employees;
(2) shall promptly notify Enterprises of any material
emergency or other material change in the condition (financial or
otherwise), business, properties, assets, liabilities, prospects
or the normal course of its businesses or in the operation of its
properties, any material governmental complaints, investigations,
or hearings (or communications indicating that the same may be
contemplated), or the breach in any material respect of any
representation or warranty contained herein;
(3) shall promptly deliver to Enterprises true and
correct copies of any report, statement or schedule filed with
the SEC subsequent to the date of this Agreement;
(4) shall not, and shall not permit any of its
Subsidiaries to, amend their respective Articles of Incorporation
or Bylaws; provided that TPAC may amend its Articles of Incorporation
or Bylaws for the sole purpose(s) of changing its name and /or
authorizing the issuance of preferred stock;
(5) Shall not: (i) except pursuant to the exercise
of options, warrants, conversion rights and other contractual
rights existing on the date hereof and disclosed pursuant to this
Agreement, issue any additional shares of Shoney's Common Stock,
effect any stock split, reverse stock split, stock dividend,
recapitalization or other similar transaction; or (ii) grant,
confer or award any option, warrant, conversion right or other
right not existing on the date hereof to acquire any Shoney's
Common Stock, other than (x) options granted pursuant to and in
accordance with Shoney's Stock Plans as in effect on the date
hereof, (y) options, redemption or conversion rights granted in
connection with the acquisition of properties by Shoney's or (z)
shares of Shoney's Common Stock granted pursuant to existing
employee benefit plans of Shoney's;
(6) Shall not: (i) declare, set aside or pay any
dividend or make any other distribution or payment with respect
to the Shoney's Common Stock; or (ii) except in connection with
Shoney's Stock Plans or the use of shares of Shoney's Common
Stock to pay the exercise price or tax withholding in connection
with Shoney's Stock Plans, directly or indirectly redeem,
purchase or otherwise acquire any Shoney's Common Stock or any of
the shares of capital stock of any of its Subsidiaries, or make
any commitment for any such action;
(7) Shall not, and shall not permit any of its
Subsidiaries to, sell, lease or otherwise dispose of any of their
respective properties other than: (i) in the ordinary
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course of business; or (ii) sales, leases or disposals of
assets which are not material, individually or in the
aggregate;
(8) Shall cause TPAC to take all necessary corporate
action to consummate the transactions contemplated hereby;
(9) Shall not, and shall not permit any of its
Subsidiaries to acquire or commit to acquire, from the date of
this Agreement until the Closing Date, more than twenty (20)
restaurants from third parties or make any other material
acquisition; and
(10) Shall not, and shall not permit any of its
Subsidiaries to do any act or permit any act within the control
of Shoney's or any of its Subsidiaries which will cause a breach
of any representation, warranty, covenant or agreement contained
in this Agreement.
(d) On the Closing Date, Shoney's shall cause TPAC to satisfy
or discharge the TPIR Bank Debt and the Private Debentures.
(e) Shoney's shall use its best efforts to satisfy the
conditions set forth in SECTION 9.1.2 (with respect to Shoney's lenders)
and to obtain the commitment letter referenced in SECTION 9.2.10 prior to
April 30, 1996. Upon its receipt, Shoney's shall deliver to Enterprises
a copy of the commitment letter referenced in SECTION 9.2.10.
SECTION 7.3 MEETINGS OF SHAREHOLDERS. Each of Shoney's
and Enterprises will take all action necessary in accordance with
applicable law, the rules and regulations of any national securities
exchange upon which its common stock is listed and its Articles of
Incorporation and Bylaws to convene a meeting of its shareholders as
promptly as practicable to consider and vote upon: (a) in the case of
Shoney's, the approval (separate from the approval of any other
transaction) of this Agreement and the transactions contemplated hereby
(including the issuance of the Exchange Shares); and (b) in the case of
Enterprises, the approval of this Agreement and the transactions
contemplated hereby. The Board of Directors of Shoney's and the Board of
Directors of Enterprises (consistent with their respective fiduciary
obligations) each shall recommend such approval, and Shoney's and
Enterprises each shall take all lawful action to solicit such approval,
including, without limitation, timely mailing the Proxy Statement (as
defined in SECTION 8.1); provided, however, that such recommendation or
solicitation is subject to any action taken by, or upon authority of, the
Board of Directors of Shoney's or the Board of Directors of Enterprises,
as the case may be, in the exercise of its good faith judgment as to its
fiduciary duties to its shareholders imposed by law. Shoney's and
Enterprises shall coordinate and cooperate with respect to the timing of
such meetings and shall use their best efforts to hold such meetings on
the same day. It shall be a condition to the mailing of the Proxy
Statement that: (a) Shoney's shall have received a "comfort" letter from
Deloitte & Touche, LLP, independent public accountants for Enterprises,
dated as of a date within two business days before the date on which the
Registration Statement (as defined in SECTION 8.1) shall become effective,
with respect to the financial statements of Enterprises included in the
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Proxy Statement, in form and substance reasonably satisfactory to
Shoney's, and customary in scope and substance for "comfort" letters
delivered by independent public accountants in connection with
registration statements and proxy statements similar to the Registration
Statement and the Proxy Statement; and (b) Enterprises shall have received
a "comfort" letter from Ernst & Young LLP, independent public accountants
for Shoney's, dated as of a date within two business days before the date
on which the Registration Statement shall become effective, with respect
to the financial statements of Shoney's included in the Proxy Statement,
in form and substance reasonably satisfactory to Enterprises, and
customary in scope and substance for "comfort" letters delivered by
independent public accountants in connection with registration statements
and proxy statements similar to the Registration Statement and the Proxy
Statement.
SECTION 7.4 FILINGS; OTHER ACTION. Subject to the terms and
conditions herein provided, Enterprises and Shoney's shall, and shall
cause each of their respective Subsidiaries: (a) to the extent required,
promptly make their respective filings and thereafter make any other
required submissions under the HSR Act with respect to this Agreement and
the transactions contemplated by this Agreement; (b) use all reasonable
efforts to cooperate with one another in: (1) determining which filings
are required to be made prior to the Closing Date with, and which
consents, approvals, permits or authorizations are required to be obtained
prior to the Closing Date from any Governmental Entities in connection
with the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby; and (2) timely making all such
filings and timely seeking all such consents, approvals, permits or
authorizations ((a) and (b) together, collectively, "Regulatory Filings");
(c) use their best efforts to obtain in writing any consents and financing
commitments required from third parties in form reasonably satisfactory
to Enterprises and Shoney's necessary to effectuate the transactions
contemplated by this Agreement, including, without limitations, the
consent or approval of their respective lenders; and (d) use all
reasonable efforts to take, or cause to be taken, all other action and do,
or cause to be done, all other things necessary, proper or appropriate to
consummate and make effective the transactions contemplated by this
Agreement, including, without limitation, satisfaction of the conditions
set forth in ARTICLE IX below. If, at any time after the Closing Date,
any further action is necessary or desirable to carry out the purpose of
this Agreement, the proper officers and directors of Shoney's and
Enterprises shall take all such necessary action.
SECTION 7.5 DUE DILIGENCE; INSPECTION OF RECORDS AND
PROPERTIES. From the date hereof to the Closing Date, each of
Enterprises and Shoney's shall allow all designated officers, employees,
attorneys, accountants and other representatives of the other access at
all reasonable times to all its properties, records, files,
correspondence, audits (including, without limitation, workpapers of
independent auditors), as well as to all information relating to
commitments, contracts, titles and financial position, or otherwise
pertaining to the business and affairs, of Enterprises and Shoney's and
their respective Subsidiaries as such other party may reasonably request.
Each party will hold all information about the other party obtained by
them in connection with the transactions contemplated hereby which is non-
public in confidence to the extent required by, and in accordance with,
the provisions relating to the confidentiality of information contained
in the letters, each dated July 26, 1995, between Enterprises and Shoney's
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(the "Confidentiality Agreements"), as if herein stated in the first
instance, provided that any provisions therein relating to termination
shall be extended for six months after the original termination date.
SECTION 7.6 LISTING APPLICATION. Shoney's shall promptly prepare and
submit to the NYSE a listing application covering the Exchange Shares, and
shall use its reasonable efforts to obtain, prior to the Closing Date,
approval for the listing of such securities, subject to official notice of
issuance.
SECTION 7.7 LEGAL CONDITIONS TO EXCHANGE. Subject to the
terms and conditions herein provided, each of Enterprises and Shoney's
shall, and shall cause each of their respective Subsidiaries to, use all
reasonable efforts: (a) to take, or cause to be taken, all actions
necessary to comply promptly with all legal requirements which may be
imposed on such party or its Subsidiaries with respect to the Agreement
and to consummate the transactions contemplated hereby, subject to the
appropriate votes of its shareholders described herein; and (b) to obtain
(and to cooperate with the other party to obtain) any consent,
authorization, order or approval of, or any exemption by, any Governmental
Entity and/or any other public or private third party which is required
to be obtained or made by such party or any of its Subsidiaries in
connection with this Agreement and the transactions contemplated by this
Agreement. Each of Enterprises and Shoney's will promptly cooperate with
and furnish information to the other in connection with any such burden
suffered by, or requirement imposed upon, any of them or any of their
Subsidiaries in connection with the foregoing.
SECTION 7.8 SUPPLEMENTAL DISCLOSURE SCHEDULES. Each of
Shoney's and Enterprises shall supplement the Schedules to this Agreement,
the Enterprises Disclosure Letter and the Shoney's Disclosure Letter as
of the Closing Date to the extent necessary to reflect matters permitted
by, or consented to by, the other party under this Agreement. In
addition, from time to time prior to the Closing Date, each of Shoney's
and Enterprises will promptly deliver to the other party such amendments
or supplements to the Schedules to this Agreement, the Enterprises
Disclosure Letter and the Shoney's Disclosure Letter as may be necessary
to make the Schedules accurate and complete in all material respects as
of the Closing Date; provided, however, that no such disclosure shall have
any effect for the purpose of determining the satisfaction of the
conditions set forth in Article IX of this Agreement.
SECTION 7.9 DISSOLUTION. From and after the Closing Date,
Enterprises will not engage in any business other than with respect to
winding up the affairs of Enterprises and the Remaining Subsidiaries, will
promptly liquidate and dissolve as a corporation, and will distribute the
Exchange Shares to its shareholders in complete cancellation and
redemption of their shares of Enterprises Common Stock, except that
Enterprises shall not distribute any fractional interests in shares of
Shoney's Common Stock but shall arrange for the orderly sale, for the
account of its shareholders, of a sufficient number of Exchange Shares to
enable it to distribute cash in lieu of fractional interests to which its
shareholders would otherwise be entitled.
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SECTION 7.10 COBRA BENEFITS. Following the Closing Date, TPAC
shall offer the Enterprises employees listed on Schedule 7.10 of the
Enterprises Disclosure Letter benefits required by COBRA.
SECTION 7.11 CERTAIN NOTICES. From and after the Closing Date,
TPAC shall promptly notify Enterprises of all exercises of TPAC Options
and TPAC Warrants and all conversions of the Public Debentures or Private
Debentures.
SECTION 7.12 FURTHER ACTION. Each party hereto shall, subject
to the fulfillment at or before the Closing Date of each of the conditions
of performance set forth herein or the waiver thereof, perform such
further acts and execute such documents as may reasonably be required to
effect the transactions contemplated by this Agreement.
ARTICLE VIII
ADDITIONAL AGREEMENTS
SECTION 8.1 PREPARATION OF REGISTRATION AND PROXY STATEMENTS.
Shoney's and Enterprises shall cooperate and promptly prepare and
Shoney's shall file with the SEC as soon as practicable a Registration
Statement on Form S-4 (the "Registration Statement") under the Securities
Act, with respect to the issuance and distribution of the Exchange Shares,
a portion of which Registration Statement shall also serve as the joint
proxy statement with respect to the meetings of the shareholders of
Enterprises and of Shoney's in connection with this Agreement and the
transactions contemplated by this Agreement (the "Proxy Statement").
Shoney's and Enterprises will cause the Proxy Statement and the
Registration Statement to comply as to form in all material respects with
the applicable provisions of the Securities Act and the Exchange Act.
Shoney's shall use all reasonable efforts, and Enterprises will cooperate
with Shoney's, to have the Registration Statement declared effective by
the SEC as promptly as practicable. Shoney's shall use its best efforts
to obtain, prior to the effective date of the Registration Statement, all
necessary state securities law or "Blue Sky" permits or approvals required
to carry out the transactions contemplated by this Agreement. Shoney's
agrees that the Proxy Statement and each amendment or supplement thereto
at the time of mailing thereof and at the time of the respective meetings
of shareholders of Shoney's and Enterprises, or in the case of the
Registration Statement and each amendment or supplement thereto, at the
time it is filed or becomes effective, will not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading; provided,
however, that the foregoing shall not apply to the extent that any such
untrue statement of a material fact or omission to state a material fact
was made by Shoney's in reliance upon and in conformity with written
information concerning Enterprises or any of Enterprises Subsidiaries
(including, without limitation, TPIR, TPIE, TPII or any of the TPIR
Subsidiaries) furnished to Shoney's by Enterprises specifically for use
in the Proxy Statement. Shoney's will advise Enterprises, promptly after
it receives notice thereof, of the time when the Registration Statement
has become
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effective or any supplement or amendment has been filed, the
issuance of any stop order, the suspension of the qualification of the
Exchange Shares for offering or sale in any jurisdiction, or any request
by the SEC for amendment of the Proxy Statement or the Registration
Statement or comments thereon and responses thereto or requests by the SEC
for additional information.
SECTION 8.2 AFFILIATES OF ENTERPRISES.
(a) At least 30 days prior to the Closing Date, Enterprises shall
deliver to Shoney's a list of names and addresses of those persons who
were, in Enterprises' reasonable judgment, at the record date for its
shareholders' meeting to approve this Agreement and the transactions
contemplated by this Agreement, "affiliates" (each such person a "Rule 145
Affiliate") of Enterprises within the meaning of Rule 145 of the rules and
regulations promulgated under the Securities Act ("Rule 145").
Enterprises shall provide Shoney's such information and documents as
Shoney's shall reasonably request for purposes of reviewing such list.
Enterprises shall use all reasonable efforts to deliver or cause to be
delivered to Shoney's, prior to the Closing Date, from each of the Rule
145 Affiliates of Enterprises identified in the foregoing list, an
Affiliate Letter in the form attached hereto as EXHIBIT 8.2. Shoney's
shall be entitled to place legends as specified in such Affiliate Letters
on the certificates evidencing any Shoney's Common Stock to be distributed
by Enterprises to such Rule 145 Affiliates, and to issue appropriate stop
transfer instructions to the transfer agent for the Shoney's Common Stock,
consistent with the terms of such Letters.
(b) Shoney's shall file the reports required to be filed by it
under the Exchange Act and the rules and regulations adopted by the SEC
thereunder, and it will take such further action as any Rule 145 Affiliate
of Enterprises may reasonably request, all to the extent required from
time to time to enable such Rule 145 Affiliate to sell Shoney's Common
Stock received by Enterprises pursuant to the transactions contemplated
by this Agreement and thereafter distributed to such Rule 145 Affiliate
without registration under the Securities Act pursuant to: (1) Rule
145(d)(1) under the Securities Act, as such Rule may be amended from time
to time; or (2) any successor rule or regulation hereafter adopted by the
SEC.
SECTION 8.3 EXPENSES; BREAK-UP FEE.
(a) If the transactions contemplated by this Agreement are
not consummated or this Agreement is terminated by either Enterprises or
Shoney's pursuant to Section 10.1 (other than a termination pursuant to
Section 10.1 (b)), all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expense, except that (x) expenses incurred in
connection with filing, printing and mailing the Proxy Statement and the
Registration Statement, (y) expenses incurred in connection with the
listing of the Exchange Shares on the NYSE, including all fees paid to the
NYSE and (z) the filing fee associated with the filing under the HSR Act
shall be shared equally by Shoney's and Enterprises. If this Agreement
is terminated pursuant to Section 10.1(b) the breaching party shall be
liable to the terminating party for the costs and expenses of the
terminating party.
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(b) If this Agreement is terminated in accordance with
Section 10.1(f) or 10.1(g), Enterprises shall forthwith pay to Shoney's
(within five (5) days of the date of termination of this Agreement) a
break-up fee in the amount of One Million Dollars ($1,000,000) in
immediately available funds.
(c) If this Agreement is terminated in accordance with
Section 10.1(e) by reason of the failure of Enterprises' shareholders to
approve the matters to be submitted for their approval pursuant to this
Agreement after any of the following Third Party Acquisition Events has
occurred, then in such event Enterprises shall forthwith pay to Shoney's
(within five (5) days of the date of termination of this Agreement) a
break-up fee in the amount of One Million Dollars ($1,000,000) in
immediately available funds.
(d) For purposes hereof, a "Third Party Acquisition Event"
means:
(1) any Person as defined in Section 3(a)(9) and 13(d)(3) of
the Exchange Act (other than Shoney's or its affiliates)
shall have commenced (as such term is defined in Rule
14d-2 under the Securities Exchange Act), after the date
hereof, a tender offer or exchange offer to purchase
common stock of Enterprises such that, upon consummation
of such offer, such Person could own or control fifty
percent (50%) or more of Enterprises' outstanding common
stock; or
(2) any Person (other than Shoney's or its Affiliates) shall,
after the date hereof, have publicly announced a
proposal: (i) to consummate a bonafide Acquisition
Proposal with Enterprises or; (ii) to make an offer
described in clause (d)(1) above; or
(3) any Person (other than Shoney's or its Affiliates) shall,
after the date hereof, with respect to common stock of
Enterprises, have solicited proxies in connection with
any Acquisition Proposal or an effort to obtain the
control of the Board of Directors of Enterprises, or
executed any written consent or become a participant in
any such solicitations (as such term is defined in
Regulation 14A under the Exchange Act); or
(4) any Person (other than Shoney's or its Affiliates), after
the date hereof, shall have acquired beneficial ownership
(as such term is defined in Rule 13d-3 under the Exchange
Act) or the right to acquire beneficial ownership of, or
a new group has been formed which beneficially owns or
has the right to acquire beneficial ownership of, twenty
percent (20%) or more of the outstanding common stock of
Enterprises.
(e) Enterprises acknowledges that the provisions for the
payment of a break-up fee contained in this SECTION 8.3 are an integral
part of the transactions contemplated by this Agreement and that, without
these provisions, Shoney's would not have entered into this Agreement.
Accordingly, if a break-up fee shall become due and payable by
Enterprises, and Enterprises shall fail to pay such amount when due
pursuant to this Section, and, in order to
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obtain such payment, suit is commenced which results in a judgment
against Enterprises therefor, Enterprises shall pay Shoney's reasonable
costs and expenses (including reasonable attorneys' fees) in connection
with such suit, together with interest computed on any amounts determined
to be due pursuant to this Section (computed from the date upon which such
amounts were due and payable pursuant to this Section) and such costs
(computed from the dates incurred) at the prime rate of interest, announced
from time to time by NationsBank of Tennessee, N.A. The obligations of
Enterprises under this SECTION 8.3 shall survive any termination of this
Agreement.
SECTION 8.4 INDEMNITIES RELATING TO DISCLOSURES.
(a) Until the Closing Date Enterprises hereby indemnifies and
holds harmless Shoney's and its directors, officers, advisors and agents
and Shoney's hereby indemnifies and holds harmless Enterprises and its
directors, officers, advisors and agents, from and against any loss,
claim, damage, cost, liability, obligation or expense (including
reasonable attorney's fees and costs of investigation) to which any
indemnified party may become subject under the Securities Act, the
Exchange Act or otherwise, insofar as such loss, claim, damage, cost,
liability, obligation or expense or actions in respect thereof arises out
of or is based upon any untrue statement or alleged untrue statement of
a material fact relating to such indemnifying party and contained in the
Registration Statement or the Proxy Statement or arises out of or is based
upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
with respect to such indemnifying party not misleading.
(b)(1) Shoney's and TPAC agree that, until six years from the
Closing Date, the Charter and By-laws of TPIR, TPIE, TPII and each of the
TPIR Subsidiaries shall not be amended to reduce or limit the rights of
indemnity afforded to the present and former directors and officers of
TPIR, TPIE, TPII and each of the TPIR Subsidiaries thereunder or as to the
ability of TPIR, TPIE, TPII and each of the TPIR Subsidiaries to indemnify
such persons, or to hinder, delay or make more difficult the exercise of
such rights of indemnity or the ability to indemnify, or to reduce any
limitations therein on the liability of directors. Shoney's and TPAC
agree that they shall cause each of TPIR, TPIE, TPII and each of the TPIR
Subsidiaries to at all times exercise the powers granted to them by their
Charters, their By-laws, and by applicable law to indemnify to the fullest
extent possible present or former directors, officers, employees and
agents of TPIR, TPIE, TPII and each of the TPIR Subsidiaries, as the case
may be, against claims made against them arising from their service in
such capacities.
(2) Should any claim or claims be made against any present or
former director, officer, employee or agent of TPIR, TPIE, TPII or any
TPIR Subsidiary arising from his services as such, within six years of the
Closing Date, the provisions of this SECTION 8.4(b) respecting the Charter
and the By-laws of TPIR, TPIE and TPII and the TPIR Subsidiaries shall
continue in effect with respect to the Company in question until the final
disposition of all such claims.
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(3) The provisions of this SECTION 8.4(b) are intended to be for
the benefit of, and shall be enforceable by, each party entitled to
indemnification hereunder, his heirs and his representatives.
SECTION 8.5 EXCHANGE ACT REPORTS. For a period of three
years after the Closing Date, Shoney's shall use its best efforts to
comply with the current public information requirements of SEC Rule
144(c).
SECTION 8.6 INDEMNIFICATION.
(a) BY ENTERPRISES. Enterprises will indemnify, defend and
hold Shoney's, TPIR, TPIE, TPII, and each of the TPIR Subsidiaries
(collectively, the "Shoney's Parties") harmless after the Closing Date
from and against any claims or costs (including, without limitation,
reasonable attorneys' fees and court costs and costs of investigation),
losses, damages, liabilities or expenses (collectively "Costs") incurred
by the Shoney's Parties (whether as a result of a third-party claim, or
otherwise) as a result of:
(1) the nonfulfillment of any covenant, agreement or
obligation to be performed by Enterprises under or pursuant to
this Agreement or any of the other agreements contemplated by
this Agreement;
(2) any claim for brokerage, finders' fees or other
commissions relative to this Agreement or any of the other
agreements contemplated by this Agreement asserted by or on
behalf of any broker or finder claiming to have been retained by
Enterprises or to have rendered services on Enterprises' behalf;
(3) any Excess Repair and Maintenance Expenses and any
obligations or expenses arising from the Marlin Claims that are
not Retained Repair and Maintenance Expenses to the extent any
such expenses or obligations are not satisfied in full from cash
available for Specified Wind-Up Expenses pursuant to Section 2.2
hereof after all other Specified Wind-Up Expenses have been paid
or discharged; or
(4) any liability of Enterprises for taxes, penalties or
interest to the City of New York in excess of $150,000 for the
periods 1987 through 1989, whether such liability arises from
assessment, settlement, or otherwise.
(b) BY TPAC. Shoney's shall (or at its option shall cause TPAC to)
indemnify, defend and hold Enterprises harmless on and after the Closing
Date from and against all Costs incurred by Enterprises (whether as a
result of a third-party claim, or otherwise) as a result of:
(1) the nonfulfillment of any covenant, agreement or
obligation to be performed by Shoney's under or pursuant to this
Agreement or any of the other agreements contemplated by this
Agreement;
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(2) any claim for brokerage, finders' fees or other
commissions relative to this Agreement or any of the other
agreements contemplated by this Agreement asserted by or on
behalf of any broker or finder claiming to have been retained by
Shoney's or to have rendered services on Shoney's behalf; or
(3) any claim asserted against Enterprises arising
out of or related to any liability expressly assumed by TPAC
pursuant to SECTION 3.4.
(c) PARTICIPATION IN THIRD PARTY CLAIMS. Should any claim be
made by a person not a party to this Agreement with respect to any matter
to which the foregoing indemnity relates, the indemnified party shall
promptly notify the indemnifying party thereof. If the indemnified party
fails to promptly notify the indemnifying party, the obligation of the
indemnifying party shall be reduced by the amount of damages actually
suffered as a result of such late notice. The indemnified party may make
settlement of a claim and such settlement shall be binding on both
parties hereto for the purposes of this SECTION 8.6 if, not less than
thirty (30) days prior to such settlement, the indemnified party delivers
to the indemnifying party written notice of its intent to settle such
claim, which notice shall set forth the terms of the proposed settlement;
provided, however, that if within such thirty (30) day period the
indemnifying party shall have requested the indemnified party to contest
any such claim at the expense of the indemnifying party, the indemnified
party shall promptly comply, and the indemnifying party shall have the
right to direct the defense of such claim or any litigation based thereon
at its own expense through counsel reasonably acceptable to the
indemnified party. The indemnified party shall also have the right to
participate in the settlement of any such claim or in any such litigation
so long as its participation is at its own expense and with the
understanding that the indemnifying party may settle in its own
discretion. Any payment or settlement made by the indemnifying party in
such contest, together with the total expense thereof, shall be binding
on the indemnified party and the indemnifying party for the purposes only
of this SECTION 8.6. Notwithstanding anything herein to the contrary, an
indemnifying party shall not, without the prior written consent of the
indemnified party, settle any claim in any manner which adversely affects
the indemnified party. In addition to the foregoing, the indemnifying
party shall assume the defense of any claim, action or proceeding within
the scope of the foregoing indemnities upon the written request of the
indemnified party.
SECTION 8.7 TAX MATTERS.
(a) Enterprises shall cause to be prepared and filed any Tax
Return relating to TPIR, TPII, TPIE and each of the TPIR Subsidiaries for
any taxable period ending on or before the Closing Date. Any such Tax
Return shall be prepared on a basis consistent with those prepared for
prior Tax years unless a different treatment of any item is required by
an intervening change in law. Shoney's and TPAC shall prepare or cause
TPIR, TPII, TPIE and each of the TPIR Subsidiaries to prepare any Tax
Return relating to any of TPIR, TPII, TPIE or the TPIR Subsidiaries for
any taxable period ending after the Closing Date.
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(b) All Tax Returns filed by any of the parties that address
or include any period that includes the Closing Date shall record any
matter arising out of or related to the transactions contemplated by this
Agreement consistent with such transactions qualifying as a tax free
reorganization under Section 368(a)(1)(C) of the Code.
(c) The parties agree that net operating losses currently
existing in any of Enterprises or its Subsidiaries may be utilized in
offsetting any gain arising out of the settlement of the Civil Action.
(d) Any refund or credit (including any interest paid or
credited with respect thereto) received by Shoney's, TPAC, TPIR, TPII,
TPIE or any of the TPIR Subsidiaries of Taxes relating to taxable periods
ending on or before the Closing Date shall be the sole property of
Shoney's, TPAC, TPIR, TPII, TPIE or one or more of the TPIR Subsidiaries,
as the case may be, and neither Enterprises nor any of the Remaining
Subsidiaries shall have any interest in or right to all or any portion of
any such refund or credit.
ARTICLE IX
CONDITIONS PRECEDENT
SECTION 9.1 MUTUAL CONDITIONS TO CLOSING. The respective
obligations of each party to effect the transactions contemplated by this
Agreement shall be subject to the satisfaction of the following
conditions:
SECTION 9.1.1 SHAREHOLDER APPROVAL. This Agreement shall have
been approved and adopted by the affirmative vote of the holders of a
majority of the outstanding shares of Shoney's Common Stock entitled to
vote thereon and the affirmative vote of a majority of the votes cast by
holders of Enterprises Common Stock entitled to vote thereon.
SECTION 9.1.2 OTHER APPROVALS. All authorizations, consents
or approvals of third parties, the failure of which to obtain would have
a Material Adverse Effect on Enterprises or on Shoney's (which shall
include, without limitation, the approval of Shoney's lenders), as the
case may be, shall have been obtained without either the payment of any
fee or the amendment of any agreement.
SECTION 9.1.3 REGISTRATION STATEMENT. The Registration
Statement shall have become effective under the Securities Act and shall
not be the subject of any stop order or proceedings making a stop order.
Shoney's shall have received all state securities laws or "Blue Sky"
permits and other authorizations necessary to issue the Exchange Shares
and otherwise consummate the transactions contemplated by this Agreement.
SECTION 9.1.4 STOCK EXCHANGE LISTINGS. The Exchange Shares
shall have been authorized for listing on the NYSE, subject to official
notice of issuance.
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SECTION 9.1.5 NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No
temporary restraining order, preliminary or permanent injunction or other
order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the transactions
contemplated by this Agreement shall be in effect, nor shall any
proceeding by any Governmental Entity seeking any of the foregoing which
has a reasonable likelihood of success be pending. There shall not be any
action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the transactions contemplated by this
Agreement, which makes their consummation illegal.
SECTION 9.1.6 HART-SCOTT-RODINO WAITING PERIOD EXPIRED. The
required waiting periods under the HSR Act have either expired or been
terminated by the Federal Trade Commission and the Antitrust Division of
the United States Department of Justice.
SECTION 9.1.7 DISSENTER'S RIGHTS. No holder of any of the
outstanding shares of either Enterprises Common Stock or Shoney's Common
Stock shall be determined by a court of competent jurisdiction to have
been entitled to dissent from the transactions contemplated by this
Agreement or to demand payment for his or her shares of Enterprises Common
Stock if the transactions contemplated by this Agreement are effectuated.
SECTION 9.1.8 OPINIONS OF FINANCIAL ADVISORS. Each of the
Enterprises Financial Advisor and the Shoney's Financial Advisor have
delivered written opinions, dated the date of the Proxy Statement and
included in the Proxy Statement and in form and substance reasonably
satisfactory to the parties, that, in the case of Enterprises, the
consideration to be received by Enterprises in exchange for the properties
being transferred to TPAC, pursuant to the terms and conditions of this
Agreement, is fair to Enterprises' shareholders from a financial point of
view, and, in the case of Shoney's, that the consideration to be paid by
Shoney's and/or TPAC in exchange for the properties being transferred to
TPAC, pursuant to the terms and conditions of this Agreement, is fair to
Shoney's shareholders from a financial point of view.
SECTION 9.1.9 SUPPLEMENTAL INDENTURES. The obligations of
Enterprises under the Public Debentures shall have been assumed by TPAC
in accordance with their terms, and a supplemental indenture shall have
been entered into by TPAC with respect to the Public Debentures and
Shoney's and/or TPAC shall have received all authorizations necessary
under the Securities Laws to enter into and perform such supplemental
indenture.
SECTION 9.1.10 RECEIPT OF CIVIL ACTION PROCEEDS. Enterprises and/or
one of its Affiliates shall have received Net Proceeds from the Civil
Action in an amount not less than $17,500,000.
SECTION 9.2 CONDITIONS TO OBLIGATIONS OF SHONEY'S AND TPAC.
The obligations of Shoney's and TPAC to effect the transactions
contemplated by this Agreement are subject to the satisfaction of the
following conditions unless waived by Shoney's:
SECTION 9.2.1 REPRESENTATIONS AND WARRANTIES.
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(a) Each of the representations and warranties of Enterprises set
forth in SECTION 5.1 through SECTION 5.9 shall be true and correct on the
Closing Date.
(b) Each of the representations and warranties of Enterprises
(other than those set forth in SECTION 5.1 through SECTION 5.9 and those
relating to TPIR Bank Debt and the Private Debentures) contained herein
shall be true and correct on the Closing Date (without giving effect to
any Material Adverse Effect qualification within any individual
representation or warranty) as though made on and as of the Closing Date,
except when any such breach of a representation or warranty (determined
without giving effect to any Material Adverse Effect qualification within
any individual representation or warranty), individually or aggregated
with any other breach or breaches of a representation or warranty
(determined without giving effect to any Material Adverse Effect
qualification within any individual representation or warranty), would not
have a Material Adverse Effect on TPIR, TPIE, TPII and the TPIR
Subsidiaries, taken as a whole.
SECTION 9.2.2 PERFORMANCE OF OBLIGATIONS OF ENTERPRISES.
Enterprises shall have performed in all material respects all obligations
required to be performed by it hereunder at or prior to the Closing Date,
and Shoney's shall have received a certificate signed on behalf of
Enterprises by the Chief Executive Officer and the Chief Financial Officer
of Enterprises to such effect.
SECTION 9.2.3 DELIVERIES. Shoney's shall have received the
following:
(a) A stock certificate or stock certificates representing
all of the issued and outstanding shares of TPIR, TPIE, TPII, registered
in the name of Enterprises and duly endorsed in blank or with executed
stock powers or assignments attached, in proper form for transfer and/or
cancellation;
(b) The stock certificates representing all of the issued and
outstanding shares of each TPIR Subsidiary, registered in the name of
TPIR;
(c) Written resignations of all officers and directors of
TPIR, TPIE, TPII and each TPIR Subsidiary effective as of the Closing Date
(which resignations shall not affect or impair any, and shall be without
prejudice to, contractual rights of such officers or directors);
(d) The original minute books and stock transfer records of
each of TPIR, TPIE, TPII and each of the TPIR Subsidiaries;
(e) Copies of the charter and bylaws of Enterprises and of
TPIR, TPIE, TPII and of resolutions adopted by the boards of directors and
shareholders of Enterprises authorizing and approving the execution and
performance of this Agreement and the agreements contemplated by this
Agreement, all as certified by appropriate officers of the respective
corporation as of the Closing Date;
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(f) A certificate as to the incumbency of each person executing
this Agreement and the other agreements contemplated by this Agreement
on behalf of Enterprises;
(g) A Certificate of Existence with respect to Enterprises
dated not more than seven (7) days prior to the Closing Date issued by the
New Jersey Secretary of State and certificates of corporate good standing
(or equivalent) with respect to Enterprises dated not more than seven (7)
days prior to the Closing Date issued by the appropriate officers of the
States of New York, Florida and Hawaii;
(h) A Certificate of Existence with respect to TPIR dated not
more than seven (7) days prior to the Closing Date issued by the Tennessee
Secretary of State and certificates of corporate good standing (or
equivalent) with respect to TPIR dated not more than seven (7) days prior
to the Closing Date issued by the appropriate officers of the States of
Alabama, Arizona, Arkansas, Florida, Georgia, Louisiana, Michigan,
Mississippi, North Carolina, South Carolina and Texas;
(i) A Certificate of Existence with respect to TPIE dated not
more than seven (7) days prior to the Closing Date issued by the Delaware
Secretary of State and certificates of corporate good standing (or
equivalent) with respect to TPIE dated not more than seven (7) days prior
to the Closing Date issued by the appropriate officers of the States of
Florida;
(j) A Certificate of Existence with respect to TPII dated not
more than seven (7) days prior to the Closing Date issued by the Hawaii
Secretary of State;
(k) A Certificate of Existence with respect to TPI West Palm,
Inc. dated not more than seven (7) days prior to the Closing Date issued
by the Tennessee Secretary of State;
(l) A Certificate of Existence with respect to TPI
Transportation, Inc. dated not more than seven (7) days prior to the
Closing Date issued by the Tennessee Secretary of State and certificates
of corporate good standing (or equivalent) with respect to TPIR dated not
more than seven (7) days prior to the Closing Date issued by the
appropriate officers of the States of Alabama, Arizona, Arkansas, Florida,
Georgia, Kentucky, Louisiana, Michigan, Mississippi, Missouri, New Mexico,
North Carolina, Oklahoma, South Carolina and Texas;
(m) A Certificate of Existence with respect to TPI
Commissary, Inc. dated not more than seven (7) days prior to the Closing
Date issued by the Tennessee Secretary of State and certificates of
corporate good standing (or equivalent) with respect to TPIR dated not
more than seven (7) days prior to the Closing Date issued by the
appropriate officers of the States of Alabama, Arizona, Arkansas, Florida,
Georgia, Michigan, Mississippi, North Carolina, South Carolina and Texas;
(n) A Certificate of Existence with respect to The Insurex
Agency, Inc. dated not more than seven (7) days prior to the Closing Date
issued by the Tennessee Secretary of State;
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(o) A Certificate of Existence with respect to Insurex
Benefits Administrations, Inc. dated not more than seven (7) days prior
to the Closing Date issued by the Tennessee Secretary of State;
(p) A certificate signed on behalf of Enterprises by the
Chief Executive Officer of Enterprises and the Chief Financial Officer of
Enterprises certifying satisfaction of the conditions set forth in SECTION
9.2.1; and
(q) A certificate from an officer of Enterprises dated the
Closing Date as to certain factual matters regarding Enterprises (the form
and substance of such certificate to be mutually agreeable with
Enterprises Counsel and Shoney's Counsel) that will support, in part, the
opinion referred to in SECTION 9.2.6 (b).
SECTION 9.2.4 AFFILIATE LETTERS. Shoney's shall have received
an Affiliate Letter in the form attached hereto as Exhibit 8.2 from each
of the Rule 145 Affiliates of Enterprises.
SECTION 9.2.5 COMFORT LETTER. Shoney's shall have received a
"comfort" letter from Deloitte & Touche, LLP dated the Closing Date, with
respect to Enterprises financial information included in the Proxy
Statement.
SECTION 9.2.6 LEGAL OPINIONS.
(a) Shoney's shall have received a legal opinion from
Enterprises Counsel, dated the Closing Date, as to the matters set forth
on SCHEDULE 9.2.6.
(b) Shoney's shall have received the opinion of Shoney's
Counsel, dated the Closing Date, to the effect that the transactions
contemplated by this Agreement constitute a "reorganization" within the
meaning of Sec. 368(a)(1)(C) of the Code.
SECTION 9.2.7 NO MATERIAL ADVERSE CHANGE. There shall be no
Material Adverse Change in any of the Companies or the TPIR Subsidiaries
other than as a result of conditions or events (business or otherwise)
that also affect Shoney's and result in a Material Adverse Effect on
Shoney's.
SECTION 9.2.8 TERMINATION OF MANAGEMENT AGREEMENT. The
Enterprises Management Agreement shall have been terminated and each of
TPIR, TPIE, TPII and the TPIR Subsidiaries shall have been released and
discharged from any liabilities or obligations thereunder.
SECTION 9.2.9 TERMINATION OF ENTERPRISES TAX SHARING
ARRANGEMENT. The Enterprises Tax Sharing Arrangement shall have been
terminated and each of TPIR, TPIE, TPII and the TPIR Subsidiaries shall
have been released and discharged from any liabilities or obligations
thereunder.
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SECTION 9.2.10 FINANCING. Shoney's shall have received a
commitment for additional financing in the amount of $60,000,000 and such
commitment shall have been funded in accordance with its terms.
SECTION 9.2.11 INVENTORIES. On the Closing Date, the
Inventories at the Restaurants will be adequate for the operation of the
Restaurants and shall be at usual and customary levels in accordance with
past practice.
SECTION 9.3 CONDITIONS TO OBLIGATIONS OF ENTERPRISES. The
obligation of Enterprises to effect the transactions contemplated by this
Agreement is subject to the satisfaction of the following conditions
unless waived by Enterprises:
SECTION 9.3.1 REPRESENTATIONS AND WARRANTIES.
(a) Each of the representations and warranties of Shoney's and
TPAC set forth in SECTION 6.1 through SECTION 6.9 shall be true and
correct on the Closing Date.
(b) Each of the representations and warranties of Shoney's and
TPAC (other than those set forth in SECTION 6.1 through SECTION 6.9) set
forth herein shall be true and correct in all material respects as of the
date hereof and as of the Closing Date (without giving effect to any
Material Adverse Effect qualification within any individual representation
or warranty) as though made on and as of the Closing Date, except when any
such breach of a representation or warranty (determined without giving
effect to any material Adverse Effect qualification within any individual
representation or warranty), individually or aggregated with any other
breach or breaches of a representation or warranty (determined without
giving effect to any Material Adverse Effect qualification within any
individual representation or warranty) would not have a Material Adverse
Effect on Shoney's and its Subsidiaries, taken as a whole.
SECTION 9.3.2 PERFORMANCE OF OBLIGATIONS OF SHONEY'S AND TPAC.
Shoney's and TPAC shall have performed in all material respects all
obligations required to be performed by it hereunder at or prior to the
Closing Date, and Enterprises shall have received a certificate signed on
behalf of Shoney's and TPAC by the Chairman and Chief Executive Officer
or President and by the Chief Financial Officer of Shoney's to such
effect.
SECTION 9.3.3 TPIR BANK DEBT AND PRIVATE DEBENTURES. TPAC
shall have satisfied or otherwise discharged Enterprises from any
liabilities associated with or arising out of the TPIR Bank Debt, and TPAC
shall have satisfied all liabilities associated with or arising out of the
Private Debentures.
SECTION 9.3.4 DELIVERIES. Enterprises shall have received the
following:
(a) A stock certificate or stock certificates representing
all of the Exchange Shares issued, registered in the name of Enterprises
(or Enterprises' designees);
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(b) Copies of the charter and bylaws of Shoney's and of TPAC
and of resolutions adopted by the boards of directors and shareholders of
each of Shoney's and TPAC authorizing and approving the execution and
performance of this Agreement and the agreements contemplated by this
Agreement, all as certified by appropriate officers of Shoney's and TPAC
as of the Closing Date;
(c) A certificate as to the incumbency of each person
executing this Agreement and the other agreements contemplated by this
Agreement on behalf of either Shoney's or TPAC;
(d) A Certificate of Existence with respect to Shoney's dated
not more than seven (7) days prior to the Closing Date issued by the
Tennessee Secretary of State;
(e) A Certificate of Existence with respect to TPAC dated not
more than seven (7) days prior to the Closing Date issued by the Tennessee
Secretary of State;
(f) A certificate signed on behalf of Shoney's by the Chief
Executive Officer of Shoney's and the Chief Financial Officer of Shoney's
certifying satisfaction of the conditions set forth in SECTION 9.3.1;
(g) A certificate from an officer of Shoney's dated the
Closing Date as to certain factual matters regarding Shoney's (the form
and substance of such certificate to be mutually agreeable with
Enterprises Counsel and Shoney's Counsel) that will support, in part, the
opinion referred to in SECTION 9.3.5(b); and
(h) An assignment from TPIR of the following: (i) all rights to
prosecute the Marlin Claims, which rights shall include the right to
receive (x) payments from Marlin or it affiliates as a result of the
settlement of the Marlin Claims or a judgment, (y) payments under the
performance bond dated on or about November 15, 1995, with Marlin as
principal and the Aetna Casualty and Surety Company ("Aetna") as surety,
and (z) payments under the labor and material payment bond dated on or
about November 15, 1995, with Marlin as principal and Aetna as surety,
which bonds were provided in connection with the Maintenance Agreement
and (ii) the right to any insurance recovery under any insurance policy
maintained by Marlin or its affiliates, Enterprises or TPIR which covers
liabilities arising in connection with the Marlin Claims.
SECTION 9.3.5 LEGAL OPINIONS.
(a) Enterprises shall have received the opinion of Shoney's
Counsel, dated the Closing Date, as to the matters set forth on SCHEDULE
9.3.3.
(b) Enterprises shall have received the opinion of
Enterprises' Counsel, dated the Closing Date, to the effect that the
transactions contemplated by this Agreement constitute a "reorganization"
within the meaning of Sec. 368(a)(1)(C) of the Code.
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SECTION 9.3.6 COMFORT LETTER. Enterprises shall have received
a "comfort" letter from Ernst & Young, LLP dated the Closing Date, with
respect to the Shoney's financial statements included in the Proxy
Statement.
SECTION 9.3.7 NO MATERIAL ADVERSE CHANGE. There shall be no
Material Adverse Change in Shoney's other than as a result of conditions
or events (business or otherwise) that also affect Enterprises and result
in a Material Adverse Effect on Enterprises.
ARTICLE X
TERMINATION AND AMENDMENT
SECTION 10.1 TERMINATION. This Agreement may be terminated
at any time prior to the Closing Date, whether before or after its
approval by the shareholders of Enterprises or Shoney's:
(a) by mutual consent of Shoney's and Enterprises in a
written instrument;
(b) by either Shoney's or Enterprises, if there has been a
breach on the part of the other of one or more representations,
warranties, covenants or agreements set forth in this Agreement, which
breach has not been cured within five (5) business days following receipt
by the breaching party of notice of such breach and that, individually or
in the aggregate, causes or is likely to cause a Material Adverse Effect;
(c) by either Shoney's or Enterprises upon written notice to
the other party if any court or Governmental Entity of competent
jurisdiction shall have issued a final permanent order enjoining or
otherwise prohibiting the consummation of the transactions contemplated
by this Agreement, and in any such case the time for appeal or petition
for reconsideration of such order shall have expired without such appeal
or petition being granted;
(d) by either Shoney's or Enterprises if the transactions
contemplated by this Agreement shall not have been consummated on or
before the Termination Date unless the failure to so consummate by such
time is due to the breach of this Agreement by the party seeking to
terminate;
(e) by either Shoney's or Enterprises if any approval of the
shareholders of either Enterprises or Shoney's required for the
consummation of the transactions contemplated by this Agreement shall not
have been obtained by reason of the failure to obtain the required vote
at a duly held meeting of shareholders or at any adjournment thereof;
(f) by Shoney's, if prior to the Closing Date, the Board of
Directors of Enterprises shall have approved, recommended or endorsed any
Acquisition Proposal other than this Agreement;
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(g) by Enterprises if, prior to the Closing Date, its Board
of Directors, after consultation with its legal counsel and financial
advisors, determines in the good faith exercise of its fiduciary duties
that a bona fide proposal or offer by a third party to consummate an
Acquisition Proposal is in the best interests of its shareholders;
(h) by Enterprises if, prior to April 30, 1996, Shoney's has
failed to satisfy the conditions set forth in SECTION 9.1.2 (with respect
to Shoney's lenders) or to receive the financing commitment referenced in
SECTION 9.2.10; and
(i) by Shoney's if, prior to the Closing Date, Enterprises makes,
commits, agrees to make or otherwise becomes obligated to make any
payments of principal on either the Public Debentures or the Private
Debentures.
SECTION 10.2 EFFECT OF TERMINATION. In the event of
termination of this Agreement by either Enterprises or Shoney's as
provided in Section 10.1, this Agreement shall forthwith become void and
there shall be no liability or obligation on the part of Shoney's or
Enterprises or their respective officers or directors except for the
obligations of the parties with respect to the Confidentiality Agreements
and their covenants contained in Sections 7.8 and 8.3. No termination of
this Agreement shall relieve any person from liability resulting from a
willful breach by a party of any of its representations and warranties set
forth herein if such breach results in a Material Adverse Effect on the
breaching party, or from liability resulting from a willful breach by a
party of any of its covenants or agreements set forth herein.
SECTION 10.3 AMENDMENT. This Agreement may be amended by the
parties hereto, by action taken or authorized by their respective Boards
of Directors, at any time before or after approval of the matters
presented in connection with this Agreement by the shareholders of
Enterprises or of Shoney's, but, after any such approval, no amendment
shall be made which by law requires further approval by such shareholders
without such further approval. This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties
hereto.
SECTION 10.4 EXTENSION; WAIVER. At any time prior to the
Closing Date, the parties hereto, by action taken or authorized by their
respective Board of Directors, may, to the extent legally allowed, (i)
extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties of the other contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of
the agreements or conditions contained herein. Any agreement on the part
of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
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ARTICLE XI
GENERAL PROVISIONS
SECTION 11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
None of the representations and warranties in this Agreement or
in any instrument delivered pursuant to this Agreement shall survive the
Closing Date. No investigation by either Enterprises, Shoney's or TPAC
shall affect the representations and warranties of the other.
SECTION 11.2 NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered
personally, telecopied (with confirmation) or mailed by registered or
certified mail (return receipt requested) upon the date actually delivered
to the parties at the following addresses (or at such other address for
a party as shall be specified by like notice):
(a) if to Shoney's, to
Shoney's, Inc.
1727 Elm Hill Pike
Nashville, Tennessee 37210
Facsimile No: 615/231-2531
Attention: Chief Financial Officer
with a copy to
Tuke Yopp & Sweeney
Suite 1100
NationsBank Plaza
414 Union Street
Nashville, Tennessee 37219
Facsimile No: 615/313-3310
Attention: Gary M. Brown, Esq.
and
(b) if to Enterprises, to
TPI Enterprises, Inc.
3950 RCA Boulevard, Suite 5001
Palm Beach Gardens, FL 33410
Facsimile No: 407/691-8881
Attention: J. Gary Sharp
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with a copy to
Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue, 20th Floor
New York, New York 10022
Facsimile No: 212/758-9526
Attention: Richard A. Goldberg, Esq.
SECTION 11.3 INTERPRETATION. When a reference is made in this
Agreement to Sections or Exhibits, such reference shall be to a Section
or Exhibit to this Agreement unless otherwise indicated. The headings
contained herein 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
phrase "made available" in this Agreement shall mean that the information
referred to has been made available if requested by the party to whom such
information is to be made available. The phrases "the date of this
Agreement," "the date hereof' and terms of similar import, unless the
context otherwise requires, shall be deemed to refer to the date set forth
on the first page of this Agreement. Headings of articles and sections
used herein are used for convenience of reference only and shall not
affect the interpretation of this Agreement.
SECTION 11.4 COUNTERPARTS. This Agreement may be executed in
two or more counterparts, all of which shall be considered one and the
same agreement and shall become effective when two or more counterparts
have been signed by each of the parties and delivered to the other
parties, it being understood that all parties need not sign the same
counterpart.
SECTION 11.5 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES;
RIGHTS OF OWNERSHIP. This Agreement (including the documents and the
instruments referred to herein) (i) constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, provided that
the Confidentiality Agreements shall survive the execution and delivery
hereof, and (ii) except as provided in Sections 3.4, 8.2(b), 8.4 and 8.5,
is not intended to confer upon any person other than the parties hereto
any rights or remedies hereunder.
SECTION 11.6 GOVERNING LAW. This Agreement shall be governed
and construed in accordance with the laws of the State of Tennessee,
without regard to any otherwise applicable conflicts of law principles.
SECTION 11.7 PUBLICITY. It is the intention of the paries to
use reasonable efforts to reach agreement on the wording of any news
releases or other public announcements by Shoney's or Enterprises, or any
of their respective affiliates, pertaining to this Agreement. In the
absence of circumstances requiring otherwise, any such releases or public
announcements shall be submitted to the other party for its comment prior
to issuance.
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SECTION 11.8 ASSIGNMENT. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without
the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement shall be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and
assigns.
SECTION 11.9 EXHIBITS. The Exhibits and Schedules attached
to this Agreement are integral parts of this Agreement and incorporated
herein by this reference and expressly made a part hereof.
SECTION 11.10 SEVERABILITY. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any
rule of law, or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as
the economic or legal substance of the transactions contemplated hereby
are not affected in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties
as closely as possible in a mutually acceptable manner in order that the
transactions be consummated as originally contemplated to the fullest
extent possible.
SECTION 11.11 ENFORCEMENT OF THIS AGREEMENT. The parties agree
that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that
the parties shall be entitled to temporary, preliminary and/or permanent
injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to
any other remedy to which they are entitled at law or in equity.
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IN WITNESS WHEREOF, Shoney's, Enterprises and TPAC have caused
this Agreement to be signed by their respective officers thereunto duly
authorized, on this 15th day of March, 1996.
TPI ENTERPRISES, INC.
By: /s/ J. Gary Sharp
Title: President and CEO
SHONEY'S, INC.
By: /s/ W. Craig Barber
Title: Senior Executive Vice President
and Chief Financial Officer
TPI RESTAURANTS ACQUISITION CORP.
By: /s/ W. Craig Barber
Title: Vice President
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APPENDIX B
FORM OF SALOMON BROTHERS INC OPINION
DRAFT
, 1996
Board of Directors
Shoney's, Inc.
1727 Elm Hill Pike
Nashville, TN 37210
Ladies and Gentlemen:
You have requested our opinion as investment bankers as to the
fairness, from a financial point of view, of the consideration to be paid by
Shoney's, Inc. ("Shoney's"), in connection with the proposed acquisition (the
"Reorganization") by Shoney's of substantially all of the assets and
liabilities of TPI Enterprises, Inc. ("Enterprises"), including all of the
common stock of TPI Restaurants, Inc. ("TPIR"), TPI Entertainment, Inc., and
TPI Insurance Corp. and certain other assets (collectively, the "TPI Assets"),
pursuant to the Plan of Tax-free Reorganization under Section 368(a)(1)(C) of
the Internal Revenue Code and Agreement, dated March 15, 1996 (the "Transaction
Agreement"). As more specifically detailed in the Transaction Agreement,
Shoney's shall issue 5,577,102 shares of its common stock, par value $1.00 per
share ("Common Stock"), plus additional shares of its Common Stock with a
market value of $10 million, and shall assume certain liabilities and other
obligations of Enterprises, as specified in the Transaction Agreement, in
exchange for the TPI Assets in a tax-free transaction. Among other exclusions,
the TPI Assets shall exclude the stock, assets and liabilities of Maxcell
Telecom Plus, Inc. and exclude any other assets or liabilities relating to the
Maxcell litigation (which was originally captioned Maxcell Telecom Plus, Inc.
v. McCaw Cellular Communications, Inc.).
Salomon Brothers Inc ("Salomon Brothers") has previously rendered
certain investment banking and financial advisory services to Shoney's for
which we have received customary compensation, including providing financial
advisory services to the Board of Directors in 1994, 1995 and 1996 as well as
representing Shoney's in two divestitures during 1995. Salomon Brothers is a
full-service securities firm and, in the course of its normal trading
activities, may from time to time effect transactions and hold positions in the
securities of Shoney's and Enterprises for Salomon Brothers' own account and
for the accounts of customers and, accordingly, at any time may hold a long or
short position in such securities.
In arriving at our opinion, we have reviewed and analyzed, among
other things, the following: (i) the Transaction Agreement and certain other
documents relating to the Reorganization; (ii) certain internal information,
primarily financial in nature, provided by management of Shoney's and
Enterprises, as well as certain financial forecasts prepared by the management
of Shoney's; (iii) the audited financial statements for Shoney's and
Enterprises for each of the fiscal years ended 1995, 1994 and 1993 and the
unaudited interim financial statements for Shoney's since the most recent
audited financial statements; (iv) certain publicly available information
regarding certain other companies that we considered to be generally comparable
to Shoney's and TPIR, the principal business of the TPI Assets, and the trading
markets for their respective securities; (v) certain publicly available
information concerning the nature and terms of certain other transactions that
we considered relevant to our inquiry; and (vi) such other information,
financial studies, analyses, and financial, economic and market criteria that
we deemed to be relevant. We have also met with certain officers and employees
of Shoney's to discuss the
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foregoing as well as other matters we believe relevant to our inquiry and have
had limited discussions with members of Enterprises management.
In our review and analysis and in arriving at our opinion, we have
assumed and relied upon the accuracy and completeness of all of the financial
and other information reviewed by us for the purpose of this opinion. We have
not assumed any responsibility for independent verification of any of such
financial and other information. With respect to the financial forecasts that
we utilized, we have assumed that they reasonably reflect the best currently
available estimates and judgments of the management of Shoney's as to the
future financial performance of Shoney's including pro forma for the TPI
Assets. We have not made or obtained any independent evaluations or appraisals
of the TPI Assets or of any of the properties or facilities of Shoney's or
Enterprises or assumed any responsibility to do so, and have not been furnished
with any such valuations or appraisals.
In conducting our analysis and arriving at our opinion as expressed
herein, we have considered such financial and other factors as we have deemed
appropriate under the circumstances, including, among others, the following
factors: (i) the historical and current financial position and results of
operations of Shoney's and the TPI Assets; (ii) the business prospects of
Shoney's and the TPI Assets; (iii) the historical and current market for the
Common Stock and for the other equity securities of certain other companies
that we believe to be generally comparable to Shoney's and TPIR; and (iv) the
nature and terms of certain other transactions that we deemed to be relevant.
We have also taken into our assessment general economic, market and financial
conditions as well as our experience in connection with similar transactions
and securities valuations generally. Our opinion necessarily is based upon
conditions as they exist and can be evaluated on the date hereof.
This opinion is, in any event, limited to the fairness, from a
financial point of view, of the consideration to be paid for the TPI Assets in
connection with the Reorganization and does not address Shoney's underlying
business decision to effect the transaction or constitute a recommendation to
any holder of Shoney's Common Stock as to how such holder should vote with
respect to the Reorganization. You recognize that Shoney's, its Board of
Directors and its stockholders have the ultimate responsibility to decide
whether it is appropriate and reasonable to effect the Reorganization.
Based upon and subject to the foregoing, we are of the opinion as
investment bankers that, as of the date hereof, the assets to be received from
Enterprises in exchange for the consideration to be paid by Shoney's is fair,
from a financial point of view, to Shoney's and its shareholders.
Very truly yours,
B-2
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APPENDIX C
FORM OF ALEX. BROWN & SONS INCORPORATED OPINION
, 1996
Board of Directors
TPI Enterprises, Inc.
3950 RCA Boulevard, Suite 5001
Palm Beach Gardens, Florida 33410
Dear Sirs:
TPI Enterprises, Inc., a New Jersey corporation ("Enterprises"), proposes
to enter into a Plan of Tax-Free Reorganization under Section 368(a)(1)(C) of
the Internal Revenue Code and Agreement dated as of March 15, 1996 (the
"Agreement") with Shoney's, Inc. ("Shoney's") and TPI Restaurants Acquisition
Corporation ("TPAC"), each a Tennessee corporation. As more specifically set
forth in the Agreement, and subject to the terms and conditions thereof, on the
Closing Date, as defined in the Agreement, Enterprises will transfer to TPAC
all of the issued and outstanding shares of (i) common and preferred stock,
$.01 par value per share, of TPI Restaurants, Inc., a Tennessee corporation
("TPIR"), (ii) common stock, $.01 par value per share, of TPI Entertainment,
Inc., a Delaware corporation ("TPIE"), and (iii) common stock, $1.00 par value
per share, of TPI Insurance Corporation, a Hawaii corporation ("TPII")
(together, the "Enterprises Subsidiary Stock"), all Intercompany Accounts, as
defined in the Agreement, and all of the cash and cash equivalents of
Enterprises and its subsidiaries (other than (a) an amount not to exceed
$7,350,000 to pay Specified Wind-up Expenses, as defined in the Agreement, and
(b) an amount (the "Retained Cash") equal to $7,500,000 subject to reduction in
certain circumstances) (all such other cash and cash equivalents so transferred
being referred to herein as the "Transferred Cash"). The Enterprises
Subsidiary Stock, the Intercompany Accounts and the Transferred Cash are
collectively referred to herein as the "Transferred Property." On the Closing
Date, in exchange for the Transferred Property, pursuant to the Agreement
Enterprises will receive the Exchange Shares (defined below) and TPAC will
assume or discharge certain liabilities of Enterprises as specified in the
Agreement (collectively, the "Consideration"). Pursuant to the Agreement, the
Exchange Shares shall equal (x) 5,577,102 shares of common stock, $1.00 par
value, of Shoney's ("Shoney's Common Stock"), plus (y) the number of shares of
Shoney's Common Stock determined by dividing $10,000,000 by the Average Closing
Market Price (as defined in the Agreement) for Shoney's Common Stock, all
subject to adjustment in certain circumstances as provided in the Agreement
including an increase in the event of (i) reduction in the amount of Retained
Cash pursuant to the Agreement and (ii) the use of any of the Net Proceeds (as
defined in the Agreement) to retire any portion of the TPIR Bank Debt (as
defined in the Agreement). Pursuant to the Agreement, TPAC will assume the
duties and obligations of Enterprises under the $51,563,000 principal amount of
8.25% convertible subordinated debentures due 2002 issued by Enterprises and
guaranteed by TPIR, Shoney's will satisfy or discharge Enterprises from the
$15,000,000 principal amount of 5.00% convertible senior subordinated
debentures due 2003 and from any liabilities associated with or arising out of
the TPIR Bank Debt and TPAC will assume certain liabilities of Enterprises.
You have requested our opinion as to whether the Consideration to be received
by Enterprises in exchange for the Transferred Property being transferred to
TPAC pursuant to the terms and conditions of the Agreement is fair, from a
financial point of view, to the shareholders of Enterprises.
Alex. Brown & Sons Incorporated, 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, negotiated
underwritings, private placements and valuations for other purposes. We have
acted as financial advisor to the Special Committee of the Board of Directors
of Enterprises in connection with the transactions described above and will
receive a fee for our services, including the rendering of this
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opinion. We regularly publish research reports regarding the businesses and
securities of publicly owned companies in the restaurant industry, including
Shoney's. In addition, in the ordinary course of business, Alex. Brown may
actively trade the securities of Shoney's and Enterprises for its own account
and for the accounts of its customers and, accordingly, at any time may hold a
long or short position in such securities.
In connection with our opinion, we have reviewed certain publicly
available financial and other information concerning Enterprises and Shoney's
and certain internal financial analyses and other information with respect to
the business, operations and prospects of Enterprises, furnished by the
management of Enterprises to us. We have also held discussions with members of
senior management of Enterprises regarding the business and prospects of
Enterprises and with members of senior management of Shoney's regarding the
business and prospects of Shoney's. In addition, we have (i) reviewed the
reported price and trading activity for shares of common stock, $.01 par value,
of Enterprises ("Enterprises Common Stock") and Shoney's Common Stock; (ii)
compared certain financial and stock market information for Enterprises and
Shoney's with similar information for certain selected companies within the
restaurant industry whose securities are publicly traded; (iii) reviewed the
financial terms of certain recent business combinations which we deemed
relevant in whole or in part; and (iv) performed such other studies and
analyses and considered such other factors as we deemed appropriate for the
purpose of rendering our opinion. We have also reviewed the Agreement.
In connection with our review, we have assumed and relied upon the
accuracy and completeness of the financial and other information used by us in
arriving at our opinion, and we have not assumed any responsibility to
independently verify any of such information. With respect to information
relating to the prospects of Enterprises and Shoney's, we have assumed that the
information provided to us has been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the respective managements
of Enterprises and Shoney's as to the likely respective future financial
performance of Enterprises and Shoney's. We express no view as to such
information or the assumptions on which it is based. We were not requested or
authorized to solicit, and did not solicit, interest from any party with
respect to the acquisition of the Enterprises Subsidiary Stock, Enterprises or
any of its constituent businesses or any other transaction as an alternative to
the transactions described above. We have assumed that the transactions
contemplated by the Agreement will constitute a "reorganization" within the
meaning of Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as
amended. We have assumed that the Civil Action, as defined in the Agreement,
will be settled in accordance with the terms of the agreement in principle
therefor and we express no opinion with respect thereto. We have further
assumed that pursuant to the Agreement a substantial portion of the Retained
Cash will be distributed to stockholders of Enterprises. While we conducted
physical inspections of a limited number of Shoney's and Enterprises properties
and facilities, we did not conduct physical inspections of most of such
properties or facilities and we did not make or obtain any evaluations or
appraisals of any of the properties, facilities, assets or liabilities of
Shoney's or Enterprises.
Our opinion is based upon market, economic and other conditions as they
exist and can be evaluated as of the date of this letter. Our opinion
addresses only the fairness, from a financial point of view, to the
shareholders of Enterprises of the Consideration to be received by Enterprises
in exchange for the Transferred Property being transferred to TPAC pursuant to
the terms and conditions of the Agreement, and does not constitute a
recommendation to any Enterprises stockholder as to how to vote with respect to
the Agreement or the transactions contemplated thereby.
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Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the Consideration to be received by Enterprises in
exchange for the Transferred Property being transferred to Shoney's pursuant to
the terms and conditions of the Agreement is fair, from a financial point of
view, to the shareholders of Enterprises.
Very truly yours,
C-3
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APPENDIX D
PLAN OF COMPLETE LIQUIDATION OF TPI ENTERPRISES, INC.
This Plan of Complete Liquidation (the "Plan") provides for the voluntary
dissolution and complete liquidation of TPI Enterprises, Inc., a New Jersey
corporation (the "Corporation"), in accordance with Chapter 12 of Title 14A of
the New Jersey Business Corporation Act (the "Act"). The voluntary dissolution
and complete liquidation shall be accomplished in accordance with the
provisions of this Plan, which is an integral aspect of, and called for by, the
Plan of Tax-Free Reorganization under Section 368(a)(1)(C) of the Internal
Revenue Code and Agreement (the "Plan of Reorganization"). Pursuant to the
Plan of Reorganization, Shoney's, Inc., a Tennessee corporation ("Shoney's"),
will acquire substantially all of the properties and assets of the Corporation.
1. APPROVAL OF BOARD OF DIRECTORS. The board of directors of the
Corporation has determined that, subject to the closing of the Plan of
Reorganization with Shoney's (the "Closing"), it is deemed desirable and for
the benefit of the Corporation and the stockholders thereof that the
Corporation be voluntarily dissolved and completely liquidated in accordance
with the provisions of this Plan.
2. ADOPTION OF PLAN BY STOCKHOLDERS. This Plan shall be submitted to
the stockholders of the Corporation for approval and adoption at a special
meeting of the shareholders of the Corporation called by the board of directors
for that purpose (the "Meeting"). The Plan shall be deemed adopted and shall
become effective upon its approval at the Meeting by the affirmative vote of a
majority of the votes cast by the holders of at least a majority of the
outstanding shares of common stock, par value $.01 per share (the "Common
Stock"), of the Corporation entitled to vote at the Meeting as required by
Section 14A:12-4 of the Act, subject to the Closing.
3. ISSUANCE OF CERTIFICATE OF DISSOLUTION BY SECRETARY OF STATE. If the
Plan is adopted and approved at the Meeting as provided in Paragraph 2 above,
and the Closing thereafter occurs, the proper officers of the Corporation shall
file a Certificate of Dissolution as soon as practicable after the Meeting in
the office of the Secretary of State of State of New Jersey, in accordance with
the provisions of Section 14A:12-4 of the Act. Upon the filing of the
Certificate of Dissolution, the Corporation shall be deemed dissolved (the date
of issuance of such certificate being hereafter referred to as the "Dissolution
Date").
4. CONTINUATION OF CORPORATE STATUS AFTER DISSOLUTION DATE FOR CERTAIN
PURPOSES. On and after the Dissolution Date, the Corporation shall continue
its corporate existence but shall carry on no business except for the purpose
of winding up its affairs by (a) collecting its assets, (b) conveying for cash
or upon deferred payment, with or without security, such of its assets are not
to be distributed in kind to its shareholders, (c) paying, satisfying and
discharging its debt and other liabilities and (d) doing all other acts
required to liquidate its business and affairs.
5. TIME FOR COMPLETION OF LIQUIDATION. It is the intent of this Plan
that the complete liquidation of the Corporation shall commence on the
Dissolution Date and that such liquidation, and the distribution of the net
assets of the Corporation, shall be completed as soon as practicable thereafter
and in any event within one year after the date of the approval of this Plan by
the shareholders of the Corporation except as otherwise provided by Section 10
hereof.
6. POWERS AND AUTHORITY OF DIRECTORS AFTER DISSOLUTION. (a) Upon
dissolution of the Corporation, its officers, directors and shareholders of the
Corporation shall continue to function in the same manner as if the dissolution
had not occurred. Without limiting the generality of the foregoing:
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(i) The directors of the Corporation shall not be deemed to be
trustees of its assets and shall be held to no greater standard
of conduct than that prescribed by Section 14A:6-14 of the Act;
(ii) Title to the Corporation's assets shall remain in the
Corporation until transferred by it in the corporate name;
(iii) The dissolution shall not change quorum or voting
requirements for the board or shareholders, nor shall it
alter provisions regarding election, appointment,
resignation or removal of, or filling vacancies among,
directors or officers, or provisions regarding amendment or
repeal of by-laws or adoption of new by-laws;
(iv) Shares may be transferred until the Complete Liquidation Date
(as defined in Paragraph 10.1);
(v) The Corporation may sue and be sued in its corporate name and
process may issue by and against the Corporation in the same
manner as if dissolution had not occurred, subject to the
provisions of New Jersey law; and
(vi) No action brought against the Corporation prior to its
dissolution shall abate by reason of such dissolution.
(b) Specifically, but without limiting the generality of the
foregoing set forth in Section 6(a) hereof, upon dissolution of the
Corporation, the directors of the Corporation shall have the following powers
and authorities:
(i) To employ, terminate the employment of, and fix the compensation
and other terms of employment of such officers, employees,
agents, attorneys, accountants and others as in the discretion
of the directors are necessary or appropriate to effect the
purpose of the Plan;
(ii) To fix the compensation and other terms of employment of the
directors; PROVIDED, HOWEVER, that the annual compensation
(excluding expenses) of the directors shall be no greater than
the annual cash compensation of the directors immediately prior
to the Dissolution Date;
(iii) To purchase, lease, or otherwise provide such offices and
other facilities as in the discretion of the directors are
necessary or appropriate to effect the purpose of the Plan;
(iv) To (1) collect its assets, (2) convey for cash or upon deferred
payments, with or without security, such of its assets as are
not to be distributed in kind to its shareholders and (3) pay,
satisfy and discharge its debts and other liabilities;
(v) To dispose of and convey the properties and assets (on going-
concern or other bases as deemed by the directors to be in the
best interests of the shareholders of the Corporation), to
sell shares of Shoney's Stock (as defined in Paragraph 8.1(a))
in accordance with Paragraph 8.3 and to distribute shares of
Shoney's Stock to Enterprises' shareholders and creditors in
accordance with Section 3.6 of the Plan of Reorganization,
at such times, in such manner, and upon such terms and
conditions as are deemed by the directors to be in the ultimate
best interests of the shareholders of the Corporation but in a
manner consistent with the Plan of Reorganization and the
requirements to maintain a tax-free transaction;
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(vi) To do all other acts required to liquidate its business and
affairs, including to take and effect all other actions deemed
by the directors to be necessary or appropriate to effect the
purpose of the Plan.
7. EXERCISE OF POWERS AND AUTHORITIES OF DIRECTORS. From and after the
dissolution of the Corporation:
7.1 The powers and authorities of the directors may be exercised in the
manners and in accordance with the provisions of this Plan, the Bylaws of the
Corporation and as specifically provided by the Act.
7.2 Article Sixth of the Restated Certificate of Incorporation of the
Corporation shall at all times apply to the officers and directors of the
Corporation. Without limiting the foregoing, except as otherwise specifically
provided by the Act, no director shall be personally liable in respect of any
action taken on behalf of the Corporation.
8. INITIAL LIQUIDATING DISTRIBUTION.
8.1 (a) As soon as practicable after the Dissolution Date and upon
determination by the directors that adequate provision has been made for
payment of all creditors of the Corporation and all costs and expenses of
liquidation, the Corporation shall make an initial liquidating distribution on
a pro rata basis to the holders of outstanding shares of Common Stock. Holders
of employee stock options or warrants immediately prior to the closing of the
transactions contemplated by the Plan of Reorganization (collectively, the
"Derivative Securities") shall be entitled to a distribution only in accordance
with Paragraph 8.2 hereof. The initial liquidating distribution to holders of
Common Stock shall be comprised of cash and approximately 6,600,000 shares (or
such greater number of shares as the Corporation may then hold) of common
stock, $1.00 par value per share (the "Shoney's Stock"), of Shoney's or its
successor in interest, or such portions thereof as the directors shall
determine should be distributed to such holders of Common Stock after adequate
provision for payment of creditors and costs and expenses of liquidation and a
reserve for such distributions to the holders of Derivative Securities as may
be required under Paragraph 8.2.
(b) A person or entity designated by the directors of the
Corporation shall act as agent for the holders of the outstanding shares of
Common Stock for this purpose and shall accept delivery in proper form for
transfer of the Shoney's Stock on their behalf and arrange for transfer into
their names of the record ownership of the Shoney's Stock on the stock transfer
books of Shoney's.
8.2 Holders of Derivative Securities who exercise their Derivative
Securities after the closing of the transaction contemplated by the Plan of
Reorganization but before the Final Liquidating Distribution Record Date (as
defined below) and thereby acquire shares of Shoney's Stock in accordance with
the terms of the Derivative Securities existing immediately prior to the
Closing as modified by the Plan of Reorganization shall be entitled to receive,
as soon as practicable after the Corporation or the Liquidating Agent (as
defined in Paragraph 10.1) receives notice of such exercise their pro rata
portion of the cash portion of the initial liquidating distribution and of the
cash portion of any subsequent liquidating distribution to the extent of such
exercise. Holders of Derivative Securities shall not be entitled to
participate in any liquidating distribution of shares of Shoney's Stock or
other non-cash consideration received from Shoney's pursuant to the Plan of
Reorganization or any proceeds thereof. To become entitled to the liquidating
distributions of cash provided herein, holders of Derivative Securities must
exercise such Derivative Securities into shares of Shoney's Stock prior to the
record date for the final liquidating distribution pursuant to Paragraph 10.1,
which in no event shall be no earlier than December 31, 1998 (the "Final
Liquidating Distribution Record Date"); PROVIDED, HOWEVER, that the Final
Liquidating Distribution Record Date shall occur no later than the third
anniversary after the Complete Liquidation
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Date. Until the Final Liquidating Distribution Record Date, the Corporation or
the Liquidating Agent shall retain in reserve the holder's pro rata portion of
the cash portion of the initial liquidating distribution and of any subsequent
liquidating distribution. Upon expiration or cancellation of any of a holder's
Derivative Securities, or if such Derivative Securities are not exercised on or
prior to the Final Liquidating Distribution Record Date, the cash and other
property reserved for such holder shall be available for distribution to the
holders of Common Stock, provided that the Corporation or the Liquidating Agent
shall be entitled to delay such distributions so that they may be reasonably
aggregated. Cash amounts to which holders of Derivative Securities may become
entitled from the Corporation hereunder are referred to herein as the
"Derivative Securities Entitlements."
8.3 No fractional shares of scrip or certificates for fractional shares
will be issued in connection with any liquidating distribution of Shoney's
Stock to the holders of Common Stock. Fractional share interests with respect
to Shoney's Stock shall be settled by aggregating all fractions, selling the
number of full shares of Shoney's Stock representing such aggregated fractions
in the open market, and, after payment out of the proceeds of such sale or
sales of all expenses (including brokerage commissions) incidental to such sale
or sales, distributing the net proceeds from such sale or sales to the
respective holders of Common Stock entitled thereto in accordance with their
fractional entitlements.
8.4 In connection with all liquidating distributions prior to the
Complete Liquidation Date, the stock transfer books of the Corporation need not
be closed but, in lieu of such closing, the directors may fix a record and a
payment date for the purpose of determining the identity of holders of Common
Stock entitled to receive such liquidating distribution or distributions and
all rights of persons with respect to such liquidating distribution or
distributions shall be determined in accordance with the dates so fixed by the
directors.
9. RESERVE FOR LIABILITIES AND SUBSEQUENT LIQUIDATING DISTRIBUTIONS.
The directors shall be entitled, from time to time, to determine and pay, or
make adequate provision for the payment of, all liabilities, known, contingent
or potential, of the Corporation (including costs and expenses incurred and
anticipated to be incurred in connection with the complete liquidation of the
Corporation) and shall be entitled at all times to retain cash and other assets
determined by the directors to be adequate to provide for the payment of all
such liabilities. Subject to the foregoing, the directors from time to time
shall make distributions in such amounts or in such property, pro rata to
holders of Common Stock of record on such date or dates, as is determined by
the directors and, in accordance with Paragraph 8.2, in satisfaction of
Derivative Securities Entitlements. All such determinations shall be made in
the exercise of the absolute discretion of the directors, and the directors
shall not be required to make, or be in any manner liable for not making, any
liquidating distribution to holders of Common Stock or any payment of
Derivative Securities Entitlements except in accordance with the express
requirements of the Plan.
10. LIQUIDATING AGENT.
10.1 (a) On or before the date that is one year after the Meeting (the
"Complete Liquidation Date"), the directors of the Corporation shall appoint
one or more of the directors (unless shareholder or court approval of other
persons is obtained) to serve as the liquidating agent for the holders of the
Common Stock and Derivative Securities (herein individually and collectively
referred to as the "Liquidating Agent") pursuant to an agreement (the "Agency
Agreement") entered into between the Corporation (as authorized by the
directors) and such Liquidating Agent. On the Complete Liquidation Date, all
then remaining monies, properties and assets of the Corporation and all
interests therein, subject to any remaining claims against and liabilities of
the Corporation, shall be transferred to an account designated by the
Liquidating Agent pursuant to the Agency Agreement. The transfer books and
other records of the Corporation shall be closed on the Complete Liquidation
Date.
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(b) Promptly following the Complete Liquidation Date, the directors
shall report to the holders of Common Stock and holders of Derivative
Securities which have not been exercised or canceled and which have not expired
(i) that the transfer of the assets and liabilities of the Corporation to the
Liquidating Agent has occurred, (ii) the terms and conditions of the Agency
Agreement, (iii) the identity of the Liquidating Agent and (iv) their
respective percentage beneficial interests in the assets held by the
Liquidating Agent (assuming the exercise of all of the Derivative Securities
into shares of Shoney's Stock prior to the Final Liquidating Distribution
Record Date). Notwithstanding the foregoing, no holder of Derivative
Securities shall have any rights or interest in or entitlement to the assets
held by the Liquidating Agent unless and until such holder exercises such
Derivative Securities into shares of Shoney's Stock on or before the Final
Liquidating Distribution Record Date as provided in Paragraph 8.2.
10.2 The Agency Agreement shall provide, in substance, that the purposes
thereof shall be to determine and pay or otherwise satisfy or finally provide
for (whether by insurance or otherwise), within three years after the Complete
Liquidation Date, all then remaining claims of creditors and other liabilities
of the Corporation, including costs and expenses of the Liquidating Agent and
the Derivative Securities Entitlements, and thereupon to distribute any
remaining money, property, or assets to the holders of Common Stock as provided
below. The Agency Agreement shall also provide that, at such time as the
Liquidating Agent shall determine in the exercise of its absolute discretion
that all debts and liabilities, known, contingent and potential, including the
costs and expenses of completing the complete liquidation, of the Corporation
have been paid or provided for, the Liquidating Agent shall thereupon fix the
Final Liquidating Distribution Record Date and give the holders of Derivative
Securities 30 days' prior written notice of the Final Liquidating Distribution
Record Date as it is so established. Thereafter, on a date (on or after the
Final Liquidating Distribution Record Date) to be determined by the Liquidating
Agent, the Liquidating Agent shall satisfy the Derivative Securities
Entitlements and then distribute any funds or other property then held by or
for the account of the Corporation pro rata to holders of Common Stock of
record as of the Final Liquidating Distribution Record Date. Subject only to
the foregoing, the Agency Agreement may contain such terms and conditions as
are mutually agreeable to the directors and the Liquidating Agent and as are
necessary or convenient to the final liquidation of the assets and liabilities
of the Corporation and the distribution of the net proceeds thereof.
10.3 Upon occurrence of the events contemplated by, and compliance with
the provisions of, the foregoing Paragraphs 10.1 and 10.2 (which may be at any
time prior to the third anniversary of the Complete Liquidation Date), the
Corporation shall be deemed to be completely liquidated and dissolved and the
directors shall be discharged of and released from all further powers,
authorities, duties, responsibilities, and liabilities as directors.
11. Unlocated Stockholders. Any cash or other property held by or for
the account of the Liquidating Agent for distribution to holders of Common
Stock and for payment, in accordance with Paragraph 8.2, to holders of
Derivative Securities who have not at the time been located shall, at the time
of the final liquidating distribution contemplated by Paragraph 10.1, be
transferred by the Liquidating Agent to the custodian, state official, trustee
or other person authorized by law to receive distributions for the benefit of
such unlocated stockholders, in such manner as may be determined by the
Corporation or the Liquidating Agent, as the case may be. Such cash or other
property shall thereafter be held by such person solely for the benefit of and
ultimate distribution, without interest thereon, to such former stockholder or
stockholders entitled to receive such assets, who shall constitute the sole
equitable owners thereof, subject only to such escheat or other laws as may be
applicable to unclaimed funds or property, and thereupon all responsibilities
and liabilities of the Corporation and the Liquidating Agent with respect
thereto shall be satisfied and extinguished.
12. Share Certificates. At the time of the transfer of the assets,
subject to the liabilities, of the Corporation to the Liquidating Agent, the
Corporation will call upon the holders of Common Stock to surrender to the
Corporation the certificates that theretofore represent their shares of Common
Stock.
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13. Termination. In the event the Plan of Reorganization is terminated
prior to the Closing, this Plan shall terminate and be of no force or effect.
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APPENDIX E
SHONEY'S, INC. 1981 STOCK OPTION PLAN,
AS AMENDED AND RESTATED THROUGH MAY 1, 1996
PURPOSE OF THE PLAN
This Stock Option Plan (the "Plan") is intended to promote the interests
of Shoney's, Inc. (the "Company") and its shareholders by encouraging those key
employees who will be responsible for the future growth and continued
development of the Company and its Subsidiaries, as hereinafter defined, to
own, and to increase their ownership of, the Company's stock, thereby giving
them, as shareholders, an increased personal interest in, and a greater concern
for, the Company's continued success and progress.
STATEMENT OF THE PLAN
1. NAME. The Plan shall be known as the Shoney's, Inc. 1981 Stock
Option Plan.
2. DEFINITION OF TERMS. In addition to words and terms that may be
defined elsewhere in the Plan, the following words and terms as used in the
Plan shall have the following meanings unless the context or use fairly
indicates another or different meaning or intent, which definitions shall be
equally applicable to both the singular and plural forms of such words and
terms:
2.1 "BOARD" means the Company's Board of Directors.
2.2 "CHANGE IN CONTROL" means a change in control of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Exchange Act; provided, however, that,
without limitation, such a Change in Control shall be deemed to have occurred
if during the option exercise period: (a) any "person" (as such term is used in
the Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing more than fifty percent
(50%) of the combined voting power of Company's then outstanding voting
securities; or (b) all or substantially all of the assets of the Company are
sold, exchanged or otherwise transferred (other than to secure debt owed by the
Company); or (c) the Company's shareholders approve a plan of liquidation or
dissolution; or (d) individuals who at the time an option is granted constitute
members of the Board cease for any reason to constitute a majority thereof
unless the election, or the nomination for election by Company's shareholders,
of each new director was approved by a vote of at least a majority of the
directors then still in office who were directors at the time the option was
granted.
2.3 "CODE" means the Internal Revenue Code of 1986, as amended from
time to time.
2.4 "COMMITTEE" means the Human Resources and Compensation Committee
of the Board, consisting solely of three or more outside directors (as defined
by Code Section 162(m) and the regulations issued thereunder), as from time to
time designated by the Board, that administers the Plan in accordance with
Section 3, and who are not and have not at any time for one year before
appointment to the Committee been eligible to receive stock or options under
any plan (other than the Directors Stock Option Plan) of the Company or any of
its affiliates.
2.5 "COMMON STOCK" means the common stock of the Company having a
par value of $1.00 per share.
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2.6 "DISABILITY" means, as defined by and to be construed in
accordance with Code Section 22(e)(3), any medically determinable physical or
mental impairment which can be expected to result in death or which has lasted
or can be expected to last for a continuous period of not less than twelve (12)
months, and which renders Participant unable to engage in the duties being
engaged in before the impairment. A Participant shall not be considered to
have a Disability unless the Participant furnishes proof of the existence
thereof in a such form and manner, and at such time, as the Committee may
require.
2.7 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
2.8 "INCENTIVE OPTION" means an option which qualifies as an
incentive stock option within the meaning of Code Section 422.
2.9 "NONQUALIFIED OPTION" means an option which does not qualify as
an incentive stock option under Code Section 422.
2.10 "PARENT" means any corporation, which at the time an option is
granted, qualifies as a parent of the Company under the definition of "parent
corporation" contained in Code Section 424(e), I.E., any corporation, other
than the Company, in an unbroken chain of corporations ending with the Company,
if at the time of the granting of an option under the Plan, each of the
corporations other than the Company own stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
2.11 "PARTICIPANT" means an employee of the Company or any of its
Subsidiaries to whom an option is granted under the Plan.
2.12 "PERFORMANCE-BASED OPTION" means an Incentive Option or
Nonqualified Option that vests as determined by the Committee in accordance
with Section 7.7[i].
2.13 "PRIOR PLAN" means the Stock Option Plan originally approved by
the Company's shareholders on January 16, 1969, as amended.
2.14 "REPRESENTATIVE" means the personal representative of the
Participant's estate, and after final settlement of the Participant's estate,
the successor or successors entitled thereto by law.
2.15 "SUBSIDIARY" means any corporation which at the time an option
is granted qualifies as a subsidiary of the Company under the definition of
"subsidiary corporation" contained in Code Section 424(f), I.E., any
corporation, other than the Company, in an unbroken chain of corporations
beginning with the Company if, at the time of the granting of an option under
the Plan, each of the corporations other than the last corporation in the
unbroken chain owns stock possessing 50% or more of the total combined voting
power of all classes of stock of one of the other corporations in such chain.
2.16 "TRADING PRICE OF THE COMMON STOCK" means (i) the closing price
of the Common Stock on the principal national securities exchange on which the
Common Stock is traded, if the Common Stock is then traded on a national
securities exchange; or (ii) if the Common Stock is not then traded on a
national securities exchange, the average of the closing bid and asked
quotations or the closing high bid quotation, whichever is available, in the
over-the-counter market as reported by the NASDAQ National Market List; or
(iii) if the Common Stock is not then reported on the NASDAQ National Market
List, the average of the closing bid and asked prices last quoted by an
established quotation service for over-the-counter-securities.
3. ADMINISTRATION. The Plan shall be administered by the Committee.
Members of the Committee shall not be eligible to participate in the Plan. The
Committee may interpret the Plan, prescribe, amend, and rescind any rules and
regulations necessary or appropriate for the administration of the Plan, and
make such other determinations and take such other action as it deems necessary
or desirable for the administration of the Plan and the protection of the
Company except as otherwise reserved to the Board or the shareholders of the
Company. Without limiting the generality of the foregoing sentence, the
Committee may, in its discretion, treat all or any portion of any period during
which an optionee is on military or other approved leave of absence from the
Company or a Subsidiary, as a period of employment of such optionee by the
Company or such Subsidiary, as the case may be, for purposes of accrual of the
Participant's rights under the Plan; provided, however, that in the case of
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an Incentive Option such leave shall not be longer than 90 days or the
optionee's reemployment following such leave must be guaranteed by contract or
statute. In the event the leave described in the preceding sentence exceeds 90
days and reemployment is not guaranteed by contract or statute, the optionee's
employment by the Company or a Subsidiary shall be deemed to have terminated on
the 91st day of such leave. Any interpretation, determination, or other action
made or taken by the Committee shall be final, binding, and conclusive. No
member of the Committee shall be liable for any action taken or omitted or
determination made in good faith with respect to the Plan or any option granted
under the Plan.
4. SHARES SUBJECT TO PLAN. Options may be granted by the Company from
time to time to purchase an aggregate of 13,685,180 shares of Common Stock,
subject to adjustment as provided in Section 9. The shares issued upon
exercise of options granted under the Plan may be authorized and unissued
shares or shares held by the Company in its treasury. If any option granted
under the Plan shall terminate, expire, or, with the consent of the
Participant, be cancelled as to any shares, new options may thereafter be
granted covering any such shares.
5. ELIGIBILITY. Options may be granted to those employees of the
Company (including officers, whether or not they are directors) who have and
exercise key management functions and responsibilities for the Company or any
Subsidiary. The granting of an option to any employee shall neither entitle
such employee to, nor disqualify such employee from, participation in any other
grant of options.
6. GRANT OF OPTIONS. The Committee shall have the authority, subject to
the terms of the Plan, to: (a) determine and designate from time to time those
employees of the Company or any Subsidiary to whom options are to be granted
and the number of shares to be optioned to each such employee, provided that no
director of the Company who is not also an employee of the Company or of a
Subsidiary and no director who is a member of the Committee administering the
Plan shall be entitled to receive any option under the Plan and further
provided that the maximum number of shares of Common Stock that may be granted
to any Participant during any fiscal year of the Company shall not exceed two
million five hundred thousand (2,500,000) shares; (b) authorize the granting of
Incentive Options, Nonqualified Options, Performance-Based Options, or
combinations of Incentive Options, Nonqualified Options and Performance-Based
Options; and to require, if it so determines, that if an Incentive Option and a
Nonqualified Option are granted to the same Participant, then to the extent one
option is exercised the other option shall not be exercised and shall
terminate; (c) determine the number of shares subject to each option; and (d)
subject to the restrictions of Section 7.7, determine the schedule and duration
of the exercise period for any option. The date of grant of an option under
the Plan will be the date on which the option is awarded by the Committee.
7. TERMS AND CONDITIONS OF OPTIONS. Each option granted under the Plan
shall be evidenced by an agreement, in a form approved by the Committee, and
shall be subject to the terms and conditions contained in Sections 7.1 through
7.8 and to such other terms and conditions as the Committee may deem
appropriate; provided, however, that no Incentive Option shall be subject to
any condition that is inconsistent with the provisions of Code Section 422(b).
In the event that any condition imposed hereunder on an Incentive Option is at
any time determined by the Internal Revenue Service or a court of competent
jurisdiction to be inconsistent with Code Section 422, then each Incentive
Option shall be deemed to have been granted without such condition but shall
continue in effect under such remaining terms and conditions as may be
applicable as if the invalid condition had not been included.
7.1 OPTION PERIOD. Each option agreement shall specify the period during
which the option thereunder is exercisable (which shall not exceed ten (10)
years from the date of grant, except as otherwise provided by Section 8.3) and
shall provide that the option shall expire at the end of such period.
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7.2 OPTION PRICE. The option price per share shall be 100% of the fair
market value of the Common Stock on the date of grant. The fair market value
of the Common Stock shall be the Trading Price of the Common Stock on the
date of grant. Such price shall be subject to adjustment as provided in
Section 9. The option price of a Performance-Based Option shall be
determined in accordance with Section 7.8.
7.3 NONTRANSFERABILITY. The options granted hereunder shall not be
transferable by the Participant otherwise than by will or the laws of descent
and distribution.
7.4 TEN PERCENT SHAREHOLDERS. Incentive Options shall not be granted to
any employee who, immediately before the option is granted, owns stock
possessing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or of its Parent or Subsidiaries; provided,
however, that this prohibition shall not apply if at the time such option is
granted the option price is at least one hundred ten percent (110%) of the fair
market value of the Common Stock and such option is not exercisable after the
expiration of five (5) years from the date such option is granted.
7.5 $100,000 INCENTIVE OPTION LIMITATION. To the extent the aggregate
fair market value (determined as of the date the option is granted) of the
Common Stock for which an Incentive Option will first become exercisable by a
Participant in any calendar year under all plans of the Participant's employer
corporation and its Parent and Subsidiaries exceeds $100,000, such option shall
be treated as a Nonqualified Option.
7.6 TERMINATION OF EMPLOYMENT. If any Participant shall cease to be an
employee of either the Company, or a Parent or Subsidiary, or a Parent or
Subsidiary corporation of each corporation issuing or assuming a stock option
in a transaction to which Code Section 424(a) applies, except when such
cessation of employment is caused by the death or Disability of the
Participant, the Participant may, subject to the provisions hereof and before
the earlier of the option's expiration date or the expiration of three (3)
months from such cessation of employment, exercise the option granted to such
Participant to the same extent that the Participant might have exercised such
option on the date of cessation of employment. To the extent that any option
is not exercised in accordance herewith, it shall terminate at the earlier of
the option's expiration date or the expiration of the three (3) month period
following cessation of employment. Participant's Representative, in the event
of the Participant's death, or the Participant, in the event of the
Participant's Disability, may, subject to the provisions hereof and before the
earlier of the option's expiration date or the expiration of twelve (12) months
after the date of such death or Disability, exercise the option granted to such
Participant up to the total number of shares covered by the option less any
previous exercises. To the extent that any option is not exercised in
accordance herewith, it shall terminate at the earlier of the option's
expiration date or the expiration of the twelve (12) month period following
death or Disability. Nothing in the Plan shall be construed as imposing any
obligation on the Company to continue the employment of any Participant.
7.7 PERIOD OF EXERCISE OF OPTIONS. Any option granted hereunder, may,
before its expiration or termination, be exercised from time to time, in whole
or in part, up to the total number of shares with respect to which it shall
have then become exercisable. An option granted hereunder shall become
exercisable in such installments as are specified in the option agreement, the
rate of which shall not be at a rate exceeding the following schedule, except
as otherwise provided by this Section 7.7: (a)After one (1) year from the date
the option is granted, it may be exercised as to not more than 33 1/3%
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of the shares covered thereunder; (b) after two years from the date the option
is granted, it may be exercised as to not more than an additional 33 1/3%, or a
total of 66 2/3%, of the shares covered thereunder; (c) after three years from
the date the option is granted, it may be exercised as to all of the shares
covered thereunder. Notwithstanding the foregoing, the Committee may provide
in the option agreement that an option shall vest, in whole or in part:
[i] with respect to Performance-Based Options, at such time, or
within such time period as the Committee shall designate, as the fair market
value of the Company's Common Stock subject to the option increases
seventy-five percent (75%), or such greater percentage as determined by the
Committee, over the fair market value of the Common Stock at date of grant
of the option, with said option to vest no later than ten (10) years from
the date the option is granted provided that the Committee may provide for
expiration of the option upon termination of employment.
[ii] in the event of the Participant's termination of employment with
the Company or Subsidiary because of the Participant's death or Disability; and
[iii] in the event of a Change in Control.
7.8 DETERMINATION OF FAIR MARKET VALUE FOR PERFORMANCE-BASED
OPTIONS. The fair market value of the Common Stock, as calculated below, shall
determine the option price and vesting of a Performance-Based Option. The
option price of a Performance-Based Option shall be the average of the Trading
Price of the Common Stock for the immediately preceding twenty (20) consecutive
trading days (the "Average Trading Price of the Common Stock") on the date of
grant. A Performance-Based Option shall vest on such date as the Average
Trading Price of the Common Stock is at least seventy-five percent (75%), or
such greater percentage as determined by the Committee, over the Average
Trading Price of the Common Stock on the date of grant.
8. EXERCISE OF OPTION. The exercise of any option under the Plan shall
be subject to the provisions of Sections 8.1 through 8.3.
8.1 MANNER OF EXERCISE. To exercise an option, the Participant
shall deliver to the Company at its main office (attention of the corporate
Secretary): [i] written notice specifying the number of shares as to which the
option is being exercised and, if determined by counsel for the Company to be
necessary, representing that such shares are being acquired for investment
purposes only and not for purpose of resale or distribution; and [ii] payment
by the Participant, or a broker-dealer (as provided in Section 8.2), for such
shares of the option price for the number of shares with respect to which the
option is exercised. Provided that all conditions precedent contained in the
Plan and option agreement are satisfied, the Company shall deliver to the
Participant, at the offices of the Company, a certificate or certificates for
the Common Stock. If Participant fails to accept delivery of the Common Stock,
the Participant's rights to exercise the applicable portion of the option shall
terminate.
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8.2 PAYMENT FOR SHARES. Except as otherwise provided in this Section
8, the option price for the Common Stock shall be paid in full when the option
is exercised. Subject to such rules as the Committee may impose, the option
price may be paid in whole or in part in [i] cash, [ii] whole shares of Common
Stock owned by the Participant evidenced by negotiable certificates, [iii] by a
combination of such methods of payment, or [iv] such other consideration as
shall constitute lawful consideration for the issuance of Common Stock and be
approved by the Committee. If payment of the option price is made in Common
Stock, the value of the Common Stock used for payment of the option price shall
be the closing price of the Common Stock on the national securities exchange on
the business day preceding the day written notice of exercise is delivered to
the Company. The Committee, in its discretion, may suspend or terminate the
right of Participant to pay with stock of the Company should the Committee deem
such action to be in the Company's best interests.
8.3 EXERCISES CAUSING LOSS OF TAX DEDUCTION. No part of an
option may be exercised to the extent the exercise would cause the Participant
to have compensation from the Company and its affiliated companies for any year
in excess of $1 million and which is nondeductible by the Company and its
affiliated companies pursuant to Code Section 162(m) and the regulations issued
thereunder. Any option not exercisable because of this limitation shall
continue to be exercisable in any subsequent year in which the exercise would
not cause the loss of the Company's or its affiliated companies' tax deduction,
provided that an Incentive Option may not be exercised later than ten (10)
years from date of grant. This section shall not limit the exercisability
of an option in the event of Change in Control.
8.4 INVESTMENT REPRESENTATION. Each option agreement may provide
that, upon demand by the Committee for such a representation, the Participant
or Participant's Representative shall deliver to the Committee at the time of
any exercise of an option or portion thereof a written representation that the
shares to be acquired upon such exercise are to be acquired for investment and
not for resale or with a view to the distribution thereof. Upon such demand,
delivery of such representation before delivery of Common Stock issued upon
exercise of an option and before expiration of the option period shall be a
condition precedent to the right of the Participant or Participant's
Representative to purchase Common Stock.
8.5 WITHHOLDING. The Company's obligation to deliver shares on the
exercise of any option shall be subject to satisfaction of any applicable
federal, state, and local tax withholding requirements, and the Company, in its
sole discretion, may withhold shares otherwise transferable to the Participant
upon exercise of an option in order to satisfy such withholding requirements.
8.6 SUCCESSIVE OPTIONS. Notwithstanding anything herein contained to the
contrary, no Incentive Option granted hereunder to a Participant before May 1,
1996 shall be exercisable while there is outstanding (within the meaning of
former Code Section 422A(c)(7) which was repealed with respect to options
granted after December 31, 1986) any Incentive Option theretofore granted to
such Participant to purchase stock in the Company or in a corporation which (at
the time of the granting of this option) is a Parent or Subsidiary of the
Company, or is a predecessor corporation of any such corporations.
9. CAPITAL ADJUSTMENTS. The number and price of shares of Common Stock
covered by each option and the total number of shares that may be optioned and
sold under the Plan shall be proportionately adjusted to reflect any stock
dividend, stock split or share combination of the Common Stock or any
recapitalization of the Company. In the event of any merger, consolidation,
reorganization, liquidation or dissolution of the Company, or any exchange of
shares involving the Common Stock, any option granted under the Plan shall
automatically be deemed to pertain to the securities and other property to
which a holder of the number of shares of Common Stock covered by the option
would have been entitled to receive in connection with any such event. The
Committee shall have the sole discretion to make all
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interpretations and determinations required under this section to the extent
it deems equitable and appropriate.
10. RESERVATION AND DELIVERY OF SHARES. The Company, during the term of
any options granted hereunder, will at all times reserve and keep available,
and will seek to obtain from any regulatory body having jurisdiction any
requisite authority in order to issue and sell, such number of shares of Common
Stock as shall be sufficient to satisfy the requirements of the options granted
under the Plan. If in the opinion of its counsel, the issuance or sale of any
shares of its stock hereunder shall not be lawful for any reason, including the
inability of the Company to obtain from any regulatory body having jurisdiction
authority deemed by such counsel to be necessary for such issuance or sale, the
Company shall not be obligated to issue or sell any such shares.
11. EVENT OF DEFEASANCE. Any options granted hereunder are specifically
made subject to defeasance by the failure of the shareholders of the Company to
approve the Plan within a period of twelve months from the date the Plan is
adopted by the Board.
12. SECURITIES LAWS. Upon the exercise of an option at a time when there
is not in effect under the Securities Act of 1933, a current registration
statement relating to the shares of Common Stock to be received upon such
exercise, the Participant shall represent and warrant in writing to the Company
that the shares purchased are being acquired for investment and not with a view
to the distribution thereof and shall agree to the imposition of a legend on
the certificate or certificates representing said shares evidencing the
restrictions on transfer under the Securities Act of 1933 and the issuance of
stop-transfer instructions by the Company to its transfer agent with respect
thereto. No shares of Common Stock shall be issued or sold upon the exercise
of any option unless and until the then applicable requirements of the
Securities Act of 1933, as any of the same may be amended, the rules and
regulations of the Securities and Exchange Commission and any other regulatory
agencies and laws having jurisdiction over or applicability to the Company, and
the rules and regulations of any securities exchange on which the Common Stock
may be listed, shall have been fully complied with and satisfied.
13. NO RIGHTS AS SHAREHOLDER. A Participant shall not have any rights as
a shareholder with respect to any shares covered by any option granted
hereunder until the issuance of a stock certificate for such shares. No
adjustment shall be made on the issuance of a stock certificate to a
Participant as to any dividends or other rights for which the record date
occurred before the issuance of such certificate.
14. INDEMNIFICATION AND EXCULPATION. Each person who is or shall have
been a member of the Board or of the Committee shall be indemnified and held
harmless by the Company against and from any and all loss, cost, liability, or
expense that may be imposed upon or reasonably incurred by him/her in
connection with or resulting from any claim, action, suit, or proceeding to
which he/she may be or become involved by reason of any action taken or failure
to act under the Plan and against and from any and all amounts paid by him/her
in settlement thereof (with the Company's written approval) or paid by him/her
in satisfaction of a judgment in any such action, suit, or proceeding, except a
judgment in favor of the Company based upon a finding of his/her lack of good
faith; subject, however, to the condition that upon the institution of any
claim, action, suit, or proceeding against him/her, he/she shall in writing
give the Company an opportunity, at its expense, to handle and defend the same
before he/she undertakes to handle and defend it on his/her own behalf. The
foregoing right of indemnification shall not be exclusive of any other right to
which such person may be entitled as a matter of law or otherwise, or any power
that the Company may have to indemnify him/her or hold him/her harmless. Each
member of the Board or of the Committee, and each officer and employee of the
Company shall be fully justified in relying or acting in good faith upon any
information furnished in connection with the administration of the Plan by any
appropriate person or persons other than himself/herself. In no event shall
any person who is or shall have been a member of the Board or of the Committee,
or an officer or employee of the Company, be held liable for any determination
made, or other action taken, or any omission to act in
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reliance upon any such information as referred to in the preceding sentence,
or for any action (including the furnishing of information) taken or any
omission to act, when any such determination, action, or omission is made in
good faith.
15. AMENDMENT AND DISCONTINUANCE. The Board or the shareholders of the
Company may terminate or amend the Plan in any respect at any time, except that
(a) no action of the Board or the shareholders may alter or impair a
participant's rights under any outstanding option without the Participant's
consent, and (b) without the approval of the shareholders, the total number of
shares that may be optioned and sold under the Plan may not be increased
(except by adjustment pursuant to Section 9), the provisions of Section 5
regarding eligibility may not be modified, the price at which shares may be
purchased pursuant to options granted hereunder may not be reduced (except by
adjustment pursuant to Section 9), the expiration date of the Plan may not be
extended, and the provisions of this Section 15 may not be changed.
16. TERM OF PLAN. Subject to the provisions of Section 11, the Plan
shall be effective as of the date of the adoption of the Plan by the Board and
shall expire on September 2, 2001 (except as to options outstanding on that
date), and no option shall be granted under the Plan on or after such
expiration date.
17. CONSTRUCTION. As herein used, the singular number shall include the
plural, the plural the singular, and the use of any gender shall be applicable
to all genders, unless the context or use shall fairly require a different
construction. Section or paragraph headings are employed herein solely for
convenience of reference, and such headings shall not affect the validity,
meaning, or enforceability of any provision of the Plan. All references herein
to "section" or "paragraph" shall mean the appropriately numbered section or
paragraph of the Plan except where reference is made to the Code or any other
specified law or instrument.
18. SEVERABILITY. The invalidity or unenforceability of any provision of
the Plan or any option granted pursuant to the Plan shall not affect the
validity and enforceability of the remaining provisions of the Plan and the
options granted hereunder, and such invalid or unenforceable provision shall be
stricken to the extent necessary to preserve the validity and enforceability of
the Plan and the options granted hereunder.
19. GOVERNING LAW. Except as the same may be governed by the Code and
any applicable federal securities laws, the Plan and any options granted
hereunder shall be governed by and construed in accordance with the laws of the
State of Tennessee.
This Plan, Shoney's, Inc. 1981 Stock Option Plan as amended and
restated through May 1, 1996, is executed this day of
, 1996, but effective as of May 1, 1996.
SHONEY'S, INC.
By: Title
WITNESS:
Corporate Secretary
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 48-18-501 through 48-18-509 of the TBCA authorize a corporation
to provide for the indemnification of officers, directors, employees and agents
in terms sufficiently broad to permit indemnification under certain
circumstances for liabilities (including reimbursement for expenses incurred)
arising under the Securities Act of 1933, as amended. Shoney's has adopted the
provisions of the Tennessee statute pursuant to Article of its Amended and
Restated Charter. Also, Shoney's has a Directors' and Officers' Liability
Insurance Policy that provides coverage sufficiently broad to permit
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended.
Section 48-12-102 of the TBCA permits the inclusion in the charter of a
Tennessee corporation of a provision, with certain exceptions, eliminating the
personal monetary liability of directors to the corporation or its shareholders
for breach of the duty of care. Shoney's has adopted the provisions of the
statute in Article of its Amended and Restated Charter. Accordingly, Shoney's
Charter eliminates, subject to certain exceptions, the personal liability of a
director to Shoney's or its shareholders for monetary damages for breaches of
such director's duty of care or other duties as a director. The Charter does
not provide for the elimination of or any limitation on the personal liability
of a director for (i) any breach of a director's duty of loyalty to Shoney's
(ii) acts or omissions which involve intentional misconduct or a knowing
violation of law, (iii) unlawful corporate distributions, or (iv) acts or
omissions which involve transactions from which the director derived an
improper personal benefit. The charter further provides that if the TBCA is
amended to authorize corporate action further eliminating or limiting the
personal liability of directors, then the liability of a director shall be
eliminated or limited to the fullest extent permitted by the TBCA, as amended.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
Number Description
2 Agreement and Plan of Reorganization, filed as Exhibit 2 to the
Current Report of Shoney's, Inc. on Form 8-K filed with the
Commission on March 20, 1996 and incorporated herein by this
reference.
3(i), Charter of Shoney's, Inc., as amended, filed as Exhibit 4.1 to Post
4.1 Effective Amendment No. 3 to the Company's Registration Statement on
Form S-8 (File No. 33-605) filed with the Commission on October 31,
1988, and incorporated herein by this reference.
3(ii), Amended and Restated Bylaws of Shoney's, Inc., as filed as Exhibits
4.2 3(ii) and 4.2 to the Company's Quarterly Report on Form 10-Q for
the quarter ended February 18, 1996 and incorporated hereby by
this reference.
4.3 Amended and Restated Rights Agreement, dated as of May 25, 1994,
between Shoney's, Inc. (the "Company") and Harris Trust and
Savings Bank, as Rights Agent, filed as Exhibit 4 to the Company's
Current Report on Form 8-K filed with the Commission on June 9, 1994
and incorporated herein by this reference.
4.4 Amendment No. 1 dated as of April 18, 1995 to Amended and Restated
Rights Agreement, dated as of May 25, 1994, between Shoney's, Inc.
(the "Company") and Harris Trust and
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Savings Bank, as Rights Agent, filed as Exhibit 4 to the Company's
Current Report on Form 8-K filed with the Commission on May 4, 1995,
and incorporated herein by this reference.
4.5 Indenture dated as of April 1, 1989 between the Company and Sovran
Bank/Central South, as Trustee relating to $201,250,000 in principal
amount of liquid yield option notes due 2004, filed as Exhibit 4.8 to
Amendment No. 1 to the Company's Registration Statement on Form S-3
filed with the Commission on April 3, 1989 (No. 33-27571), and
incorporated herein by this reference.
4.6 Revolving Credit Agreement dated as of July 13, 1988 between the
Company and First American National Bank, filed as Exhibit 4.1 and
19.1 to the Company's Current Report on Form 8-K filed with the
Commission on December 3, 1991, and incorporated herein by this
reference.
4.7 Modification Agreement No. 1 dated as of March 5, 1991 to Revolving
Credit Agreement, dated as of July 13, 1988 between the Company and
First American National Bank, filed as Exhibit 4.2 and 19.2 to the
Company's Current Report on Form 8-K filed with the Commission on
December 3, 1991, and incorporated herein by this reference.
4.8 Alternative Rate Agreement dated as of June 4, 1992 supplementing
that certain Revolving Credit Agreement dated as of July 13, 1988
between the Company and First American National Bank, filed as
Exhibit 4.36 and 10.29 to Post Effective Amendment No. 5 to the
Company's Registration Statement on Form S-8 (File No. 2-64257) filed
with the Commission on January 25, 1993, and incorporated herein by
this reference.
4.9 Note Issuance Agreement, dated as of October 1, 1989, among the
Company, Sovran Bank, N.A., as Note Agent and Placement Agent and
Sovran Bank / Central South, as Escrow Agent, filed as Exhibit 19.3
and 28.3 to the Company's Current Report on Form 8-K filed with the
Commission on December 3, 1991, and incorporated herein by this
reference.
4.10 Reimbursement Agreement, dated as of October 1, 1989, together with
the Standby Note relating thereto, among the Company, Sovran Bank /
Central South, Long Term Credit Bank of Japan, Limited, New York
Branch, Kredeitbank, N.V., New York Branch and Sovran Bank / Central
South, as Agent, filed as Exhibit 19.4 and 28.4 to the Company's
Current Report on Form 8-K filed with the Commission on December 3,
1991, and incorporated herein by this reference.
4.11 Modification Agreement No. 1 dated as of July 21, 1993 to
Reimbursement Agreement, dated as of October 1, 1989, together with
the Standby Note relating thereto, among the Company, Sovran Bank /
Central South, Long Term Credit Bank of Japan, Limited, New York
Branch, Kredeitbank, N.V., New York Branch and Sovran Bank / Central
South, as Agent, filed as Exhibit 4.4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended August 1, 1993 filed with
the Commission on September 15, 1993, and incorporated herein by this
reference.
4.12 Modification Agreement No. 2 dated as of June 8, 1994 to
Reimbursement Agreement, dated as of October 1, 1989, together with
the Standby Note relating thereto, among the Company, NationsBank of
Tennessee, N.A. (formerly Sovran Bank / Central South), Long Term
Credit Bank of Japan, Limited, New York Branch, Kredeitbank, N.V.,
New York Branch and NationsBank of Tennessee, N.A., as Agent, filed
as Exhibit 4.30 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 30, 1994 filed with the Commission on
January 30, 1995, and incorporated herein by this reference.
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4.13 Note Issuance Agreement, dated as of October 1, 1990, among the
Company, Sovran Bank, N.A., as Note Agent and Placement Agent and
Sovran Bank / Central South, as Escrow Agent, filed as Exhibit 19.5
and 28.5 to the Company's Current Report on Form 8-K filed with the
Commission on December 3, 1991, and incorporated herein by this
reference.
4.14 Reimbursement Agreement, dated as of October 1, 1990, together with
the Standby Note relating thereto, between the Company and Sovran
Bank / Central South, filed as Exhibit 19.6 and 28.6 to the Company's
Current Report on Form 8-K filed with the Commission on December 3,
1991, and incorporated herein by this reference.
4.15 Modification Agreement No. 1 dated as of July 21, 1993 to
Reimbursement Agreement, dated as of October 1, 1990, together with
the Standby Note relating thereto, between the Company and Sovran
Bank / Central South, filed as Exhibit 4.5 to the Company's Quarterly
Report on Form 10-Q for the quarter ended August 1, 1993 filed with
the Commission on September 15, 1993, and incorporated herein by this
reference.
4.16 Modification Agreement No. 2 dated as of April 1, 1994 to
Reimbursement Agreement, dated as of October 1, 1990, together with
the Standby Note relating thereto, between the Company and
NationsBank of Tennessee, N.A. (formerly Sovran Bank / Central
South), filed as Exhibit 4.34 to the Company's Annual Report on Form
10-K for the fiscal year ended October 30, 1994 filed with the
Commission on January 30, 1995, and incorporated herein by this
reference.
4.17 Amended and Restated Note Issuance Agreement, dated as of November 1,
1993, among the Company, NationsBank of Virginia, N.A., as Note Agent
and Placement Agent and NationsBank of Tennessee, as Escrow Agent,
filed as Exhibit 4.36 to the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1993 filed with the Commission on
January 31, 1994, and incorporated herein by this reference.
4.18 Reimbursement Agreement, dated as of October 1, 1991, together with
the Standby Note relating thereto, between the Company and National
Bank of Canada, New York Branch, filed as Exhibit 28.10 to the
Company's Current Report on Form 8-K filed with the Commission on
December 3, 1991, and incorporated herein by this reference.
4.19 Assignment, Assumption and Modification Agreement dated as of
November 4, 1993 relating to Reimbursement Agreement, dated as of
October 1, 1991, among the Company, NationsBank of Georgia, N.A. and
National Bank of Canada, New York Branch, filed as Exhibit 4.38 to
the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1993 filed with the Commission on January 31, 1994, and
incorporated herein by this reference.
4.20 Loan Agreement dated as of September 24, 1992 between the Company and
CIBC, Inc., filed as Exhibit 4.43 and 10.36 to Post Effective
Amendment No. 5 to the Company's Registration Statement on Form S-8
(File No. 2-64257) filed with the Commission on January 25, 1993, and
incorporated herein by this reference.
4.21 Modification Agreement No. 1 dated as of October 25, 1992 to Loan
Agreement dated as of September 24, 1992 between the Company and
CIBC, Inc., filed as Exhibit 4.44 and 10.37 to Post Effective
Amendment No. 5 to the Company's Registration Statement on Form S-8
(File No. 2-64257) filed with the Commission on January 25, 1993, and
incorporated herein by this reference.
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4.22 Modification Agreement No. 2 dated as of July 21, 1993 to Loan
Agreement dated as of September 24, 1992 between the Company and
CIBC, Inc., filed as Exhibit 4.6 to the Company's Quarterly Report on
Form 10-Q for the quarter ended August 1, 1993 filed with the
Commission on September 15, 1993, and incorporated herein by this
reference.
4.23 Loan Agreement dated as of April 21, 1993 between the Company and
NationsBank of Tennessee, N.A., filed as Exhibit 4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended May 9, 1993 filed
with the Commission on June 23, 1993, and incorporated herein by this
reference.
4.24 Modification Agreement No. 1 dated as of July 21, 1993 to Loan
Agreement dated as of April 21, 1993 between the Company and
NationsBank of Tennessee, N.A., filed as Exhibit 4.7 to the Company's
Quarterly Report on Form 10-Q for the quarter ended August 1, 1993
filed with the Commission on September 15, 1993, and incorporated
herein by this reference.
4.25 Loan Agreement dated as of December 1, 1994 between the Company and
NationsBank of Tennessee, N.A. filed as Exhibit 4.43 to the Company's
Annual Report on Form 10-K for the fiscal year ended October 30, 1994
filed with the Commission on January 30, 1995, and incorporated
herein by this reference.
4.26 U.S. $270,000,000 Amended and Restated Reducing Revolving Credit
Agreement, dated as of July 21, 1993, as amended and restated as of
May 3, 1996, among Shoney's, Inc., as the Borrower, CIBC Inc., acting
through its Atlanta Office and various other financial institutions
now or hereafter parties hereto, as the Lenders, and Canadian
Imperial Bank of Commerce acting through its New York Agency, as the
Agent for the Lenders, filed as Exhibit 4.2 to the Company's Current
Report on Form 8-K filed with the Commission on May 15, 1996, and
incorporated herein by this reference.
4.27 Modification Agreement No. 1 dated as of July 21, 1993 to Reducing
Revolving Credit Agreement, dated as of July 21, 1993, among the
Company, various financial institutions now or hereafter parties
thereto and Canadian Imperial Bank of Commerce, New York Agency, as
agent, filed as Exhibit 4.8 to the Company's Quarterly Report on Form
10-Q for the quarter ended August 1, 1993 filed with the Commission
on September 15, 1993, and incorporated herein by this reference.
4.28 Modification Agreement No. 2 dated as of December 21, 1993 to
Reducing Revolving Credit Agreement, dated as of July 21, 1993, among
the Company, various financial institutions now or hereafter parties
thereto and Canadian Imperial Bank of Commerce, New York Agency,
filed as Exhibit 4.46 to the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1993, filed with the Commission on
January 31, 1994, and incorporated herein by this reference.
4.29 Modification Agreement No. 3 dated as of May 3, 1994 to Reducing
Revolving Credit Agreement, dated as of July 21, 1993, among the
Company, various financial institutions now or hereafter parties
thereto and Canadian Imperial Bank of Commerce, New York Agency,
filed as Exhibit 99.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended May 15, 1994 filed with the Commission on June
29, 1994 and incorporated herein by this reference.
4.30 Modification Agreement No. 4 dated as of October 27, 1994 to Reducing
Revolving Credit Agreement, dated as of July 21, 1993, among the
Company, various financial institutions now or hereafter parties
thereto and Canadian Imperial Bank of Commerce, New York Agency,
filed as Exhibit 4.48 to the Company's Annual Report on Form 10-K for
the fiscal year ended
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October 30, 1994 filed with the Commission on January 30, 1995, and
incorporated herein by this reference.
4.31 Modification Agreement No. 5 dated as of January 18, 1995 to Reducing
Revolving Credit Agreement, dated as of July 21, 1993, among the
Company, various financial institutions now or hereafter parties
thereto and Canadian Imperial Bank of Commerce, New York Agency,
filed as Exhibit 4.49 to the Company's Annual Report on Form 10-K for
the fiscal year ended October 30, 1994 filed with the Commission on
January 30, 1995, and incorporated herein by reference.
4.32 Modification Agreement No. 6 dated as of April 1, 1995 to Reducing
Revolving Credit Agreement, dated as of July 21, 1993, among the
Company, various financial institutions now or hereafter panics
thereto and Canadian Imperial Bank of Commerce, New York Agency,
filed as Exhibit 4.32 to the Company's Quarterly Report on Form 10-Q
for the quarter ended May 14, 1995, filed with the Commission on June
28, 1995, and incorporated herein by this reference.
4.33 Modification Agreement No. 7 dated as of July 28, 1995 to Reducing
Revolving Credit Agreement, dated as of July 21, 1993, among the
Company, various financial institutions now or hereafter parties
thereto and Canadian Imperial Bank of Commerce, New York Agency,
filed as Exhibit 4.33 to the Company's Quarterly Report on Form 10-Q
for the quarter ended August 9, 1995, filed with the Commission on
September 20, 1995, and incorporated herein by this reference.
4.34 Modification Agreement No. 8 dated as of February 18, 1996 to
Reducing Revolving Credit Agreement, dated as of July 21, 1993, among
the Company, various financial institutions now or hereafter parties
thereto and Canadian Imperial Bank of Commerce, New York Agency,
filed as Exhibit 4.34 to the Company's Quarterly Report on Form
10-Q for the quarter ended February 18, 1996 and incorporated
herein by this reference.
4.35 U.S. $100,000,000 Bridge Loan Credit Agreement, dated as of May 3,
1996, among Shoney's, Inc., as the Borrower, Canadian Imperial Bank
of Commerce, and various other financial institutions now or
hereafter parties hereto, as the Lenders, and Canadian Imperial Bank
of Commerce acting through its New York Agency, as the Agent for the
Lenders, filed as Exhibit 4.1 to the Company's Current Report on Form
8-K filed with the Commission on May 15, 1996, and incorporated
herein by this reference.
5 Opinion of Wyatt, Tarrant & Combs regarding legality (to be filed by
amendment).
10.1 License Agreement, dated as of October 28, 1991, between Shoney's
Investments, Inc. and Shoney's Lodging, Inc., filed as Exhibit 28.7
to the Company's Current Report on Form 8-K filed with the Commission
on December 3, 1991, and incorporated herein by this reference.
10.2 Amendment No. 1 dated as of September 16, 1992 to License Agreement,
dated as of October 28, 1991, between Shoney's Investments, Inc. and
ShoLodge Franchise Systems, Inc. (formerly Shoney's Lodging, Inc.),
filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1993 filed with the Commission on
January 31, 1994, and incorporated herein by this reference.
10.3 Amendment No. 2 dated as of March 18, 1994 to License Agreement,
dated as of October 28, 1991, between Shoney's Investments, Inc. and
ShoLodge Franchise Systems, Inc. filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended May 14,
1995 filed with the Commission on June 28, 1995, and incorporated
herein by this reference.
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10.4 Amendment No. 3 dated as of March 13, 1995 to License Agreement,
dated as of October 28, 1991, between Shoney's Investments, Inc. and
ShoLodge Franchise Systems, Inc., filed as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended May 14,
1995 filed with the Commission on June 28, 1995, and incorporated
herein by this reference.
10.5 Stock Purchase and Warrant Agreement, dated as of October 28, 1991,
between Shoney's Investments, Inc. and Gulf Coast Development, Inc.
filed as Exhibit 28.8 to the Company's Current Report on Form 8-K
filed with the Commission on December 3, 1991, and incorporated
herein by this reference.
10.6 Agreement dated as of September 8, 1992 between the Company and
Raymond L. Danner, filed as Exhibit 10.41 to Post Effective Amendment
No. 5 to the Company's Registration Statement on Form S-8 (File No.
2-64257 filed with the Commission on January 25, 1993, and
incorporated herein by this reference.
10.7 Consent Decree entered by the United States District Court for the
Northern District of Florida on January 25, 1993 in HAYNES, ET. AL V.
SHONEY'S, INC., ET. AL, filed as Exhibit 28 to the Company's Current
Report on Form 8-K filed with the Commission on February 3, 1993, and
incorporated herein by this reference.
10.8 Shoney's, Inc. 1981 Stock Option Plan, filed as Exhibit 4.7 to Post
Effective Amendment No. 3 to the Company's Registration Statement on
Form S-8 (File No. 2-84763) filed with the Commission on January 25,
1993, and incorporated herein by this reference.
10.9 Shoney's, Inc. Stock Option Plan, filed as Exhibit 4.7 to Post
Effective Amendment No. 4 to the Company's Registration Statement on
Form S-8 (File No. 2-64257) filed with the Commission on April 11,
1990, and incorporated herein by this reference.
10.10 Shoney's, Inc. Employee Stock Purchase Plan, filed as Exhibit 4.7 to
Post Effective Amendment No. 4 to the Company's Registration
Statement on Form S-8 (File No. 33-605) fled with the Commission on
October 26, 1989, and incorporated herein by this reference.
10.11 Shoney's, Inc. Employee Stock Bonus Plan, filed as Exhibit 10.9 to
the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1993 filed with the Commission on January 31, 1994, and
incorporated herein by this reference.
10.12 Shoney's, Inc. Directors' Stock Option Plan, filed as Exhibit 4.38 to
the Company's Registration Statement on Form S-8 (File No. 33-45076)
filed with the Commission on January 14, 1992, and incorporated
herein by this reference.
10.13 Shoney's Ownership Plan 1977, filed as Exhibit 10.47 to Post
Effective Amendment No. 5 to the Company's Registration Statement on
Form S-8 (File No. 2-64257) filed with the Commission on January 25,
1993, and incorporated herein by this reference.
10.14 Captain D's Ownership Plan 1976, filed as Exhibit 10.48 to Post
Effective Amendment No. 5 to the Company's Registration Statement on
Form S-8 (File No. 2-64257) filed with the Commission on January 25,
1993, and incorporated herein by this reference.
10.15 Captain D's Ownership Plan 1978-1979, filed as Exhibit 10.49 to Post
Effective Amendment No. 5 to the Company's Registration Statement on
Form S-8 (File No. 2-64257) filed with the Commission on January 25,
1993, and incorporated herein by this reference.
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10.16 Shoney's, Inc. Supplemental Executive Retirement Plan, filed as
Exhibit 10.16 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 29, 1995 filed with the Commission on
January 28, 1996, and incorporated herein by this reference, as
amended by Amendment No. 1 to the Shoney's Inc. Supplemental
Executive Retirement Plan, filed as Exhibit 10.17 to the Company's
Annual Report on Form 10-Q for the quarter ended February 18,
1996 and incorporated herein by this reference.
10.17 Employment Agreement dated as of January 13, 1995 between the Company
and Taylor H. Henry, filed as Exhibit 10.15 to the Company's Annual
Report on Form 10-K for the fiscal year ended October 30, 1994 filed
with the Commission on January 30, 1995, and incorporated herein by
this reference.
10.18 Employment Agreement dated as of January 17, 1995 between the Company
and Charles E. Porter, filed as Exhibit 10.16 to the Company's Annual
Report on Form 10-K for the fiscal year ended October 30, 1994 filed
with the Commission on January 30, 1995, and incorporated herein by
this reference.
10.19 Employment Agreement dated as of January 17, 1995, between the
Company and W. Craig Barber, filed as Exhibit 10.17 to Amendment No.
1 to the Company's Annual Report on Form 10-K for the fiscal year
ended October 30, 1994, filed with the Commission on February 27,
1995, and incorporated herein by this reference.
10.20 Employment Agreement dated as of April 11, 1995, between the Company
and C. Stephen Lynn, filed as Exhibit 4.32 to the Company's Quarterly
Report on Form 10-Q for the quarter ended May 14, 1995 filed with the
Commission on June 28, 1995, and incorporated herein by this
reference, as amended by Amendment No. 1, filed as Exhibit 10.21 to
the Company's Annual Report on Form 10-K for the fiscal year ended
October 29, 1995, filed with the Commission on January 28, 1996 and
incorporated herein by this reference.
13 TPI Enterprises, Inc. 1995 Annual Report to Shareholders.
21 Subsidiaries of Shoney's, Inc. filed as Exhibit 10.21 to the
Company's Annual Report on Form 10-K for the fiscal year ended
October 29, 1995, filed with the Commission on January 28, 1996 and
incorporated herein by this reference.
23.1 Consent of Ernst & Young LLP, independent auditors.
23.2 Consent of Wyatt, Tarrant & Combs.
23.3 Consent of Sullivan & Cromwell.
23.4 Consent of Shereff, Friedman, Hoffman & Goodman, LLP.
23.5 Consent of Deloitte & Touche LLP.
(c) The opinions of Salomon Brothers Inc, advisor to Shoney's, and Alex. Brown
& Sons Incorporated, advisor to the Special Committee to the Board of Directors
of Enterprises, are appendices to the prospectus included in this registration
statement.
II-7
<PAGE>
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 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:
(1) to file, during any period in which offers or sales of the securities
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 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;
(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.
Provided, however, that paragraphs (a)(l)(i) and (a)(l)(ii) do not
apply if the registration statement is on Form S-3 or Form S-8, and
the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed 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
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.
(c) 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 section 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-8
<PAGE>
(d) 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
issuer 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.
(e) The Registrant undertakes that every prospectus (i) that is filed pursuant
to paragraph (d) 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.
(f) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Proxy
Statement-Prospectus pursuant to Items 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.
(g) 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-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, hereunto duly authorized, in the City of Nashville,
State of Tennessee, on May 21, 1996.
SHONEY'S, INC.
By: /s/ C. STEPHEN LYNN
C. Stephen Lynn
Title: Chairman of the Board, Chief
Executive Officer and President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears below
hereby severally constitutes and appoints C. Stephen Lynn and W. Craig Barber
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities to sign any and all amendments (including
post-effective amendments) to this Registration Statement and all documents
relating thereto and to file the same with all exhibits thereto and other
documents in connection therewith with the Securities and Exchange Commission
and each state securities regulatory authority, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each
and every act and thing necessary or advisable to be done in and about the
premises as fully to all intents and purposes as he might or could do in person
hereby ratifying and confirming all that said attorneys-in-fact and agents or
his substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
<S> <C> <C>
/s/ C. STEPHEN LYNN Chairman of the Board, May 21, 1996
C. Stephen Lynn Chief Executive Officer,
President and Director
/s/ W. CRAIG BARBER Senior Executive Vice May 21, 1996
W. Craig Barber President and Chief
Financial Officer
/s/ ROBERT M. LANGFORD Executive Vice President, May 21, 1996
Robert M. Langford General Counsel and Secretary
II-10
<PAGE>
/s/ F.E. McDANIEL, JR. Vice President and Treasurer May 21, 1996
F.E. McDaniel, Jr.
/s/ GREGORY A. HAYES Vice President and Controller May 21, 1996
Gregory A. Hayes
/s/ DENNIS C. BOTTORFF Director May 21, 1996
Dennis C. Bottorff
/s/ CAROLE F. HOOVER Director May 21, 1996
Carole F. Hoover
/s/ VICTORIA B. JACKSON Director May 21, 1996
Victoria B. Jackson
/s/ JEFFRY F. SCHOENBAUM Director May 21, 1996
Jeffry F. Schoenbaum
/s/ B. FRANKLIN SKINNER Director May 21, 1996
B. Franklin Skinner
/s/ CAL TURNER, JR. Director May 21, 1996
Cal Turner, Jr.
</TABLE>
II-11
<PAGE>
INDEX TO EXHIBITS
Exhibit Description
Exhibit Description Sequentially
NUMBER OF EXHIBITS NUMBERED PAGE
2 Agreement and Plan of Reorganization, filed as Exhibit 2 to the
Current Report of Shoney's, Inc. on Form 8-K filed with the
Commission on March 20, 1996 and incorporated herein by
this reference.
3(i), Charter of Shoney's, Inc., as amended, filed as Exhibit 4.1 to Post
4.1 Effective Amendment No. 3 to the Company's Registration Statement on
Form S-8 (File No. 33-605) filed with the Commission on October 31,
1988, and incorporated herein by this reference.
3(ii), Amended and Restated Bylaws of Shoney's, Inc., as filed as Exhibits
4.2 3(ii) and 4.2 to the Company's Quarterly Report on Form 10-Q for
the quarter ended February 18, 1996 and incorporated herein by
this reference.
4.3 Amended and Restated Rights Agreement, dated as of May 25, 1994,
between Shoney's, Inc. (the "Company") and Harris Trust and Savings
Bank, as Rights Agent, filed as Exhibit 4 to the Company's Current
Report on Form 8-K filed with the Commission on June 9, 1994 and
incorporated herein by this reference.
4.4 Amendment No. 1 dated as of April 18, 1995 to Amended and Restated
Rights Agreement, dated as of May 25, 1994, between Shoney's, Inc.
(the "Company") and Harris Trust and Savings Bank, as Rights Agent,
filed as Exhibit 4 to the Company's Current Report on Form 8-K filed
with the Commission on May 4, 1995, and incorporated herein by this
reference.
4.5 Indenture dated as of April 1, 1989 between the Company and Sovran
Bank/Central South, as Trustee relating to $201,250,000 in principal
amount of liquid yield option notes due 2004, filed as Exhibit 4.8 to
Amendment No. 1 to the Company's Registration Statement on Form S-3
filed with the Commission on April 3, 1989 (No. 33-27571), and
incorporated herein by this reference.
4.6 Revolving Credit Agreement dated as of July 13, 1988 between the
Company and First American National Bank, filed as Exhibit 4.1 and
19.1 to the Company's Current Report on Form 8-K filed with the
Commission on December 3, 1991, and incorporated herein by this
reference.
4.7 Modification Agreement No. 1 dated as of March 5, 1991 to Revolving
Credit Agreement, dated as of July 13, 1988 between the Company and
First American National Bank, filed as Exhibit 4.2 and 19.2 to the
Company's Current Report on Form 8-K filed with the Commission on
December 3, 1991, and incorporated herein by this reference.
4.8 Alternative Rate Agreement dated as of June 4, 1992 supplementing
that certain Revolving Credit Agreement dated as of July 13, 1988
between the Company and First American National Bank, filed as
Exhibit 4.36 and 10.29 to Post Effective Amendment No. 5 to the
Company's Registration Statement on Form S-8 (File No. 2-64257) filed
with the Commission on January 25, 1993, and incorporated herein by
this reference.
4.9 Note Issuance Agreement, dated as of October 1, 1989, among the
Company, Sovran Bank, N.A., as Note Agent and Placement Agent and
Sovran Bank / Central South, as Escrow Agent, filed as Exhibit 19.3
and 28.3 to the Company's Current Report on Form 8-K filed with the
Commission on December 3, 1991, and incorporated herein by this
reference.
4.10 Reimbursement Agreement, dated as of October 1, 1989, together with
the Standby Note relating thereto, among the Company, Sovran Bank /
Central South, Long Term Credit Bank of
<PAGE>
Japan, Limited, New York Branch, Kredeitbank, N.V., New York Branch
and Sovran Bank / Central South, as Agent, filed as Exhibit 19.4 and
28.4 to the Company's Current Report on Form 8-K filed with the
Commission on December 3, 1991, and incorporated herein by this
reference.
4.11 Modification Agreement No. 1 dated as of July 21, 1993 to
Reimbursement Agreement, dated as of October 1, 1989, together with
the Standby Note relating thereto, among the Company, Sovran Bank /
Central South, Long Term Credit Bank of Japan, Limited, New York
Branch, Kredeitbank, N.V., New York Branch and Sovran Bank / Central
South, as Agent, filed as Exhibit 4.4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended August 1, 1993 filed with
the Commission on September 15, 1993, and incorporated herein by this
reference.
4.12 Modification Agreement No. 2 dated as of June 8, 1994 to
Reimbursement Agreement, dated as of October 1, 1989, together with
the Standby Note relating thereto, among the Company, NationsBank of
Tennessee, N.A. (formerly Sovran Bank / Central South), Long Term
Credit Bank of Japan, Limited, New York Branch, Kredeitbank, N.V.,
New York Branch and NationsBank of Tennessee, N.A., as Agent, filed
as Exhibit 4.30 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 30, 1994 filed with the Commission on
January 30, 1995, and incorporated herein by this reference.
4.13 Note Issuance Agreement, dated as of October 1, 1990, among the
Company, Sovran Bank, N.A., as Note Agent and Placement Agent and
Sovran Bank / Central South, as Escrow Agent, filed as Exhibit 19.5
and 28.5 to the Company's Current Report on Form 8-K filed with the
Commission on December 3, 1991, and incorporated herein by this
reference.
4.14 Reimbursement Agreement, dated as of October 1, 1990, together with
the Standby Note relating thereto, between the Company and Sovran
Bank / Central South, filed as Exhibit 19.6 and 28.6 to the Company's
Current Report on Form 8-K filed with the Commission on December 3,
1991, and incorporated herein by this reference.
4.15 Modification Agreement No. 1 dated as of July 21, 1993 to
Reimbursement Agreement, dated as of October 1, 1990, together with
the Standby Note relating thereto, between the Company and Sovran
Bank / Central South, filed as Exhibit 4.5 to the Company's Quarterly
Report on Form 10-Q for the quarter ended August 1, 1993 filed with
the Commission on September 15, 1993, and incorporated herein by this
reference.
4.16 Modification Agreement No. 2 dated as of April 1, 1994 to
Reimbursement Agreement, dated as of October 1, 1990, together with
the Standby Note relating thereto, between the Company and
NationsBank of Tennessee, N.A. (formerly Sovran Bank / Central
South), filed as Exhibit 4.34 to the Company's Annual Report on Form
10-K for the fiscal year ended October 30, 1994 filed with the
Commission on January 30, 1995, and incorporated herein by this
reference.
4.17 Amended and Restated Note Issuance Agreement, dated as of November 1,
1993, among the Company, NationsBank of Virginia, N.A., as Note Agent
and Placement Agent and NationsBank of Tennessee, as Escrow Agent,
filed as Exhibit 4.36 to the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1993 filed with the Commission on
January 31, 1994, and incorporated herein by this reference.
4.18 Reimbursement Agreement, dated as of October 1, 1991, together with
the Standby Note relating thereto, between the Company and National
Bank of Canada, New York Branch, filed as Exhibit 28.10 to the
Company's Current Report on Form 8-K filed with the Commission on
December 3, 1991, and incorporated herein by this reference.
<PAGE>
4.19 Assignment, Assumption and Modification Agreement dated as of
November 4, 1993 relating to Reimbursement Agreement, dated as of
October 1, 1991, among the Company, NationsBank of Georgia, N.A. and
National Bank of Canada, New York Branch, filed as Exhibit 4.38 to
the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1993 filed with the Commission on January 31, 1994, and
incorporated herein by this reference.
4.20 Loan Agreement dated as of September 24, 1992 between the Company and
CIBC, Inc., filed as Exhibit 4.43 and 10.36 to Post Effective
Amendment No. 5 to the Company's Registration Statement on Form S-8
(File No. 2-64257) filed with the Commission on January 25, 1993, and
incorporated herein by this reference.
4.21 Modification Agreement No. 1 dated as of October 25, 1992 to Loan
Agreement dated as of September 24, 1992 between the Company and
CIBC, Inc., filed as Exhibit 4.44 and 10.37 to Post Effective
Amendment No. 5 to the Company's Registration Statement on Form S-8
(File No. 2-64257) filed with the Commission on January 25, 1993, and
incorporated herein by this reference.
4.22 Modification Agreement No. 2 dated as of July 21, 1993 to Loan
Agreement dated as of September 24, 1992 between the Company and
CIBC, Inc., filed as Exhibit 4.6 to the Company's Quarterly Report on
Form 10-Q for the quarter ended August 1, 1993 filed with the
Commission on September 15, 1993, and incorporated herein by this
reference.
4.23 Loan Agreement dated as of April 21, 1993 between the Company and
NationsBank of Tennessee, N.A., filed as Exhibit 4 to the Company's
Quarterly Report on Form 10-Q for the quarter ended May 9, 1993 filed
with the Commission on June 23, 1993, and incorporated herein by this
reference.
4.24 Modification Agreement No. 1 dated as of July 21, 1993 to Loan
Agreement dated as of April 21, 1993 between the Company and
NationsBank of Tennessee, N.A., filed as Exhibit 4.7 to the Company's
Quarterly Report on Form 10-Q for the quarter ended August 1, 1993
filed with the Commission on September 15, 1993, and incorporated
herein by this reference.
4.25 Loan Agreement dated as of December 1, 1994 between the Company and
NationsBank of Tennessee, N.A. filed as Exhibit 4.43 to the Company's
Annual Report on Form 10-K for the fiscal year ended October 30, 1994
filed with the Commission on January 30, 1995, and incorporated
herein by this reference.
4.26 U.S. $270,000,000 Amended and Restated Reducing Revolving Credit
Agreement, dated as of July 21, 1993, as amended and restated as of
May 3, 1996, among Shoney's, Inc., as the Borrower, CIBC Inc., acting
through its Atlanta Office and various other financial institutions
now or hereafter parties hereto, as the Lenders, and Canadian
Imperial Bank of Commerce acting through its New York Agency, as the
Agent for the Lenders, filed as Exhibit 4.2 to the Company's Current
Report on Form 8-K filed with the Commission on May 15, 1996, and
incorporated herein by this reference.
4.27 Modification Agreement No. 1 dated as of July 21, 1993 to Reducing
Revolving Credit Agreement, dated as of July 21, 1993, among the
Company, various financial institutions now or hereafter parties
thereto and Canadian Imperial Bank of Commerce, New York Agency, as
agent, filed as Exhibit 4.8 to the Company's Quarterly Report on Form
10-Q for the quarter ended August 1, 1993 filed with the Commission
on September 15, 1993, and incorporated herein by this reference.
<PAGE>
4.28 Modification Agreement No. 2 dated as of December 21, 1993 to
Reducing Revolving Credit Agreement, dated as of July 21, 1993, among
the Company, various financial institutions now or hereafter parties
thereto and Canadian Imperial Bank of Commerce, New York Agency,
filed as Exhibit 4.46 to the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1993, filed with the Commission on
January 31, 1994, and incorporated herein by this reference.
4.29 Modification Agreement No. 3 dated as of May 3, 1994 to Reducing
Revolving Credit Agreement, dated as of July 21, 1993, among the
Company, various financial institutions now or hereafter parties
thereto and Canadian Imperial Bank of Commerce, New York Agency,
filed as Exhibit 99.1 to the Company's Quarterly Report on Form 10-Q
for the quarter ended May 15, 1994 filed with the Commission on June
29, 1994 and incorporated herein by this reference.
4.30 Modification Agreement No. 4 dated as of October 27, 1994 to Reducing
Revolving Credit Agreement, dated as of July 21, 1993, among the
Company, various financial institutions now or hereafter parties
thereto and Canadian Imperial Bank of Commerce, New York Agency,
filed as Exhibit 4.48 to the Company's Annual Report on Form 10-K for
the fiscal year ended October 30, 1994 filed with the Commission on
January 30, 1995, and incorporated herein by this reference.
4.31 Modification Agreement No. 5 dated as of January 18, 1995 to Reducing
Revolving Credit Agreement, dated as of July 21, 1993, among the
Company, various financial institutions now or hereafter parties
thereto and Canadian Imperial Bank of Commerce, New York Agency,
filed as Exhibit 4.49 to the Company's Annual Report on Form 10-K for
the fiscal year ended October 30, 1994 filed with the Commission on
January 30, 1995, and incorporated herein by reference.
4.32 Modification Agreement No. 6 dated as of April 1, 1995 to Reducing
Revolving Credit Agreement, dated as of July 21, 1993, among the
Company, various financial institutions now or hereafter panics
thereto and Canadian Imperial Bank of Commerce, New York Agency,
filed as Exhibit 4.32 to the Company's Quarterly Report on Form 10-Q
for the quarter ended May 14, 1995, filed with the Commission on June
28, 1995, and incorporated herein by this reference.
4.33 Modification Agreement No. 7 dated as of July 28, 1995 to Reducing
Revolving Credit Agreement, dated as of July 21, 1993, among the
Company, various financial institutions now or hereafter parties
thereto and Canadian Imperial Bank of Commerce, New York Agency,
filed as Exhibit 4.33 to the Company's Quarterly Report on Form 10-Q
for the quarter ended August 6, 1995, filed with the Commission on
September 19, 1995, and incorporated herein by this reference.
4.34 Modification Agreement No. 8 dated as of February 18, 1996 to
Reducing Revolving Credit Agreement, dated as of July 21, 1993, among
the Company, various financial institutions now or hereafter parties
thereto and Canadian Imperial Bank of Commerce, New York Agency,
filed as Exhibit 4.34 to the Company's Quarterly Report on Form
10-Q for the quarter ended February 18, 1996 and incorporated
herein by this reference.
4.35 U.S. $100,000,000 Bridge Loan Credit Agreement, dated as of May 3,
1996, among Shoney's, Inc., as the Borrower, Canadian Imperial Bank
of Commerce, and various other financial institutions now or
hereafter parties hereto, as the Lenders, and Canadian Imperial Bank
of Commerce acting through its New York Agency, as the Agent for the
Lenders, filed as Exhibit 4.1 to the Company's Current Report on Form
8-K filed with the Commission on May 15, 1996, and incorporated
herein by this reference.
5 Opinion of Wyatt, Tarrant & Combs regarding legality (to be filed by
amendment).
<PAGE>
10.1 License Agreement, dated as of October 28, 1991, between Shoney's
Investments, Inc. and Shoney's Lodging, Inc., filed as Exhibit 28.7
to the Company's Current Report on Form 8-K filed with the Commission
on December 3, 1991, and incorporated herein by this reference.
10.2 Amendment No. 1 dated as of September 16, 1992 to License Agreement,
dated as of October 28, 1991, between Shoney's Investments, Inc. and
ShoLodge Franchise Systems, Inc. (formerly Shoney's Lodging, Inc.),
filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K for
the fiscal year ended October 31, 1993 filed with the Commission on
January 31, 1994, and incorporated herein by this reference.
10.3 Amendment No. 2 dated as of March 18, 1994 to License Agreement,
dated as of October 28, 1991, between Shoney's Investments, Inc. and
ShoLodge Franchise Systems, Inc. filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the quarter ended May 14,
1995 filed with the Commission on June 28, 1995, and incorporated
herein by this reference.
10.4 Amendment No. 3 dated as of March 13, 1995 to License Agreement,
dated as of October 28, 1991, between Shoney's Investments, Inc. and
ShoLodge Franchise Systems, Inc., filed as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the quarter ended May 14,
1995 filed with the Commission on June 28, 1995, and incorporated
herein by this reference.
10.5 Stock Purchase and Warrant Agreement, dated as of October 28, 1991,
between Shoney's Investments, Inc. and Gulf Coast Development, Inc.
filed as Exhibit 28.8 to the Company's Current Report on Form 8-K
filed with the Commission on December 3, 1991, and incorporated
herein by this reference.
10.6 Agreement dated as of September 8, 1992 between the Company and
Raymond L. Danner, filed as Exhibit 10.41 to Post Effective Amendment
No. 5 to the Company's Registration Statement on Form S-8 (File No.
2-64257 filed with the Commission on January 25, 1993, and
incorporated herein by this reference.
10.7 Consent Decree entered by the United States District Court for the
Northern District of Florida on January 25, 1993 in HAYNES, ET. AL V.
SHONEY'S, INC., ET. AL, filed as Exhibit 28 to the Company's Current
Report on Form 8-K filed with the Commission on February 3, 1993, and
incorporated herein by this reference.
10.8 Shoney's, Inc. 1981 Stock Option Plan, filed as Exhibit 4.7 to Post
Effective Amendment No. 3 to the Company's Registration Statement on
Form S-8 (File No. 2-84763) filed with the Commission on January 25,
1993, and incorporated herein by this reference.
10.9 Shoney's, Inc. Stock Option Plan, filed as Exhibit 4.7 to Post
Effective Amendment No. 4 to the Company's Registration Statement on
Form S-8 (File No. 2-64257) filed with the Commission on April 11,
1990, and incorporated herein by this reference.
10.10 Shoney's, Inc. Employee Stock Purchase Plan, filed as Exhibit 4.7 to
Post Effective Amendment No. 4 to the Company's Registration
Statement on Form S-8 (File No. 33-605) fled with the Commission on
October 26, 1989, and incorporated herein by this reference.
10.11 Shoney's, Inc. Employee Stock Bonus Plan, filed as Exhibit 10.9 to
the Company's Annual Report on Form 10-K for the fiscal year ended
October 31, 1993 filed with the Commission on January 31, 1994, and
incorporated herein by this reference.
10.12 Shoney's, Inc. Directors' Stock Option Plan, filed as Exhibit 4.38 to
the Company's Registration Statement on Form S-8 (File No. 33-45076)
filed with the Commission on January 14, 1992, and incorporated
herein by this reference.
<PAGE>
10.13 Shoney's Ownership Plan 1977, filed as Exhibit 10.47 to Post
Effective Amendment No. 5 to the Company's Registration Statement on
Form S-8 (File No. 2-64257) filed with the Commission on January 25,
1993, and incorporated herein by this reference.
10.14 Captain D's Ownership Plan 1976, filed as Exhibit 10.48 to Post
Effective Amendment No. 5 to the Company's Registration Statement on
Form S-8 (File No. 2-64257) filed with the Commission on January 25,
1993, and incorporated herein by this reference.
10.15 Captain D's Ownership Plan 1978-1979, filed as Exhibit 10.49 to Post
Effective Amendment No. 5 to the Company's Registration Statement on
Form S-8 (File No. 2-64257) filed with the Commission on January 25,
1993, and incorporated herein by this reference.
10.16 Shoney's, Inc. Supplemental Executive Retirement Plan, filed as
Exhibit 10.16 to the Company's Annual Report on Form 10-K for the
fiscal year ended October 29, 1995 filed with the Commission on
January 28, 1996, and incorporated herein by this reference, as
amended by Amendment No. 1 to the Shoney's Inc. Supplemental
Executive Retirement Plan, filed as Exhibit 10.17 to the Company's
Annual Report on Form 10-Q for the quarter ended February 18, 1996
and incorporated herein by this reference.
10.17 Employment Agreement dated as of January 13, 1995 between the Company
and Taylor H. Henry, filed as Exhibit 10.15 to the Company's Annual
Report on Form 10-K for the fiscal year ended October 30, 1994 filed
with the Commission on January 30, 1995, and incorporated herein by
this reference.
10.18 Employment Agreement dated as of January 17, 1995 between the Company
and Charles E. Porter, filed as Exhibit 10.16 to the Company's Annual
Report on Form 10-K for the fiscal year ended October 30, 1994 filed
with the Commission on January 30, 1995, and incorporated herein by
this reference.
10.19 Employment Agreement dated as of January 17, 1995, between the
Company and W. Craig Barber, filed as Exhibit 10.17 to Amendment
No. 1 to the Company's Annual Report on Form 10-K for the fiscal year
ended October 30, 1994, filed with the Commission on February 27,
1995, and incorporated herein by this reference.
10.20 Employment Agreement dated as of April 11, 1995, between the Company
and C. Stephen Lynn, filed as Exhibit 4.32 to the Company's Quarterly
Report on Form 10-Q for the quarter ended May 14, 1995 filed with the
Commission on June 28, 1995, and incorporated herein by this
reference, as amended by Amendment No. 1, filed as Exhibit 10.21 to
the Company's Annual Report on Form 10-K for the fiscal year ended
October 29, 1995, filed with the Commission on
January 28, 1996 and incorporated herein by this reference.
13 TPI Enterprises, Inc. 1995 Annual Report to Shareholders.
21 Subsidiaries of Shoney's, Inc.
23.1 Consent of Ernst & Young LLP, independent auditors.
23.2 Consent of Wyatt, Tarrant & Combs.
23.3 Consent of Sullivan & Cromwell.
23.4 Consent of Shereff, Friedman, Hoffman & Goodman, LLP.
23.5 Consent of Deloitte & Touche LLP.
TPI Enterprises
1995
Annual Report
TPI Enterprises, Inc.
J. Gary Sharp
President and Chief Executive Officer
To our Shareholders:
As previously announced, on March 15, 1996 TPI
Enterprises, Inc. (TPI) and Shoney's, Inc. (Shoney's)
signed a definitive agreement whereby Shoney's or one of
its subsidiaries, subject to certain terms and condi-
tions, will acquire substantially all of the assets of
TPI. The agreement contemplates that TPI will liquidate
following the closing of such transaction. TPI and
Shoney's are preparing a joint proxy statement/prospectus
which will describe the terms of the transaction and
contain other important information. The joint proxy
statement/prospectus will be mailed to TPI shareholders
in connection with a special meeting to consider the
proposed transaction with Shoney's.
In an effort to reduce expenses, TPI's Annual
Report on Form 10-K attached hereto is being distributed
to shareholders to serve as the annual report to share-
holders for the 1995 fiscal year.
J. Gary Sharp
President and
Chief Executive Officer
3950 RCA Blvd., Suite 5001
Palm Beach Gardens, FL 33410
(407) 691-8800 * FAX (407) 691-8816
AS AMENDED BY FORM 10K/A FILED WITH THE COMMISSION ON APRIL 29, 1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission file number 0-7961
TPI ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-1899681
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
3950 RCA BOULEVARD SUITE 5001
PALM BEACH GARDENS, FLORIDA 33401
(Address of principal executive offices) (Zip Code)
(407) 691-8800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON SHARES, PAR VALUE $.01 PER SHARE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
NO YES X
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statement incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant is $44,190,996 (as of March 22, 1996).
The number of shares outstanding of the Registrant's common stock is
20,612,795 (as of March 22, 1996).
DOCUMENTS INCORPORATED BY REFERENCE
None
TABLE OF CONTENTS
PAGE
PART I
Item 1. BUSINESS.............................................................3
Item 2. PROPERTIES...........................................................9
Item 3. LEGAL PROCEEDINGS...................................................10
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................12
EXECUTIVE OFFICERS OF THE REGISTRANT................................12
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS................................................13
Item 6. SELECTED FINANCIAL DATA.............................................14
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS...............................................15
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.........................22
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE................................................50
PART III
Item 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................50
Item 11.EXECUTIVE COMPENSATION..............................................52
Item 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......63
Item 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................69
PART IV
Item 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K....70
SIGNATURES..................................................................73
FINANCIAL STATEMENT SCHEDULES..............................................S-1
FINANCIAL STATEMENTS OF SUBSIDIARY.........................................W-1
FINANCIAL STATEMENT SCHEDULES OF SUBSIDIARY...............................WS-1
EXHIBIT INDEX. ..........................................................
PART I
ITEM 1BUSINESS
GENERAL
TPI Enterprises, Inc. (the "Company") is a New Jersey corporation,
incorporated in 1970. Its principal executive offices are located at
3950 RCA Boulevard, Suite 5001, Palm Beach Gardens, Florida 33410, telephone
(407) 691-8800.
CONTINUING OPERATIONS
GENERAL
The Company, through its subsidiary, TPI Restaurants, Inc. ("Restaurants"),
is one of the largest restaurant franchisees in the United States. As of March
15, 1996, Restaurants owns and operates 256 restaurants, comprised of 188
Shoney's and 68 Captain D's restaurants in eleven states, primarily in the
southern United States. TPI Restaurants is the largest Shoney's and Captain
D's franchisee, operating more than four times as many Shoney's restaurants as
the next largest Shoney's franchisee and more than three times as many Captain
D's restaurants as the next largest Captain D's franchisee. The Company
operates its Shoney's and Captain D's restaurants under license agreements
with Shoney's, Inc., a public company. Approximately 82% and 18% of the
Company's revenues from continuing operations in 1995 were from its Shoney's
and Captain D's restaurants, respectively. "Shoney's" and "Captain D's" are
registered trademarks of Shoney's, Inc. References to the Company include the
operations of Restaurants.
SHONEY'S, INC. SALE TRANSACTION
On March 15, 1996, the Company entered into a Plan of Tax-Free
Reorganization Under Section 368(a)(1)(C) of the Internal Revenue Code
and Agreement (the "Agreement") with Shoney's, Inc. and a wholly-owned
subsidiary of Shoney's, Inc. to sell substantially all of the Company's
assets to Shoney's, Inc. (the "Shoney's, Inc. Sale Transaction"). At the
closing of the Shoney's, Inc. Sale Transaction, under the terms of the
Agreement, Shoney's, Inc. will deliver to the Company (a) 5,577,102 shares
of Shoney's, Inc. common stock plus (b) shares of Shoney's, Inc. common
stock equal to $10,000,000 divided by the average closing market price of
Shoney's, Inc. common stock over the ten day trading period prior to closing,
subject to certain adjustments as provided in the Agreement. The Company
will deliver to Shoney's, Inc. all of the issued and outstanding shares of
capital stock of TPI Restaurants, Inc. and two other wholly-owned subsidiaries
of the Company, TPI Entertainment, Inc. and TPI Insurance Corporation which
constitutes substantially all of the assets of the Company.
Additionally, the Company will transfer certain liabilities, all intercompany
accounts and all cash and cash equivalents of the Company except for $14.85
million in cash, of which $7.35 million is designated to pay certain specified
wind-up expenses. If the specified windup expenses are less than the designated
$7.35 million, the Company is required to transfer the difference to Shoney's,
Inc.; if the expenses are greater, the excess will be paid from the remaining
$7.5 million of cash after which the balance will be distributed to share-
holders. In order to satisfy the requirements for a tax-free reorganization,
the amount permitted to be retained of the $7.5 million in cash may not exceed
10% of the value of the shares of Shoney's, Inc. common stock at the closing.
In the event that the Company is not able to retain the entire $7.5 million,
Shoney's, Inc. shall issue additional shares of its common stock to compensate
the Company for the entire amount of the cash foregone, valued at the average
closing market price for ten preceding trading days.
Pursuant to the Agreement, the Company has adopted a plan of liquidation
which contemplates that after closing, the Company will wind-down its
operations and, after paying or making provision for its liabilities,
distribute the Shoney's, Inc. common shares received and any remaining cash
amounts to the Company's shareholders. Subject to the terms and conditions of
the Agreement, management anticipates that the closing of the Shoney's, Inc.
Sale Transaction will occur by June 30, 1996 and that the majority of such
distributions to the Company's shareholders will be made during 1996, subject
to any necessary holdbacks for liabilities.
At December 31, 1995, the Company has recorded a provision of $17.0 million
to reduce the carrying value of the net assets to be exchanged to the
estimated fair value of the consideration to be received from Shoney's, Inc.
This allowance has been reflected as a reduction in the Company's recorded
goodwill in the accompanying financial statements.
The Agreement may be terminated by mutual consent of the Company and
Shoney's, Inc. or by either party under certain circumstances, including if
the closing does not occur prior to June 30, 1996. The Agreement is subject to
a number of other conditions including, among other things, (1) the
approval of the shareholders of both the
Company and Shoney's, Inc., (2) the expiration of waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act, (3) the receipt by Shoney's,
Inc. of a commitment for additional financing in the amount of $60,000,000 and
its funding in accordance with its terms, (4) the receipt of fairness and
legal opinions and (5) the absence of a material adverse change to the
Company. The Agreement provides for the payment by the Company of a break-up
fee in the case of certain third party acquisition events or proposals. The
Agreement incorporated by reference as an Exhibit to this Form 10-K and the
foregoing description is qualified in its entirety by reference thereto.
SHONEY'S
CONCEPT AND STRATEGY. Shoney's restaurants are full-service, family dining
restaurants that generally are open 18 hours each day, and serve breakfast,
lunch and dinner. Shoney's restaurant menu is diversified to appeal to a broad
spectrum of customer tastes. The menu includes traditional items such as
hamburgers, sandwiches, chicken, seafood, home style entrees, vegetables,
pasta, stir-fry dishes, steaks and desserts. Shoney's menu also offers its
signature features of the soup, salad and fruit bar and the
all-you-care-to-eat breakfast bar. Shoney's restaurants offer a high quality
dining experience at attractive prices.
MENU. In addition to its regular menu, Shoney's restaurants often feature
promotional menu items offering special entrees for a limited time. These
promotional menu items are used to promote new guest trials and generate
greater dining frequency from existing guests. Promotions also serve as a
vehicle to test new items that, if popular, may be added to the regular menu.
The Company, in conjunction with its franchisor, is continually modifying the
menu to adapt to new food trends, shifts in consumer demands (e.g., more
interest in health conscious dining) and to keep the menu appealing to our
guests.
Shoney's seeks to differentiate itself from competing restaurants by
offering excellent service, warm hospitality and attractive prices to afford a
high-quality overall dining experience. Shoney's restaurants place significant
emphasis on the quality of food ingredients, proper preparation methods and
attractive food presentation. Buildings are generally brick veneer or dryvit
exteriors and usually include exterior awnings along with halide lighting for
greater visibility at night.
HISTORY. Shoney's restaurants have been in operation in the southern United
States since 1952 and enjoy a high level of name recognition in that region.
Shoney's restaurants (including those operated by Shoney's, Inc. and other
franchisees) are now located in 34 states extending as far west as California.
As of February 18, 1996, there were 874 Shoney's in operation, 502 of which
are franchised.
The Company currently operates 188 Shoney's restaurants which is
approximately 37% of all franchised Shoney's restaurants and more than four
times as many as the next largest Shoney's, Inc. franchisee. The Company's
first Shoney's restaurant was opened in 1963. During 1995, the Company opened
one newly constructed Shoney's restaurant. Since December 31, 1995, no
additional restaurants have been constructed.
The Company has the exclusive right to develop Shoney's restaurants in more
than 80% of the geographic territory of Texas, including the San Antonio,
Corpus Christi, Austin, Amarillo, El Paso and Fort Worth metropolitan areas,
most of Dallas County and portions of Houston. The Company also has exclusive
rights to build Shoney's restaurants in the Orlando, Florida area and portions
of Broward and Palm Beach Counties in South Florida. In addition, the Company
has agreed to develop a territory in eastern Michigan jointly with Shoney's,
Inc. The Company also has exclusive rights to build Shoney's restaurants in
Maricopa County, Arizona. See "Reserved Area and License Agreements" for
additional discussions of the Company's reserved areas. CAPTAIN D'S
CONCEPT AND STRATEGY. Captain D's restaurants are quick-service seafood
restaurants and offer in-store or drivethrough service. They are generally
open every day from 11 a.m. until 11 p.m. serving lunch and dinner. The
typical Captain D's restaurant has 70 to 90 seats and employs 20 people,
including three management personnel. The Captain D's concept also provides a
take-out service including drive-through window service representing
approximately 44% of its 1995 sales at Captain D's.
MENU. Captain D's restaurant menu is designed to capitalize on the trend
toward increased per capita consumption of fish and seafood in the U.S. that
has developed in response to increased public awareness of the benefits of
fish and seafood in a well-balanced diet. To broaden the menu's appeal,
Captain D's restaurant menu also offers a variety of non-seafood items. The
menu includes fried, broiled and baked fish, a variety of chicken and shrimp
dishes, fried clams, stuffed crab, seafood and tossed salads, baked potatoes,
french fries, hush puppies, green beans, cole slaw, fried okra and a selection
of desserts. Captain D's is constantly striving to develop appealing new menu
items and improve the quality of existing items.
Through an aggressive purchasing operation conducted by the Company and its
franchisor, Captain D's has reduced its dependence on cod fish (for which
price and supply have been uncertain in recent years) by the introduction and
use of other high quality whitefish that have a more predictable supply and
price. The Company's commissary operation purchases bulk quantities of fish
and seafood for distribution to its stores.
The Company's operational strategy for Captain D's restaurants is to
increase comparable store sales through the continued introduction and
promotion of distinctive, high quality menu items, emphasis on fast and
reliable service, and maintaining a strong commitment to high food quality.
HISTORY. Captain D's restaurants have been in operation in the southeastern
United States since 1969. As of February 18, 1996, there were 605 Captain D's
restaurants in operation, 294 of which are franchised. TPI Restaurants
operates approximately 23% of the franchised Captain D's restaurants. The
Company opened its first Captain D's restaurant in 1973 and presently operates
68 Captain D's restaurants in Alabama, Arkansas, Georgia, Mississippi, North
Carolina, South Carolina and Tennessee. The Company opened one Captain D's
restaurant in 1995. This restaurant replaced a unit which was destroyed by
fire in 1995. Since December 31, 1995, the Company has closed one
underperforming restaurant.
EMPLOYEES
As of December 31, 1995, the Company had approximately 9,870 employees,
including approximately 9,600 restaurant employees, 90 headquarters personnel
and 180 commissary personnel.
Employment in Shoney's and Captain D's restaurants is seasonal and is highest
in the second and third quarters.
COMPETITION AND MARKETS
The restaurant business is highly competitive. Key competitive factors in
the industry are the quality, variety and value of the food products offered,
quality and speed of service, advertising, name identification, restaurant
location and attractiveness of facilities. There are a large number of
national and regional chain operators, fast food restaurants and other family
restaurants that compete directly and indirectly with the Company. Some of
these entities have significantly greater financial resources and higher sales
volume than does the Company. The restaurant business is often affected by
changes in consumer tastes and discretionary spending priorities, national,
regional or local economic conditions, demographic trends, consumer confidence
in the economy, weather conditions, traffic patterns, employee availability,
and the type, number and location of competing restaurants. Any change in
these factors could adversely affect the Company. In addition, factors such as
inflation and increased food, labor and other employee compensation costs
could also adversely affect the Company.
FINANCIAL CONTROLS
The Company maintains centralized accounting controls for all of its
restaurants through the use of computerized management information systems.
Weekly reports of individual restaurant sales, labor costs, food costs and
other expenses and daily reports of sales, all with comparisons to prior
periods, give the Company's management current operating results by restaurant
as well as on a company-wide basis.
A point of sale system has been installed in all of the 68 Captain D's
restaurants. This system enhances management's ability to evaluate sales,
costs, and menu preferences and to quickly make modifications where necessary
to achieve desired margins. The Company is currently testing a point of sale
system in nine of its Shoney's restaurants.
The Company does not have significant receivables or inventory and receives
trade credit based upon negotiated terms in purchasing food and supplies.
Because funds available from cash sales are not needed immediately to pay for
food and supplies or to finance receivables or inventory, they may be used for
non-current capital expenditures. Therefore, the Company, like many other
companies in the restaurant industry, normally operates with a working capital
deficit.
ACQUISITION AND DISTRIBUTION OF FOOD AND SUPPLIES
To achieve consistent food quality and control costs, the Company centrally
purchases all major food and supply items used in its restaurants. These
items, which account for 98.7% of all food and supplies used, are delivered to
the Company's commissary centers in Memphis, Tennessee and Charlotte, North
Carolina, from which they are redistributed at least twice weekly to its
restaurants. The Memphis distribution center contains 80,000 square feet of
storage area, and the Charlotte distribution center contains 70,000 square
feet of storage area. Since 1990, the range of products provided from the
commissary has been significantly expanded from that provided in prior years.
The commissary centers are able to control costs by purchasing food and supply
items in bulk quantities in anticipation of future needs and price increases.
The Company's ability to maintain consistent quality throughout its chain
of restaurants depends in part upon the ability to acquire food products and
related items from reliable sources.
In situations when supplies may be expected to become unavailable or prices
are expected to rise significantly, the Company may enter into purchase
contracts or purchase quantities for future use. Adequate alternative sources
are believed to be available for those items not covered under contracts or
other agreements.
RESERVED AREA AND LICENSE AGREEMENTS
SHONEY'S. The Company operates its Shoney's restaurants under a series of
reserved area agreements, pursuant to which Shoney's, Inc. has granted the
Company the exclusive right to develop Shoney's restaurants within specified
geographic areas, and license agreements entered into between the Company and
Shoney's, Inc. The existing license agreements for Shoney's restaurants
generally provide for 20-year terms with 20-year renewal options subject to
the satisfaction of certain conditions. The current expiration dates of the
Shoney's restaurant license agreements, including renewals, range from 2016 to
2033. In 1995, the average royalty fee paid by the Company for its Shoney's
restaurants was 1.9% of gross sales compared to 3.5% which new franchisees are
currently being required to pay. Shoney's restaurants built by the Company
pursuant to its reserved area agreements will be subject to varying royalty
rates of up to 3.0% of sales.
The license agreements impose specifications as to the preparation of the
products as well as general procedures, such as advertising, maintenance of
records, protection of trademarks and provisions for inspection by the
franchisor. The license agreements also require the prior approval of
Shoney's, Inc. (not to be unreasonably withheld) in order for the Company to
close any of its Shoney's restaurants. Termination of the license agreements
may be effected for breach of conditions of the agreements, including sale of
adulterated products or failure to meet proper standards of quality and
sanitation. The Company has never been subjected to any involuntary
termination of its license agreements.
Several of the Company's reserved area agreements include expansion
schedules requiring the Company to develop a minimum number of stores over a
defined period of time. The reserved area agreement for 28 counties in Texas,
which covers Fort Worth and much of Dallas County, requires the development of
14 Shoney's restaurants over a nine year period ending in 1999. To date, the
Company has opened four restaurants in the reserved area. The Company's
development agreements for expansion of the Shoney's concept in certain parts
of Broward and Palm Beach Counties in south Florida, northwest Harris County,
Texas, Maricopa County, Arizona, and Michigan were extended during 1995
resulting in new store building requirements to begin in 1996. Due to the
pending Shoney's, Inc. Sale Transaction, the Company does not intend to build
any Shoney's or Captain D's in 1996. (See discussion at Liquidity and Capital
Resources). The current amended agreement requires the development of six
restaurants in the Florida area by 2004, six restaurants in the Harris County
area by 1999, three stores in the Arizona area by 1999, and eleven stores in
the Michigan area by 2001. During 1995, one store opened in the Florida area.
If the above schedules are not satisfied, Shoney's, Inc. has the right to
terminate the Company's exclusive rights in these areas. (See Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations). The reserved area agreements permit the Company to open as many
Shoney's restaurants as it deems desirable within such reserved territories in
compliance with the terms of the reserved area agreement, in addition to those
required to be opened in accordance with the development schedule.
The Company is a party to other exclusive territory agreements in the areas
of its Shoney's operations, including agreements covering over 170 additional
counties in Texas; all of Arkansas; over 75 counties in North Carolina; over
30 counties in Mississippi; over 20 counties in Tennessee; and several
additional counties in Georgia, South Carolina, Florida and Alabama. With
respect to the reserved areas described in the preceding sentence, the Company
has no required development schedule and is entitled to open as many Shoney's
restaurants in such reserved areas as it deems desirable in compliance with
the terms of the reserved area agreements. Shoney's, Inc. may terminate any
reserved area agreement upon the default by Restaurants under the terms of any
license agreement for operation of a Shoney's restaurant within such reserved
area. In addition, the reserved area agreement covering the 28 counties in
Texas provides that Shoney's, Inc. may terminate such reserved area agreement
upon the expiration of more than 10% of the Company's license agreements for
Shoney's restaurants within such reserved area (without replacing those
restaurants within two years following such expiration). The Company has never
had a reserved area agreement involuntarily terminated by Shoney's, Inc.
CAPTAIN D'S.
The Company's Captain D's restaurants are operated under individual license
agreements with Shoney's, Inc. The Company has the right to develop Captain
D's in 124 counties in seven southeastern states (Alabama, Arkansas, Georgia,
Mississippi, North Carolina, South Carolina and Tennessee). The Company must
open an aggregate of 30 new Captain D's restaurants by July 11, 2011, at an
approximate rate of two restaurants per year. The reserved area agreement
permits the Company to open as many Captain D's restaurants as it deems
desirable within its reserved territories in addition to those required to be
opened in accordance with the development schedule. The reserved area
agreement provides that Shoney's, Inc. may terminate the reserved area
agreement (I) upon the default by Restaurants under the terms of any license
agreement for operation of a Captain D's restaurant or (ii) after July 11,
2011, upon the expiration of more than 10% of Restaurants' license agreements
for Captain D's restaurants (without replacing those restaurants within two
years following such expiration).
The Company's existing license agreements for Captain D's restaurants
generally provide for 20-year terms with two 20-year renewal options subject
to the satisfaction of certain conditions. The current expiration dates of the
license agreements, including renewals, assuming compliance with the expansion
schedule in the Captain D's reserved area agreement, range from 2035 to 2052.
In 1995, the average royalty paid to Shoney's, Inc. by the Company's Captain
D's restaurants was 1.5% of sales.
ADVERTISING AND PROMOTION
The license agreements for the Company's Shoney's and Captain D's
restaurants require that the Company pay fees equal to 0.35% and 0.65% of
sales, respectively, in addition to its franchise fees, which are put into
production funds and used by the franchisor to produce radio and television
commercials and printed advertising materials. Shoney's, Inc. uses such
commercials in its nationwide advertising and marketing program. The Company
is also required to spend for local marketing on its own behalf and through a
cooperative in which other franchisees and Shoney's, Inc. participate. The
aggregate amount spent by the Company in 1995 for such advertising, inclusive
of the fee paid to the franchisor described above to the production funds, was
approximately 3.6% of sales. As part of such local marketing, the Company
purchases television and radio spots to air commercials produced by the
franchisor. Through such advertising, management believes that Shoney's and
Captain D's have a high level of name recognition and positive customer
perceptions on key attributes of food quality, service and atmosphere. As part
of its marketing program, the Company offers several weekly promotions,
including free nights for children, a special senior citizens' menu and
"all-you-care-to-eat" seafood buffets at Shoney's restaurants. In addition,
the Company has increased its reliance on radio and television advertising and
reduced its reliance on coupon and billboard advertising.
REGULATION
The Company is subject to the Fair Labor Standards Act and various state
laws governing such matters as minimum wages, overtime and other working
conditions. Significant numbers of the Company's food service personnel are
paid at rates related to the federal and state minimum wage, and accordingly,
increases in the minimum wage increase the Company's labor costs.
TPI Transportation, Inc., a wholly-owned subsidiary of Restaurants,
obtained a license from the Interstate Commerce Commission to conduct
interstate trucking and is subject to applicable federal regulations relating
to interstate trucking.
Each Company restaurant is subject to licensing and regulation by state and
local health, sanitation, safety, fire and other departments. Difficulties or
failures in obtaining or renewing any required licensing or approval could
affect the Company's restaurants.
The Company is also subject to various federal, state and local laws
regulating the discharge of materials into the environment. The cost of
developing restaurants has increased as a result of the Company's compliance
with such laws. Such costs relate primarily to the necessity of obtaining more
land, landscaping and below surface storm drainage and the cost of more
expensive equipment necessary to decrease the amount of effluent emitted into
the air and ground.
TPI Insurance Corporation, a wholly-owned subsidiary of the Company, was
incorporated in 1993 and is licensed as a pure captive insurance company in
the state of Hawaii and must comply with all rules and regulations set forth
by the state's insurance commission.
The Company believes it is in material compliance with the regulations to
which it is subject.
OTHER ACTIVITIES
Insurex Agency, Inc., a wholly-owned subsidiary of Restaurants ("Insurex"),
was organized as a Tennessee corporation in 1975 for the purpose of acting as
agent for property and casualty, workers' compensation, life and health and
other insurance policies for Restaurants, other corporations and the general
public. Approximately 98% of the insurance premiums written by Insurex are for
insured entities not affiliated with Restaurants.
Insurex Benefits Administrators, Inc., a wholly-owned subsidiary of
Restaurants ("IBA"), was organized as a Tennessee corporation in 1989 for the
purpose of operating as a third party administrator of medical and dental
claims for Restaurants and other corporations. Approximately 80% of IBA's
revenues are from other corporations.
TPI Transportation, Inc. and TPI Commissary, Inc. were a part of
Restaurants' operations during 1993 and became
wholly-owned subsidiaries of Restaurants during 1994.
TPI Insurance Corporation, a wholly-owned subsidiary of the Company, was
incorporated in 1993 and is licensed as a pure captive insurance company in
the state of Hawaii. Under the terms of its Certificate of Authority, it
provides workers' compensation insurance for the Company.
Maxcell Telecom Plus, Inc.'s, a wholly-owned subsidiary of the Company
("Maxcell"), original business plan was to create a cellular telephone network
that would operate throughout the southeastern United States. In 1986, Maxcell
disposed of substantially all of its remaining interests in the cellular
business. Since 1986, Maxcell has had no operations. Beginning in late 1988,
and extending to 1989, Maxcell invested approximately $150,000 to participate
in lotteries held by the Federal Communication Commission ("FCC") for rights
to develop cellular systems for approximately 300 markets. Maxcell continues
to have outstanding applications for markets which may be re-lotteried by the
FCC. Maxcell does not intend to apply for any new permits from the FCC or to
conduct any non-restaurant business. (See Item 3 "Legal Proceedings").
DISCONTINUED OPERATIONS
Discontinued operations for 1995 include a gain of $10.1 million, net of
income taxes of $6.4 million, related to the settlement of a lawsuit filed by
Maxcell. (See Item 3 Legal Proceedings and Note 11 to the Consolidated
Financial Statements).
On May 28, 1993 the Company, through its wholly owned subsidiary, TPI
Entertainment, Inc. ("Entertainment"), completed the sale of its 50% interest
in Exhibition Enterprises Partnership, a partnership with Cinema Enterprises,
Inc., a wholly-owned subsidiary of American MultiCinema, Inc. for $17,500,000.
As a result of this transaction, the Company recognized a gain of $5,272,000,
net of income taxes of $2,717,000 in the year ended December 26, 1993.
ITEM 2. PROPERTIES
GENERAL
The Company's headquarters are at 3950 RCA Boulevard, Suite 5001, Palm
Beach Gardens, Florida. This facility consists of 38,000 square feet under a
lease expiring in 2004 and provides for an annual base rental of $331,000. The
lease requires the Company to pay certain operating expenses and contains
escalation clauses relating to real estate taxes and the like.
The Company's prior executive offices were located at 777 South Flagler
Drive, West Palm Beach, Florida, where it occupied approximately 4,800 square
feet of space under a lease expiring in 1999 and providing for an annual base
rent of approximately $119,000.
Restaurants operates its commissary centers in leased facilities in
Memphis, Tennessee and Charlotte, North Carolina consisting of 80,000 and
70,000 square feet of storage area in each location, respectively.
Insurex and IBA offices are located at 1835 Union Avenue, Memphis,
Tennessee where they occupy approximately 12,000 square feet of space under a
lease expiring in 2006 and providing for an annual base rent of approximately
$131,000 in 1996 and $118,000 for 1997 - 2006.
RESTAURANTS
The following table sets forth certain information regarding Restaurants'
restaurant properties as of March 15, 1996:
Land and Land Land and
Building Leased, Building
Type of Owned Building Leased Total
Restaurant Owned
- --------------- ----- --------- ---- ----------- --- ---------- ----- ---------
Shoney's........... 69 38 81 188
Captain D's........ 28 25 15 68
------- -------- ------- --------
97 63 96 256
- ------------------- -- ======= ------- ======== ------ ======= ------- ========
Most of the restaurant leases provide for 10 to 25 year initial terms, with
renewal options by Restaurants for additional periods ranging from 5 to 15
years. The leases generally have rents which are the greater of a fixed
minimum amount or a percentage of gross sales ranging from 1.0% to 6.5%. The
following table summarizes the expiration dates of the original or current
terms of all of Restaurants' leases and the number of related leases currently
having renewal options. A majority of the leased properties are leased from
others under non-cancelable agreements.
NUMBER WITH
NUMBER OF RENEWABLE
LEASE TERM LEASES OPTIONS
EXPIRES
- ----------------- ------------------------------------- --------- --- ----------
1996 ........................................ 4 3
1997-2000............................................. 67 51
2001-2005............................................. 51 42
2006-2010............................................. 56 55
2011-2014............................................. 5 2
---------
183 153
- ------------------------------------------------------ --------- ---- ---------
THE COMPANY'S EXPERIENCE HAS BEEN THAT WHERE LEASES DO NOT CONTAIN RENEWAL
OPTIONS AND RESTAURANTS DESIRES TO CONTINUE OPERATING AT THE SAME LOCATION,
NEGOTIATING A NEW LEASE AT COMPETITIVE TERMS HAS BEEN POSSIBLE. HOWEVER, PRIOR
TO NEGOTIATING A NEW LEASE (OR EXERCISING A RENEWAL OPTION), THE COMPANY
CAREFULLY REVIEWS THE SITE LOCATION TO DETERMINE IF IT CONTINUES TO BE
OPTIMAL. THE COMPANY HAS FROM TIME TO TIME FOUND ALTERNATIVE LOCATIONS IN THE
SAME AREA TO BE MORE DESIRABLE. THE AMOUNT OF RENT VARIES CONSIDERABLY FROM
LEASE TO LEASE. RESTAURANTS' PHILOSOPHY IS TO OWN ITS RESTAURANT SITES IN EACH
SITUATION WHERE POSSIBLE AND TO UTILIZE LEASE FINANCING, AS NECESSARY, TO
SUPPLEMENT OTHER FINANCING SOURCES.
ITEM 3. LEGAL PROCEEDINGS
MAXCELL TELECOM PLUS, INC. ET AL., V. MCCAW CELLULAR COMMUNICATIONS, INC. ET AL.
On November 1, 1993, the Company and its wholly-owned subsidiary,
Maxcell, filed a complaint against McCaw Cellular Communications, Inc.
("McCaw"), Charisma Communications Corp.
("Charisma") and various related parties, related to McCaw's failure to
disclose the existence of a side agreement between McCaw and Charisma to share
in the net profits from the resale of certain cellular properties which were
sold by the Company to McCaw. The Company sought recision of the sales
contract and damages based upon the defendant's alleged fraudulent misrep-
resentation, breach of fiduciary duty, conspiracies and tortious inter-
ference with contracts. On November 2, 1995, the Company and Maxcell entered
into a settlement agreement with AT&T Wireless Services, Inc. (formerly
McCaw Cellular Communications, Inc.) relating to this lawsuit (the "Maxcell
Settlement"). The Maxcell Settlement, which was approved by the court in
December 1995, provides for a total payment to Maxcell of $30.0 million which
was received subsequent to year end. The financial statements include a gain
of $10.1 million, net of taxes, at December 31, 1995 after recording con-
tingency fees and expenses of approximately $13.5 million related to the
Maxcell Settlement. The expenses include $1.8 million payable under certain
agreements with two former employees.
READING COMPANY AND JAMES J. COTTER V. TPI ENTERPRISES, INC.
On March 7, 1995, a civil action captioned Reading Company and James J.
Cotter v. TPI Enterprises, Inc., 95 Civ. 1579 was filed in the United States
District Court for the Southern District of New York. The plaintiffs allege
inter alia breach of contract and seek damages of $1.25 million plus interest,
punitive damages and attorney's fees in connection with the sale to a sub-
sidiary of American Multi-Cinema, Inc. of Entertainment's, interest in
Exhibition Enterprises Partnership (the "Partnership") in April 1991. The
Company's attorneys are unable at this time to state the likelihood
of an unfavorable outcome. Management does not believe that the ultimate
outcome will have a material adverse effect on the operating results or
financial position of the Company.
PORPOISE ASSET MANAGEMENT AND LAWRENCE CAPITAL MANAGEMENT, INC. V. J. GARY
SHARP, ET AL.; BROCK WEINER V. TPI ENTERPRISES, INC., ET AL. AND CRANDON
CAPITAL PARTNERS, ET AL. V. TPI ENTERPRISES, INC., ET AL.
During 1995, three shareholder suits were filed against the Company and
its Board of Directors. The plaintiffs allege, among other things, that the
Company's shareholders will receive inadequate consideration in the proposed
Shoney's, Inc. Sale Transaction, that the proposed transaction is the result
of unfair dealing and economic coercion and that the Directors have breached
their fiduciary duties to the Company's shareholders to maximize shareholder
value. The plaintiffs seek class action status and to enjoin the proposed
transaction and recover damages. The Company announced on March 18, 1996 that
it had signed a letter of understanding dated March 15, 1996 for the settlement
of these three lawsuits. This letter of understanding followed the execution
on March 15, 1996 of the Agreement. The settlement would entail the payment
of up to $250,000 in legal fees and expenses and the consolidation and
settlement of the three lawsuits and is subject to several conditions,
including confirmatory discovery, court approval of the settlement and the
closing of the Shoney's, Inc. Sale Transaction. The Company has recorded a
liability at December 31, 1995 for $250,000. This amount is to be paid to
counsel to the plaintiffs.
TPI RESTAURANTS, INC. V. MARLIN SERVICES, INC., MARLIN ELECTRIC, INC., D/B/A/
MARLIN SERVICES AND THE AETNA CASUALTY AND SURETY COMPANY AND MARLIN ELECTRIC,
INC. V. TPI RESTAURANTS, INC. AND RELATED MATTERS
On March 7, 1996, the Company filed a civil action in the Circuit Court
of Palm Beach County; captioned TPI Restaurants, Inc. v. Marlin Services, Inc.,
Marlin Electric, Inc., d/b/a/ Marlin Services, Inc. ("Marlin") and The Aetna
Casualty and Surety Company. The Company contends among other things that
Marlin breached the terms of a maintenance service agreement that Restaurants
had entered into with Marlin by failing to perform timely maintenance as
required by the agreement, overcharging for parts and materials, improperly
billing for labor and improperly charging for overhead. On March 7, 1996,
Marlin filed a separate action in the U.S. District Court of Virginia against
Restaurants alleging among other things that Restaurants breached its contract
with Marlin by failing to pay amounts owed under the contract. Marlin claims
damages in excess of $2.2 million through March, 1996. The Company's attorneys
are unable at this time to state the likelihood of a favorable or unfavorable
outcome in these actions.
Subsequent to the end of the year, the Company has been contacted by a
number of subcontractors employed by Marlin. These subcontractors have
indicated that they have not been paid, for certain services performed and
that they are entitled to mechanic's and/or materialman's liens on the
Company's restaurants. The Company is unable at the present time to determine
what liability, if any, exists to these and other subcontractors. Management
does not believe that the liability related to this suit or to subcontractors
will have a material adverse effect on the operating results or financial
position of the Company.
OTHER
The Company and its subsidiaries are defendants in various other lawsuits
arising in the ordinary course of business. While the result of any litigation
contains an element of uncertainty, it is the opinion of the management of the
Company that the outcome of such litigation will not have a material adverse
effect on the consolidated financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders of the
registrant during the fourth quarter of the fiscal year ended December 31, 1995.
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K, the following list is
included as an unnumbered Item in Part I of this Report in lieu of being
included in its entirety in the Proxy Statement.
The following sets forth certain information regarding the Company's
executive officers as of March 18, 1996:
NAME AGE POSITIONS HELD WITH THE COMPANY
- -------------------------------- ----- -------------------------------
J. Gary Sharp 49 President and Chief Executive
Officer of TPI Enterprises;
President and Chief Operating
Officer of TPI Restaurants;
Director of TPI Enterprises
and TPI Restaurants
Frederick W. Burford 45 Executive Vice President, Chief
Financial Officer of TPI
Enterprises; Vice President,
Chief Financial Officer and
Treasurer of TPI Restaurants;
Director of TPI Enterprises
and TPI Restaurants
Haney A. Long, Jr. 50 Senior Vice President,
Procurement and Distribution
of TPI Restaurants;
Director of TPI Restaurants
- --------------------------------- -- ----- --- ------------------------------
J. Gary Sharp was an employee of Shoney's, Inc. from 1969 through 1986
holding positions ranging from store manager to Group Vice President of all of
Shoney's, Inc.'s operations. Mr. Sharp left Shoney's, Inc. in 1986 to own
and operate franchises in Orlando, Florida and was President of Sharp
Concepts, Inc. from 1985 through September, 1989. Mr. Sharp has served as
President, Chief Operating Officer and a Director of TPI Restaurants since
1989 and as President and Chief Executive Officer of the Company since
January 1995. Mr. Sharp was elected a Director of TPI Enterprises in March,
1993.
Frederick W. Burford joined TPI Restaurants in November 1991, after 14
years in top management positions at the Promus Companies (formerly Holiday
Corporation). Mr. Burford was a Corporate Vice President and served in
capacities as both Treasurer and Controller at the Promus Companies. Mr.
Burford was elected Vice President, Chief Financial Officer, Treasurer and a
Director of TPI Restaurants in November 1991. Mr. Burford was named Executive
Vice President, Chief Financial Officer and a Director of the Company in
March 1993.
Haney A. Long, Jr., joined TPI Restaurants in November, 1989 as Senior
Vice President of Procurement and Distribution. Prior to joining the Company,
Mr. Long served as Senior Vice President of Procurement at Rich SeaPak
Corporation between 1979 and 1989. He also served as Executive Director of
Commissary Operations for Shoney's, Inc., between 1975 and 1977. He was
elected Director of TPI Restaurants in June 1993.
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company's common shares are traded in the National Market System of the
over-the-counter market (NASDAQ symbol: TPIE). As of March 22, 1996, there
were approximately 1,995 shareholders of record of the Company's common
shares. The following table sets forth, for the periods indicated, the high
and low sales prices, as reported by the National Quotation Bureau,
Incorporated. Over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
The Company has never paid any dividends on its common stock, however in
connection with the proposed Shoney's, Inc. Sale Transaction, the Company
expects to make one or more liquidating distributions to its Shareholders in
the form of Shoney's, Inc. common stock and cash in connection with the
Shoney's, Inc. Sale Transaction. (See Note 2 to the Company's consolidated
financial statements). The Company's 8 1/4% Convertible Subordinated
Debentures, 5% Convertible Senior Subordinated Debentures and Second Amended
and Restated Credit Agreement (the "Credit Facility") all currently restrict
the payment of dividends while the debt remains outstanding. However, the
Shoney's, Inc. Sale Transaction contemplates that such restrictions would be
eliminated either by the retirement or assumption of the obligations by
Shoney's, Inc. at the consummation of the transaction and, therefore, the
Company would be able to pay dividends to its shareholders after such time.
1995 1994 1993
----------------------- -------------------- ---------------------
High Low High Low High Low
--------- -------- -------- -------- --------- --------
First
Quarter $6 1/4 $3 11/16 $10 3/8 $6 7/8 $10 7/8 $8 7/8
Second
Quarter 6 3/8 4 1/8 9 3/16 5 3/4 10 1/2 7 1/2
Third
Quarter 5 1/16 3 7/8 7 9/16 6 12 9 3/8
Fourth
Quarter 4 1/4 2 9/16 6 1/2 3 1/2 12 1/2 9 3/4
ITEM 6 SELECTED FINANCIAL DATA
In 1995, the Company recorded a gain of $10.1 million, net of taxes,
resulting from a litigation settlement (Note 11 to the Company's consolidated
financial statements) and recognized a $17.0 million provision for asset
valuation resulting from the Shoney's, Inc. Sale Transaction (Note 2 to the
Company's consolidated financial statements). The Company recognized a $5.3
million gain, net of tax, in 1993 following the sale of its remaining interest
in the Partnership and provided $35.0 million for restructuring charges.
During 1992, the Company recorded an extraordinary loss, net of tax, of $11.9
million in connection with an early extinguishment of debt. Discontinued
operations in 1991 include a gain of $17.5 million from the settlement of
litigation with Siemens Information Systems, Inc., and a gain of $7.9 million
related to the Partnership.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA
FISCAL YEAR ENDED
---------------------------------------------------------------
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
31, 25, 26, 31, 31,
1995 1994 1993 1992 1991
--------- ----------- ---------- ----------- --------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues . . . . $283,578 $287,384 $289,439 $277,390 $261,130
Income (loss)
from continuing
operations (11,309) (3,717) (36,488) 662 (12,053)
Income (loss)
before
extraordinary
item and
cumulative
effect of
accounting
changes...........( 1,196) (3,717) (31,215) 662 10,667
Net income (loss).( 1,196) (3,717) (31,215) (14,125) 10,667
Income (loss) per
share from
continuing
operations...... (.55) (.18) (1.81) .04 (.63)
Net income (loss)
per share......... (.06) (.18) (1.55) (.77) .55
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA
----------------------------------------------------------------
DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
31, 25, 26, 31, 31,
1995 1994 1993 1992 1991
----------- ---------- ---------- ----------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Working capital
(deficiency).. $(23,065) $(17,972) $(10,796) $ 2,734 $ 28,123
Total assets..... 248,876 254,496 258,839 255,607 282,794
Short-term
obligations.... 24,231 3,725 1,728 5,278 18,905
Long-term
obligations
including
minority
interest........ 81,628 107,721 106,773 110,937 107,710
Shareholders'
equity.......... 66,866 67,570 70,559 83,650 97,318
</TABLE>
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1995 COMPARED TO 1994
REVENUES
Revenues for 1995 which include 53 weeks versus 52 weeks in 1994 decreased
1.3% or $3.8 million to $283.6 million. Excluding an increase in revenue of
$5.0 million attributable to the additional week in 1995, same store sales for
the Shoney's concept declined 3.9% or $9.1 million and same store sales for
the Captain D's concept increased 1.2% or $.6 million. Comparable store sales
exclude the first twelve weeks of a new restaurant's operations which accounts
for $.5 million of revenues in 1995. New stores accounted for $1.0 million of
1995 revenues. Revenues for 1994 include $1.8 million for units closed during
1994. Revenues of $3.0 million and expenses of $2.8 million related to units
provided for in the 1993 reserve for restructuring have been excluded from the
1995 statement of operations.
The Company is the largest franchisee of Shoney's, Inc. As a franchisee,
the Company is highly dependent upon the franchisor for marketing, training,
product development and restaurant procedures in order to be successful.
During 1995, the Shoney's concept, and therefore the Company's Shoney's
restaurants, have faced problems which led to declines in comparable stores
sales. Management believes that this decline in comparable store sales is the
result of numerous factors including a more competitive environment and a
decline in operational performance. In addition to these factors, comparable
store sales were also effected in the fourth quarter by negative publicity on
food handling procedures. Shoney's was included, along with restaurants of
several other national restaurant chains, in a national television "news
magazine" program on restaurant industry cleanliness and food handling
practices. Following the airing of this program, the Company's Shoney's
concept experienced declines in comparable store sales. The Company, in
connection with Shoney's, Inc., is in the process of rolling out various
programs to focus on the softness in comparable store sales. An example of one
program is Shoney's, Inc.'s new marketing strategy, which features Andy
Griffith serving as a celebrity spokesperson for Shoney's in a series of radio
and television commercials along with related point of sale marketing
materials. During the fourth quarter, the Company received the results of a
Food and Drug Administration (FDA) evaluation of sanitation and safety of
foods of the Shoney's concept. The evaluation included Shoney's, Inc.
restaurants as well as some of the Company's restaurants. The Shoney's system
received a marginal rating on the evaluation. As a result of this evaluation,
the Company has implemented a "Serve Safe" program which is addressing the
weaknesses noted in the evaluation. In fiscal 1996, the Company's comparable
store sales have increased .4% in the Shoney's concept and .4% in the Captain
D's concept through March 24, 1996.
Although the Company has experienced some recent improvements in same store
sales in the Shoney's concept, management has concluded that the overall
concept must be improved in order to overcome the financial deterioration from
the three-year decline in same store sales. Because the Company is a
franchisee, its ability to make changes in the concept is limited.
Accordingly, management believes that the Company's ability to reverse the
deterioration of operations in the Shoney's restaurants owned by the Company
is largely beyond its own control and is dependent on Shoney's, Inc.
COSTS AND EXPENSES
Cost of sales includes food, supplies and uniforms, restaurant labor and
benefits, restaurant depreciation and amortization, and other restaurant
operating expenses. A summary of cost of sales as a percentage of revenues for
1995 and 1994 is shown below:
1995 1994
------------ -----------
Food, supplies and uniforms..................... 36.6% 35.8%
Restaurant labor and benefits................... 30.3% 30.5%
Restaurant depreciation and amortization........ 4.3% 4.9%
Other restaurant operating expenses............. 19.3% 18.3%
------------ -----------
90.5% 89.5%
============ ===========
The Company's food costs suffered from price increases in several high
volume commodities during 1995, including seafood, poultry and pork. These
increases along with relatively fixed costs for supplies and uniforms resulted
in increased food costs as a percentage of revenues. The decrease in labor
costs during the current year at the Company's restaurants is due to a decline
in workers' compensation. This decline in workers' compensation expense is due
to a $3.5 million adjustment to workers' compensation in the fourth quarter of
1995 to decrease the Company's reserves to more accurately reflect its
liabilities. If such adjustment had not occurred, restaurant labor and
benefits costs would have been 31.5% of revenues or up 1% from 1994. This
increase is a result of lower sales volumes pushing up the average labor costs
for restaurant staff as well as additional labor being added at the restaurant
level to improve customer service. Restaurant depreciation and amortization
decreased in relation to the prior year due to the Shoney's South assets
acquired by the Company in 1988 becoming fully depreciated in 1995. Other
restaurant operating expenses increased as a percentage of revenues primarily
due to increased repairs and maintenance expenses along with increased
advertising costs. The increase in repairs and maintenance expenses in 1995 is
primarily due to the increased aging of the buildings and equipment, as well
as costs related to the implementation of a preventive maintenance program and
start-up costs associated with a preventive maintenance contract. Subsequent
to year-end, disputes have arisen under this contract relating to billing
issues for the work performed.
The Company terminated the contract in March, 1996 and is in litigation with
the other party alleging breach of contract (See Item 3 and Note 11 to the
Company's consolidated financial statements). The increase in advertising
costs is primarily due to an increase in radio and television promotion
begun during 1995.
General and administrative costs for 1995 declined by 8% or approximately
$1.9 million from 1994. This decrease is the result of cost cutting efforts
and savings associated with the physical consolidation of the Company's
corporate headquarters.
The Company recorded a provision of $17.0 million for asset valuation in
connection with the Shoney's, Inc. Sale Transaction (See Item 1 and Note 2 to
the Company's consolidated financial statements).
During 1995, the Company recorded a decrease in its restructuring reserve
of approximately $5.9 million. This decrease princially resulted from the
Company's decision to leave three restaurants open that had been provided for
in the Company's restructuring reserve. (See "Restructuring Charges" below and
Note 3 to the Company's consolidated financial statements).
Operating income for 1995 declined 30.0% or $1.6 million excluding the
provision for asset valuation in 1995 and restructuring charges in 1995 and
1994. This decrease was primarily driven by a 1.0% increase in food costs and
a 3.8% increase in other restaurant operating expense, somewhat offset by
lower general and administrative costs.
OTHER INCOME AND EXPENSES
Interest income decreased ninety thousand dollars primarily due to a
reduction in the investment balance held during the current year. Interest
expense increased three hundred thousand dollars primarily due to a higher
weighted average interest rate during 1995 as compared to 1994. (See Item 3
and Note 11 to the Company's consolidated financial statements).
DISCONTINUED OPERATIONS
Discontinued operations for 1995 include a gain of $10.1 million, net of
income taxes of $6.4 million, in connection with the Maxcell Settlement. (See
Item 3 and Note 11 to the Company's consolidated financial statements).
1994 COMPARED TO 1993
REVENUES
Revenues for 1994 decreased .7% or $2.0 million to $287.4 million due
primarily to softness in same store sales at the Shoney's concept. New
restaurants accounted for $7.3 million of 1994 revenues, while comparable
store sales declined $9.3 million, or 4.3%, in the Shoney's concept and
increased $2.6 million or 6.0% in the Captain D's concept. The first twelve
weeks of a new restaurants' operations are excluded from the comparable store
sales computation. Revenues for 1993 include $19.9 million relating primarily
to 27 under-performing units, which were either closed subsequent to the
second quarter of 1993 or are scheduled to be closed in accordance with the
Company's restructuring plan adopted in 1993. Revenues and expenses related to
units provided for in the reserve for restructuring have been excluded from
the 1994 statement of operations.
COSTS AND EXPENSES
Cost of sales includes food, supplies and uniforms, restaurant labor and
benefits, restaurant depreciation and amortization, and other restaurant
operating expenses. A summary of cost of sales as a percentage of revenues for
1994 and 1993 is shown below.
1994 1993
------------ -------------
Food, supplies and uniforms.................. 35.8% 35.2%
Restaurant labor and benefits................ 30.5% 31.2%
Restaurant depreciation and amortization..... 4.9% 4.7%
Other restaurant operating expenses.......... 18.3% 17.7%
------------ -------------
89.5% 88.8%
============ =============
The Company's food costs suffered from price increases in several high
volume commodities during 1994, including shrimp and cooking oil. These
increases along with relatively fixed costs for supplies and uniforms resulted
in increased food costs as a percentage of revenues. The decrease in labor
costs during the current year at the restaurants was due to a decline in
workers' compensation. This decline in workers' compensation expense was
primarily due to a $4.5 million adjustment to workers' compensation in the
fourth quarter of 1993 to increase the Company's reserves to more accurately
reflect the likely outcome of its liabilities. Restaurant depreciation and
amortization increased in relation to the prior year due to the full year
depreciation expense related to the 18 newly constructed units during 1993.
Other restaurant operating expenses increased as a percentage of revenues
primarily due to increased repairs and maintenance expenses along with
increased advertising costs. The increase in repairs and maintenance expenses
in 1994 was primarily due to the increased aging of the buildings, cleaning
and repair costs of the carpets installed in various store locations during
1993, and increased restocking of smallwares. The increase in advertising
costs was primarily due to promotional outdoor advertising begun during 1994.
General and administrative expenses for 1994 decreased $4.7 million in
relation to 1993 due to decreased workers' compensation and general liability
expense for the Company and decreased salary expense associated with a
reduction in corporate staff along with a decrease in executive compensation.
The decrease in workers' compensation and general liability expense is
primarily due to an increase in the reserves at the end of 1993 to better
reflect the likely outcome of its liabilities.
Operating income for 1994 rose 84.8% or $2.4 million, excluding the
restructuring charges in 1994 and 1993. This increase was primarily driven by
a 16.5% decrease in general and administrative expenses, which was somewhat
offset by slightly higher food costs and other restaurant perating expenses.
OTHER INCOME AND EXPENSES
Interest income decreased $.26 million primarily due to a reduction in the
investment balance held during the current year. Interest expense declined $.3
million primarily due to a lower weighted average interest rate during 1994 as
compared to 1993.
RESTRUCTURING CHARGES
The Company adopted a restructuring plan as of the end of the fourth
quarter of 1993 which included closing or relocating 31 of its restaurants by
the end of 1994, not exercising options to renew leases with respect to an
additional 19 of its restaurants upon expiration of their current lease terms,
and restructuring divisional management as well as consolidating the Company's
two corporate offices. With respect to the restaurants to be closed or
relocated, the Company recorded $19.8 million of restructuring charges
consisting primarily of the write-off of assets and the accrual of lease and
other expenses, net of projected sales proceeds and sublease income. As of
December 31, 1995, the Company has closed 22 restaurants with plans to close
one more restaurant, and has determined that eight restaurants should stay
open. Management is still evaluating the timing of the closing of the
remaining restaurant. During 1995, the Company reduced its restructuring
reserve by $5.1 million due to a change in estimate as a result of
management's decision to leave three restaurants open and due to management
being able to buyout of certain leases at more favorable terms than originally
estimated. The Company was also able to dispose of some locations for amounts
in excess of the original estimates and had lower than expected costs at other
locations. The restructuring reserve was also reduced by $2.2 million during
1995 for expenditures and asset write-offs related to the other 23 units.
With respect to the 19 restaurants projected to be closed no later than the
expiration of their current lease terms, the Company determined that the
recoverability of the assets has been permanently impaired, and accordingly,
provided $4.5 million primarily for the write-down of assets at the end of
1993. The Company has closed three of these units prior to or upon the
expiration of their current lease terms. The Company's restructure plan also
called for two additional units to be closed by December 31, 1995. Due to the
proposed Shoney's, Inc. Sale Transaction, management is still evaluating the
timing of closing of these two restaurants (See Note 2 to the Company's
consolidated financial statements). The reserve for restructuring was
increased by $.1 million during 1995 for the write-down of assets and
increased by $.7 million for a change in estimate.
With respect to the Company's restructuring of its divisional management
and consolidation of the Company's corporate offices, the Company paid out
approximately $2.3 million related to the restructuring reserve of which $1.0
million was for severance.
In addition to these reserves, the Company also has a reserve related to
units that were closed prior to 1993 and for the sale of vacant properties.
During 1995, the restructuring reserve was reduced by approximately $1.1
million resulting from expenditures and asset write-downs and by $.8 million
for changes in original estimates for the costs of disposal.
At December 31, 1995, the Company's reserve for restructuring of $11.6
million represents the amounts owed for lease and other expenses. The Company
has classified $3.5 million of the restructure as a current liability at
December 31, 1995. The Company also has an allowance for restructuring of $8.8
million recorded on its balance sheet for the write off of assets. The reserve
for restructuring includes management's best estimates of the remaining
liabilities associated with its restructuring and the net realizable value of
property. Due to uncertainties inherent in the estimation process, it is at
least reasonably possible that the Company's estimates of these amounts will
change in the near term. Revenues of $3.0 million and expenses of $2.8 million
related to units provided for in the restructuring reserve have been excluded
from the 1995 statement of operations.
LIQUIDITY AND CAPITAL RESOURCES
Working capital declined from a deficit of $18.0 million in 1994 to a
deficit of $23.1 million in 1995 due primarily to the classification of the
Credit Facility as a current liability in 1995. The Credit Facility matures
June 3, 1996, unless extended by the banks. This reduction was somewhat offset
by an increase in current assets as a result of the Company recording a
receivable for $30.0 million for the Maxcell Settlement at December 31, 1995.
The Company also recorded a current liability of approximately $13.5 million
for the expenses associated with the Maxcell Settlement.
Approximately 88% of the Company's restaurant sales are for cash and the
remainder are for credit card receivables which are generally collected within
3 days. Since the Company's payables are paid over a longer period of time, it
is not unusual for the Company, like many others in the restaurant industry,
to operate with a working capital deficit. However, as a result of the
maturity of the Credit Facility, the working capital deficit as of December
31, 1995 was significantly higher than in prior years and if the Shoney's,
Inc. Sale Transaction is not consummated, the facility should be replaced with
long-term financing.
Net cash provided by operating activities decreased from $12.7 million in
1994 to $.1 million in 1995 due in part to a decrease in cash provided from
operations. Other factors contributing to this decline are increases in
accounts receivable and inventories balances and reductions in various
accruals and amounts owed under the Company's restructuring plan. In addition
to these factors, net cash provided in 1994 included a $2.5 million receipt of
a federal income tax refund.
Net cash used in investing activities decreased $10.1 million from 1994.
The decrease in cash used is primarily the result of the Company building
fewer restaurants in 1995. The Company made $6.8 million in capital
expenditures in 1995 compared to $19.4 million in 1994. Of the $6.8 million in
capital expenditures in 1995, $.8 million was for the acquisition of a site
and the completion of a Shoney's unit that was started in 1994, $.4 million
for rebuilding a Captain D's unit that was destroyed by fire, $.7 million for
the remodeling of four Shoney's restaurants and one Captain D's restaurant,
$2.2 million for maintenance type capital expenditures and $.8 million
relating to the new point of sale system. The remaining $1.9 million relates
primarily to the relocation of the Company's headquarters to Florida during
1995 and the purchase of commissary equipment. Proceeds in 1995 include $1.1
million from the disposal of various restaurant properties and equipment and
from the sale of excess property.
The Company has various reserved areas with minimum development
requirements for its Shoney's concept. Aggregate commitments beyond 1995
require 35 restaurants to be constructed in the Company's reserved areas in
Phoenix, West Palm Beach, Michigan, Houston, and certain other counties in
Texas prior to October 6, 2004. The Company also has the right to develop
Captain D's restaurants in 124 counties in seven Southeastern states (Alabama,
Arkansas, Georgia, Mississippi, North Carolina and Tennessee). To avoid
termination of the reserved area agreement, the Company is required to open 30
additional Captain D's by July 11, 2011. Due to the pending Shoney's, Inc.
Sale Transaction and the recent performance at Shoney's restaurants, the
Company does not intend to build any Shoney's or Captain D's restaurants in
1996. In the event that the Shoney's, Inc. Sale Transaction does not occur,
the Company will evaluate the requirements under these agreements and its
available capital resources and work with Shoney's, Inc. to revise or extend
them as needed. There can be no assurance that if the Shoney's, Inc. Sale
Transaction does not occur, the Company will be able to revise or extend these
reserved area agreements but management believes that an acceptable agreement
could be reached with Shoney's, Inc. If an acceptable agreement can not be
reached, Shoney's, Inc. could terminate these agreements.
Net cash used in financing activities was $4.1 million in 1995 compared to
$2.3 million provided in the prior year. The Company had a net reduction of
$1.0 million on its Credit Facility and proceeds of $.3 million from the
issuance of stock pursuant to employee stock plans. Other long-term debt
payments of $3.4 million during 1995 related to payments on capital lease
obligations and other long-term debt. In 1993, The Airlie Group L.P. and
certain related parties made an investment in the Company which resulted in
net proceeds of $29.1 million from the issuance of $15.0 million of convertible
debentures and $15.0 million of common stock warrants.
These proceeds were used to reduce borrowings under the Credit Facility and
pay other long-term debt.)
The Credit Facility with a syndicate of banks was amended and restated as
of January 31, 1995. The Credit Facility, as amended, restricts total
borrowings available under the Credit Facility to $40.0 million and revises
certain financial covenant ratios and requires the collateralization of
additional properties. On February 29, 1996 in anticipation of the proposed
Shoney's, Inc. Sale Transaction, the Credit Facility was amended to revise
certain financial covenant ratios to allow for a provision of up to $25
million to be taken by the Company as an asset valuation (See Note 2) to the
consolidated financial statements.
Borrowings under the Credit Facility are secured by all shares of the
capital stock of Restaurants, whenever issued, intercompany debt of
Restaurants owed to the Company and ground lease mortgages with respect to
certain premises in which the land is currently leased but the building
located thereon is owned by Restaurants. In addition, the banks have exercised
their right to obtain, as security, assignments of other leases and/or
mortgages on real property currently owned or subsequently acquired. However,
the Company has rights to finance certain of these properties and obtain a
release of the collateral under certain conditions. The Company has also
agreed to reduce the outstanding Credit Facility whereby any amounts received
by Restaurants in excess of $5.0 million from any asset sales, mortgage
financing or sale/leasebacks will be applied 50% for general corporate
purposes and 50% to the paydown of the revolving credit facility and
commitment. The appropriate release of collateral will be made at the time of
paydown. Restaurants may repay intercompany borrowings but may not transfer
amounts to the Company except for the payment of a management fee not to
exceed $2.5 million in each fiscal year and a dividend in an amount sufficient
to pay interest on the Company's 5% Convertible Senior Subordinated Debentures
and 8 1/4% Convertible Subordinated Debentures, in each case provided that no
defaults under the Credit Facility exist either immediately before or after the
transfer. Restaurants must also maintain certain financial ratios, including
interest coverage ratios, senior debt service coverage ratios, and a minimum
consolidated tangible net worth. Although the Company is currently in
compliance with these financial ratios, the Company may not be in compliance
with certain financial ratio requirements contained in the Credit Facility as
of the end of the first quarter of 1996. At December 31, 1995, $21.4 million
was outstanding on the Credit Facility and letters of credit in the amount of
$10.6 million were outstanding, resulting in a remaining balance available to
borrow of $8.0 million under the Credit Facility. As of March 25, 1996, $5.3
million is available for borrowings under the Credit Facility.
As discussed in Note 2 to the Company's consolidated financial statements,
the Company is seeking to complete the Shoney's, Inc. Sale Transaction no
later than June 30, 1996. Under the terms of the Agreement, Shoney's, Inc.
will assume or retire certain obligations of the Company including the Credit
Facility, which matures June 3, 1996. The Company is discussing with its bank
group the possibility of extending the Credit Facility until the closing date
with Shoney's, Inc. The Company is also in discussions with respect to
obtaining certain waivers of financial covenants which may be required for the
first quarter of 1996. Additionally, the Company is discussing amendments or
waivers to the financial covenants that may be necessary prior to closing.
Management is of the opinion that the Company will be able to obtain such
agreements. However, there can be no assurance that such agreements can be
reached with respect to either extending the facility or amending or obtaining
waivers to the financial covenants.
The Company has outstanding $15.0 million of 5% Convertible Senior
Subordinated Debentures, due 2003, convertible into common stock at $11 per
share (the "Senior Debentures"). The Senior Debenture holders may require the
Company to repurchase the Senior Debentures, in whole or in part, in certain
circumstances involving a change in control of the Company. Restaurants has
guaranteed the repayment of the Senior Debentures on a subordinated basis. As
a condition to the closing of the Shoney's, Inc. Sale Transaction, the
liabiblities associated with or arising out of the Senior Debentures shall
have been satisfied in connection with the closing.
In addition, the Company has outstanding $51.6 million of 8 1/4%
Convertible Subordinated Debentures (the "Debentures"). The Debentures are
convertible at the option of the holder into common shares of the Company at
any time prior to maturity, unless previously redeemed or repurchased, at a
conversion price of $6.50 per share, subject to adjustment in certain events.
The Debentures mature on July 15, 2002 and are redeemable, in whole or in
part, at the option of the Company at any time on or after July 15, 1995,
initially at 105.775% of their principal amount and declining to 100% of
their principal amount on July 15, 2002, together with accrued and unpaid
interest. The Debenture holders may also require the Company to repurchase the
Debentures, in whole or in part, in certain circumstances involving a change
in control of the Company as defined in the indenture covering the Debentures
(the "Indenture"). However, a change in control, as defined in the Indenture,
will create an event of default under the Credit Facility and, as a result, any
repurchase would, absent a waiver, be blocked by the subordination provisions
of the Indenture until the Credit Facility (and any other senior indebtedness
of the Company and senior indebtedness of Restaurants with respect to which
there is a payment default) has been repaid in full. The Debentures are
unconditionally guaranteed (the "Guarantee") on a subordinated basis by
Restaurants. The Debentures and the Guarantee are subordinated to all existing
and future senior indebtedness, as defined in the Indenture, of the Company.
The Indenture does not prohibit or limit the ability of the Company or any of
its subsidiaries to incur additional indebtedness, including that which will
rank senior to the Debentures. As a condition to closing of the Shoney's, Inc.
Sale Transaction, the obligations of the Company under the Debentures must
have been assumed by Shoney's and the Company released from all obligations
thereunder.
In the event the Shoney's, Inc. Sale Transaction does not close (See
conditions to closing of the Shoney's, Inc. Sale Transaction in Item I -
Business), management is of the opinion that the Company can renegotiate its
Credit Facility or obtain alternative sources of financing. However, there can
be no assurance that this can be accomplished or that the terms of the
extended Credit Facility or alternative sources will be as favorable as those
currently in place. In addition, management's opinion is a forward-looking
statement; a number of factors could cause management's opinion to be
incorrect including a return to a declining trend in same store sales,
increased cost pressures, changes in external or internal conditions which
make finding timely sources of cost effective capital impossible, and
termination of the Shoney's transaction after further delays in closing. The
amount outstanding on the Credit Facility at December 31, 1995 is $21.4
million with an additional $10.6 million outstanding on letters of credit. In
the event the Shoney's, Inc. Sale Transaction is consummated, the Company will
liquidate and distribute its assets, after making adequate provision for
liabilities. (See Item 1 "Business".)
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEPENDENT AUDITORS'
REPORT
To the Board of Directors and Shareholders
of TPI Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of TPI
Enterprises, Inc., and its subsidiaries as of December 31, 1995 and December
25, 1994, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three fiscal years in the period ended
December 31, 1995. Our audits also included the financial statement schedules
listed in the Index at Item 14(a)(2). These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules 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, such consolidated financial statements present fairly, in all
material respects, the financial position of TPI Enterprises, Inc. and its
subsidiaries as of December 31, 1995 and December 25, 1994, and the results of
their operations and their cash flows for each of the three fiscal years in
the period ended December 31,1995 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
/s/ Deloitte & Touche LLP
March 28, 1996
Memphis, Tennessee
TPI ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
DECEMBER 31, DECEMBER 25,
1995 1994
------------ -----------
(Dollars in thousands)
CURRENT ASSETS:
Cash and cash equivalents........................ $ 8,744 $ 17,228
Accounts receivable - trade (net of allowance
for doubtful accounts of
$125 in 1995 and $59 in 1994).................... 1,248 806
Litigation settlement receivable................. 30,000 ---
Inventories...................................... 13,020 11,969
Deferred tax benefit............................. 5,728 5,666
Other current assets............................. 3,237 3,256
---------- ----------
TOTAL CURRENT ASSETS........................... 61,977 38,925
---------- ----------
PROPERTY AND EQUIPMENT (at cost).................... 236,969
240,394
Less accumulated depreciation and amortization... 79,637 70,401
Less allowance for restructuring................. 8,752 12,430
---------- ----------
148,580 157,563
---------- ----------
OTHER ASSETS:
Goodwill (net of accumulated amortization of
$9,431 in 1995 and $8,152 in 1994)............... 36,396 37,675
Less valuation allowance......................... 17,000 ---
---------- ----------
19,396 37,675
Other intangible assets (net of accumulated
amortization of $6,504 in 1995, and $5,157
in 1994)......................................... 18,298 19,726
Other............................................ 625 607
---------- ----------
38,319 58,008
---------- ----------
$ 248,876 $ 254,496
========== ==========
See notes to consolidated financial statements
LIABILITIES AND SHAREHOLDERS' EQUITY
DECEMBER 31, DECEMBER 25,
1995 1994
------------ -----------
(Dollars in thousands)
CURRENT LIABILITIES:
Current portion of long-term debt............... $24,231 $ 3,725
Accounts payable - trade........................ 16,052 15,565
Accrued costs of litigation settlement.......... 13,537 ---
Accrued expenses and other current liabilities.. 30,604 36,889
Income taxes currently payable.................. 618 718
--------- ---------
TOTAL CURRENT LIABILITIES.................... 85,042 56,897
--------- ---------
LONG-TERM DEBT..................................... 81,628 107,721
RESERVE FOR RESTRUCTURING.......................... 8,162 14,735
--------- ---------
DEFERRED INCOME TAXES.............................. 5,537 5,663
--------- ---------
OTHER LIABILITIES.................................. 1,641 1,910
--------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred shares, no par value; 20,000,000
shares authorized; none
issued and outstanding.......................... --- ---
Common shares, $.01 par value; 100,000,000
shares authorized;
33,402,553 and 33,241,118 issued in 1995 and
1994............................................ 334 332
Additional paid-in capital...................... 226,454 226,144
Deficit......................................... (90,157) (88,961)
--------- ---------
136,631 137,515
Less treasury stock, at cost, 12,805,266 and
12,846,094 common
shares in 1995 and 1994....................... 69,765 69,945
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 66,866 67,570
--------- ---------
$248,876 $ 254,496
========= =========
See notes to consolidated financial statements
TPI ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED
------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 26,
1995 1994 1993
---------- ---------- ------------
(DOLLARS IN THOUSANDS)
RESTAURANT REVENUES.......................$ 283,578 $287,384 $289,439
--------- -------- --------
COSTS AND EXPENSES:
FOOD, SUPPLIES AND UNIFORMS............ 103,874 102,831 101,980
RESTAURANT LABOR AND BENEFITS.......... 85,889 87,644 90,263
RESTAURANT DEPRECIATION AND
AMORTIZATION........................... 12,252 14,138 13,632
OTHER RESTAURANT OPERATING EXPENSES.... 54,705 52,727 51,291
GENERAL AND ADMINISTRATIVE EXPENSES.... 21,993 23,906 28,641
Provision for asset valuation.......... 17,000 --- ---
RESTRUCTURING CHARGES, NET............. (5,929) (986) 35,082
OTHER, NET............................. 1,167 940 819
--------- -------- --------
290,951 281,200 321,708
--------- -------- --------
OPERATING INCOME (LOSS)................... (7,373) 6,184 (32,269)
--------- -------- --------
Other income and expenses:
Interest income........................ 243 337 593
Interest expense....................... (10,529) (10,238) (10,539)
Other.................................. --- --- (109)
--------- -------- --------
(10,286) (9,901) (10,055)
--------- -------- --------
Loss from continuing operations before
income taxes.............................. (17,659) (3,717) (42,324)
Income tax expense (benefit).............. (6,350) --- (5,836)
--------- -------- --------
Loss from continuing operations........... (11,309) (3,717) (36,488)
Discontinued operations:
Litigation settlement income, net...... 10,113 --- ---
Gain on disposal of discontinued
operations, net........................ --- --- 5,273
--------- -------- --------
10,113 --- 5,273
--------- -------- --------
Net loss $(1,196) $(3,717) $(31,215)
========= ======== ========
Primary income (loss) per common share:
Continuing operations.................. $(.55) $ (.18) $ (1.81)
Discontinued operations................ .49 --- .26
--------- -------- --------
Net loss per common share.......... $(.06) $(.18) $ (1.55)
========= ======== ========
Weighted average number of common and
common equivalent shares outstanding... 20,526 20,415 20,127
========= ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
This page left interntionally blank.
<TABLE>
<CAPTION>
TPI ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 26,
1995 1994 1993
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss from continuing operations $(11,309) $(3,717) $(36,488)
----------- ------------ ------------
Adjustments to reconcile net loss
from contiuing operations to net
cash provided by operatin
activities:
Depreciation and amortization... 17,280 19,216 18,046
Deferred income taxes........... (188) (3) (2,501)
Reserve for restructuring....... (5,929) (667) 35,100
Provision for asset valuation... 17,000 --- ---
Changes in assets and liabilities:
Accounts receivable - trade... (442) 178 79
Inventories................... (1,051) (545) 3,488
Other current assets......... (20) 2,258 (777)
Other assets.................. (660) 752 (1,415)
Accounts payable - trade... 486 (4,345) 4,688
Accrued expenses and other
current liabilities....... (3,687) 3,365 7,424
Reserve for restructuring..... (4,625) (3,370) (4,703)
Income taxes currently payable (6,450) 69 (4,188)
Other liabilities............. (269) (517) (1,878)
----------- ------------ ------------
Total adjustments............ 11,445 16,391 53,363
----------- ------------ ------------
Net cash provided by continuing
operations...................... 136 12,674 16,875
----------- ------------ ------------
DISCONTINUED OPERATIONS
Gain on disposal discoutinues
operations...................... 10,113 --- 5,273
Accounts receivable litigation
settlement...................... (30,000) --- ---
Accrued costs litigations
settlement...................... 13,537 --- ---
Assets held for sale............ --- --- 7,493
Income taxes.................... 6,350 --- 2,717
----------- ------------ ------------
Net cash provided by discontinued
operations.......................... 0 --- 15,483
----------- ------------ ------------
Net cash provided by operating
activities.......................... 136 12,674 32,358
----------- ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of property and
equipment (6,795) (19,402) (43,867)
Acquisition of businesses, net of
cash received....................... --- --- (4,660)
Disposition of property and
equipment........................... 2,219 5,054 5,230
Other.............................. 39 (16) 115
----------- ------------ ------------
Net cash used in investing
activities...................... $(4,537) $(14,364) $(43,182)
----------- ------------ ------------
</TABLE>
See notes to consolidated financial statements
TPI ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
FISCAL YEAR ENDED
----------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 26,
1995 1994 1993
----------- ------------ -----------
(Dollars in thousands)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) on Credit
Facility............................. $ (1,000) $ 3,400 $ (18,550)
Common shares issued................. 312 576 17,204
Proceeds from 5% Convertible Senior
Subordinated Debentures.............. --- --- 15,000
Other long - term debt payments ..... (3,395) (1,722) (7,186)
--------- -------- --------
Net cash provided by (used in)
financing activities................. (4,083) 2,254 6,468
--------- -------- --------
Net increase (decrease) in cash and
cash equivalents..................... (8,484) 564 (4,356)
Cash and cash equivalents, beginning
of year 17,228 16,664 21,020
--------- -------- --------
Cash and cash equivalents, end of
year $8,744 $17,228 $16,664
========= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Non-cash transactions:
Capitalized lease obligations
entered into........................... --- $1,430 $3,241
Conversion of 8 1/4% Subordinated
Debentures............................. --- 162 ---
Liabilities assumed in acquisitions
of properties.......................... --- --- 1,819
Common stock issued in acquisitions
of properties.......................... --- --- 895
Cash payments (refunds) during the year for:
Interest............................. $ 9,183 $ 9,226 $ 10,100
Interest capitalized................. --- 77 202
Income taxes, net.................... 158 (2,164) 2,810
See notes to consolidated financial statements
<TABLE>
<CAPTION>
TPI ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
COMMON SHARES ISSUED ADDITIONAL
NUMBER OF PAID-IN TREASURY
SHARES AMOUNT CAPITAL DEFICIT STOCK TOTAL
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1992.................. 31,017,689 $310 $207,314 $(54,029) $(69,945) $83,650
Investment in Company
by The Airlie Group
L.P.................. 1,503,220 15 14,030 ---- ---- 14,045
Issue of shares in
connection with
acquisition.......... 94,300 1 894 ---- ---- 895
Issue of shares
pursuant to employee
stock plans.......... 499,559 5 3,154 ---- ---- 3,159
Conversion of
subordinated
debentures............. 3,846 ---- 25 ---- ---- 25
Net loss................ ---- ---- ---- (31,215) ---- (31,215)
--------- ------ ---------- --------- ---------- ----------
Balance December 26,
1993....................33,118,614 331 225,417 (85,244) (69,945) 70,559
Issue of shares
pursuant to
employee stock plans.. 97,582 1 575 ---- ---- 576
Conversion of
subordinated
debentures............. 24,922 ---- 152 ---- ---- 152
Net loss................ ---- ---- ---- (3,717) ---- (3,717)
--------- ------ ---------- --------- ---------- ----------
Balance, December 25,
1994....................33,241,118 332 226,144 (88,961) (69,945) 67,570
Issue of shares
pursuant to
employee stock plans... 160,235 2 304 --- 180 486
Other................... 1,200 --- 6 --- --- 6
Net loss................ --- --- --- (1,196) --- (1,196)
--------- ------ ---------- --------- ---------- ----------
Balance, December 31,
1995....................33,402,553 $334 $226,454 $(90,157) $(69,765) $66,866
========= ====== ========== ========= ========== ==========
</TABLE>
See notes to consolidated financial statements
TPI ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
REPORTING ENTITY AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of TPI
Enterprises, Inc. (the "Company") and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions are eliminated in
consolidation. The Company, through TPI Restaurants, Inc. ("Restaurants"), its
wholly-owned subsidiary, is one of the largest restaurant franchisees in the
United States. Restaurants owns and operates 256 restaurants, including 188
Shoney's and 68 Captain D's in eleven states, primarily in the southern United
States.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles require 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 the estimates.
CASH AND CASH EQUIVALENTS
The Company considers cash on hand, deposits in banks, certificates of
deposit and short-term marketable securities with maturities of 90 days or
less when purchased, as cash and cash equivalents.
Restaurants utilizes a cash management system under which cash overdrafts
exist in the book balances of its primary disbursing accounts. These
overdrafts represent the uncleared checks in the disbursing accounts. The cash
amounts presented in the consolidated financial statements represent balances
on deposit at other locations prior to their transfer to the primary
disbursing accounts. Uncleared checks of $6,752,000 and $7,229,000 are
included in accounts payable at December 31, 1995 and December 25, 1994,
respectively.
INVENTORIES
Inventories, consisting of food items, beverages and supplies, are stated
at the lower of weighted average cost (which approximates first-in, first-out)
or market.
PRE-OPENING COSTS
Direct costs incidental to the opening of new restaurants are capitalized
and amortized over the restaurants' first year of operations.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization of property and equipment is provided on the
straight-line method over the estimated useful lives of the assets or, in the
case of leasehold improvements and certain property under capital leases, over
the lesser of the useful life or the lease term.
Goodwill related to the acquisition of Restaurants is amortized on a
straight-line basis over a thirty-six year period. The costs of franchise
license agreements which govern the individual Shoney's and Captain D's
restaurants and reserved area agreements are amortized on a straight-line
basis over the lives of the related franchise license agreements, up to 40
years. The Company has historically evaluated goodwill impairment based upon
future undiscounted cash flows. The Company recorded a valuation allowance
based upon the difference in the carrying value of the net assets and the
estimated fair value of consideration to be received from Shoney's, Inc. at
December 31, 1995. (See Note 2).
INCOME TAXES
The Company accounts for income taxes under Financial Accounting Standard
No. 109, "Accounting for Income Taxes", which requires an asset and liability
approach to financial accounting and reporting for income taxes. Deferred
income tax assets and liabilities are computed annually for differences
between the financial statement and tax basis of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted
tax laws and rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable or refundable for the period plus or
minus the change during the period in deferred tax assets and liabilities.
INCOME (LOSS) PER SHARE
Primary earnings per share amounts are computed by dividing net income
(loss) by the weighted average number of common and common equivalent shares
outstanding during the period. Reported primary per share amounts include
common equivalents relating to dilutive stock options of -0-, 80,000 and
514,000 shares in 1995, 1994 and 1993, respectively.
Fully diluted earnings per share amounts are similarly computed, but also
include the effect, when dilutive, of the Company's 8 1/4% Convertible
Subordinated Debentures issued in July 1992 and August 1992 and 5% Convertible
Senior Subordinated Debentures issued March 1993, after the elimination of the
related interest requirements, net of income taxes. The Company's convertible
debentures are excluded from the fiscal 1995, 1994 and 1993 computation due to
their antidilutive effect during that period. The inclusion of the Company's
dilutive outstanding options in the calculation, determined based on market
values at the end of each period, as applicable, is either antidilutive or
does not result in a material dilution of earnings per share for 1995, 1994
and 1993.
OTHER
A new accounting pronouncement on impairment of long-lived assets was
issued in March 1995 and is effective for fiscal years beginning after
December 15, 1995. The Company does not believe the adoption of this
accounting standard will have a material adverse effect on its result of
operations or consolidated financial position. Statement of Financial
Accounting Standard No. 123 "Accounting for Stock Based Compensation" was
issued in October 1995 and is effective for fiscal years beginning after
December 15, 1995. At this time, the Company does not plan to adopt the new
method of accounting, but will instead continue to apply the accounting
provision of Accounting Principles Board Opinion, No. 25, "Accounting for
Stock Issued to Employees" (APB 25) and related interpretations in accounting
for its employee stock options. The Company will, however, comply with the
disclosure requirements of the new standard with the annual financial
statements for the year ended December 29, 1996.
NOTE 2 - SHONEY'S, INC. TRANSACTION
On March 15, 1996, the Company entered into a Plan of Tax-Free
Reorganization Under Section 368(a)(1)(C) of the Internal Revenue Code and
Agreement (the "Agreement") with Shoney's, Inc. to sell substantially all of
the Company's assets to Shoney's, Inc. (the "Shoney's, Inc. Sale
Transaction"). At the closing of the Shoney's, Inc. Sale Transaction, under
the terms of the Agreement, Shoney's, Inc. will deliver to the Company (a)
5,577,102 shares of Shoney's, Inc. common stock plus (b) shares of Shoney's,
Inc. common stock equal to $10,000,000 divided by the average closing market
price of Shoney's, Inc. common stock over the ten day trading period prior to
closing, subject to certain adjustments as provided in the Agreement. The
Company will deliver to Shoney's, Inc. all of the issued and outstanding
shares of capital stock of Restaurants and its wholly-owned subsidiaries, TPI
Entertainment, Inc. and TPI Insurance Corporation. Additionally, the Company
will transfer certain liabilities (See Note 6), all intercompany accounts and
all cash and cash equivalents of the Company except for $14,850,000 in cash,
of which $7,350,000 is designated to pay certain specified wind-up expenses.
If the specified wind-up expenses are less than the designated $7,350,000, the
Company is required to transfer the difference to Shoney's, Inc.; if the
expenses are greater, the excess will be paid from the remaining $7,500,000 of
cash. As a condition to closing of the Shoney's, Inc. Sale Transaction, the
obligations of the Company under the Debenture, Senior Debentures and Credit
Facility must have been assumed by Shoney's, Inc. and the Company released
from all obligations thereunder.
The Agreement requires the Company after closing to wind-down its
operations and distribute the Shoney's, Inc. common shares received and any
remaining amounts to the Company's shareholders. Management anticipates that
the closing of the Shoney's, Inc. Sale Transaction will occur by June 30, 1996
and that the majority of such distributions to the Company's shareholders will
be made during 1996.
At December 31, 1995, the Company has recorded a provision of $17,000,000
to reduce the carrying value of the net assets to be exchanged to the
estimated fair value of the consideration to be received from Shoney's, Inc.
This allowance has been reflected as a reduction in the Company's recorded
goodwill in the accompanying financial statements.
The Agreement may be terminated by mutual consent of the Company and
Shoney's, Inc. or by either party under certain circumstances, including if
the closing does not occur prior to June 30, 1996. The Agreement is subject to
a number of other conditions including, among other things, (1) the
approval of the shareholders of both the
Company and Shoney's, Inc., (2) the expiration of waiting periods under the
Hart-Scott-Rodino Antitrust Improvements Act, (3) the receipt by Shoney's,
Inc. of a commitment for additional financing in the amount of $60,000,000 and
its funding in accordance with its terms, (4) the receipt of fairness and
legal opinions and (5) the absence of a material adverse change to the
Company. The Agreement provides for the payment by the Company of a break-up
fee in the case of certain third party acquisition events or proposals.
NOTE 3 - RESTRUCTURING CHARGES
The Company adopted a restructuring plan as of the end of the fourth
quarter of 1993 which included closing or relocating 31 of its restaurants by
the end of 1994, not exercising options to renew leases with respect to an
additional 19 of its restaurants upon expiration of their current lease terms,
and restructuring divisional management as well as consolidating the Company's
two corporate offices. With respect to the restaurants to be closed or
relocated, the Company recorded $19,800,000 of restructuring charges
consisting primarily of the write-off of assets and the accrual of lease and
other expenses, net of projected sales proceeds and sublease income. As of
December 31, 1995, the Company has closed 22 restaurants with plans to close
one more restaurant, and has determined that eight restaurants should stay
open. Management is still evaluating the timing of the closing of the
remaining restaurant. During 1995, the Company reduced its restructuring
reserve by $5,136,000 due to a change in estimate as a result of management's
decision to leave three restaurants open and due to management being able to
buyout of certain leases at more favorable terms than originally estimated.
The Company was also able to dispose of some locations for amounts in excess
of the original estimates and had lower than expected costs at other
locations. The restructuring reserve was also reduced by $2,157,000 during
1995 for expenditures and asset write-offs related to the other 23 units.
With respect to the 19 restaurants projected to be closed no later than the
expiration of their current lease terms, the Company determined that the
recoverability of the assets has been permanently impaired, and accordingly,
provided $4,500,000 primarily for the write-down of assets at the end of 1993.
The Company has closed three of these units prior to or upon the expiration of
their current lease terms. The Company's restructure plan also called for two
additional units to be closed by December 31, 1995. Due to the proposed
Shoney's, Inc. Sale Transaction, management is still evaluating the timing of
closing of these two restaurants. The reserve for restructuring was reduced by
$669,000 during 1995 for the write-down of assets and increased by $22,000 for
a change in estimate.
With respect to the Company's restructuring of its divisional management
and consolidation of the Company's corporate offices, the Company paid out
approximately $2,300,000 related to the restructuring reserve of which
$1,000,000 was for severance.
In addition to these reserves, the Company also has a reserve related to
units that were closed prior to 1993 and for the sale of vacant properties.
During 1995, the restructuring reserve was reduced by approximately $1,041,000
resulting from expenditures and asset write-downs and by $815,000 for changes
in original estimates for the costs of disposal.
At December 31, 1995, the Company's reserve for restructuring of
$11,617,000 represents the amounts owed for lease and other expenses. The
Company has classified $3,455,000 of the restructure as a current liability at
December 31, 1995. The Company also has an allowance for restructuring of
$8,752,000 recorded on its balance sheet for the write off of assets. The
reserve for restructuring includes management's best estimates of the
remaining liabilities associated with its restructuring and the net realizable
value of property.
Due to uncertainties inherent in the estimation process, it is at least
reasonably possible that the Company's estimates of these amounts will change
in the near term. Revenues of $3,000,000 and expenses of $2,800,000 related
to units provided for in the restructuring reserve have been excluded from
the 1995 statement of operations.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
1995 1994
---------- -----------
(Dollars in thousands)
Owned:
Land............................................... $ 35,201 $ 35,602
Buildings.......................................... 52,699 52,616
Leasehold improvements and buildings on leased land 50,759 51,344
Equipment and furnishings.......................... 74,640 75,003
---------- -----------
213,299 214,565
---------- -----------
Leased:
Buildings.......................................... 23,074 23,905
Equipment.......................................... 596 1,924
---------- -----------
23,670 25,829
---------- -----------
Property and equipment (at cost) ..................... 236,969 240,394
---------- -----------
Less accumulated depreciation and amortization........ 79,637 70,401
---------- -----------
Less allowance for restructuring...................... 8,752 12,430
---------- -----------
Total property and equipment....................... $148,580 $ 157,563
========== ===========
Property and equipment with a net book value of approximately $21,565,000
and $22,233,000 were pledged as collateral for the Company's debt facilities
as of December 31, 1995 and December 25, 1994, respectively.
Depreciation and amortization are calculated using the straight-line method
and are based on the estimated useful lives of the assets as follows:
buildings, 30 years; equipment and furnishings, 3-15 years; and leasehold
improvements, primarily representing buildings constructed on leased property,
the lesser of the term of the lease or 30 years. Depreciation and amortization
of property and equipment, exclusive of depreciation and amortization included
in the restructuring reserve, totaled approximately $13,948,000, $14,985,000,
and $14,104,000 during 1995, 1994 and 1993, respectively. In 1995, 1994, and
1993, approximately $1,422,000, $1,643,000, and $1,716,00, respectively,
related to capitalized leases. Property and equipment includes capitalized
interest on construction of $425,000, $425,000, and $374,000 at December 31,
1995, December 25, 1994, and December 26, 1993, respectively.
NOTE 5 - OTHER INTANGIBLE ASSETS
Other intangible assets consists of the following:
1995 1994
---------- -----------
(Dollars in thousands)
Franchise and reserved area rights................. $17,710 $ 17,704
Deferred debt costs................................ 6,724 6,175
Unamortized pre-opening expense.................... 310 946
Other deferred charges............................. 58 58
---------- -----------
24,802 24,883
Less accumulated amortization...................... 6,504 5,157
---------- -----------
$18,298 $ 19,726
========== ===========
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following:
1995 1994
---------- -----------
(Dollars in thousands)
8 1/4% Convertible Subordinated Debentures, due
2002............................................... $ 51,563 $ 51,563
5% Convertible Senior Subordinated Debentures, due
2003............................................... 15,000 15,000
Credit Facility.................................... 21,400 22,400
Notes payable, interest rates of 7.75% to 10%,
due through 2007................................... 2,608 4,863
Obligations under capital leases................... 15,288 17,620
---------- -----------
105,859 111,446
Less amounts due within one year................ 24,231 3,725
---------- -----------
$ 81,628 $107,721
========== ===========
Scheduled annual principal maturities of long-term debt, excluding
obligations under capital leases, for the five years subsequent to December
31, 1995, are as follows: $23,004,000 in 1996; $42,000 in 1997; $47,000 in
1998, $52,000 in 1999; $58,000 in 2000, and $67,369,000 thereafter.
Interest expense from continuing operations for 1995, 1994, and 1993
includes interest on obligations under capital leases of $1,776,000,
$1,952,000 and $2,334,000, respectively.
DEBENTURES
On March 19, 1993, The Airlie Group, L.P., and certain related parties
(collectively the "Airlie Group") made an investment in the Company of
$30,000,000, including $15,000,000 of 5% Convertible Senior Subordinated
Debentures due 2003, (the "Senior Debentures"), due 2003, the issuance of
1,500,000 shares of the Company's common stock at $10 per share and the
issuance of warrants to purchase an additional 1,000,000 shares of common
stock at $11 per share. The Senior Debentures are senior to the 8 1/4%
Convertible Subordinated Debentures (the "Debentures"). The Senior Debentures
are convertible at the option of the holder into common shares of the Company
at any time prior to maturity at $11 per share, subject to adjustment in
certain events. The Senior Debentures mature on April 15, 2003 and are
redeemable, in whole or in part, at the option of the Company at any time
on or after April 15, 1996, initially at 103.5% of their principal amount
and declining to 100% of their principal amount on April 15, 2003. The
Debenture holders may require the Company to repurchase the Senior Debentures,
in whole or in part, in certain circumstances involving a change in control of
the Company as defined in the Debenture Purchase Agreement (the "Debenture
Agreement"). However, a change in control, as defined in the Debenture
Agreement prior to the closing of the Shoney's, Inc. Sale Transaction, will
create an event of default under the Company's Second Amended and Restated
Credit Facility (the "Credit Facility") and, as a result, any repurchase
would, absent a waiver, be blocked by the subordination provisions of the
Agreement until the Credit Facility (and any other senior indebtedness of the
Company and senior indebtedness of Restaurants with respect to which there is
a payment default) has been repaid in full. The Senior Debentures are
unconditionally guaranteed on a subordinated basis by Restaurants. They are
subordinated to all existing and future senior indebtedness of the Company and
Restaurants, excluding the Debentures. As a condition to closing of the
Shoney's, Inc. Sale Transaction, the liabilities associated with or arising
out of the Senior Debentures must be satisfied.
The 8 1/4% Convertible Subordinated Debentures (the "Debentures"), which
provided proceeds to the Company of $47,948,000, net of $3,802,000 in deferred
debt costs, are convertible at the option of the holder into common shares of
the Company at any time prior to maturity at a conversion price of $6.50 per
share subject to adjustment in certain events. The Debentures mature on July
15, 2002, and are redeemable at the option of the Company at any time on or
after July 15, 1995, at a premium which declines as the Debentures approach
maturity. The Debenture holders may also require the Company to repurchase the
Debentures, in whole or in part, in certain circumstances involving a change
in control of the Company as defined in the indenture covering the Debentures
(the "Indenture"). However, a change in control, as defined in the Indenture,
will create an event of default under the Credit Facility and, as a result,
any repurchase would, absent a waiver, be blocked by the subordination
provisions of the Indenture until the Credit Facility (and any other senior
indebtedness of the Company and senior indebtedness of Restaurants with
respect to which there is a payment default) has been repaid in full. The
Debentures are unconditionally guaranteed on a subordinated basis by
Restaurants. They are subordinated to all existing and future senior
indebtedness of the Company and Restaurants. As a condition to closing of the
Shoney's, Inc. Sale Transaction, the obligations of the Company under the
Debentures must be satisfied.
CREDIT FACILITY
The Company's Credit Facility with a syndicate of banks was amended and
restated as of January 31, 1995. The Credit Facility, as amended, restricts
total borrowings available under the Credit Facility to $40,000,000 and
revises certain financial covenant ratios and requires the collateralization
of additional properties. On February 29, 1996 in connection with the proposed
Shoney's, Inc. Sales Transaction the Credit Facility was amended to revise
certain financial covenant ratios to allow for a charge of up to $25,000,000
to be taken by the Company to write-down the carrying value of assets (See
Note 2). As discussed in Note 2, the Company is seeking to complete the
Shoney's, Inc. Sale Transaction no later than June 30, 1996. Under the terms
of the Agreement, Shoney's, Inc. will assume or retire certain obligations of
the Company including the Credit Facility, which matures June 3, 1996. The
Company is discussing with its bank group the possibility of extending the
Credit Facility to the closing date with Shoney's, Inc. Additionally, the
Company is discussing amendments or waivers to the financial covenants that
may be necessary prior to closing. Management is of the opinion that the
Company will be able to obtain such agreements. However, there can be no
assurance that such an agreement can be reached with respect to either
extending the facility or amending the financial covenants. The Company has
included the Credit Facility as a current liability in its financial
statements at December 31, 1995.
Borrowings under the Credit Facility, at the Company's option, bear
interest at either a defined base rate or a rate based on the London Interbank
Offered Rate. The weighted average interest rate on the amount outstanding was
8.5% and 8.2% for 1995 and 1994, respectively. The Company paid certain fees
and expenses to the Banks in connection with the original commitment letter
which, along with other costs associated with the Original Credit Facilities,
totaled approximately $2,000,000 and also agreed to indemnify the Banks
against certain liabilities. The Company also paid an amendment fee of $80,000
and costs of $470,000 for its Second Amended and Restated Credit Agreement
dated January 31, 1995. The Company also pays a fee based on the Eurodollar
rate, 2.5% at December 31, 1995, in connection with letters of credit issued
and a commitment fee equal to 0.50% per annum on the average daily unused
amount of the Credit Facility. The terms of the Credit Facility, increased the
fee paid on borrowings and letters of credit by .50% effective January 31,
1995.
Borrowings under the Credit Facility are secured by all shares of the
capital stock of Restaurants, whenever issued, intercompany debt of
Restaurants owed to the Company and ground lease mortgages with respect to
certain premises in which the land is currently leased but the building
located thereon is owned by Restaurants. In addition, the Banks have exercised
their right to obtain, as security, assignments of other leases and/or
mortgages on real property currently owned or subsequently acquired. However,
the Company has rights to finance certain of these properties and obtain a
release of the collateral under certain conditions. The Credit Facility limits
the amount of additional indebtedness which the Company and its subsidiaries
may incur and the aggregate annual amount to be spent on capital expenditures.
In addition, the Credit Facility limits, among other things, the ability of
the Company and its subsidiaries to pay dividends, create liens, sell assets,
engage in mergers or acquisitions and make investments in subsidiaries.
Restaurants may not transfer amounts to the Company except for the payment of
a management fee not to exceed $2,500,000 in each fiscal year and a dividend
in an amount sufficient to pay interest on the Senior Debentures and the
Debentures, in each case provided that no defaults under the Credit Facility
exist either immediately before or after the transfer. Restaurants must also
maintain certain financial ratios.
At December 31, 1995, $21,400,000 was drawn on the Credit Facility and
letters of credit in the amount of $10,592,790 were outstanding, resulting in
a remaining available balance of $8,007,210 under the revised Agreement.
NOTES PAYABLE
Notes payable as of December 31, 1995 consist of obligations secured by
buildings, land, equipment, and cash value life insurance policies with a net
book value of $7,712,000.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's Debentures, based on the quoted
market price, is $48,000,000 and $39,200,000 for December 31, 1995 and
December 25, 1994, respectively. The estimated fair value of the Company's
Senior Debentures at December 31, 1995 is $11,400,000 and $11,570,000 for
December 31, 1995 and December 25, 1994 based on the estimated borrowing rates
available to the Company. The Credit Facility reprices frequently at market
rates; therefore, the carrying amount of this facility is considered by
management to be a reasonable estimate of its fair value at December 31, 1995
and December 25, 1994. The estimated fair value of the Company's notes payable
approximates the principal amount of such notes outstanding at December 31,
1995 and December 25, 1994, which is based upon the estimated borrowing rates
available to the Company.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1995 and December 25,
1994. Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since that
date, and current estimates of fair value may differ significantly from the
amounts presented herein.
NOTE 7 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
1995 1994
--------- ---------
(Dollars in thousands)
Insurance................................................ $14,117 $17,368
Reserve for restructuring................................ 3,455 5,700
Taxes other than income taxes............................ 4,590 4,451
Interest................................................. 2,331 2,407
Payroll and compensation................................. 1,992 2,878
Other.................................................... 4,119 4,085
--------- ---------
$30,604 $36,889
========= =========
The Company is primarily self insured for general liability and workers'
compensation risks supplemented by stop loss type insurance policies. The self
insurance liabilities, related to continuing operations, included in accrued
insurance at December 31, 1995 and December 25, 1994 were approximately
$13,560,000 and $17,022,000, respectively.
During the fourth quarter of 1995, management received the 1995 actuarial
study relating to its self insurance programs for workers' compensation and
general liability. The study indicated a continued improvement in the
Company's claims development which resulted in the reduction of projected
ultimate losses. Accordingly, the Company reduced its accrual for workers'
compensation by $3,500,000 and its accrual for general liability by
$1,500,000.
The Company's accrual for self-insurance includes management's best
estimates of the liabilities associated with its self-insurance programs. Due
to uncertainties inherent in the estimation process it is at least reasonably
possible that the Company's estimates of these amounts will change in the near
term.
NOTE 8 - INCOME TAXES
The provision (benefit) for income taxes on continuing operations is as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................... $(5,445) $ 3 $(3,335)
State and local........................... (905) --- ---
-------- --------- --------
(6,350) 3 (3,335)
======== ========= ========
Deferred:
Federal................................... --- (3) (1,611)
State and local........................... --- --- (890)
-------- --------- --------
--- (3) (2,501)
-------- --------- --------
$(6,350) $ --- $(5,836)
======== ========= ========
</TABLE>
The provision (benefit) for income taxes on continuing operations is
different from the amount that would be computed by multiplying the income
(loss) from continuing operations before provision (benefit) for income taxes
by the statutory U.S. federal income tax rates for the following reasons:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C>
Provision (benefit) at statutory rate............ $(6,181) $(1,264) $(14,390)
State and local income taxes, net of federal
income tax benefit............................... --- --- (587)
Goodwill and other nondeductible items........... 6,442 476 435
Tax refund claims................................ --- --- (619)
Targeted jobs tax credit......................... (134) (318) (105)
Tip credits...................................... (351) (388) ---
Valuation allowance.............................. (5,679) 1,454 9,502
Other............................................ 447 40 (72)
-------- ------- ---------
Income tax provision (benefit) on continuing $
operations....................................... $(6,350) $ --- $ (5,836)
======== ======= =========
</TABLE>
NOTE 8 - INCOME TAXES (CONTINUED)
The tax effects of principal temporary differences in 1995 are shown in the
following table:
<TABLE>
<CAPTION>
Assets Liabilities Total
------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
Additional inventory costs for tax
purposes.................................. $ 275 $ --- $ 275
Net operating loss and contributions
carry forward............................. 663 --- 663
Reserves and accrued expenses............. 5,737 --- 5,737
Unamortized pre-opening expenses.......... 16 --- 16
Other..................................... 682 (282) 400
Valuation allowance....................... (1,363) --- (1,363)
---------- ---------- ----------
Current................................ 6,010 (282) 5,728
---------- ---------- ----------
Unamortized intangible assets............. --- (1,230) (1,230)
Excess tax over book depreciation and
sale leasebacks........................... --- (14,550) (14,550)
Deferred compensation..................... 561 --- 561
Reserves and accrued expenses............. 4,973 --- 4,973
AMT, net operating loss and targeted jobs
tax credit carry forward.................. 11,799 --- 11,799
Other..................................... 433 (4,239) (3,806)
Valuation allowance....................... (3,284) --- (3,284)
---------- ---------- ----------
Total Noncurrent....................... 14,482 (20,019) (5,537)
---------- ---------- ----------
Total............................... $20,492 $(20,301) $ 191
========== ========== ==========
</TABLE>
Other current assets include income tax refund receivable of $600,000 in
1995.
The valuation allowance at December 31, 1995 of $4,647,000 resulted from an
increase in net operating loss carryforwards in excess of deferred liabilities.
NOTE 8 - INCOME TAXES (CONTINUED)
The tax effects of principal temporary differences in 1994 are shown in the
following table:
<TABLE>
<CAPTION>
Assets Liabilities Total
---------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
Additional inventory costs for tax
purposes................................. $ 162 $ --- $ 162
Net operating loss and contributions
carry forward............................ 783 --- 783
Reserves and accrued expenses............ 7,563 --- 7,563
Unamortized pre-opening expenses......... --- (18) (18)
Other.................................... 496 (287) 209
Valuation allowance...................... (3,033) --- ( 3,033)
--------- ---------- ----------
Current............................... 5,971 (305) 5,666
--------- ---------- ----------
Unamortized intangible assets............ --- (1,138) (1,138)
Net operating loss....................... 7,827 --- 7,827
Excess tax over book depreciation and
sale leasebacks.......................... --- (14,250) (14,250)
Deferred compensation.................... 564 --- 564
Reserves and accrued expenses............ 8,616 --- 8,616
AMT, net operating loss and targeted
jobs tax credit carry forward........... 5,673 --- 5,673
Other.................................... 434 (1,757) (1,323)
Valuation allowance...................... (7,785) (3,847) (11,632)
--------- ---------- ----------
Total Noncurrent...................... 15,329 (20,992) (5,663)
--------- ---------- ----------
Total.............................. $ 21,300 $ (21,297) $ 3
========= ========== ==========
</TABLE>
Other current assets include an income tax refund receivable of $132,000 in
1994. The valuation allowance at December 25, 1994 of $10,818,000 resulted
from an increase in net operating losses in excess of deferred liabilities.
NOTE 8 - INCOME TAXES (CONTINUED)
The tax effects of principal temporary differences in 1993 are shown in the
following table:
<TABLE>
<CAPTION>
Assets Liabilities Total
------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C>
Additional inventory costs for tax
purposes................................. $ 209 $ --- $ 209
Net operating loss and contributions
carryforwards............................ 4,425 --- 4,425
Reserves and accrued expenses............ 6,026 --- 6,026
Unamortized preopening expenses ......... --- (275) (275)
Other.................................... --- (289) (289)
Valuation allowance...................... (3,362) --- (3,362)
--------- ---------- ---------
Total current......................... 7,298 (564) 6,734
--------- ---------- ---------
Unamortized intangible assets............ --- (1,237) (1,237)
Net operating loss....................... 3,625 --- 3,625
Investment related basis differences..... --- (3,847) (3,847)
Excess tax over book depreciation and
sale-leasebacks.......................... --- (10,450) (10,450)
Deferred compensation and pension expense 848 --- 848
Reserves and accrued expenses............ 5,402 --- 5,402
AMT and targeted jobs tax credit carry
forward.................................. 4,595 --- 4,595
Other.................................... 470 --- 470
Valuation allowance...................... (6,140)
(6,140) ---
--------- ---------- ---------
Total Noncurrent...................... 8,800 (15,534) (6,734)
--------- ---------- ---------
Total.............................. $ 16,098 $(16,098) $ ---
========= ========== =========
</TABLE>
The Company increased its deferred tax asset and liability in 1993 as a
result of legislation enacted during 1993 increasing the corporate tax rate
from 34% to 35% commencing in 1993. The valuation allowance at December 26,
1993 of $9,502,000 resulted from a change in circumstances during 1993
surrounding the likelihood of the realization of the deferred tax assets in
future years.
NOTE 8 - INCOME TAXES (CONTINUED)
The Company has tax carryforwards at December 31, 1995 expiring as follows:
<TABLE>
<CAPTION>
Net Targeted
Operating Jobs Tax Tip
EXPIRATION Contributions Loss Credit Credit
------------ ----------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
1996.................... $ --- $ --- $ --- $ ---
1997.................... 415 --- --- ---
1998.................... 703 --- --- ---
1999.................... 779 --- ---
2003.................... --- --- 330 ---
2004.................... --- --- 403 ---
2005.................... --- --- 304 ---
2006.................... --- --- 501 ---
2007.................... --- 2,818 714 ---
2008.................... 12,131 159 ---
---
2009.................... 363 489 589
2010.................... --- --- 206 541
--------- ---------- ---------- ---------
Total................... $ 1,894 $ 15,312 $ 3,106 $ 1,130
========= ========== ========== =========
</TABLE>
The use of these carryforwards is limited to future taxable income.
Alternative minimum tax credits total $2,394,000 and may be carried forward
indefinitely.
NOTE 8 - INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes during 1995 and 1993 consists of
the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31, 1995
FEDERAL STATE & TOTAL
LOCAL
--------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Continuing operations.................. $(5,445) $ (905) $ (6,350)
Discontinued operations:
Gain on disposal.................... 5,445 905 6,350
--------- ---------- ---------
Net benefit......................... $ $ $
--- --- ---
========= ========== =========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 26, 1993
FEDERAL STATE & TOTAL
LOCAL
--------- --------- ---------
(DOLLARS IN THOUSANDS)
--------- ---------
<S> <C> <C> <C>
Continuing operations.................. $(4,946) $ (890) $ (5,836)
Discontinued operations:
Gain on disposal.................... 2,717 --- 2,717
--------- --------- ---------
Net benefit......................... $(2,229) $ (890) $ (3,119)
========= ========= =========
</TABLE>
NOTE 9 - LEASE COMMITMENTS
The Company leases certain of its restaurant locations under long-term
lease arrangements. Lease terms generally range from 10 to 25 years and
normally contain renewal options ranging from 5 to 15 years, but do not
contain purchase options. The Company is generally obligated for the cost of
property taxes and insurance.
Some of these leases contain contingent rental clauses based on a percentage
of revenue. The building portions of such leases are capitalized and the land
portions are accounted for as operating leases. Contingent rentals on capital
leases were $310,000, $389,000, and $526,000 during 1995, 1994 and 1993,
respectively.
Rent expense under operating leases included in continuing operations is as
follows:
1995 1994 1993
----------- ----------- ------------
(Dollars in thousands)
Land and buildings:
Minimum...................... $ 5,441 $ 4,918 $ 5,184
Contingent................... 665 686 714
--------- ---------- ----------
6,106 5,604 5,898
Equipment leases................ 2,417 2,386 2,124
--------- ---------- ----------
$ 8,523 $ 7,990 $ 8,022
========= ========== ==========
NOTE 9 - LEASE COMMITMENTS (CONTINUED)
A summary of future minimum lease payments under capital leases,
non-cancelable operating leases, and leases reserved for in the allowance for
restructuring recorded in the fourth quarter of 1993 with remaining terms in
excess of one year at December 31, 1995 follows:
CAPITAL OPERATING RESERVED
LEASES LEASES LEASES
--------- ----------- ---------
(DOLLARS IN THOUSANDS)
1996............................ $2,881 $7,760 $1,090
1997............................ 2,738 7,546 1,084
1998............................ 2,574 6,989 941
1999............................ 2,348 5,963 931
2000............................ 2,135 4,679 859
Thereafter...................... 14,537 27 4,109
-------- --------- -------
27,213 32,964 9,014
Less interest................... 11,615 --- ---
-------- --------- -------
$15,598 $ 32,964 $ 9,014
======== ========= =======
Future minimum lease payments on operating leases in continuing operations
have been reduced for sublease rental income of approximately $389,000 to be
received in the future under non-cancelable subleases.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Several of the Company's reserved area agreements include expansion
schedules requiring the Company to develop a minimum number of Shoney's
restaurants in the reserved areas over a defined period of time. Pursuant to
these agreements, the Company is required to open a minimum of 36 Shoney's
restaurants through October 6, 2004. In 1991, the Company entered into an
agreement with Shoney's, Inc. to develop 38 new Captain D's restaurants over
20 years, at the approximate rate of two per year. The Company has constructed
eight restaurants with respect to this agreement. Due to the pending Shoney's,
Inc. Sale Transaction, the Company is not pursuing the building of such units
in 1996. Management is of the opinion that if the transaction is not
completed, the Company will be able to modify the agreement with no material
adverse effect on the operating result or financial position of the Company.
NOTE 11 - LITIGATION
MAXCELL TELECOM PLUS, INC. ET AL., V. MCCAW CELLULAR COMMUNICATIONS, INC. ET AL.
On November 1, 1993, the Company and its wholly-owned subsidiary, Maxcell,
filed a complaint against McCaw Cellular Communications, Inc. ("McCaw"),
Charisma Communications Corp. ("Charisma") and various related parties,
related to McCaw's failure to disclose the existence of a side agreement
between McCaw and Charisma to share in the net profits from the resale of
certain cellular properties which were sold by the Company to McCaw. The
Company sought recision of the sales contract and damages based upon the
defendant's alleged fraudulent misrepresentation, breach of fiduciary duty,
conspiracies and tortious interference with contracts. On November 2, 1995,
the Company and Maxcell entered into a settlement agreement with AT&T Wireless
Services, Inc. (formerly McCaw Cellular Communications, Inc.) relating to this
lawsuit (the "Maxcell Settlement"). The Maxcell Settlement, which was approved
by the court in December 1995, provides for a total payment to Maxcell of
$30.0 million which was received subsequent to year end. The financial
statements include a gain of $10.1 million net of income taxes at December 31,
1995 after recording contingency fees and expenses of approximately $13.5
million related to the Maxcell Settlement. The expenses include $1.8 million
payable under certain agreements with two former employees.
READING COMPANY AND JAMES J. COTTER V. TPI ENTERPRISES, INC.
On March 7, 1995, a civil action captioned Reading Company and James J.
Cotter v. TPI Enterprises, Inc., 95 Civ. 1579 was filed in the United States
District Court for the Southern District of New York. The plaintiffs allege
inter alia breach of contract and seek damages of $1.25 million plus interest,
punitive damages and attorney's fees in connection with the sale to a
subsidiary of American Multi-Cinema, Inc. of Entertainment's, interest in
Exhibition Enterprises Partnership (the "Partnership") in April 1991. The
Company's attorneys are unable at this time to state the likelihood of an
unfavorable outcome. Management does not believe that the ultimate outcome
will have a material adverse effect on the operating results or financial
position of the Company.
PORPOISE ASSET MANAGEMENT AND LAWRENCE CAPITAL MANAGEMENT, INC. V. J. GARY
SHARP, ET AL.; BROCK WEINER V. TPI ENTERPRISES, INC., ET AL. AND CRANDON
CAPITAL PARTNERS, ET AL. V. TPI ENTERPRISES, INC., ET AL.
During 1995, three shareholder suits were filed against the Company and its
Board of Directors. The plaintiffs allege, among other things, that the
Company's shareholders will receive inadequate consideration in the proposed
Shoney's, Inc. Sale Transaction, that the proposed transaction is the result
of unfair dealing and economic coercion and that the Directors have breached
their fiduciary duties to the Company's shareholders to maximize shareholder
value. The plaintiffs seek class action status and to enjoin the proposed
transaction and recover damages. The Company announced on March 18, 1996 that
it had signed a letter of understanding dated March 15, 1996 for the
settlement of these three lawsuits. This letter of understanding followed the
execution on March 15, 1996 of the Agreement. The settlement would entail the
consolidation and settlement of the three lawsuits and is subject to several
conditions, including confirmatory discovery, court approval of the settlement
and the closing of the Shoney's, Inc. Sale Transaction. The Company has
recorded a liability at December 31, 1995 for $250,000 as agreed to in the
settlement.
TPI RESTAURANTS, INC. V. MARLIN SERVICES, INC., MARLIN ELECTRIC, INC., D/B/A/
MARLIN SERVICES AND THE AETNA CASUALTY AND SURETY COMPANY AND MARLIN ELECTRIC,
INC. V. TPI RESTAURANTS, INC. AND RELATED MATTERS
On March 7, 1996, the Company filed a civil action; captioned TPI
Restaurants, Inc. v. Marlin Services, Inc., Marlin Electric, Inc., d/b/a/
Marlin Services, Inc. ("Marlin") and The Aetna Casualty and Surety Company.
The Company contends among other things that Marlin breached the terms of a
maintenance service agreement that Restaurants had entered into with Marlin by
failing to perform timely maintenance as required by the agreement,
overcharging for parts and materials, improperly billing for labor, improperly
charging for overhead, etc. On March 7, 1996, Marlin filed a separate action
in the U.S. District Court of Virginia against Restaurants alleging among
other things that Restaurants breached its contract with Marlin by failing to
pay amounts owed under the contract. Marlin claims damages in excess of
$2,200,000 through March, 1996. The Company's attorneys are unable at this
time to state the likelihood of a favorable or unfavorable outcome in these
actions.
Subsequent to the end of the year, the Company has been contacted by a
number of subcontractors employed by Marlin. These subcontractors have
indicated that they have not been paid, for certain services performed and
that they are entitled to mechanic's and/or materialman's liens on the
Company's restaurants. The Company is unable at the present time to
determine what liability, if any, exists to these and other subcontractors.
Management does not believe that the ultimate outcome will be a material
adverse effect on the operating results or financial position of the Company.
OTHER
The Company and its subsidiaries are defendants in various other lawsuits
arising in the ordinary course of business. While the result of any litigation
contains an element of uncertainty, it is the opinion of the management of the
Company that the outcome of such litigation will not have a material adverse
effect on the operating results or financial position of the Company.
NOTE 12 - SHAREHOLDER'S EQUITY
STOCK OPTION PLANS
Officers and other key employees have been granted options to purchase
common shares under nonqualified stock option plans adopted in 1982, 1983,
1984 and 1992. In addition, 165,000 shares of the Company's common stock are
reserved under the 1992 stock option plan for non-employee directors. At
December 31, 1995, an aggregate of 3,127,360 common shares were reserved under
these plans. The number of shares available for future grants was 850,000 at
December 31, 1995. Options are generally granted at the market price on the
date of grant and generally become exercisable in 20% increments over a
five-year period and expire ten years from the date of grant. At December 31,
1995, options were exercisable to purchase 1,555,710 shares at prices ranging
from $5.00 to $10.88.
The Company's stock option transactions are summarized as follows:
NUMBER OF EXERCISE
OPTIONS PRICE
PER OPTION
---------- ------------
Outstanding at December 31, 1992............... 2,542,750 $5.00 - $8.38
Granted..................................... 57,500 $9.38 - $10.88
Exercised................................... (426,140) $5.00 - $8.38
Canceled or lapsed.......................... (29,850) $6.25 - $8.38
----------
Outstanding at December 26, 1993............... 2,144,260 $5.00 - $10.88
Granted..................................... 117,500 $9.18 - $9.75
Exercised................................... (6,650) $6.25 - $7.00
Canceled or lapsed.......................... (17,750) $6.25 - $8.38
----------
Outstanding at December 25, 1994............... 2,237,360 $5.00 - $10.88
Granted..................................... 52,500 -----
Exercised................................... ----- -----
Canceled or lapsed.......................... (215,550) $5.75 - $8.38
----------
Outstanding at December 31, 1995............... 2,074,310 $5.00 - $10.88
==========
The Company has warrants outstanding at December 31, 1995 to purchase
1,000,000 shares of the Company's common stock at $11.00 per share.
NOTE 12 - SHAREHOLDER'S EQUITY (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN
On August 16, 1989, the Company adopted the 1989 Employee Stock Purchase
Plan (the "Employee Plan") pursuant to which up to 500,000 shares of the
Company's common stock may be purchased at 85% of the fair market value of the
shares of the Company's common stock on the first or last business day of each
of thirteen purchase periods. The Employee Plan was terminated on April 16,
1995. On December 16, 1994, the Company and certain subsidiaries adopted the
1995 Employee Stock Purchase Plan (the "1995 Employee Plan") pursuant to which
1,000,000 shares of the Company's common stock may be purchased at 85% of the
fair market value of the Company's common stock on the first or last business
day of each of thirteen purchase periods. The 1995 Employee Plan is open to
all active adult employees of the Company and Restaurants who have been
employed for at least six months, customarily work more than 20 hours per week
and more than five months per year, and are not directors or 5% shareholders
of the Company or any subsidiary, as defined in the Employee Plan. Employees
can designate up to 10% of their compensation for the purchase of shares,
which is consistent with the prior plan. During 1995, 1994, and 1993, 82,239,
90,932, and 73,419 shares, respectively, were issued under the Employee Plan
at prices ranging from $2.92 to $4.57 per share in 1995, $3.77 to $8.29 per
share in 1994 and $6.91 to $9.14 per share in 1993. Aggregate purchases were
approximately $305,000, $532,000, and $582,000, in 1995, 1994 and 1993,
respectively.
NOTE 13 - EMPLOYMENT AGREEMENTS, DEFERRED COMPENSATION AND RETIREMENT PLAN
EMPLOYMENT AGREEMENTS
The Company has agreements with two executive officers which expire in 1996
and 1999. The aggregate minimum commitment for future salaries under these
agreements is approximately $1,314,000. The Company is also required to pay
incentive bonuses equal to an aggregate of 4.2% of the annual increase in
operating income over the prior year and $44,000 for each percentage point
increase, or portion thereof, in the Company's same store sales. Additionally,
two key employees of Restaurants are covered by agreements, one of which
expires in 1997 and one contains a self-renewing term of three years. The
aggregate minimum commitment for future salaries under Restaurants' agreements
is $865,000. Additional bonuses are at the discretion of the Board of
Directors. All of the above agreements provide severance benefits in the event
of a change of control or an involuntary termination of the officer or key
employee. The maximum contingent liability related to these severance benefits
at December 31, 1995 is $2,200,000.
At December 31, 1995, the Company also has various employment agreements
with another executive which stipulates that the Company will pay the
executive upon a favorable outcome of the courts, 1% of the gross proceeds
relating to the McCaw lawsuit. The Company has recorded a provision of
$300,000 for the settlement of this obligation. (See Note 11). The payment of
this amount releases the Company from further obligations under the
executive's employment contracts except for his 1984 Termination Agreement
which stipulates that he is to receive three (3) years' salary at his present
rate in the event of a change in control of the Company. The aggregate maximum
commitment for future salaries under this agreement is $675,000. Subsequent to
the end of the year, the executive resigned and the Company entered into a
settlement agreement with him for $250,000. Under the terms of the Agreement,
the payment of this amount releases the Company from any obligations under his
1984 agreement.
In addition, the 1994 results of operations include a provision of
$1,600,000 resulting from the retirement of the Company's then Chairman of the
Board, effective January 31, 1995. The provision includes all amounts due
under his current employment contracts. The agreement also stipulates that the
Company will pay the former Chairman of the Board, upon a favorable outcome of
the courts, 5% of the gross proceeds relating to the McCaw lawsuit. (See Note
11). The Company has provided $1,500,000 in 1995 to pay this obligation.
The Company is also committed to certain individuals to pay them one year's
salary in the event that they are terminated without cause within two years of
their move to Florida in connection with the Company's relocation of its
corporate offices during 1995. The aggregate maximum commitment for future
salaries under this agreement is approximately $1,000,000.
DEFERRED COMPENSATION AGREEMENTS
Deferred compensation of $1,596,000 and $1,619,000 included in other
liabilities at December 31, 1995 and December 25, 1994, respectively, relates
to agreements with two former officers of Restaurants. Due to interest rate
fluctuations occurring at the measurement date, the Company recorded a
$179,000 charge to operations and a $562,000 increase in operations during the
fourth quarter of 1995 and 1994, respectively.
401 (K) RETIREMENT PLAN
The Company has established the TPI Enterprises, Inc. (401 (k) Retirement
Savings Plan (the "Plan") effective January 1, 1995. The Plan is a deferred
contribution plan which is administered by NationsBank and participates in the
NationsBank Defined contribution Master Plan. Employees become eligible to
participate after 1,000 hours of service. The Company is required to match
employee contributions at 25%, up to a maximum of 6% of a participant's
eligible salary. The Company's contribution to the Plan is in the form of
shares of the Company's common stock. The Company made contributions to the
Plan aggregating $181,000 during 1995.
RETIREMENT PLAN
In December 1993, the Board of Directors authorized the termination of the
Company's non-qualified retirement plan for certain senior executives. Prior
to December 31, 1992, the plan had four participants selected by the Board of
Directors to participate in the plan. Three participants became eligible
during 1992 to begin receiving retirement benefits under the early retirement
provisions of the plan. In February 1993, one of these participants informed
the Company of his intentions to retire prior to the end of 1993. The Company
paid a lump sum benefit payment to this officer of $1,850,000 during March
1993. Operations was charged $1,148,000 for the year ended December 31, 1992
in connection with this curtailment. Upon termination of the plan, the Company
made total lump sum benefit payments of $4,225,000 to the three remaining
participants in the plan. These payments were determined through negotiations
with the participants and were less than the aggregate actuarial present value
of the retirement benefits otherwise payable under the plan. This termination
resulted in a charge to operations of $1,220,000 during the year ended
December 26, 1993.
Net periodic pension cost for the fiscal year ended December 26, 1993
consists of the following:
1993
------------
(Dollars in
thousands)
Service cost - benefits earned during the period...... $ 254
Interest cost on projected benefit obligations........ 335
Amortization of unrecognized prior service costs...... 195
Effect of curtailment and settlements................. 1,220
--------
Net periodic pension costs............................ $ 2,004
========
Assumed rates of increase in compensation levels...... 6.0%
========
Assumed discount rate................................. 6.0%
========
NOTE 14 - DISCONTINUED OPERATIONS
Discontinued operations for 1995 include a gain of $10,113,000, net of
income taxes of $6,350,000 relating to the Maxcell Settlement. (See Note 11).
On May 28, 1993 the Company, through its wholly owned subsidiary,
Entertainment, completed the sale of its 50% interest in the Partnership, a
partnership with Cinema Enterprises, Inc., a wholly-owned subsidiary of AMC
for $17,500,000. As a result of this transaction, the Company recognized a
gain of $5,272,000, net of income taxes of $2,717,000 in the year ended
December 26, 1993.
NOTE 15 - RELATED PARTY TRANSACTIONS
On July 21, 1993, the Company, through a wholly-owned subsidiary, acquired
the stock of a company which operated three Shoney's restaurants, including
one owned and two leased locations.
Included in the acquisition were the exclusive rights to operate Shoney's
restaurants in the surrounding northern Palm Beach County, Florida area. The
purchase price of $3,860,000 included the issuance of 94,300 shares of the
Company's common stock at $9.49 per share, the weighted average price for the
prior twenty days. In conjunction with this transaction, the Company purchased
the land and building at one of the leased restaurant locations for $1,240,000.
The President and Chief Executive Officer of the Company was a 20% shareholder
of the acquired company and had a 50% interest in the land and building the
Company purchased. The Company engaged the services of an independent appraisal
company to review the fairness of the transaction.
On January 19, 1993, Restaurants purchased an airplane from a corporation
owned by the President and Chief Executive Officer of the Company for $650,000.
NOTE 16 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Restaurants' fiscal year is comprised of fifty-two or fifty-three weeks
divided into four quarters of sixteen, twelve, twelve, twelve or thirteen
weeks, respectively. 1995 was a fifty-three week year and 1994 had fifty-two
weeks. During the third quarter of 1995, the Company reduced by $3,049,000 its
restructure reserve (Note 3). In the fourth quarter, the Company recorded a
$17,000,000 allowance for asset valuation (Note 2), $10,113,000 gain, net of
income taxes, from a litigation settlement (Note 11), $5,000,000 reduction of
insurance reserves (Note 7) and a $2,880,000 reduction of restructure reserves
(Note 3). During the fourth quarter of 1994, the Company recorded $1,600,000
related to the retirement of the Company's Chairman (Note 13), $600,000 for
adjustment to the Company's deferred compensation obligation (Note 13), and a
$1,000,000 reduction to the Company's restructure reserve (Note 3).
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- --------- --------- --------
(Dollars in thousands, except per share data)
QUARTER ENDED - 1995
- ------------------
<S> <C> <C> <C> <C>
Net sales................ $ 83,744 $ 67,241 $ 65,492 $ 67,101
Gross profit............. 8,362 7,040 3,884 7,572
Net income (loss) from
continuing operations.... (1,505) (759) (947) (8,098)
Net income (loss)........ (1,505) (759) (947) 2,015
Primary earnings per
share:
Continuing operations. (0.07) (0.04) (0.05) (.39)
Net income (loss)..... (0.07) (0.04) (0.05) .10
QUARTER ENDED - 1994
- ------------------
Net sales, restated...... 88,423 69,529 68,086 61,346
Gross profit............. 10,714 8,474 6,589 4,267
Net income (loss) from
continuing operations.... 847 336 (1,246) (3,654)
Net income (loss)........ 847 336 (1,246) (3,654)
Primary earnings per
share:
Continuing operations. 0.04 0.02 (0.06) (0.18)
Net income (loss)..... 0.04 0.02 (0.06) (0.18)
</TABLE>
Gross profit equals revenues less food, supplies and uniforms, restaurant
labor and benefits, restaurant depreciation and amortization and other
restaurant operating expenses. Net income (loss) per share is computed
separately for each period and, therefore, the sum of such quarterly per share
amounts may differ from the total for the year. The effect of convertible
debentures and stock options on the fully-diluted earnings per share
computation for all 1995 and 1994 were either antidilutive or did not result
in a material dilution of earnings per share and, therefore, primary and
fully-diluted earnings per share are equivalent.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in, or disagreements with, accountants during
1995.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS
The name, age, principal occupation for the last five years, selected
biographical information, and period of previous service as a director of the
Company with respect to each such nominee for director is set forth below.
The principal occupations listed refer to positions with the Company unless
otherwise indicated.
NAME AGE POSITIONS AND OFFICES DIRECTOR
PRESENTLY HELD WITH SINCE
THE COMPANY
J. Gary Sharp(1) 49 President, Chief Executive 1992
Officer and Director
Frederick W. Burford(1) 45 Executive Vice President, 1993
Chief Financial Officer,
Secretary and Director
Paul James Siu(1) 61 Director 1986
Edwin B. Spievack(1) 63 Director 1986
Osvaldo Cisneros(1) 55 Director 1992
Thomas M. Taylor(1) 53 Director 1993
John L. Marion, Jr.(1) 34 Director 1993
Douglas K. Bratton(1) 37 Director 1993
Lawrence F. Levy(1) 52 Director 1993
- ---------------
1 Pursuant to an agreement dated March 19, 1993, by and among the Company,
The Airlie Group L.P., The Bass Management Trust, Sid R. Bass Management
Trust, Lee M. Bass and TPI Investors, L.P., (collectively, the
"Purchasers") the Company agreed (i) to increase the size of the Board
and appoint Thomas M. Taylor, John L. Marion, Jr. and Douglas K. Bratton
as Directors and (ii) to seek the resignation or removal of such other
then existing directors so that the Company's Board would consist of (a)
Messrs. Taylor, Marion and Bratton, (b) Messrs. Cohen, Sharp, Burford and
Cisneros (collectively, the "Current Enterprises Directors"), (c) two of
the independent directors then serving on the Board as chosen by mutual
agreement of the Current Enterprises Directors and the Purchasers
(Messrs. Siu and Spievack), and (d) a new independent Director as
recommended by the Purchasers, and mutually agreed to by the Current
Enterprises Directors and the Purchasers (Mr. Levy). Mr. Cohen resigned
from his position of Chairman of the Board and Director of the Company
effective January 31, 1995.
J. Gary Sharp joined the Company in September 1989 when he was elected
President and Chief Operating Officer of Restaurants. In March 1993, Mr. Sharp
was elected President and Chief Executive Officer of the Company.
Frederick W. Burford joined the Company in November 1991 when he was
appointed Vice President, Chief Financial Officer and Treasurer of Restaurants.
In March 1993, Mr. Burford was elected Executive Vice President and
Chief Financial Officer of the Company. In March 1995, Mr. Burford was
appointed Secretary of both the Company and Restaurants. From March 1990
through January 1991 Mr. Burford was Vice President and Controller of The
Promus Companies, Incorporated ("Promus") and, from February 1991 through
October 1991, he was Vice President, Treasurer and Controller of Promus.
Paul James Siu, who was elected a director of the Company in September
1986, currently serves as principal of Paul Siu & Company, a business
consulting concern.
Edwin B. Spievack, who was elected a director of the Company in September
1986, served from 1982 through April 1995 as President of the North American
Telecommunications Association, an industry trade association. Since
January 8, 1996, Mr. Spievack has served as Vice President of Business
Development of Source Inc. Mr. Spievack also serves as President of EBSco,
Limited, a business consulting concern, and retains his active status as an
attorney. Mr. Spievack is also a director of Communications World Inter-
national, Inc.
Osvaldo Cisneros, who was elected a director of the Company in 1992, has
been President of Ocaat, CA, a holding company that operates numerous Pepsi-
Cola plants in Venezuela, since 1984; President of Telefonia Celular, a
cellular telephone company, since 1991; President of Produvisa, a glass
company, since 1987; President of Refractarios del Caroni, a brick company,
since 1980; and President of Central Portuguesa, a sugar mill, since 1985.
Thomas M. Taylor, who was elected director of the Company on March 19,
1993, has been President of Thomas M. Taylor & Co., an investment entity,
since May 1985; and President of TMT-FW, Inc., a corporation that serves as
one of two general partners of the general partner of The Airlie Group L.P. a
diversified investment firm, since October 1989. Mr. Taylor is also Chairman
of the Board of Directors of La Quinta Inns, Inc. and a director of John Wiley
& Sons, Inc.
John L. Marion, Jr., who was elected director of the Company on March 19,
1993, has served as an investment advisor for TMT-FW, Inc. and The Airlie
Group L.P. since 1990.
Douglas K. Bratton, who was elected director of the Company on March 19,
1993, has served as an investment advisor for TMT-FW, Inc. and a partner of
The Airlie Group L.P. since 1989.
Lawrence F. Levy, who was elected director of the Company on April 14,
1993, is the Chairman of the Boards of The Levy Organization and Levy
Restaurants. Levy Restaurants is a food service company that operates
restaurants and concession facilities and The Levy Organization is involved in
a variety of businesses including, but not limited to, the ownership,
management, leasing and development of commercial real estate. Mr. Levy is
also a director of Chicago Title and Trust Company.
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers, and persons who own more than 10% of a registered class of
the Company's equity securities, to file with the Commission initial reports
of ownership and reports of changes in ownership of shares of the Company's
Common Stock and other equity securities of the Company. Executive officers,
directors and beneficial owners of greater than 10% of the Company's Common
Stock are required by Commission regulation to furnish Enterprises with copies
of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to Enterprises and written representations from certain
reporting persons that no other reports on forms were required for such
persons, during the fiscal year ended December 31, 1995 all Section 16(a)
filing requirements applicable to its officers, directors and greater than
10% beneficial owners were complied with.
EXECUTIVE OFFICERS
Information required regarding executive officers is included in the
Form 10-K Part I Item 4 entitled Executive Officers of the Registrant.
ITEM 11. EXECUTIVE COMPENSATION.
COMPENSATION OF DIRECTORS
Non-employee directors who beneficially own 5% or more of the shares of
the Company's Common Stock are compensated for their services as directors of
the Company at a rate of $10,000 per annum, and non-employee directors who
beneficially own less than 5% of the shares of the Company's Common Stock are
compensated at a rate of $25,000 per annum. Pursuant to this arrangement
during the fiscal year ended December 31, 1995, Messrs. Cisneros, Taylor,
Marion and Bratton were compensated for their services as directors of the
Company at the rate of $10,000 per annum and Messrs. Siu, Spievack and Levy
received $25,000 per annum for their services as directors of the Company.
Pursuant to agreements between The Airlie Group L.P. and each of Messrs.
Taylor, Marion and Bratton, each of such directors pays the fees he receives
for his services as a director of the Company over to The Airlie Group L.P.
Under the terms of the Company's 1992 Non-Employee Stock Option
Directors Plan (the "Non-Employee Directors Plan"), each non-employee director
is granted an option to purchase 2,500 shares of the Company's Common Stock on
the first business day of each February and August, provided the director is
serving on the Company's Board on the date of the grant. Grants under the
Non-Employee Directors Plan generally vest in 20% increments each year following
the date of grant. Grants made to non-employee directors on the date the
plan was adopted, vested as to each such director as if the grant had been
made when he was elected to the Company's Board. Pursuant to the Non-Employee
Directors Plan, Messrs. Cisneros, Siu, Spievack, Taylor, Marion, Bratton and
Levy were each granted an option to purchase 2,500 shares of the Company's
Common Stock on February 1, 1995 and on August 1, 1995. Each new non-employee
director is granted an option to purchase 10,000 shares of the Company's
Common Stock at the time such director is elected to the Board.
Messrs. Spievack, Cisneros and Siu are members of the Special Committee
which was established on September 12, 1995 by the Company's Board to determine
the advisability of a possible transaction with Shoney's, Inc. Members
of the Special Committee each receive a fee of $2,000, plus out-of-pocket
expenses for each in-person meeting of the Special Committee attended by such
member and for each day from and after September 12, 1995 (other than a day
during which an in-person meeting of the Special Committee occurs) during
which such member devotes a substantial portion of the day to Special
Committee affairs. Mr. Spievack received $57,180, Mr. Cisneros received $0
and Mr. Siu received $36,000 as compensation for their services rendered in
1995 with respect to the Special Committee.
No other director receives compensation for his services as such.
EXECUTIVE COMPENSATION
The Summary Compensation Table set forth below shows the compensation
for the past three years of each of the Company's most highly compensated
executive officers (the "Named Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
Other
Annual
Name and Principal Compensa- Awards Other Compen
Position Year Salary ($) Bonus ($) tion ($) Options (#) sation ($)
- ------------------ ---- ---------- --------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. Gary Sharp 1995 319,065 0 0 0
President and 1994 303,594 0 100,000 (1) 0
Chief 1993 289,402 0 0 33,357(2)
Executive Officer
Frederick E. Burford 1995 234,084 30,000 30,000 (1) 24,171(3)
Executive Vice 1994 197,953 30,000 50,774 0 55,206(4)
President, Chief 1993 182,438 36,255(5) 0 0
Financial Officer
and Secretary
Robert Kennedy 1995 227,326 0 0 300,000(6)
Executive Vice 1994 226,939 0 0 0
President 1993 313,600 0 0 700,000(8)
and Secretary(7)
Haney A. Long, Jr. 1995 253,211 124,284 0 6,405(9)
Vice President of 1994 217,440 142,977 84,684 0 105,388(10)
Procurement and 1993 202,325 143,954 0 0
Distribution
<FN>
(1) Options with respect to the 100,000 and 30,000 shares of the
Company's Common Stock for Mr. Sharp and Mr. Burford,
respectively, become exercisable in 10% increments tied to
increases in the trading prices of the Company's Common
Stock. The options do not begin to vest until the market
price of the Company's Common Stock exceeds $18 per share
for 20 consecutive trading days, at which time 10% will
vest. The options then vest in 10% increments each time
the stock price increases by $1 and retains such increase
for 20 consecutive trading days.
(2) Represents $33,357 in moving expenses paid to Mr. Sharp in
1993.
(3) Represents $24,171 in moving expenses paid to Mr. Burford
in 1995.
(4) Represents $55,206 in moving expenses paid to Mr. Burford
in 1994.
(5) Includes a $30,000 bonus and reflects the fair market value
of 500 shares of the Company's Common Stock awarded to Mr.
Burford at the time of the award.
(6) Represents $300,000 paid to Mr. Kennedy in March 1996,
pursuant to the terms of an agreement relating to the
Maxcell Lawsuit. See "- Employment Contracts, Termination
of Employment and Change in Control Arrangements."
(7) Mr. Kennedy retired as Executive Vice President and Secretary
of Enterprises effective March 17, 1996.
(8) Represents a lump sum payment of $700,000 made to Mr.
Kennedy upon termination of the Company's retirement plan in
connection with an employment agreement with Mr. Kennedy,
which provided for a reduction in compensation for future
services, and in satisfaction of the Company's obligations
under the retirement plan.
(9) Represents $6,405 in moving expenses paid to Mr. Long in
1995.
(10) Represents $105,388 in moving expenses paid to Mr. Long
in 1994.
</TABLE>
EMPLOYEE OPTION/SAR GRANTS
The Company has in effect stock option plans pursuant to which options
to purchase shares of the Company's Common Stock and stock appreciation rights
("SARs") (rights, granted in tandem with an option to receive cash payments
equal to any appreciation in value of the shares subject to option from the
date of the option grant to the date of exercise in lieu of exercise of the
option) are granted to officers and other key employees of the Company and its
subsidiaries.
The following table shows stock options granted to the Named Executive
Officers in 1995. Of the stock options shown in the Summary Compensation Table
above, none of the options were options with tandem SARs. No free-standing
SARs have been granted under the Company's stock option plans.
<TABLE>
<CAPTION>
Individual Grants
-- ------------------------------------------------------
Potential
Number of Percent of Realizable
Securities Total Exercise Value of Asumed
Underlying Options/SAR's of Base Annual Rtes of
Option/SAR's granted to Price Expiration Stock Price
Name granted Employees in ($/SH) Date Appreciation for
Fiscal Year Option Term
-- ------------ -------------- -------- ---------- -------------------
5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
J. Gary Sharp 0 -- -- -- ---
---
Frederick W. 30,000(1) 100% $3.875 12/31/98 0 0
Burford
Robert A. 0 -- -- -- ---
Kennedy ---
Haney A. Long, Jr 0 -- -- -- ---
---
---
- -------------
<FN>
(1) The options do not become exercisable until the market price of the
Company's Common Stock exceeds $18 per share for twenty consecutive
trading days, at which time 10% will become exercisable. The options then
become exercisable in 10% increments each time the stock price increases
by $1 and retains such increase for 20 consecutive trading days.
</TABLE>
EMPLOYEE OPTION/SAR EXERCISES OF THE COMPANY'S COMMON STOCK AND
YEAR-END VALUE TABLE
The following table shows employee stock option exercises for the shares
of the Company's Common Stock by Named Executive Officers during 1995. The
table shows the number of shares covered by both exercisable and non-exercisable
employee stock options as of December 31, 1995, and the values for "in-the-
money" options, which represent the positive spread between the exercise
price of any outstanding stock option and the price of the Company's Common
Stock as of December 31, 1995.
AGGREGATED EMPLOYEE OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Value of
Number of Securities Unexercised
Shares Underlying Unexercised In-the-Money
Acquired Value Options/SAR's at Options/SAR's at
on Realized Fiscal Year Fiscal Year End
Name Exercise ($) End (#) ($)
---- -------- ----- Exercisable/ Exercisable/
Unexercisable Unexercisable
--------------- ---------------
<S> <C> <C> <C> <C>
J. Gary Sharp 0 0 142,900/150,000 0/0
Frederick W. 0 0 132,000/58,000 0/0
Burford
Robert A. Kennedy 0 0 55,000/0 0/0
Haney A. Long, Jr. 0 0 87,160/20,000 0/0
</TABLE>
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
J. Gary Sharp is employed by the Company under an employment agreement
dated as of January 13, 1994 which expires January 13, 1999 at a current
minimum base salary of $335,018 per annum. Pursuant to the terms of the
employment agreement, Mr. Sharp is entitled to an annual salary increase of no
less than 5% of the immediately preceding year's base salary. Pursuant to the
terms of the employment agreement, Mr. Sharp is entitled to receive an annual
bonus in an amount equal to 2.7% of the increase in the Company's operating
profits (as defined in the agreement) for the calendar year, plus an
additional $28,000 for each percentage point increase (or portion thereof)
in the Company's same store nominal sales. As a result of the Company's
financial performance in 1995, Mr. Sharp received no annual bonus for 1995.
In addition, Mr. Sharp's employment agreement provides for a discretionary
annual grant of up to 50,000 stock options with a ten-year term that vest pro
rata over the five years following the grant with an exercise price equal to
the market price of the Company's Common Stock on the date of grant. Any such
grant will be based on a review of the Company's financial performance during
such year. Mr. Sharp did not receive a stock option grant at the end of 1995.
The employment agreement provides that in the event that Mr. Sharp's
employment with the Company is terminated without cause or Mr. Sharp
terminates his employment after a material breach of the employment agreement
by the Company that is not remedied, the Company will pay Mr. Sharp his full
base salary at the rate then in effect until January 13, 1999.
Frederick W. Burford is employed by the Company under an employment
agreement dated as of January 1, 1995 which expires on December 31, 1996 at a
current minimum base salary of $245,788 per annum. Pursuant to the terms of
the employment agreement, Mr. Burford is entitled to a 5% increase in annual
base salary for each year during the term of the agreement. Pursuant to the
employment agreement, Mr. Burford is also entitled to receive an annual bonus
of the amount equal to 1.5% of the increase in the Company's operating profits
(as defined in the agreement) for the calendar year plus an additional $16,000
for each percentage point increase in the Company's same store nominal sales.
As a result of the Company's performance in 1995, Mr. Burford received no
annual bonus for 1995 pursuant to the formula described above.
Pursuant to the employment agreement, Mr. Burford was granted 30,000 stock
options expiring December 31, 1998 with an exercise price of $3.875, the
closing market price of the Company's Common Stock on December 30, 1994, the
business day preceding the date of his employment agreement. The options do
not begin to vest until the market price of the Company's Common Stock
exceeds $18 per share for 20 consecutive trading days, at which time 10%
will vest. The options then vest in 10% increments each time the stock price
increases by $1, and retains such increase for 20 consecutive trading days.
In addition, Mr. Burford's employment agreement provides for a
discretionary annual grant of up to 50,000 stock options with a ten-year term
that vest pro rata over the five years following the grant with an exercise
price equal to the market price of the Company's Common Stock on the date of
grant. Any such grant will be based on a review of the Company's financial
performance during such year. Mr. Burford did not receive a stock option grant
at the end of 1995.
In the event that the employment agreement is terminated by the Company
without cause or by Mr. Burford for good reason (as defined in the agreement)
he shall be paid, as severance, one year's salary based on the compensation in
effect on the date of termination and his bonus accrued through the date of
termination.
Pursuant to the relocation policy adopted by the Company in connection
with the Company's relocation of its offices to Florida, Mr. Burford will also
receive one year's compensation if his employment is terminated without cause
if termination occurs within two years following relocation.
Mr. Kennedy's employment agreement with the Company expired on January 1,
1995. On February 20, 1995, Mr. Robert A. Kennedy entered into an agreement
with the Company clarifying and replacing a certain provision of his
employment agreement which survived the expiration of such employment
agreement. Pursuant to the terms of the new agreement, the Company and Maxcell
Telecom Plus, Inc. ("Maxcell") agreed to pay to Mr. Kennedy 1% of the gross
proceeds received by Maxcell or the Company in settlement of the action
brought by Maxcell against McCaw Cellular Communications, Inc., Charisma
Communications Corp. and various related parties (the "Maxcell Lawsuit") or
0.5% of the gross proceeds received upon a final, non-appealable judgment in
the Maxcell Lawsuit. Pursuant to the terms of this agreement, Mr. Kennedy was
paid $300,000 in March 1996 in connection with the settlement of the Maxcell
Lawsuit (the "Maxcell Settlement").
Pursuant to a Letter Agreement dated March 19, 1996 between Mr. Kennedy
and the Company (the "Letter Agreement"), Mr. Kennedy resigned from his
positions of Executive Vice President and Secretary of the Company effective
March 17, 1996. In connection therewith, Mr. Kennedy received a lump-sum
payment of $250,000 which was deemed to satisfy all payment obligations the
Company may have had to Mr. Kennedy under all agreements between Mr. Kennedy
and the Company. The Letter Agreement also provided for general releases by
the Company and Mr. Kennedy.
Mr. Haney A. Long's employment agreement with the Company expired
on January 1, 1996. His current base salary is $265,872 per annum. Pursuant
to the terms of the employment agreement, Mr. Long was entitled to receive
(i) a bonus payable at the end of the first quarter of each year in an amount
equal to 12.5% of his base salary, (ii) a bonus payable at the end of the
second quarter of each year in an amount equal to 12.5% of his base salary,
and (iii) a bonus payable at the end of the year in an amount no less than
25% of the gross salary and bonus earned by Mr. Long during the year.
Mr. Long received bonus payments of an aggregate of $124,284 during the
fiscal year ended December 31, 1995. Pursuant to the relocation policy
adopted by the Company in connection with the Company's relocation of its
offices to Florida, Mr. Long will also receive one year's compensation if
his employment is terminated without cause if termination occurs within two
years following relocation.
The Company's 1983 Stock Option Plan (the "1983 Plan"), 1984 Stock Option
Plan (the "1984 Plan"), 1992 Stock Option and Incentive Plan and Non-Employee
Directors Plan (each, an "Option Plan," and, collectively, (the "Option
Plans") contain certain change in control provisions. The Option Plans, except
for the Non-Employee Directors Plan, provide that the stock option agreement
may provide that if the holder of an option under such Option Plan is an
employee of a subsidiary of the Company and such subsidiary ceases to be a
subsidiary of the Company, such option shall be treated as if the employment
of the holder was terminated otherwise than by reason of death, voluntarily
or for cause, as provided in such Option Plan. Under the 1984 Plan, the
Stock Option Committee may provide that an option may become exercisable
immediately upon a change in control of the Company. The Non-Employee Directors
Plan also provides for acceleration of the exercisability of options in the
event of a change in control of the Company. Under the 1983 Plan and the 1984
Plan, a change in control shall be deemed to occur if any person is or
becomes the beneficial owner, directly or indirectly, of at least 35% of
the Company's outstanding voting securities, or in the event of a change
in the majority composition of the Company's Board. Under the Non-Employee
Directors Plan, a change in control shall be deemed to occur if any person
is or becomes the beneficial owner, directly or indirectly, of at least 50%
of the Company's outstanding voting securities, or in the event of a change
in the majority composition of the Board. The 1983 Plan and the 1984 Plan,
but not the options previously granted under such Option Plans, terminated
on May 9, 1994 and December 8, 1993, respectively, in accordance with their
terms.
COMPENSATION COMMITTEE REPORT
The undersigned members of the Compensation Committee, all of whom are
independent, non-employee members of the Company's Board, present to the
shareholders of the Company this report concerning the compensation of the
Company's executive officers. The role of the Compensation Committee in this
matter is to establish or approve both the broad principles underlying the
compensation program for executive officers and the specific application of
these principles to each executive officer's compensation package.
Compensation Philosophy.
The Compensation Committee believes that the Company's Board can
best meet its primary responsibility to shareholders of the Company -- to
enhance short-term and long-term profitability of the Company -- by attracting,
retaining and motivating management of the highest quality. A competitive and
fair compensation program that provides appropriate incentive to management is
essential to the attainment of this goal.
The Company's compensation program has three principal components: annual
base salary and fringe benefit plans, short-term incentives consisting of
annual bonuses and long-term incentives consisting of grants of stock options
under the Company's 1992 Stock Option and Incentive Plan (the "1992 Plan").
The annual bonuses are generally linked to the Company's performance based on
formulae which the Compensation Committee believes align the interests of the
executive officers with those of shareholders. Option grants are based to some
extent on historical performance but primarily on the Stock Option Committee's
subjective assessment of the executive officer's (and other employees') likely
ability to contribute to the growth of the Company over the term of the option
(after taking into consideration the executive officer's existing employee
stock options).
The members of the Compensation Committee also constitute the members of the
Stock Option Committee. In view of the Company's financial performance in
1995, no options were granted in 1995 under the 1992 Plan, except for 30,000
options granted to Mr. Burford pursuant to his employment agreement, which
options do not begin to vest until the market price of the Company's Common
Stock exceeds $18 per share for 20 consecutive trading days. The Company
has historically placed particular emphasis on its annual bonuses and its
option plans, in the belief that meaningful participation in the Company's
success is an effective and fair means of retaining and motivating its
executive officers.
COMPENSATION PROGRAM COMPONENTS
Salary. As noted above, annual base salary is one component of the Company's
compensation program. In formulating base salaries, the Company balances its
need to attract top quality executive officers with its desire to provide
these officers with sufficient incentive to perform in a way that enhances
corporate performance. The result is that the base salary for each executive
officer is designed to represent only a part of that officer's compensation
package. However, as a result of the 1995 performance of the Company, base
salary represented all of the compensation for the executive officers (other
than fixed bonuses not based on performance). For certain executive officers,
the base salary is set forth in an employment agreement for such officer which
generally provides for annual increases at a specified rate during the term of
the agreement. Other executive officers receive salaries not set forth in a
contract. The percentage of total compensation for executive officers
represented by base salary varies from year to year because the
incentive-based component of executive compensation varies from year to year.
Executive officers are also permitted to participate in other designated
fringe benefit plans.
In early 1995, the Company completed the consolidation of the offices in
Palm Beach Gardens, Florida. In connection with this move, the Company adopted
a new policy and certain base salary increases of up to 16% were given to
certain officers who relocated from Memphis, Tennessee to Palm Beach Gardens,
Florida.
Short-term incentives. Annual bonuses represent a second component of each
executive officer's total compensation. Certain of the executive officers
receive annual bonuses equal to a percentage of the increase in the Company's
profits attributable to operations for the year over profits for the prior
year generally pursuant to formulae set forth in their employment agreements
with the Company. In the case of such formula bonuses, the annual bonus
component of total compensation is directly dependent upon certain measures
(as described below) of the Company's performance that were determined at the
time the contracts were negotiated with the executive officers. Other
executive officers have, in past years, received annual bonuses at the
discretion of the Compensation Committee based on the Compensation Committee's
annual assessment of the executive's contribution to the success of the
Company for the year. In both cases, the annual bonus component of the
executive's total compensation package reflects the Company's philosophy of
providing its executive officers with proper incentives tied to corporate
performance. As a result of the Company's financial results in 1995, executive
officers did not receive annual bonuses for such year pursuant to formulae in
their employment agreements or at the discretion of the Compensation
Committee. Mr. Long's employment agreement which expired January 1, 1996
provided for fixed annual bonuses as a percentage of base salary. Mr. Long
received bonus payments for fiscal 1995 of $124,284. Mr. Burford received a
payment of $30,000 in 1995 pursuant to the terms of his previous employment
agreement with the Company dated October 1, 1991 which expired October 1,
1994.
Long-term incentives. The long-term incentive component of executive
compensation is equity-based and consists of the award of stock options to the
executive officers (as well as other employees of the Company), which grants
are made by and at the discretion of the Stock Option Committee of the
Company. The stock options are granted with an exercise price equal to not
less than the market value of shares of the Company's Common Stock on the date
of grant. The Compensation Committee believes the stock options (together with
any options previously granted) primarily represent compensation that will be
earned by the executive officer for his service over a period of up to ten
years (the period during which such options may be exercised). As a result
of the Company's financial performance in 1995, the only stock options
granted in 1995 were those granted to Mr. Burford pursuant to the terms of
his employment agreement which do not begin to vest until the market price
of the Company's Common Stock exceeds $18 per share for 20 consecutive trading
days. See "Employment Contracts, Termination of Employment and Change in
Control Arrangements."
1995 Compensation of Enterprises Chief Executive Officer. J. Gary
Sharp has served as the Company's Chief Executive Officer since March 19,
1993. The Company entered into an employment agreement with Mr. Sharp
dated January 13, 1994 which provides for his employment as Chief Executive
Officer of the Company through January 13, 1999. Mr. Sharp's base salary
for 1995 was $319,065 or 5% over his 1994 base salary. Mr. Sharp received
this salary increase pursuant to the terms of such employment agreement which
provides that Mr. Sharp's base salary shall increase by not less than 5% for
each succeeding year during his term of employment.
Pursuant to his employment contract, Mr. Sharp is entitled to receive an
annual bonus equal to 2.7% of the increase in the Company's operating profits
for the calendar year just ended over the Company's operating profits for the
prior year and a bonus of $28,000 for each percentage point increase (or
portion thereof) in the Company's same store nominal sales. It is the
Compensation Committee's judgment that these two different objective
performance criteria (together with the options described below) provide an
incentive for contribution to long-term growth. As a result of the financial
performance of the Company in 1995, Mr. Sharp received no bonus for such year.
Mr. Sharp's employment agreement provides for a discretionary
annual grant of up to 50,000 stock options with a ten-year term that vest
pro rata over the five years following the grant with an exercise price equal
to the market price of the Company's Common Stock on the date of grant. Any
such grant will be based on a review of the Company's financial performance
during such year. Mr. Sharp did not receive an option grant at the end of
1995 because of the Company's performance in 1995.
Internal Revenue Code. On August 10, 1993, the Omnibus Budget Reconciliation
Act of 1993 was signed into law (the "Revenue Act"). The Revenue Act limits
the deductibility of certain compensation in excess of $1 million per year
paid by a publicly traded corporation to an employee of such corporation for
years following 1993. Under the Revenue Act, compensation which is payable
under a written contract that was in effect on February 17, 1993, or which
qualifies as "performance-based" compensation is exempt from the $1 million
deductibility limitation. The Compensation Committee is aware of the
applicable provisions of the Revenue Act and does not expect that any
compensation for fiscal 1995 would fail to be deductible under the Revenue Act.
Osvaldo Cisneros
Edwin B. Spievack
Thomas M. Taylor
Compensation Committee Members
PERFORMANCE OF THE COMPANY'S COMMON STOCK
Set forth below is a line graph comparing the total cumulative return of
the Company's Common Stock to the Standard & Poor's 500 Stock Index (the "S&P
500 Index")and a Peer Group.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN(1)
AMONG TPI ENTERPRISES, INC., THE S & P 500 INDEX
AND A PEER GROUP(2)
Cumulative Total Return
12/90 12/91 12/92 12/93 12/94 12/95
TPI Enterprises, Inc. 100 115 166 193 76 61
PEER GROUP 100 171 205 187 137 118
S & P 500 100 130 140 155 157 215
1 100 invested on 12/31/90 in stock or index including reinvestment of
dividends. Fiscal year ended December 31.
2 The Peer Group is comprised of Bob Evans Farms, Cracker Barrel Old
Country Store, Flagster Companies, Inc. IHOP Corp., Perkins Family
Restaurants, Shoney's, Inc. and Vcorp Restaurants, Inc.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
THE COMPANY'S PRINCIPAL SHAREHOLDERS
The following table sets forth, as of March 22, 1996, the number and
percentage of shares held by all persons who, to the knowledge of the Company,
are the beneficial owners of more than 5% of the outstanding shares of the
Company's Common Stock.
NAME AND ADDRESS OF AMOUNT AND NATURE OF APPROXIMATE
BENEFICIAL OWNER OR BENEFICIAL PERCENTAGE OF
IDENTITY OF GROUP OWNERSHIP CLASS
The Airlie Group L.P.,
The Bass Management Trust,
Sid R. Bass Management Trust,
Lee M. Bass,
TPI Investors, L.P., and
certain related parties
c/o W. Robert Cotham
201 Main Street, Suite 2600
Fort Worth, Texas 76102 5,381,911 (1) 22.3%
EBD L.P.
TMT-FW, Inc.
201 Main Street
Fort Worth, Texas 76102
Dort A. Cameron, III
115 East Putnam Avenue
Greenwich, Connecticut 06830 2,602,523 (2) 12.0%
Thomas M. Taylor
201 Main Street
Fort Worth, Texas 76102 2,611,523 (3) 12.1%
Osvaldo Cisneros
Aptd. 70519 Los Ruices
Caracus, Venezuela 2,501,000 (4) 12.1%
Balanchine Corporation
P.O. Box 7788
Nassau, Bahamas 1,500,000 (5) 7.3%
Liberty Investment Management
2502 Rocky Point Drive, Suite 500
Tampa, Florida 33607 1,288,800 (6) 6.3%
College Retirement Equities
Fund
730 Third Avenue
New York, New York 10017 1,107,000 (7) 5.4%
Merrill Lynch & Co., Inc.
Merrill Lynch Group. Inc.
World Financial Center, North Tower
250 Vesey Street
New York, New York 10281
Princeton Services, Inc.
Fund Asset Management, L.P.
Merrill Lynch Special Value
Fund, Inc.
800 Scudders Mills Road
Plainsboro, New Jersey 08536 1,496,660 (8) 7.3%
- -------------------------
(1) Includes 1,899,120 shares of the Company's Common Stock owned by such
reporting persons, 1,092,155 shares of the Company's Common Stock
obtainable upon conversion of the Company's 8 1/4% Convertible
Subordinated Debentures due 2002 (the "8 1/4% Debentures"), 1,363,636
shares of the Company's Common Stock obtainable upon conversion of the
Company's 5% Convertible Senior Subordinated Debentures due 2003 (the "5%
Debentures") and 1,000,000 shares of the Company's Common Stock obtainable
upon exercise of warrants held by such reporting persons. Also includes
an aggregate 27,000 shares of the Company's Common Stock issuable upon
exercise of presently exercisable options held by Messrs. Taylor, Bratton
and Marion.
(2) EBD L.P. is the general partner of The Airlie Group L.P. TMT-FW,
Inc. and Dort A. Cameron, III are the general partners of EBD L.P.
Includes 1,589,703 shares of the Company's Common Stock held by The
Airlie Group L.P., 546,154 shares of the Company's Common Stock obtainable
upon conversion of the 8 1/4% Debentures held by The Airlie Group
L.P., and 466,666 shares of the Company's Common Stock obtainable upon
exercise of warrants held by The Airlie Group L.P. EBD L.P., TMT-FW, Inc.
and Dort A. Cameron, III share voting and dispositive power over the
foregoing shares.
(3) Includes 1,589,703 shares of the Company's Common Stock held by The Airlie
Group L.P., 546,154 shares of the Company's Common Stock obtainable upon
conversion of the 8 1/4% Debentures held by The Airlie Group L.P., and
466,666 shares of the Company's Common Stock obtainable upon exercise of
warrants held by The Airlie Group L.P. Mr. Taylor shares voting and
dispositive power over the foregoing shares through TMT-FW, Inc.
Also includes 9,000 shares of the Company's Common Stock issuable upon
the exercise of presently exercisable options.
(4) Includes 1,500,000 shares of the Company's Common Stock owned by
Balanchine Corporation over which Mr. Cisneros has the right to provide
instructions as to voting, disposition and receipt of dividends and thus
may be deemed to have shared voting and shared dispositive power over such
shares of the Company's Common Stock. Also includes 990,000 shares of the
Company's Common Stock beneficially owned by Inversiones Macuto, S.A.
("Macuto"), a Panama corporation of which Mr. Cisneros is the sole stock-
holder, and thus he may be deemed to beneficially own any shares of the
Company's Common Stock beneficially owned by Macuto. Mr. Cisneros may be
deemed to have shared voting power and shared dispositive power over all
of such shares of the Company's Common Stock. Also includes 9,000 shares
of the Company's Common Stock issuable upon the exercise of presently
exercisable options and 2,000 shares of Common Stock issuable upon the
exercise of options which become exercisable within 60 days.
(5) Balanchine Corporation ("Balanchine") is an entity formed by Coutts
& Co. ("Coutts"), a Bahamian bank (formerly NatWest International Trust
Corporation). Mr. Cisneros has the right to provide instructions to
Coutts as to matters relating to voting, disposition and receipt of
dividends with respect to the 1,500,000 shares of the Company's Common
Stock owned by Balanchine. Balanchine may be deemed to have shared
voting and shared dispositive power over such 1,500,000 shares of the
Company's Common Stock with Mr. Cisneros.
(6) Based upon the Schedule 13G filed by Liberty Investment Management with
the Commission on February 16, 1996.
(7) Based upon Amendment No. 3 to the Schedule 13G filed by College
Retirement Equities Fund with the Commission on February 1, 1996.
(8) Based upon Amendment No. 1 to the Schedule 13G filed by Merrill
Lynch & Co., Inc., Merrill Lynch Group, Inc., Princeton Services, Inc.,
Fund Asset Management, L.P. and Merrill Lynch Special Value Fund, Inc.
with the Commission on February 8, 1996.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of March 22, 1996, the number and
percentage of outstanding shares of the Company's Common Stock beneficially
owned by directors, nominees, each of the Named Executive Officers, and
directors and executive officers as a group. The number of shares of the
Company's Common Stock owned are those "beneficially owned," as determined
under Rule 13d-3 promulgated by the Commission under the Exchange Act, and the
information set forth herein is not necessarily indicative of beneficial
ownership for any other purpose. Under such rules, beneficial ownership
includes any shares as to which a person, directly or indirectly, through any
contract, arrangement, understanding, relationship or otherwise, has sole or
shared voting power or investment power, and also any shares that the person
has the right to acquire within 60 days of March 22, 1996 through the exercise
of any option, warrant or right, through conversion of any security, or
pursuant to the automatic termination or power of revocation of a trust,
discretionary account or similar arrangement.
SHARES OF ENTERPRISES COMMON STOCK
BENEFICIALLY OWNED AND APPROXIMATE
NAME PERCENTAGE OF CLASS AS OF MARCH 22, 1996
J. Gary Shar 188,855 (1) *
Frederick W. Burford 139,442 (2) *
Paul J. Siu 14,800 (3) *
Edwin B. Spievack 15,500 (4) *
Osvaldo Cisneros 2,501,000 (5) 12.1%
Thomas M. Taylor 2,611,523 (6) 12.1%
John L. Marion, Jr. 16,500 (7) *
Douglas K. Bratton 149,785 (8) *
Lawrence F. Levy 9,000 (9)
Robert A. Kennedy 88,514 (10) *
Haney A. Long, Jr. 93,423 (11) *
- --------------------
* Less than one (1%) percent.
All executive officers and directors as a group (ten persons) 5,739,828 25.6%
(1) Represents (i) 45,955 shares of the Company's Common Stock owned by Mr.
Sharp and (ii) 142,900 shares of the Company's Common Stock issuable
upon the exercise of presently exercisable options.
(2) Represents (i) 2,827 shares of the Company's Common Stock owned by Mr.
Burford, (ii) 132,000 shares of the Company's Common Stock issuable upon
the exercise of presently exercisable options and (iii) 4,615 shares of
the Company's Common Stock issuable upon conversion of 8 1/4%
Debentures.
(3) Represents (i) 1,800 shares of the Company's Common Stock owned by Mr.
Siu, and (ii) 13,000 shares of the Company's Common Stock issuable upon
the exercise of presently exercisable options.
(4) Represents (i) 2,500 shares of the Company's Common Stock owned by Mr.
Spievack, and (ii) 13,000 shares of the Company's Common Stock issuable
upon the exercise of presently exercisable options.
(5) Includes 1,500,000 shares of the Company's Common Stock owned by
Balanchine over which Mr. Cisneros has the right to provide instructions
as to voting, disposition and receipt of dividends and thus may be
deemed to have shared voting and shared dispositive power over such
shares of the Company's Common Stock. Also includes 990,000 shares of
the Company's Common Stock beneficially owned by Macuto of which Mr.
Cisneros is the sole stockholder, and thus he may be deemed to
beneficially own any shares of the Company's Common Stock beneficially
owned by Macuto. Mr. Cisneros may be deemed to have sole voting power
over and sole dispositive power over all such shares of the Company's
Common Stock. Also includes 9,000 shares of the Company's Common Stock
issuable upon the exercise of presently exercisable the Company's
options, and 2,000 shares of the Company's Common Stock issuable upon
the exercise of the Company's options which become exercisable within
60 days.
(6) Includes 1,589,703 shares of the Company's Common Stock held by The
Airlie Group L.P., over which Mr. Taylor shares dispositive power
through TMT-FW, Inc., an additional 546,154 shares of the Company's
Common Stock obtainable upon conversion of 8 1/4% Debentures held by
The Airlie Group L.P., and an additional 466,666 shares of the Company's
Common Stock obtainable upon exercise of warrants held by The Airlie
Group L.P. Also includes 9,000 shares of the Company's Common Stock
issuable upon the exercise of presently exercisable options.
(7) Includes 7,500 shares of the Company's Common Stock and 7,000 shares of
the Company's Common Stock issuable upon the exercise of presently
exercisable options and 2,000 shares of the Company's Common Stock
issuable upon the exercise of options which become exercisable within 60
days of March 22, 1996.
(8) Includes 7,834 shares of the Company's Common Stock, 91,618 shares of
the Company's Common Stock obtainable upon conversion of 5% Debentures
and 35,833 shares of the Company's Common Stock obtainable upon exercise
of warrants, all held by TPI Investors, L.P., over which Mr. Bratton has
sole voting and dispositive power. Also includes 5,500 shares of the
Company's Common Stock owned by Mr. Bratton and his spouse, as joint
tenants, and 7,000 shares of the Company's Common Stock issuable
upon the exercise of presently exercisable options and 2,000 shares of
the Company's Common Stock issuable upon the exercise of options which
become exercisable within 60 days of March 22, 1996. Does not include
500 shares of the Company's Common Stock held in a trust for the benefit
of Mr. Bratton's minor son.
(9) Includes 7,000 shares of the Company's Common Stock issuable upon the
exercise of presently exercisable options granted under the Non-Employee
Directors Plan and 2,000 shares of the Company's Common Stock issuable
upon the exercise of options which become exercisable within 60 days of
March 22, 1996.
(10) Represents (i) 31,207 shares of the Company's Common Stock owned by Mr.
Kennedy, (ii) 55,000 shares of the Company's Common Stock issuable upon
the exercise of presently exercisable options and (iii) 2,307 shares of
the Company's Common Stock issuable upon conversion of 8 1/4%
Debentures.
(11) Represents (i) 1,600 shares of the Company's Common Stock owned by Mr.
Long, (ii) 48 shares of the Company's Common Stock owned indirectly by
Mr. Long pursuant to the 1989 Employee Stock Purchase Plan, (iii) 87,160
shares of the Company's Common Stock issuable upon the exercise of
presently exercisable options and (iv) 4,615 shares of the Company's
Common Stock issuable upon conversion of 8 1/4% Debentures.
(12) All officers and directors as a group are ten in number and beneficially
own 5,739,828 shares of the Company's Common Stock (25.6%) as of March
22, 1996. Does not include shares of the Company's Common Stock
beneficially owned by Robert A. Kennedy who resigned from his position
with the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Mr. Stephen R. Cohen was employed by the Company as Chairman of
the Board of Directors of the Company under an employment agreement dated as
of January 13, 1987. Mr. Cohen retired from this position effective
January 31, 1995 pursuant to the Termination Agreement, Receipt
and Release dated January 26, 1995 (the "Termination Agreement").
Under the terms of the Termination Agreement the Company paid Mr. Cohen
a lump sum of $1,150,000 in full satisfaction of all amounts owed to him under
his employment agreement and other agreements entered into between Mr. Cohen
and the Company. Pursuant to the Termination Agreement, Mr. Cohen waived any
right to receive a bonus during 1994 and 1995 and any right to receive pay for
accrued and unpaid vacation. In addition, the Company and Maxcell agreed to
pay Mr. Cohen 5% of the gross proceeds received by Maxcell or the Company upon
settlement of the Maxcell Lawsuit or 3% of the gross proceeds upon a final,
non-appealable judgment in the Maxcell Lawsuit. Mr. Cohen was paid $1,500,000
in March 1996 in connection with the Maxcell Settlement. Mr. Cohen also
continues to be provided with medical benefits, a secretary, a car and a
driver for certain periods as set forth in the Termination Agreement.
In connection with the Company's relocation of its headquarters, Mr.
Frederick Burford received an equity advance from the Company of $100,000 in
January 1995 regarding the sale of his home in Tennessee, which advance was
repaid in full without interest on June 13, 1995.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(A) FINANCIAL STATEMENTS/SCHEDULES PAGE
1. THE FOLLOWING FINANCIAL STATEMENTS OF THE COMPANY HAVE
BEEN FILED UNDER ITEM 8 HERETO:
Independent Auditor's Report 22
Consolidated Balance Sheets as of December 31, 1995 23
and December 25, 1994
Consolidated Statements of Operations for each of the 25
Three Fiscal Years in the Period Ended December 31, 1995
Consolidated Statements of Cash Flows for each of the
Three Fiscal Years in the Period Ended December 31, 1995 27
Consolidated Statements of Shareholders' Equity for
each of the Three Fiscal Years in the Period Ended
December 31, 1995 29
Notes to Consolidated Financial Statements 30
2. THE FOLLOWING FINANCIAL STATEMENT SCHEDULES FOR THE
THREE YEARS ENDED DECEMBER 31, 1995 ARE FILED HEREWITH
AT THE PAGE INDICATED:
Schedule I - Condensed Financial Information of the S-1
Registrant
Scheduled II - Reserves S-7
The following financial statements and schedules of
the Company's wholly-owned subsidiary, TPI Restaurants,
Inc. are filed herewith at the page indicated:
Independent Auditors' Report W-1
Consolidated Balance Sheets as of December 31, 1995 W-2
and December 25, 1994
Consolidated Statements of Operations for each of the
Three Fiscal Years in the Period Ended December 31, 1995 W-4
Consolidated Statements of Cash Flows for each of the
Three Fiscal Years in the Period Ended December 31, 1995 W-5
Consolidated Statements of Stockholder's Equity for W-7
each of the Three Fiscal
Years in the Period Ended December 31, 1995
Notes to Consolidated Financial Statements W-8
Schedule II - Reserves WS-1
All other schedules have been omitted because they are inapplicable or
the information required is shown in the consolidated financial statements or
the notes thereto.
(B)EXHIBITS
A list of exhibits required to be filed as part of this report on Form
10-K is set forth in the "Exhibit Index," which immediately precedes
such exhibits, and is incorporated herein by reference.
(C)REPORTS ON FORM 8-K
The Company filed a Form 8-K on October 12, 1995, November 1, 1995 and
December 5, 1995.
(D)EXHIBITS
All exhibits required by item 601 are listed on the accompanying
"Exhibit Index" described in (b) above.
(E)FINANCIAL STATEMENTS OF SUBSIDIARY
The financial statements of the Company's wholly-owned subsidiary, TPI
Restaurants, Inc., are filed under (a) 2 above.
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.
TPI ENTERPRISES, INC.
Registrant
Date: March 29, 1996
/s/J. Gary Sharp
--------------------
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ J. GARY SHARP President and Chief Executive March 29, 1996
J. Gary Sharp Officer, Director
/s/ FREDERICK W. BURFORD Executive Vice President, Chief March 29, 1996
Frederick W. Burford Financial Officer, and
Director (Principal Financial and
Accounting Officer)
/s/ DOUGLAS K. BRATTON
Douglas K. Bratton Director March 29, 1996
/s/ OSWALDO CISNEROS
Oswaldo Cisneros Director March 29, 1996
/s/ LAWRENCE F. LEVY
Lawrence F. Levy Director March 29, 1996
/s/ JOHN L. MARION, JR.
John L. Marion, Jr. Director March 29, 1996
/s/ PAUL JAMES SIU
Paul James Siu Director March 29, 1996
/s/ EDWIN B. SPIEVACK
Edwin B.Spievack Director March 29, 1996
/s/ THOMAS M. TAYLOR
Thomas M. Taylor Director March 29, 1996
SCHEDULE I
<TABLE>
<CAPTION>
TPI ENTERPRISES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEET
DECEMBER 31, DECEMBER 25,
1995 1994
- --------------------------------------------------- ------------ ------------
(Dollars in thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................... $ $ 11,976
78
Deferred tax benefit.............................. 5,397 5,666
Income tax refund................................. 545 779
Other current assets.............................. 10 45
--------- ---------
TOTAL CURRENT ASSETS............................ 6,030 18,466
--------- ---------
PROPERTY AND EQUIPMENT, NET.......................... 115 245
--------- ---------
OTHER ASSETS:
Investment in an advances to subsidiaries, net.... 148,669 139,924
Other............................................. 3 3
--------- ---------
148,672 139,927
--------- ---------
$154,817 $158,638
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable - trade.......................... $ $
36 77
Accrued expenses and other current liabilities.... 905 2,652
Income taxes currently payable.................... 421 718
--------- ---------
TOTAL CURRENT LIABILITIES....................... 1,362 3,447
--------- ---------
DUE TO SUBSIDIARY.................................... 14,443 15,104
--------- ---------
LONG TERM DEBT....................................... 66,563 66,563
--------- ---------
DEFERRED INCOME TAXES................................ 5,537 5,663
--------- ---------
OTHER LIABILITIES.................................... 46 291
--------- ---------
SHAREHOLDERS' EQUITY:
Preferred shares no par value; 20,000,000 shares
authorized; --- ---
none issued and outstanding.....................
Common shares, $.01 par value; 100,000,000 shares
authorized, 334 332
33,402,553 and 33,241,118 issued................
Additional paid-in capital........................ 226,454 226,144
Deficit........................................... (90,157) (88,961)
--------- ---------
136,631 137,515
Less treasury stock, at cost:
12,805,260 and 12,846,094 common shares
in 1995 and 1994 ............................. (69,765) 69,945
--------- ---------
TOTAL SHAREHOLDERS' EQUITY.................. 66,866 67,570
--------- ---------
$154,817 $158,638
- ----------------------------------------------------- ========= =========
</TABLE>
See notes to condensed financial statements
SCHEDULE I
<TABLE>
<CAPTION>
TPI ENTERPRISES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 26,
1995 1994 1993
- -------------------------------------- ------------ -- ------------ -- ------------
(Dollars in thousands)
<S> <C> <C> <C>
Revenue:
Management fee income............... $2,500 $2,500 $2,455
Interest income..................... 96 267 428
Equity in subsidiary earnings....... 405 --- 30
--------- -------- ---------
3,001 2,767 2,913
--------- -------- ---------
Expenses:
Equity in subsidiary losses......... 19,975 2,838 39,348
General and administrative.......... 873 3,589 4,803
Depreciation and amortization....... 54 57 235
Corporate restructuring............. (242) --- 511
Interest expense.................... --- --- 340
--------- -------- ---------
20,660 6,484 45,237
--------- -------- ---------
Loss from continuing operations before (17,659) (3,717) (42,324)
income taxes...........................
Income tax benefit..................... 6,350 --- 5,836
--------- -------- ---------
Loss from continuing operations........ (11,309) (3,717) (36,488)
--------- -------- ---------
Discontinued operations:
Gain on disposal, net 10,113 --- 5,273
--------- -------- ---------
Net loss $(1,196) ($3,717) ($31,215)
- --------------------------------------- ========= ------ ======== ----- =========
</TABLE>
See notes to condensed financial statements
SCHEDULE I
<TABLE>
<CAPTION>
TPI ENTERPRISES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
FISCAL YEAR ENDED
---------------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 26,
1995 1994 1993
- ------------------------------------- ------------ -- ------------ --- ------------
(Dollars in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................ $(1,196) $(3,717) $(31,215)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization.... 55 57 285
Equity in subsidiaries
(earnings) losses............. 19,571 2,838 39,318
Equity in subsidiary earnings
from discontinued operations... (16,463) --- (7,990)
Deferred income taxes............ 143 (3) (2,444)
Changes in assets and
liabilities, net of effects
of discontinued operations:
Income tax refund............. 234 2,392 (3,171)
Other current assets.......... 35 19 1,655
Intangible pension asset...... --- --- 330
Other......................... --- 5 15
Accounts payable - trade...... (41) 37 (50)
Accrued expenses and other
current liabilities........ (1,570) 341 (474)
Income taxes currently payable (297) 69 (1,016)
Other liabilities............. (245) (476) (1,996)
--------- --------- ---------
Total adjustments........... 1,422 5,279 24,412
--------- --------- ---------
Net cash provided by (used
in) operating activities... $ 226 $ 1,562 $ (6,803)
- --------------------------------------- --------- ------ --------- ----- ---------
</TABLE>
See notes to condensed financial statements
SCHEDULE I
<TABLE>
<CAPTION>
TPI ENTERPRISES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
(Continued)
FISCAL YEAR ENDED
----------------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 26,
1995 1994 1993
- ------------------------------------ ------------- -- ------------ -- -------------
(Dollars in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in and advances to $ $ $(32,926)
subsidiaries,net...................... (11,851) 72
Acquisition of property and --- (11) ---
equipment.............................
Dividends received from subsidiary. --- --- 5,254
Disposition of property and 76 --- ---
equipment.............................
--------- --------- ---------
Net cash provided by (used in) (11,775) 61 (27,672)
investing activities..................
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of advances from (661) (850) ---
subsidiaries..........................
Common shares issued............... 312 566 17,204
Proceeds from 5% Convertible
Senior --- --- 15,000
Subordinated Debentures..........
--------- --------- ---------
Net cash provided by (used in) (349) (284) 32,204
financing activities..................
--------- --------- ---------
Increase (decrease) in cash and cash (11,898) 1,339 (2,271)
equivalents...........................
Cash and cash equivalents, beginning 11,976 10,637 12,908
of period.............................
--------- --------- ---------
Cash and cash equivalents, end of $ $ 11,976 $ 10,637
period................................ 78
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Non-cash transactions:
Conversion of 8 1/4 % Subordinated
Debentures..................... --- $
165 ---
Cash payments (refunds) during the year for:
Income taxes..................... $ $(2,164)
158 $2,810
Conversion of subsidiary
receivable to 5,000 --- ---
investment....................
- -------------------------------------- --------- ------ --------- ----- ---------
</TABLE>
See notes to condensed financial statements
SCHEDULE I
<TABLE>
<CAPTION>
TPI ENTERPRISES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF SHAREHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
COMMON SHARES ISSUED
ADDITIONAL
NUMBER OF PAID-IN TREASURY
SHARES AMOUNT CAPITAL DEFICIT STOCK TOTAL
---------- -- -------- -- ---------- -- --------- -- --------- -- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,017,689 $310 $207,314 $(54,029) $(69,945) $83,650
31,1992................
Investment in Company
by the 1,503,220 15 14,030 --- --- 14,045
Airlie Group, L.P......
Issue of shares in
connection 94,300 1 894 --- --- 895
with acquisition.......
Issue of shares in
pursuant to 499,559 5 3,154 --- --- 3,159
employee stock plans...
Conversion of
subordinated 3,846 --- 25 --- --- 25
debentures.............
Net loss............... --- --- --- (31,215) --- (31,215)
---------- -------- ---------- --------- --------- -----------
Balance, December 33,118,614 331 225,417 (85,244) (69,945) 70,559
26,1993................
Issue of shares in
pursuant to 97,582 1 575 --- --- 576
employee stock plans...
Conversion of
subordinated 24,922 --- 152 --- --- 152
debentures.............
Net loss............... --- (3,717) --- (3,717)
--- ---
---------- -------- ---------- --------- --------- -----------
Balance, December 33,241,118 332 226,144 (88,961) (69,945) 67,570
24,1994................
Issue of shares in
pursuant to 160,235 2 304 --- 180 486
employee stock plans...
Other ................. 1,200 --- 6 --- --- 6
Net income............. --- --- --- (1,196) --- (1,196)
---------- -------- ---------- --------- --------- -----------
Balance, December 33,402,553 $334 $226,454 $(90,157) $(69,765) $66,866
31,1995................
- ----------------------- ========== -- ======== -- ========== -- ========= -- ========= -- ===========
</TABLE>
SEE NOTES TO CONDENSED FINANCIAL STATEMENTS
SCHEDULE I
TPI ENTERPRISES, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTE 1 - ACCOUNTING POLICIES
The investments in the Company's subsidiaries are carried at the Company's
equity in the subsidiary which represents amounts invested less the Company's
equity in the earnings and losses to date. Significant intercompany balances
and activities have not been eliminated in this unconsolidated financial
information.
Certain information and footnote disclosures normally included in financial
statements prepared in conformity with generally accepted accounting
principles have been condensed or omitted. Accordingly, these financial
statements should be read in conjunction with the Company's consolidated
financial statements.
NOTE 2 - CASH DIVIDEND PAID BY SUBSIDIARY
Subsequent to the sale of its interest in the Partnership, The Company's
wholly-owned subsidiary, TPI Entertainment, Inc., paid a dividend of
$5,254,000 to the Company.
SCHEDULE II
<TABLE>
<CAPTION>
TPI ENTERPRISES, INC. AND SUBSIDIARIES
RESERVES
(DOLLARS IN THOUSANDS)
ADDITIONS
BALANCE AT ADDITIONS CHARGED DEDUCTIONS BALANCE
BEGINNING CHARGED TO TO FROM AT
OF OPERATIONS OTHER RESERVES END OF
PERIOD ACCOUNTS PERIOD
----------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL
ACCOUNTS
Year ended December 31, $ 59 $ 66 $ --- $ --- $ 125
1995:
Year Ended December 25, $ --- $ 59 $ --- $ --- $ 59
1994:
Year Ended December 26, $ --- $ --- $ --- $ --- $ ---
1993:
ALLOWANCE FOR
RESTRUCTURING RESERVE:
Year ended December 31, $12,430 $ --- $ --- $ 3,678(1) $ 8,752
1995:
Year Ended December 25, $18,695 $ --- $ --- $ 6,265 (1) $ 12,430
1994
Year Ended December 26, $ 3,773 $ 17,286 $ --- $ 2,364 $ 18,695
1993:
ALLOWANCE FOR ASSET VALUATION:
Year ended December 31, $ --- $ --- $ 17,000 $ --- $ 17,000
1995:
Year Ended December 25, $ --- $ --- $ --- $ --- $ ---
1994
Year Ended December 26, $ --- $ --- $ --- $ --- $ ---
1993:
<FN>
(1) Represents deductions for the write-off of assets and changes in
assumptions in connection with the Company's restructure plan. See Note 3.
</TABLE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of TPI Restaurants, Inc.:
We have audited the accompanying consolidated balance sheets of TPI
Restaurants, Inc., (a wholly-owned subsidiary of TPI Enterprises, Inc.) and
its subsidiaries as of December 31, 1995 and December 25, 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three fiscal years in the period ended December 31,
1995. Our audits also included the financial statement schedules listed in the
Index at Item 14 (a)(2). These financial statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules 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, such consolidated financial statements present fairly, in all
material respects, the financial position of TPI Restaurants, Inc. and its
subsidiaries as of December 31, 1995 and December 25, 1994, and the results of
their operations and their cash flows for each of the three fiscal years in
the period ended December 31, 1995 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
/s/ Deloitte & Touche LLP
March 28, 1996
Memphis, Tennessee
TPI RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, DECEMBER 25,
1995 1994
----------- -----------
(Dollars in thousands)
CURRENT ASSETS:
<S> <C> <C>
CASH AND CASH EQUIVALENTS.................... $8,285 $4,832
ACCOUNTS RECEIVABLE - TRADE (NET OF
ALLOWANCE FOR DOUBTFUL ACCOUNTS
OF $125 IN 1995 AND $59 IN 1994)........... 1,248 805
INVENTORIES.................................. 13,020 11,969
DEFERRED TAX BENEFIT......................... 3,190 3,611
OTHER CURRENT ASSETS......................... 1,166 1,566
-------- --------
TOTAL CURRENT ASSETS........................ 26,909 22,783
-------- --------
PROPERTY AND EQUIPMENT (AT COST)............... 236,756 239,991
LESS ACCUMULATED DEPRECIATION AND
AMORTIZATION................................. 79,538 70,243
LESS ALLOWANCE FOR RESTRUCTURING............. 8,752 12,430
-------- --------
148,466 157,318
-------- --------
OTHER ASSETS:
GOODWILL (NET OF ACCUMULATED AMORTIZATION OF
$9,431 IN 1995 AND $8,152 IN 1994).......... 36,396 37,675
LESS VALUATION ALLOWANCE.................... 17,000 ---
-------- --------
19,396 37,675
OTHER INTANGIBLE ASSETS (NET OF ACCUMULATED
AMORTIZATION OF $6,479 IN 1995 AND $5,144
IN 1994)................................... 18,265 19,681
OTHER........................................ 627 609
-------- -------
38,288 57,965
-------- --------
$213,663 $238,066
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TPI RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C> <C>
DECEMBER 31, DECEMBER 25,
1995 1994
------------ ------------
(DOLLARS IN THOUSANDS)
CURRENT LIABILITIES:
CURRENT PORTION OF LONG-TERM DEBT......... $24,231 $ 3,725
ACCOUNTS PAYABLE - TRADE.................. 15,881 15,488
ACCRUED EXPENSES AND OTHER CURRENT
LIABILITIES.............................. 27,506 31,656
-------- ---------
TOTAL CURRENT LIABILITIES................ 67,618 50,869
-------- ---------
LONG-TERM DEBT.............................. 81,628 107,721
-------- ---------
RESERVE FOR RESTRUCTURING................... 8,162 14,735
-------- ---------
DEFERRED INCOME TAXES....................... 3,190 3,611
--------- ---------
PAYABLE TO PARENT........................... 21,662 14,872
--------- ---------
OTHER LIABILITIES........................... 1,596 1,619
--------- ---------
STOCKHOLDER'S EQUITY:
SERIES A PREFERRED STOCK ($40,000
AGGREGATE LIQUIDATION
PREFERENCE) $.01 PAR VALUE; 10,000
SHARES AUTHORIZED; 10,000 --- ---
ISSUED AND OUTSTANDING...................
COMMON SHARES, $.01 PAR VALUE; 1,000
SHARES AUTHORIZED; --- ---
1,000 ISSUED AND OUTSTANDING..............
ADDITIONAL PAID-IN CAPITAL................ 120,216 115,216
DEFICIT................................... (90,409) (70,577)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY............... 29,807 44,639
--------- ---------
$213,663 $238,066
========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
TPI RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED
DECEMBER 31, DECEMBER 25, DECEMBER 26,
1995 1994 1993
------------ ------------ -----------
(DOLLARS IN THOUSANDS)
RESTAURANT REVENUES......................$ 283,578 $ 287,384 $ 289,439
--------- --------- ---------
COSTS AND EXPENSES:
FOOD, SUPPLIES AND UNIFORMS............ 103,874 102,831 101,980
RESTAURANT LABOR AND BENEFITS.......... 86,264 87,467 88,693
RESTAURANT DEPRECIATION AND 12,252 14,138
AMORTIZATION........................... 13,632
OTHER RESTAURANT OPERATING EXPENSES.... 54,705 52,727 51,291
GENERAL AND ADMINISTRATIVE EXPENSES.... 20,944 20,256 23,504
PROVISION FOR ASSET VALUATION.......... 17,000 --- ---
RESTRUCTURING CHARGES.................. (5,761) (986) 34,571
OTHER, NET............................. 3,666 3,440 3,275
--------- --------- ---------
292,944 279,873 316,946
--------- --------- ---------
OPERATING INCOME (LOSS).................. (9,366) 7,511 (27,507)
--------- --------- ---------
OTHER INCOME AND EXPENSES:
INTEREST INCOME........................ 141 66 122
INTEREST EXPENSE....................... (10,607) (10,325) (10,203)
OTHER.................................. --- --- (109)
--------- --------- ---------
(10,466) (10,259) (10,190)
--------- --------- ---------
Loss before income taxes................. (19,832) (2,748) (37,697)
Income tax expense....................... --- --- 85
-------- -------- ---------
Net loss................................. $(19,832) $ (2,748) $ (37,782)
========= ========= ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TPI RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 26,
1995 1994 1993
------------ ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS............................... $(19,832) $(2,748) $ (37,782)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH PROVIDED BY
OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION....... 17,214 19,158 17,810
PROVISION FOR ASSET VALUATION....... 17,000 --- ---
RESERVES FOR RESTRUCTURING.......... (5,761) (667) 34,571
CHANGES IN ASSETS AND LIABILITIES:
ACCOUNTS RECEIVABLE TRADE......... (444) 134 494
INVENTORIES....................... (1,051) (545) 3,488
OTHER CURRENT ASSETS.............. 361 654 329
OTHER ASSETS...................... (659) 754 (1,415)
ACCOUNTS PAYABLE TRADE............ 393 (4,382) 4,854
ACCRUED EXPENSES AND OTHER
CURRENT LIABILITIES............... (1,989) 3,725
Reserves for restructuring........ (4,537) (3,172) (4,136)
OTHER LIABILITIES................. (23) (763) 840
----------- ------------ -----------
TOTAL ADJUSTMENTS 20,504 14,896 61,746
----------- ------------ -----------
NET CASH PROVIDED BY OPERATING
ACTIVITIES.......................... 672 12,148 23,964
----------- ------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
ACQUISITION OF PROPERTY AND
EQUIPMENT........................... (6,795) (19,391) (43,867)
ACQUISITION OF BUSINESS, NET OF
CASH RECEIVED....................... ---- ---- (4,660)
DISPOSITION OF PROPERTY AND
EQUIPMENT........................... 2,143 5,054 5,230
OTHER............................... 38 (27) (199)
----------- ------------ -----------
NET CASH USED IN INVESTING
ACTIVITIES.......................... $ (4,614) $(14,364) $ (43,496)
----------- ------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES::
NET BORROWINGS FROM (PAYMENTS ON)
CREDIT FACILITIES..................... $(1,000) $ 3,400 $(18,550)
CONTRIBUTION FROM PARENT.............. 5,000 --- 17,065
BORROWINGS FROM (PAYMENTS TO) PARENT.. 6,790 (305) 15,177
PROCEEDS FROM 5% SENIOR DEBENTURES.... --- --- 15,000
OTHER LONG TERM DEBT PAYMENTS......... (3,395) (1,722) (7,209)
-------- --------- --------
NET CASH PROVIDED BY FINANCING
ACTIVITIES............................ 7,395 1,373 21,483
-------- --------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS...................... 3,453 (843) 1,951
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD............................. 4,832 5,675 3,724
-------- --------- --------
CASH AND CASH EQUIVALENTS, END OF
PERIOD................................ $ 8,285 $ 4,832 $ 5,675
======== ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
NON-CASH TRANSACTIONS:
CONVERSION OF PARENT DEBT TO EQUITY........ $ 5,000 --- ---
CAPITALIZED LEASE OBLIGATIONS ENTERED INTO. --- $ 1,430 $ 3,241
CONVERSION OF 8 1/4% SUBORDINATED
DEBENTURES................................. --- 162 ---
LIABILITIES ASSUMED IN ACQUISITIONS OF
PROPERTIES ................................ --- --- 1819
COMMON STOCK ISSUED IN ACQUISITIONS OF
PROPERTIES............................ --- --- 895
CASH PAYMENTS DURING THE PERIOD FOR:
INTEREST................................. $ 9,183 $9,301 $
9,764
INTEREST CAPITALIZED..................... --- 77 202
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TPI RESTAURANTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(Dollars in thousands)
ADDITIONAL
PREFERRED COMMON PAID-IN
STOCK STOCK CAPITAL DEFICIT TOTAL
-------------------------------- -----------------------
BALANCE, DECEMBER 27, 1992 $ --- $ --- $97,079 $(30,047) $67,032
STOCKHOLDER CONTRIBUTION.. --- --- 17,985 --- 17,985
NET LOSS..................
--- --- --- (37,782) (37,782)
------- ------- -------- -------- -------
BALANCE, DECEMBER 26, 1993 --- 115,064 (67,829) 47,235
---
STOCKHOLDER CONTRIBUTION.. --- --- 152 --- 152
NET LOSS..................
--- --- --- (2,748) (2,748)
------- ------- -------- -------- -------
BALANCE, DECEMBER 25, 1994 --- --- 115,216 (70,577) 44,639
STOCKHOLDER CONTRIBUTION.. --- --- 5,000 --- 5,000
NET LOSS.................. --- --- --- (19,832) (19,832)
------- ------- -------- -------- -------
BALANCE, DECEMBER 31,1995. $ --- $ --- $120,216 $(90,409) $29,807
======= ======= ======== ======== =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TPI RESTAURANTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
REPORTING ENTITY AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of TPI
Restaurants, Inc. (the "Company") and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions are eliminated in
consolidation. The Company is one of the largest restaurant franchisees in the
United States.
The Company owns and operates 256 restaurants, including 188 Shoney's and 68
Captain D's in eleven states, primarily in the southern United States.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles require 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 the estimates.
CASH AND CASH EQUIVALENTS
The Company considers cash on hand, deposits in banks, certificates of
deposit and short-term marketable securities with maturities of 90 days or
less when purchased, as cash and cash equivalents.
The Company utilizes a cash management system under which cash overdrafts
exist in the book balances of its primary disbursing accounts. These
overdrafts represent the uncleared checks in the disbursing accounts. The cash
amounts presented in the consolidated financial statements represent balances
on deposit at other locations prior to their transfer to the primary
disbursing accounts. Uncleared checks of $6,752,171 and $7,229,000 are
included in accounts payable at December 31, 1995 and December 25, 1994,
respectively.
INVENTORIES
Inventories, consisting of food items, beverages and supplies, are stated
at the lower of weighted average cost (which approximates first-in, first-out)
or market.
PRE-OPENING COSTS
Direct costs incidental to the opening of new restaurants are capitalized
and amortized over the restaurants' first year of operations.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization of property and equipment is provided on the
straight-line method over the estimated useful lives of the assets or, in the
case of leasehold improvements and certain property under capital leases, over
the lesser of the useful life or the lease term.
Goodwill related to the acquisition of the Company is amortized on a
straight-line basis over a thirty-six year period. The costs of franchise
license agreements which govern the individual Shoney's and Captain D's
restaurants and reserved area agreements are amortized on a straight-line
basis over the lives of the related franchise license agreements, up to 40
years. The Company has historically evaluated goodwill impairment based upon
future undiscounted cash flows. The Company recorded a valuation allowance
based upon the difference in the carrying value of the net assets and the
estimated fair value of the consideration to be received from Shoney's, Inc.
at December 31, 1995 (See Note 2).
INCOME TAXES
The Company's income taxes are computed in accordance with a tax sharing
and payment agreement with its parent company. Effective December 30, 1991,
the Company adopted Financial Accounting Standard No. 109, "Accounting for
Income Taxes", which requires an asset and liability approach to financial
accounting and reporting for income taxes. Deferred income tax assets and
liabilities are computed annually for differences between the financial
statement and tax basis of assets and liabiltiies that will result in taxable
or deductible amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expended to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense
is the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.
WORKING CAPITAL DEFICIENCY
The Company had a working capital deficiency of $40,709,000 and
$28,086,000 at December 31, 1995 and December 25, 1994, respectively.
The Company does not have significant receivables or inventory and
receives trade credit based upon negotiated terms in purchasing food
and supplies. Because funds available from cash sales are not needed
immediately to pay for food and supplies or to finance receivables or
inventory, they may be used for non-current capital.
OTHER
A new accounting pronouncement on impairment of long-lived assets was
issued in March 1995 and is effective for fiscal years beginning after
December 15, 1995. The Company does not believe the adoption of this
accounting standard will have a material adverse effect on its result of
operations or consolidated financial position.
NOTE 2 - SHONEY'S, INC. TRANSACTION
On March 15, 1996, Enterprises entered into a Plan of Tax-Free
Reorganization Under Section 368(a)(1)(C) of the Internal Revenue Code and
Agreement (the "Agreement") with Shoney's, Inc. to sell substantially all of
Enterprises' assets to Shoney's, Inc. (the "Shoney's, Inc. Sale Transaction").
At the closing of the Shoney's, Inc. Sale Transaction, under the terms of the
Agreement, Shoney's, Inc. will deliver to Enterprises (a) 5,577,102 shares of
Shoney's, Inc. common stock plus (b) shares of Shoney's, Inc. common stock
equal to $10,000,000 divided by the average closing market price of Shoney's,
Inc. common stock over a ten day trading period prior to the closing, subject
to certain adjustments as provided in the Agreement. Enterprises will deliver
to Shoney's, Inc. all of the issued and outstanding shares of capital stock of
the Company and its wholly-owned subsidiaries, TPI Entertainment, Inc. and TPI
Insurance Corporation. Additionally, Enterprises will transfer certain
liabilities, all intercompany accounts and all cash and cash equivalents of
the Company except for $14,850,000 in cash, of which $7,350,000 is designated
to pay certain specified wind-up expenses. If the specified wind-up expenses
are less than the designated $7,350,000, Enterprises is required to transfer
the difference to Shoney's, Inc.; if the expenses are greater, the excess will
be paid from the remaining $7,500,000 of cash after which the balance will be
distributed to shareholders. As a condition to closing of the Shoney's, Inc.
Sale Transaction, the obligations of the Company under the Debentures, Senior
Debentures and Credit Facility must have been assumed by Shoney's, Inc. and
the Company released from all obligations thereunder.
The Agreement requires Enterprises after closing to wind-down its
operations and distribute the Shoney's, Inc. common shares received and any
remaining cash amounts to Enterprises' shareholders. Management anticipates
that the closing of the Shoney's, Inc. Sale Transaction will occur by June 30,
1996 and that the majority of such distributions to Enterprises' shareholders
will be made during 1996.
At December 31, 1995, Enterprises has recorded a provision of $17,000,000
to reduce the carrying value of the net assets to be exchanged to the
estimated fair value of the consideration to be received from Shoney's, Inc.
This allowance has been reflected as a reduction in the Company's recorded
goodwill in the accompanying financial statements.
The Agreement may be terminated by mutual consent of Enterprises and
Shoney's, Inc. or by either party under certain circumstances, including if
the closing does not occur prior to June 30, 1996. The Agreement is subject to
a number of other conditions including, among other things, (1) the approval
of the shareholders of both Enterprises and Shoney's, Inc., (2) the expiration
of waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act, (3)
the receipt by Shoney's, Inc. of a commitment for additional financing in the
amount of $60,000,000 and its funding in accordance with its terms, (4) the
receipt of fairness and legal opinions and (5) the absence of a material
adverse change to Enterprises. The Agreement provides for the payment by
Enterprises of a break-up fee in the case of certain third party acquisition
events or proposals.
NOTE 3 - RESTRUCTURING CHARGES
The Company adopted a restructuring plan as of the end of the fourth
quarter of 1993 which included closing or relocating 31 of its restaurants by
the end of 1994, not exercising options to renew leases with respect to an
additional 19 of its restaurants upon expiration of their current lease terms,
and restructuring divisional management as well as consolidating the Company's
two corporate offices. With respect to the restaurants to be closed or
relocated, the Company recorded $19,800,000 of restructuring charges
consisting primarily of the write-off of assets and the accrual of lease and
other expenses, net of projected sales proceeds and sublease income. As of
December 31, 1995, the Company has closed 22 restaurants with plans to close
one more restaurant, and has determined that eight restaurants should stay
open. Management is still evaluating the timing of the closing of the
remaining restaurant. During 1995, the Company reduced its restructuring
reserve by $5,136,000 due to a change in estimate as a result of management's
decision to leave three restaurants open and due to management being able to
buyout of certain leases at more favorable terms than originally estimated.
The Company was also able to dispose of some locations for amounts in excess
of the original estimates and had lower than expected costs at other
locations. The restructuring reserve was also reduced by $2,157,000 during
1995 for expenditures and asset write-offs related to the other 23 units.
With respect to the 19 restaurants projected to be closed no later than the
expiration of their current lease terms, the Company determined that the
recoverability of the assets has been permanently impaired, and accordingly,
provided $4,500,000 primarily for the write-down of assets at the end of 1993.
The Company has closed three of these units prior to or upon the expiration
of their current lease terms. The Company's restructure plan also called for
two additional units to be closed by December 31, 1995. Due to the proposed
Shoney's, Inc. Sale Transaction, management is still evaluating the
timing of closing of these two restaurants
(See Note 2 to the Company's consolidated financial statements). The reserve
for restructuring was reduced by $669,000 during 1995 for the write-down of
assets and increased by $22,000 for a net change in estimate.
With respect to the Company's restructuring of its divisional management
and consolidation of the Company's corporate offices, the Company provided an
additional $168,000 during 1995 and paid out approximately $2,280,000 related
to the restructuring reserve of which $1,000,000 was for severance.
In addition to these reserves, the Company also has a reserve related to
units that were closed prior to 1993 and for the sale of vacant properties.
During 1995, the restructuring reserve was reduced by approximately $1,041,000
resulting from expenditures and asset write-downs and by $815,000 for changes
in original estimates for the costs of disposal.
At December 31, 1995, the Company's reserve for restructuring of
$11,350,000 represents the amounts owed for lease and other expenses. The
Company has classified $3,188,000 of the restructure as a current liability at
December 31, 1995. The Company also has an allowance for restructuring of
$8,752,000 recorded on its balance sheet for the write off of assets. The
reserve for restructuring includes management's best estimates of the
remaining liabilities associated with its restructuring and the net realizable
value of property. Due to uncertainties inherent in the estimation process, it
is at least reasonably possible that the Company's estimates of these amounts
will change in the near term.
Revenues of $3,000,000 and expenses of $2,800,000 related to units provided
for in the restructuring reserve have been excluded from the 1995 statement of
operations.
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
1995 1994
-------- ---------
(Dollars in thousands)
Owned:
Land............................................... $ 35,201 $ 35,602
Buildings.......................................... 52,699 52,616
Leasehold improvements and buildings on leased land 50,759 51,259
Equipment and furnishings.......................... 74,427 74,685
-------- ---------
213,086 214,162
-------- ---------
Leased:
Buildings.......................................... 23,074 23,905
Equipment.......................................... 596 1,924
-------- ---------
23,670 25,829
Property and equipment (at cost) ..................... 236,756 239,991
-------- ---------
Less accumulated depreciation and amortization........ 79,538 70,243
-------- ---------
Less allowance for unit closings...................... 8,752 12,430
-------- ---------
Total property and equipment....................... $148,466 $157,318
======== =========
Property and equipment with a net book value of approximately $21,565,000
and $22,233,000 were pledged as collateral for the Company's debt facilities
as of December 31, 1995 and December 25, 1994, respectively.
Depreciation and amortization are calculated using the straight-line method
and are based on the estimated useful lives of the assets as follows:
buildings, 30 years; equipment and furnishings, 3-15 years; and leasehold
improvements, primarily representing buildings constructed on leased property,
the lesser of the term of the lease or 30 years. Depreciation and amortization
of property and equipment, exclusive of depreciation and amortization included
in the restructuring reserve, totaled approximately $13,893,000, $14,928,000,
and $14,048,000 during 1995, 1994 and 1993, respectively. In 1995, 1994, and
1993, approximately $1,422,000, $1,643,000, and $1,649,000, respectively,
related to capitalized leases. Property and equipment includes capitalized
interest on construction of $425,000, $425,000, and $374,000 at December 31,
1995, December 25, 1994 and December 26, 1993, respectively.
NOTE 5 - OTHER INTANGIBLE ASSETS
Other intangible assets consists of the following: 1995 1994
-------- --------
(Dollars in thousands)
Franchise and reserved area rights.................... $17,710 $17,704
Deferred debt costs................................... 6,724 6,175
Unamortized pre-opening expense....................... 310 946
-------- --------
24,744 24,825
Less accumulated amortization......................... 6,479 5,144
-------- --------
$18,265 $19,681
======== ========
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following: 1995 1994
-------- --------
(Dollars thousands)
8 1/4% Convertible Subordinated Debentures, due 2002.. $ 51,563 $ 51,563
5% Senior Convertible Subordinated Debentures, due
2003.................................................. 15,000 15,000
Credit Facility....................................... 21,400 22,400
Notes payable, interest rates of 7.75% to 10%, due
through 2007.......................................... 2,608 4,863
Obligations under capital leases...................... 15,288 17,620
-------- --------
105,859 111,446
Less amounts due within one year...................... 24,231 3,725
-------- --------
$ 81,628 $107,721
======== ========
Scheduled annual principal maturities of long-term debt, excluding capital
leases, for the five years subsequent to December 31, 1995 are as follows:
$23,004,000 in 1996; $42,000 in 1997; $47,000 in 1998, $52,000 in 1999,
$58,000 in 2000, and $67,369,000 thereafter.
Interest expense for 1995, 1994, and 1993 includes interest on obligations
under capital leases of $1,776,000, $1,952,000 and $2,334,000 respectively.
DEBENTURES
On March 19, 1993, the Airlie Group, L.P. and certain related parties (the
"Airlie Group") made an investment in TPI Enterprises, Inc. (Enterprises) of
$30,000,000 including $15,000,000 of 5% Convertible Senior Subordinated
Debentures (the "Senior Debentures"), due 2003, the issuance of 1,500,000
shares of Enterprises' common stock at $10 per share and the issuance of
warrants to purchase an additional 1,000,000 shares of common stock at $11 per
share. The Senior Debentures are senior to the 8 1/4% Convertible Subordinated
Debentures (described below). The Senior Debentures are convertible at the
option of the holder into common shares of Enterprises at any time prior to
maturity at $11 per share, subject to adjustment in certain events. The Senior
Debentures mature on April 15, 2003 and are redeemable, in whole or in part,
at the option of Enterprises at any time on or after April 15, 1996, initially
at 103.5% of their principal amount and declining to 100% of their principal
amount on April 15, 2003. The Senior Debenture holders may require Enterprises
to repurchase the Senior Debentures, in whole or in part, in certain
circumstances involving a change in control of Enterprises as defined in the
Debenture Purchase Agreement (the "Agreement"). However, a change in control,
as defined in the Agreement, will create an event of default under the Credit
Facility (described below) and, as a result, any repurchase would, absent a
waiver, be blocked by the subordination provision of the Agreement until the
Credit Facility (and any other senior indebtedness of Enterprises and senior
indebtedness of the Company with respect to which there is a payment default)
have been repaid in full. The Senior Debentures are unconditionally guaranteed
on a subordinated basis by the Company. They are subordinated to all existing
and future senior indebtedness of Enterprises and the Company. As a condition
to closing of the Shoney's, Inc. Sale Transaction, the liabilities associated
with or arising out of the Senior Debentures must be satisfied.
The 8 1/4% Convertible Subordinated Debentures (the "Debentures"), which
provided proceeds to Enterprises of $47,948,000, net of $3,802,000 in deferred
debt costs, are convertible at the option of the holder into common shares of
Enterprises at any time prior to maturity at a conversion price of $6.50 per
share subject to adjustment in certain events. The Debentures mature on July
15, 2002, and are redeemable at the option of Enterprises at any time on or
after July 15, 1995, at a premium which declines as the Debentures approach
maturity. The Debenture holders may also require Enterprises to repurchase the
Debentures, in whole or in part, in certain circumstances involving a change
in control of Enterprises as defined in the indenture covering the Debentures
(the "Indenture"). However, a change in control, as defined in the Indenture,
will create an event of default under the Credit Facility and, as a result,
any DEBENTURES (CONTINUED)
repurchase would, absent a waiver, be blocked by the subordination provisions
of the Indenture until the Credit Facility (and any other senior indebtedness
of Enterprises and senior indebtedness of the Company with respect to which
there is a payment default) have been repaid in full. The Debentures are
unconditionally guaranteed on a subordinated basis by the Company. They are
subordinated to all existing and future senior indebtedness of the Company and
Enterprises. As a condition to closing of the Shoney's, Inc. Sale Transaction,
the obligations of the Company and Enterprises under the Debentures must be
satisfied.
CREDIT FACILITY
The Company's Credit Facility with a syndicate of banks was amended and
restated as of January 31, 1995. The Credit Facility, as amended, restricts
total borrowings available under the Credit Facility to $40,000,000 and
revises certain financial covenant ratios and requires the collateralization
of additional properties. On February 29, 1996 in connection with the proposed
Shoney's, Inc. Sale Transaction the Credit Facility was amended to revise
certain financial covenant ratios to allow for a provision of up to
$25,000,000 to be taken by the Company as an asset valuation (See Note 2). As
discussed in Note 2, Enterprises is seeking to complete the Shoney's, Inc.
Sale Transaction no later than June 30, 1996. Under the terms of the
Agreement, Shoney's, Inc. will assume or retire certain obligations of
Emterprises including the Credit Facility, which matures June 3, 1996.
Enterprises is discussing with its bank group the possibility of extending the
Credit Facility until the closing date with Shoney's, Inc. Enterprises is also
in discussions with respect to obtaining certain waivers of financial covenants
which may be required for the first quarter of 1996 to ensure adequate
liquidity until this transaction is closed. Additionally, Enterprises is
discussing amendments or waivers to the financial covenants that may be
necessary prior to closing. Management is of the opinion that Enterprises will
be able to obtain such an agreement. However, there can be no assurance that
such an agreement can be reached with respect to either extending the facility
or amending or obtaining waivers to the financial covenants.
Borrowings under the Credit Facility, at the Company's option, bear
interest at either a defined base rate or a rate based on the London Interbank
Offered Rate. The weighted average interest rate on the amount outstanding was
8.5% and 8.2% for 1995 and 1994, respectively. The Company paid certain fees
and expenses to the Banks in connection with the original commitment letter,
which along with other costs associated with the Original Credit Facilities,
totaled approximately $2,000,000 and also agreed to indemnify the Banks
against certain liabilities. The Company also paid an amendment fee of $80,000
and costs of $470,000 for its Second Amended and Restated Credit Agreement
dated January 31, 1995. The Company also pays a fee based on the Eurodollar
rate, 2.5% at December 31, 1995, in connection with letters of credit issued
and a commitment fee equal to 0.50% per annum on the average daily unused
amount of the Credit Facility. The terms of the Credit Facility increased the
fee paid on borrowings and letters of credit by .50% effective January 31,
1995.
Borrowings under the Credit Facility are secured by all shares of the
capital stock of the Company, whenever issued, intercompany debt of the
Company owed to Enterprises and ground lease mortgages with respect to certain
premises in which the land is currently leased but the building located
thereon is owned by the Company. In addition, the Banks have the right to
obtain, as security, assignments of other leases and/or mortgages on real
property currently owned or subsequently acquired. However, the Company has
rights to finance certain of these properties and obtain a release of the
collateral under certain conditions. The Credit Facility limits the amount of
additional indebtedness which Enterprises, the Company and its subsidiaries
may incur and the aggregate annual amount to be spent on capital expenditures.
In addition, the Credit Facility limits, among other things, the ability of
Enterprises, the Company and its subsidiaries to pay dividends, create liens,
sell assets, engage in mergers or acquisitions and make investments in
subsidiaries. The Company may not transfer amounts to Enterprises except for
the payment of a management fee not to exceed $2,500,000 in each fiscal year
and a dividend in an amount sufficient to pay interest on the Senior
Debentures and the Debentures, in each case provided that no defaults under
the Credit Facility exist either immediately before or after the transfer. The
Company must also maintain certain financial ratios and defined levels of net
worth.
At December 31, 1995, $21,400,000 was drawn on the Credit Facility and
letters of credit in the amount of $10,592,790 were outstanding, resulting in
a remaining available balance of $8,007,210.
NOTES PAYABLE
Notes payable as of December 31, 1995 consists of obligations secured by
buildings, land, equipment, and cash value life insurance policies with a net
book value of $7,712,000.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Debentures, based on the quoted market
price, is $48,000,000 and $39,200,000 at December 31, 1995 and December 25,
1994, respectively. The estimated fair value of the Senior Debentures at
December 31, 1995 is $11,400,000 and $11,570,000 for December 31, 1995 and
December 25, 1994, respectively, based on the estimated borrowing rates
available to the Company. The Credit Facility reprices frequently at market
rates; therefore, the carrying amount of the Credit Facility is a reasonable
estimate of its fair value at December 31, 1995 and December 25, 1994. The
estimated fair value of the Company's notes payable approximates the principal
amount of such notes outstanding at December 31, 1995 and December 25, 1994,
which is based upon the estimated borrowing rates available to the Company.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1995 and December 25,
1994. Although management is not aware of any factors that would significantly
affect the estimated fair value amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since that
date, and current estimates of fair value may differ significantly from the
amounts presented herein.
NOTE 7 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
1995 1994
--------- --------
(Dollars in thousands)
Insurance........................................$ 12,373 $
14,578
Reserve for restructuring........................ 3,188 5,177
Taxes other than income taxes.................... 4,600 4,463
Interest......................................... 2,331 2,407
Payroll.......................................... 1,748 1,524
Other............................................ 3,266 3,507
--------- --------
$ 27,506 $ 31,656
========= ========
The Company is primarily self insured for general liability and workers'
compensation risks supplemented by stop loss type insurance policies. The
self-insurance liabilities included in accrued insurance at December 31, 1995
and December 25, 1994 were approximately $11,816,000 and $14,232,000,
respectively.
During the fourth quarter of 1995, management received the 1995 actuarial
study relating to its self insurance programs for workers' compensation and
general liability. The study indicated a continued improvement in the
Company's claims development which resulted in the reduction of projected
ultimate losses. Accordingly, the Company reduced its accrual for workers'
compensation by $3.5 million and its accrual for general liability by $1.5
million.
NOTE 8 - INCOME TAXES
The provision (benefit) for income taxes on income before extraordinary
item and cumulative effect of accounting changes is as follows for 1993:
1993
-------------------
(DOLLARS IN THOUSANDS)
Current:
Federal.................................. $ ---
State and local..........................
---
-------
---
-------
Deferred:
Federal.................................. ---
State and local.......................... 85
-------
85
-------
$ 85
=======
The provision (benefit) for income taxes is different from the amount that
would be computed by multiplying the income (loss) before provision (benefit)
for income taxes by the statutory U.S. federal income tax rates for the
following reasons:
1995 1994 1993
-------- ------- --------
(Dollars in thousands)
Provision (benefit) at statutory rate.......... $(6,790) $(935) $(12,845)
State and local income taxes, net of federal
income tax benefit............................. --- --- ---
Goodwill and other nondeductible items......... 6,441 475 476
Targeted jobs tax credit....................... (134) (318) (105)
Tip credits.................................... (352) (388) ---
Valuation allowance............................ 748 1,284 12,474
Other.......................................... 87 (118)
85
-------- ------- --------
Total provision for income taxes on continuing $ --- $ $
operations..................................... --- 85
======== ======= ========
The tax effects of principal temporary differences in 1995 are shown in
the following table:
Assets Liabilities Total
-------- --------- ---------
(Dollars in thousands)
Additional inventory costs for tax
purposes............................... $ 275 $ --- $ 275
Net operating loss and contributions
carryforward........................... 965 --- 965
Reserves and accrued expenses.......... 5,702 --- 5,702
Other.................................. --- (1) (1)
Valuation allowance.................... (3,751) --- (3,751)
-------- --------- ---------
Current............................. 3,191 (1) 3,190
-------- --------- ---------
Unamortized intangible assets.......... --- (1,258) (1,258)
Excess tax over book depreciation and
sale-leasebacks..................... --- (14,523) (14,523)
Deferred compensation.................. 561 --- 561
Reserves and accrued expenses.......... 5,263 --- 5,263
AMT, net operating loss and targeted
jobs tax credit carryforward........ 21,571 --- 21,571
Valuation allowance.................... (14,804) --- (14,804)
-------- --------- ---------
Noncurrent.......................... 12,591 (15,781) (3,190)
-------- --------- ---------
Total............................. $15,782 $(15,782) $---
======== ========= =========
The tax effects of principal temporary differences in 1994 are shown in the
following table:
Assets Liabilities Total
--------- --------- -------
(Dollars in thousands)
Additional inventory costs for tax purposes. $ 162 $ $ 162
---
Net operating loss and contributions 870 --- 870
carryforward................................
Reserves and accrued expenses............... 6,610 --- 6,610
Other....................................... ---
(37) (37)
Valuation allowance.........................
(3,994) --- (3,994)
--------- --------- --------
Current.................................. 3,648 3,611
(37)
--------- --------- --------
Unamortized intangible assets............... --- (1,204) (1,204)
Excess tax over book depreciation and
sale-leasebacks.......................... --- (11,738)
(11,738)
Deferred compensation....................... 559 --- 559
Reserves and accrued expenses............... 6,104 --- 6,104
Other....................................... --- (1,690) (1,690)
AMT, net operating loss and targeted jobs
tax 19,174 --- 19,174
credit carryforward......................
Valuation allowance.........................
(14,816) --- (14,816)
--------- --------- --------
Noncurrent............................... 11,021
(14,632) (3,611)
--------- --------- --------
Total.................................. $ 14,669 $ $
(14,669) ---
========= ========= ========
The tax effects of principal temporary differences in 1993 are shown in the
following table:
Assets Liabilities Total
--------- --------- -------
(Dollars in thousands)
Additional inventory costs for tax purposes. $ 209 $ $ 209
---
Net operating loss and contributions 4,237 --- 4,237
carryforward
Reserves and accrued expenses............... 5,792 --- 5,792
Other ...................................... (20) (20)
---
Valuation allowance......................... ---
(8,872) (8,872)
--------- --------- --------
Current.................................. 1,366 (20) 1,346
--------- --------- --------
Unamortized intangible assets............... --- (1,319) (1,319)
Excess tax over book depreciation and
sale-leasebacks.......................... --- (12,061)
(12,061)
Deferred compensation....................... 833 --- 833
Reserves and accrued expenses............... 7,322 --- 7,322
Other....................................... --- (272) (272)
AMT, net operating loss and targeted jobs
tax 12,202 --- 12,202
credit carryforward......................
Valuation allowance.........................
(8,051) --- (8,051)
--------- --------- --------
Noncurrent............................... 12,306 (13,652)
(1,346)
--------- --------- --------
Total.................................. $ 13,672 $(13,672) $
---
========= ========= ========
The Company increased its deferred tax asset and liability in 1993 as a
result of legislation enacted during 1993 increasing the corporate tax rate
from 34% to 35% commencing in 1993. The net change in the valuation for
deferred tax assets was an increase of $12,357,000.
The Company's share of Enterprises' consolidated tax carryforwards at
December 31, 1995 expire as follows:
</TABLE>
<TABLE>
<CAPTION>
Net Targeted
Operating Jobs Tax
EXPIRATION Contributions Loss Credit Tip Credit
----------- --- --------- -- -------- --- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
1996.................................. $ 400 $ --- $ --- $ ---
1997.................................. 259 --- --- ---
1998.................................. 601 --- --- ---
2003.................................. 681 --- 330 ---
2004.................................. 272 --- 403 ---
2005.................................. --- --- 304 ---
2006.................................. --- --- 501 ---
2007.................................. --- --- 714 ---
2008.................................. --- 9,071 159 ---
2009.................................. --- 1,392 489 589
2010.................................. --- --- 206 541
------- -------- -------- ------
$ 2,213 $ 10,463 $ 3,106 $1,130
======= ======== ======== ======
</TABLE>
The use of these carryforwards is limited to future taxable income.
Alternative minimum tax credits total $873,000 and may be carried forward
indefinitely.
The Company entered into a tax sharing and payment agreement with
Enterprises (the "Agreement"), effective as of April 17, 1988, and applicable
to the consolidated federal income tax returns filed by Enterprises for its
taxable year beginning January 1, 1988. This Agreement provides that the
Company, acting for itself and its subsidiaries, shall be allocated and shall
reimburse Enterprises for their share of the consolidated federal income tax
liability of the Enterprises consolidated group, and such share shall be
determined by comparing the separate taxable incomes (as defined for
consolidated federal income tax reporting purposes) of the Company and its
subsidiaries to the sum of the separate taxable incomes of members of the
Enterprises consolidated group. Enterprises will have the right to assess the
Company on a quarterly basis for its share of the estimated consolidated
federal income tax liability.
Through December 31, 1995, deferred income taxes have not been provided with
respect to timing differences which gave rise to approximately $10,000,000 of
net operating losses, for tax purposes. The losses were utilized by Enterprises
in the computation of its consolidated federal income tax liability in
accordance with the Agreement. However, Enterprises has agreed to credit
the Company with tax benefits related to such net operating losses to
offset future federal income taxes otherwise payable by the Company under the
Agreement.
NOTE 9 - LEASE COMMITMENTS
The Company leases certain of its restaurant locations under long-term
lease arrangements. Lease terms generally range from 10 to 25 years and
normally contain renewal options ranging from 5 to 15 years, but do not
contain purchase options. The Company is generally obligated for the cost of
property taxes and insurance. Some of these leases contain contingent rental
clauses based on a percentage of revenue. The building portions of such leases
are capitalized and the land portions are accounted for as operating leases.
Contingent rentals on capital leases were $310,000, $389,000, and $526,000
during 1995, 1994, and 1993, respectively.
Rent expense under operating leases included in continuing operations is as
follows:
1995 1994 1993
--------- -------- ---------
(Dollars in thousands)
Land and buildings:
Minimum.................... $ 5,432 $ 4,777 $ 5,018
Contingent................. 665 686 714
--------- -------- ---------
6,097 5,463 5,732
Equipment leases.............. 2,370 2,338 2,060
--------- -------- ---------
$ 8,467 $ 7,801 $ 7,792
========= ======== =========
A summary of future minimum lease payments under capital leases,
non-cancelable operating leases, and leases reserved for in the provision for
closed units recorded in the fourth quarter of 1993 with remaining terms in
excess of one year at December 31, 1995 is as follows:
CAPITAL OPERATING RESERVED
LEASES LEASES LEASES
--------- ---------- ---------
(Dollars in thousands)
---------- ---------
1996........................... $ 2,881 $ 7,541 $ 1,090
1997........................... 2,736 7,335 1,084
1998........................... 2,574 6,774 941
1999........................... 2,348 5,815 931
2000........................... 2,135 4,679 859
Thereafter..................... 14,537 27 4,109
--------- ---------- ---------
27,213 32,171 9,014
Less interest.................. 11,615 --- ---
--------- ---------- ---------
$ 15,598 $ 32,171 $9,014
========= ========== =========
Future minimum lease payments on operating leases have been reduced for
sublease rental income of approximately $105,000 to be received in the future
under non-cancelable subleases.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Several of the Company's reserved area agreements include expansion
schedules requiring the Company to develop a minimum number of Shoney's
restaurants in the reserved areas over a defined period of time. Pursuant to
these agreements, the Company is required to open a minimum of 36 Shoney's
restaurants through October 6, 2004. In 1991, the Company entered into an
agreement with Shoney's, Inc. to develop 38 new Captain D's restaurants over
20 years, at the approximate rate of two per year. The Company has constructed
eight restaurants with respect to this agreement. Due to the pending Shoney's,
Inc. Sale Transaction, the Company is not pursuing the building of such units
in 1996. Management is of the opinion that if the transaction is not
completed, the Company will be able to modify the agreements with no material
adverse effect on the operating results or financial position of the Company.
NOTE 11 - LITIGATION
TPI RESTAURANTS, INC. V. MARLIN SERVICES, INC., MARLIN ELECTRIC, INC., D/B/A/
MARLIN SERVICES AND THE AETNA CASUALTY AND SURETY COMPANY AND MARLIN ELECTRIC,
INC. V. TPI RESTAURANTS, INC. AND RELATED MATTERS
On March 7, 1996, the Company filed a civil action; captioned TPI
Restaurants, Inc. v. Marlin Services, Inc. d/b/a/ Marlin Services, Inc.
("Marlin") and The Aetna Casualty and Surety Company. The Company
contends among other things that Marlin breached the terms of a maintenance
service agreement that Restaurants had entered into with Marlin by failing
to perform timely maintenance as required by the agreement, overcharging
for parts and materials, improperly billing for labor, improperly charging
for overhead, etc. On March 7, 1996, Marlin filed a separate action in the
U.S. District Court of Virginia against Restaurants alleging among other
things that Restaurants breached its contract with Marlin by failing to pay
amounts owed under the contract. Marlin claims damages in excess of $2,200,000
as of March, 1996. The Company's attorneys are unable at this time to state
the likelihood of a favorable or unfavorable outcome in these actions.
Subsequent to the end of the year, the Company has been contacted by a
number of subcontractors employed by Marlin. These subcontractors have
indicated that they have not been paid, for certain services performed and
that they are entitled to mechanic's and/or materialman's liens on the
Company's restaurants. The Company is unable at the present time to determine
what liability, if any, exists to these and other subcontractors. Management
does not believe that the ultimate outcome will be a material adverse effect
on the operating results or financial position of the Company.
OTHER
The Company and its subsidiaries are defendants in various lawsuits
arising in the ordinary course of business. While the result of any litigation
contains an element of uncertainty, it is the opinion of the management of the
Company that the outcome of such litigation will not have a material adverse
effect on the consolidated financial statements.
NOTE 12 - STOCKHOLDERS' EQUITY
The authorized capital stock of the Company consists of 10,000 shares of
Series A Preferred Stock, par value $.01, which are issued and outstanding and
1,000 shares, par value $.01, of common stock which are issued and
outstanding.
Dividends are payable on the Series A Preferred Stock at the annual rate
of $400 per share. The dividends begin to accrue and are cumulative from the
date of issue and are payable when and if declared by the Board of Directors.
As of December 31, 1995, there had been no dividends declared and the
aggregate cumulative dividends were approximately $29,008,218. Cumulative
dividends in arrears also have a liquidation preference and must be satisfied
upon the redemption of the preferred stock by the Company.
The payment of dividends on the Company's stock is limited as described in
Note 6.
NOTE 13 - TRANSACTIONS WITH RELATED PARTIES
On October 5, 1988, the Company and Enterprises entered into a management
services agreement, pursuant to which Enterprises agreed to provide certain
management services to the Company on an ongoing basis. These services include
financial and tax advice and assistance, auditing and accounting advice and
services, advice relating to personnel, including benefit plans, and
assistance with the administration and operation of the Company in general.
The management services agreement originally provided that the Company pay an
annual fee of $1,000,000 to Enterprises as compensation for rendering
management services. As of August 1, 1992, this fee was increased to
$2,500,000. Enterprises will also be reimbursed for its out-of-pocket expenses
incurred in connection with rendering the management services. The management
services agreement is effective until December 31, 1998, at which time it may
be renewed for succeeding one-year terms by mutual agreement of the parties.
During the years ended December 31, 1995, December 25, 1994, and December 26,
1993, the Company accrued and expensed $2,500,000, $2,500,000, and $2,487,000,
respectively, pursuant to this agreement. This agreement will be terminated in
the event that the Shoney's, Inc. Sale Transaction occurs.
On July 21, 1993, Enterprises acquired, for a purchase price of
$3,860,000, the stock of a company which operated three Shoney's restaurants,
including one owned and two leased locations. Included in the acquisition were
the exclusive rights to operate Shoney's restaurants in the surrounding
northern Palm Beach County, Florida area. Enterprises subsequently contributed
all assets and related liabilities acquired in the transaction to the Company.
In conjunction with this transaction, the Company purchased the land and
building at one of the leased restaurant locations for $1,240,000. The
President and Chief Executive Officer of the Company was a 20% shareholder of
the acquired company and had a 50% interest in the land and building the
Company purchased. The Company engaged the service of an independent appraisal
company to review the fairness of the transaction.
On January 19, 1993, the Company purchased an airplane from a corporation
owned by the President and Chief Executive Officer of the Company for $650,000.
NOTE 14 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
During the third quarter of 1995, the Company reduced by $3,500,000 its
restructure reserve (Note 3). In the fourth quarter, the Company reduced the
restructure reserve by an additional $2,261,000, reduced its insurance
reserves by $5,000,000 and recorded a $17,000,000 provision for asset
valuation (Note 2). During the fourth quarter of 1994, the Company recorded
$600,000 for adjustments to the Company's deferred compensation obligation
(Note 13) and a $1,000,000 reduction to the Company's restructure reserve
(Note 3).
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------
(Dollars in thousands)
QUARTER ENDED - 1995
<S> <C> <C> <C> <C>
Net sales $83,744 $67,241 $65,492 $67,101
Gross profit 8,362 7,040 3,884 7,197
Net (loss) (2,228) (1,190) (3,645) (12,769)
QUARTER ENDED - 1994
Net sales, restated 88,423 69,529 68,086 61,346
Gross profit 10,729 8,486 6,602 4,404
Net income (loss) 608 140 (1,416) (2,080)
</TABLE>
Gross profit equals revenues less food, supplies and uniforms, restaurant
labor and benefits, restaurant depreciation and amortization and other
restaurant operating expense.
SCHEDULE II
<TABLE>
<CAPTION>
TPI RESTAURANTS, INC. AND SUBSIDIARIES
RESERVES
(Dollars in thousands)
ADDITIONS
BALANCE AT ADDITIONS CHARGED DEDUCTIONS BALANCE
BEGINNING CHARGED TO TO FROM AT
OF OPERATIONS OTHER RESERVES END OF
PERIOD ACCOUNTS PERIOD
----------- ----------- ---------- ----------- ---------
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<S> <C> <C> <C> <C> <C>
Year ended December 31, $ 59 $ 66 $ --- $ --- $ 125
1995:
Year Ended December 25, $ --- $ 59 $ --- $ --- $ 59
1994:
Year Ended December 26, $ --- $ --- $ --- $ --- $ ---
1993:
ALLOWANCE FOR RESTRUCTURING RESERVES:
Year ended December 31, $ 12,430 $ --- $ --- $ 3,678(1) $ 8,752
1995:
Year Ended December 25, $ 18,695 $ --- $ --- $ 6,265 (1) $ 12,430
1994
Year Ended December 26, $ 3,773 $ 17,286 $ --- $ 2,364 $ 18,695
1993:
ALLOWANCE FOR ASSET VALUATION:
Year ended December 31, $ --- $ --- $ 17,000 $ --- $ 17,000
1995:
Year Ended December 25, $ --- $ --- $ --- $ --- $ ---
1994
Year Ended December 26, $ --- $ --- $ --- $ --- $ ---
1993:
<FN>
(1) Represents deductions for the write-off of assets and changes in assumptions in
connection with the Company's restructure plan. See Note 3.
</TABLE>
EXHIBIT DESCRIPTION
NO.
3.1 Restated Certificate of Incorporation and Certificate of Amendment
dated March 25, 1987 (1); Certificate
of Amendment dated November 10, 1988 (1)
3.2 By-laws as amended through December 18, 1987 (4), Amendment thereto
dated November 9, 1988 (9), Amendment thereto dated May 15, 1989
(10), Amendment thereto dated April 27, 1990(5), Amendment thereto
dated March 9, 1992 (4), and Amendment thereto dated March 19, 1993
(3)
10.1 Plan of Tax-Free Reorganization under Section 368(a)(1)(C) of the
Internal Revenue Code and Agreement dated as of March 15, 1996
among Shoney's, Inc., TPI Restaurants Acquisition Corporation and
Registrant (17)
10.1 Lease between Registrant and 53rd at Third Venture, dated December
6, 1985, as amended, covering premises situated at 885 Third
Avenue, New York, New York (4)
10.2 Sublease dated August 14, 1992 between Registrant and Systemhouse,
Inc. for the premises at 53rd at
3rd, 885 Third Avenue, New York, New York (3)
10.3 Lease dated June 26, 1992 between Registrant and Murray H. Goodman,
for premises at Phillips Point,
West Palm Beach, Florida (3)
10.4 Medical Expense Reimbursement Plan (14)
10.5 1982 Stock Option Plan (5), and Amendment thereto dated April 15,
1991 (4)
10.6 1983 Stock Option Plan (5), Amendment thereto dated August 8, 1990
(5)
and Amendment thereto dated
March 9, 1992 (4)
10.7 1984 Stock Option Plan, Amendment thereto dated November 15, 1989
(5), and Amendment thereto dated February 5, 1992 (4)
10.8 1989 Employee Stock Purchase Plan (11); and Amendment thereto dated
December 16, 1994 (1)
10.9 1989 Employee Stock Purchase Plan Trust Agreement (10)
10.10 1992 Stock Option and Incentive Plan (3)
10.11 Non-Employee Directors Stock Option Plan (3), Amendment thereto dated
March 19, 1993 (2), and Amendment thereto dated December 16, 1994 (1)
10.12 TPI Enterprises, Inc. 1995 Employee Stock Purchase Plan (1)
10.13 Amended and Restated TPI Enterprises, Inc. Employee Stock Purchase
Plan Trust Agreement (1)
10.14 NationsBank Defined Contribution Master Plan and Trust Agreement (1)
10.15 Form of letter agreement, dated January, 1984 between Registrant and
Robert A. Kennedy setting forth, among other matters, certain rights
upon termination of employment (5)
10.16 Termination Agreement dated November 19, 1992 between Registrant and
Robert A. Kennedy (1), Amendment to Termination Agreement dated
December 31, 1993 (2); Agreement dated February 20, 1995 (1); and
letter agreement dated March 19, 1996
10.17 Termination Agreement, Receipt and Release dated as of January 31,
1995 between Registrant, Maxcell
Telecom Plus, Inc., and Stephen R. Cohen (16)
10.18 Employment Agreement dated as of January 13, 1994, between
Registrant and J. Gary Sharp (2)
10.19 Employment Agreement dated as of January 1, 1995, between Registrant,
Restaurants and Frederick W. Burford (1)
10.20 Employment Agreement dated as of January 1, 1993 between Restaurants
and Haney A. Long, Jr. (1)
10.21 Stipulation and Agreement of Compromise and Settlement, dated January
6, 1988, among Robert M.
Gintel, Ralph I. Reis, Daniel Schoonover, Stephen R. Cohen, Thomas J.
Burger, Joseph P. Gowan, Ira M. Lieberman, Robert A. Kennedy, and
Registrant (3)
10.22 Management Services Agreement dated as of October 5, 1988, between
Registrant and Restaurants (12)
10.23 Tax Sharing and paying Agreement effective as of April 22, 1988
between Registrant and Restaurants (12)
10.24 Form of Shoney's Franchise Agreement (5)
10.25 Form of Agreement amending Franchise Agreements with Shoney's, Inc.
(13)
10.26 Form of Captain D's Franchise Agreements (5)
10.27 Second Amended and Restated Credit Agreement dated January 31, 1995
by and among TPI Restaurants, Inc., the banks party thereto, The
Bank of New York as Administrative Agent and NationsBank of North
Carolina, N.A., as Collateral Agent (the "Collateral Agent")(16);
and Amendment No. 1 to the Second amended and Restated Credit
Agreement dated as of February 29, 1996
10.28 Amended and Restated Enterprises Guaranty, dated as of June 3, 1993
made by Registrant and Restaurants to NationsBank of North Carolina,
N.A. as Collateral Agent (2) and Amendment No. 1, dated as of
February 18, 1994, and Amendment No. 2 dated as of January 31,
1995 (16)
10.29 Debenture Purchase Agreement, dated as of March 19, 1993 among
Registrant and the Purchasers named therein, relating to the
$15,000,000 5% Convertible Senior Subordinated Debentures, due
April 15, 2003 (3)
10.30 Warrant Purchase Agreement, dated as of March 19, 1993 among
Registrant and the Purchasers named therein, relating to Warrants
to Purchase 1,000,000 Shares of Common Stock (3)
10.31 Stock Purchase Agreement, dated as of March 19, 1993 among
Registrant and the Purchasers named therein, relating to the
purchase of 1,500,000 Shares of Common Stock (3)
10.32 Side Agreement, dated as of March 19, 1993 among Registrant and the
Purchasers named therein (3)
10.33 Amended and Restated Registration Rights Agreement dated as of July
21, 1993 by and among the Company and the shareholders who are
signatories thereto (7)
10.34 Management Consulting Agreement, dated as of June 03, 1989, between
Registrant and FirstMark (6)
10.35 Reserved Area Agreement dated May 1, 1989 between Shoney's, Inc.
and Restaurants (1); as amended by Addendum to Reserved Area
Agreement dated May 8, 1989 (1); as amended by Amended and Restated
Addendum to Reserved Area Agreement entered into January 1, 1990
(1); as amended by Second Amended and Restated Addendum to Reserved
Area Agreement entered into April 1991 (1)
10.36 Reserved Area Agreement dated August 2, 1988 between Shoney's, Inc.,
Registrant and Shoney's South, Inc. (predecessor to Restaurants)(1);
letter dated March 5, 1993 from Shoney's, Inc. to Restaurants (1);
as amended by letter agreement dated July 30, 1993 (1)
10.37 Shoney's Market Development Agreement dated December 1, 1992 between
Shoney's, Inc. and Restaurants (regarding area in Michigan)(1); as
amended by Addendum to Market Development Agreement entered into
January 26, 1995 (1); as amended by Second Addendum to Market
Development Agreement entered into February 27, 1995 (1)
10.38 Shoney's Market Development Agreement dated August 17, 1993 between
Shoney's, Inc. and Restaurants (regarding area in Arizona)(1); as
amended by Addendum to Market Development Agreement entered into
January 26, 1993 (1); as amended by Second Addendum to Market
Development Agreement dated February 27, 1995 (1)
10.39 Shoney's Market Development Agreement dated July 18, 1993 between
Shoney's, Inc. and Restaurants (regarding area in Florida) (1); as
amended by Addendum to Market Development Agreement entered into
January 26, 1993 (1); as amended by Second Addendum to Market
Development Agreement entered into February 27, 1995 (1)
10.40 Shoney's Market Development Agreement dated October 11, 1993 between
Shoney's, Inc. and Restaurants (regarding area in Texas) (1)
10.41 Shoney's Market Development Agreement dated April 1, 1993 between
Shoney's, Inc. and Restaurants (regarding area in Texas) (1); as
amended by Addendum to Market Development Agreement entered into
November 30, 1993 (1); as amended by Second Addendum to Market
Development Agreement entered into January 26, 1995 (1); as amended
by Third Addendum to Market Development Agreement entered into
February 27, 1995 (1)
10.42 Franchiser Estoppel Letter dated January 31, 1995 (1)
11 Computation of Earnings Per Share
21 Subsidiaries of the Registrant
23 Consent of Deloitte & Touche LLP
27 Financial Data Schedule (for SEC use only)
- ----------
(1) Filed as an exhibit to Registrant's Annual Report on Form 10-K for
the year ended December 25, 1994 as amended by Form 10-K/A No.1 and
incorporated herein by reference.
(2) Filed as an exhibit to Registrant's Annual Report on Form 10-K for
the year ended December 26, 1993, and incorporated herein by
reference.
(3) Filed as an exhibit to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992, and incorporated herein by
reference.
(4) Filed as an exhibit to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1991, and incorporated herein by
reference.
(5) Filed as an exhibit to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1990, and incorporated herein by
reference.
(6) Filed as an exhibit to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1989, and incorporated herein by
reference.
(7) Filed as an exhibit to Registrant's Quarterly Report on Form 10-Q,
dated July 11, 1993.
(8) Filed as an exhibit to Registrant's Current Report on Form 8-K, dated
May 8, 1991, and incorporated herein by reference.
(9) Filed as an exhibit to Registrant's Current Report on Form 8-K dated
March 4, 1991, and incorporated herein by reference.
(10) Filed as an exhibit to Registrant's Registration Statement on
Form S-8 (No. 33-30551), dated August 16, 1989, and incorporated
herein by reference.
(11) Filed as an exhibit to Amendment No. 4 to Restaurant's Registration
Statement on Form S-2 (No.33-24166), dated November 9, 1988, and
incorporated herein by reference.
(12) Filed as an exhibit to Restaurant's Registration Statement on Form
S-2 (No.33-24166), dated October 13, 1988, and incorporated herein
by reference.
(13) Filed as an exhibit to Restaurant's Registration Statement on
Form S-2 (No. 33-24166), dated September 2, 1988, and
incorporated herein by reference.
(14) Filed as an exhibit to Restaurant's Registration Statement on
Form S-1 (No. 2-72119), dated May 5, 1981, and incorporated
herein by reference.
(15) Filed as an exhibit to Registrant's Current Report on Form 8-K, dated
July 29, 1992, and incorporated herein by reference.
(16) Filed as an exhibit to Registrant's Current Report on Form 8-K, dated
February 7, 1995, and incorporated herein by reference.
(17) Filed as an exhibit to Registrant's Current Report on Form 8-K, dated
March 19, 1996, and incorporated herein by reference.
BOARD OF DIRECTORS CORPORATE EXECUTIVE OFFICERS
Douglas K. Bratton J. Gary Sharp
Partner, The Airlie Group L.P. President and Chief Executive Officer
Frederick W. Burford Frederick W. Burford
Executive Vice President, Executive Vice President,
Chief Financial Officer Chief Financial Officer
and Secretary and Secretary
TPI Enterprises, Inc.
Osvaldo Cisneros TPI RESTAURANTS, INC. OFFICERS
President, Ocaat, CA
Haney A. Long, Jr.
Lawrence F. Levy Vice President of Procurement and
Chairman, The Levy Organization Distribution
James Arnett
John L. Marion, Jr. Vice President, Shoney's Restaurant
The Airlie Group L.P. Division
Gary W. Borth
J. Gary Sharp Vice President of Operations, Captain
President and Chief Executive D's Division
Officer,
TPI Enterprises, Inc.
Paul James Siu
Paul Siu & Company
Edwin B. Spievack
Vice President, Source Inc.
Thomas M. Taylor
President, Thomas M. Taylor & Company
FORM 10-K AUDITORS
A copy of the Annual Report on Deloitte & Touche LLP, 600
Form 10-K to the Securities and Morgan Keegan Tower, 50
Exchange Commission is avail- North Front Street, Memphis,
able upon written request to TN 38103.
the Secretary, TPI Enterprises,
Inc., 3950 RCA Boulevard, Suite
5001, Palm Beach Gardens, FL TRANSFER AGENT
33410.
American Stock Transfer Com-
pany, 99 Wall Street, New
ANNUAL MEETING DATE York, NY 10005.
TPI Enterprises, Inc., will
hold its 1996 Annual Meeting of FOR ADDITIONAL INFORMATION
Shareholders on Friday, June CONTACT:
14, at 9:00 a.m. EST at the
Marriott Hotel in Palm Beach Frederick W. Burford, 3950
Gardens, Florida. RCA Boulevard, Suite 5001,
Palm Beach Gardens, FL
33410, 407/691-8800
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher &
Flom, 1440 New York Avenue,NW,
Washington, DC 20005.
TPI Enterprises,Inc. * 3950 RCA Boulevard * Suite 5001 * Palm Beach Gardens
* FL 33410
<PAGE>
SUBSIDIARIES OF SHONEY'S, INC.
State (or other
jurisdiction) of
Name incorporation
---- ----------------
Barbwire's of Kansas, Inc. Kansas
Commissary Operations, Inc. Tennessee
Corporate Benefit Services,
Incorporated, of Nashville Tennessee
Evadon Corporation Tennessee
Pargo's of Frederick, Inc. Tennessee
Pargo's of York, Inc. Tennessee
RJR Investments, Inc. Nevada
Shoney's of Canada, Inc. Canada
Shoney's Equipment Corporation Tennessee
Shoney's International, Inc. Nevada
Shoney's Investments, Inc. Nevada
Shoney's of Michigan, Inc. Tennessee
Shoney's Real Estate, Inc. Tennessee
TPI Restaurants Acquisition Corporation Tennessee
Exhibit 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) and the related Joint Proxy
Statement/Prospectus of Shoney's, Inc. for the registration of 11,500,000
shares of its common stock, $1.00 par value, and to the incorporation by
reference therein of our report dated December 14, 1995, except for paragraphs
3 and 4 of Note 13, as to which the date is January 2, 1996, with respect to
the consolidated financial statements and schedule of Shoney's, Inc. included
in its Annual Report (Form 10-K) for the year ended October 29, 1995, filed
with the Securities and Exchange Commission.
Ernst & Young LLP
Nashville, Tennessee
May 15, 1996
Exhibit 23.2
Exhibit 23.2
Consent of Wyatt, Tarrant & Combs
In connection with the filing by Shoney's, Inc. ("Shoney's") of
the Registration Statement on Form S-4 (the "Registration Statement")
in respect of the common stock of Shoney's to be issued in
the proposed acquisition by Shoney's of substantially all of the
assets of TPI Enterprises, Inc. ("Enterprises") and the assumption
by Shoney's of certain liabilities, contracts and other obligations
of Enterprises, we hereby consent to the reference to us in the
Registration Statement under the caption "LEGAL MATTERS" with
respect to our passing upon the validity of the issuance of the
shares of Shoney's Common Stock offered pursuant to this Joint
Proxy Statement/Prospectus. In giving this consent, we do not
hereby admit that we are 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 of the Securities and
Exchange Commission thereunder.
Very truly yours,
WYATT, TARRANT & COMBS
Exhibit 23.3
Consent of Sullivan & Cromwell
In connection with the filing by Shoney's Inc. ("Shoney's") of the
Registration Statement on Form S-4 (the "Registration Statement") in respect of
the common stock of Shoney's to be issued in the proposed acquisition by
Shoney's of substantially all of the assets of TPI Enterprises, Inc.
("Enterprises") and the assumption by Shoney's of certain liabilities,
contracts and other obligations of Enterprises, we hereby consent to the
reference to us in the Registration Statement under the caption "LEGAL MATTERS"
with respect to our review of the section of the Registration Statement
entitled "The Reorganization--Certain Federal Income Tax Consequences". In
giving this consent, we do not hereby admit that we are 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 of the Securities and Exchange
Commission thereunder.
Very truly yours,
SULLIVAN & CROMWELL
Exhibit 23.4
CONSENT OF SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
We hereby consent to the reference to us under the heading "Legal Matters"
in this Registration Statement with respect to our review of the "The
Reorganization -- Certain Federal Income Tax Consequences" section of this
Registration Statement.
SHEREFF, FRIEDMAN, HOFFMAN & GOODMAN, LLP
New York, New York
May , 1996
Exhibit 23.5
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Prospectus and
Registration Statement of Shoney's, Inc. on Form S-4 of our reports dated
March 28, 1996, appearing in the Annual Report on Form 10-K of TPI
Enterprises, Inc. for the year ended December 31, 1995 and to the
reference to us under the heading "Experts" in this Prospectus and
Registration Statement.
Memphis, Tennessee
May 20, 1996
