<PAGE> 1
Filed pursuant to Rule 424(b)(3)
Registration Statement No. 333-4201
[SHONEY'S(R) INC. LOGO]
1727 ELM HILL PIKE
NASHVILLE, TENNESSEE 37210
July 23, 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 at the Sheraton Music City Hotel, 777
McGavock Pike, Nashville, Tennessee, on Wednesday, August 21, 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, as amended (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,
/s/ C. STEPHEN LYNN
--------------------------------------
C. Stephen Lynn,
Chairman of the Board, Chief Executive
Officer
and President
<PAGE> 2
SHONEY'S, INC.
---------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD WEDNESDAY, AUGUST 21, 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 at
the Sheraton Music City Hotel, 777 McGavock Pike, Nashville, Tennessee on
Wednesday, August 21, 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., as amended (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 June
28, 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,
/s/ ROBERT M. LANGFORD
--------------------------------------
Robert M. Langford
Executive Vice President, General
Counsel and Secretary
Nashville, Tennessee
Dated: July 23, 1996
<PAGE> 3
TPI ENTERPRISES, INC.
July 23, 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 Palm Beach Gardens Marriott,
4000 RCA Boulevard, Palm Beach Gardens, Florida, on Wednesday, August 21, 1996
at the hour of 9.00 a.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, as amended (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,
/s/ J. GARY SHARP
-------------------------------------
J. Gary Sharp
President and Chief Executive Officer
<PAGE> 4
TPI ENTERPRISES, INC.
---------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 21, 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 Palm Beach Gardens Marriott, 4000 RCA
Boulevard, Palm Beach Gardens, Florida on Wednesday, August 21, 1996 at the hour
of 9:00 a.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, as amended (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
June 24, 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.
/s/ FREDERICK W. BURFORD
--------------------------------------
FREDERICK W. BURFORD,
Secretary
Palm Beach Gardens, Florida
July 23, 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> 5
Filed pursuant to Rule 424(b)(3)
Registration Statement No. 333-4201
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 on Wednesday, August 21,
1996 at the times and places 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 July
23, 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 dated as of
March 15, 1996, as amended (the "Reorganization Agreement"), 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 August 16, 1996 (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." Had the Special Meetings and the closing of the Reorganization (the
"Closing") occurred on July 17, 1996, based on the ten day trading period ending
on July 12, 1996, the Average Closing Market Price would have been $10.30, and
Shoney's would have issued an aggregate of 6,725,072 shares of Shoney's Common
Stock to Enterprises, or .3255 shares of Shoney's Common Stock per share of
common stock, $0.01 par value per share, of Enterprises ("Enterprises Common
Stock"), 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 (the "Expense
Allotment"), for the sole purpose of paying certain wind-up expenses, and up to
an additional $7,500,000 in cash (the "Retained Cash"). Had the Special Meetings
and the Closing occurred on July 17, 1996, based on the assumptions set forth
elsewhere in this Joint Proxy Statement/Prospectus, Enterprises would have been
able to retain approximately $13,571,000 in cash at the Closing, of which
approximately $7,350,000 would be allocated for the sole purpose of paying
certain wind-up expenses which would be adjusted for wind-up expenses paid prior
to Closing. 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
Enterprises Common Stock. Based on the number of shares of Enterprises Common
Stock outstanding at July 17, 1996, and assuming that the Special Meetings and
the Closing had occurred on that date, and that $1,000,000 of the Retained Cash
is required to be distributed by Enterprises to satisfy its remaining
liabilities and assuming that the options and warrants of Enterprises are
exercised prior to the complete liquidation of Enterprises, Enterprises'
shareholders would receive approximately .3255 shares of Shoney's Common Stock
and approximately $0.22 in cash in respect of each share of Enterprises Common
Stock upon the liquidation of Enterprises.
FOR CERTAIN FACTORS WHICH SHOULD BE CONSIDERED IN EVALUATING THE
REORGANIZATION, SEE "RISK FACTORS," LOCATED ON PAGES 20 THROUGH
25 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
July 22, 1996.
<PAGE> 6
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. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
Commission's Web site is http://www.sec.gov. 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.
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 AUGUST 14, 1996.
---------------------
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.
THIS JOINT PROXY STATEMENT/PROSPECTUS, AND THE REGISTRATION STATEMENT OF
WHICH IT IS A PART, RELATE TO THE SHARES OF SHONEY'S COMMON STOCK THAT ARE TO BE
ISSUED TO ENTERPRISES IN CONNECTION WITH THE REORGANIZATION AND THE SUBSEQUENT
DISTRIBUTION OF THOSE SHARES TO SHAREHOLDERS OF ENTERPRISES, UPON THE
DISSOLUTION AND LIQUIDATION OF ENTERPRISES.
CERTAIN STATEMENTS CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS ARE
"FORWARD LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 AND ARE THUS PROSPECTIVE, INCLUDING STATEMENTS
CONCERNING THE CONSIDERATION PAYABLE BY SHONEY'S IN THE REORGANIZATION, THE
LIABILITIES ENTERPRISES WILL BE REQUIRED TO SATISFY FOLLOWING THE REORGANIZATION
AND THE AMOUNT OF CASH IT WILL HAVE AVAILABLE THEREFOR, AND THE SYNERGIES,
EFFICIENCIES AND COST SAVINGS THAT ARE ANTICIPATED TO RESULT FROM THE
REORGANIZATION AND SHONEY'S OPERATIONAL IMPROVEMENT PROGRAM. SUCH STATEMENTS
REFLECT SHONEY'S AND ENTERPRISES' MANAGEMENTS' CURRENT VIEWS, ARE BASED ON MANY
ASSUMPTIONS AND ARE SUBJECT TO RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH
COULD CAUSE THESE STATEMENTS TO DIFFER MATERIALLY FROM WHAT ACTUALLY OCCURS.
CERTAIN OF SUCH FACTORS ARE DISCUSSED UNDER THE CAPTION "RISK FACTORS" BEGINNING
ON PAGE 19 OF THIS JOINT PROXY STATEMENT/PROSPECTUS. SHAREHOLDERS OF SHONEY'S
AND ENTERPRISES ARE CAUTIONED TO CAREFULLY CONSIDER SUCH FACTORS.
2
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TABLE OF CONTENTS
<TABLE>
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<S> <C>
AVAILABLE INFORMATION................................................................. 2
SUMMARY............................................................................... 7
The Reorganization Transaction and the Dissolution of Enterprises................... 7
Parties to the Reorganization....................................................... 9
Special Meetings.................................................................... 10
Time, Place and Date............................................................. 10
Purpose of the Meetings.......................................................... 10
Votes Required; Record Date...................................................... 10
Reasons for the Reorganization...................................................... 11
Recommendation of the Shoney's Board................................................ 11
Recommendation of the Enterprises Board............................................. 11
Opinions of Financial Advisors...................................................... 12
Enterprises Stock Options........................................................... 12
Enterprises Warrants................................................................ 12
Liabilities Assumed or Satisfied.................................................... 13
Interests of Certain Persons in the Reorganization.................................. 13
Conditions to the Reorganization.................................................... 14
Closing Date........................................................................ 14
Termination of the Reorganization Agreement......................................... 14
Certain Differences in Shareholders' Rights......................................... 14
Dissenters' Rights.................................................................. 15
Federal Income Tax Consequences..................................................... 15
Accounting Treatment................................................................ 15
Resale Restrictions................................................................. 15
Comparative Market Prices of Common Stock........................................... 15
Summary Financial Data.............................................................. 16
Comparative Per Share Data.......................................................... 19
RISK FACTORS.......................................................................... 20
Uncertainties Related to the Reorganization......................................... 20
Interests of Certain Persons in the Reorganization.................................. 20
Indebtedness and Interest Rate Sensitivity.......................................... 20
Uncertainties in Determining Number of Exchange Shares.............................. 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............................................................................. 21
Ability of Claimants to Reach Assets Distributed to Shareholders of Enterprises..... 22
No Assurance of Public Market for Enterprises Common Stock Following the Closing;
Delisting and Deregistration of Enterprises Common Stock......................... 23
Litigation.......................................................................... 23
Tax Risks........................................................................... 24
Limitation on Liabilities Assumed................................................... 24
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............................................................................ 25
THE REORGANIZATION PARTIES............................................................ 25
Shoney's............................................................................ 25
TPAC................................................................................ 25
</TABLE>
3
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Enterprises......................................................................... 25
Combined Entity..................................................................... 25
THE SHONEY'S SPECIAL MEETING.......................................................... 26
Purposes of the Shoney's Special Meeting............................................ 26
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
THE ENTERPRISES SPECIAL MEETING....................................................... 29
Purposes of the Enterprises Special Meeting......................................... 29
Record Date; Voting Rights; Proxies................................................. 30
Required Vote....................................................................... 30
Solicitation of Proxies............................................................. 30
Dissenters' Rights.................................................................. 31
Quorum.............................................................................. 31
THE REORGANIZATION.................................................................... 32
The Reorganization Transaction...................................................... 32
Obligations and Liabilities Assumed or Satisfied................................. 32
Adjustments to Consideration..................................................... 33
Dissolution of Enterprises; Wind-up Expenses..................................... 34
Background of the Reorganization.................................................... 36
Reasons for the Reorganization; Recommendation of the Shoney's Board................ 39
Reasons for the Reorganization; Recommendation of the Enterprises Board............. 40
Opinions of Financial Advisors...................................................... 41
Opinion of Shoney's Financial Advisor............................................ 41
Opinion of Financial Advisor to the Special Committee of the Enterprises Board... 44
Interests of Certain Persons in the Reorganization.................................. 50
Class Action Settlement............................................................. 52
Marlin Claims....................................................................... 52
Stock Options....................................................................... 53
Warrants............................................................................ 53
Public Debentures................................................................... 54
Accounting Treatment................................................................ 55
Federal Income Tax Consequences..................................................... 55
Regulatory Approvals................................................................ 56
Resale Restrictions................................................................. 57
NYSE Listing........................................................................ 57
Shoney's Financing.................................................................. 57
Plan of Complete Liquidation........................................................ 58
Summary of the Plan of Complete Liquidation...................................... 58
Powers of Directors After Dissolution............................................ 58
Liquidating Distribution......................................................... 59
Reserve for Liabilities and Subsequent Liquidating Distributions................. 59
Liquidating Agent................................................................ 60
Representations and Warranties...................................................... 60
Certain Covenants................................................................... 61
No Solicitation of Transactions..................................................... 64
Conditions to Consummation of the Reorganization.................................... 64
</TABLE>
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<TABLE>
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<S> <C>
Termination of the Reorganization Agreement......................................... 67
Grounds for Termination.......................................................... 67
Break-up Fee..................................................................... 67
Extension and Waiver................................................................ 68
Amendment........................................................................... 68
Expenses............................................................................ 68
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS........................... 69
DESCRIPTION OF SHONEY'S CAPITAL STOCK................................................. 77
Shoney's Common Stock............................................................... 77
Share Purchase Rights............................................................... 77
Business Combination Provisions of Shoney's Charter................................. 79
EFFECT OF THE REORGANIZATION ON RIGHTS OF SHAREHOLDERS................................ 79
Removal of Directors................................................................ 79
Number of Directors................................................................. 80
Conflict-of-Interest Transactions................................................... 80
Special Meetings.................................................................... 80
Required Vote for Authorization of Certain Actions.................................. 81
Action by Written Consent........................................................... 81
Inspection Rights................................................................... 82
Amendment of Bylaws................................................................. 82
Voluntary Dissolution............................................................... 82
Indemnification..................................................................... 82
Business Combination Statute........................................................ 83
Business Combination Provisions of Shoney's Charter................................. 84
Control Share Acquisition Act....................................................... 84
Investor Protection Act............................................................. 84
Authorized Corporation Protection Act............................................... 85
Greenmail Act....................................................................... 86
Dividends and Other Distributions................................................... 86
Dissenters' Rights.................................................................. 86
Preemptive Rights................................................................... 86
DESCRIPTION OF THE SHONEY'S OPTION PLAN............................................... 87
Federal Tax Consequences of Shoney's Option Plan.................................... 89
SHONEY'S EXECUTIVE COMPENSATION....................................................... 91
Summary Compensation................................................................ 91
Option Grants in Last Fiscal Year................................................... 92
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values... 93
Compensation of Directors........................................................... 93
Employment Contracts................................................................ 93
Compensation Committee Interlocks and Insider Participation......................... 95
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE..................................... 95
LEGAL MATTERS......................................................................... 96
EXPERTS............................................................................... 96
</TABLE>
5
<PAGE> 10
<TABLE>
<S> <C>
APPENDIX A Plan of Tax-Free Reorganization Under Section 368(a)(1)(C) of the Internal
Revenue Code and Agreement, as amended by Amendment No. 1 and Amendment No.
2
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
</TABLE>
6
<PAGE> 11
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 at the Closing 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 August 16, 1996, the third business
day prior to the Special Meetings (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 and,
to the extent the Retained Cash is inadequate to satisfy remaining liabilities,
the remaining liabilities will be paid with Exchange Shares. 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 $570,000, 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.
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. If
7
<PAGE> 12
the cash retained to pay specified wind-up expenses is not sufficient
to cover its liabilities, Enterprises would be required to utilize all or a
portion of its Retained Cash to satisfy such liabilities. If the amount of such
liabilities also exceeds the Retained Cash, Enterprises would be required to
distribute a sufficient number of shares of Shoney's Common Stock received by
Enterprises in the Reorganization to satisfy its creditors. Therefore,
depending upon the amount of its liabilities, Enterprises could be unable to
distribute to its shareholders some or all of the Retained Cash and a portion
of shares of Shoney's Common Stock received by Enterprises in the
Reorganization. Based upon currently contemplated wind-up expenses, Enterprises
estimates that its liabilities will exceed the Expense Allotment by an amount
ranging between $750,000 and $1,000,000. If current estimates of these expenses
are too low or additional expenses arise, such shortfall could increase. The
shortfall will be satisfied out of the Retained Cash and, if necessary,
Exchange Shares, which will decrease the amount available for distribution to
Enterprises' shareholders. See "The Reorganization -- The Reorganization
Transaction -- Dissolution of Enterprises, Wind-up Expenses." 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."
Had the Special Meetings and the Closing occurred on July 17, 1996, the
Average Closing Market Price would have been $10.30, and a total of
approximately 6,725,072 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.
Had the Special Meetings and the Closing occurred on July 17, 1996, based
on the assumptions set forth in the footnotes to the following table and
elsewhere in this Joint Proxy Statement/Prospectus, Enterprises' shareholders
would receive the following consideration per share of Enterprises Common Stock
upon the liquidation of Enterprises:
<TABLE>
<CAPTION>
AGGREGATE AMOUNT AMOUNT PER SHARE(1)
---------------- -------------------
<S> <C> <C>
Fixed Portion -- Shoney's Common Stock.................. 5,577,102 .2700
Variable Portion -- Shoney's Common Stock(2)............ 970,874 .0470
Adjusted Portion -- Shoney's Common Stock(3)............ 177,096 .0085
Total Shares of Shoney's Common Stock................... 6,725,072 .3255
Cash(4)................................................. $5,220,692 .2217
</TABLE>
(1) Based on 20,658,840 shares of Enterprises Common Stock estimated to be
outstanding on July 17, 1996.
(2) Based on $10,000,000 divided by $10.30, the Average Closing Market Price in
effect if the Special Meetings were held on July 17, 1996.
(3) Based on (x) the exchange of $1,279,308 into 124,205 shares of Shoney's
Common Stock, based on $10.30, the Average Closing Market Price in effect
if the Special Meeting were held on July 17, 1996, and (y) the issuance by
Shoney's of 52,891 shares of Shoney's Common Stock based on the number of
shares of Enterprises Common Stock issued, transferred from treasury or
allocated in connection with certain of Enterprises' benefits plans. See
"The Reorganization -- The Reorganization Transaction -- Adjustments to
Consideration."
(4) Assumes that (x) $1,000,000 of the cash to be retained by Enterprises and
not allocated to pay specified wind-up expenses is required to be
distributed by Enterprises to satisfy its remaining liabilities, (y) the
options and warrants of Enterprises are exercised prior to the complete
liquidation of Enterprises and (z) no additional liabilities of
Enterprises, other than those presently known, arise prior to its
dissolution. See "The Reorganization -- The Reorganization Transaction."
The Average Closing Market Price cannot be calculated until the close of
trading on the NYSE on August 16, 1996. After August 16, 1996 and prior to the
Special Meetings, shareholders may obtain the Average Closing Market Price by
telephoning 1-800-550-4877 during normal business hours.
8
<PAGE> 13
Promptly after the Closing, the Enterprises Board will review the assets
and liabilities of Enterprises, giving effect to the Reorganization, and, after
paying or making provision for all then known or anticipated liabilities, will
make an initial distribution to shareholders. Based on liabilities known or
anticipated at this time and the currently forecasted amount of Retained Cash to
be held by Enterprises at the Closing, Enterprises anticipates that the initial
distribution will consist of all of the shares of Shoney's Common Stock received
by Enterprises and between $0 and $3,000,000 of the Retained Cash. Enterprises
currently estimates that the initial distribution to shareholders will be made
within 60 days after the Closing. At such time as the period for creditors of
Enterprises to present written proof of their claims shall have expired, which
date shall not be earlier than six months after the Closing, and periodically
from time to time thereafter, the Enterprises Board will once again review the
assets and liabilities of Enterprises and, after paying or making provision for
all then known or anticipated liabilities, will declare a distribution
consisting of all of the then remaining Retained Cash other than the cash
required to be retained for holders of Shoney's Options and Shoney's Warrants. A
maximum of approximately $642,000 (based on the currently forecasted amount of
Retained Cash to be held by Enterprises at the Closing) 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. 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, such cash, after providing for the expenses of the
distribution thereof, will be distributed to Enterprises' shareholders. The
final liquidating distribution record date will occur no earlier than December
31, 1998. See "Risk Factors -- Ability of Claimants to Reach Assets Distributed
to Shareholders of Enterprises," "The Reorganization -- The Reorganization
Transaction -- Dissolution of Enterprises; Wind-up Expenses" and "The
Reorganization -- Plan of Complete Dissolution."
PARTIES TO THE REORGANIZATION
Shoney's, Inc. Shoney's operates and franchises a chain of 1,499
restaurants in 34 states as of June 9, 1996. The diversified food service chain
consists of three restaurant divisions: "Shoney's", "Captain D's" and a casual
dining group. As of June 9, 1996, Shoney's operated 725 restaurants and
franchised the operation of 774 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 Information 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 July 17, 1996,
TPIR owned and operated 243 restaurants, comprised of 176 "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 Information by Reference."
9
<PAGE> 14
SPECIAL MEETINGS
Time, Place and Date
The Special Meeting of Shoney's shareholders will be held at the Sheraton
Music City Hotel, 777 McGavock Pike, Nashville, Tennessee on Wednesday, August
21, 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 Palm Beach
Gardens Marriott, 4000 RCA Boulevard, Palm Beach Gardens, Florida, on Wednesday,
August 21, 1996, at the hour of 9:00 a.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 June 28, 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 754,250 shares of the Shoney's Common Stock
entitled to vote at the Shoney's Special Meeting, representing approximately
1.81% 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 "The Shoney's Special
Meeting -- Record Date; Voting Rights; Proxies."
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 June 24,
1996 (the "Enterprises Record Date") will be entitled to notice of and to vote
at the Enterprises Special Meeting. As of the Enterprises
10
<PAGE> 15
Record Date, directors and executive officers of Enterprises and their
affiliates and persons and entities related to the foregoing were beneficial
owners of 5,745,826 shares of Enterprises Common Stock representing
approximately 25.8% 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.
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."
11
<PAGE> 16
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
July 18, 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. On July 18, 1996, Alex. Brown
confirmed its March 15, 1996 opinion in a written opinion. A copy of the
confirmation 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 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.,
12
<PAGE> 17
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. 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 exercisability 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, since the date of approval by the Enterprises Board
of the Reorganization Agreement, Haney Long, Vice President of Procurement and
Distribution of TPIR, has become a consultant to Shoney's, effective June 5,
1996, 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
13
<PAGE> 18
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); (v) the absence of any injunction prohibiting consummation of the
Reorganization; (vi) 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; (vii)
the funding of the bridge loan Shoney's has obtained for the primary purpose of
financing the Reorganization; 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. For a description of
the status of compliance with regulatory requirements and the conditions to
Closing, see "The Reorganization -- Regulatory Approvals" and " -- 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 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 August 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 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 August 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 -- 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."
14
<PAGE> 19
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."
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 -- 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.
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; and on July 17, 1996, the date the Special Meetings and Closing were
assumed to occur for purposes of calculating the number of Exchange Shares in
the preparation of the pro forma financial information presented herein.
15
<PAGE> 20
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>
ENTERPRISES COMMON
SHONEY'S ENTERPRISES STOCK
COMMON STOCK COMMON STOCK EQUIVALENT(1)
------------ ------------ ------------------
<S> <C> <C> <C>
September 1, 1995................................. $ 11.375 $ 4.750 $ 14.593
December 5, 1995.................................. $ 11.375 $ 3.375 $ 10.369
March 15, 1996.................................... $ 8.875 $ 2.438 $ 7.490
July 17, 1996..................................... $ 10.250 $ 3.125 $ 9.601
</TABLE>
- ---------------
(1) The Enterprises Common Stock Equivalent was determined utilizing an exchange
ratio of .3255 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 Pro
Forma Condensed Combined Financial Statements" and "The
Reorganization -- Plan of Complete Liquidation."
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. AFTER AUGUST 16, 1996 AND PRIOR TO THE SPECIAL
MEETINGS, SHAREHOLDERS MAY OBTAIN THE AVERAGE CLOSING MARKET PRICE BY
TELEPHONING 1-800-550-4877 DURING NORMAL BUSINESS HOURS.
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."
16
<PAGE> 21
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>
TWENTY-EIGHT FISCAL
WEEKS YEAR
ENDED ENDED
MAY 12, OCTOBER 29,
1996 1995
------------- -----------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues............................................................. $ 702,107 $ 1,332,026
Income (loss) from continuing operations............................. $ 3,303 $ 6,487
Income (loss) from continuing operations per common
share -- primary(A)................................................ $ 0.07 $ 0.13
Weighted average shares outstanding -- primary(A).................... 48,346 48,191
BALANCE SHEET DATA:
Current assets....................................................... $ 112,610
Property, plant and equipment (net).................................. 581,347
Total assets......................................................... 761,444
Current liabilities.................................................. 220,280
Long-term debt and obligations under capital leases.................. 489,881
Shareholders' equity (deficit)(A).................................... (12,791)
</TABLE>
- ---------------
(A) This calculation assumes the issuance of an aggregate of 6,672 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 (961 shares) and an additional 124 shares issued to
reflect an assumed $1,279 reduction in Retained Cash pursuant to the
Reorganization Agreement. These calculations assume the Average Closing
Market Price for Shoney's Common Stock will be $10.30 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 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 July 17, 1996, Enterprises issued, transferred from treasury or
allocated approximately 162 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 53 shares of Shoney's Common Stock
had the Special Meetings and the Closing occurred on July 17, 1996. The final
number of Exchange Shares may vary.
17
<PAGE> 22
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE 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 twenty-eight week period ended May 12, 1996, in the case of
Shoney's, and for the twenty-eight week period ended April 21, 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 twenty-eight 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.
<TABLE>
<CAPTION>
TWENTY-EIGHT FISCAL YEAR ENDED OCTOBER
WEEKS ENDED ----------------------------------------------------------
MAY 12, 1996 1995 1994 1993 1992 1991
------------ ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SHONEY'S(1)
STATEMENT OF OPERATIONS DATA:
Revenues..................... $557,889 $1,053,332 $1,072,459 $1,051,747 $985,201 $917,572
Income (loss) from continuing
operations................. 8,055 11,202 52,318 46,803 (37,335) 28,507
Income (loss) from continuing
operations per share....... .19 .27 1.21 1.11 (.91) .70
BALANCE SHEET DATA:
Total assets................. $547,093 $ 535,016 $ 554,978 $ 525,520 $467,421 $427,668
Long-term debt and
obligations under capital
leases..................... 384,853 406,032 414,026 389,898 460,546 542,359
Cash dividends per share..... -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
TWENTY-EIGHT
WEEKS ENDED FISCAL YEAR ENDED DECEMBER
APRIL 21, ----------------------------------------------------------
1996 1995 1994 1993 1992 1991
------------ ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
ENTERPRISES(2)
Revenues..................... $146,873 $ 283,578 $ 287,384 $ 289,439 $277,390 $261,130
Income (loss) from continuing
operations................. 2,496 (11,309) (3,717) (36,488) 662 (12,053)
Income (loss) from continuing
operations per share....... .12 (.55) (.18) (1.81) .04 (.63)
BALANCE SHEET DATA:
Total assets................. $243,322 $ 248,876 $ 254,496 $ 258,839 $255,607 $282,794
Long-term obligations
including minority
interest................... 81,484 81,628 107,721 106,773 110,937 107,710
Cash dividends per share..... -- -- -- -- -- --
</TABLE>
- ---------------
(1) Fiscal years ended October 29, 1995, October 30, 1994, October 31, 1993,
October 25, 1992 and October 29, 1991 and the twenty-eight weeks ended May
12, 1996. The fiscal year ended October 31, 1993 was a 53 week year. For
fiscal year ended October 25, 1992, net income before a special charge for
settlement of a lawsuit was $50,663 or $1.14 per share. For fiscal year
ended October 30, 1994, income before extraordinary charge and cumulative
effect of change in accounting principle was $1.43 per share.
(2) Fiscal years ended December 31, 1995, December 25, 1994, December 26, 1993,
December 31, 1992 and December 31, 1991 and the twenty-eight weeks ended
April 21, 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. In the
twenty-eight weeks ended April 21, 1996, Enterprises reduced its 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 by $16,200. In 1995, Enterprises recorded a gain of $10,100, net
of taxes, resulting from the settlement of a lawsuit and recognized a
$17,000 provision for asset valuation resulting from the Reorganization.
Enterprises recognized a $5,300
18
<PAGE> 23
gain, net of tax, in 1993 following the sale of its remaining equity
interest in a partnership and provided $35,000 for restructuring charges.
During 1992, Enterprises recorded an extraordinary loss, net of tax, of
$11,900 in connection with an early extinguishment of debt. Discontinued
operations in 1991 include a gain of $17,500 from the settlement of
litigation, and a gain of $7,900 related to the aforementioned partnership.
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.
<TABLE>
<CAPTION>
ENTERPRISES
SHONEY'S -------------------------
------------------------- EQUIVALENT
HISTORICAL PRO FORMA(1) HISTORICAL PRO FORMA(2)
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
PER COMMON SHARE
Net Income (Loss) From Continuing Operations:
1995 Fiscal Year(3)............................. $ .27 $ .13 $ (.55) $ .04
1996 Twenty-eight Weeks(3)...................... $ .19 $ .07 $ .12 $ .02
Cash Distributions/Dividends:(4)
1995 Fiscal Year................................ -- -- -- --
1996 Twenty-eight Weeks......................... -- -- -- --
Book Value:(5)
1995 Fiscal Year................................ $(2.61) N/A $ 3.26 N/A
1996 Twenty-eight Weeks......................... $(1.77) (.26) $ 3.76 $ (.08)
</TABLE>
- ---------------
(1) The pro forma combined per share data for Shoney's and Enterprises has been
prepared assuming that, in the Reorganization, 6,672,000 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 48,191,000 shares for the year ended
October 29, 1995 and 48,346,000 shares for the twenty-eight weeks ended May
12, 1996. The actual number of Exchange Shares may vary. See Note A2 under
the "Unaudited Pro Forma Condensed Combined Financial Statements."
(2) 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 .3255 so that the per
share amounts are equated to the comparative values for each share of
Enterprises Common Stock.
(3) 1995 Fiscal Year for Shoney's ended on October 29, 1995 and on December 31,
1995 for Enterprises. 1996 twenty-eight week period ended on May 12, 1996
for Shoney's and on April 21, 1996 for Enterprises.
(4) Shoney's and Enterprises currently are restricted from making distributions
to shareholders and Shoney's has no plans to begin making distributions in
the foreseeable future. Enterprises will be making distributions to
shareholders in connection with its dissolution and liquidation. See "The
Reorganization -- Plan of Complete Liquidation."
(5) The pro forma Book Value per share has been computed assuming the number of
shares set forth in Note (1) above.
19
<PAGE> 24
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
exercisability 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, since
the date of approval by the Enterprises Board of the Reorganization Agreement,
Haney Long, Vice President of Procurement and Distribution of TPIR, has become a
consultant to Shoney's, effective June 5, 1996, and has accepted an offer of
employment with Shoney's following the Closing. 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 8.32%. Shoney's indebtedness will increase by
approximately $107,000,000 in connection with the Reorganization.
At May 12, 1996, Shoney's had a shareholders' deficit of $73,675,000 and,
except for certain property, plant and equipment with an appraised value of
approximately $136,000,000, 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 while such senior debt
and/or Public Debentures are outstanding.
UNCERTAINTIES IN DETERMINING NUMBER OF EXCHANGE SHARES
Because the number of Exchange Shares will depend, in part, on the market
prices at which Shoney's Common Stock is traded during the ten day trading
period ending on August 16, 1996, it will not be possible to determine the exact
number of Exchange Shares to be issued to Enterprises in the Reorganization or
the number of shares reserved for issuance for Shoney's Options or Warrants or
Public Debentures issued or assumed by Shoney's in the Reorganization until
after August 16, 1996. Moreover, the number of Exchange Shares to be distributed
to Enterprises' shareholders in the dissolution and liquidation of Enterprises
will be subject to the additional uncertainty that, following the Closing,
Enterprises must satisfy, or make adequate
20
<PAGE> 25
provision for the satisfaction of, its liabilities, including contingent
liabilities, to the extent they are not assumed by Shoney's in the
Reorganization or satisfied from the Expense Allotment or Retained Cash. See
"Risk Factors -- Provision for Liabilities of Enterprises Before Distribution of
Exchange Shares and Cash."
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 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
Special Meetings and the Closing occurred on July 17, 1996, based on the
assumptions set forth elsewhere in this Joint Proxy Statement/Prospectus,
Enterprises would be able to retain approximately $13,571,000 of the $14,850,000
in cash at the Closing, of which approximately $6,221,000 would represent
Retained Cash and $7,350,000 would represent the Expense Allotment. See "The
Reorganization -- Dissolution of Enterprises; Wind-up Expenses."
In addition, an aggregate of up to approximately $642,000 (assuming
$5,221,000 in Retained Cash will be retained by Enterprises for distribution to
its shareholders) 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. 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 in "The Reorganization -- Plan of Complete Liquidation")
will be distributed to shareholders of Enterprises as of such record date. See
"The Reorganization -- Plan of Complete Liquidation."
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
21
<PAGE> 26
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 four-week 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. Based on the terms of a settlement (the
"Marlin Settlement") with Marlin Services, Inc., and Marlin Electric, Inc.,
d/b/a Marlin Services, Inc. ("Marlin"), Enterprises currently estimates that it
will use an aggregate of $1,870,000 of the Expense Allotment for costs related
to repair and maintenance expenses, of which $385,000 represents excess repair
and maintenance expenses over the levels set forth in the Reorganization
Agreement, $1,150,000 represents the amount of the Marlin Settlement and
$335,000 represents anticipated fees and expenses incurred in connection with
the Marlin Settlement. See "The Reorganization -- Marlin Claims." If the cash
retained to pay specified wind-up expenses is not sufficient to cover its
liabilities, Enterprises would be required to utilize all or a portion of its
Retained Cash to satisfy such liabilities. If the amount of such liabilities
also exceeds the Retained Cash, Enterprises would be required to distribute a
sufficient number of shares of Shoney's Common Stock received by Enterprises in
the Reorganization to satisfy its creditors. Therefore, depending upon the
amount of its liabilities, Enterprises could be unable to distribute to its
shareholders some or all of the Retained Cash and a portion of the shares of
Shoney's Common Stock received by Enterprises in the Reorganization. Based upon
currently contemplated wind-up expenses, Enterprises estimates that its
liabilities will exceed the Expense Allotment by an amount ranging between
$750,000 and $1,000,000. If current estimates of these expenses are too low or
additional expenses arise, such shortfall could increase. The shortfall will be
satisfied out of the Retained Cash and Exchange Shares, if necessary, which will
decrease the amount available for distribution to Enterprises' shareholders. See
"The Reorganization -- The Reorganization -- Dissolution of Enterprises; Wind-up
Expenses."
Enterprises has agreed to deliver to Shoney's its irrevocable commitment to
promptly divest itself of sufficient Exchange Shares to reduce the outstanding
shares of Shoney's Common Stock beneficially owned by it below 10%. If
Enterprises is unable to promptly divest itself of sufficient Exchange Shares,
and Enterprises or any of its shareholders, affiliates or associates fail to
comply with certain conditions set forth in Shoney's Shareholder Rights Plan,
Enterprises may become an Acquiring Person (as defined in Shoney's Shareholder
Rights Plan) and trigger a Distribution Date (as defined in Shoney's Shareholder
Rights Plan). See "Description of Shoney's Capital Stock -- Share Purchase
Rights."
ABILITY OF CLAIMANTS TO REACH ASSETS DISTRIBUTED TO SHAREHOLDERS OF ENTERPRISES
The Enterprises Board intends to dissolve Enterprises promptly after the
Closing in accordance with the provisions of the NJBCA. Pursuant to the NJBCA,
promptly after Enterprises has been dissolved, it will give notice requiring all
creditors of Enterprises to present their claims in writing. Such notice will
also be published in newspapers of general circulation as provided in the NJBCA.
Generally, any creditors who do not file their claims as provided in the notice,
and all those claiming through and under them, shall be forever barred from
suing on such claims or otherwise realizing upon or enforcing them. However,
creditors who show good cause for not having timely filed their claims may be
permitted to enforce such claims, to the extent allowed by the New Jersey
Superior Court, against any undistributed assets of Enterprises or, if the
undistributed assets are not sufficient to satisfy such claims, against a
shareholder to the extent of such shareholder's ratable share of such claims,
out of the assets of Enterprises distributed to such shareholder in liquidation
or distribution. The Enterprises Board does not intend to make distributions to
its shareholders until such time as the Enterprises Board has reviewed the
assets and liabilities of Enterprises and considered the effect of all then
known or anticipated liabilities, and, at such time, the Enterprises Board only
intends to make distributions to its shareholders of assets which are not needed
in order to satisfy its then remaining known or anticipated obligations.
Nonetheless, there can be no assurance that claimants who would otherwise have
their claims barred under the NJBCA would not be able to seek relief from the
statute through the New Jersey Superior Court. Such claimants conceivably could,
to the extent that the amount of such claims exceeds the then undistributed
assets of Enterprises, attempt to seek to satisfy their claims by asserting
claims against shareholders of Enterprises to recover all or a portion of the
assets distributed to Enterprises'
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shareholders in the dissolution. See "The Reorganization -- The Reorganization
Transaction -- 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. Following the Closing, Enterprises intends to
seek "no action" relief from the Commission to limit the scope of the
informational filings required to be made by Enterprises following the Closing.
Moreover, Enterprises may deregister the Enterprises Common Stock under the
Exchange Act if 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 court
approval of the Class Action Settlement and the Closing. The Class Action
Settlement will not require any additional payments to be made to the
plaintiffs. There can be no assurance that the Class Action Settlement will be
consummated. See "The Reorganization -- Class Action Settlement."
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 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. On June 27, 1996, TPIR and Marlin entered into the Marlin
Settlement. The Marlin Settlement provides for the payment to Marlin of an
aggregate of $1,150,000 in cash in settlement of the civil action brought by
Marlin against TPIR. Under the terms of the Marlin Settlement, Marlin shall be
obligated to use the settlement proceeds to fulfill its
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obligations with all subcontractors hired by Marlin to perform work under
Marlin's maintenance service agreement with TPIR and Marlin shall be entitled to
the excess, if any, after all of the subcontractors have been paid. No payment
shall be made to any subcontractor unless the subcontractor fully releases TPIR
from any liability and releases all liens filed against TPIR. As part of the
Marlin Settlement, mutual releases have been exchanged among the parties and the
two civil actions will be dismissed. Based on the terms of the Marlin
Settlement, Enterprises currently estimates that it will use an aggregate of
$1,870,000 of the Expense Allotment for specified wind-up expenses for costs
related to repair and maintenance expenses, of which $385,000 represents excess
repair and maintenance expenses over the levels set forth in the Reorganization
Agreement, $1,150,000 represents the amount of the Marlin Settlement and
$335,000 represents anticipated fees and expenses incurred in connection with
the Marlin Settlement. See "The Reorganization -- Marlin Claims."
For a discussion of other litigation matters to which Enterprises is a
party, see the notes to the financial statements contained in Enterprises'
Quarterly Report on Form 10-Q for the quarter ended April 21, 1996, which is
incorporated herein by reference. For a discussion of 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 May 12, 1996,
which is incorporated herein by reference.
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 & 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 their
exchange of Enterprises Common Stock for Shoney's Common Stock and cash upon the
liquidation of Enterprises.
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.
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 Shoney's
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
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(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 Shoney's 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 June 9, 1996,
Shoney's operated 725 and franchised the operation of 774 restaurants in 34
states. 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."
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 July 17, 1996, TPIR owned and operated 243 restaurants, comprised of 176
"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, and its Quarterly Report on Form
10-Q for the quarter ended April 21, 1996 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. It is
anticipated that the directors and executive officers of Shoney's will continue
to serve as such following the Reorganization and, in addition, Haney Long, Vice
President of Procurement and Distribution of TPIR and an executive officer of
Enterprises, will join Shoney's as a Senior Vice President following the
Closing. Shoney's will continue to pursue its programs designed to improve
operational performance and will
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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 from
Enterprises as a part of its operational improvement program (to the extent
these restaurants have not been closed by Enterprises prior to the Closing). 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.
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 the 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.
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Shoney's is now authorized to issue 100 million shares of Shoney's Common
Stock, of which 41,664,367 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.
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 Capital Stock."
RECORD DATE; VOTING RIGHTS; PROXIES
The Shoney's Board has fixed the close of business on June 28, 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 41,664,367 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. A proxy
revocation may be
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submitted to the Secretary of Shoney's by facsimile transmission at (615)
231-2428. Shareholders whose shares are held in nominee name who wish to revoke
their proxies should contact their brokers.
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, 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. Had the
Special Meetings and the Closing occurred on July 17, 1996, based on the
assumptions set forth elsewhere in this Joint Proxy Statement/Prospectus, an
aggregate of approximately 10,249,252 shares of Shoney's Common Stock would have
been issued or issuable upon exercise of options, warrants or convertible
debentures granted or assumed in connection with the Reorganization,
representing
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24.6% of the number of shares of Shoney's Common Stock outstanding on the
Shoney's Record 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.
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 held
754,250 shares of the Common Stock entitled to vote at the Shoney's Special
Meeting, representing approximately 1.81% 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.
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RECORD DATE; VOTING RIGHTS; PROXIES
The Enterprises Board has fixed the close of business on June 24, 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 20,636,198 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 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. A proxy revocation may be submitted to
the Secretary of Enterprises by facsimile transmission at (407) 691-8932.
Shareholders whose shares are held in nominee name who wish to revoke their
proxies should contact their brokers.
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, held 4,129,267 shares of Enterprises Common Stock, representing
approximately 20.0% 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, Enterprises has retained Kissel-Blake Inc., 110 Wall Street, New York,
New York 10005, to assist in the solicitation of proxies for a fee of $9,500,
plus reimbursement of out-of-pocket expenses. Proxies may also 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.
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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.
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.
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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 have to
be reduced accordingly to satisfy conditions to Closing. Had the Special
Meetings and the Closing occurred on July 17, 1996, based on the assumptions set
forth elsewhere in this Joint Proxy Statement/Prospectus, Enterprises would be
able to retain approximately $13,571,000 of the $14,850,000 in cash, of which
$6,221,000 would represent Retained Cash and $7,350,000 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 therefore, Shoney's Options and Shoney's
Warrants.
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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 July 17, 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
approximately $22,400,000 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 July 17, 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 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 July 17, 1996, approximately 162,000
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 Special Meetings and the Closing occurred on July 17, 1996, based
on the number of shares of Enterprises Common Stock then outstanding, and the
then Average Closing Market Price, Enterprises would be able to retain
approximately $5,221,000 of the Retained Cash allocated to Enterprises (assuming
$1,000,000 of the Retained Cash is required to be distributed by Enterprises to
satisfy its remaining liabilities), of which a maximum of approximately $642,000
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."
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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 July 17, 1996, none of the Net Proceeds had been used to
permanently retire any of the TPIR Bank Debt.
Had the Special Meetings and the Closing occurred on July 17, 1996, based
on the assumptions set forth elsewhere in this Joint Proxy Statement/Prospectus,
Shoney's would have issued an aggregate of approximately 6,725,072 shares of
Shoney's Common Stock, or .3255 shares of Shoney's Common Stock for each share
of Enterprises Common Stock, to Enterprises at the Closing. Based on the number
of shares of Enterprises Common Stock outstanding at such date, and assuming
$1,000,000 of the Retained Cash is required to be distributed by Enterprises to
satisfy its remaining liabilities and the exercise of all Enterprises Options
and Enterprises Warrants prior to the Final Liquidating Distribution Record
Date, Enterprises' shareholders would receive approximately .3255 shares of
Shoney's Common Stock and approximately $0.22 in cash in respect of each share
of Enterprises Common Stock upon the liquidation of Enterprises. Based upon
currently contemplated wind-up expenses, Enterprises estimates that its
liabilities will exceed the Expense Allotment by an amount ranging between
$750,000 and $1,000,000. If current estimates of these expenses are too low or
additional expenses arise, such shortfall could increase. The shortfall will be
satisfied out of the Retained Cash, which will decrease the amount available for
distribution to Enterprises' shareholders.
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 "The
Reorganization -- Plan of Complete Liquidation." The Enterprises Board intends
to dissolve Enterprises promptly after the Closing in accordance with the
provisions of the NJBCA by causing a certificate of dissolution to be filed in
the office of the Secretary of State of the State of New Jersey. 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 Retained Cash remaining to its shareholders on a pro rata basis
based upon their ownership of the Enterprises Common Stock.
Promptly after the Closing, the Enterprises Board will review the assets
and liabilities of Enterprises, giving effect to the Reorganization, and, after
paying or making provision for all then known or anticipated liabilities, will
make an initial distribution to shareholders. Based on liabilities known or
anticipated at this time and the currently forecasted amount of Retained Cash to
be held by Enterprises at the Closing, Enterprises anticipates that the initial
distribution will consist of all of the Exchange Shares and between $0 and
$3,000,000 of the Retained Cash. Enterprises currently estimates that the
initial distribution to shareholders will be made within 60 days after the
Closing. At such time as the period for creditors of Enterprises to present
written proof of their claims shall have expired, which date shall not be
earlier than six months after the Closing, and periodically from time to time
thereafter, the Enterprises Board will once again review the assets and
liabilities of Enterprises and, after paying or making provision for all then
known or anticipated liabilities, will declare a distribution consisting of all
of the then remaining Retained Cash other than the cash required to be retained
for holders of Shoney's Options and Shoney's Warrants. A maximum of
approximately $642,000 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. 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, such cash,
after providing for the expenses of the distribution thereof, will be
distributed to Enterprises' shareholders. The final liquidating distribution
record date will occur no earlier than December 31, 1998. See "The
Reorganization -- Plan of Complete Liquidation."
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Pursuant to the NJBCA, at any time after a corporation has been dissolved,
the corporation may give notice requiring all creditors of the corporation to
present their claims in writing. This notice is required by the NJBCA to be
published three times, once a week for three consecutive weeks, in a newspaper
of general circulation in the county in which the registered office of the
corporation is located and shall state that all persons who are creditors of the
corporation shall present written proof of their claims to the corporation at a
place and on or before a date named in the notice, which date shall not be less
than six months after the date of the first publication. On or before the date
of the first publication of the notice, the corporation shall mail a copy of the
notice to each known creditor of the corporation. Generally, any creditor who
does not file a claim as provided in the notice, and all those claiming through
and under such creditor, shall be forever barred from suing on such claim or
otherwise realizing upon or enforcing it. However, a creditor who shows good
cause for not having filed a claim may be permitted to enforce such claim, to
the extent allowed by the New Jersey Superior Court, against any undistributed
assets of the corporation or, if the undistributed assets are not sufficient to
satisfy such a claim, against a shareholder to the extent of such shareholder's
ratable share of such claim, out of the assets of the corporation distributed to
such shareholder in liquidation or dissolution.
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 $570,000, 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
Special Meetings and the Closing occurred on July 17, 1996, based on the
estimated amount of Unaccrued Expenses, the number of Exchange Shares and the
then applicable closing market price of Shoney's Common Stock, Enterprises would
be able to retain the entire Expense Allotment at the Closing.
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 four-week periods ended February 25, 1996 exceed $1,457,000. Based on the
terms of the Marlin Settlement, Enterprises currently estimates that it will use
an aggregate of $1,870,000 of the Expense Allotment for costs related to repair
and maintenance expenses, of which $385,000 represents excess repair and
maintenance expenses over the levels set forth in the Reorganization Agreement,
$1,150,000 represents the amount of the Marlin Settlement and $335,000
represents anticipated fees and expenses incurred in connection with the Marlin
Settlement. 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. Based
upon currently contemplated wind-up expenses, Enterprises estimates that its
liabilities will exceed the Expense Allotment by an amount ranging between
$750,000 and $1,000,000. If current estimates of these expenses are too low or
additional expenses arise, such shortfall could increase. The shortfall will be
satisfied out of the Retained Cash and, if the Retained Cash is insufficient to
satisfy Enterprises' remaining liabilities, through the transfer to creditors of
Exchange Shares, which will decrease the amount available for distribution to
Enterprises' shareholders. 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.
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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.
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
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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' 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.
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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 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
Advisors -- 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."
On June 14, 1996, the Reorganization Agreement was amended to extend the
date after which it can be terminated by either party from June 30, 1996 to
August 30, 1996. On July 18, 1996, the Reorganization Agreement was further
amended to change the ten trading day period used to determine the Average
Closing Market Price so that the period would end on the third business day
before the Special Meetings rather than the last trading day prior to the
Closing.
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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 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;
(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
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(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;
(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 then
anticipated expiration of the TPIR Bank Debt on June 3, 1996.
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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 July 18, 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 JULY 18, 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 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.
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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 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
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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 stand-alone 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.
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,
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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
$1.1 million (based on Shoney's closing stock price of $10.25 on July 17, 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 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
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confirmed in writing as of March 15, 1996, 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. On July 18, 1996, Alex. Brown delivered its written
opinion (the "Alex. Brown Opinion"), 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.
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
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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.
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 July 18, 1996, 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
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per share of Enterprises Common Stock (which consisted of 0.331 shares of
Shoney's Common Stock per share of Enterprises Common Stock 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.
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
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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 $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
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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 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.
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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 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.
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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 and/or
Enterprises 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 $810,000 and $246,000, 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 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.
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In addition, since 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 become a
consultant to Shoney's, effective June 5, 1996, and has accepted an offer of
employment with Shoney's following the Closing. 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. In connection with these discussions, Shoney's and Mr. Sharp have
discussed the repayment terms of a promissory note of Mr. Sharp's two sons
payable to Shoney's in connection with a Shoney's franchise owned by them. The
note is in the outstanding principal amount, as of July 16, 1996, of
approximately $179,000, has been guaranteed by Mr. Sharp and is currently in
arrears. Shoney's and Mr. Sharp have agreed that the payment terms of the note
will be resolved as part of the final determinations with respect to the
possible Shoney's franchise.
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 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 court approval of the Class Action Settlement
and the closing of the Reorganization. The Class Action Settlement will not
require any additional payments to be made to the plaintiffs. 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 civil 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
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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.
On June 27, 1996, TPIR and Marlin entered into the Marlin Settlement. The
Marlin Settlement provides for the payment to Marlin of an aggregate of
$1,150,000 in cash in settlement of the civil action brought by Marlin against
TPIR. Under the terms of the Marlin Settlement, Marlin shall be obligated to use
the settlement proceeds to fulfill its obligations with all subcontractors hired
by Marlin to perform work under Marlin's maintenance service agreement with
TPIR, and Marlin shall be entitled to the excess, if any, after all of the
subcontractors have been paid. No payment shall be made to any subcontractor
unless the subcontractor fully releases TPIR from any liability and releases all
liens filed against TPIR. As part of the Marlin Settlement, mutual releases have
been exchanged among the parties and the two civil actions will be dismissed.
Based on the terms of the Marlin Settlement, Enterprises currently estimates
that it will use an aggregate of $1,870,000 of the Expense Allotment, of which
$385,000 represents excess repair and maintenance expenses, over the levels set
forth in the Reorganization Agreement, $1,150,000 represents the amount of the
Marlin Settlement and $335,000 represents anticipated fees and expenses incurred
in connection with the Marlin Settlement.
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
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 $420,000 (assuming $5,221,000 in Retained Cash will be
retained by Enterprises for distribution to its shareholders) 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 July 17, 1996, a total of 1,894,207 shares of Enterprises Common
Stock, with an average exercise price of approximately $7.24 per share, were
subject to outstanding Enterprises Options. Had the Special Meetings and the
Closing occurred on July 17, 1996, Shoney's Options to purchase, in the
aggregate, 616,564 shares of Shoney's Common Stock with an average exercise
price of approximately $22.24 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
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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 July 17, 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 Special Meetings and the Closing occurred on July 17, 1996,
Shoney's Warrants to purchase, in the aggregate, 325,500 shares of Shoney's
Common Stock at an exercise price of approximately $33.79 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 $221,700 (assuming $5,221,000 in Retained Cash
will be retained by Enterprises for distribution to its shareholders) 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.
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
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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 July 17, 1996, the Public Debentures were convertible into an
aggregate of 7,932,769 shares of Enterprises Common Stock. Had the Closing
occurred on July 17, 1996, the Public Debentures would, upon assumption by
Shoney's, be convertible into 2,582,116 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 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.
FEDERAL INCOME TAX CONSEQUENCES
The discussion below describes the material federal income tax consequences
of the Reorganization to shareholders of Enterprises that are U.S. persons,
within the meaning of Section 7701(a)(30) of the Code. However, this discussion
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 or to holders of Enterprises Options,
Enterprises Warrants, Public Debentures or Private Debentures. In addition, this
discussion does not address any aspect of state, local or foreign taxation. The
holders of Enterprises Common Stock are urged to consult their own tax advisers
as to the specific tax consequences to them of the Reorganization which arise
out of their particular individual circumstances. Sullivan & Cromwell and
Shereff, Friedman, Hoffman & Goodman, LLP have rendered opinions to Shoney's and
Enterprises, respectively, which opinions are set forth in Exhibits 8.1 and 8.2,
respectively, to the Registration Statement on Form S-4 of which this Joint
Proxy Statement/Prospectus is a part, that the following discussion represents a
fair and accurate summary of the material federal income tax consequences of the
Reorganization.
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
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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 Sullivan &
Cromwell and Shereff, Friedman, Hoffman & Goodman, LLP, respectively, 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. These opinions will be
based on representations of management of Shoney's and Enterprises with respect
to facts existing as of the Closing Date and matters subsequent to Closing.
These representations will be substantially similar to the assumptions set forth
in the opinions of Sullivan & Cromwell and Shereff, Friedman, Hoffman & Goodman,
LLP set forth as Exhibits 8.1 and 8.2, respectively, to the Registration
Statement on Form S-4 of which this Joint Proxy/Prospectus is a part. These
representations, which generally are the representations required by the IRS in
order for it to issue an advance ruling as to the tax-free status of a
transaction such as the Reorganization, relate to, among other things, the lack
of any intention of certain shareholders to sell their shares of Shoney's Common
Stock to be received in the Reorganization, the percentage of assets of
Enterprises to be acquired by Shoney's and the intention of Shoney's to continue
the historic business, or use the historic business assets, of Enterprises.
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 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.
Backup Withholding. Payments in respect of Enterprises Common Stock may be
subject to informational reporting to the IRS and to a 31% backup withholding
tax. Backup withholding will not apply, however, to a payment to an Enterprises
shareholder or other payee if such shareholder or payee completes and returns a
Form W-9 or otherwise establishes an exemption from backup withholding.
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
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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 is
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 and, on May 10, 1996, verbal approval was received from the
Hawaii Insurance Department.
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.
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 the Closing of 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, subject to the satisfaction of
certain conditions, including the absence of any material adverse change in
Shoney's business or financial condition. 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 be due and payable on October 22, 1999. Upon
conversion
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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.
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
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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 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 (as defined below) 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
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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"), one or more of the directors
(unless shareholder or court approval of other persons is obtained) shall agree
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 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
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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 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 (furniture,
fixtures and equipment, as further defined in the Reorganization Agreement), 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
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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 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.
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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 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
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take any action that would jeopardize qualification of the Reorganization as a
reorganization within the meaning of Section 368(a) of the Code.
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, 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
Enterprises Board 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 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
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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 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
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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 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; (k) the funding of the Bridge in accordance with its terms; and (l)
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.
66
<PAGE> 71
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 August 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; and
(8) 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.
67
<PAGE> 72
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.
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.
68
<PAGE> 73
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 and quarterly reports on Form
10-Q of Shoney's and Enterprises 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."
69
<PAGE> 74
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
REFLECTING SHONEY'S AFTER GIVING EFFECT TO THE REORGANIZATION
<TABLE>
<CAPTION>
MAY 12, APRIL 21, 1996
1996 -------------------
--------- TPI- PRO FORMA PRO FORMA
SHONEY'S TPIR OTHER ADJUSTMENTS COMBINED
--------- -------- -------- ----------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 5,820 $ 8,159 $ 359 $ 1,279A2 $ 15,617
80,000B12
(80,000)B13
Notes and accounts receivable................. 12,395 826 0 13,221
Intercompany receivable....................... 0 0 8,306 (8,306)B7 0
Inventories................................... 34,005 10,762 0 44,767
Deferred income taxes and other
current assets.............................. 34,031 4,969 5 39,005
--------- -------- -------- ---------
Total current assets................... 86,251 24,716 8,670 112,610
Property, plant and equipment................... 746,222 229,257 0 (78,479)B1 888,166
(8,834)B5
Less accumulated depreciation and
amortization.................................. (306,819) (83,550) 0 83,550B1 (306,819)
--------- -------- -------- ---------
Net property, plant and equipment...... 439,403 145,707 0 581,347
Other assets:
Goodwill...................................... 5,262 35,170 0 (35,170)B2 48,273
43,011B14
Deferred charges and other intangible
assets...................................... 8,329 17,597 30 (15,224)B3 10,732
Other assets.................................. 7,848 634 0 8,482
--------- -------- -------- ---------
Total other assets..................... 21,439 53,401 30 67,487
--------- -------- -------- ----------- ---------
$ 547,093 $223,824 $ 8,700 $ (18,173) $ 761,444
========== ========= ========= =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable, accrued expenses and other
current liabilities......................... $ 111,928 $ 40,805 $ 2,003 $ 4,000B5 $ 159,236
500B9
Intercompany payable.......................... 0 20,669 0 (20,669)B7 0
Reserve for litigation settlement............. 23,155 0 0 23,155
Debt and capital lease obligations due
within one year............................. 43,802 26,742 0 (25,487)B13 37,889
(7,168)B13
--------- -------- -------- ---------
Total current liabilities.............. 178,885 88,216 2,003 220,280
Long-term debt and capital lease obligations.... 293,066 81,485 0 (5,350)B4 398,094
(3,762)B10
80,000B12
(15,939)B13
(31,406)B13
Zero coupon subordinated convertible
debentures.................................... 91,787 0 0 91,787
Reserve for litigation settlement............... 27,385 0 0 27,385
Deferred income, taxes and other liabilities.... 29,645 13,186 0 12,940B5 36,689
(10,516)B6
(8,566)B11
Shareholders' equity (deficit):
Preferred stock............................... 0 0 32,000 (32,000)B8 0
Common stock.................................. 41,651 0 258 (258)B8 48,323
6,548A1
124A2
Additional paid-in capital.................... 61,896 120,216 1,851 (122,067)B8 116,108
53,057A1
1,155A2
Unrealized gain on securities available for
sale.......................................... 2,833 0 0 2,833
Retained earnings (deficit)..................... (180,055) (79,279) (27,412) 106,691B8 (180,055)
--------- -------- -------- ----------- ---------
Total shareholders' equity (deficit)... (73,675) 40,937 6,697 13,250 (12,791)
--------- -------- -------- ----------- ---------
$ 547,093 $223,824 $ 8,700 $ (18,173) $ 761,444
========== ========= ========= =========== ==========
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
70
<PAGE> 75
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
REFLECTING SHONEY'S AFTER GIVING EFFECT TO THE REORGANIZATION
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-------------------------------------
OCTOBER DECEMBER 31,
29, 1995
1995 ------------------------
---------- TPI TPI- PRO FORMA PRO FORMA
SHONEY'S RESTAURANTS OTHER ADJUSTMENTS COMBINED
---------- ----------- ---------- ----------- ----------
(AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<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) 2,654C1 1,176,810
(5,109)C7
General and administrative
expenses....................... 63,905 24,611 198 (899)C2 88,256
441C3
Interest expense.................. 39,816 10,607 0 489C4 51,437
525C5
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) (18,899) 1,318,732
---------- ----------- ---------- ----------- ----------
Income (loss) from continuing
operations before income taxes.... 19,075 (19,832) 261 13,790 13,294
Provision for income taxes.......... 7,873 0 0 (1,066)C6 6,807
---------- ----------- ---------- ----------- ----------
Income (loss) from continuing
operations........................ $ 11,202 $ (19,832) $ 261 $ 14,856 $ 6,487
========= ======== ========= ========= =========
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 6,672C9 48,191
Fully diluted..................... 41,519 6,672C9 48,191
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
71
<PAGE> 76
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
REFLECTING SHONEY'S AFTER GIVING EFFECT TO THE REORGANIZATION
<TABLE>
<CAPTION>
FOR THE TWENTY-EIGHT WEEKS
ENDED
-------------------------------
MAY 12, APRIL 21,
1996 1996
-------- -------------------- PRO FORMA PRO FORMA
SHONEY'S TPIR TPI-OTHER ADJUSTMENTS COMBINED
-------- -------- --------- ----------- ---------
(AMOUNTS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues................................... $557,889 $146,925 $ 44 $ (2,751)C7 $ 702,107
Costs and expenses:
Cost of sales............................ 488,682 133,583 (138) 1,429C1 620,805
(2,751)C7
General and administrative expenses...... 36,520 13,819 167 (484)C2 50,260
238C3
Interest expense......................... 18,965 5,881 0 263C4 25,392
283C5
Provision for asset valuation............ 0 833 0 (833)C8 0
Restructuring expenses................... 0 (2,746) 0 (2,746)
-------- -------- --------- ----------- ---------
Total costs and expenses......... 544,167 151,370 29 (1,855) 693,711
-------- -------- --------- ----------- ---------
Income (loss) from continuing operations
before income taxes...................... 13,722 (4,445) 15 (896) 8,396
Provision for income taxes................. 5,667 0 0 (574)C6 5,093
-------- -------- --------- ----------- ---------
Income (loss) from continuing operations... $ 8,055 $ (4,445) $ 15 $ (322) $ 3,303
======== ======== ======== ========= ========
Income (loss) from continuing operations
per common share:
Primary.................................. $ 0.19 $ 0.07
Fully diluted............................ $ 0.19 $ 0.07
Weighted average shares outstanding:
Primary.................................. 41,674 6,672C9 48,346
Fully diluted............................ 41,674 6,672C9 48,346
</TABLE>
See notes to unaudited pro forma condensed combined financial statements.
72
<PAGE> 77
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..................................... 971 $ 10.30 10,000
--------- --------
6,548 57,405
=======
Estimated transaction costs.............................. 2,200
--------
$ 59,605
=======
</TABLE>
The purchase price is calculated assuming a price for Shoney's Common Stock
of $8.50 per share near the time the final terms of the definitive Agreement
were announced 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 over the ten trading day
period ending on the third business day prior to the Special Meeting of
Shareholders ("Average Closing Market Price"). The pro forma financial
statements were prepared based on an assumed market value of $10.30 per share
for these cash exchange shares based on the average closing price from the ten
trading days immediately preceding July 12, 1996 resulting in the assumed
issuance of 971 cash exchange shares. The actual number of cash exchange shares
will be determined based on the Average Closing Market Price. After August 16,
1996 and prior to the Special Meetings, Shareholders may obtain the Average
Closing Market Price, and the resulting number of cash exchange shares by
telephoning 1-800-550-4877. 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 $1,279 of Shoney's Common Stock at the average price of $10.30 per
share (124 shares) to reflect the assumed reduction in Retained Cash by
Enterprises pursuant to the terms of the Reorganization Agreement and assuming
the Special Meetings and the Closing took place on July 17, 1996. The pro forma
financials assume Shoney's would receive an additional $1,279 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 July 17, 1996, Enterprises issued approximately 162
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 53 shares of Shoney's Common Stock had the Special Meetings and
the Closing occurred on July 17, 1996. The final number of Exchange Shares will
vary.
73
<PAGE> 78
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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 May 12, 1996:
<TABLE>
<CAPTION>
INCREASE
(DECREASE)
NET ASSETS
----------
<C> <S> <C> <C>
1. Revalue property, plant and equipment primarily based on appraisals and
eliminate TPI historical accumulated depreciation...................... $ 5,071
2. Eliminate TPI goodwill recorded........................................ (35,170)
3. Eliminate TPI other intangible assets (franchise related).............. (15,224)
4. Revalue 8.25% publicly traded subordinated convertible debentures at a
market value of $89.625 (total par value of $51,563)................... 5,350
5. Provide for TPI asset impairments and certain other costs related to:
-- Closing 35 of the TPI restaurants (26 leased and 9
owned)....................................................... (19,819)
-- Closing the TPI leased corporate offices and other leased
facilities, including costs of termination of certain
furniture and equipment leases............................ (3,520)
-- Severance pay related to certain TPIR employment
contracts.................................................... (1,735)
-- Accrual of stay pay offered to eligible TPIR employees as
a result of the acquisition.................................. (700)
--------
(25,774)
=======
The above adjustments are reflected in the balance sheet in the
following captions:
Property, plant and equipment................................ (8,834)
Current liabilities.......................................... (4,000)
Long-term liabilities........................................ (12,940)
--------
Sub-total of entry B-5................................................. (25,774)
6. Reflect deferred income tax benefit (asset) related to the pro forma
differences in book and tax assets and liabilities..................... 10,516
7. Eliminate all intercompany balances with Enterprises (since they are
acquired by Shoney's per the Reorganization Agreement): TPIR has a
payable of $20,669, offset by the TPI-Other receivable of $8,306....... 12,363
8. Eliminate the historical carrying value of shareholder's equity:
TPIR -- $40,937 and TPI-Other -- $6,697................................ 47,634
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 3,762
closure................................................................
11. Reduction of TPI deferred tax asset valuation reserve to reflect
probability of future realization of the asset......................... 8,566
12. Reflect the borrowing of $80,000 of remaining available Bridge Loan
(after $20,000 initial borrowing)...................................... 80,000
13. Reflect the assumed use of the $80,000 proceeds from the Bridge Loan by
paying existing debt as follows: TPI current debt -- $25,487, TPI
long-term debt -- $15,939, Shoney's current debt -- $7,168 and Shoney's
long-term debt -- $31,406.............................................. (80,000)
----------
Excess of fair value of net assets over liabilities acquired........... 16,594
Purchase price (Note A)................................................ 59,605
----------
14. Cost in excess of net assets acquired (goodwill)....................... $ 43,011
========
</TABLE>
- ---------------
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.
74
<PAGE> 79
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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 since they are primarily related to
franchise rights granted by Shoney's as the franchisor of Shoney's and
Captain D's Restaurants. See adjustment B3.
3. Adjust amortization of goodwill to reflect the elimination of the
historical TPI goodwill and reflect the amortization of $43,011 of goodwill
resulting from the Reorganization utilizing the straight-line method over
25 years ($1,720 per year).
4. Increase interest expense to reflect the amortization of the $5,350
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). Management does not believe there will be any
significant effect on interest expense from refinancing other debt with the
Bridge Loan. (See Notes B12 and B13.)
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. TPI
subsequently adjusted the recorded impairment of goodwill to $833 (a
reduction of $16,167) during April 1996. This adjustment was based on the
change in 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 the recorded goodwill impairment
because it is considered to have been directly attributable to the
Reorganization.
9. To reflect 6,672 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 (6,548 shares of exchange shares
plus 124 shares to be issued in consideration for $1,279 reduction in cash
retained by Enterprises pursuant to the terms of the Reorganization
Agreement (See Note A2). 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.
75
<PAGE> 80
NOTES TO UNAUDITED PRO FORMA
CONDENSED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The accompanying pro forma financial statements for the twenty-eight weeks
ended in 1996 include the results of operations of TPI for the twenty-eight
weeks ended April 21, 1996. As a result, the periods ended October 29 through
December 24, 1995 for TPI are included in both the pro forma operating results
presented for the fiscal year ended December 31, 1995 and the twenty-eight weeks
ended April 21, 1996. Revenue and (loss) from continuing operations for TPI for
these three periods (October through December 1995) were $61,983 and $(15,441),
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 December 31, 1995 and the
twenty-eight weeks ended April 21, 1996, reflect the following material unusual
items that increased income from continuing operations during the periods
indicated:
<TABLE>
<CAPTION>
FISCAL TWENTY-EIGHT
YEAR WEEKS
ENDED ENDED
DECEMBER 31, APRIL 21,
1995 1996
------------ -------------
<S> <C> <C>
Reduction of restructuring expenses.......................... $5,762 $ 2,746
Reduction of reserve for workers compensation insurance...... 3,500 3,500
------------ -------------
$9,262 $ 6,246
========== ==========
</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.
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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 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
and Amendment No. 2 dated as of June 14, 1996 (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 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
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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 has amended 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. By virtue of such amendment,
Enterprises and its Affiliates (as defined in the Shareholders Rights Plan) and
Associates (as defined in the Shareholders Rights Plan) will not be treated as
Acquiring Persons under the Shareholder Rights Plan as a result of Enterprises'
Beneficial Ownership (as defined in the Shareholders Rights Plan) of Exchange
Shares until the 90th day following the Closing (or such other date the Shoney's
Board determines to be reasonable and consistent with the interests of Shoney's)
unless: (I) any person or group (other than a Person who was an Affiliate or
Associate of Enterprises on March 15, 1996) Beneficially Owns in excess of 10%
of the voting securities of Enterprises; (II) the individuals who, as of March
15, 1996, were members of the Enterprises Board, cease for any reason to
constitute at least the majority of the Enterprises Board; (III) after March 15,
1996, any Affiliate or Associate of Enterprises increases the percentage of the
voting securities of Enterprises that it Beneficially Owns;
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(IV) after March 15, 1996, Enterprises or any Affiliate or Associate of
Enterprises becomes the Beneficial Owner of any shares of Common Stock other
than pursuant to the Reorganization Agreement; (V) after March 15, 1996,
Enterprises or any Associate or Affiliate of Enterprises acquires or makes any
proposal or enters into any agreement to acquire any assets or securities of
Shoney's, except as contemplated by the Reorganization Agreement, or announces,
commences or participates in a proxy or consent solicitation with respect to
Shoney's; or (VI) the Shoney's Board determines that Enterprises shall not have
distributed the shares of Shoney's Common Stock in accordance with the Plan of
Complete Liquidation. Failure of any of these conditions 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 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.
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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. A
director may be removed by the shareholders if the number of votes cast to
remove the director exceeds the number of votes cast not to remove the director.
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.
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.
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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 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 supermajority
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 Shoney's
and Enterprises' shareholders is impracticable given the number of holders of
Shoney's Common Stock and Enterprises Common Stock.
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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.
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
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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 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 the 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
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).
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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 purchaser's 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.
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.
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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.
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.
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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 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 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 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.
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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 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 2,000,000 shares.
3. To define the fair market value of Shoney's Common Stock based on
the trading price of Shoney's Common Stock, or, for purposes of vesting 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 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 Option Plan. As of the Shoney's Record
Date, there were outstanding options to purchase 2,671,098 shares of
Shoney's Common Stock (with an aggregate fair market value of $29,048,191,
based on the closing price of Shoney's Common Stock as of said date) and
4,940,591 shares of Shoney's Common Stock available for future grants under
the Shoney's Option Plan (with an aggregate fair market value of
$53,728,927, 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 2,000,000 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. For purposes of determining the option
exercise price, the fair market value of the Shoney's Common Stock is: (i)
the closing price of Shoney's Common Stock on the principal national
securities exchange on which Shoney's Common Stock is traded on the date of
grant, if Shoney's Common Stock is then traded on a national securities
exchange; or (ii) if 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, in the
over-the-counter market as reported by the Nasdaq National Market on the
date of grant; or (iii) if 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 on the date of grant.
Options are exercisable at such time as provided by the HRC Committee,
provided that: (i) no option may be exercised sooner than three 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.
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
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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 List; or (iii) if the Shoney's 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.
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 three 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.
Subject to and effective on or after the receipt of shareholder approval of
the foregoing amendments at the Shoney's Special Meeting, performance based
options covering a total of 2,650,000 shares of Shoney's Common Stock will be
granted to the Named Executive Officers in the Company's Summary Compensation
Table (see page 88) and the executive officers of Shoney's as a group, as
follows:
<TABLE>
<CAPTION>
NAME AND POSITION OPTION GRANTS
------------------------------------------------------------- -------------
<S> <C>
C. Stephen Lynn.............................................. 1,000,000
Chairman and Chief Executive Officer
W. Craig Barber.............................................. 300,000
Senior Executive Vice President and Chief Financial Officer
Executive Officers As A Group................................ 2,650,000
</TABLE>
The performance based options will have a ten year term, and will vest within
four years from the date of grant if the fair market value of Shoney's Common
Stock increases by a four year compounded growth rate of 20% per year or, if
that performance criteria is not met, on the ninth anniversary of the date of
grant of the performance based option. The option price will be the fair market
value on the effective date of the grant.
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.
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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 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.
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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").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
--------------------------
AWARDS
ANNUAL COMPENSATION --------------------------
---------------------------------- SECURITIES ALL
OTHER ANNUAL RESTRICTED UNDERLYING OTHER
NAME AND PRINCIPAL SALARY BONUS COMPENSATION STOCK AWARDS OPTIONS COMPENSATION
POSITION YEAR ($) ($) ($)(1) (#)(2) (#) ($)
- ---------------------------------- ---- -------- -------- ------------ ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
C. Stephen Lynn................... 1995 $226,122 $300,000 -- -- 250,000 $ 262,879(3)
Chairman and Chief Executive
Officer(3)
Charles E. Porter................. 1995 $279,460 $100,000 $ 319(4) -- 175,000 $ 33,389(5)(6)(7)(8)
President(8) 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(5)(7)
Senior Executive Vice President 1994 $185,661 $ 50,000 -- -- -- $ 3,964
and Chief Financial Officer 1993 $169,165 $ 76,275 -- -- 22,500 $ 3,251
Daniel E. Staudt.................. 1995 $159,292 $ 29,155 $ 319(4) -- 25,000 $ 11,545(5)
Executive Vice President -- 1994 $144,154 $ 22,475 -- 1,000 25,000 $ 11,893
Manufacturing and Distribution 1993 $131,983 $ 21,515 -- -- 9,000 $ 9,752
Charles P. Vaughn, Jr............. 1995 $154,154 $ 34,125 $ 319(4) -- 15,000 $ 5,000(7)
Vice President -- Franchising 1994 $136,646 $ 21,750 -- 1,000 4,000 --
and Development 1993 $100,323 $ 17,355 -- -- 6,500 --
Taylor H. Henry................... 1995 $200,385 -- -- -- -- $ 300,126(5)(9)
Chairman and Chief Executive 1994 $372,624 $100,000 -- -- -- $ 25,814
Officer(3)(9) 1993 $293,462 $190,688 -- -- 90,000 $ 28,082
</TABLE>
- ---------------
(1) 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."
(2) 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."
(3) 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
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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).
(4) Includes tax equalization bonus paid with respect to the receipt of shares
under Shoney's stock bonus plan. See footnote 2.
(5) 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).
(6) 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.
(7) 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).
(8) Mr. Porter retired effective May 1, 1996.
(9) 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 $42,000 per month. All payments are less deductions
for income tax withholding, FICA and any other legal requirements. These
payments also are conditioned upon Mr. Henry's compliance with certain
non-competition and non-disclosure obligations.
OPTION GRANTS IN LAST FISCAL YEAR
Shown below is information concerning stock option grants to any Named
Executive Officer who was granted a stock option during the 1995 fiscal year:
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------- POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK PRICE
SECURITIES GRANTED TO EXERCISE APPRECIATION FOR
UNDERLYING EMPLOYEES OR BASE OPTIONS TERM
OPTIONS GRANTED IN FISCAL PRICE EXPIRATION -----------------------
NAME (#)(1) YEAR ($/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>
- ---------------
(1) 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.
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<PAGE> 97
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:
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL AND
FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS/SARS AT OCTOBER THE-MONEY OPTIONS/SARS AT
29, 1995(#) OCTOBER 29, 1995($)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/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 Shoney's 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 the 1995 fiscal year, there were no exercises of
options for shares granted under the Directors' Plan.
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 agreement with Mr. Porter presently provides for
an initial term terminating on January 16, 1997. The employment agreement with
Mr. Barber provides for an initial term from June 17, 1996, through June 16,
1999. In addition, if a "Change in Control" (as defined in the employment
agreements generally to mean acquisition of 50% (20% in the case of Mr. Porter)
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 two year term (one year
in the case of Mr. Porter).
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<PAGE> 98
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,
except that Mr. Barber is entitled to an annual minimum increase each year
consistent with the performance merit matrix as established by the Board of
Directors. 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. The bonuses will
be based upon a formula to be agreed upon by the employee and Shoney's.
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 each of Messrs.
Porter and Barber to be paid a cash amount equal to the unrealized gain 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. Effective May 1, 1996, Mr. Porter retired from
Shoney's. It is contemplated that Mr. Porter's employment agreement will be
amended to provide that he will serve as a consultant to Shoney's for a period
of two (2) years at an annual compensation of $150,000.
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 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.
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<PAGE> 99
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
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 and the
amendment thereto on Form 10-K/A, as filed with the Commission on February 23,
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;
(e) Shoney's Quarterly Report on Form 10-Q for the fiscal quarter ended May 12,
1996, filed with the Commission on June 25, 1996; (f) the Appendices to this
Joint Proxy Statement/Prospectus, including the Reorganization Agreement
attached hereto as Appendix A; and (g) 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.
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; (b) Enterprises' Quarterly Report on Form 10-Q for the quarter ended April
21, 1996, as filed with the Commission on June 5, 1996; (c) Enterprises' Current
Report on Form 8-K filed with the Commission on May 18, 1996; (d) Enterprises'
Current Report on Form 8-K filed with the Commission on May 28, 1996; (e)
Enterprises' Current Report on Form 8-K filed with the Commission on June 18,
1996; (f) Enterprises' Current Report on Form 8-K filed with the Commission on
July 9, 1996; and (g) 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 Special Meetings 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.
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<PAGE> 100
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 -- Federal Income Tax Consequences" has been reviewed by
Shereff, Friedman, Hoffman & Goodman, LLP on behalf of Enterprises and by
Sullivan & 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 incorporated by reference in the 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> 101
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
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.
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"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.
"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.
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<PAGE> 103
"ENTERPRISES OPTION" means an option to acquire Enterprises Common
Stock granted under one of the Enterprises Stock Option Plans.
"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.
"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);
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<PAGE> 104
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 "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.
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"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.
"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.
"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.
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"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.
"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).
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"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.
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.
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
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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.
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.
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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.
(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.
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 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
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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 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
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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 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.
(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
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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, 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,
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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)).
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"):
AUDITED ANNUAL FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
FISCAL
ENTITY YEAR ENDED
- ---------------------------------------------------------------------------------- ----------
<S> <C>
TPI Enterprises, Inc. and Subsidiaries -- Consolidated............................ 12/25/94
TPI Restaurants, Inc. and Subsidiaries -- Consolidated............................ 12/25/94
TPI Insurance Corporation......................................................... 12/25/94
</TABLE>
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UNAUDITED ANNUAL FINANCIAL STATEMENTS
(Balance Sheets, Statements of Operations and Statements of Cash Flows
for:)
<TABLE>
<CAPTION>
PERIOD
ENTITY COVERED
- ----------------------------------------------------------------------- -------------------
<S> <C>
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
</TABLE>
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, 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,
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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 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
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applicable policy limits, except as would not have a Material Adverse Effect 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 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, 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;
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(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, 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.
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(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
(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 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
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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, 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").
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(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.
(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.
(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,
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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.
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;
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(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.
(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;
(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;
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(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 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
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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 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 to receive such
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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, 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.
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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 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
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any of its Subsidiaries is a party or by which 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; 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.
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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 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
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described therein). To Shoney's Knowledge, all material agreements, contracts
and other documents required to be filed as 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.
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
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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.
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;
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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 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;
(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
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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, 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;
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(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 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.
(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, investiga-
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tions, 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 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
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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 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 nonpublic 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 (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.
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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.
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
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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 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 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.
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(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.
(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;
(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
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(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.
(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
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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.
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:
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SECTION 9.2.1 Representations and Warranties. (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;
(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
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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;
(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.
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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.
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);
(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;
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(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.
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;
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(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;
(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.
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
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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
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
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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.
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
------------------------------------
J. Gary Sharp
President and CEO
SHONEY'S, INC.
By: /s/ W. Craig Barber
------------------------------------
W. Craig Barber
Senior Executive Vice President
and Chief Financial Officer
TPI RESTAURANTS ACQUISITION CORP.
By: /s/ W. Craig Barber
------------------------------------
W. Craig Barber
Vice President
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AMENDMENT NO. 1 TO
PLAN OF TAX-FREE ORGANIZATION UNDER
SECTION 368(A)(1)(C)
OF THE INTERNAL REVENUE CODE
AND AGREEMENT
This Amendment No. 1 ("Amendment"), dated June 14, 1996, amends the Plan of
Tax-Free Reorganization under Section 368(a)(1)(C) of the Internal Revenue Code
and Agreement ("Agreement") made and entered into as of the 15th day of March,
1996, by and among Shoney's, Inc., a Tennessee corporation, ("Shoney's"),TPI
Restaurants Acquisition Corporation, a Tennessee corporation ('TPAC'), and TPI
Enterprises, Inc., a New Jersey corporation ("Enterprises").
WHEREAS, the parties mutually desire to extend the Termination Date, as
that term is used in the Agreement, from June 30, 1996 to August 30, 1996;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, Shoney's, TPAC and Enterprises agree as follows:
Amendment to ARTICLE 1. The definition of "Termination Date" appearing in
ARTICLE 1 of the Agreement is hereby amended to read in its entirety as follows:
"Termination Date" means August 30, 1996.
Reaffirmation of Other Terms and Conditions. Except as modified by this
Agreement, all other terms and conditions of the Agreement, as in effect prior
to the execution of this Amendment, shall remain in full force and effect and
the same are hereby reaffirmed and ratified as if fully set forth herein.
IN WITNESS WHEREOF, Shoney's, Enterprises and TPAC have caused this
Amendment No. 1 to the Agreement to be signed by their respective officers
thereunto duly authorized, on this 14th day of June, 1996.
TPI ENTERPRISES, INC.
By: /s/ J. Gary Sharp
----------------------------------
J. Gary Sharp, President and CEO
SHONEY'S INC.
By: /s/ W. Craig Barber
----------------------------------
W. Craig Barber, Senior Executive Vice
President and Chief Financial Officer
TPI RESTAURANTS ACQUISITION CORP.
By: /s/ W. Craig Barber
----------------------------------
W. Craig Barber, Vice President
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AMENDMENT NO. 2 TO
PLAN OF TAX-FREE REORGANIZATION UNDER
SECTION 368(A)(1)(C)
OF THE INTERNAL REVENUE CODE
AND AGREEMENT
This Amendment No. 2 ("Amendment"), dated July 18, 1996, amends the Plan of
Tax-Free Reorganization under Section 368(a)(1)(C) of the Internal Revenue Code
and Agreement ("Agreement") made and entered into as of the 15th day of March,
1996, as amended by Amendment No. 1, dated June 14, 1996, by and among Shoney's,
Inc., a Tennessee corporation, ("Shoney's"), TPI Restaurants Acquisition
Corporation, a Tennessee corporation ("TPAC"), and TPI Enterprises, Inc., a New
Jersey corporation ("Enterprises").
WHEREAS, the parties mutually desire to change the period for determining
the Average Closing Market Price, as that term is used in the Agreement;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, Shoney's, TPAC and Enterprises agree as follows:
1. Amendment to ARTICLE I. The definition of "Average Closing Market
Price" appearing in ARTICLE I of the Agreement is hereby amended to read in its
entirety as follows:
"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 ending on the third business day immediately preceding
the date on which the meetings of shareholders of Enterprises
and Shoney's are convened in accordance with Section 7.3 of
this Agreement; 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.
2. Scheduling Shareholders' Meetings. Shoney's and Enterprises agree to
coordinate the meetings of their respective shareholders to be held pursuant to
Section 7.3 of the Agreement so that such meetings will be convened on the same
date.
3. Reaffirmation of Other Terms and Conditions. Except as modified by
this Amendment, all other terms and conditions of the Agreement, as in effect
prior to the execution of this Amendment, shall remain in full force and effect
and the same are hereby reaffirmed and ratified as if fully set forth herein.
IN WITNESS WHEREOF, Shoney's, Enterprises and TPAC have caused this
Amendment No. 2 to the Agreement to be signed by their respective officers
thereunto duly authorized, on this 18th day of July, 1996.
TPI ENTERPRISES, INC.
By: /s/ J. Gary Sharp
----------------------------------
J. Gary Sharp, President and CEO
SHONEY'S, INC.
By: /s/ W. Craig Barber
----------------------------------
W. Craig Barber, Senior Executive Vice
President and Chief Financial Officer
TPI RESTAURANTS ACQUISITION CORP.
By: /s/ W. Craig Barber
----------------------------------
W. Craig Barber, Vice President
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APPENDIX B
SALOMON BROTHERS INC OPINION
July 18, 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, as amended by Amendment No. 1, dated
June 14, 1996, and Amendment No. 2, dated July 18, 1996 (as so amended, 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 (such number of additional shares to be
determined by the average per share price of Common Stock for the ten trading
days ending on the third business day immediately preceding the date on which
the meetings of Shareholders of Shoney's and Enterprises are convened), 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 the Company 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 the Company 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 and Enterprises 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
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.
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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,
Salomon Brothers Inc
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APPENDIX C
ALEX. BROWN & SONS INCORPORATED OPINION
July 18, 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"), entered
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, as amended on
June 14, 1996 and July 18, 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 Windup 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 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
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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.
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,
ALEX. BROWN & SONS INCORPORATED
By: /s/ Jay S. Eastman
------------------------------------
Title: Vice President
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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:
(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;
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(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;
(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
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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 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.
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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"), one or more of the directors (unless shareholder
or court approval of other persons is obtained) shall agree 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.
(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.
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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.
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
fixed assets of the Company, based on the appraised value of such assets on
a consolidated basis, 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.
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
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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 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
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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
(2,000,000) 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.
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.
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,
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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% 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 Vesting of
Performance-Based Options. A Performance-Based Option shall vest on such
dates as 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
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Common Stock") is at least seventy-five percent (75%), or such greater
percentage as determined by the Committee, over the 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.
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
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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 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
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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 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 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
E-7
<PAGE> 169
APPENDIX F
REVOCABLE
PROXY
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 June 28, 1996 which the undersigned is entitled to cast at
the Special Meeting of Shareholders to be held at the Sheraton Music City Hotel,
777 McGavock Pike, Nashville, Tennessee on Wednesday, August 21, 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, as
amended, 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.
/ / FOR / / AGAINST / / 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.
/ / FOR / / AGAINST / / 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.
/ / FOR / / AGAINST / / 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.
(continued on other side)
The undersigned acknowledges receipt of a Notice of Special Meeting called
for the 21st day of August, 1996.
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.)
SHONEY'S, INC.
(SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF SHONEY'S, INC. FOR
A SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON WEDNESDAY, AUGUST 21, 1996)
<PAGE> 170
APPENDIX F
REVOCABLE
PROXY
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 June 24,
1996 which the undersigned is entitled to cast at the Special Meeting of
Shareholders to be held at Palm Beach Gardens Marriott, 4000 RCA Boulevard, Palm
Beach Gardens, Florida on Wednesday, August 21, 1996 at the hour of 9:00 a.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, as amended (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.
THE DISINTERESTED MEMBERS OF THE BOARD OF DIRECTORS OF ENTERPRISES
UNANIMOUSLY RECOMMEND THAT THE SHAREHOLDERS OF ENTERPRISES VOTE FOR APPROVAL OF
THE REORGANIZATION AGREEMENT, INCLUDING THE DISSOLUTION AND LIQUIDATION OF
ENTERPRISES, AT THE SPECIAL MEETING.
/ / FOR / / AGAINST / / 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 no further force and effect.
(continued on other side)
The undersigned acknowledges receipt of Notice of Special Meeting called for
the 21st day of August, 1996.
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.)
TPI ENTERPRISES, INC.
(SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
TPI ENTERPRISES, INC. FOR A SPECIAL MEETING
OF SHAREHOLDERS TO BE HELD ON WEDNESDAY, AUGUST 21, 1996)
