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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark one)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the Fiscal Year Ended October 29, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the Transition Period to
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Commission file number 0-4377
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SHONEY'S, INC.
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(Exact name of registrant as specified in its charter)
Tennessee 62-0799798
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1727 Elm Hill Pike, Nashville, TN 37210
(Address of principal executive offices) (Zip Code)
Registrants telephone number, including area code (615) 391-5201
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, par value $1 per share New York Stock Exchange
Common Stock Purchase Rights New York Stock Exchange
Liquid Yield Option Notes, Due 2004 New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to Form 10-K. [X]
As of January 22, 1996, there were 37,884,265 shares of Shoney's,
Inc., $1 par value common stock held by non-affiliates with an
aggregate market value of $322,016,253.
As of January 22, 1996, there were 41,614,113 shares of Shoney's,
Inc. $1 par value common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENT Incorporated into
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Portions of the Definitive Proxy Statement for
Annual Meeting of Shareholders on April 2, 1996,
to be filed with the Securities and Exchange
Commission (the"Commission") within 120 days
after the fiscal year ended October 29, 1995
(hereinafter the "1996 Proxy Statement") Part III
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PART I
Item 1. Business.
(a) General development of business.
Shoney's, Inc. (the "Company") operates and franchises a chain of 1,524
restaurants in 34 states. The diversified food service chain consists of
three restaurant divisions: Shoney's, Captain D's and a Casual Dining group.
Based on sales, Shoney's, Inc. is the 20th largest chain restaurant
operator. <F1> Shoney's Restaurants are family restaurants offering full
table service and a broad menu. Captain D's are quick-service restaurants
specializing in seafood. The Company also operates three casual dining
restaurants, as follows: Fifth Quarter - a special occasion steakhouse,
BarbWire's - a country & western themed steakhouse and Pargo's - a
contemporary casual dining restaurant featuring a wide variety of fresh,
made-from-scratch dishes.
The Company's commissary includes five distribution centers that support
Company and franchised restaurant operations by providing most of the
necessary food and supplies. In addition, the commissary includes certain
manufacturing operations for meat products, prepackaged cole slaw and
certain bakery products.
The Company's fiscal year ends on the last Sunday in October. Fiscal
years 1995 and 1994 included 52 weeks while fiscal year 1993 included 53
weeks. As a result, the comparisons between the most recent fiscal years
are affected due to the reduced number of days in fiscal years 1994 and
1995.
Reorganization. On January 16, 1995, the Company's Board of Directors
announced a reorganization designed to improve the performance and growth
of the Shoney's Restaurant concept. The reorganization included divestiture
of certain non-core lines of business including Lee's Famous Recipe, a chain
of over 200 quick-service restaurants specializing in chicken, and Mike Rose
Foods, Inc., a manufacturer of dressings, sauces, condiments and various
dry-blend products for the foodservice industry. The divestiture process
now is completed, with the sale of Lee's Famous Recipe closing on September
29, 1995 and the sale of Mike Rose Foods, Inc. closing on November 17, 1995.
These discontinued lines of business had net property, plant and
equipment of $10.6 million at October 29, 1995 and $32.0 million at October
30, 1994, had annual revenues of $86.7 million and $93.7 million for the
1995 and 1994 fiscal years, respectively, and had earnings before interest
and taxes of $13.1 million and $16.5 million for the 1995 and 1994 fiscal
years, respectively. In fiscal 1995, these discontinued lines of business
represented approximately 2.5% of net property, plant and equipment, 7.6%
of consolidated revenues and 18.2% of consolidated earnings before interest
and taxes. The discontinued lines of business were disposed of for amounts
in excess of their carrying values. Certain one-time charges associated
with the reorganization and divestitures were accrued as they were incurred.
The sale of Lee's Famous Recipe resulted in a gain of approximately $5.5
million, net of tax. The sale of Mike Rose Foods, Inc., which will be
reflected in the Company's 1996 first quarter results of operations, will
result in a gain of approximately $22.0 million, net of tax.
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<F1> Based on 1995 annual survey for U.S. food service revenues
published by Nation's Restaurant News (August 7, 1995).
-1-
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Shoney's Restaurants
Concept. Shoney's Restaurants are full-service, family dining
restaurants that generally are open 18 hours each day, and serve breakfast,
lunch, and dinner. Shoney's Restaurants menu is diversified to appeal to
a broad spectrum of customer tastes. The menu includes traditional items
such as hamburgers, sandwiches, chicken, seafood, homestyle entrees and
vegetables, a variety of pasta and stir-fry dishes, steaks and desserts.
Shoney's also offers its signature features of the soup, salad and fruit bar
and the all-you-care-to-eat breakfast bar.
In addition to its regular menu, Shoney's Restaurants often feature
promotional menu items offering special entrees for a limited time. These
promotional menu items are used to promote new guest trials and generate
greater dining frequency from existing guests. Promotions also serve as a
vehicle to test new items that, if popular, may be added to the regular
menu. The Company, in conjunction with its franchisees, is continually
modifying the menu to adapt to new food trends, shifts in consumer demands
(e.g., more interest in health conscious dining) and to keep the menu
appealing to our guests. Management believes that the Shoney's concept
offers greater operational stability than some of its competitors because
of the wide variety offered in the menu.
Shoney's seeks to differentiate itself from competing restaurants by
offering excellent service, warm hospitality and attractive prices to afford
a high-quality overall dining experience. Shoney's Restaurants place
significant emphasis on the quality of food ingredients, proper preparation
methods and attractive food presentation. Buildings are generally brick
veneer or dryvit exteriors and usually include exterior awnings along with
halide lighting for greater visibility at night. The Company's franchise
agreements require that all franchised Shoney's Restaurants conform to
express standards of appearance, service, food quality and menu content.
History. Shoney's Restaurants have been in operation since 1952. There
are 882 restaurants in the system, 356 company-owned and 526 franchised
restaurants, operating in 34 states as of October 29, 1995. During fiscal
1995, the Company opened 17 restaurants with a net decrease of 5 restaurants
and franchisees opened 11 restaurants with a net decrease of 35 restaurants.
The Shoney's concept accounted for 52% of the Company's revenues in
fiscal 1995. Sales at company-owned units for fiscal year 1995 were
$546,669,000 compared to $541,446,000 for fiscal year 1994. Earnings before
interest and taxes for fiscal year 1995 were $25,532,000 compared with
$50,906,000 in 1994. Comparable store sales for fiscal 1995 decreased 3.2%,
including a menu price increase of 0.4%. The average sales volume of
Company-owned units in 1995 was $1,525,000 compared with average sales
volume of $1,548,000 in 1994.
The Company continued its capital expenditure program for the Shoney's
Restaurants in 1995. Overall capital expenditures in 1995 for Shoney's
Restaurants were $28,305,000, with $12,499,000 for remodeling of 107 units
compared to the overall expenditure of $53,214,000 in 1994, with $18,429,000
for remodeling of 77 units. Management believes the remodeling program is
an important element of the operational improvement program for its Shoney's
Restaurants and the Company will continue this program in 1996 with another
100 units scheduled for remodeling at a projected cost of $12,500,000.
During 1994, the marketing staff of Shoney's Restaurants was
strengthened and reorganized on a geographic basis to better target
advertising and promotional programs to specific markets. During 1995, the
Company named Bernstein-Rein as the new advertising agency of record for
Shoney's
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Restaurants. The Company's marketing strategies continue to focus on
advertising designed to increase both guest frequency and new guest trial.
In October 1995, the Company announced that it had entered into an agreement
with television and film star Andy Griffith to serve as the celebrity
spokesperson for Shoney's Restaurants in both television, radio, and in-
store media beginning in November 1995. The theme of the advertising is
focused on the quality and value of Shoney's "Classic American Food".
Captain D's
Concept. Captain D's are quick-service seafood restaurants and offer
in-store or drive-through service. They are generally open every day from
11 a.m. until 11 p.m, serving lunch and dinner. The typical Captain D's has
90 seats and employs 20 people, including three management personnel.
Captain D's menu is designed to capitalize on the trend toward increased
per capita consumption of fish and seafood in the U.S. that has developed
in response to increased public awareness of the benefits of fish and
seafood in a well-balanced diet. To broaden the menu's appeal, Captain D's
also offers a variety of non-seafood items. The menu includes fried,
broiled and baked fish, a variety of chicken and shrimp dishes, fried clams,
stuffed crab, seafood and tossed salads, baked potatoes, french fries, hush
puppies, green beans, cole slaw, fried okra and a selection of desserts.
Captain D's is constantly striving to develop appealing new menu items and
improve the quality of existing items.
Through an aggressive worldwide purchasing operation conducted by the
Company, Captain D's has reduced its dependence on cod fish (for which price
and supply have been uncertain in recent years) by the introduction and use
of other high quality whitefish that have a more predictable supply and
price. The Company's commissary operation purchases bulk quantities of fish
and seafood for distribution to company-owned units and to Captain D's
franchisees who elect to purchase their food from the Company. This
combined buying power permits the Company to obtain favorable pricing and
sources of supply for fish and seafood, which are limited in worldwide
supply.
The Company's operational strategy for Captain D's is to increase
comparable store sales through the continued introduction and promotion of
distinctive, high quality menu items, emphasis on fast and reliable service,
and maintaining a strong commitment to high food quality.
History. Captain D's began operation in 1969 when the Company opened
the first unit in Nashville, Tennessee. There are 608 Captain D's
restaurants in 23 states, including 310 Company-owned and 298 franchised
units as of October 29, 1995. Management believes that Captain D's has the
highest average sales volume ($767,500) of any major quick-service seafood
chain.
The Captain D's concept accounted for 23% of the Company's revenues in
fiscal 1995. Sales at company-owned units for fiscal year 1995 were
$246,479,000 compared to $244,535,000 for fiscal year 1994. Earnings before
interest and taxes for fiscal year 1995 were $19,459,000 compared with
$20,384,000 in 1994. Comparable store sales for fiscal 1995 increased 0.7%,
including a 0.5% menu price increase.
Captain D's performance in fiscal 1995 continued the very strong
financial performances of fiscal 1993 and 1994. This performance is based
on a successful operating strategy initiated late in fiscal 1992. This
plan, based on extensive customer research, was designed to increase market
share and increase
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same store sales. It includes advertising, store remodeling, introduction
of new products and seasonal promotions of a variety of products.
During 1995, Captain D's remodeled 36 Company-owned units. Remodeled
units include more windows, enhanced interior and exterior lighting,
brighter colors, neon signs, self-serve drinks and improved menu boards.
Additional landscaping and new, more visible signage have improved the
exterior appearance and street appeal of the stores. In addition, Captain
D's is installing new drive-through menu boards featuring greater use of
photos of featured items with less use of text descriptions. The new menu
boards are effective in speeding customer selection and are intended to
shorten waiting times and increase drive-through sales.
Casual Dining Concepts
In January 1995, the Company announced a reorganization which included
a plan to divest certain non-core businesses, including Mike Rose Foods,
Inc. and Lee's Famous Recipe, Pargo's and Fifth Quarter restaurants.
The Company began actively marketing these businesses in late February 1995
with the assistance of its investment banker. In July 1995, the Company
announced that it had decided to retain the Pargo's and Fifth Quarter
restaurant concepts and to combine them with the Company's Barbwire's
Steakhouses to form a 32-unit casual dining group. The concepts will share
common administrative and support functions to achieve additional
efficiencies in management and operations. Management believes that the
1995 results of operations of Pargo's and Fifth Quarter restaurants were
negatively affected by the uncertainties created by initial plans for the
divestiture of the concepts. The casual dining group has now been formed
under the leadership of John Alderson as division president. Alderson has
over twenty years experience in the restaurant industry and previously
served as President of Chart House Restaurants and as President of
Metromedia Steakhouses.
Pargo's
Concept. Pargo's are mid-scale, casual dining restaurants that serve
fresh, made-from-scratch entrees designed to cater to a diverse range of
customer tastes. Pargo's goal is to become the "favorite neighborhood
restaurant" in each of its markets. Management training and development
efforts are focused on achieving a "customer centered" operational approach
at each unit.
Pargo's menu includes a variety of appetizers, beef, seafood and chicken
entrees, specialty burgers and sandwich platters, pasta dishes, daily
homemade soups, garden fresh salads, and fresh breads. The menu also
features a number of "Heart Healthy" offerings to better serve our customers
who are interested in lower fat, lower cholesterol entrees. Pargo's
provides a warm environment for families by offering balloons, coloring
books and crayons for children, a special children's menu with value
pricing, and a "kids eat free" program featured at least one day each week.
Pargo's menu includes daily specials, a daily "fresh catch" entree, and
periodic food promotional events.
History. Pargo's was founded in 1983 and acquired by the Company in
March 1986. There are 19 Pargo's in 7 states, including two franchised
units. Four new units opened in 1995 in York, Pennsylvania; Raleigh, North
Carolina; Columbus, Georgia; and Winchester, Virginia. The management of
Pargo's has reviewed the operational strategy for the concept during the
last two years to prepare for additional growth. Nine of the seventeen
Company-owned units ( 53%) have been opened in the last five
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years. Also, the Company presently plans to acquire the two franchised
Pargo's restaurants during fiscal 1996.
Pargo's sales for fiscal year 1995 increased 21.4% to $36,386,000
compared to $29,984,000 in fiscal year 1994. Earnings before interest and
taxes for fiscal year 1995 declined 27.6% to $1,832,000 compared to
$2,530,000 in 1994. Comparable store sales for fiscal 1995 declined 3.2%,
including a menu price increase of 0.7%. The average sales volume of
company-owned units in 1995 was $2,345,000.
Steakhouses
Concept. Steakhouses include eight Fifth Quarter and six BarbWire's
restaurants. Fifth Quarters are special occasion steakhouses and BarbWire's
are country & western themed steakhouses. BarbWire's was introduced in 1993
as a vehicle to convert selected, under-performing Shoney's restaurants to
a new casual dining concept. Both steakhouse concepts are open 12 hours
daily, seven days a week and serve lunch and dinner.
BarbWire's offers a variety of mesquite grilled USDA choice steaks which
are cut and aged at the Company's meat processing facility. In addition,
BarbWire's offers mesquite grilled chicken, seafood and burgers, soup,
salads, baked potatoes, homestyle french fries and homemade desserts.
Children have a special menu (which folds into a cowboy hat) with a beverage
and ice cream included with each entree.
The Fifth Quarter's menu includes a wide range of USDA choice steaks and
chops, a variety of chicken and seafood entrees, and its signature slow-
cooked prime rib. Fifth Quarter's also offer burgers, sandwiches, soups,
a host of appetizers and side items, an extensive salad bar, and a full
selection of desserts.
History. BarbWire's was founded in 1993 when the first unit opened in
Nashville, Tennessee as a conversion from an existing Shoney's Restaurant.
Five of the six BarbWire's units are conversions of company-owned Shoney's
Restaurants and one unit was a conversion of another restaurant purchased
by the Company. The BarbWire's conversions initially have generally doubled
the sales volumes of the converted Shoney's Restaurants with an average
incremental remodeling investment of approximately $800,000. Additionally,
since the units converted were in existing Shoney's markets, sales of nearby
Shoney's restaurants also increased after the conversions. The average 1995
sales volume of the three Barbwire's restaurants open the entire year was
$2,030,000. Six additional BarbWire's are planned for fiscal 1996 with
expected capital expenditures of $4,800,000.
The Fifth Quarter restaurants began operation in 1973 and currently
operate eight units, primarily in the Southeast. During the fourth quarter,
the Company decided to close two under-performing Fifth Quarter restaurants
(one closed on the last day of the year and one closed one week later). The
units are generally stucco exteriors with tudor-style architectural
elements. Interiors are stucco and brick and generally include memorabilia
and photos relevant to each restaurant's marketplace.
Fifth Quarter restaurants are converting to hickory smoked grills to
produce more flavorful steaks, chicken and grilled fish items. Sales of
grilled steaks have increased at the five units where the new grills have
been installed. No new units have been built since November 1991 and the
Company
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currently has no plans to build additional Fifth Quarter units. The average
sales volume of the eight Fifth Quarters was $2,340,000 in 1995.
Sales for fiscal year 1995 of Fifth Quarter and BarbWire's were
$21,392,000 and $9,903,000, respectively. Overall sales for the Steakhouses
in 1995 were $31,295,000 compared to $25,327,000 for fiscal year 1994.
Earnings before interest and taxes for the Fifth Quarter restaurants in
fiscal 1995 were $1,694,000 compared with $2,182,000 in 1994. BarbWire's
earnings before interest and taxes for fiscal 1995 were $188,000, compared
to breakeven results for 1994. BarbWire's earnings in both 1995
and 1994 were negatively affected by start-up costs and other costs incurred
to prepare for future concept expansion. Comparable store sales for the
Fifth Quarter concept in fiscal 1995 decreased 3.2%, including a menu price
increase of 0.3%.
Manufacturing and Commissary Operations
Operations and Strategy. The Manufacturing and Commissary Operations
include five distribution facilities and two manufacturing plants. The
manufacturing operations includes a meat processing facility and a facility
that manufactures cole slaw and certain bakery products. The objective of
the Manufacturing and Commissary Operations is to provide company-owned and
franchised restaurants with a reliable source of quality food products at
the lowest practical cost. The Company utilizes central purchasing of all
major food, supply and equipment items for its restaurants to achieve
consistent quality and control costs.
The Company's ability to maintain consistent quality throughout its
restaurant systems depends in part upon the ability to acquire food products
and related items from reliable sources. When the supply of certain
products is uncertain or prices are expected to rise significantly, the
Company may enter into purchase contracts or purchase bulk quantities for
future use. There were no material long-term contracts for any food products
and adequate alternative sources are believed to be available for most
products. Certain items, however, are purchased under agreements with
vendors based on the Company's annual expected usage. Such agreements
generally include a pricing schedule for the period covered by the
agreement(s).
History. During 1994, the Company made significant investments in its
Manufacturing and Commissary Operations. A new distribution facility in
Wichita, Kansas replaced the Dallas, Texas distribution facility. The
meat processing facility was expanded to 60 million pounds of throughput
capacity and quick freezing equipment was upgraded. The new processing and
freezing equipment at this facility has permitted the Manufacturing and
Commissary Operations to add new products such as soups and vegetables.
Total revenues for Manufacturing and Commissary Operations, including
intercompany sales, were $505,085,000 for fiscal year 1995 compared to sales
of $524,407,000 for fiscal year 1994. Revenues for Manufacturing and
Commissary Operations excluding intercompany sales were $163,687,000 in
fiscal 1995 and $187,894,000 in fiscal 1994. Earnings before interest and
taxes for the Commissary and Manufacturing Operations were $11,939,000 in
fiscal 1995 compared with $13,089,000 in fiscal 1994. Since 1989, the
number of franchised restaurants that are serviced by the Company's
distribution centers has expanded from 349 to 525.
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(b) Financial information about industry segments. Note 1 of the
Notes to Consolidated Financial Statements at pages 30-32 of Item 8 of this
Annual Report on Form 10-K is incorporated herein by reference.
(c) Narrative description of business.
(i)-(ii) See (a) above
(iii) Essential supplies and raw materials are available
from several sources and the Company is not dependent
upon any single source of supplies or raw materials.
(iv) The Company considers the Shoney's, Shoney's Inn,
Captain D's, Fifth Quarter, Pargo's and BarbWire's names
and designs to be of substantial economic benefit to its
business. It accordingly deems very significant to its
business the right that it holds to operate and license
restaurant and/or motel operations under these names.
(v) Minor seasonal variations are not significant to the
Company's business.
(vi) The practice of the Company and the industry with
regard to working capital items is not significant
to the Company's business.
(vii) No material part of the Company's business is
dependent upon a single customer or a few customers.
(viii) Backlog of orders is not significant to the Company's
business.
(ix) No material portion of the Company's business is subject
to renegotiation of profits or termination of contracts
or subcontracts at the election of the government.
(x) The Company's business is highly competitive (usually by
means of price, product quality and service) and the
Company competes with a number of national and regional
restaurant chains as well as locally owned restaurants
that specialize in the sale of seafood, sandwiches, and
other prepared foods. The Company is unable to determine
its relative competitive position in the industry.
(xi) No material amount has been spent in any of the last
three (3) fiscal years on Company-sponsored research and
development activities or on customer sponsored research
activities relating to the development of new products,
services or techniques or the improvement of existing
products, services or techniques.
(xii) No material amounts were or will be required to be spent
to comply with environmental protection regulations.
(xiii) As of October 29, 1995, the Company employed
approximately 29,500 persons.
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ITEM 2. PROPERTIES.
The following table sets forth certain information regarding
the Company's restaurant and other properties, <F2> including those
under construction, as of October 29, 1995:
<TABLE>
<CAPTION>
Number of Properties <F3>
Use Total Owned Leased
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<S> <C> <C> <C>
Office and Commissaries <F4> 10 8 2
Shoney's Restaurants 356 237 119
Captain D's Restaurants 310 215 95
Pargo's Restaurants 17 9 8
Fifth Quarter Restaurants 9 5 4
BarbWire's Restaurants 6 5 1
Restaurants Under Construction 6 6 0
--- --- ---
714 485 229
=== === ===
</TABLE>
LEASES
Most of the leases of the Company's restaurant properties are for
periods of approximately 15 years, usually with renewal options ranging from
5 to 15 years. They provide for minimum rentals, totalling approximately
$9,501,000 in fiscal year 1995, net of sublease rentals, plus an amount
equal to a percentage of sales, generally 3% to 6% in excess of an agreed
sales volume. The Company is also required to pay property taxes and
insurance under most of the leases. Ninety-eight of the leases (43%) expire
prior to October 31, 2000; however, 86 of these leases (87% of the 98)
provide for renewal options. In fiscal 1995, aggregate rental expense for
the restaurant properties not capitalized was approximately $4,561,000, net
of sublease rentals. Notes 7 and 10 of the Notes to Consolidated Financial
Statements on pages 38-41 and 44-45, respectively, of Item 8 in this Annual
Report on Form 10-K are incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS.
J&J Seafood, Inc. v. Shoney's, Inc. - Item 3 of Amendment No. 1 to the
Company's Annual Report on Form 10-K, filed with the Commission on February
27, 1995, is incorporated herein by this reference. The plaintiff in this
case filed a motion to certify the case as a class action on August 7,
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<F2> The Company's 698 restaurant properties in operation as of
October 29, 1995 were located in 34 states.
<F3> In addition, the Company owns or leases 71 properties that
are in turn leased to others and 74 parcels of land.
<F4> The Company's principal offices and commissary at Nashville,
Tennessee comprise four buildings of approximately 171,000 square feet
on twenty acres of land owned by the Company. The Company also operates
commissaries in Ripley, West Virginia; Macon, Georgia; Atlanta, Georgia
and Wichita, Kansas. Mike Rose Foods, Inc., which was sold by the
Company on November 17, 1995, occupied a facility of approximately
151,000 square feet on 8 acres of owned land in Nashville, Tennessee.
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1995. Discovery on that motion is proceeding and the motion is set to be
argued in April 1996.
Ronald Cook and Stephen C. Sanders v. Shoney's, Inc. - Item 3 of
Amendment No. 1 to the Company's Annual Report on Form 10-K, filed with
the Commission on February 27, 1995, is incorporated herein by this
reference. This case was settled and dismissed with prejudice on November
29, 1995.
Belcher, et. al v. Shoney's, Inc. - See paragraphs 3 and 4 of Note 13
to the Notes to Consolidated Financial Statements at pages 47-48 of this
Annual Report on Form 10-K, which are incorporated herein by this
reference.
Other Litigation - The Company is a party to other legal proceedings
incidental to its business. In the opinion of management, the ultimate
liability with respect to these actions will not materially affect the
operating results or the financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of the fiscal year covered by this Annual
Report on Form 10-K, no matter was submitted to a vote of security holders,
through the solicitation of proxies or otherwise.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The Company, in accordance with General Instruction G(3) to
Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K, 17
C.F.R. Section 229.401, furnishes the following information with regard
to its executive officers as an additional item in Part I of this
Annual Report on Form 10-K. The following officers are those that
the Company currently deems to be "executive officers", as defined
by the Securities and Exchange Commission.
<TABLE>
<CAPTION>
Name Office Age
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<S> <C> <C>
C. Stephen Lynn Chairman of the Board and Chief Executive officer 48
Charles E. Porter President 52
W. Craig Barber Senior Executive Vice President and
Chief Financial Officer 40
Deborah D. Hollis Executive Vice President - Human Resources 43
Robert M. Langford Executive Vice President, General Counsel and
Secretary 44
Gregg A. Kaplan Senior Vice President - Marketing 38
John W. Alderson Division President - Casual Dining 47
Robert A. Speck Division President - Shoney's Restaurants 41
Daniel E. Staudt Executive Vice President - Manufacturing and
Distribution 46
Ronald E. Walker Executive Vice President - Captain D's 45
Gregory A. Hayes Vice President and Controller 39
F.E. McDaniel, Jr. Vice President and Treasurer 40
</TABLE>
There is no family relationship among the above or any of the
directors of the Company. Although all executive officers are employees at
will of the Company, each executive officer of the Company generally is
elected each year for a term of one year.
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Mr. Lynn served as Chief Executive Officer and as a Director of Sonic
Corp. from November 1983 through April 1995. He also served as Chairman of
the Board of Sonic Corp. from April 1986 to April 1995. On April 11, 1995,
Mr. Lynn was elected as a member of the Board and as the Chairman of the
Board and Chief Executive Officer of the Company.
Mr. Porter was in charge of the Company's manufacturing and
distribution operations from 1982 until December 1991, although his title
was changed to President of that division in March 1991. He was elected
Division President - Captain D's in December 1991. He was elected President
of the Company in January 1995.
Mr. Barber joined the Company and was elected Assistant Treasurer in
July 1983. He was elected Treasurer in August 1988 and served in that
position until December 1992, when he was elected Vice President - Finance
and Chief Financial Officer. He was elected Senior Executive Vice President
and Chief Financial Officer in January 1995.
Ms. Hollis joined the Company in August 1995 at which time the Board
elected her to the position of Executive Vice President - Human Resources.
Prior to joining the Company, Ms. Hollis was employed by Hardee's Food
Systems, Inc., where she most recently served as Executive Vice President -
Human Resources, a position she held since July 1995. Ms. Hollis had
previously held various management positions in Hardee's Human Resources
Department since 1987.
Mr. Langford joined the Company in November 1995 at which time the
Board elected him to the positions of Executive Vice President, General
Counsel and Secretary. Prior to joining the Company, Mr. Langford had
operated six franchised Shoney's restaurants since 1985 and previously had
served as the Company's outside counsel for governmental affairs. Since
1991, Mr. Langford has served as Chairman of the Board and as a Director of
Restaurant Management Services, Inc. and its parent RMS Holdings, Inc.
("RMS"), a franchisee of Shoney's and Captain D's restaurants. Mr. Langford
resigned as Chairman of RMS effective February 1996.
Mr. Kaplan joined the Company in 1990 as Vice President of Marketing
for the Company's Captain D's concept. In July 1994, he was elected to the
position of Vice President - Marketing for Shoney's Restaurants. Mr. Kaplan
assumed his present position of Senior Vice President - Marketing (over
marketing for all the Company's restaurant concepts) in August 1995.
Mr. Alderson joined the Company in November 1995 and was elected
Division President - Casual Dining at that time. Prior to joining the
Company, Mr. Alderson was President of Metromedia Steakhouses Company, a
position he held since 1994. From 1991 to 1994, Mr. Alderson had served as
the President of Chart House, Inc., a publicly held national restaurant
chain.
Mr. Speck joined the Company in December 1995 and was elected Division
President - Shoney's Restaurants at that time. Prior to joining the
Company, Mr. Speck had served as Chief Operating Officer of Grandy's, Inc.
since 1989.
Mr. Staudt joined the Company in 1971. He served as Director of the
Nashville commissary from 1983 until November 1988, when he was elected Vice
President. He was elected Executive Vice President of the Company and
President of Commissary Operations, Inc. in December 1991 and became
Division President - Manufacturing and Distribution in May 1994. Currently,
Mr. Staudt serves as Executive Vice President - Manufacturing &
Distribution.
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Mr. Walker has held various positions since joining the Company in
1980, becoming Director of Franchise Operations for the Captain D's Division
in December 1984. He was elected Vice President of Franchise Operations in
December 1986 and promoted to his present position in January 1995.
Mr. Hayes joined the Company as Director of Financial Analysis in June
1993 and was elected Vice President and Controller of the Company in August
1995. Previously, Mr. Hayes was an audit senior manager with the accounting
firm of Ernst & Young, LLP, where he had been employed in the audit and
accounting practices of the Nashville, Tennessee; New York, New York; and
Cincinnati, Ohio offices from 1978 until he joined the Company.
Mr. McDaniel has served in various accounting and financial positions
since joining the Company in 1981. He was elected Assistant Secretary in
December 1984 and Secretary in August 1988. He was elected to the
additional position of Treasurer in December 1992. He was elected a Vice
President of the Company in March 1994 and currently serves as Vice
President and Treasurer.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
(a) MARKET INFORMATION. The Company's common stock is traded
on the New York Stock Exchange under the symbol "SHN." The
following table sets forth the high and low trading prices of the
Company's common stock as reported by the New York Stock Exchange
during each of the fiscal quarters of the prior two fiscal years:
<TABLE>
<CAPTION>
Stock Stock
No. of Market Market
Weeks High Low
----- ------ ------
<S> <C> <C> <C>
1995
First Quarter 16 15 3/8 11 1/4
Second Quarter 12 12 1/2 9 1/8
Third Quarter 12 13 1/8 10 1/8
Fourth Quarter 12 12 1/2 8 7/8
--
52
==
1994
First Quarter 16 25 5/8 19 3/4
Second Quarter 12 24 5/8 17 1/8
Third Quarter 12 18 1/8 13 1/2
Fourth Quarter 12 15 7/8 13 3/8
--
52
==
</TABLE>
(b) Holders. There were 7,727 shareholders of record as of January
22, 1996.
(c) Dividends. The Company has not paid a dividend on its common
shares since the Company's 1988 recapitalization, at which time, the Company
paid a $19.97 per share special distribution. The Company currently intends
to retain all earnings to support the development and growth of the
Company's restaurant concepts and to retire its outstanding debt
obligations. The Company's senior debt issues: (1) require satisfaction of
certain financial ratios and tests (which become more restrictive each
year); (2) impose limitations on capital expenditures; (3) limit the ability
to incur additional debt, leasehold obligations and contingent liabilities;
(4) prohibit dividends and distributions on common stock; (5) prohibit
mergers, consolidations or similar transactions; and (6) include other
affirmative and negative covenants.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
FIVE YEAR FINANCIAL SUMMARY
(in thousands except per share data)
Fiscal year ended October 1995 1994 1993(a) 1992 1991
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues $1,053,332 $1,072,459 $1,051,747 $985,201 $917,572
Costs and expenses
Cost of sales 922,545 895,893 877,582 818,782 758,100
General and administrative 63,905 55,397 54,440 53,622 51,495
Interest expense 39,816 41,237 44,466 51,900 63,907
Litigation settlement (1,700) 124,500
Restructuring expense 7,991
- -----------------------------------------------------------------------------------------------------------
1,034,257 990,827 976,488 1,048,804 873,502
Income (loss) from continuing
operations before income taxes,
extraordinary charge, and
cumulative effect of change
in accounting principle 19,075 81,632 75,259 (63,603) 44,070
Income taxes 7,873 29,314 28,456 (26,268) 15,563
- -----------------------------------------------------------------------------------------------------------
Income (loss) from continuing
operations before extraordinary
charge, and cumulative effect of
change in accounting principle 11,202 52,318 46,803 (37,335) 28,507
Discontinued operations, net of
income taxes 8,137 10,277 11,207 10,758 9,520
Gain on sale of discontinued
operations, net of income taxes 5,533
Extraordinary charge on early
extinguishment of debt (1,038)
Cumulative effect of change in
accounting for income taxes 4,468
- -----------------------------------------------------------------------------------------------------------
Net income (loss) $ 24,872 66,025 $ 58,010 $ (26,577)(b) $ 38,027
===========================================================================================================
Weighted average shares
outstanding (fully diluted) 41,519 46,520 45,644 41,049 46,112
Per share data--fully diluted
Income from continuing operations $ .27 $ 1.21 $ 1.11 $ (.91) $ .70
Net income (loss) $ .60 $ 1.51(c) $ 1.35 $ (.65)(b) $ .90
Dividends -- -- -- -- --
Total assets $ 535,016 $ 554,978 $ 525,520 $ 467,421 $ 427,668
Long-term debt and obligations under
capital leases $ 406,032 $ 414,026 $ 389,898 $ 460,546 $ 542,359
Shareholders' equity (deficit) $(108,307) $(136,764) $(209,988) $(290,497) $(265,075)
Number of restaurants at year-end (d)
Company-owned 698 719 708 695 688
Franchised 826 874 875 824 741
- -----------------------------------------------------------------------------------------------------------
Total restaurants 1,524 1,593 1,583 1,519 1,429
===========================================================================================================
Notes: (a) - 53 week year.
(b) - Net income before special charge for settlement of lawsuit was $50,663 or $1.14
per share (See Note 12 to the consolidated financial statements).
(c) - Income before extraordinary charge and cumulative effect of change in accounting
principle was $1.43 per share.
(d) - Continuing operations.
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION.
The following discussion and analysis provides information which
management believes is relevant to an assessment and understanding of the
Company's consolidated results of operations and financial condition.
Unless otherwise noted, this discussion addresses the Company's continuing
operations. The discussion should be read in conjunction with the
consolidated financial statements and notes thereto. All references are to
fiscal year unless otherwise noted.
Reorganization - On January 16, 1995, the Company's Board of
Directors announced a reorganization designed to improve the performance and
growth of the Shoney's Restaurant concept. The reorganization included
divestiture of certain non-core lines of business including Lee's Famous
Recipe, a chain of over 200 quick-service restaurants specializing in
chicken, and Mike Rose Foods, Inc., a manufacturer of dressings, sauces,
condiments and various dry-blend products for the foodservice industry. The
divestiture process now is completed, with the sale of Lee's Famous Recipe
closing on September 29, 1995 and the sale of Mike Rose Foods, Inc. closing
on November 17, 1995.
These discontinued lines of business had net property, plant and
equipment of $10.6 million at October 29, 1995 and $32.0 million at October
30, 1994, had annual revenues of $86.7 million and $93.7 million for the
1995 and 1994 fiscal years, respectively, and had earnings before interest
and taxes of $13.1 million and $16.5 million for the 1995 and 1994 fiscal
years, respectively. In fiscal 1995, these discontinued lines of business
represented approximately 2.5% of net property, plant and equipment, 7.6%
of consolidated revenues and 18.2% of consolidated earnings before interest
and taxes. The discontinued lines of business were disposed of for amounts
in excess of their carrying values. Certain one-time charges associated
with the reorganization and divestitures were accrued as they were incurred.
The sale of Lee's Famous Recipe resulted in a gain of approximately $5.5
million, net of tax. The sale of Mike Rose Foods, Inc., which will be
reflected in the Company's 1996 first quarter results of operations, will
result in a gain of approximately $22.0 million, net of tax. (See Note 2 to
the Consolidated Financial Statements).
Results of Operations
Revenues
The components of the change in revenues from continuing operations during
1995 and 1994 are summarized as follows:
1995 1994
Amount Amount
(Millions) (Millions)
---------- ----------
Sales from restaurants opened or acquired $ 22.2 $ 19.6
Higher sales price 3.7 14.0
Sales at prior year prices (6.4) (2.8)
Restaurant sales for 53rd week --- (15.0)
Equipment and other sales (1.8) (1.6)
Manufacturing and commissary sales (24.2) (0.8)
Franchise revenues (1.9) (0.1)
Other income (10.7) 7.4
----- ----
Total $ (19.1) $ 20.7
===== ====
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<PAGE>
Comparable store sales of the Company's restaurants declined 2.1%
before considering menu price increases of 0.4%, resulting in a real decline
in comparable store sales for 1995 of 2.5%. For 1994 and 1993, comparable
store sales of the Company's restaurants increased 0.5% and 0.1%,
respectively, resulting in a real decline of 1.2% for 1994 and 1.1% for 1993
after adjusting for menu price increases. The Company's Shoney's
Restaurants have experienced declining comparable store sales since 1993.
Management believes that the declines in comparable store sales at its
Shoney's Restaurants are the result of numerous factors including a more
competitive environment, a decline in operational performance, and the
cumulative negative effects of the Company's delay in remodeling it's
Shoney's Restaurants. During the fourth quarter of fiscal 1995, one of the
company's Shoney's Restaurants was included, along with restaurants of
several other national restaurant chains, in a national television "news
magazine" program on restaurant industry cleanliness and food handling
practices. Following the airing of this program, the Company's Shoney's
Restaurants experienced significant declines in comparable store sales.
Comparable store sales declines in fiscal 1996 (through 12 weeks) are now
less than the declines experienced in the fourth quarter of 1995 or the 1995
fiscal year.
The Company has implemented a number of programs since 1993 to
improve operational performance, regain market share and improve comparable
store sales. A major remodeling program was begun in late 1993 through
which 183 Company-owned Shoney's Restaurants had been remodeled by the end
of 1995. During 1996, an additional 100 Company-owned Shoney's Restaurants
will be remodeled. Management believes that the store remodeling program is
one element in its overall improvement program necessary to protect market
share and encourage retrial by former customers.
In 1994, management determined that the overall quality of Shoney's
Restaurant management needed to be significantly strengthened to achieve
desired customer service levels. During 1995, the Company implemented a
targeted operational improvement program focused on the Company's markets
most in need of improvement. This program included a thorough evaluation
of restaurant management personnel, a thorough review of the physical
condition of each restaurant, and an intensive training program which
focused on restoring operational excellence in food preparation along with
a significant emphasis on hospitality and customer satisfaction. The
results of these programs generally have been positive in that performance
at targeted restaurants has outpaced the performance of similarly situated
units that were not a part of the improvement program. Although management
believes that the improvement program addresses the important operational
performance issues, it currently appears that achievement of significant
positive comparable store sales will take longer than originally
anticipated.
Significant changes in restaurant management have continued during
1995; however, the pace of change was hampered by a very competitive labor
market. Compensation, benefits, and performance-based reward systems have
been redesigned to better align management's incentive compensation with
Company objectives for achieving customer satisfaction and operational
excellence. New incentive programs reward unit level managers for improved
comparable store sales and cash flow. The Company's historical bonus plans
have been largely oriented toward cost controls, which can sometimes result
in management decisions that are counter productive to achieving high levels
of customer satisfaction. Management believes that the new incentive
programs achieve a better balance between increasing revenue through
customer satisfaction and profitability.
In October 1995, the Company announced a 48 store test of an
"owner/manager" program for Shoney's Restaurant general managers. In this
program, general managers make an "investment" in their restaurant and, in
return, are eligible to earn incentive compensation based on a percentage of
the increase in cash flow of their restaurant. The test program includes the
elimination of one layer of supervisory management, places greater operational
control and responsibility in the restaurant general manager, and
-15-
<PAGE>
<PAGE>
places regional supervisors in a business partner/consultant role to the
general managers. Management believes that the new owner/manager program
balances the need to achieve customer satisfaction and thereby increase
sales with the need to control costs and operate efficiently. The test
began in December 1995, therefore, no meaningful results are available.
However, management believes that the success of similar manager
compensation programs at other restaurant companies (including Sonic,
Outback Steakhouses, Harmon International, and Chick-Fil-A) indicates that
this type program has a high probability for success.
During 1995, the Company retained the firm of Bernstein-Rein
of Kansas City as the new advertising agency for its Shoney's Restaurants.
In the fall of 1995, the Company announced that Andy Griffith would serve
as the celebrity spokesperson for Shoney's Restaurants in a series of
radio and television commercials along with related point-of-sale
marketing materials. Customer response to the Andy Griffith commercials,
which began in November 1995, has been very positive and management
believes this campaign will be an important element in its overall
marketing strategy. The Company continues to focus its marketing
efforts on building upon the strong Shoney's Restaurants brand and to
position Shoney's Restaurants as the place for families to enjoy "Classic
American Food."
The following table summarizes the change in number of restaurants
operated by the Company and its franchisees during the most recent three
fiscal years.
1995 1994 1993
---- ---- ----
Company-owned units opened 25 28 30
Company-owned units closed (46) (17) (17)
Franchised units opened 17 52 82
Franchised units closed (65) (53) (31)
---- ---- ----
Net increase (decrease) in restaurants (69) 10 64
During the fourth quarter of 1995, the Company implemented
a restructuring plan which included the closure of 41 under-performing
restaurants, consisting of 17 Shoney's Restaurants, 22 Captain D's,
and 2 Fifth Quarter restaurants. With the exception of one Fifth
Quarter restaurant closed in the first week of November 1995, all these
restaurants were closed at the end of the fiscal year. In addition to these
restaurants, five Shoney's Restaurants and one Captain D's had been closed
earlier in 1995 resulting in 46 restaurant closures for the year.
With respect to the 41 units closed, the Company recorded a
restructuring expense of $6.2 million in the fourth quarter of 1995,
principally to provide for the write-down of assets to their net realizable
value and the accrual of future lease costs in excess of estimated sub-lease
rental income. Approximately $1.7 million of other restructuring expenses,
consisting principally of severance for three executives displaced by the
reorganization and restructuring, had been included in the restructuring
expense in the first three quarters of fiscal 1995, resulting in a total
restructuring expense of $7.9 million. The 1995 revenues and loss before
interest and taxes related to the 41 units closed were $24.2 million and
$2.1 million, respectively.
Manufacturing and commissary sales declined by approximately $24
million in 1995. The decrease in commissary and manufacturing sales was a
result of the following factors: 1) a 9% decline in the number of franchised
restaurants which purchased food and supplies from the commissary, 2) a
decline in annual average purchases made by such franchisees, resulting
principally from an 8.6% decline in the comparable store sales of the
Company's franchised Shoney's Restaurants coupled with increased
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<PAGE>
competition from alternative wholesale food distributors, and 3)
a decrease in sales by the Company's meat processing facility of $3.7
million, principally due to the loss of business from the Company's largest
franchisee, TPI Enterprises ("TPI").
The Company has formed a commissary advisory board with six
franchisees elected by their peers to provide input as to how the Company
can better meet the needs of its franchise customers. The Company's goal
is to be a low cost provider of the high quality food and supplies for each
of our restaurant concepts. The Company is installing a computerized order
entry system to permit customers to place weekly food and supply orders
through restaurant level computers linked with the commissary central
computer system. The system will save time for restaurant managers and
increase time available for customer service at the restaurants. Management
believes this system will enhance efficiency at the Commissary and permit
savings to be shared through lower costs of food and supplies. Ultimately,
improvements in commissary sales will be linked to improvements in average
unit volumes of franchised restaurants as well as expansion of commissary
sales to franchisees who are not customers.
The Company is pursuing customers outside its franchised system for
its meat processing facility. In addition, the Company is negotiating with
TPI to purchase its Shoney's and Captain D's restaurants. If that
transaction is completed, the meat supply business for those restaurants
would be shifted back to the Company's meat processing facility. If the
meat processing facility's sales to TPI are not replaced, the efficiency of
the Company's meat processing operation will be negatively impacted;
however, such amounts are not expected to have a material adverse effect on
the Company.
Other income declined in 1995 as a result of a fourth quarter
decline in market value of the Company's investment in ShoLodge, Inc.
(ShoLodge) common stock and warrants resulting in an unrealized loss of $3.9
million coupled with a reduction in revenue from asset sales of $1.5 million
as compared to 1994. In 1994, the Company had an unrealized gain of $2.4
million related to its investment in ShoLodge. The fluctuation in market
value between 1995 and 1994 created a $6.3 million decrease in other income
in 1995. Fiscal 1994 included a $1.7 million gain on the sale of the
Company's minority interest in certain Shoney's Inns, with no comparable
item in 1995.
Other income increased $7.4 million in 1994 as compared with 1993
as the result of a $1.7 million gain on the sale of certain minority
interests in certain motels, a $.9 million gain from the settlement of
certain litigation and gains of $1.6 million from real estate transactions.
Costs and Expenses
Cost of sales includes food and supplies, restaurant labor and
operating expenses. A summary of cost of sales as a percentage of total
revenues for the last three fiscal years is shown below:
1995 1994 1993
Food and supplies 40.9% 41.8% 42.0%
Restaurant labor 23.8 21.8 21.8
Operating expenses 22.8 19.9 19.6
87.5% 83.5% 83.4%
-17-
<PAGE>
<PAGE>
Manufacturing and commissary revenues declined by $24 million
during 1995 and increased $2.2 million and $27.9 million during 1994 and
1993, respectively. When compared to restaurant revenues, these revenues
have a higher percentage of food costs and a lower percentage of operating
expenses. There is no restaurant labor associated with these revenues.
Food costs as a percentage of revenues declined by 0.9% in 1995, principally
as a result of the significant decline in commissary revenues. Food costs
as a percentage of revenues was down very slightly in 1994 when compared to
1993 as higher food costs at the restaurant level (primarily as the result
of a new menu in the Shoney's Restaurants) were offset by lower food costs
associated with manufacturing and commissary revenues. During 1993, the
Company experienced higher costs for meat products and lower margins in its
manufacturing division which contributed to the higher food costs.
Restaurant labor increased 2.0% as a percentage of revenues in 1995
due to increased labor hours incurred in connection with the Shoney's
Restaurant improvement program, a decrease in commissary and manufacturing
revenue (which have no associated restaurant labor), and higher salaries
being offered to attract and retain quality restaurant personnel. Wage
rates for non-tipped hourly restaurant employees have risen approximately
6% and pay rates for restaurant management personnel have risen an average
of 8.7% during 1995. Labor costs as a percentage of revenues have also
increased because the Company has not instituted sufficient menu price
increases to recoup these costs as the Company was striving to build
customer traffic and regain market share. The Company anticipates it
will implement greater menu price increases in 1996 and 1997 more in line
with historical norms.
Operating expenses, as a percentage of revenues, increased 2.9%
during 1995 as a result of a $19.1 million decline in total revenues coupled
with a variety of costs incurred in conjunction with the Company's
restructuring and the operational improvement program for Shoney's
Restaurants. As part of the Shoney's Restaurant improvement program,
repairs, maintenance, and replacements costs increased $3.6 million; $1.3
million of fixed assets were written off as unusable; $400,000 of expenses
were charged to operations for performance improvement teams; $400,000 of
relocation costs were incurred; and $3.2 million of asset write-downs for
surplus property and certain equipment were recorded. Operating expense
also was negatively affected by $2.8 million of additional depreciation
costs stemming from restaurant additions and remodeling. Advertising
expenses were $2.8 million higher during 1995 as the Company abandoned
an unsuccessful ad campaign, changed its advertising agency, and
incurred additional costs related to the production of a new advertising
program. An analysis of accrued property taxes completed during 1995
resulted in an increase in operating expense of $3.0 million. During
the fourth quarter, the Company completed a review of its self-insured
worker's compensation reserves, which included additional analyses
focusing on the trend in development of prior years' incurred claims.
The analyses indicated that the Company's recorded reserve was below the
expected range of possible future losses. Management determined that it
was appropriate to strengthen the worker's compensation reserves to
better reflect the likely outcome of its liability within the possible range
of loss. Accordingly, at the end of the fourth quarter, the Company
increased its worker's compensation reserves by approximately $3.8 million.
In addition, operating expenses had been favorably affected in 1994 by a
$2.0 million settlement of litigation against a former worker's compensation
insurance carrier. Accordingly, worker's compensation expenses increased
by $5.8 million in 1995 compared to 1994, as a result of these two matters.
Operating expenses as a percentage of revenues increased in 1994
due to higher depreciation and other costs associated with the Company's
remodeling program of its Shoney's Restaurants, which were partially offset
by the settlement of a lawsuit for $2.0 million against a former worker's
compensation insurance carrier which reduced insurance expense. The Company
anticipates continued pressure on
-18-
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<PAGE>
restaurant operating margins in 1996, until improvements in comparable
store sales are achieved. Management intends to closely monitor and
manage these costs to the maximum extent practical.
A summary of general and administrative expenses and interest expense as a
percentage of revenues for the last three fiscal years is shown below:
1995 1994 1993
- ----------------------------------------------------------------------
General and administrative 6.1% 5.2% 5.2%
Interest expense 3.8% 3.8% 4.2%
General and administrative expenses as a percentage of revenues
increased 0.9% during 1995. The increased level of general and
administrative costs was principally caused by the significant restructuring
of the Company's management group, which included increased salary costs
related to hiring new management employees as well as severance costs for
certain employees displaced in the management reorganization. Salary and
bonus costs increased approximately $4.0 million, relocation costs increased
$400,000, and executive search fees increased by $600,000. Consulting fees
associated with the Shoney's Restaurant improvement program and related
costs during 1995 were $2.4 million and contributed to the increase in
general and administrative expenses.
General and administrative costs as a percentage of revenues were
unchanged in 1994 compared to 1993. In addition, during the first quarter
of 1993, the Company received $3 million from certain of its insurance
carriers for recovery of legal fees paid in prior years related to a
discrimination lawsuit, which reduced general and administrative expenses.
However, this recovery was offset by certain severance expenses associated
with the resignation or termination of certain employees during the first
quarter of 1993 which totaled $3.2 million.
Interest expense as a percentage of revenues was unchanged in 1995
and 1994, but declined in 1994 in comparison to 1993 primarily due to the
refinancing during 1994 of $145.7 million of subordinated debentures.
On January 25, 1993, the Company received final approval of the
settlement in a class action race discrimination lawsuit. Under the
settlement, the Company agreed to pay $105 million in claims, $25.5
million for litigation costs and class counsel's expenses, as well as
an estimated $2.3 million for administrative costs and payroll taxes.
The Company is required to pay substantially all of the remaining litigation
settlement liability over the next 2 1/2 years in quarterly installments.
The effective income tax rates were 41.3% in 1995, 35.9% in 1994,
and 37.8% in 1993. Note 6 to the consolidated financial statements
reconciles the difference between total income tax expense and the amount
computed by applying the statutory federal income tax rate to income before
income taxes.
Liquidity and Capital Resources
The Company's primary source of liquidity is cash provided by
operating activities which totaled $100.4 million in 1995, a decrease of
$22.2 million compared to 1994. The decrease in operating cash flow in 1995
was principally a result of a $25 million decline in the operating earnings
of the Company's Shoney's Restaurants as the Company implemented a
restructuring and performance improvement
-19-
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<PAGE>
program. In addition, operating earnings of the Company's commissary
operations were negatively affected by lower sales volumes and relatively
fixed overhead costs.
Cash provided by continuing operating activities was $122.7 million
in 1994, an increase of $28.2 million as compared with 1993. This increase
was primarily attributable to a decrease in food inventory (principally
fish), and an increase in cash flow from accounts receivable and deferred
income taxes, which were partially offset by a decrease in accrued expenses.
Cash provided by operating activities in 1993 decreased $6.0 million when
compared to 1992 and was primarily attributable to an increase in food
inventory (principally fish), which was partially offset by increased
operating income.
Cash used by investing activities in 1995 was $37.7 million, a
decrease of $52.4 million as compared to 1994. This decrease was primarily
a result of a $32 million decrease in 1995 over 1994 capital expenditures
for new restaurant construction and restaurant remodeling, including a $2.1
million decrease in these expenditures related to the Company's discontinued
operations. This decrease was offset by a $4.5 million increase in capital
expenditures for acquisition of franchised restaurants. Capital
expenditures related to commissary operations declined approximately $7
million in 1995 as compared to 1994 due to the construction of a new
Wichita, Kansas commissary facility during 1994. The Company generated an
additional $19.4 million of cash from investing activities in 1995 stemming
from the divestiture of its Lee's Famous Recipe division.
Cash used in investing activities increased in 1994 over 1993,
principally due to an $11.9 million increase in capital expenditures for
restaurant remodeling and construction of a new commissary facility.
The Company is highly leveraged and therefore seeks to minimize its
interest costs by constantly evaluating alternative financing arrangements.
In July 1993, the Company entered into a $125 million reducing revolving
credit facility expiring October 1997, with reductions in the aggregate
credit facility beginning in 1995. This facility was secured by all
material assets of the Company not otherwise pledged. The Company borrowed
$25 million and repaid $10 million under this facility during 1993. The
interest rate for the facility is a floating rate of 2% over the London
Interbank Offered Rate ("LIBOR") and was 5.2% at October 31, 1993.
During 1994, the Company's $125 million reducing revolving credit
facility was amended to allow redemption of the Company's outstanding 12%
subordinated debentures. The credit facility was increased to a
maximum of $270 million, and its term was extended to 1999. In July 1994,
the Company's $145.7 million of 12% debentures were redeemed at
par. The reducing revolving credit facility bears interest at a floating
rate (2% over LIBOR) and was 8% at October 29, 1995 and 7% at October 30,
1994, respectively. Based on an 8% interest rate, refinancing of the 12%
subordinated debt resulted in annual interest savings of approximately $5.8
million. The Company had $223 million and $240 million outstanding under
this facility at October 29, 1995 and October 30, 1994, respectively.
The Company maintains an interest rate risk management program to
limit its exposure to rising short-term interest rates on its variable rate
debt. At October 29, 1995 and October 30, 1994, the Company held 7% LIBOR
interest rate cap agreements expiring in 1996 for $50 million (notional
amount). These agreements limit the Company's maximum LIBOR interest rate
to 7% on $50 million of its variable rate debt until October 1996. During
1996, the Company plans to reevaluate its interest rate risk management
program with its lenders to determine the most cost effective strategy for
reducing the Company's risk to rising short-term interest rates. Management
is considering replacing a portion of the Company's floating rate debt with
fixed rate intermediate term debt as part of an overall plan to
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reduce exposure to interest rate risks and to more closely match its
assets and liabilities.
On December 5, 1995, the Company and TPI Enterprises, Inc. ("TPI")
announced that they had executed a letter of intent providing for the
acquisition by the Company of TPI Restaurants, Inc. and two other TPI
subsidiaries, which represent substantially all of the assets of TPI.
TPI is the Company's largest franchisee and operates 188 Shoney's
restaurants and 68 Captain D's Seafood restaurants. For the twelve
months ended October 1, 1995, TPI had restaurant revenues of $278
million.
If the acquisition is consummated, the transaction presently
provides for the TPI subsidiaries to be acquired in exchange for
6,456,223 shares of the Company's $1.00 par value common stock plus
the assumption of certain obligations of TPI, including approximately
$95 million in debt as of October 29, 1995. No definitive agreement
has been executed. Management can give no assurances that a definitive
agreement with TPI will be executed or that the proposed acquisition
will be consummated.
During the fourth quarter of 1995, the Company completed the
sale of Lee's Famous Recipe for $28.5 million ($24.5 million cash and a $4
million note) resulting in an after tax gain of $5.5 million. The Company
had previously negotiated modifications to its credit agreements to permit
the sale of Lee's Famous Recipe and Mike Rose Foods, Inc. The modifications
required that a portion of the proceeds from the sale of discontinued
operations (net of taxes and selling costs) be treated as a permanent
reduction of the amounts otherwise available under the reducing revolving
credit facility. The Company utilized substantially all of the cash
proceeds to reduce debt under its reducing revolving credit facility.
A permanent reduction of the amount available under the reducing revolving
credit facility of $7.5 million resulted from the sale of Lee's Famous
Recipe.
In November 1995, the Company completed the sale of Mike Rose
Foods, Inc. for $55 million (all cash) resulting in an estimated after tax
gain of approximately $22 million. The sale will be reflected in the
Company's first quarter of fiscal 1996. Approximately $50 million was
utilized to reduce debt under the reducing revolving credit facility. A
permanent reduction of the amount available under the credit facility of
$12.9 million resulted from the sale of Mike Rose Foods. The Company
anticipates that it will draw on the credit facility to pay estimated tax
payments related to gains on sales of discontinued operations as they become
due.
During 1995, the Company retired $60 million of its senior fixed
rate debt and reduced the amount outstanding under its reducing revolving
credit facility by approximately $17 million as of October 29, 1995. These
debt repayments were funded with operating cash flows, cash provided by the
sale of discontinued operations (Lee's), and from $28 million of new senior
variable rate debt due in October 1999. The $60 million of senior fixed
rate debt retired in 1995 had an effective interest rate of 6.3%.
Therefore, the Company's interest rate on debt outstanding (which is
principally at variable rates) is expected to increase in 1996. This
increase in rates is expected to be offset by reduced amounts of debt
outstanding. Accordingly, assuming a stable interest rate environment, the
Company's overall interest expense is expected to decrease in 1996 as
compared to 1995.
During 1994, the Company made scheduled payments of $100 million on
its senior debt-fixed rate loan, principally from increased borrowing under
the reducing revolving credit facility and from operating cash flows.
During 1993, the Company made the remaining scheduled payments of $45 million
on the original $585 million of bank borrowings related to the Company's
1988 recapitalization. Principal payments made on indebtedness during 1992
were $89.4 million, which included scheduled payments of $30 million and
prepayments of $55 million on the Company's original $585 million of
-21-<PAGE>
<PAGE>
recapitalization bank debt.
The Company's lending agreements contain covenants that impose
limitations on capital expenditures and require satisfaction of certain
financial ratios and tests (such ratios and tests become more restrictive
each year). The Company is currently prohibited from paying dividends by
its lending agreements. The covenants also prohibit the Company from
incurring additional indebtedness, except under two existing unsecured lines
of credit totaling $30 million ($21 million available at October 29, 1995),
or from mortgage financing arrangements. The Company had borrowed $85.5
million at October 29, 1995 and $61.3 million at October 29, 1994 under
mortgage financing arrangements with effective interest rates of 8% and 6.9%
at October 29, 1995 and October 30, 1994, respectively.
Proceeds from employee stock options decreased $1.6 million in 1995
compared to 1994 and decreased $10.6 million in 1994 as compared with 1993
principally because the exercise prices of many of the options outstanding
during 1995 and a significant portion of 1994 were in excess of the market
price of the Company's stock. Proceeds from employee stock options
increased $5.2 million during 1993 principally as a result of the exercise
of options granted during the recapitalization in July 1988, which were to
expire in 1993. Litigation settlement payments of $23.4 million, $24.9
million, and $22.4 million were made during 1995, 1994, and 1993,
respectively, as required by the consent decree approved in January 1993
(See Note 12 to the Consolidated Financial Statements).
The Company expects to meet its needs for debt service, capital
expenditures (excluding those for land and buildings which are expected to
be met through mortgage financing), the litigation settlement and other
general corporate purposes through cash generated by the Company's
operations, the Company's reducing credit facility, and its other available
lines of credit.
Impact of Accounting Changes
There are no pending accounting pronouncements that when adopted
are expected to have a material effect on the Company's results of
operations or its financial position.
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<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements of the registrant and its
subsidiaries, together with all notes thereto, are set forth immediately
following this page as pages 24 through 49 of this Annual Report on
Form 10-K.
REPORT OF ERNST & YOUNG LLP
Independent Auditors
Shareholders and Board of Directors
Shoney's, Inc.
Nashville, Tennessee
We have audited the accompanying consolidated balance sheets of
Shoney's, Inc. and subsidiaries as of October 29, 1995 and October 30,
1994, and the related consolidated statements of income, shareholders'
equity (deficit) and cash flows for each of the three fiscal years in the
period ended October 29, 1995. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Shoney's, Inc. and subsidiaries at October 29, 1995 and
October 30, 1994, and the consolidated results of their operations and
their cash flows for each of the three fiscal years in the period ended
October 29, 1995 in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information
set forth therein.
As discussed in Note 3 to the consolidated financial statements, the
Company changed its method of accounting for income taxes and
certain investments in debt and equity securities in the year ended
October 30, 1994.
Nashville, Tennessee
December 14, 1995, except for
paragraphs 3 and 4 of
Note 13, as to which the date is /S/ ERNST & YOUNG LLP
January 2, 1996
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<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
Shoney's, Inc. and Subsidiaries
October 29 October 30
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 7,513,588 $ 4,229,784
Notes and accounts receivable, less allowance for doubtful
accounts of $1,645,000 in 1995 and $1,193,000 in 1994 13,013,821 16,936,307
Inventories 33,483,964 37,787,689
Deferred income taxes 24,549,337 17,821,945
Prepaid expenses and other current assets 6,167,548 10,074,988
Net current assets of discontinued operations 14,495,812 5,220,127
----------- -----------
Total current assets 99,224,070 92,070,840
Property, plant and equipment, at cost
Land 117,104,203 113,397,369
Buildings 227,124,559 214,481,119
Buildings under capital leases 18,122,394 20,383,129
Restaurant and other equipment 256,936,595 257,610,547
Leasehold improvements 57,330,822 54,736,348
Rental properties 24,136,182 22,917,082
Construction in progress (estimated cost to complete:
$6,382,000 in 1995 and $7,789,000 in 1994) 9,789,522 13,606,268
----------- -----------
710,544,277 697,131,862
Less accumulated depreciation and amortization (291,057,795) (278,529,473)
----------- -----------
Net property, plant and equipment 419,486,482 418,602,389
Other assets
Net non-current assets of discontinued operations 31,916,261
Deferred charges and other intangible assets 7,085,784 6,650,229
Other 9,219,658 5,738,592
----------- -----------
Total other assets 16,305,442 44,305,082
----------- -----------
$ 535,015,994 $ 554,978,311
=========== ===========
</TABLE>
See notes to consolidated financial statements
-24-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
Shoney's, Inc. and Subsidiaries
October 29 October 30
1995 1994
----------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable $ 33,099,813 $ 39,194,883
Federal and state income taxes 7,486,210 3,764,329
Taxes other than income taxes 9,565,333 7,855,368
Employee compensation and related items 45,425,547 36,306,635
Accrued interest expense 2,186,731 2,079,655
Other accrued liabilities 17,135,041 14,564,210
Reserve for litigation settlement due within one year 23,372,889 23,803,836
Debt and capital lease obligations due within one year 34,448,154 66,692,163
----------- -----------
Total current liabilities 172,719,718 194,261,079
Long-term debt 393,517,286 402,306,073
Obligations under capital leases 12,515,160 11,719,705
Reserve for litigation settlement 38,727,434 61,673,834
Deferred credits
Income taxes 19,223,797 15,477,405
Income and other liabilities 6,619,234 6,304,456
----------- -----------
Total deferred credits 25,843,031 21,781,861
Commitments and contingencies
Shareholders' equity (deficit)
Common stock, $1 par value: authorized 100,000,000 shares;
issued 41,510,659 in 1995 and 41,185,290 in 1994 41,510,659 41,185,290
Additional paid-in capital 60,770,176 57,509,644
Retained earnings (deficit) (210,587,470) (235,459,175)
----------- -----------
Total shareholders' equity (deficit) (108,306,635) (136,764,241)
----------- -----------
$ 535,015,994 $ 554,978,311
=========== ===========
</TABLE>
See notes to consolidated financial statements
-25-
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<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
Shoney's, Inc. and Subsidiaries
Years Ended
----------------------------------------------
October 29 October 30 October 31
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Revenues
Net sales $1,029,314,432 $1,035,832,226 $1,022,413,791
Franchise fees 23,886,704 25,793,886 25,872,439
Other income 131,284 10,833,006 3,460,506
------------- ------------- -------------
Total revenues 1,053,332,420 1,072,459,118 1,051,746,736
Costs and expenses
Cost of sales
Food and supplies 430,990,408 447,959,750 442,045,520
Restaurant labor 251,196,828 234,547,471 229,860,922
Operating expenses 240,357,620 213,385,949 205,674,912
------------- ------------- -------------
922,544,856 895,893,170 877,581,354
General and administrative expenses 63,904,769 55,397,496 54,440,288
Interest expense 39,815,887 41,236,895 44,465,636
Litigation settlement (1,700,000)
Restructuring expense 7,991,539
------------- ------------- -------------
Total costs and expenses 1,034,257,051 990,827,561 976,487,278
------------- ------------- -------------
Income from continuing operations before income
taxes, extraordinary charge and cumulative
effect of change in accounting principle 19,075,369 81,631,557 75,259,458
Provision for income taxes
Current 9,087,000 19,940,000 22,720,000
Deferred (1,214,000) 9,374,000 5,736,000
------------- ------------- -------------
Total income taxes 7,873,000 29,314,000 28,456,000
Income from continuing operations before
extraordinary charge and cumulative effect
of change in accounting principle 11,202,369 52,317,557 46,803,458
Discontinued operations, net of income taxes 8,136,588 10,276,649 11,206,520
Gain on sale of discontinued operations, net of
income taxes 5,532,748
Extraordinary charge on early extinguishment
of debt, net of income tax benefit (1,037,808)
Cumulative effect of change in accounting for
income taxes 4,468,386
------------- ------------- -------------
Net income $ 24,871,705 $ 66,024,784 $ 58,009,978
============= ============= =============
</TABLE>
See notes to consolidated financial statements
-26-
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<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
Shoney's, Inc. and Subsidiaries
Years Ended
----------------------------------------------
October 29 October 30 October 31
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Earnings per common share
Primary:
Income from continuing operations before extra-
ordinary charge and cumulative effect of change in
accounting principle $0.27 $1.27 $1.16
Discontinued operations, net of income taxes 0.20 0.25 0.28
Gain on sale of discontinued operations, net of
income taxes 0.13
Extraordinary charge on early extinguishment of debt (0.03)
Cumulative effect of change in accounting for
income taxes 0.11
------------- ------------- -------------
Net income $0.60 $1.60 $1.44
============= ============= =============
Fully diluted:
Income from continuing operations before extra-
ordinary charge and cumulative effect of change in
accounting principle $0.27 $1.21 $1.11
Discontinued operations, net of income taxes 0.20 0.22 0.25
Gain on sale of discontinued operations, net of
income taxes 0.13
Extraordinary charge on early extinguishment of debt (0.02)
Cumulative effect of change in accounting for
income taxes 0.10
------------- ------------- -------------
Net income $0.60 $1.51 $1.35
============= ============= =============
Weighted average shares outstanding
Primary 41,519,116 41,299,061 40,397,906
Fully diluted 41,519,116 46,519,998 45,644,452
</TABLE>
See notes to consolidated financial statements
-27-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Shoney's, Inc. and Subsidiaries
Total
Additional Retained Shareholders'
Common Paid-in Escrow Earnings Equity
Stock Capital Shares (Deficit) (Deficit)
---------- ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balances at October 25, 1992 $ 41,539,529 $ 75,957,397 $ (48,499,992) $ (359,493,937) $ (290,497,003)
Net income 58,009,978 58,009,978
Tax benefits related to
compensation plans 9,545,177 9,545,177
Distributions pursuant to
employee stock option and
stock benefit plans 1,878,396 14,002,324 15,880,720
Conversions of subordinated
convertible debentures 1,055 13,095 14,150
Retirement of escrow shares,
net of income taxes (2,694,444) (48,746,388) 48,499,992 (2,940,840)
---------- ----------- ----------- ----------- ------------
Balances at October 31, 1993 40,724,536 50,771,605 0 (301,483,959) (209,987,818)
Net income 66,024,784 66,024,784
Tax benefits related to
compensation plans 1,602,987 1,602,987
Distributions pursuant to
employee stock option and
stock benefit plans 447,708 4,881,018 5,328,726
Conversions of subordinated
convertible debentures 13,046 254,034 267,080
---------- ----------- ----------- ----------- ------------
Balances at October 30, 1994 41,185,290 57,509,644 0 (235,459,175) (136,764,241)
Net income 24,871,705 24,871,705
Tax benefits related to
compensation plans 271,293 271,293
Distributions pursuant to
employee stock option and
stock benefit plans 325,369 2,796,773 3,122,142
Compensation related to grant
of restricted shares
of common stock 192,466 192,466
---------- ----------- ----------- ------------ ------------
Balances at October 29, 1995 $ 41,510,659 $ 60,770,176 $ 0 $(210,587,470) $(108,306,635)
=========== =========== =========== ============ ============
</TABLE>
See notes to consolidated financial statements
-28-
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<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
Shoney's, Inc. and Subsidiaries
Years Ended
----------------------------------------------
October 29 October 30 October 31
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Operating activities
Net income $ 24,871,705 $ 66,024,784 $ 58,009,978
Adjustments to reconcile net income to net cash
provided by operating activities:
Income from discontinued operations, net of taxes (8,136,588) (10,276,649) (11,206,520)
Gain on sale of discontinued operations, net of taxes (5,532,748)
Depreciation and amortization 42,798,547 39,647,337 36,346,380
Interest expense on subordinated zero coupon
convertible debt and other non-cash charges 13,133,931 12,155,814 10,138,945
Deferred income taxes (2,981,000) 9,276,000 5,563,000
Equity in earnings of affiliates (73,020) (255,185) (422,225)
Loss on disposal of property, plant and equipment 2,111,756 74,605 1,618,028
Litigation settlement (1,700,000)
Realized and unrealized (gains) losses on
marketable equity securities and other assets 3,886,905 (4,117,512) (591,503)
Restructuring expense, non-cash portion 7,120,236
Cumulative effect of change in accounting for
income taxes (4,468,386)
Changes in operating assets and liabilities:
Notes and accounts receivable 3,857,523 4,976,221 2,151,313
Inventories 4,303,725 11,111,728 (18,768,413)
Prepaid expenses 20,535 (385,570) (803,695)
Accounts payable (1,998,856) 4,623,664 2,741,021
Accrued expenses 12,730,523 (6,248,379) 5,064,921
Federal and state income taxes 3,993,174 3,063,784 3,971,537
Deferred income and other liabilities 314,778 (837,392) 620,919
----------- ----------- -----------
Net cash provided by continuing operating activities 100,421,126 122,664,864 94,433,686
Net cash provided by discontinued operating activities 13,373,104 15,403,309 13,352,853
----------- ----------- -----------
Net cash provided by operating activities 113,794,230 138,068,173 107,786,539
Investing activities
Purchases of property, plant and equipment (58,254,507) (90,394,632) (70,472,483)
Purchases of assets held for sale (2,403,362) (4,581,577) (5,565,962)
Proceeds from disposal of discontinued operations 19,424,015
Proceeds from disposal of property, plant and equipment 4,327,995 4,766,842 2,416,703
(Increase) decrease in other assets (763,647) 116,148 4,073,060
----------- ----------- -----------
Net cash used in investing activities (37,669,506) (90,093,219) (69,548,682)
Financing activities
Proceeds of long-term debt 78,000,000 245,681,800 35,000,000
Payments on long-term debt and capital lease obligations (132,259,604) (269,772,824) (58,693,802)
Proceeds from line of credit and short-term debt 162,338,000 114,011,000 186,875,000
Payments on line of credit and short-term debt (157,129,000) (118,171,000) (185,960,000)
Exercise of employee stock options 1,797,973 3,403,776 14,027,541
Payments on litigation settlement (23,377,347) (24,949,091) (22,373,239)
Payments for debt issue costs (2,210,942) (1,790,257) (3,589,584)
----------- ----------- -----------
Net cash used by financing activities (72,840,920) (51,586,596) (34,714,084)
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents 3,283,804 (3,611,642) 3,523,773
Cash and cash equivalents at beginning of year 4,229,784 7,841,426 4,317,653
----------- ----------- -----------
Cash and cash equivalents at end of year $ 7,513,588 $ 4,229,784 $ 7,841,426
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements
-29-
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Shoney's, Inc. and Subsidiaries
October 29, 1995, October 30, 1994 and October 31, 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include accounts of the
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain
reclassifications have been made in the consolidated financial statements
to conform to the 1995 basis of presentation.
Property, Plant and Equipment
Depreciation and amortization are provided principally on the
straight-line method over the following estimated useful lives:
restaurant buildings--20 years; certain office buildings and warehouses--
20 to 40 years; rental properties--over the term of the lease, generally
15 to 20 years; restaurant and other equipment--3 to 10 years; and
capital leases and leasehold improvements--lesser of life of assets or
terms of lease.
Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Franchise Fees
Initial franchise fees and market development fees are recorded
as income when the restaurants begin operations and the cash payment has
been received. Franchise fees based on sales of franchisees are accrued
as earned.
Inventories
Inventories, consisting of food items, beverages and supplies,
are stated at the lower of weighted average cost (which approximates
first-in, first-out) or market.
Start-up Costs
Start-up costs include only direct incremental costs relating to
opening new restaurants, such as training costs for new employees and
related travel expenses incurred before a new restaurant opens. These
costs are capitalized and then amortized from the opening date over a
period not to exceed one year.
-30-
<PAGE>
<PAGE>
Advertising Costs
The Company charges the costs of production and distribution of
advertising to expense at the time the costs are incurred. Advertising
expense was $39.5 million, $39.4 million and $39.8 million in fiscal
years 1995, 1994 and 1993, respectively.
Fiscal Year
The Company's fiscal year ends on the last Sunday in October.
Fiscal years 1995 and 1994 were comprised of 52 weeks as compared to
fiscal year 1993 which had 53 weeks.
Business Segments
For the years 1995, 1994, and 1993, restaurant operations
constituted a dominant segment in accordance with FASB Statement No. 14,
"Financial Reporting for Segments of a Business Enterprise."
Stock Based Compensation
The Company generally grants stock options for a fixed number of
shares to employees with an exercise price equal to the fair value of the
shares at the date of grant. The Company accounts for stock option
grants in accordance with APB Opinion No. 25, Accounting for Stock Issued
to Employees, and, accordingly, recognizes no compensation expense for
the stock option grants. (See Note 9).
Earnings per Share
Primary net income per share for 1995, 1994 and 1993 has been
computed using the weighted average number of shares of common stock and
common stock equivalents outstanding during each period presented. Common
stock equivalents include all dilutive outstanding stock options. In
April 1989, the Company issued zero coupon subordinated convertible
debentures which are not considered common stock equivalents. Fully
diluted net income per share for 1994 and 1993 includes the assumed
conversion of these debentures and the adjustment of earnings for
interest that would not be paid if the debentures were converted. The
1995 fully diluted computation excludes the effect of the assumed
conversion of the debentures because it had an anti-dilutive effect.
Earnings per share for 1993 accounted for the 2,694,444 shares held in
escrow at October 25, 1992 as retired, effective with the provisional
court approval on November 3, 1992 (See Notes 8 and 12).
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amount reported in the
balance sheet for cash and cash equivalents approximates fair value.
Long-term debt: The carrying amounts of the Company's borrowings
under its senior debt-reducing revolving credit facility, senior debt-
taxable variable rate notes, and other senior debt with
-31-
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<PAGE>
variable interest rates approximate their fair value. The fair values of
the Company's subordinated zero coupon convertible debentures were
determined based on quoted market prices. The fair value of other long-
term debt, industrial revenue bonds and notes payable were estimated
using discounted cash flow analyses utilizing the Company's incremental
borrowing rates for similar types of borrowing arrangements.
Interest rate cap agreements: The fair values for the Company's
interest rate cap agreements were based on estimates of the contracts'
values obtained from commercial banks that are counter parties to those
agreements.
Stock purchase warrants of ShoLodge, Inc.: The fair value of the
Company's warrants to purchase common stock of ShoLodge, Inc. was
estimated based on the difference in the quoted market price of ShoLodge,
Inc. common stock and the exercise price of the related warrants.
Reserve for litigation settlement: The fair value of the reserve
for litigation settlement was estimated using discounted cash flow
analyses utilizing an interest rate appropriate for an unsecured loan of
a similar term.
Adoption of New Accounting Rules
In March 1995, the FASB issued Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of," which requires impairment losses to be recorded on long-
lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets
are less than the assets' carrying amount. Statement 121 also addresses
the accounting for long-lived assets that are expected to be disposed of.
The Company will adopt Statement 121 in the first quarter of fiscal 1997
and, based on current circumstances, does not believe the effect of
adoption will be material.
Use of Estimates in Financial Statements
Judgment and estimation is exercised by management in certain
areas of the preparation of financial statements. Some of the more
significant areas include reserves for self insurance of worker's
compensation, general liability, and medical benefits; the allowance for
doubtful accounts; reserves for litigation; and the estimate of
restructuring expenses. Management believes that such estimates have
been based on reasonable assumptions and that such estimates are
adequate.
NOTE 2 - DISCONTINUED OPERATIONS AND RESTRUCTURING
On January 16, 1995, the Company's Board of Directors announced a
reorganization designed to improve the performance and growth of the
Shoney's Restaurant concept. The reorganization included the divestiture
of certain non-core lines of business including Lee's Famous Recipe,
Pargo's and Fifth Quarter restaurants, as well as Mike Rose Foods, Inc.
("MRF"), a private label manufacturer of food products.
In July 1995, the Company announced a change in its divestiture
plans whereby the Company will retain its Fifth Quarter and Pargo's
restaurants. These two restaurant concepts have been combined with the
Company's BarbWire's Steakhouses to form a thirty-two unit casual dining
group
-32-
<PAGE>
<PAGE>
with shared management and administrative support services intended to
improve operating efficiencies.
Effective October 1, 1995, the Company sold its Lee's Famous
Recipe division to RTM Restaurant Group for $24.5 million cash and a $4
million promissory note. The promissory note is due in monthly
installments over five years and bears interest at the prime rate. The
transaction was effected through a sale of all of the assets of Lee's
Famous Recipe, and its sale removes the Company from the fast food
chicken line of business. The promissory note is guaranteed by RTM,
Inc., and is further secured by perfected security interests in the Lee's
Famous Recipe trademarks and in the franchise license agreements of Lee's
Famous Recipe.
On August 3, 1995, the Company and Levmark Capital Corporation
announced that they had entered into a definitive stock purchase
agreement whereby Levmark would acquire Mike Rose Foods, Inc. This
transaction was closed subsequent to the fiscal year end (See Note 15).
For financial reporting purposes, the results of operations of
the lines of business divested have been treated as discontinued
operations in the accompanying financial statements and are presented net
of any related income tax expense. Prior year financial statements have
been reclassified to conform to this method of presentation. These
discontinued lines of business had net property, plant and equipment of
$10.6 million at October 29, 1995 and $32.0 million at October 30, 1994,
had annual revenues of $86.7 million and $93.7 million for the 1995 and
1994 fiscal years, respectively, and had earnings before interest and
taxes of $13.1 million and $16.5 million for the 1995 and 1994 fiscal
years, respectively. In fiscal 1995, these discontinued lines of
business represented approximately 2.5% of net property, plant and
equipment, 7.6% of consolidated revenues and 18.2% of consolidated
earnings before interest and taxes. The discontinued lines of business
were disposed of for amounts in excess of their carrying values. Certain
one-time charges associated with the reorganization and divestitures were
accrued as they were incurred. The sale of Lee's Famous Recipe resulted
in a gain of approximately $5.5 million, net of tax. The sale of Mike
Rose Foods, Inc., which will be reflected in the Company's first quarter
1996 results of operations, will result in a gain of approximately $22.0
million, net of tax.
During the fourth quarter of 1995, the Company implemented that
part of its restructuring which included the planned closure of 41 under-
performing restaurants (17 Shoney's Restaurants, 22 Captain D's and 2
Fifth Quarters). The Company accrued approximately $6.6 million of
restructuring expenses related to those planned closures, principally
consisting of the write-down of assets to their net realizable value and
the accrual of leases and other costs associated with closure in excess
of anticipated sublease income. In addition, during 1995, the Company
had accrued severance costs of certain executives and store personnel
displaced by the restructuring of approximately $1.4 million.
NOTE 3 - CHANGES IN ACCOUNTING PRINCIPLES
Effective November 1, 1993, the Company adopted FASB Statement
No. 109, "Accounting for Income Taxes". Statement No. 109 changed the
Company's method of accounting for income taxes from the deferred method
to the liability method. The liability method requires the recognition
of deferred income tax liabilities and assets for the expected future tax
consequences of temporary differences between the tax bases and financial
reporting bases of assets and liabilities (See Note 6).
-33-
<PAGE>
<PAGE>
Effective November 1, 1993, the Company also adopted FASB
Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". Statement No. 115 requires that debt and equity securities
be carried at fair value unless the Company has the positive intent and
ability to hold debt securities to maturity. Debt and equity securities
must be classified into one of three categories: 1) held-to-maturity, 2)
available-for-sale or 3) trading securities. Each category has a
different accounting treatment for the change in fair values. There was
no cumulative effect from the adoption of Statement No. 115 because, at
the time of adoption, the Company held no investments in debt or equity
securities.
NOTE 4 - SALE OF SHONEY'S LODGING, INC. AND RELATED INVESTMENTS
During fiscal 1991, the Company sold its lodging division
(operating under the name Shoney's Inns) to ShoLodge, Inc. ("ShoLodge").
The Company will receive a portion of royalties generated by both
existing and future Shoney's Inns licensed by ShoLodge through October
2001. Two executive officers of the Company serve on the Board of
Directors of ShoLodge. During 1992, ShoLodge completed an initial public
offering of stock in which the Company purchased $555,555 of common stock
in ShoLodge pursuant to its obligation under the stock purchase agreement
for the sale of the lodging division. In addition, as part of the
purchase agreement, the Company received warrants to purchase up to 5% of
the outstanding common stock of ShoLodge. During July 1993, the Company
sold its ShoLodge shares for $1,147,067.
Effective February 16, 1994, the Company sold its minority
ownership interest in four Shoney's Inns to ShoLodge in exchange for
121,212 shares of common stock of ShoLodge. The shares received were
recorded at their fair value of approximately $2.4 million resulting in a
gain of $1.7 million. The ShoLodge common stock was classified as a
trading security under FASB Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (See Note 3). Changes in fair
value of the ShoLodge stock subsequent to the transaction are reflected
in the results of operations.
The Company owns certain warrants to acquire ShoLodge common
stock that were obtained in the 1992 sale of the Company's lodging
division to ShoLodge. In connection with the sale of the Company's
minority motel interest described in the preceding paragraph, the Company
was granted future registration rights for the ShoLodge shares that may
be acquired upon exercise of the warrants. Under the provisions of FASB
Statement No. 115, the Company has classified warrants for which it has
stock registration rights exercisable within one year as trading
securities. These warrants are recorded at their fair value (the
difference in the warrant exercise price and the market price of ShoLodge
common stock) at the time they are classified as trading securities and
the resulting gain is included in the results of operations. Once
classified as a trading security, these warrants are carried at fair
value with changes in fair value also reflected in the results of
operations.
The Company recorded gains from such ShoLodge warrants of $1.5
million in 1994 and $1.25 million in 1995 at the time the warrants were
classified as trading securities. The Company recorded an unrealized
gain of $0.9 million during 1994 and an unrealized loss of $3.6 million
in 1995 (after being classified as trading securities) due to the change
in fair value of such warrants.
At October 29, 1995, the Company held warrants to purchase
324,000 shares of ShoLodge common stock and owned 121,212 shares of
ShoLodge common stock all of which were classified as
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<PAGE>
<PAGE>
trading securities. In addition, the Company holds warrants (for which
it does not currently have registration rights exercisable within one
year) to purchase an additional 98,749 shares of ShoLodge common stock at
prices ranging from $8.40 to $13.35 per share. During the fourth quarter
of 1995, the market value of ShoLodge common stock declined
significantly, and at October 29, 1995, the 121,212 shares of ShoLodge
had a fair value and a carrying value of $954,545 and the ShoLodge
warrants had a fair value and a carrying value of $0.
Under the terms of supplemental guidance on Implementation of
FASB Statement No. 115 issued in November 1995, the Company elected to
classify its investment in ShoLodge common stock and warrants for which
it has registration rights within one year as "held for sale".
Accordingly, future changes in the fair market value of ShoLodge common
stock and warrants will be reflected as an unrealized gain or loss and
included as a component of shareholders' equity rather than as a
component of income.
NOTE 5 - DEBT ISSUE COSTS
Debt issue costs are capitalized and amortized using the
effective interest method over the term of the related debt issues. Issue
costs of $2,211,000, $1,790,000 and $3,590,000 relating to various
financings during 1995, 1994 and 1993, respectively, have been paid and
deferred. Amortization of debt issue costs during 1995, 1994 and 1993
was $2,215,000, $2,576,000 and $2,062,000, respectively.
During 1994, the Company called $145.7 million par value of 12%
subordinated debentures. Unamortized debt issue costs associated with
these debentures of $1.7 million ($1.0 million, net of tax) were charged
to expense as an extraordinary charge.
NOTE 6 - INCOME TAXES
Effective November 1, 1993 the Company adopted FASB Statement No.
109, "Accounting for Income Taxes" (See Note 3). As permitted under the
provisions of Statement No. 109, the Company elected not to restate prior
years' financial statements for the effects of this change. The
cumulative effect of adopting Statement No. 109 was an increase to net
income of $4,468,000 or $0.10 per share (fully diluted) in the year ended
October 30, 1994.
-35-
<PAGE>
<PAGE>
The components of the Company's deferred tax assets and
liabilities as of October 29, 1995 and October 30, 1994 are as follows:
1995 1994
Deferred tax assets:
Reserve for lawsuit settlement $23,753,374 $31,420,209
Reserve for self insurance 13,221,079 9,449,874
Other - net 5,621,092 4,287,636
Deferred tax assets 42,595,545 45,157,719
Deferred tax liabilities:
Tax over book depreciation 14,715,011 19,244,064
Capital contribution 22,501,840 22,501,840
Other - net 53,154 1,067,275
Deferred tax liabilities 37,270,005 42,813,179
Net deferred tax asset $ 5,325,540 $ 2,344,540
The balance sheet classification of the net deferred tax asset is as
follows:
1995 1994
Current deferred tax asset $ 24,549,337 $ 17,821,945
Noncurrent deferred tax liability (19,223,797) (15,477,405)
Net deferred tax asset $ 5,325,540 $ 2,344,540
No valuation allowance is considered necessary as all
deductible temporary differences will be utilized primarily by carry
back to prior years' taxable income or as charges against reversals of
future taxable temporary differences.
The components of the provision for income taxes are as follows:
<TABLE>
Liability Deferred
Method Method
------------------------------ -----------
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
Currently payable
Federal $ 16,972,900 $ 22,315,300 $ 26,037,600
State 2,315,100 3,374,700 3,762,400
----------- ---------- ----------
19,288,000 25,690,000 29,800,000
----------- ---------- ----------
Deferred
Federal (2,767,100) 8,174,700 4,829,000
State (213,900) 1,101,300 734,000
----------- ---------- ----------
(2,981,000) 9,276,000 5,563,000
----------- ---------- ----------
Total expense $ 16,307,000 $ 34,966,000 $ 35,363,000
========== ========== ===========
</TABLE>
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<PAGE>
<PAGE>
The income statement classification of the provision for income taxes
is as follows:
<TABLE>
<CAPTION>
Liability Deferred
Method Method
----------------------------- -----------
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
Income tax expense attributable to
continuing operations $ 7,873,000 $ 29,314,000 $ 28,456,000
Discontinued operations 4,993,000 6,275,000 6,907,000
Gain on sale of discontinued operations 3,441,000
Extraordinary item (623,000)
----------- ---------- ----------
Total expense $ 16,307,000 $ 34,966,000 $ 35,363,000
=========== ========== ==========
</TABLE>
The components of the provision for deferred income taxes for the
year ended October 31, 1993 are as follows:
1993
------------
Reserve for lawsuit settlement $ 7,250,091
Tax over book depreciation 441,858
Reserves for self insurance (1,613,960)
Amortization of intangibles (259,179)
Other (255,810)
----------
Total $ 5,563,000
==========
A reconciliation of the difference between total income tax expense
and the amount computed using the statutory federal income tax rate
is as follows:
<TABLE>
<CAPTION>
Liability Deferred
Method Method
----------------------------- -----------
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
Statutory federal income tax rate 35% 35% 34.8%
Federal income taxes based on the
statutory tax rate $ 14,412,547 $ 33,782,839 $ 32,511,910
State and local income taxes, net
of federal tax benefit 1,365,780 2,909,400 2,930,756
Targeted jobs and FICA tax credits (1,427,424) (1,574,412) (267,104)
Other 1,956,097 (151,827) 187,438
---------- ---------- ----------
$ 16,307,000 $ 34,966,000 $ 35,363,000
========== ========== ==========
</TABLE>
The Company made income tax payments of approximately $15,238,000,
$22,483,000 and $25,784,000 during fiscal years 1995, 1994 and 1993,
respectively.
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<PAGE>
<PAGE>
NOTE 7 - DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
Debt and obligations under capital leases at October 29, 1995 and
October 30, 1994 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
-------------- -------------
<S> <C> <C>
Senior debt-reducing revolving credit facility, due in
installments to October 1999 $ 223,000,000 $ 240,000,000
Senior debt-fixed rate, due in April 1995 60,000,000
Senior debt-taxable variable rate notes, due in
varying installments to September 1998 29,550,000 31,500,000
Senior debt-due in installments to April 1998 7,104,580 9,000,000
Senior debt-due in September 1997 20,800,000 20,800,000
Senior debt-due in installments to October 1999 28,000,000
Subordinated zero coupon convertible debentures,
due April 2004 87,780,529 80,790,563
Industrial Revenue Bonds, due in varying annual
installments to May 2006 collateralized by land,
buildings, equipment and restricted cash 13,947,500 14,113,750
Notes payable to others, 8.0% to 10.25%, maturing
at varying dates to 2009 ($7,676,784 of these
notes are secured by land, buildings and equipment) 16,717,784 11,824,970
----------- -----------
426,900,393 468,029,283
Obligations under capital leases 13,580,207 12,688,658
----------- -----------
440,480,600 480,717,941
Less amount due within one year 34,448,154 66,692,163
----------- -----------
Amount due after one year $ 406,032,446 $ 414,025,778
=========== ===========
</TABLE>
Senior Debt
In July 1993, the Company entered into a $125 million
reducing revolving credit facility with a syndicate of financial
institutions. The facility had a four-year, three-month term expiring
October 22, 1997, with reductions in the aggregate credit facility
beginning in 1995. The interest rate for the facility was at floating
rates (the London Interbank Offered Rate ("LIBOR") plus 2% or the
announced Alternate Base Rate of the agent bank plus 1%).
During the third quarter of fiscal 1994, the Company and the
financial institutions amended this credit facility to allow the
Company to redeem its 12% subordinated debentures issued in the
Company's 1988 recapitalization. The credit facility was increased
to a maximum of $270 million, the interest rate remained at LIBOR
plus 2% and the maturity was extended to October 1999. The
Company redeemed $145.7 million of 12% subordinated debentures
at par on July 2, 1994. At October 29, 1995, the Company had
$223 million outstanding under this facility and the interest rate was
8.0%.
Under the terms of the reducing revolving credit facility, the
Company agreed to effect an interest rate risk management program to limit
the Company's exposure to rising short-term interest rates. As of October
29, 1995, the Company had interest rate cap agreements for $50 million
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<PAGE>
<PAGE>
(notional amount), which have a 7% LIBOR interest rate cap for a
remaining one year period. Under the terms of the cap agreements,
the Company's maximum LIBOR interest rate on $50 million of its
outstanding variable rate debt is effectively capped at 7% until
October 1996. The Company is exposed to loss if one or more
counterparties to the cap agreements defaults; however, the
Company does not anticipate nonperformance by the counterparties.
The contract or notional amount of interest rate cap agreements do
not represent an exposure to credit loss.
During the third quarter of fiscal 1995, the Company
received a modification of its lending agreements to facilitate the
divestiture of Mike Rose Foods, Inc. and Lee's Famous Recipe.
The modification requires that 35% of the net after tax proceeds
from the divestiture of these businesses be used to permanently
reduce the availability under the reducing revolving credit facility.
Subsequent to the sale of Lee's Famous Recipe and Mike Rose
Foods, the Company permanently reduced the amount available
under its reducing revolving credit facility by $7.5 million and $12.9
million, respectively. Approximately $51 million of restaurant
properties that previously served as collateral for the Company's
Tranche C debt were substituted for collateral to be released upon
the sale of Mike Rose Foods, Inc. and Lee's Famous Recipe. The
lenders also agreed to release a negative pledge they held on
approximately $104 million of collateral previously used to secure
the Company's Tranche C debt which was repaid during 1995, and
to permit alternative uses of this collateral by the Company.
Until its repayment in 1995, the senior debt-fixed rate loan
carried interest at 9.78%. The Company had a combination of
interest rate swap agreements for $60 million which expired in April
1995, that effectively converted the interest rate to 6.3%.
The senior debt issues described in the preceding paragraphs
are collateralized by first liens on all land, buildings and
improvements owned by the Company and its subsidiaries and not
otherwise pledged and the reducing revolving credit facility is also
secured by first liens on all other material assets of the Company and
its subsidiaries other than inventory (as to which there is a negative
pledge), all stock of all of the Company's subsidiaries (including all
common shares of a wholly-owned real estate company that owns
183 of the Company's restaurant properties), all accounts receivable,
machinery and equipment, franchise agreements, intangible property
rights and all other material tangible and intangible property of the
Company and its subsidiaries.
The senior debt-taxable variable rate notes are sold to
investors through an investment banking corporation. The notes are
secured by standby letters of credit of $33.5 million which includes
the face amount of the notes plus interest for 145 days. The letters of
credit are secured by a reimbursement agreement and standby note
which are collateralized by a fully perfected first lien on certain land
and buildings. A letter of credit securing $9.4 million of this
indebtedness will expire on October 1, 1996; however, the Company
intends to extend the letter of credit for a period of at least one year.
The effective interest rate at October 29, 1995 was 8.17%.
The senior debt of $7.1 million bears interest at LIBOR plus
1.25%. The loan is collateralized by a first lien on certain land and
buildings. The effective interest rate at October 29, 1995 was
7.13%.
The senior debt of $20.8 million bears interest at LIBOR plus
1.5%. The loan is collateralized by a first lien on certain land and
buildings. The effective interest rate at October 29, 1995 was 7.38%.
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<PAGE>
<PAGE>
The senior debt of $28.0 million bears interest at LIBOR plus
1.25%. The loan is collateralized by a first lien on certain land and
buildings. The effective interest rate at October 29, 1995 was
7.13%.
These senior debt issues also (1) require satisfaction of
certain financial ratios and tests (which become more restrictive each
year); (2) impose limitations on capital expenditures; (3) limit the
ability to incur additional debt, leasehold obligations and contingent
liabilities; (4) prohibit dividends and distributions on common stock;
(5) prohibit mergers, consolidations or similar transactions; and (6)
include other affirmative and negative covenants.
Subordinated Zero Coupon Convertible Debentures, Due April 2004
The subordinated zero coupon convertible debentures were
issued in April 1989 at $286.89 per $1,000 note (aggregate amount
$57.736 million). There are no periodic payments of interest. The
issue price represents a yield to maturity of 8.5% based on a
semiannual bond equivalent basis. Each note is convertible into
29.349 shares of the Company's common stock at the option of the
holder. The Company has reserved 5,205,632 shares for future
issuance pursuant to these debentures.
Subordinated Debentures 12%, Due July 2000
The Company issued 12% subordinated debentures in July
1988 with a par value of $145.7 million that were callable on or
after July 1, 1994. The debentures were redeemed at par on July 2,
1994. Debt issue costs associated with these debentures were
included in other assets and were being amortized using the effective
interest method over the life of the debentures. As a result of the
redemption, the unamortized portion of the original issue discount
and debt issue costs of $1,661,000 was charged to expense during
the third quarter of fiscal 1994. This charge is reflected in the
Income Statement as an extraordinary charge of $1,038,000, net of
income tax benefits of $623,000.
Other Debt Information
The Company has an unsecured line of credit for
$20,000,000 with interest payable monthly at the lending bank's
index rate (8.75% at October 29, 1995). There were borrowings of
$7,561,000 under the line at October 29, 1995. The line is available
through October 31, 1996 with a three month extension each quarter
at the option of the bank. The Company also has an unsecured
revolving credit facility for $10,000,000 with interest payable
quarterly at rates based on the prime lending rate (8.75% at October
29, 1995). Borrowings under this facility, which expires June 25,
1996, if not terminated earlier, are due on thirty days notice. As of
October 29, 1995, the balance outstanding under this facility was
$1,480,000. The weighted average interest rates for these two
unsecured credit facilities were 8.0%, 6.2% and 5.9% for fiscal
years 1995, 1994 and 1993, respectively.
The industrial revenue bonds include $11,797,500 at fixed
interest rates ranging from 7.5% to 11.5% and $2,150,000 at a
floating interest rate subject to a floor of 7.5% and a ceiling of 15%.
-40-
<PAGE>
<PAGE>
Debt and obligations under capital leases maturing in each of the
next five fiscal years are as follows:
1996 1997 1998 1999 2000
----------- ----------- ---------- ---------- -----------
$34,448,000 $87,592,000 $85,160,000 $92,574,000 $2,816,000
Net interest costs of approximately $813,000, $866,000, and
$450,000 were capitalized as a part of building costs during 1995,
1994 and 1993 respectively. Interest paid during 1995, 1994 and
1993 was approximately $31,276,000, $38,202,000 and
$35,975,000 respectively.
The Company has standby letters of credit outstanding of
$16.0 million at October 29, 1995 in addition to the letters of credit
supporting the taxable variable rate notes previously described.
The carrying value and estimated fair value of the Company's long-
term debt and other financial instruments are summarized in the
following table:
<TABLE>
<CAPTION>
October 29, 1995
------------------------------------
Estimated
Carrying Value Fair Value
<S> <C> <C>
Senior debt-reducing revolving credit facility $ 223,000,000 $ 223,000,000
Subordinated zero coupon convertible debentures 87,780,529 70,061,000
Senior debt - various 85,454,580 85,455,000
Industrial revenue bonds 13,947,500 14,955,000
Notes payable 7,676,784 7,685,000
Lines of credit 9,041,000 9,041,000
----------- -----------
Total Debt $ 426,900,393 $ 410,197,000
=========== ===========
$50 million (notional amount) interest rate cap
agreements $ 0 $ 7,975
Reserve for litigation settlement $ 62,100,323 $ 55,453,000
ShoLodge Warrants (See Note 4) $ 0 $ 0
ShoLodge Common Stock (See Note 4) $ 954,545 $ 954,545
</TABLE>
See Note 1 - Summary of Significant Accounting Policies for a further
discussion of the basis for management's estimates of the fair value of
financial instruments.
NOTE 8 - SHAREHOLDERS' EQUITY (DEFICIT)
During the 1992 fiscal year, the Company and a board member
entered into a capital contribution agreement whereby, upon court
approval of a settlement regarding certain litigation (See Note 12),
the Company received a capital contribution of 2,694,444 shares of its
common stock. The agreement with the board member was approved by the
Board of Directors without that board member's participation.
-41-
<PAGE>
<PAGE>
At October 25, 1992, the Company recorded the effect of the
shares held in escrow in shareholders' equity pending distribution to
the Company. During 1993, the court approved the settlement
agreement, and the shares which had been held in escrow at October
25, 1992 were distributed to the Company and retired.
Shareholders' equity (deficit) was charged with an estimate of
income taxes payable based upon the market price of the contributed
shares at October 25, 1992. This income tax effect was
subsequently adjusted through shareholders' equity (deficit) in
February 1993, based on the current market value of the shares at
the time they were distributed from escrow.
NOTE 9 - STOCK OPTIONS AND STOCK BENEFIT PLANS
The stock option plan adopted by the Company in 1969, and
as subsequently amended, covered 123,346 and 198,184 shares of
the common stock of the Company as of October 29, 1995 and
October 30, 1994, respectively. During 1989, the right to grant
options under the 1969 plan expired. A second stock option plan
adopted by the Company in 1981, and as subsequently amended,
covered 7,531,425 and 7,728,047 shares of the common stock of the
Company as of October 29, 1995 and October 30, 1994,
respectively. The 1981 Plan was amended in December 1993 (with
subsequent approval by the shareholders in March 1994) to extend
the date of termination of the 1981 Plan from September 2, 1996 to
September 2, 2001, increase the number of shares authorized for
issuance by the Stock Option Plan by 5,000,000 and limit the
number of shares any one employee may be granted in a given year
to 250,000.
Option prices are not less than the market price on the date
of grant. Both plans, prior to 1988, provided for the issuance of
options having terms of up to 10 years which were exercisable 10%
per year after one year and in full after five years. An amendment in
1988 modified the vesting period for new options under both plans,
which allowed options to be exercisable at the rate of 20% per year
for four years and in full after four years and eight months.
Subsequent to 1988, the 1981 plan was amended further to provide
that all options would be exercisable at rates to be determined by the
Company's compensation committee of the Board of Directors, not
to exceed 33 1/3% per year and that options vest upon death or
disability.
The Company has a stock option plan for directors under
which options to purchase 200,000 shares of common stock may be
granted to non-employee directors. Each non-employee director
receives an option to purchase 5,000 shares upon their initial election
to the Board and every five years thereafter receives an option to
purchase 5,000 shares. The option price is the market price of the
Company's common stock on the date that the option is granted.
Each option has a term not to exceed ten years and is exercisable at
the rate of 20% per year and in full in the event of death or
disability.
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<PAGE>
<PAGE>
Options available for future grant under the 1981 plan and the
director's plan at the end of 1995 and 1994 totaled 5,033,666 and 5,828,677
shares, respectively. A summary of activity under the plans is as follows:
<TABLE>
<CAPTION>
Range of
Options Shares Option Prices
- ---------------------------------- ------------- -------------------
<S> <C> <C>
Outstanding at October 31, 1993 2,423,380 $ 5.04 $ 25.75
Issued 509,825 13.88 23.63
Exercised (346,184) 5.04 19.13
Expired or cancelled (294,467) 5.04 25.75
--------- ------ -----
Outstanding at October 30, 1994 2,292,554 5.04 25.75
Issued 1,453,000 9.63 12.00
Exercised (271,460) 5.04 13.25
Expired or cancelled (657,989) 7.26 25.75
--------- ------ -----
Outstanding at October 29, 1995 2,816,105 $ 5.04 $ 25.75
========= ====== =====
</TABLE>
During fiscal year 1993, options were exercised for
1,759,948 shares at prices ranging from $4.01 to $20.25. At
October 29, 1995 and October 30, 1994, options for 677,324 and
871,750 shares, respectively, were exercisable.
The Company also has an Employee Stock Purchase Plan
under which 1,890,561 shares of the Company's common stock may
be issued at October 29, 1995. Under the terms of this plan,
employees may purchase the Company's common stock through
payroll deductions. The purchase price is 85% of the lower of (i) the
average of the closing market prices on the first trading day of each
calendar month or (ii) the closing market price on the last trading
day of each calendar year. The exercise date under this plan is the
last trading day of each calendar year and distributions to employees
of 122,184, 100,124 and 96,873 shares were made in fiscal years
1995, 1994 and 1993, respectively. There have been no charges to
income in connection with the plan other than incidental expenses in
the administration of the plan.
The Company has an Employee Stock Bonus Plan under
which 611,373 shares of the Company's stock may be issued at
October 29, 1995. The awards under this plan consist of both a
stock and a cash bonus. The stock bonuses vest 10% per year after
one year and in full after five years and are distributed upon vesting.
On each vesting date, a cash bonus also will be distributed that is
equal to 25% of the market value of the shares being distributed. A
maximum of 1,000 shares may be awarded to any employee each
year. As of October 29, 1995, grants of bonuses under this plan of
37,750 shares were outstanding.
The shares distributed and cash bonuses paid pursuant to this plan
during the past three fiscal years were as follows:
Shares Cash Bonuses
------ -------------
1993 41,575 $ 241,655
1994 1,400 $ 8,094
1995 4,675 $ 14,065
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<PAGE>
<PAGE>
On April 11, 1995, the Company's Board of Directors
granted an award of 50,000 restricted shares of Shoney's, Inc.
common stock to the Company's Chairman and CEO. These
restricted shares vest on April 11, 1996 (16,500 shares) ; April 11,
1997 (16,500 shares); and April 11, 1998 (17,000 shares) and are
reflected in compensation expense based on the vesting schedule. In
addition, a cash bonus equal to the estimated tax due on the
distribution of such restricted shares will be paid at vesting.
On April 11, 1995, the Company's Board approved the
employment contract of the Chairman and CEO, the terms of which
require that certain stock options be granted. All of the options
granted have a ten year term and vest 20% each year following the
date of grant. The stock option grants and their terms are
summarized in the following table:
Option Price
Date of Grant Shares Per Share
- ---------------- ------- ------------
April 11, 1995 250,000 $ 10.75
November 1, 1995 250,000 15.25
November 1, 1996 125,000 (1)
November 1, 1996 75,000 16.75
November 1, 1996 50,000 18.50
(1) This portion of the November 1, 1996 grant is to be at the fair
market value of the Company's common stock on that date as
indicated by the closing price on the New York Stock Exchange.
NOTE 10 - LEASES
The Company has noncancellable lease agreements for
certain restaurant land and buildings. Substantially all lease
agreements may be renewed for periods ranging from five to fifteen
years, and provide for contingent rentals based on percentages of net
sales (generally 3% to 6%) against which minimum rentals are
applied.
During 1995, the Company acquired five Shoney's
Restaurants from a franchisee. The Company acquired leasehold
interest in land and buildings in exchange for the assumption of
capital lease obligations of approximately $2,276,000 and paid
$600,000 for furniture, fixtures, equipment, and the business
operations of the franchisee.
Buildings under capital leases of $18,122,394 at October 29,
1995 and $20,631,961 at October 30, 1994 and accumulated
amortization of $7,517,259 and $10,854,382 at October 29, 1995
and October 30, 1994, respectively, relate to the building portion of
capital leases involving land and buildings. Amortization of buildings
under capital leases is included in depreciation expense.
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At October 29, 1995, minimum rental commitments under
capital leases and operating leases having an initial or remaining
noncancellable term of one year or more are shown in the following
table:
<TABLE>
<CAPTION>
Capital Operating Sublease
Leases Leases Amounts Total
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 $ 2,476,573 $ 6,701,206 $ (583,802) $ 8,593,977
1997 2,408,068 6,314,321 (518,750) 8,203,639
1998 2,253,986 5,813,948 (438,421) 7,629,513
1999 2,168,094 5,321,701 (426,287) 7,063,508
2000 1,999,415 4,879,105 (392,639) 6,485,881
Thereafter 10,177,308 28,808,550 (3,161,714) 35,824,144
- ---------------------------------------------------------------------------------------------------------------
Total minimum rentals 21,483,444 $ 57,838,831 $(5,521,613) $ 73,800,662
=========== ========== ==========
Amount representing interest (7,903,237)
----------
Present value of net minimum rentals $ 13,580,207
==========
</TABLE>
Contingent rental expense relating to the land and building portion of
capital leases was $1,273,462, $1,448,937 and $1,463,183 in 1995,
1994 and 1993, respectively.
Total rental expense for all operating leases not capitalized is as
follows:
1995 1994 1993
------------ ------------ -------------
Minimum rentals $7,605,845 $7,088,510 $6,676,136
Contingent rentals 559,513 434,524 434,487
--------- --------- ---------
Subtotal 8,165,358 7,523,034 7,110,623
Sublease rentals (560,433) (683,964) (630,118)
--------- --------- ---------
Total $7,604,925 $6,839,070 $6,480,505
========= ========= =========
NOTE 11 - COMMITMENTS AND CONTINGENCIES
On September 5, 1995 the Company and TPI Enterprises,
Inc. ("TPI") announced they had signed a letter of intent to merge
TPI with a subsidiary of the Company. TPI is the largest franchisee
of the Company operating 188 Shoney's and 68 Captain D's Seafood
restaurants. For the twelve months ended October 1, 1995, TPI
reported restaurant revenues of approximately $278 million.
Subsequent to signing this letter of intent, TPI's Board of Directors
appointed a Special Committee of the Board to negotiate the
definitive merger agreement and work with outside advisors to obtain
a fairness opinion from TPI's investment banker.
Subsequently, on December 5, 1995, the Company and TPI
announced that they had signed a revised letter of intent calling for
the acquisition of TPI Restaurants, Inc. and two other TPI
subsidiaries, which represent substantially all of the assets of TPI,
by a subsidiary of the Company. The TPI subsidiaries will be acquired
in exchange for 6,456,223 shares of Shoney's, Inc. stock as well as
the assumption of certain obligations of TPI, including approximately
$95 million in debt at October 29, 1995. TPI will distribute the
Shoney's stock it receives to its shareholders. Based on the
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<PAGE>
TPI shares issued and outstanding at the time of the announcement,
TPI shareholders will receive 0.315 shares of Shoney's, Inc. common
stock for each TPI share.
The transaction is subject to the approval of the Board of
Directors, shareholders and lenders of both companies. The
Company's existing credit facilities contain covenants which will
require lender approval of the transaction as well as the terms of any
proposed refinancing of the outstanding TPI debt.
On October 1, 1992, the Company and Thompson
Hospitality, L.P. ("THL") entered into an agreement to purchase
nine and thirty-one restaurants, respectively, from Marriott
Corporation and Marriott Family Restaurants, Inc. ("Marriott"). All
of the restaurants purchased by the Company and most of the
restaurants purchased by THL will be converted to Shoney's
Restaurants. As part of the transaction, the Company agreed to a
contingent purchase of fifteen restaurants purchased by THL if there
is a default by THL on or before October 2, 1995 in its obligations
to Marriott. The purchase price for these fifteen restaurants was pre-
determined and the Company's maximum obligation under this
arrangement was $8.7 million. During 1994 and 1995, the
Company, THL and Marriott agreed to a modification of this
contingent purchase agreement whereby the Company ultimately
agreed to extend its purchase obligation to July 2, 1997. In
addition, the Company's maximum obligation was reduced to eight
restaurants and $5.1 million. In the event of a default by THL, the
Company is obligated to purchase the pre-selected restaurants by
paying Marriott the pre-determined price and taking title to the
properties from THL and Marriott. Accordingly, the fair value of
Shoney's, Inc.'s guarantee of THL would be the difference (if any)
between the value of the restaurant properties acquired and the
agreed upon payments under the guarantee. The Company did not
deem it practical to appraise the underlying value of the restaurant
properties in order to estimate the fair value of this guarantee.
In connection with the sale of MRF, the Company has
committed to certain minimum purchase obligations with respect to
food products supplied by MRF (See Note 15). The Company guarantees
certain twenty-year leases of franchisees for an annual fee of
approximately $45,000 and is required to offer to purchase the
properties for an amount equal to the investor's unpaid mortgage
($431,240) at its maturity in 1999. The Company has also guaranteed
certain loans made to ShoLodge totaling $5,464,158.
NOTE 12 - SETTLEMENT OF DISCRIMINATION LAWSUIT
On January 25, 1993, the court gave approval to a consent
decree settling litigation against the Company and its former chairman.
The litigation was certified a class under Title VII of the Civil
Rights Act of 1964 consisting of black restaurant employees to represent
claims of alleged discriminatory failure to hire, harassment, failure to
promote, discharge and retaliation. This class consisted only of
employees from the Company's "Shoney's" and "Captain D's" restaurant
concepts and the class period was from February 4, 1988 through April
19, 1991. Under the consent decree, the Company will pay $105 million
to settle these claims. The settlement covered all of the Company's
restaurant concepts and the corporate offices from February 4, 1985
through November 3, 1992. In addition, the Company agreed to pay
$25.5 million in plaintiffs' attorneys fees and an estimated $4 million
in payroll taxes and administrative costs. The settlement resulted in a
charge to earnings of $77.2 million, net of insurance recoveries and
applicable taxes, in the fourth quarter of 1992. During 1994, the
Company obtained an IRS private letter ruling which clarified that certain
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<PAGE>
portions of the settlement payments were not subject to federal payroll
taxes that had been previously accrued by the Company. The reserve for
litigation settlement was reduced by $1.7 million to adjust for this
change in estimate for accrued payroll taxes due on the settlement.
Under the terms of the consent decree, payments are made
on a quarterly basis, without interest, on March 1, June 1,
September 1 and December 1. Expected payment obligations (net of
insurance recoveries) under the consent decree in each of the next
five fiscal years are as follows:
1996 1997 1998 1999 2000
------------ ------------ ------------ ------------ ------------
$ 23,373,000 $ 22,658,000 $ 15,774,000 $ 68,000 $ 68,000
NOTE 13 - LITIGATION
The Company is a defendant in a federal court suit filed on
December 19, 1994 by one of its Captain D's franchisees who
claims that the Company imposes a "tying" arrangement by
requiring franchisees to purchase food products from the Company's
commissary. The complaint seeks damages for an alleged class of
similarly situated plaintiffs in an amount not to exceed $500 million
and treble damages. The same plaintiff has also filed a state court
suit making essentially the same claims; however, in that suit, the
plaintiff did not make a class action claim. On December 16, 1994,
counsel for the plaintiff advised the Company that the federal court
case described above would be filed unless the Company settled the
pending state court case by purchasing the plaintiff's franchised
Captain D's restaurant for $1.65 million, plus assumption of certain
equipment leases. The Company rejected the demand and the
federal court lawsuit was filed. On January 23, 1995, the Company
filed a motion to dismiss or stay this federal court case pending the
resolution of the state case. Thereafter, the plaintiff filed an
amended complaint adding a second plaintiff, a former franchisee,
Sunbelt Restaurant Management, Inc. The motion to dismiss was
denied on May 31, 1995. The plaintiff filed a motion to certify the
case as a class action on August 7, 1995. Discovery on that motion
is proceeding and the motion is set to be argued in April 1996.
Management believes it has substantial defenses to the claims
made and intends to vigorously defend the case. In the opinion of
management, the ultimate liability with respect to the case will not
materially affect the operating results or the financial position of the
Company.
On December 1, 1995, a federal court suit was filed against
the Company by five employees who claim the Company engages in
conduct and actions which are designed to circumvent the pay
requirements set forth within the Fair Labor Standards Act. The
plaintiffs purport to act on behalf of a similarly situated class of
plaintiffs and have petitioned the court to send court supervised
notice of their lawsuit to other potential plaintiffs. On January 2,
1996, a second federal court suit was filed by a group of plaintiffs
who purport to be present or former managers or hourly employees
of the Company and claim to bring this action on behalf of
themselves and others similarly situated. The plaintiffs claim that
the Company violated the Fair Labor Standards Act by either not
paying them for all hours worked or that they were improperly paid
for overtime hours worked. In both cases, the plaintiffs claim to be
entitled to recover unpaid wages, liquidated damages, attorneys' fees
and expenses.
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Management believes it has substantial defenses to the claims
made and intends to vigorously defend the case. However, neither
the likelihood of an unfavorable outcome or the amount of ultimate
liability, if any, with respect to these cases can be determined at this
time. Accordingly, no provision for any potential liability has been
made in the consolidated financial statements.
In addition to the litigation described in the preceding
paragraphs, the Company is a party to other legal proceedings
incidental to its business. In the opinion of management, the
ultimate liability with respect to these actions will not materially
affect the operating results or the financial position of the Company.
NOTE 14 - RELATED PARTY TRANSACTIONS
During November 1995, the Company employed a person
who operated six franchised Shoney's Restaurants to serve as an
executive officer of the Company. In connection with this officer's
employment arrangement, the Company agreed to purchase five of
the officer's franchised Shoney's Restaurants for approximately $3
million. In addition, the Company agreed to assume certain
operating leases and other obligations with respect to these
restaurants. This officer owns one additional Shoney's Restaurant
that is anticipated to be sold to an unrelated third party. However,
until that unit is sold, the Company has agreed that the officer may
continue to operate one franchised restaurant. At October 29, 1995,
the restaurants owned by this officer were indebted to the Company
in the amount of $332,000 arising from the purchase of food and
supplies from the Company's commissary. This receivable was
satisfied in December 1995 upon closing by the Company on the
purchase of these restaurants.
In addition, at October 29, 1995, the officer was Chairman
of Restaurant Management Services, Inc. ("RMS"), a Shoney's and
Captain D's franchisee based in Macon, Georgia. The officer will
receive compensation from RMS under the terms of a consulting and
non-competition agreement until February 1996. The officer resigned
as Chairman of RMS effective February 1996.
NOTE 15 - SUBSEQUENT EVENTS
On November 19, 1995, the Company sold MRF to
Levmark Capital Corporation for $55 million cash. The transaction
was effected through the sale of all issued and outstanding capital
shares of MRF. The transaction resulted in a gain on sale of
discontinued operations of approximately $22 million, net of income
taxes of $16.9 million. Under the terms of the sales agreement,
Shoney's, Inc. entered into a five year supply agreement though
which MRF will continue to be the supplier of salad dressings,
mayonnaise, sauces, condiments, breadings, and a variety of food
products for all company-owned restaurants. The supply agreement
contains minimum purchase commitments generally equal to the
actual quantities of various products the Company purchased from
MRF during fiscal 1994 for Company-owned restaurants.
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NOTE 16 - QUARTERLY FINANCIAL INFORMATION (Unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION>
Per Share
--------------------------
Income From Income From
Continuing Continuing
Operations Operations
Before Extra- Before Extra-
ordinary Items ordinary Items
and Cumulative and Cumulative
Number Effect of Fully Effect of Stock Stock
of Gross Accounting Net Diluted Accounting Market Market
Weeks Revenues Profit Change Income Earnings Change High Low
----- --------- -------- -------- -------- -------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995
First Quarter 16 $ 310,385 $ 43,839 $ 12,923 $ 10,663 $ .26 $ .19 $15.38 $11.25
Second Quarter 12 253,195 35,537 10,003 8,494 .20 .15 12.50 9.13
Third Quarter 12 253,897 36,733 13,169 10,200 .25 .20 13.13 10.13
Fourth Quarter 12 235,855 14,679 (17,020) (4,485) (.11) (.27) 12.50 8.88
-- --------- ------- ------- ------ ---- ----
52 $1,053,332 $ 130,788 $ 19,075 $ 24,872 $ .60 $ .27
== ========= ======= ======= ====== ==== ====
</TABLE>
<TABLE>
<CAPTION>
1994
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter 16 $ 312,644 $ 48,523 $ 17,250 $ 18,672(a) $ .43 $ .26 $25.63 $19.75
Second Quarter 12 254,413 45,338 22,287 16,865 .38 .32 24.63 17.13
Third Quarter 12 259,481 45,666 24,019 16,216 .37 .34 18.13 13.50
Fourth Quarter 12 245,921 37,039 18,076 14,272 .33 .29 15.88 13.38
-- --------- ------- ------- ------ ---- ----
52 $1,072,459 $ 176,566 $ 81,632 $ 66,025 $1.51 $1.21
== ========= ======= ======= ====== ==== ====
</TABLE>
(a) The Company's first quarter 1994 net income shown has been
restated to reflect a correction of the cumulative effect of adopting
FASB Statement No. 109, "Accounting for Income Taxes". In the
first quarter, the Company had estimated the cumulative effect of
adopting Statement No. 109 to be an increase in income of $5.4
million or $.12 per share (fully diluted), resulting in originally
reported net income for the quarter of $19.6 million or $.45 per share
(fully diluted). During the fourth quarter, the Company reassessed
the cumulative effect and found that it had been overstated by
approximately $.9 million or $.02 per share. Accordingly, the first
quarter results have been restated to reflect the revised cumulative
effect from the change in accounting for income taxes of $4.5 million
or $.10 per share. Such amounts have been reflected in the first
quarter net income and per share amounts in the preceding table.
(b) During the fourth quarter of fiscal 1995, the Company recorded
several material adjustments, principally related to its reorganization
and restructuring. These adjustments totaling approximately $13.6
million had a material affect on fourth quarter earnings. The
significant fourth quarter adjustments included the following: (1) A
$6.6 million restructuring expense was recorded related to the
planned closure of 41 under-performing restaurants (See Note 2), (2)
A $3.2 million write-down of surplus property and certain restaurant
assets was recorded to reduce these assets to their net realizable
values, and (3) The Company's worker's compensation self-
insurance reserves were increased by $3.8 million to recognize
adverse development trends related to prior year's incurred losses.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
There are no Company disclosures required by Item 304 of
Regulation S-K, 17 C.F.R. Section 229.304.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
"Election of Directors" and "Reports of Beneficial Ownership"
contained in the 1996 Proxy Statement is incorporated herein by
reference. See also Item 4A, "Executive Officers of the Registrant" in
Part I of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION.
"Executive Compensation" contained in the 1996 Proxy Statement
is incorporated herein by reference. The matters labeled
"Compensation Committee Report" and "Shareholder Return
Performance Graph" contained in the 1996 Proxy Statement shall not
be deemed incorporated by reference into this Annual Report on Form
10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
"Security Ownership of Certain Beneficial Owners and
Management" contained in the 1996 Proxy Statement is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
"Certain Transactions" contained in the 1996 Proxy Statement is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) The following documents are filed as a part of this Annual
Report on Form 10-K:
(1) Financial Statements:
Consolidated Balance Sheet - October 29, 1995 and
October 30, 1994.
Consolidated Statement of Income - Years ended October
29, 1995, October 30, 1994 and October 31, 1993.
Consolidated Statements of Shareholders' Equity (deficit)
Years ended October 29, 1995, October 30, 1994 and
October 31, 1993.
Consolidated Statements of Cash Flows - Years ended
October 29, 1995, October 30, 1994 and October 31,
1993.
Notes to Consolidated Financial Statements - Years ended
October 29, 1995, October 30, 1994 and October 31,
1993.
(2) Schedule II-Valuation and qualifying accounts, included
as Exhibit 99.1.
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All other schedules for which provision is made in the
applicable accounting regulation of the Commission are not
required under the related instructions or are inapplicable, and
therefore have been omitted.
(3) Those exhibits required to be filed as Exhibits to this
Annual Report on Form 10-K pursuant to Item 601 of Regulation
S-K, 17 C.F.R. Section 229.601, as follows:
3(i), 4.1 Charter of Shoney's, Inc., as amended, filed as Exhibit
4.1 to Post Effective Amendment No. 3 to the
Company's Registration Statement on Form S-8 (File
No. 33-605) filed with the Commission on October 31,
1988, and incorporated herein by this reference.
3(ii), 4.2 Amended and Restated Bylaws of Shoney's, Inc., filed
as Exhibit 3(ii) to the Company's Quarterly Report on
Form 10-Q for the quarter ended August 9, 1995 filed
with the Commission on September 20, 1995, and
incorporated herein by this reference.
4.3 Amended and Restated Rights Agreement, dated as of
May 25, 1994, between Shoney's, Inc. (the
"Company") and Harris Trust and Savings Bank, as
Rights Agent, filed as Exhibit 4 to the Company's
Current Report on Form 8-K filed with the
Commission on June 9, 1994 and incorporated herein
by this reference.
4.4 Amendment No. 1 dated as of April 18, 1995 to
Amended and Restated Rights Agreement, dated as of
May 25, 1994, between Shoney's, Inc. (the
"Company") and Harris Trust and Savings Bank, as
Rights Agent, filed as Exhibit 4 to the Company's
Current Report on Form 8-K filed with the
Commission on May 4, 1995 and incorporated herein
by this reference.
4.5 Indenture dated as of April 1, 1989 between the
Company and Sovran Bank/Central South, as Trustee
relating to $201,250,000 in principal amount of liquid
yield option notes due 2004, filed as Exhibit 4.8 to
Amendment No. 1 to the Company's Registration
Statement on Form S-3 filed with the Commission on
April 3, 1989 (No. 33-27571), and incorporated herein
by this reference.
4.6 Revolving Credit Agreement dated as of July 13, 1988
between the Company and First American National
Bank, filed as Exhibit 4.1 and 19.1 to the Company's
Current Report on Form 8-K filed with the
Commission on December 3, 1991, and incorporated
herein by this reference.
4.7 Modification Agreement No. 1 dated as of March 5,
1991 to Revolving Credit Agreement, dated as of July
13, 1988 between the Company and First American
National Bank, filed as Exhibit 4.2 and 19.2 to the
Company's Current Report on Form 8-K filed with the
Commission on December 3, 1991, and incorporated
herein by this reference.
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4.8 Alternative Rate Agreement dated as of June 4, 1992
supplementing that certain Revolving Credit Agreement
dated as of July 13, 1988 between the Company and
First American National Bank, filed as Exhibit 4.36
and 10.29 to Post Effective Amendment No. 5 to the
Company's Registration Statement on Form S-8 (File
No. 2-64257) filed with the Commission on January
25, 1993, and incorporated herein by this reference.
4.9 Note Issuance Agreement, dated as of October 1,
1989, among the Company, Sovran Bank, N.A., as
Note Agent and Placement Agent and Sovran Bank /
Central South, as Escrow Agent, filed as Exhibit 19.3
and 28.3 to the Company's Current Report on Form
8-K filed with the Commission on December 3, 1991,
and incorporated herein by this reference.
4.10 Reimbursement Agreement, dated as of October 1,
1989, together with the Standby Note relating thereto,
among the Company, Sovran Bank / Central South,
Long Term Credit Bank of Japan, Limited, New York
Branch, Kredeitbank, N.V., New York Branch and
Sovran Bank / Central South, as Agent, filed as
Exhibit 19.4 and 28.4 to the Company's Current
Report on Form 8-K filed with the Commission on
December 3, 1991, and incorporated herein by this
reference.
4.11 Modification Agreement No. 1 dated as of July 21,
1993 to Reimbursement Agreement, dated as of
October 1, 1989, together with the Standby Note
relating thereto, among the Company, Sovran Bank /
Central South, Long Term Credit Bank of Japan,
Limited, New York Branch, Kredeitbank, N.V., New
York Branch and Sovran Bank / Central South, as
Agent, filed as Exhibit 4.4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended August 1,
1993 filed with the Commission on September 15,
1993, and incorporated herein by this reference.
4.12 Modification Agreement No. 2 dated as of June 8,
1994 to Reimbursement Agreement, dated as of
October 1, 1989, together with the Standby Note
relating thereto, among the Company, NationsBank of
Tennessee, N.A. (formerly Sovran Bank / Central
South), Long Term Credit Bank of Japan, Limited,
New York Branch, Kredeitbank, N.V., New York
Branch and NationsBank of Tennessee, N.A., as
Agent, filed as Exhibit 4.30 to the Company's Annual
Report on Form 10-K for the fiscal year ended October
30, 1994 filed with the Commission on January 30,
1995, and incorporated herein by this reference.
4.13 Note Issuance Agreement, dated as of October 1,
1990, among the Company, Sovran Bank, N.A., as
Note Agent and Placement Agent and Sovran Bank /
Central South, as Escrow Agent, filed as Exhibit 19.5
and 28.5 to the Company's Current Report on Form
8-K filed with the Commission on December 3, 1991,
and incorporated herein by this reference.
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4.14 Reimbursement Agreement, dated as of October 1,
1990, together with the Standby Note relating thereto,
between the Company and Sovran Bank / Central
South, filed as Exhibit 19.6 and 28.6 to the Company's
Current Report on Form 8-K filed with the
Commission on December 3, 1991, and incorporated
herein by this reference.
4.15 Modification Agreement No. 1 dated as of July 21,
1993 to Reimbursement Agreement, dated as of
October 1, 1990, together with the Standby Note
relating thereto, between the Company and Sovran
Bank / Central South, filed as Exhibit 4.5 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended August 1, 1993 filed with the
Commission on September 15, 1993, and incorporated
herein by this reference.
4.16 Modification Agreement No. 2 dated as of April 1,
1994 to Reimbursement Agreement, dated as of
October 1, 1990, together with the Standby Note
relating thereto, between the Company and
NationsBank of Tennessee, N.A. (formerly Sovran
Bank / Central South), filed as Exhibit 4.34 to the
Company's Annual Report on Form 10-K for the fiscal
year ended October 30, 1994 filed with the
Commission on January 30, 1995, and incorporated
herein by this reference.
4.17 Amended and Restated Note Issuance Agreement,
dated as of November 1, 1993, among the Company,
NationsBank of Virginia, N.A., as Note Agent and
Placement Agent and NationsBank of Tennessee, as
Escrow Agent, filed as Exhibit 4.36 to the Company's
Annual Report on Form 10-K for the fiscal year ended
October 31, 1993 filed with the Commission on
January 31, 1994, and incorporated herein by this
reference.
4.18 Reimbursement Agreement, dated as of October 1,
1991, together with the Standby Note relating thereto,
between the Company and National Bank of Canada,
New York Branch, filed as Exhibit 28.10 to the
Company's Current Report on Form 8-K filed with the
Commission on December 3, 1991, and incorporated
herein by this reference.
4.19 Assignment, Assumption and Modification Agreement
dated as of November 4, 1993 relating to
Reimbursement Agreement, dated as of October 1,
1991, among the Company, NationsBank of Georgia,
N.A. and National Bank of Canada, New York
Branch, filed as Exhibit 4.38 to the Company's Annual
Report on Form 10-K for the fiscal year ended October
31, 1993 filed with the Commission on January 31,
1994, and incorporated herein by this reference.
4.20 Loan Agreement dated as of September 24, 1992
between the Company and CIBC, Inc., filed as Exhibit
4.43 and 10.36 to Post Effective Amendment No. 5 to
the Company's Registration Statement on Form S-8
(File No. 2-64257) filed with the Commission on
January 25, 1993, and incorporated herein by this
reference.
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4.21 Modification Agreement No. 1 dated as of October 25,
1992 to Loan Agreement dated as of September 24,
1992 between the Company and CIBC, Inc., filed as
Exhibit 4.44 and 10.37 to Post Effective Amendment
No. 5 to the Company's Registration Statement on
Form S-8 (File No. 2-64257) filed with the
Commission on January 25, 1993, and incorporated
herein by this reference.
4.22 Modification Agreement No. 2 dated as of July 21,
1993 to Loan Agreement dated as of September 24,
1992 between the Company and CIBC, Inc., filed as
Exhibit 4.6 to the Company's Quarterly Report on
Form 10-Q for the quarter ended August 1, 1993 filed
with the Commission on September 15, 1993, and
incorporated herein by this reference.
4.23 Loan Agreement dated as of April 21, 1993 between
the Company and NationsBank of Tennessee, N.A.,
filed as Exhibit 4 to the Company's Quarterly Report
on Form 10-Q for the quarter ended May 9, 1993 filed
with the Commission on June 23, 1993, and
incorporated herein by this reference.
4.24 Modification Agreement No. 1 dated as of July 21,
1993 to Loan Agreement dated as of April 21, 1993
between the Company and NationsBank of Tennessee,
N.A., filed as Exhibit 4.7 to the Company's Quarterly
Report on Form 10-Q for the quarter ended August 1,
1993 filed with the Commission on September 15,
1993, and incorporated herein by this reference.
4.25 Loan Agreement dated as of December 1, 1994
between the Company and NationsBank of Tennessee,
N.A., filed as Exhibit 4.43 to the Company's Annual
Report on Form 10-K for the fiscal year ended October
30, 1994 filed with the Commission on January 30,
1995, and incorporated herein by this reference.
4.26 Reducing Revolving Credit Agreement, dated as of
July 21, 1993, among the Company, various financial
institutions now or hereafter parties thereto and
Canadian Imperial Bank of Commerce, New York
Agency, as agent, filed as Exhibit 4.1 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended August 1, 1993 filed with the
Commission on September 15, 1993, and incorporated
herein by this reference.
4.27 Modification Agreement No. 1 dated as of July 21,
1993 to Reducing Revolving Credit Agreement, dated
as of July 21, 1993, among the Company, various
financial institutions now or hereafter parties thereto
and Canadian Imperial Bank of Commerce, New York
Agency, as agent, filed as Exhibit 4.8 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended August 1, 1993 filed with the
Commission on September 15, 1993, and incorporated
herein by this reference.
4.28 Modification Agreement No. 2 dated as of December
21, 1993 to Reducing Revolving Credit Agreement,
dated as of July 21, 1993, among the Company,
various financial institutions now or hereafter parties
thereto and Canadian
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Imperial Bank of Commerce, New York Agency. Filed as
Exhibit 4.46 to the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1993, filed with
the Commission on January 31, 1994, and incorporated
herein by this reference.
4.29 Modification Agreement No. 3 dated as of May 3,
1994 to Reducing Revolving Credit Agreement, dated
as of July 21, 1993, among the Company, various
financial institutions now or hereafter parties thereto
and Canadian Imperial Bank of Commerce, New York
Agency, filed as Exhibit 99.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
May 15, 1994 filed with the Commission on June 29,
1994 and incorporated herein by this reference.
4.30 Modification Agreement No. 4 dated as of October 27,
1994 to Reducing Revolving Credit Agreement, dated
as of July 21, 1993, among the Company, various
financial institutions now or hereafter parties thereto
and Canadian Imperial Bank of Commerce, New York
Agency, filed as Exhibit 4.48 to the Company's
Annual Report on Form 10-K for the fiscal year ended
October 30, 1994 filed with the Commission on
January 30, 1995, and incorporated herein by this
reference.
4.31 Modification Agreement No. 5 dated as of January 18,
1995 to Reducing Revolving Credit Agreement, dated
as of July 21, 1993, among the Company, various
financial institutions now or hereafter parties thereto
and Canadian Imperial Bank of Commerce, New York
Agency, filed as Exhibit 4.49 to the Company's
Annual Report on Form 10-K for the fiscal year ended
October 30, 1994 filed with the Commission on
January 30, 1995, and incorporated herein by this
reference.
4.32 Modification Agreement No. 6 dated as of April 1,
1995 to Reducing Revolving Credit Agreement, dated
as of July 21, 1993, among the Company, various
financial institutions now or hereafter parties thereto
and Canadian Imperial Bank of Commerce, New York
Agency, filed as Exhibit 4.32 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
May 14, 1995 filed with the Commission on June 28,
1995, and incorporated herein by this reference.
4.33 Modification Agreement No. 7 dated as of July 28,
1995 to Reducing Revolving Credit Agreement, dated
as of July 21, 1993, among the Company, various
financial institutions now or hereafter parties thereto
and Canadian Imperial Bank of Commerce, New York
Agency, filed as Exhibit 4.33 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
August 9, 1995 filed with the Commission on
September 20, 1995, and incorporated herein by this
reference.
10.1 License Agreement, dated as of October 28, 1991,
between Shoney's Investments, Inc. and Shoney's
Lodging, Inc., filed as Exhibit 28.7 to the Company's
Current Report on Form 8-K filed with the
Commission on
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December 3, 1991, and incorporated herein by this
reference.
10.2 Amendment No. 1 dated as of September 16, 1992 to
License Agreement, dated as of October 28, 1991,
between Shoney's Investments, Inc. and ShoLodge
Franchise Systems, Inc. (formerly Shoney's Lodging,
Inc.), filed as Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended October
31, 1993 filed with the Commission on January 31,
1994, and incorporated herein by this reference.
10.3 Amendment No. 2 dated as of March 18, 1994 to
License Agreement, dated as of October 28, 1991,
between Shoney's Investments, Inc. and ShoLodge
Franchise Systems, Inc., filed as Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended May 14, 1995 filed with the Commission
on June 28, 1995, and incorporated herein by this
reference.
10.4 Amendment No. 3 dated as of March 13, 1995 to
License Agreement, dated as of October 28, 1991,
between Shoney's Investments, Inc. and ShoLodge
Franchise Systems, Inc., filed as Exhibit 10.4 to the
Company's Quarterly Report on Form 10-Q for the
quarter ended May 14, 1995 filed with the Commission
on June 28, 1995, and incorporated herein by this
reference.
10.5 Stock Purchase and Warrant Agreement, dated as of
October 28, 1991, between Shoney's Investments, Inc.
and Gulf Coast Development, Inc., filed as Exhibit
28.8 to the Company's Current Report on Form 8-K
filed with the Commission on December 3, 1991, and
incorporated herein by this reference.
10.6 Agreement dated as of September 8, 1992 between the
Company and Raymond L. Danner, filed as Exhibit
10.41 to Post Effective Amendment No. 5 to the
Company's Registration Statement on Form S-8 (File
No. 2-64257) filed with the Commission on January
25, 1993, and incorporated herein by this reference.
10.7 Consent Decree entered by the United States District
Court for the Northern District of Florida on January
25, 1993 in Haynes, et. al v. Shoney's, Inc., et. al,
filed as Exhibit 28 to the Company's Current Report
on Form 8-K filed with the Commission on February
3, 1993, and incorporated herein by this reference.
10.8 Shoney's, Inc. 1981 Stock Option Plan, filed as Exhibit
4.7 to Post Effective Amendment No. 3 to the
Company's Registration Statement on Form S-8 (File
No. 2-84763) filed with the Commission on January
25, 1993, and incorporated herein by this reference.
10.9 Shoney's, Inc. Stock Option Plan, filed as Exhibit 4.7
to Post Effective Amendment No. 4 to the Company's
Registration Statement on Form S-8 (File No. 2-64257)
filed with the Commission on April 11, 1990, and
incorporated herein by this reference.
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10.10 Shoney's, Inc. Employee Stock Purchase Plan, filed as
Exhibit 4.7 to Post Effective Amendment No. 4 to the
Company's Registration Statement on Form S-8 (File
No. 33-605) filed with the Commission on October 26,
1989, and incorporated herein by this reference.
10.11 Shoney's, Inc. Employee Stock Bonus Plan, filed as
Exhibit 10.9 to the Company's Annual Report on Form
10-K for the fiscal year ended October 31, 1993 filed
with the Commission on January 31, 1994, and
incorporated herein by this reference.
10.12 Shoney's, Inc. Directors' Stock Option Plan, filed as
Exhibit 4.38 to the Company's Registration Statement
on Form S-8 (File No. 33-45076) filed with the
Commission on January 14, 1992, and incorporated
herein by this reference.
10.13 Shoney's Ownership Plan 1977, filed as Exhibit 10.47
to Post Effective Amendment No. 5 to the Company's
Registration Statement on Form S-8 (File No. 2-64257)
filed with the Commission on January 25, 1993, and
incorporated herein by this reference.
10.14 Captain D's Ownership Plan 1976, filed as Exhibit
10.48 to Post Effective Amendment No. 5 to the
Company's Registration Statement on Form S-8 (File
No. 2-64257) filed with the Commission on January
25, 1993, and incorporated herein by this reference.
10.15 Captain D's Ownership Plan 1978-1979, filed as
Exhibit 10.49 to Post Effective Amendment No. 5 to
the Company's Registration Statement on Form S-8
(File No. 2-64257) filed with the Commission on
January 25, 1993, and incorporated herein by this
reference.
10.16 Shoney's, Inc. Supplemental Executive Retirement
Plan.
10.17 Employment Agreement dated as of January 13, 1995
between the Company and Taylor H. Henry, filed as
Exhibit 10.15 to the Company's Annual Report on
Form 10-K for the fiscal year ended October 30, 1994
filed with the Commission on January 30, 1995, and
incorporated herein by this reference.
10.18 Employment Agreement dated as of January 17, 1995
between the Company and Charles E. Porter, filed as
Exhibit 10.16 to the Company's Annual Report on
Form 10-K for the fiscal year ended October 30, 1994
filed with the Commission on January 30, 1995, and
incorporated herein by this reference.
10.19 Employment Agreement dated as of January 17, 1995,
between the Company and W. Craig Barber, filed as
Exhibit 10.17 to Amendment No. 1 to the Company's
Annual Report on Form 10-K for the fiscal year ended
October 30, 1994 filed with the Commission on
February 27, 1995, and incorporated herein by this
reference.
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10.20 Employment Agreement dated as of April 11, 1995,
between the Company and C. Stephen Lynn, filed as
Exhibit 4.32 to the Company's Quarterly Report on
Form 10-Q for the quarter ended May 14, 1995 filed
with the Commission on June 28, 1995, and
incorporated herein by this reference.
10.21 Amendment No. 1 to Employment Agreement dated as
of April 11, 1995, between the Company and C.
Stephen Lynn.
10.22 Asset Sale and Purchase Agreement dated as of July 7,
1995, by and among Shoney's, Inc., as Seller and
RTM, Inc., as Buyer relating to the sale of the assets
comprising the Company's "Lee's Famous Recipe"
division.
10.23 Stock Purchase Agreement dated as of August 3, 1995,
by and between Shoney's, Inc., as Seller, and Levmark
Capital Corporation, as Buyer, relating to the purchase
of all of the issued and outstanding stock of Mike Rose
Foods, Inc.
10.24 Amendment No. 1 dated as of November 10, 1995 to
Stock Purchase Agreement dated as of August 3, 1995,
by and between Shoney's, Inc., as Seller, and Levmark
Capital Corporation, as Buyer, relating to the purchase
of all of the issued and outstanding stock of Mike Rose
Foods, Inc.
10.25 Supply Agreement dated as of November 17, 1995
between the Company and Mike Rose Foods, Inc.
11 Statement regarding computation of per share earnings.
21 Subsidiaries of Shoney's, Inc.
23 Consent of Ernst & Young LLP, independent auditors.
27 Financial Data Schedule.
99.1 Schedule II - Valuation and qualifying accounts and
reserves.
(b) No Current Reports on Form 8-K were filed by the
Company during the last quarter of the period covered by this Annual
Report on Form 10-K.
(c) Exhibits -- the response to this portion of Item 14 is
submitted as a separate section of this Report. See Item 14(a).
(d) Financial Statement Schedules -- the response to this portion
of Item 14 is submitted as a separate section of this Report. See Item
14(a).
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on this 29th day of January, 1996.
SHONEY'S, INC.
By: /s/ W. Craig Barber
--------------------------------
W. Craig Barber
Senior Executive Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on
behalf of the registrant and in the capacities indicated on this
29th day of January, 1995.
Signature Title
/s/ C. Stephen Lynn
- ---------------------------- Chairman of the Board, Chief
(C. Stephen Lynn) Executive Officer and Director
/s/ Charles E. Porter
- ---------------------------- President
(Charles E. Porter)
/s/ W. Craig Barber
- ---------------------------- Senior Executive Vice President
(W. Craig Barber) and Chief Financial Officer
/s/ Robert M. Langford
- ---------------------------- Executive Vice President, General
(Robert M. Langford) Counsel and Secretary
/s/ F.E. McDaniel, Jr.
- ---------------------------- Vice President and
(F.E. McDaniel, Jr.) Secretary/Treasurer
/s/ Gregory A. Hayes
- ---------------------------- Vice President and Controller
(Gregory A. Hayes)
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/s/ Dennis C. Bottorff
- ---------------------------- Director
(Dennis C. Bottorff)
/s/ Carole F. Hoover
- ---------------------------- Director
(Carole F. Hoover)
/s/ Victoria B. Jackson
- ---------------------------- Director
(Victoria B. Jackson)
/s/ Alex Schoenbaum
- ---------------------------- Director
(Alex Schoenbaum)
/s/ Robert T. Shircliff
- ---------------------------- Director
(Robert T. Shircliff)
/s/ B. Franklin Skinner
- ---------------------------- Director
(B. Franklin Skinner)
/s/ James R. Thomas, II
- ---------------------------- Director
(James R. Thomas, II)
/s/ Cal Turner, Jr.
- ---------------------------- Director
(Cal Turner, Jr.)
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<PAGE>
SHONEY'S, INC.
SUPPLEMENTAL EXECUTIVE
RETIREMENT PLAN
As Amended Through October 31, l995
<PAGE>
<PAGE>
TABLE OF CONTENTS
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . 1
ARTICLE II PARTICIPANTS . . . . . . . . . . . . . . . . . . . . . 3
2.01 Eligibility to Participants. . . . . . . 3
2.02 Amount of Deferral by Participation. . . . 4
ARTICLE III ACCOUNTS AND INVESTMENTS . . . . . . . . . . . . . . . 4
3.01 Establishment of Participant's
Account. . . . . . . . . . . . . . . 4
3.02 Retention of Title to Assets by
Shoney's . . . . . . . . . . . . . . 4
3.03 Earmarking, Investment and Matching . . 4
3.05 Designation of Beneficiaries . . . . . . 8
3.06 No Trust; Funds are General Assets
of Shoney's. . . . . . . . . . . . 8
3.07 Assumption of Risk of Loss by
Participant. . . . . . . . . . . . . 9
ARTICLE IV ADMINISTRATION . . . . . . . . . . . . . . . . . . . . 9
4.01 Books and Records; Expenses. . . . . . . 9
4.02 Spendthrift Clause . . . . . . . . . . . 9
4.03 Redirection of Benefits if
Attempted Alienation . . . . . . . . 9
4.04 Limitation on Liability of Board, etc. . 10
4.05 Payment Upon Incapacity. . . . . . . . . 10
4.06 Interpretation and Administration
of Plan . . . . . . . . . . . . . . 10
4.07 Intended Tax Treatment . . . . . . . . . 11
4.08 Deferrals are Wages for Social
Security Purposes . . . . . . . . . 11
4.09 Withholding of Payments. . . . . . . . . 11
4.10 Limitation of Obligation . . . . . . . . 11
4.11 No Right to Employment . . . . . . . . . 12
4.12 Plan is Supplemental to Other
Benefits . . . . . . . . . . . . . . 12
4.13 Administration of Plan . . . . . . . . . 12
4.14 SERP Committee . . . . . . . . . . . . . 13
4.15 Resolutions by SERP Committee. . . . . . 13
4.16 Establishment of Rules by SERP
Committee. . . . . . . . . . . . . . 13
4.17 Reliance Upon Advisors . . . . . . . . . 14
4.18 Limitation on Liability of SERP
Committee Members. . . . . . . . . . 14
4.19 Computation and Certification of
Benefits by SERP Committee.. . . . . 15
4.20 Providing Information to SERP
Committee. . . . . . . . . . . . . . 15
4.21 Notices. . . . . . . . . . . . . . . . . 15
4.22 Addresses. . . . . . . . . . . . . . . . 15
4.23 Binding Effect.. . . . . . . . . . . . . 16
(i)
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4.24 Rabbi Trust. . . . . . . . . . . . . . . 16
ARTICLE V AMENDMENT OF THE PLAN . . . . . . . . . . . . 16
5.01 Amendment, Termination or
Modification.. . . . . . . . . . . . 16
5.02 Notification of Amendments . . . . . . . 16
(ii)
<PAGE>
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SHONEY'S, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
This Plan is an unfunded deferred compensation arrangement for a
select group of management or highly compensated employees of Shoney's,
Inc. or its Subsidiaries. All rights under this Plan shall be governed
by and construed in accordance with the laws of the State of Tennessee.
ARTICLE I
DEFINITIONS
"Beneficiary" or "Beneficiaries" means the person or persons
designated to receive distributions under this Plan because of the death
of a Participant.
"Board" means the Board of Directors of Shoney's, Inc.
"Committee" or "SERP Committee" means the Human Resources and
Compensation Committee of the Board.
"Disability" means a mental or physical disability of at least
three (3) months duration, which, in the sole discretion of the Committee
based upon medical evidence that it deems sufficient, prevents a
Participant from engaging in the principal duties of his or her employment
and results in a Termination of Employment from Shoney's, Inc.
"401(k) Plan" shall mean the Shoney's, Inc. 401(k) Plan adopted
by Shoney's, Inc. and its Subsidiaries effective January 1, 1996 as the
same may be amended from time to time.
"Investment Alternatives" means the investments selected annually
by the Committee in which a Participant may choose to have
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his or her deferred compensation deemed to be invested. Such Investment
Alternatives may include, but are not limited to, various stock or bond
funds or indices, or combinations thereof which are capable of being
monitored for performance regardless of whether actual investments are
made in such funds or indices.
"Participant" means an employee of Shoney's or of a Subsidiary,
either designated in Section 2.01 at the adoption of this Plan or
designated by the Committee for participation in the Plan, or a person who
was an employee at the time of his or her Retirement, death, Disability
or Termination of Employment and who retains, or whose Beneficiaries
obtain, benefits under the Plan in accordance with its terms.
"Plan" means this Supplemental Executive Retirement Plan as it may
be amended, modified or supplemented from time to time.
"Retirement" means retirement at or after obtaining age fifty-five
(55).
"Shoney's" means Shoney's, Inc., a Tennessee corporation, and its
corporate successors.
"Subsidiary" or "Subsidiaries" means a company or companies each
of which Shoney's owns, directly or indirectly, at least 80% of the shares
with voting power.
"Termination of Employment" means an involuntary termination of
an individual's employment or a voluntary termination of an individual's
employment to seek another job.
"Unforeseeable Emergency" means severe financial hardship to a
Participant resulting from a sudden and unexpected illness or
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accident of the Participant or of a dependant of a Participant as defined
in section 152(a) of the Internal Revenue Code of 1986, as amended, loss
of the Participant's property due to casualty, or other similar
extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the Participant. In no event may payment be
made from the Plan to the extent that such hardship is or may be relieved
through reimbursement or compensation by insurance or otherwise, by
liquidation of the Participant's assets (to the extent the liquidation of
such assets would not itself cause severe financial hardship), or by
cessation of deferrals under this Plan. Examples of what are not
considered to be Unforeseeable Emergencies include the need to send a
Participant's child to college or the desire to purchase a home.
"Year" (unless specifically defined otherwise) means the calendar
year.
ARTICLE II
PARTICIPANTS
2.01 Eligibility to Participate. The employees eligible to
participate in the Plan are employees of Shoney's or its Subsidiaries
which are designated as employees who may participate by the Committee.
Such designation shall occur at least forty-five (45) days before the
commencement of the next Year for which a Participant may defer his or her
compensation. No employee may participate in this Plan if he or she
participates in the 401(k) Plan.
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2.02 Amount of Deferral by Participants. For any Year, any
Participant may elect in writing to defer up to fifty percent (50%) of his
or her base salary and up to one hundred percent (100%) of any cash bonus,
for the following Year. Such election must be made at least thirty (30)
days prior to the commencement of a Year.
ARTICLE III
ACCOUNTS AND INVESTMENTS
3.01 Establishment of Participant's Account. The Committee shall
cause an account to be kept in the name of each Participant and each
Beneficiary of a deceased Participant which shall reflect the value of the
benefits payable to such Participant or Beneficiary under the Plan.
3.02 Retention of Title to Assets by Shoney's. Until and except
to the extent that deferred benefits under this Plan are distributed to
a Participant or Beneficiary from time to time in accordance with the
directions of the Committee, title and ownership of any assets, whether
cash or investments, which Shoney's may set aside or earmark to meet its
obligations hereunder shall at all times remain in Shoney's and no
Participant or Beneficiary shall acquire, under any circumstances, any
interest in any specific assets of Shoney's. This Plan constitutes a mere
promise by Shoney's to make benefit payments in the future.
3.03 Earmarking, Investment and Matching.
(a) Earmarking. In order to meet its obligations
hereunder, Shoney's each Year shall set aside or earmark an amount
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equal to the compensation deferred under Article II plus matching
contributions for such Year as set forth below.
(b) Matching. The Company shall "match" the compensation
deferred by the Participant each year in an amount equal to twenty-five
percent (25%) of the compensation actually deferred for the Year or
$10,000, whichever is less. The Participant may direct the deemed
investment of his or her matching contribution in the same manner as he
or she directs the deemed investment of his or her deferred compensation.
The Participant shall have such amounts credited to his or her account
under this Plan and such amounts shall increase the benefits payable to
a Participant or his or her Beneficiary under this Plan (i.e. vest) if,
and only if, the Participant has sixty (60) consecutive months of
employment with Shoney's, measured from the Participants most recent date
of hire. After a Participant is vested, all matching contributions,
either prior to or after vesting, plus deemed investment income, gains or
losses attributable to any matching contributions, shall become part of
his or her account under this Plan and be subject to all other terms of
this Plan.
(c) Deemed Investment of Funds. Funds set aside or
earmarked to meet Shoney's obligations under this Plan shall be deemed to
be invested in one or more Investment Alternatives in accordance with
Subsection 3.03(d).
(d) Direction of Deemed Investment by Participant. Each
Participant may direct the deemed investment of his or her deferred
compensation and matching contributions to meet Shoney's
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<PAGE>
obligations under this Plan into one or more of the Investment
Alternatives selected by Committee. Each Participant must designate, in
writing, at the time of the deferral election the percentage of his or her
deferrals and matching contributions deemed to be allocated to one or more
of the Investment Alternatives selected by the Committee.
Each Participant may direct that funds previously set aside with
respect to his or her deferrals matching contributions and previously
deemed invested in accordance with the Participant's designation pursuant
to Subsection 3.03(d) be deemed to be reinvested in investments different
than his or her previous designation. Each Participant may later alter his
or her deemed investment designation under this Subsection 3.03(d) no more
frequently than once each Year and such deemed reinvestment shall be
effective as of the beginning of the Year following the Year of the deemed
reinvestment designation.
(e) Crediting of Deemed Investments. An amount equal to
the income, gains and losses from investments deemed to be made pursuant
to Subsection 3.03(d) shall be determined annually at the close of the
Year by the Committee. An amount equal to the net income or loss as
determined shall be allocated to the accounts of the Participants. Amounts
so allocated shall increase or decrease, as the case may be, the benefits
payable to a Participant or his or her Beneficiary.
(f) Continuation of Investment after Certain Events.
Upon the Retirement, Termination of Employment, death or Disability
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<PAGE>
of a Participant, an amount equal to the value, specially determined over
an interim basis as of the date of such event and in the same manner
provided in Subsection 3.03(e) above, of the benefits payable to such
Participant or his or her Beneficiary shall be determined and shall
continue to be deemed to be invested as provided in Subsection 3.03(d).
The total amount payable to the Participant or his or her Beneficiary
shall be appropriately adjusted by an amount equal to the deemed net
income or loss on such funds, in accordance with the terms of Subsection
3.03(e) above.
(g) Deemed Investment Not Binding on Shoney's.
Notwithstanding the provisions of Subsections 3.03(c) and (d), Shoney's
shall not be required to invest the funds deferred in the investment
options selected by a Participant.
3.04 Distributions. A Participant shall be entitled to
payments of the amounts calculated under Subsection 3.03 above in the case
of his or her Retirement, Termination of Employment, Disability or death,
or in the event of an Unforeseeable Emergency. In the event of
Termination of Employment, the Participant shall receive a lump sum
distribution on the last business day of August or February next following
the date of termination. Such payment shall be calculated as of the last
day of June or December, as appropriate, next following the date of
termination. In the event of death, Disability or Retirement, the
Participant or his personal representative, shall be paid in accordance
with Section 3.03(f) and in sixty (60) monthly installments commencing
within thirty
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<PAGE>
(30) days after the occurrence of the event giving rise to the payment.
If the Committee shall make payment on account of an Unforeseeable
Emergency, such payment shall be in a lump sum and shall not exceed an
amount reasonably needed, in the sole discretion of the Committee, to
satisfy the emergency.
3.05 Designation of Beneficiaries. Each Participant shall have
the right to designate Beneficiaries who are to succeed to his or her
right to receive benefits under the Plan in the event of his or her death.
In case a Participant fails to designate a Beneficiary or if the
designated Beneficiary dies without a successor being designated,
distribution shall be made to a Participant's estate. No designation of
Beneficiary shall be valid unless in writing signed by the Participant,
dated, and filed with the Committee. Beneficiaries may be changed without
the consent of any prior Beneficiaries.
3.06 No Trust; Funds are General Assets of Shoney's. Nothing
contained herein shall be deemed to create a trust of any kind (except as
specifically provided herein) or create any fiduciary relationships. Funds
invested hereunder shall continue for all purposes to be part of the
general funds of Shoney's and no person other than Shoney's shall by
virtue of the provisions of this Plan have any interest in any such funds.
To the extent that any person acquires a right to receive payments from
Shoney's under this Plan, such rights shall be no greater than the right
of any general unsecured creditor of Shoney's.
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3.07 Assumption of Risk of Loss by Participant. The Participant
and his or her Beneficiaries shall assume sole risk for any losses that
are incurred by virtue of the investment of any funds which are deferred
or invested according to the terms of the Plan and in no event shall
Shoney's, its successors or Subsidiaries have any liability to any
Participant or any Beneficiary.
ARTICLE IV
ADMINISTRATION
4.01 Books and Records; Expenses. The books and records to be
maintained for the purposes of the Plan shall be maintained by the
officers and employees of Shoney's at its expense and subject to the
supervision and control of the Committee. Shoney's shall pay all expenses
of any trust. The Participants, on a pro rata basis, shall bear all other
expenses of the Plan including but not limited to any investment advisor's
fees.
4.02 Spendthrift Clause. To the fullest extent permitted by law,
the rights of any Participant or any Beneficiary in any benefit or any
payment under this Plan shall not be subject in any manner to attachment
or other legal process for the debts of such Participant or Beneficiary
and any such benefit or payment shall not be subject to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance, attachment
or garnishment.
4.03 Redirection of Benefits if Attempted Alienation. If any
Participant or Beneficiary under the Plan should become bankrupt or
attempt to anticipate, alienate, sell, assign, pledge, encumber or change
any right to a benefit hereunder, then such right or
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benefit, in the sole discretion of the Committee, shall cease and, in such
event, the Committee may hold or apply the same or any part thereof for
the benefit of such Participant or Beneficiary, his or her spouse,
children, or other dependents, or any of them, in any such manner and in
such portion as the Committee may deem proper.
4.04 Limitation on Liability of Board, etc. No member of the
Board or of the Committee and no officer or employee of Shoney's or its
Subsidiaries shall be liable to any person for any action taken or omitted
in connection with the administration of the Plan unless attributable to
fraud or willful misconduct. In like manner, Shoney's and its Subsidiaries
shall not be liable to any person for any action unless attributable to
the fraud or willful misconduct on the part of any director, officer or
employee of Shoney's or a Subsidiary.
4.05 Payment Upon Incapacity. If the Committee shall find that
any person to whom any payment is payable under the Plan is unable to care
for his or her affairs because of illness or accident, or is a minor, any
payment due (unless a prior claim therefor shall have been made by a duly
appointed guardian, committee or other legal representative) may be paid
to the spouse, a child, parent or brother or sister, or to any person
deemed by the Committee to have incurred expenses for such person
otherwise entitled to payment. Any such payment shall be a complete
discharge of Shoney's liability under the Plan.
4.06 Interpretation and Administration of Plan. The Committee
shall have full power and authority to interpret and administer the
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Plan. The Committee's interpretations and construction of any provision
or action taken under the Plan, including any valuation of the assets
earmarked for the Plan, or the amount or recipient of any payment due
under the Plan, shall be binding and conclusive on all persons for all
purposes.
4.07 Intended Tax Treatment. Shoney's intends that the Plan shall
be an unfunded deferred compensation plan for purposes of the Internal
Revenue Code of 1986, as amended, and for purposes of Title 1 of the
Employee Retirement Income Security Act of 1974, as amended.
4.08 Deferrals are Wages for Social Security Purposes. The
amounts deferred by a Participant are considered to be wages for purposes
of the Federal Insurance Contribution Act. Shoney's may withhold such
amounts from a Participant's salary or bonus as are necessary to pay any
amounts assessed against the Participant because of the Federal Insurance
Contribution Act.
4.09 Withholding of Payments. If the Committee has any question
as to the proper Beneficiary to receive payments hereunder, the Committee
shall have the right to withhold such payments until the matter is finally
adjudicated. Any payment made by Shoney's, in good faith and in accordance
with this Plan, shall fully discharge Shoney's from all further
obligations with respect to such payment.
4.10 Limitation of Obligation. Shoney's shall have no obligation
of any nature whatsoever to a Participant under the Plan except as
otherwise expressly provided in the Plan.
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4.11 No Right to Employment. The Plan does not in any way
obligate Shoney's or any Subsidiary of Shoney's to continue the employment
of a Participant with Shoney's, nor does it limit the right of Shoney's
or any Subsidiary at any time and for any reason to terminate a
Participant's employment. Termination of a Participant's employment with
Shoney's or any Subsidiary for any reason, whether by action of Shoney's,
a Subsidiary or a Participant, shall immediately terminate his or her
participation in the Plan and all further obligations hereunder except for
the payment of such compensation as has been previously deferred. In no
event shall the Plan by its terms or by implication constitute an
employment contract of any nature whatsoever between Shoney's or any
Subsidiary and a Participant.
4.12 Plan is Supplemental to Other Benefits. The benefits
provided for a Participant and a Participant's Beneficiary under the Plan
are in addition to any other benefits available to such Participant under
any other plan or program of Shoney's or its Subsidiaries for its
employees, and, except as may otherwise be expressly provided for, the
Plan shall supplement and shall not supersede, modify or amend any other
plan or program of Shoney's or its Subsidiaries.
4.13 Administration of Plan. The general administration of this
Plan, as well as construction and interpretation thereof, shall be vested
in the Committee. The Committee may delegate the routine administration
duties to the Finance Department of Shoney's.
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4.14 SERP Committee. In connection with the administration of the
plan, the Board may designate one of the members of the Committee as
Chairman and may appoint a Secretary who need not be a member of the
Committee. The Secretary shall keep minutes of the Committee's
proceedings and all data, records and documents relating to the
Committee's administration of the Plan. In connection with the
administration of the Plan, the Committee may appoint from its number such
sub-committees with such powers as the Committee shall determine and may
authorize one or more members of the Committee or any agent to execute or
deliver any instrument or make any payment on behalf of the Committee.
4.15 Resolutions by SERP Committee. All resolutions or other
actions taken by the Committee shall be by the vote of a majority of those
present at a meeting at which a majority of the members are present, or
in writing by a majority of the members if they act without a meeting.
4.16 Establishment of Rules by SERP Committee. Subject to the
Plan, the Committee shall from time to time establish rules, forms and
procedures for the administration of the Plan. Except as herein otherwise
expressly provided, the Committee shall have the exclusive right to
interpret the Plan and to decide any and all matters arising thereunder
or in connection with the administration of the Plan, and it shall
endeavor to act, whether by general rules or by particular decisions, so
as not to discriminate in favor of or against any person. The Committee
shall have the exclusive right to determine (i) Disability in respect of
a Participant and
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(ii) the degree thereof, either or both determinations to be made on the
basis of such medical and/or other evidence as the Committee in its sole
judgment, may require. Such decisions, actions and records of the
Committee shall be conclusive and binding upon Shoney's and all persons
having or claiming to have any right to or interest in or under the Plan.
4.17 Reliance Upon Advisors. The Committee and the officers and
directors of Shoney's shall be entitled to rely on all certificates and
reports made by any duly appointed accountants, and on all opinions given
by any duly appointed legal counsel. Such legal counsel may be counsel
for Shoney's.
4.18 Limitation on Liability of SERP Committee Members. No member
of the Committee shall be liable for any act or omission of any other
member of the Committee, or for any act or omission on his or her own
part, excepting only his or her own willful misconduct. Shoney's shall
indemnify and save harmless each member of the Committee against any and
all expenses and liabilities arising out of his or her membership on the
Committee arising out of the Plan, excepting only expenses and liabilities
arising out of his or her own willful misconduct. Expenses against which
a member of the Committee shall be indemnified hereunder shall include,
without limitation, the amount of any settlement or judgment, costs,
counsel fees and related charges reasonably incurred in connection with
a claim asserted, or a proceeding brought or settlement thereof. The
foregoing right of indemnification shall
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be in addition to any other rights to which any such member may be
entitled as a matter of law.
4.19 Computation and Certification of Benefits by SERP Committee.
In addition to the powers hereinabove specified, the Committee shall have
the power to compute and certify under the Plan the amount and kind of
benefits from time to time payable to Participants and their Beneficiaries
and to authorize all disbursements for such purposes.
4.20 Providing Information to SERP Committee. To enable the
Committee to perform its functions, Shoney's shall supply full and timely
information to the Committee on all matters relating to the compensation
of all Participants, their Retirement, death, Disability or other cause
for Termination of Employment, and such other pertinent facts as the
Committee may require.
4.21 Notices. Any notice which shall be or may be given under the
Plan shall be in writing and shall be mailed by United States mail,
postage prepaid. If notice is to be given to Shoney's, such notice shall
be addressed to Shoney's, marked for the attention of the Corporate
Secretary, Finance Department; or, if notice is to a Participant,
addressed to the address shown on such Participant's personnel records.
4.22 Addresses. Any party may, from time to time, change the
address to which notices shall be mailed by giving written notice of such
new address.
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4.23 Binding Effect. The Plan shall be binding upon Shoney's and
its successors and assigns, and upon a Participant, his Beneficiary,
assigns, heirs, executors and administrators.
4.24 Rabbi Trust. Shoney's and its Subsidiaries, each on their
own behalf, may enter into a trust agreement (the "Trust") into which each
may make contributions to provide itself with a source of funds to meet
its respective liabilities under the Plan. Such Trusts shall be on the
terms and conditions set forth in the document attached hereto as Exhibit
A.
ARTICLE V
AMENDMENT OF THE PLAN
5.01 Amendment, Termination or Modification. The Plan may be
amended, terminated, modified or supplemented in whole or part from time
to time by the Board.
5.02 Notification of Amendments. Notice of every such amendment
shall be given in writing to each Participant and Beneficiary of a
deceased Participant.
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ADDENDUM TO EMPLOYMENT AGREEMENT
This Agreement is an addendum to that certain Employment Agreement
(the "Employment Agreement") dated as of April 11, 1995, between SHONEY'S,
INC., a Tennessee corporation (the "Employer"), and C. STEPHEN LYNN (the
"Employee").
W I T N E S E T H:
WHEREAS, Employer and Employee wish to make certain changes in the
Employment Agreement, which changes are more particularly set forth herein.
NOW, THEREFORE, for and in consideration of the covenants and
agreements set forth herein and in the Employment Agreement, it is mutually
agreed as follows:
1. SECTION 3.3.1. of the Employment Agreement is hereby
amended by changing the second reference therein to "April 11, 1997" to
"April 11, 1998."
2. SECTION 3.9. of the Employment Agreement is hereby
amended by adding the following sentence: "In lieu of providing such
disability coverage, at the option of the Employee, Employer shall pay to
Employee annually an amount equal to the cost that Employer would incur
in providing such coverage."
3. SECTION 3.11. of the Employment Agreement is hereby
amended by deleting the first sentence thereof in its entirety and
replacing it with the following: "Employee shall be entitled
annually to four (4) weeks of paid vacation."
IN WITNESS WHEREOF, Employee has hereunto affixed his hand
and Employer has caused this Addendum to be executed by its duly
authorized officer as of the date of the Employment Agreement.
EMPLOYEE: EMPLOYER:
/s/ C. Stephen Lynn
- ----------------------------- SHONEY'S, INC.
C. STEPHEN LYNN
By: /s/ W. Craig Barber
-----------------------------
Title: Senior Executive Vice President
and Chief Financial Officer
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ASSET SALE AND PURCHASE AGREEMENT
THIS ASSET SALE AND PURCHASE AGREEMENT (the "Agreement") is made
on this 7th day of July, 1995, by and between RTM, INC., a Georgia
corporation having its principal executive offices at 5995 Barfield Road,
Atlanta, Georgia 30328 ("RTM"); SHONEY'S, INC., a Tennessee corporation
having its principal executive offices at 1727 Elm Hill Pike, Nashville,
Tennessee 37210 ("Seller"); and SHONEY'S OF CANADA, INC., a Canadian
corporation having its principal executive offices at Suite 6200, Scotia
Plaza, 40 King Street West, Toronto, Ontario M5H 3Z7, CANADA
("Subsidiary").
WITNESSETH:
WHEREAS, as of July 5, 1995, Seller (or Shoney's Real Estate,
Inc., a wholly owned subsidiary of Seller ("Realco")) owned and/or
operated the sixty (60) restaurants listed on SCHEDULE 1.A hereto (the
"Company Restaurants"); and
WHEREAS, as of July 5, 1995, Seller or Subsidiary also licensed
the operation of two hundred seventeen (217) restaurants listed,
respectively, on SCHEDULE 1.B. and SCHEDULE 1.D. hereto (collectively, the
"Franchised Restaurants"); and
WHEREAS, Seller desires to sell the Purchased Assets (as defined
in SECTION 1 below), and RTM, through Persons that it shall designate as
Buyers, desires to purchase Seller's interest in such Purchased Assets and
assume certain Assumed Liabilities (as defined in SECTION 4.A. below) of
Seller as set forth herein;
NOW, THEREFORE, in consideration of the covenants and agreements
contained herein and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, it is agreed as follows:
1. 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:
"ASSIGNED CONTRACTS" shall have the meaning set forth in SECTION
2.A.(8).
"BENEFIT PLANS" means all benefit plans, contracts and
arrangements of Seller in effect as of the date hereof, including, without
limitation, all pension, retirement profit sharing, savings and thrift,
bonus, incentive or deferred compensation, severance pay, vacation and
medical, dental and life and disability insurance plans, policies or
arrangements of Seller, or any member of the "controlled group" within the
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meaning of Section 4001(a)(14) of ERISA of which Seller is a member (the
"Controlled Group") pursuant to which any employees or former employees
of Seller who are or have been employed at the Company Restaurants and/or
beneficiaries of any such persons (collectively, "Restaurant Employees")
may receive benefits or compensation.
"BUYER" means one of the Persons designated by RTM as a purchaser
of all or a portion of the Purchased Assets. "BUYERS" means all such
Persons collectively.
"CHATTEL MORTGAGES" shall have the meaning set forth in SECTION
8.M.
"CLOSING" means the consummation of the purchase and sale of the
Purchased Assets as provided in this Agreement on the Closing Date.
"CLOSING DATE" means September 1, 1995, or any other Friday as may
be agreed upon by the parties hereto immediately preceding the designated
Effective Date.
"COBRA" means Part 6 of Subtitle B of Title I of ERISA and Section
4980B of the Code.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMISSARY AGREEMENT" means the commissary services agreement
substantially in the form attached hereto as EXHIBIT A pursuant to which
Commissary Operations, Inc., a subsidiary of Seller, agrees to provide
certain services to RTM or a Buyer designated by RTM as set forth therein.
"COMPANY RESTAURANT" means one of the Restaurants listed on
SCHEDULE 1.A. "COMPANY RESTAURANTS" means such sixty (60) Restaurants,
collectively.
"CONTRACT ASSIGNMENT" means one of the contract assignments
between Seller and RTM or a Buyer designated by RTM pursuant to which an
Assigned Contract is assigned to and assumed by RTM or such Buyer, in form
and substance reasonably acceptable to the parties.
"CONTROLLED GROUP" means every trade or business, whether or not
incorporated, which has employees who are or have been at any date of
determination occurring within the preceding six (6) years, treated
pursuant to Section 4001(a)(14) of ERISA and/or Section 414 of the Code
as employees of a single employer which includes Seller. A "member of the
Controlled Group" means any such trade or business.
"DEED" and "DEEDS" shall have the meaning[s] set forth in SECTION
2.C.(1).
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"EFFECTIVE DATE" means September 4, 1995, or any other Monday as
may be agreed upon by the parties hereto immediately following the
designated Closing Date.
"ENVIRONMENTAL LAWS" shall have the meaning set forth in SECTION
8.Y.(3).
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"FF&E" means furniture, fixtures, equipment, machinery, signage,
inventories of china, glass and silver, utensils and small wares and
uniforms and all other like personalty located at the Company Restaurants
and used in connection with the operation of the Company Restaurants.
"FOOD INVENTORIES" means inventories of usable food and beverages
located in the Company Restaurants and retail goods that are sold
primarily at the cashier stands located in the Company Restaurants
determined as of 12:01 a.m. on the Effective Date by mutual agreement of
the parties.
"FRANCHISE AGREEMENT" means one of the agreements listed on
SCHEDULE 1.B.. "FRANCHISE AGREEMENTS" means such agreements,
collectively.
"FRANCHISED RESTAURANT" means one of the Restaurants listed on
SCHEDULE 1.B. or SCHEDULE 1.D.. "FRANCHISED RESTAURANTS" means such two
hundred seventeen (217) Restaurants, collectively.
"GENERAL ASSIGNMENT" means an assignment between Seller and RTM
or a Buyer designated by RTM, in form and substance reasonably acceptable
to the parties, pursuant to which all of Seller's right, title and
interest in prepaid expenses and deposits, purchase orders and permits,
guarantees, warranties and licenses, and any and all other Purchased
Assets not otherwise specifically assigned, conveyed or transferred by
separate instrument pursuant to this Agreement, are assigned to RTM or
such Buyer, and pursuant to which any Assumed Liabilities (as defined in
SECTION 4.A.) not otherwise specifically assumed by separate instrument
are assumed by RTM or such Buyer.
"HAZARDOUS MATERIALS" means and shall include, without limitation,
gasoline, 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, as defined in SECTION 8.Y.(2).
"INVENTORIES" means, collectively, the Food Inventories and the
Non-Food Inventories.
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"LEASE" means one of the leases listed on SCHEDULE 1.C.. "LEASES"
means such twelve (12) Leases, collectively.
"LEASE ASSIGNMENTS" means an assignment between Seller and RTM or
a Buyer designated by RTM pursuant to which all of Seller's right, title
and interest in each of the Leases are assigned to and assumed by RTM or
such Buyer, in form and substance reasonably acceptable to the parties.
"LEASE ASSIGNMENTS" means such twelve (12) Lease Assignments,
collectively.
"LEASED RESTAURANT" means one of the Company Restaurants, the land
and/or building for which is leased by Seller pursuant to a Lease
described on SCHEDULE 1.C.. "LEASED RESTAURANTS" means such twelve (12)
Leased Restaurants, collectively.
"NEW LEASE" means a lease of an Owned Restaurant that is not
conveyed to RTM or a Buyer designated by RTM but is leased pursuant to
SECTION 11, with terms as described in SECTION 11.
"NONCOMPETITION AGREEMENT" means an agreement between Seller and
RTM pursuant to which Seller agrees to certain restrictions upon its
business activities, which agreement shall be substantially in the form
attached hereto as EXHIBIT B.
"NON-FOOD INVENTORIES" means all inventories, with the exception
of Food Inventories, located in the Company Restaurants that are used in
connection with the operation of the Company Restaurants, including,
without limitation, cleaning and maintenance supplies, paper goods, forms
and office supplies, in each case determined as of 12:01 a.m. on the
Effective Date.
"NOTE" means the promissory note substantially in the form
attached hereto as EXHIBIT C executed by RTM or a Buyer designated by RTM
in favor of Seller in the original principal amount of Four Million
Dollars ($4,000,000).
"OFFICE FF&E" means furniture, fixtures and equipment located in
the premises encompassed by the Office Lease.
"OFFICE LEASE" means a lease of office premises at 1717 Elm Hill
Pike (Suite B-9) Nashville, Tennessee 37210 containing terms and
conditions reasonably satisfactory to RTM and Seller; provided, however,
that the duration of such lease need not exceed twelve (12) months.
"OWNED RESTAURANT" means one of the Company Restaurants, the land
and/or building for which is owned in fee simple by Seller. "OWNED
RESTAURANTS" means such forty-eight (48) owned Company Restaurants,
collectively.
"PERMITTED ENCUMBRANCES" shall have the meaning set forth in
SECTION 11.A.(1).
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"PERSON" means an individual, partnership, corporation, trust or
other similar entity, or a government or agency or instrumentality
thereof.
"PURCHASED ASSETS" shall have the meaning set forth in SECTION
2.A.
"PURCHASE PRICE" shall have the meaning set forth in SECTION 3.A..
"RTM GUARANTY" means the guaranty by RTM substantially in the form
attached hereto as EXHIBIT D executed by RTM pursuant to which RTM
guarantees the obligations of the Buyer designated by RTM to execute the
Note if the maker of the Note is a Person other than RTM.
"RTM'S COUNSEL" means Arnall Golden & Gregory of Atlanta, Georgia.
"REAL ESTATE MORTGAGES" shall have the meaning set forth in
SECTION 8.M..
"REALCO" shall have the meaning set forth in the FIRST RECITAL of
this Agreement.
"SECURITY AGREEMENT" means the security agreement substantially
in the form attached hereto as EXHIBIT E executed by RTM or the Buyer
designated by RTM to purchase the Trademarks, the Franchise Agreements and
certain other assets pursuant to which RTM or such Buyer pledges its
interests in the Trademarks, the Franchise Agreements and such certain
other assets to Seller as security for the Note.
"SELLER" shall have the meaning set forth in the INTRODUCTORY
PARAGRAPH of this Agreement.
"SELLER'S COUNSEL" means Tuke Yopp & Sweeney of Nashville,
Tennessee.
"SUBSIDIARY" shall have the meaning set forth in the PREAMBLE of
this Agreement.
"SUBSIDIARY FRANCHISE AGREEMENT" means one of the agreements
listed on SCHEDULE 1.D.. "SUBSIDIARY FRANCHISE AGREEMENTS" means such
nineteen (19) agreements, collectively.
"TAX" means any federal, state, local or foreign income, sales,
property, excise, payroll, gross receipts, use, transfer, value added,
capital stock, franchise or other tax of any kind whatsoever, including
any interest, penalty or addition thereto, whether disputed or not.
"TAX RETURN" means any return, declaration, report, claim for
refund or information return or statement relating to Taxes, including any
amendment thereto.
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"TERMINATION DATE" means October 15, 1995, or such other date as
is determined pursuant to SECTION 15 of this Agreement.
"TITLE COMPANY" shall have the meaning set forth in SECTION
11.A.(1).
"TRADEMARK" means one of the service marks or trademarks or
applications therefor listed on SCHEDULE 1.E.. "TRADEMARKS" means such
nineteen (19) service marks and trademarks or applications therefor,
collectively.
"TRADEMARK ASSIGNMENT" means one of the assignments between Seller
and RTM or a Buyer designated by RTM pursuant to which one or more
Trademarks are assigned to RTM or such Buyer, in form and substance
reasonably acceptable to the parties.
"TRADE SECRET" means the formula described to on SCHEDULE 1.F..
"TRADE SECRET ASSIGNMENT" means an assignment between Seller and
RTM or a Buyer designated by RTM pursuant to which the Trade Secret is
assigned or transferred to RTM or such Buyer, in form and substance
reasonably acceptable to the parties.
"VEHICLES" means the vehicles listed on SCHEDULE 1.G..
All references herein to "Sections," "Schedules" and "Exhibits"
shall, unless otherwise indicated, refer to the sections, schedules and
exhibits which (through attachment or incorporation by reference) are a
part of this Agreement.
2. PURCHASE AND SALE OF ASSETS
A. RESTAURANT ASSETS. RTM shall designate Buyers to which
Seller shall assign, transfer and deliver all of the Purchased Assets.
In the absence of a designation of a Person as a Buyer for all or any
portion of the Purchased Assets, RTM shall fulfill the obligations of a
Buyer hereunder as to such Purchased Assets (or portion thereof) for which
RTM has failed to designate a Buyer. At the Closing, but effective on the
Effective Date, Seller agrees to sell, assign, transfer and deliver (or,
in the case of Company Restaurants held by Realco, to cause Realco to
sell, assign, transfer and deliver) to a Buyer or Buyers (it being
expressly acknowledged and agreed by Seller that different Persons may be
designated by RTM for the purchase of different portions of the Purchased
Assets and/or for the assumption of the Assumed Liabilities (as defined
below), and that the Purchase Price shall be allocated among and between
the Purchased Assets in the manner provided for below), and such Buyer or
Buyers designated by RTM shall purchase from Seller, for the Purchase
Price and upon and subject to the terms and conditions hereinafter set
forth, the following described assets (the "Purchased Assets") as they
exist on the Effective Date:
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(1) OWNED REAL PROPERTY AND IMPROVEMENTS. Fee simple
title to the real property on which the Owned Restaurants are
situated and the improvements thereon (subject to certain Owned
Restaurants being leased pursuant to SECTION 11) and, to the
extent not conveyed pursuant to the Lease Assignments, all of
Seller's (or Realco's) right, title and interest in and to the
leasehold improvements to the property containing the Leased
Restaurants, together with any and all rights, titles, interests,
privileges and/or appurtenances pertaining thereto included
therewith, or which are a part thereof.
(2) LEASEHOLD INTEREST. All of Seller's leasehold
right, title and interest in and to real property on which the
Leased Restaurants are situated and the improvements thereon.
(3) TRADEMARKS AND TRADE SECRET. All of Seller's
and/or Subsidiary's right, title and interest in and to the
Trademarks and the Trade Secret.
(4) FRANCHISE AGREEMENTS. All of Seller's and
Subsidiary's right, title and interest in and to the Franchise
Agreements and Subsidiary Franchise Agreements.
(5) FURNITURE, FIXTURES AND EQUIPMENT. All right,
title and interest of Seller in and to the FF&E (including,
without limitation, any spare and replacement parts and surplus
restaurant equipment located in the Company Restaurants) used in
connection with the operation and maintenance of the Company
Restaurants.
(6) INVENTORIES. All right, title, and interest of
Seller in and to the Inventories located in the Company
Restaurants.
(7) DEFERRED FRANCHISE FEES. All right, title and
interest of Seller in and to any and all deferred franchise fees
set forth on SCHEDULE 2.A.(7) (the "Deferred Franchise Fees").
(8) CONTRACTS. All right, title and interest of
Seller in, to and under those contracts relating to the use or
operation of the Company Restaurants that are set forth on
SCHEDULE 2.A.(8), which RTM or a Buyer designated by RTM agrees
to assume as provided below (the "Assigned Contracts"). Within
thirty (30) days following the execution of this Agreement,
Seller shall provide to RTM copies of all contracts relating to
the use or operation of the Company Restaurants, including,
without limitation, billboard contracts, music service
agreements, equipment leases and/or service contracts and pest
control service agreements, easements, rights of way, reciprocal
easement agreements and nondisturbance agreements, which RTM or
a Buyer designated by RTM shall
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assume so long as any such contract or agreement is cancelable by
Seller (or RTM or such Buyer, after its assumption) without
penalty, on a "no default" basis and upon not more than ninety
(90) days notice. RTM or a Buyer designated by RTM may, but
shall not be required to, assume any contract or agreement not so
cancelable.
(9) PERMITS AND LICENSES. All right, title and
interest of Seller in and to all permits and licenses owned and
held by Seller in connection with the operation of the Company
Restaurants, to the extent that such permits and licenses are
assignable.
(10) VEHICLES. All right, title and interest of
Seller in and to the Vehicles.
(11) PETTY CASH. All right, title and interest of
Seller in and to the amount of all petty cash on hand at the
Company Restaurants as of 12:01 a.m. on the Effective Date (the
"Petty Cash").
(12) MISCELLANEOUS. To the extent they relate to the
Company Restaurants, all training and operations manuals (and all
rights therein, including copyrights); copies of personnel
records, to the extent permissible by law; and, to the extent
they relate to either or both the Company Restaurants and/or the
Franchised Restaurants and are owned by Seller, non-exclusive
(i.e. as to the franchisees or licensees under the Franchise
Agreements, but otherwise exclusive) rights to the use and
reproduction of television and radio commercial and advertising
material, newspaper mats and other advertising material, menus
and computer programs (including, without limitation, that
certain computer program used to monitor "Famous Recipe" spice
sales) including, without limitation, all copyrights therein
owned by Seller; business forms and copies of historical
accounting records; and non-exclusive (i.e. as to the franchisees
or licensees under the Franchise Agreements, but otherwise
exclusive) rights to the Trade Secret.
B. ASSETS NOT BEING PURCHASED AND SOLD. No asset, property
or item not specifically described above or in the Schedules attached
hereto is being conveyed to RTM or a Buyer designated by RTM hereunder.
Furthermore, RTM and Seller acknowledge and agree that the real property
comprising the Company Restaurant located at 5821 Beach Boulevard,
Jacksonville, Florida (Seller's unit # 5727) is subject to a right of
first refusal to repurchase such Company Restaurant in favor of Seller's
grantors. Notwithstanding any provision of this Agreement to the
contrary, Seller and RTM or a Buyer designated by RTM shall enter into a
New Lease with respect to Company Restaurant No. 5727 and this Agreement
shall not be deemed to be a contract to sell the Real Property comprising
such Company Restaurant; provided, however, that, in the event Seller and
RTM or a Buyer designated by RTM
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obtain the consent of, and waiver of such right of first refusal to
repurchase by, the holders thereof to a conveyance of such Company
Restaurant pursuant to terms of this Agreement, RTM or a Buyer designated
by RTM shall purchase such Company Restaurant on the terms and conditions
set forth in this Agreement.
C. TRANSFER OF PURCHASED ASSETS. On the Closing Date, but
effective on the Effective Date, Seller shall transfer the Purchased
Assets, free of all mortgages, liens and encumbrances other than Permitted
Encumbrances, to RTM or a Buyer designated by RTM in the following manner:
(1) TRANSFER OF OWNED RESTAURANTS AND IMPROVEMENTS.
Seller shall (or, in the case of Company Restaurants held by
Realco, shall cause Realco to) transfer the real property and
improvements relating to the Owned Restaurants to RTM or a Buyer
designated by RTM pursuant to special warranty deeds (i.e. a deed
by a corporation containing warranties of title as against any
claims of the grantor and of all persons or parties holding or
claiming by, through or under the grantor) in recordable form,
free of all mortgages, liens and encumbrances other than
Permitted Encumbrances. Such instruments of transfer are
referred to herein collectively as the "Deeds." Alternatively,
if an Owned Restaurant is not conveyed but is leased pursuant to
SECTION 11, Seller shall lease the real property and improvements
relating to such Owned Restaurant to RTM or a Buyer designated by
RTM pursuant to a New Lease.
(2) TRANSFER OF LEASES. Seller shall transfer all
right, title and interest in the Leases together with the
improvements related thereto, to RTM or a Buyer designated by RTM
pursuant to lease assignments in recordable form, free of all
mortgages, liens and encumbrances other than Permitted
Encumbrances; provided, however, that, with the mutual agreement
of the parties, Seller may sublease all of its right, title and
interest in a particular Leased Restaurant to RTM or a Buyer
designated by RTM. Such instruments of transfer are referred to
herein collectively as the "Lease Assignments."
(3) TRANSFER OF TRADEMARKS AND OF TRADE SECRET.
Seller shall transfer the Trademarks to RTM or a Buyer designated
by RTM, and Seller shall transfer the Trade Secret to RTM or a
Buyer designated by RTM, including without limitation (as to both
and/or as to the Purchased Assets generally) all of the goodwill
of the business appurtenant thereto and the right to sue for past
infringements or breaches of non-disclosure agreements, pursuant
to assignments which, with respect to the Trademarks, shall be in
suitable form for recordation with the United States Patent and
Trademark Office. Such instruments of transfer are referred to
herein as the "Trademark Assignments" and the "Trade Secret
Assignments", respectively.
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(4) TRANSFER OF FRANCHISE AGREEMENTS. Seller and
Subsidiary shall transfer all of their respective right, title
and interest in and to the Franchise Agreements and Subsidiary
Franchise Agreements pursuant to general assignments. Such
instruments of transfer are referred to herein as the "Franchise
Assignments."
(5) TRANSFER OF INVENTORIES. Seller shall transfer
the Inventories to RTM or a Buyer designated by RTM pursuant to
bills of sale, in form and substance reasonably satisfactory to
the parties, free and clear of all mortgages, liens and
encumbrances.
(6) TRANSFER OF FF&E. To the extent not leased and
transferred as an Assigned Contract, Seller shall transfer the
FF&E and Office FF&E to RTM or a Buyer designated by RTM pursuant
to bills of sale, in form and substance reasonably satisfactory
to the parties, free and clear of all leases, mortgages, liens
and encumbrances.
(7) TRANSFER OF THE ASSIGNED CONTRACTS. Seller shall
transfer the Assigned Contracts to RTM or a Buyer designated by
RTM pursuant to Contract Assignments, free and clear of all
mortgages, liens and encumbrances.
(8) TRANSFER OF VEHICLES. Seller shall transfer all
of Seller's right, title and interest in and to any and all owned
Vehicles by bill of sale and endorsed certificate or registration
of title documents (collectively, the "Vehicle Transfer
Documents"), free and clear of all security interests, liens,
claims or encumbrances.
(9) TRANSFER OF OTHER PURCHASED ASSETS. Seller shall
transfer the other Purchased Assets to RTM or a Buyer designated
by RTM pursuant to General Assignments, free and clear of all
mortgages, liens and encumbrances.
D. FORMS OF TRANSFER, ASSIGNMENT AND/OR CONVEYANCE
DOCUMENTS. The documents and/or instruments referred to in SECTION
2.C.(1) to 2.C.(9) above, and any and all other documents, instruments
and/or agreements necessary hereunder or required to be executed by either
or both of the parties hereto in order to consummate the transaction
contemplated by and/or effectuate the intent of this Agreement, shall all
be in form and substance reasonably satisfactory to the parties.
3. PURCHASE PRICE
A. PURCHASE PRICE FOR PURCHASED ASSETS. In addition to the
assumption of Seller's obligations under the Assigned Contracts, the
Franchise Agreements and the Leases by RTM or a Buyer designated by RTM,
the purchase price to be paid by RTM
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or a Buyer designated by RTM to Seller for the Purchased Assets shall be
the sum of the following (collectively, the "Purchase Price"), subject to
adjustment as provided for elsewhere in this Agreement:
(1) CASH PAYMENT. A payment of Twenty-Six Million
Nine Hundred Eighty-Five Thousand Three Hundred Six and No/100
Dollars ($26,985,306.00) in cash (the "Cash Payment");
(2) PROMISSORY NOTE: The Note, in the original
principal amount of Four Million and No/100 Dollars
($4,000,000.00), which shall secured by a pledge of the
Trademarks and the Franchise Agreements pursuant to the Security
Agreement and, if executed and delivered by a Buyer designated by
RTM, shall be guaranteed by RTM pursuant to the RTM Guaranty;
(3) INVENTORY COST: A cash payment in the amount of
the original cost of the Inventories;
(4) CREDIT OR PAYMENT FOR PRORATIONS: An amount
equal to the sum due Seller or minus the credit due RTM or a
Buyer designated by RTM, as the case may be, as a result of the
prorations to be made as of the Effective Date relating to the
Company Restaurants in accordance with SECTION 5;
(5) CREDIT FOR DEFERRED FRANCHISE FEES: A credit in
an amount equal to the Deferred Franchise Fees; and
(6) PETTY CASH: An amount equal to the Petty Cash.
B. MEANS OF PAYMENT. RTM or a Buyer designated by
RTM shall execute and deliver the Note to Seller and pay the Cash
Payment to Seller by wire transfer of immediately available funds
on the Closing Date. Within five (5) days after determination of
the amount of any of the items in SECTIONS 3.A.(3)-(6) (but in no
event later than sixty (60) days after the Closing Date), the net
payment for such portion of the Purchase Price so determined and
attributable shall be paid by wire transfer of immediately
available funds by the appropriate party to the other .
C. ALLOCATION. RTM and any Buyers designated by RTM and
Seller, prior to Closing, shall allocate the portion of the Purchase Price
payable pursuant to SECTION 3.A.(1). and SECTION 3.A.(2). in a manner
mutually agreed between RTM and Seller based upon their joint
determination, as of the Closing Date, of the fair market value of various
portions of the Purchased Assets. Seller and RTM and a Buyer designated
by RTM agree to cooperate as appropriate for all relevant tax purposes
relating to the transactions contemplated by this Agreement, including the
filing of a mutually acceptable IRS Form 8594, Asset Acquisition Agreement
under Section 1060 of the
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Code, and to report consistently for tax purposes the transactions
provided for in this Agreement as allocated in or pursuant to this
Agreement. RTM and a Buyer designated by RTM agree to send to Seller a
completed copy of its Form 8594 ("Asset Acquisition Statement under
Section 1060") with respect to this transaction prior to filing such form
with the Internal Revenue Service.
4. ASSUMPTION OF CERTAIN OBLIGATIONS AND LIABILITIES
A. ASSUMPTION OF CERTAIN OBLIGATIONS AND LIABILITIES BY RTM
OR A BUYER DESIGNATED BY RTM. At the Closing, but effective on the
Effective Date, upon and subject to the terms and conditions hereinafter
set forth, RTM or a Buyer designated by RTM shall assume and agree to
perform or discharge the following obligations and liabilities of Seller
(collectively, the "Assumed Liabilities"):
(1) ASSIGNED CONTRACTS. The obligations of Seller
to be performed from and after the Effective Date under the
Assigned Contracts for services performed or goods delivered on
or after the Effective Date.
(2) UTILITIES. The utility payments for the
utilities serving the Company Restaurants accruing on and after
the Effective Date.
(3) DISCOUNT COUPONS. The obligations of Seller with
respect to normal amounts of any usual and customary
complimentary meals or gift certificates issued by Seller to the
general public before the Effective Date.
(4) LEASES. The obligations of Seller under the
Leases which first accrue from and after the Effective Date.
(5) FRANCHISE AGREEMENTS. The obligations of Seller
and Subsidiary under the Franchise Agreements and Subsidiary
Franchise Agreements, respectively, which first accrue from and
after the Effective Date and the obligations of Seller under
those certain guaranties of the Subsidiary Franchise Agreements
as listed on SCHEDULE 2.A.(8) which first accrue from and after
the Effective Date.
B. NO OTHER LIABILITIES ASSUMED. With the exception of the
Assumed Liabilities described above in SECTION 4.A. or as expressly
provided in any other provision of this Agreement, neither RTM nor a Buyer
designated by RTM shall assume hereunder, or be responsible or liable in
any way or amount for or in respect of, any obligations, commitments,
indebtedness or liabilities of Seller, Realco or Subsidiary of any kind
or character whatsoever (including, without limitation, those obligations
of Seller set forth on SCHEDULE 8.H. and/or SCHEDULE 8.V.(3)) (all such
obligations, liabilities, commitments and obligations that are not being
assumed by
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RTM or a Buyer designated by RTM being collectively referred to herein as
the "Excluded Liabilities"), including without limitation any liability
for any acts, omissions, occurrences, conditions or events which first
arose or accrued prior to the Effective Date (even if a claim or demand
pertaining thereto is not asserted or made until or after the Effective
Date), for any Litigation involving Seller or Subsidiary, for any existing
Asbestos or Hazardous Materials at any of the Company Restaurants, any
liability to Seller's or Subsidiary's vendors or sellers of goods,
merchandise, materials, foods or beverages, or any produce, product or
thing included in Inventories (other than liabilities which first accrue
from and after the Effective Date under or pursuant to the Assigned
Contracts), and any liability for any sales, use, excise, income or other
taxes attributable to the ownership, operation or management of the
Company Restaurants prior to the Effective Date. Seller and/or Subsidiary
is liable and responsible for, and shall be and remain liable and
responsible for, any and all Excluded Liabilities, and neither RTM nor a
Buyer designated by RTM shall have any liability or responsibility for the
same.
5. PRORATIONS
The following items related to the Company Restaurants shall be
prorated between Seller (or Realco, as applicable) and RTM or a Buyer
designated by RTM as of 12:01 a.m. on the Effective Date:
A. UTILITIES. Utilities relating to the Company
Restaurants, to the extent that the utilities have not been transferred
to RTM or a Buyer designated by RTM as of the Effective Date. If and to
the extent that any utilities have been so transferred, then Seller shall
be and remain liable for the same as an Excluded Liability to the extent
that they relate to the ownership, operation and/or management of the
Company Restaurants prior to the Effective Date.
B. REAL ESTATE TAXES. Real estate taxes and assessments
relating to the Company Restaurants based upon the latest tax bill
available (to be redetermined based upon actual bills as soon as actual
bills are received).
C. PERSONAL PROPERTY TAXES. Personal property taxes and
assessments, if any, relating to the Purchased Assets based upon the
latest tax bill available (to be redetermined based upon actual bills as
soon as actual bills are received).
D. RENT. Rents in arrears, prepaid rents and other charges
in connection with the Company Restaurants or in respect of the Leases and
the Assigned Contracts, including transferable equipment leases,
agreements or contracts or permitted renewals or replacements thereof
relating to the Company Restaurants. With respect to the Leases, RTM or
a Buyer designated by RTM shall pay RTM's or such Buyer's share of the
percentage rent due under the terms of the Leases, determined as provided
below. RTM's or such Buyer's share of the percentage rent
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for the period of time commencing on the Effective Date to the end of the
then current lease year (or lease quarter, if rent for a Lease is
calculated and paid on a quarterly basis) under a Lease shall be
calculated by multiplying the total percentage rents owed for such lease
year (or lease quarter) based upon the gross sales generated by a Leased
Restaurant by both Seller and RTM or such Buyer by a fraction, the
numerator of which shall be RTM's or such Buyer's gross sales from the
Leased Restaurant during such lease year (or lease quarter) and the
denominator of which shall be the total gross sales of RTM or such Buyer
and Seller from the Leased Restaurant during such lease year (or lease
quarter). Calculation of RTM's or such Buyer's share of the percentage
rent under a Lease shall be made by RTM or such Buyer and communicated to
Seller promptly after the end of the lease year (or lease quarter) for a
Lease and Seller or RTM or such Buyer, as the case may be, shall make the
allocation payments due the other within ten (10) business days after such
communication.
In the event that all information necessary to make any one or more
prorations is not available as of the Effective Date, no payment shall be
made therefor at such time but, as soon as such information becomes
available, the determination of the exact amount of proration shall be
made and appropriate payments promptly rendered by Seller and/or RTM or
such Buyer. To the extent any proration errors are discovered after the
Effective Date, the parties agree to promptly make the appropriate
payments necessary to correct such errors.
6. INVENTORIES; ACCOUNTS RECEIVABLE
A. After the close of business on the night before the
Effective Date, representatives of Seller and representatives of RTM or
a Buyer designated by RTM jointly shall conduct a physical inventory of
the Inventories at the Company Restaurants to be transferred on such
Effective Date.
B. All receivables that are: (1) royalties due from a
franchisee/licensee that accrue prior to the Effective Date or (2)
accounts receivable for any goods or equipment shipped to a
franchisee/licensee prior to the Effective Date shall be the property of
Seller. Seller shall furnish a listing of these receivables existing as
of the Effective Date as soon as practicable following the Closing. After
the Closing, Seller shall have the duty to collect any receivables that
are its property. In order to facilitate and expedite the collections of
these sums by Seller, RTM agrees that, for a period of six (6) months
following the Effective Date, either RTM or a Buyer designated by RTM,
subject to the following two sentences, upon the request of Seller (after
Seller has undertaken commercially reasonable collection efforts (not
including litigation)), shall: (1) notify any franchisee/licensee who is
delinquent in its accounts with Seller that such delinquency constitutes
a default under the franchisee/licensee's Franchise Agreement and that a
possible remedy is termination
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of that franchisee/licensee's Franchise Agreement(s); and (2) thereafter,
terminate such Franchise Agreements if such default is not cured within
the time period set forth in the applicable Franchise Agreement(s).
Seller shall not, and shall not have the ability to require RTM (or a
Buyer designated by RTM) to, send a franchisee/licensee a notice that it
is in default under a Franchise Agreement because of a delinquency in
payment of its accounts receivable unless and until an Actionable Account
Receivable has been outstanding in excess of fifty-six (56) days.
Furthermore, Seller shall not, and shall not have the ability to require
RTM (or a Buyer designated by RTM) to, terminate the Franchise Agreement
of a franchisee/licensee because of a delinquency in payment of its
accounts receivable unless and until an Actionable Account Receivable has
been outstanding in excess of one hundred eleven (111) days. "Actionable
Account Receivable" shall mean an account receivable that is not disputed
in good faith attributable to a Franchised Restaurant that exceeds $1,000
or that is attributable to a franchisee/licensee that operates multiple
Franchised Restaurants that exceeds $2,500 in the aggregate, in either
case in the applicable aging category previously described. Neither RTM
nor any Buyer designated by RTM shall take any action to impede Seller's
collections of its accounts receivable nor will RTM or any Buyer
designated by RTM give any franchisee/licensee any assurances with respect
to actions that may be taken with respect to that franchisee/licensee's
Franchise Agreement in the event its accounts receivable to Seller are not
paid. If a franchisee/licensee's Franchise Agreement(s) are terminated
because of an uncured default of its obligations thereunder to Seller,
Neither RTM nor any Buyer designated by RTM shall grant a new
franchise/license agreement to such franchisee/licensee until such time
as the franchisee/licensee pays all amounts owed to Seller. Further,
notwithstanding Seller's inability (as agreed to in the foregoing
provisions) to send a notice of the franchisee/licensee's being in default
of its Franchise Agreement(s), Seller shall not be prohibited from
pursuing any other collection efforts for amounts owed, including
litigation. In the event that RTM or any Buyer designated by RTM desires
that the Franchise Agreement(s) of a franchisee/licensee that has been
notified of a default in monies owed to Seller not be terminated, RTM or
any Buyer designated by RTM, at its option, may apply fifty percent (50%)
of the current payments then being received from such franchisee/licensee
to amounts owed to Seller, in which event Seller shall have no right of
termination with respect to such franchisee/licensee's Franchise
Agreement(s) so long as such payments continue to be applied to Seller's
outstanding receivables until they are paid in full. If so applied and
a franchisee/licensee pays additional monies to Seller, Seller agrees to
promptly remit such sums to RTM or any Buyer designated by RTM.
7. TRANSFERS OR ISSUANCE OF LICENSES; HSR NOTIFICATION
A. Promptly following the execution hereof, RTM or a Buyer
designated by RTM shall, with Seller's reasonable assistance and
cooperation, prepare and file with the appropriate licensing authorities
applications for the issuance or transfer of all
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state and local permits and licenses required for RTM or such Buyer to
operate the Company Restaurants that it is acquiring in the manner in
which RTM or such Buyer intends to operate such Restaurants. Seller and
RTM agree to use their best reasonable efforts to secure such transfers,
or new permits and licenses, with respect to the Company Restaurants on
or prior to the Effective Date. RTM and Seller each shall be responsible
for and shall pay one-half the fees imposed by governmental entities in
connection with the transfer of any permits or licenses, and RTM shall be
responsible for the cost of any new permits or licenses relating to the
Company Restaurants.
B. Promptly following execution hereof, RTM shall prepare
and file the premerger notification required by the Hart-Scott-Rodino
Antitrust Improvement Act of 1977 (the "HSR Act") and pay any fees
associated with such filing. Seller shall cooperate with RTM in preparing
and filing such notification. Seller shall reimburse RTM for one-half of
any filing fees (but not related legal and other costs of preparation)
associated with such filing at the earlier of: (1) the Closing; or (2) if
the Closing does not occur, within thirty (30) days after the Termination
Date unless the failure of the Closing to occur resulted solely from the
failure of RTM to satisfy its obligations hereunder or to satisfy the
conditions set forth in Section 13.B.. Seller shall reimburse RTM for all
of any filing fees (but not related legal and other costs of preparation)
associated with such filing within thirty (30) days after the Termination
Date if the Closing does not occur, if the failure of the Closing to occur
resulted solely from the failure of Seller to satisfy its obligations
hereunder or to satisfy the conditions set forth in SECTION 13.A..
8. SELLER'S AND SUBSIDIARY'S REPRESENTATIONS AND WARRANTIES
In order to induce RTM to enter into this Agreement and to induce
RTM and a Buyer designated by RTM to consummate the transactions
contemplated hereby, Seller and Subsidiary represent and warrant to RTM
and each Buyer designated by RTM as follows:
A. GENERAL. The statements contained in SECTION 8.B.
through SECTION 8.BB. are true and correct as of the date hereof and will,
except where specific reference is made to the date of this Agreement or
to another date, be true and correct in all material respects as of the
Closing Date and as of the Effective Date.
B. GOOD STANDING OF SELLER. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Tennessee. Seller is duly authorized to conduct business and is
in good standing under the laws of the States of Alabama, Florida,
Illinois, Kentucky and Missouri. Seller has all requisite corporate power
and authority to own, operate and lease its property and to carry on its
business as now being conducted and to enter into and perform its
obligations under this Agreement and under all other agreements
contemplated by this Agreement.
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C. GOOD STANDING OF SUBSIDIARY AND REALCO. Subsidiary is
a corporation duly organized, validly existing and in good standing under
the laws of Canada and in good standing under the laws of the provinces
of Alberta, British Columbia, Manitoba, Saskatchewan and Ontario. Realco
is a corporation duly organized, validly existing and in good standing
under the laws of the State of Tennessee. Realco is duly authorized to
conduct business and is in good standing under the laws of the States of
Alabama, Illinois and Missouri. Both Subsidiary and Realco have all
requisite corporate power and authority to own, operate and lease their
respective properties and to carry on their respective businesses as now
being conducted.
D. BOARD AND SHAREHOLDER AUTHORIZATION. Each of Seller,
Realco and Subsidiary has received, or will have received as of the
Closing Date, the approval of this Agreement and all other agreements
contemplated by this Agreement from each of their respective boards of
directors. The individuals executing this Agreement on behalf of and in
the name of Seller and Subsidiary are duly authorized and empowered to so
act. There is no requirement that the execution or performance of this
Agreement be authorized or approved by Seller's shareholders.
E. CONSENTS. Each of Seller, Realco and Subsidiary has
received, or will have received as of the Closing Date, any and all
consents to the transactions contemplated by this Agreement which are
necessary or required, including without limitation those required of
parties to the Assigned Contracts, the Leases, the Franchise Agreements,
parties to restrictive covenants affecting the Company Restaurants or
issuers of the permits and licenses to be transferred to Buyer
(collectively, the "Required Consents"), and neither the execution or
performance of this Agreement and all other agreements contemplated by
this Agreement by Seller, Realco and Subsidiary nor the consummation of
the transactions contemplated hereby will require the consent, approval
or authorization of any other Person.
F. LEGALITY AND ENFORCEABILITY. This Agreement has been
duly executed and delivered by Seller and Subsidiary and is the legal,
valid and binding obligation of Seller and Subsidiary, respectively,
enforceable against Seller and Subsidiary, as the case may be, in
accordance with its terms, subject to applicable bankruptcy laws and
judicial limitations on the availability of equitable remedies.
G. OWNERSHIP OF REALCO AND SUBSIDIARY. Seller is the sole
shareholder of each of Realco and Subsidiary, and will remain and continue
to be such shareholder of both Subsidiary and Realco through the Closing
Date and will not sell or otherwise transfer or assign any of its stock
in either Subsidiary or Realco prior to the Closing Date.
H. LITIGATION. Except as set forth on SCHEDULE 8.H., there
is no pending, or, to either Seller's or Subsidiary's knowledge,
threatened litigation relating to the Purchased Assets. Neither Seller,
Realco nor Subsidiary is a party to any litigation,
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proceeding or controversy pending before any court or administrative
agency, nor is Seller, Realco or Subsidiary in receipt of any inquiry,
notice, citation, investigation or complaint from any governmental agency
or department, which might materially adversely affect Seller's or
Subsidiary's ability to perform their respective obligations under this
Agreement, or cause or result in a material adverse change in any of the
Company Restaurants or in the aggregate value of the Purchased Assets, nor
does Seller or Subsidiary have knowledge of any occurrence or condition
that might properly constitute a basis for such litigation or proceeding
or such inquiry, notice, citation, investigation or complaint, and neither
Seller, Realco nor Subsidiary is in default with respect to any judgment,
order, writ, injunction or decree of any court or administrative agency
which might materially adversely affect Seller's or Subsidiary's ability
to perform their respective obligations hereunder (all of the matters
discussed in this SECTION 8.H. being collectively referred to as
"Litigation").
I. FINANCIAL INFORMATION. Seller has delivered to RTM
copies of the financial information listed on SCHEDULE 8.I. hereto
(collectively, the "Seller Financial Information"). The Seller Financial
Information is true and correct in all material respects, was prepared in
the ordinary course of business consistent with the internal accounting
practices of Seller and/or of Subsidiary, consistently applied, and
accurately presents, for the periods indicated, the information presented
therein. There will not be any materially adverse difference between: (i)
the financial condition of Seller as of the Effective Date; and (ii) the
financial condition of Seller, as reflected in the Seller Financial
Information.
J. NO DEFAULT. Neither the execution, delivery nor
performance of this Agreement or the other agreements contemplated herein
in accordance with their respective terms, does or will, after the giving
of notice, the lapse of time or otherwise:
(1) conflict with, result in a breach of, or
constitute a default under, in a manner which would materially
adversely affect the Purchased Assets, the charter or bylaws of
Seller, Realco and/or Subsidiary, or any contract or any
agreement to which Seller, Realco and/or Subsidiary is a party or
by which Seller, Realco and/or Subsidiary, or the Purchased
Assets, are bound after giving effect to the Required Consents
referred to in SECTION 8.E. (including without limitation, the
Assigned Contracts, the Franchise Agreements, the Leases, the
Chattel Mortgages and the Real Estate Mortgages), or any federal
(i.e. U.S. or Canada), provincial, state or local law, statute,
ordinance, rule or regulation, or any court or administrative
order or process;
(2) result in the creation of any lien, encumbrance,
claim or security interest upon or in any of the Purchased
Assets; or
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(3) terminate, amend or modify, or give any party the
right to terminate, amend, modify, abandon or refuse to perform
any contract (including, without limitation, the Assigned
Contracts, the Franchise Agreements and the Leases after giving
effect to the Required Consents referred to in SECTION 8.E.),
agreement, arrangement, commitment or plan pertaining to the
Purchased Assets or the Company Restaurants to which Seller,
Realco and/or Subsidiary is a party.
K. NO RESTRICTIONS. Neither Subsidiary, Realco nor Seller
is party to, subject to or bound by any agreement, judgment, order, writ,
injunction or decree of any court or governmental body that could prevent
the consummation of the transactions contemplated herein. No applicable
federal (i.e. U.S. or Canada), provincial, state or local law or ordinance
prevents or prohibits the consummation of the transactions contemplated
herein or the continued operation of the Company Restaurants (or to the
knowledge of Seller, the Franchised Restaurants) under the "Lee's Famous
Recipe" concept or necessitates any filing or the taking of any action by
either or both of Subsidiary and/or Seller other than actions that have
been or that will be taken prior to the Closing Date or the Effective
Date, as contemplated herein.
L. NO MISSTATEMENTS, ETC. Neither this Agreement, the
Exhibits or Schedules attached hereto, nor any of the factual information
referenced in this Agreement that was provided or produced by Seller or
Subsidiary, when read together, contains any misstatement of a material
fact or omits to state a material fact necessary to make the statements
contained herein or therein not misleading.
M. MORTGAGES. Except for the real estate mortgages listed
on SCHEDULE 8.M.1. (the "Real Estate Mortgages") and the equipment leases,
equipment financing or chattel mortgages listed on SCHEDULE 8.M.2. (the
"Chattel Mortgages"), there are no mortgages, security interests or other
liens affecting the Purchased Assets or the Company Restaurants. Seller
has not received any notice of default, nor are there any defaults, or
events which, but for the passage of time or the giving of notice, would
constitute defaults, under the Real Estate Mortgages or Chattel Mortgages.
All payments of principal, interest and other payments as are required to
be made by Seller as of the date hereof relating to such Real Estate
Mortgages and Chattel Mortgages have been made and shall be made as of the
Effective Date, and, as of the Effective Date, Seller shall at its sole
cost and expense satisfy, discharge and remove of record all such Real
Estate Mortgages and all such Chattel Mortgages.
N. CHANGES, DAMAGES, AND DISPUTES. Since April 1, 1995,
there has not been any damage or destruction, whether or not covered by
insurance, materially adversely affecting any one or more of the Company
Restaurants or the use, operation or business of any one or more of the
Company Restaurants.
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O. ASSIGNMENTS OR TRANSFERS. Except as disclosed on
SCHEDULE 8.O., since April 1, 1995, neither Seller nor Realco has:
(1) Removed from the premises occupied by any of the
Company Restaurants any assets of the type which would be
Purchased Assets other than Inventories sold in the ordinary
course of business, and immaterial assets disposed of in the
ordinary course of business; or
(2) Operated any of the Company Restaurants except
in the usual, regular and ordinary manner or made any material
change in the manner of conducting its business at any of the
Company Restaurants, suffered any extraordinary loss with respect
to any of the Company Restaurants, or waived or released any
rights of a substantial character with respect to the Company
Restaurants.
P. TAX MATTERS. Except as described on SCHEDULE 8.P.,
each of Seller, Realco and Subsidiary timely has filed or received
extensions with respect to all Tax Returns required to be filed by Seller,
Realco and Subsidiary, respectively, relating, in whole or in part, to the
Company Restaurants, the Purchased Assets and/or the Restaurant Employees,
and each of Seller, Realco and Subsidiary has paid all Taxes required, in
whole or in part, to be paid in respect of the Company Restaurants, the
Purchased Assets and/or the Restaurant Employees. Neither Seller, Realco
nor Subsidiary is a party to any pending action or proceeding nor is there
any threatened action or proceeding for assessment or collection of Taxes
against Seller, Realco or Subsidiary relating, in whole or in part, to any
of the Company Restaurants, the Purchased Assets or the Restaurant
Employees, and no claims for assessment or collection of such Taxes have
been asserted against Seller, Realco or Subsidiary. From and after the
Effective Date, each of Seller, Realco and Subsidiary, respectively, shall
file any and all Tax Returns, and shall each pay any and all such Taxes,
with respect to, in whole or in part, the ownership, operation or
management of the Company Restaurants and/or the Purchased Assets, and/or
pertaining to the Restaurant Employees, and in either case attributable
to periods of time prior to the Effective Date. All such Taxes of Seller,
Realco or Subsidiary as described in or contemplated by this SECTION 8.P.
are Excluded Liabilities under this Agreement.
Q. TITLE. Seller (or Realco or Subsidiary, as applicable)
has good and valid title to, and is the sole owner of, all of the
Purchased Assets to be sold, transferred and assigned by Seller to Buyer
hereunder. On the Effective Date, good, valid and marketable title to
such Purchased Assets shall, as applicable, be sold, conveyed, assigned,
transferred and leased to Buyer, free and clear of any and all liens,
claims, demands or encumbrances of any kind or nature (except such
Permitted Encumbrances as are specifically applicable to each Purchased
Asset), and free and clear of all Excluded Liabilities under this
Agreement.
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R. TRADEMARK AND TRADE SECRET MATTERS.
(1) Seller has good and valid title to, and is the
sole owner of, the Trademarks in the respective jurisdictions set
forth on SCHEDULE 1.D. for goods and services with which the
Trademarks are used and the registrations thereof are valid and
subsisting and in full force and effect. Seller is not aware of:
(a) any proceedings to cancel any of the Trademarks; (b) any
allegation that any of the Trademarks infringes upon the rights
of another; or (c) any existing infringement of the Trademarks.
(2) From their respective date of registrations,
Seller has used and, through the Effective Date, Seller (either
itself or through its licensees) will continue to use the
Trademarks on each and every trademark class of goods and/or
services applicable to its operations in order to maintain the
Trademarks in full force and effect free from any claim of
abandonment for nonuse, and Seller will not (and will not permit
Subsidiary or any licensee thereof to) do any act or knowingly
omit to do any act whereby any Trademark may become invalid.
(3) Through the Effective Date, Seller will take all
necessary steps in any proceeding before the United States Patent
and Trademark Office to maintain each application and
registration of the Trademarks, including, without limitation,
filing of renewals, extensions, affidavits of use and
incontestability, and opposition, interference and cancellation
proceedings. Through the Effective Date, Seller shall notify RTM
promptly in writing if any application or registration relating
to any Trademark is contested or opposed, or is or may become
abandoned or dedicated or subject to an adverse final
determination in any proceeding in the United States Patent and
Trademark Office or any court regarding Seller's ownership of any
Trademark, its right to register same, or to keep or maintain the
validity of same.
(4) Seller has maintained the confidentiality of the
Trade Secret and has not disclosed the Trade Secret directly or
indirectly to any third party, except to those Persons set forth
on SCHEDULE 1.F..
S. FRANCHISE MATTERS.
(1) The Franchise Agreements are in full force and
effect and enforceable against the franchisees/licensees
thereunder in accordance with their terms, subject only to the
applicable bankruptcy laws and judicial limitations on
availability of equitable remedies. The consent of the
franchisees/licensees is not required for execution, performance
and effectiveness of the Franchise Assignments relating to the
Franchise Agreements. Except as disclosed on SCHEDULE 8.S.(1),
(i) to the knowledge of
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Seller, all royalties and other sums due and owing have been paid
in full as of the date hereof and will be paid in full as of the
Effective Date, (ii) Seller has not given or received notice
under any Franchise Agreement of any existing default or event of
default, (iii) to the knowledge of Seller, there is no event
which, with notice or lapse of time, or both, either would
constitute a default of Seller, and in respect of which Seller
has not taken adequate steps to prevent a default from occurring,
or, to the knowledge of Seller, would constitute a default by a
franchisee/licensee thereunder, (iv) to the knowledge of Seller,
there is no pending or threatened bankruptcy relating to a
franchisee/licensee under any of the Franchise Agreements, (v)
neither Seller nor, to the knowledge of Seller, any
franchisee/licensee under the Franchise Agreements, have
commenced any action or given or received any notice for the
purpose of terminating any Franchise Agreement, and (vi) there
are no offsets, defenses or abatements to the payment of the
royalties or other sums payable under any Franchise Agreement.
(2) The Subsidiary Franchise Agreements are in full
force and effect and enforceable against the
franchisees/licensees thereunder in accordance with their terms,
subject only to the applicable bankruptcy laws and judicial
limitations on availability of equitable remedies. The consent
of the franchisee/licensees is not required for execution,
performance and effectiveness of the Franchise Assignments
relating to the Subsidiary Franchise Agreements. Except as
disclosed on SCHEDULE 8.S.(2), (i) to the knowledge of Seller all
royalties and other sums due and owing under the Subsidiary
Franchise Agreements have been paid in full as of the date hereof
and will be paid in full as of the Effective Date, (ii) neither
Subsidiary nor Seller has given or received notice under any
Subsidiary Franchise Agreement of any existing default or event
of default, (iii) to the knowledge of Seller there is no event
which, with notice or lapse of time, or both, either would
constitute a default of Subsidiary under any Subsidiary Franchise
Agreement, and in respect of which Subsidiary has not taken
adequate steps to prevent a default from occurring, or, to the
knowledge of Seller, would constitute a default by a
franchisee/licensee thereunder, (iv) to the knowledge of Seller
there is no pending or threatened bankruptcy relating to a
franchisee/licensee under any Subsidiary Franchise Agreement, (v)
neither Subsidiary nor, to the knowledge of Seller, any
franchisee/licensee under the Subsidiary Franchise Agreements,
have commenced any action or given or received any notice for the
purpose of terminating any Subsidiary Franchise Agreement, and
(vi) there are no offsets, defenses or abatements to the payment
of the royalties or other sums payable under any Subsidiary
Franchise Agreement.
(3) SCHEDULE 8.S.(3) contains a list of all states
where Seller has registered to sell "Lee's Famous Recipe"
franchises, constituting each jurisdiction within the United
States where such registration presently is
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required. The effective dates of said registrations are set
forth on SCHEDULE 8.S.(3).
(4) SCHEDULE 8.S.(4) contains a list of all provinces
within Canada where Subsidiary has registered to sell "Lee's
Famous Recipe" franchises, constituting each jurisdiction within
Canada where such registration presently is required. The
effective dates of said registrations are set forth on SCHEDULE
8.S.(4).
(5) All franchisees/licensees of Seller and
Subsidiary have been supplied with all disclosures required by
applicable law, including without limitation, all rules and
regulations of the Federal Trade Commission. Such disclosures
complied, in all material respects, with applicable law. Seller
has delivered to RTM a true and correct copy of Seller's current
Uniform Franchise Offering Circular used by Seller in each state
within the United States in which registration of the sale of
franchisee is not required.
(6) Except as described on SCHEDULE 8.S.(6), neither
Seller nor Subsidiary has any agreement with any Person giving
any Person the right to receive commissions for the sale of
franchises for "Lee's Famous Recipe" restaurants nor does any
Person have any claim to any portion of the royalties payable
under the Franchise Agreements. Any obligations under these
agreements shall be Excluded Liabilities under this Agreement.
(7) For purposes of SECTIONS 8.S.(1) and (2) above,
the phrase "to the knowledge of Seller" means and refers to the
best knowledge, information and belief of Seller, having made
diligent inquiry.
T. LEASES IN FORCE. The Leases are in full force and effect
and enforceable against the lessors thereunder in accordance with their
terms, subject only to applicable bankruptcy laws and judicial limitations
on the availability of equitable remedies. Except for the necessity of
obtaining the lessors' consents to the Lease Assignments, and, if
applicable, the consents of any holders of any real estate mortgages of
such lessors, (i) all rents, additional rents, taxes, installments of
assessments and other sums due and owing with respect to the Leased
Restaurants, and the real property located thereunder and under the Leases
have been paid in full as of the date hereof and will be paid in full as
of the Effective Date, (ii) Seller has not received notice under any Lease
of any existing default, (iii) there is no event which, with notice or
lapse of time, or both, either would constitute a default of Seller, and
with respect to which Seller has not taken adequate steps to prevent a
default from occurring, or which, to the knowledge of Seller, would
constitute a default by a lessor thereunder, (iv) to the knowledge of
Seller, there is no pending or threatened bankruptcy relating to a lessor
or sublessor under any of the Leases, (v) neither Seller nor, to the
knowledge of Seller, any lessors under the Leases have commenced any
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action or given or received any notice for the purpose of terminating any
Lease, and (vi) there are no offsets, defenses or abatements to the
payment of the rents, additional rents or other sums payable under any
Lease, and there are no claims or counterclaims against the lessors
thereunder. Seller shall promptly request, and shall use its best
reasonable efforts to procure on or before the Closing Date, an estoppel
certificate or estoppel letter from the lessor of each Lease being
assigned by Seller to Buyer. The form of such estoppel certificate or
letter to be requested by Seller shall be mutually agreed upon by Seller
and RTM. RTM shall assist and cooperate with Seller in requesting and
procuring such estoppel certificates or consents, to the extent that it
is reasonably necessary for RTM to do so.
U. CONFORMANCE TO LAW. Seller, Realco and Subsidiary are in
compliance in all material respects with, and neither Subsidiary, Realco
nor Seller has received any notice or claim from any governmental
authority to the effect that Seller, any of the Company Restaurants,
Realco or Subsidiary, are in violation of any applicable law, ordinance,
regulation, order, codes or requirement relating to the ownership, use or
operation of any of the Company Restaurants, or to any of the Purchased
Assets which would materially interfere with the business operations
presently conducted by Seller at any of the Company Restaurants.
V. LABOR MATTERS.
(1) LABOR AGREEMENTS; RETIREMENT; VACATION AND SICK
PAY. Seller is not assigning or otherwise conveying to RTM or a
Buyer designated by RTM, and RTM or such Buyer is not assuming,
any of the following, each of which is an Excluded Liability
under this Agreement: (i) an agreement for the employment of any
Restaurant Employees, (ii) a collective bargaining agreement or
other agreement with any labor organization covering any
Restaurant Employees, or (iii) any Benefit Plans. Seller shall
discharge its obligations to the Restaurant Employees for
vacation or sick leave that has been earned as of, or is
attributable to any periods prior to, the Effective Date, or for
(iv) any liability of Seller with respect to a claimed failure to
comply with the Immigration Reform and Control Act prior to the
Effective Date.
(2) UNION; LABOR; WORK STOPPAGES. Seller is not a
party to any collective bargaining agreement or any other
contract, written or oral, with any trade or labor union,
employees' association or similar organization with respect to
the Company Restaurants or any Restaurant Employees. There are
no strikes, work stoppages, picketing or the like in process or,
to the knowledge of Seller, threatened with respect to any of the
Company Restaurants. During the two years preceding the date of
this Agreement, there have not been any strikes, significant
labor disputes, work stoppages or other events related to working
conditions materially adversely affecting any one or more of the
Company Restaurants or business of any of the Company
Restaurants, and
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during the two years preceding the date of this Agreement, there
has not been a union which is the recognized bargaining agent for
the Restaurant Employees of any one or more of the Company
Restaurants, nor, to Seller's knowledge, has there been any union
campaign or other activity or effort to organize or cause the
recognition of a union as the bargaining agent of any Company
Restaurant.
(3) BENEFIT PLAN MATTERS.
(a) SCHEDULE 8.V.(3) sets forth a true and
complete list of each Benefit Plan and, except as disclosed on
such Schedule, there are no other Benefit Plans pursuant to which
any Restaurant Employee is entitled to any benefits or for which
Seller has any obligation to any Restaurant Employee. Except as
otherwise agreed by RTM or a Buyer designated by RTM, RTM or such
Buyer shall not, as a result of the transactions contemplated by
this Agreement, become obligated under or liable with respect to
any Benefit Plan.
(b) No member of the Controlled Group
maintains or contributes to, is required to maintain or
contribute to, or, since January 1, 1989, has maintained or
contributed to, a "multiemployer plan" (as defined by Section
4001(a)(3) of ERISA).
(c) No member of the Controlled Group has
ceased operations at a facility so as to become subject to the
provisions of Section 4062(e) of ERISA.
(4) COBRA. Each member of the Controlled Group,
each Benefit Plan and each Benefit Plan "sponsor" or
"administrator" (within the meaning of Section 3(16) of ERISA)
has complied in all material respects with the applicable
requirements of COBRA. Seller is providing and will continue to
provide any "continuation coverage" as described in COBRA to and
will continue to comply with all of the requirements of COBRA
with respect to, Restaurant Employees who have or may become
entitled as a result of a qualifying event which occurs or
occurred on or prior to the Effective Date, including a loss of
coverage resulting from the transactions contemplated in this
Agreement.
(5) WARN. If required, Seller will provide any
notification required by the Worker Adjustment and Retraining
Notification Act as a result of the transactions contemplated in
this Agreement.
W. LICENSES AND PERMITS. Seller possesses all occupation
and other licenses and permits required for the operation of the Company
Restaurants, as presently being operated by Seller. Seller is in
compliance in all material respects with the
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requirements of such permits and licenses and all of such licenses and
permits are in good standing and no proceeding for the suspension or
revocation of any of them is pending or, to the knowledge of Seller,
threatened by any governmental authority.
X. BROKERS. With the exception of the assistance of
Salomon Brothers Inc, which was engaged by Seller, all negotiations
relative to this Agreement and the transactions contemplated hereby have
been carried on directly by Seller with RTM without the intervention of
any broker or other Person so as to afford a basis for any claim for
brokerage or other commissions or fees made by any brokers engaged by
Seller. Seller shall, at its sole cost and expense, pay any and all fees
or other payments owed to Salomon Brothers Inc, as an Excluded Liability
under this Agreement.
Y . HAZARDOUS MATERIALS; ASBESTOS.
(1) Except as set forth on SCHEDULE 8.Y., at all
times during Seller's use and occupancy of the Company
Restaurants through and including the date of this Agreement: (a)
Seller has not, and to Seller's knowledge, no other Person has
used, stored, released or disposed of Hazardous Materials on or
at the real property on which any of the Company Restaurants are
located (the "Real Property" (which term shall include the
building and improvements thereon)), except in compliance with
all applicable federal, state and local laws, ordinances, rules
and regulations in connection with Seller's use and occupancy of
each of the Company Restaurants and the Real Property and, to the
knowledge of Seller, there has been no release of Hazardous
Materials on to or affecting the Real Property from elsewhere,
(b) Seller has complied in all material respects with all
applicable federal, state and local environmental laws,
ordinances, rules and regulations; and (c) Seller has not
received any notice or advice from any governmental agency or any
source whatsoever with respect to Hazardous Materials on, from or
affecting the Real Property. Seller covenants to RTM that, as of
the date of this Agreement and until the Effective Date, neither
Seller nor any occupants of the Real Property shall use,
transport, store, release, dispose of or in any manner deal with
Hazardous Materials on the Real Property except in compliance
with all applicable federal, state and local environmental laws,
ordinances, rules and regulations. Seller covenants to RTM that,
through and including the Effective Date, Seller shall keep the
Real Property free and clear of any liens imposed pursuant to
such laws, ordinances, rules or regulations. In the event that
Seller receives any notice or advice from any governmental agency
or any source whatsoever with respect to Hazardous Materials, on,
from or affecting the Real Property (even if from elsewhere),
Seller shall immediately notify RTM.
(2) Seller represents and warrants to RTM that, to
the knowledge of Seller, there is no asbestos or material
containing asbestos ("Asbestos") on the
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Real Property. Seller covenants to RTM that, until the Effective
Date, the Real Property shall be kept free of Asbestos, and
Seller shall not install, or permit to be installed, Asbestos on
the Real Property. Seller covenants to RTM that Seller shall
comply, and ensure compliance by all occupants of the Real
Property, with all applicable federal, state and local laws,
ordinances, rules and regulations with respect to Asbestos, and
shall keep the Real Property free and clear of any liens imposed
pursuant to such laws, ordinances, rules or regulations. In the
event that Seller receives any notice or advice from any
governmental agency or any source whatsoever with respect to
Asbestos on which on, affecting or installed on the Real Property
(even if from elsewhere), Seller shall immediately notify RTM.
Seller agrees to reimburse RTM or a Buyer of a Company Restaurant
designated by RTM for any costs and expenses (in an amount not to
exceed $5,000.00 for each such Company Restaurant) incurred by
Buyer within three (3) year after the Closing Date in connection
with the removal or disposal of Asbestos from such Company
Restaurant.
(3) Except as set forth on SCHEDULE 8.Y., the Real
Property is in compliance in all material respects with, and
Seller has not received any notice or advice from any
governmental agency or any source whatsoever that the Real
Property is in material violation of any federal, state and local
Environmental Laws. For purposes of this Agreement,
"Environmental Laws" include but are not limited to the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA"), 42 U.S.C. Section 9601, et seq., the Superfund
Amendments and Reauthorization Act of 1986 ("SARA"), Public Law
99-499, 100 Stat. 1613, the Resource Conservation and Recovery
Act ("RCRA"), 42 U.S.C. Section 6901, et seq., and all other federal,
state or local environmental statutes, ordinances, rules and
regulations including but not limited to those relating to
emissions, discharges, or releases of pollutants, contaminants,
chemicals, including any Hazardous Materials or waste, into the
environment or otherwise relating to the manufacture, processing,
use, treatment, storage, disposal, transportation or handling of
pollutants, chemicals, contaminants or industrial, toxic
substances, Hazardous Materials or wastes.
(4) Except as set forth on SCHEDULE 8.Y., to the
knowledge of Seller: (a) there currently are no above ground or
underground storage tanks on the Real Property; and (b) no above
ground or underground storage tanks formerly located on the Real
Property or at any time located elsewhere have discharged or
released any Hazardous Materials onto or in the Real Property.
(5) Except as set forth on SCHEDULE 8.Y., there are
no agreements between the Seller and any governmental body or
agency (federal, state or local) or any private entity concerning
the Environmental Laws or relating in any
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way to the presence, spill, discharge, release, threat of
release, storage, treatment or disposal of any Hazardous
Materials.
(6) Seller has delivered to RTM or shall, on or
before July 27, 1995, deliver to RTM, copies of all reports or
tests with respect to the compliance of the Real Property with
the Environmental Laws and/or the presence of any Hazardous
Materials on the Real Property that were (a) prepared for Seller;
or (b) prepared for other parties and are in the possession of
Seller and, to the knowledge of Seller, all such reports and
tests contain no material misstatements or omissions.
(7) Except as set forth on SCHEDULE 8.Y., to the
knowledge of Seller, neither Seller nor the Real Property is
subject to any liability or obligation as a result of (a) the
environmental conditions on or under the Real Property (whether
originating on the Real Property or from any other property); or
(b) the past or present use, management, transportation,
treatment, generation, storage, disposal or release of Hazardous
Materials on, at or from the Real Property.
Z. FIRPTA. The sale of the Company Restaurants by Seller
and/or Realco constitutes a transfer of a "U.S. Real Property Interest"
as that term in defined in the Foreign Investments Real Property Tax Act
of 1980, as amended ("FIRPTA"), and at Closing Seller and/or Realco each
shall provide to RTM or a Buyer designated by RTM a FIRPTA certificate so
that RTM or such Buyer will have no duty under such Act to collect
withholding taxes for Seller and/or Realco. Neither Seller nor Realco is
a "Foreign Person" for the purposes of FIRPTA or the Federal Deficit
Reduction Act of 1984, as amended ("FDRA"). Seller is, and shall be and
remain, liable and responsible for any and all sums or amounts owed under
FIRPTA and/or FDRA as a result of the consummation of the transaction
contemplated by this Agreement, as Excluded Liabilities hereunder.
AA. ZONING. Seller has no knowledge that any of the Company
Restaurants is not properly zoned for its present use or that the
buildings or other improvements which are a part of the Company
Restaurants, nor their use or manner of use thereof as Company
Restaurants, violates or is in non-compliance with any applicable zoning
laws.
BB. ASSETS. At the Closing, the Inventories at each Company
Restaurant will be adequate for the operation of such Company Restaurant
and shall be at usual and customary levels in accordance with past
practice. 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 good operating condition, normal wear and tear excepted. Subsidiary
has no material assets related to the "Lee's Famous Recipe" System with
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the exception of the Subsidiary Franchise Agreements and the two
Trademarks noted on SCHEDULE 1.E..
9. BUYER'S REPRESENTATIONS AND WARRANTIES
In order to induce Seller to enter into this Agreement and
consummate the transactions contemplated hereby, RTM represents and
warrants to Seller as follows:
GENERAL. The statements contained in SECTIONS 9.B.
through 9.L. are true, and correct and will, except where specific
reference is made to the date of this Agreement or to another date, be
true, and correct in all material respects as of the Closing Date and as
of the Effective Date.
B. GOOD STANDING. RTM is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Georgia. RTM has all requisite corporate power and authority to own,
operate and lease its properties and to carry on its businesses as now
being conducted and to enter into and perform its obligations under this
Agreement and under all other agreements contemplated by this Agreement.
Each Buyer designated by RTM (other than Investor) shall be a corporation
or other entity duly organized, validly existing and in good standing
under the laws of the state of its incorporation or organization and each
state in which any of the Purchased Assets to be purchased by such Buyer
are located. Each Buyer designated by RTM (other than Investor) shall
have all requisite corporate power and authority to own, operate and lease
its properties and to carry on its businesses as now being conducted and
to enter into and perform the obligations of a Buyer under this Agreement
and under all other agreements contemplated by this Agreement with respect
to the Purchased Assets to be purchased by such Buyer.
C. BOARD AND SHAREHOLDER AUTHORIZATION. The execution,
delivery and performance of this Agreement and all other agreements
contemplated by this Agreement have been duly authorized by the Board of
Directors of RTM. The individuals executing this Agreement and all other
agreements contemplated by this Agreement on behalf of and in the name of
RTM are duly authorized and empowered to so act. There is no requirement
that the execution or performance of this Agreement be authorized or
approved by RTM's shareholders.
D. CONSENTS. RTM and each Buyer designated by RTM has, or
will have as of the Closing Date, all consents of Persons required for the
execution and performance of this Agreement by RTM and such Buyer, and all
other agreements contemplated by this Agreement, and the consummation of
the transactions contemplated hereby will not require the consent,
approval or authorization of any other Person or public authority.
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E. LEGALITY AND ENFORCEABILITY. This Agreement has been
duly executed and delivered by RTM and is the legal, valid and binding
obligation of RTM enforceable against RTM in accordance with its terms,
subject to applicable bankruptcy laws and judicial limitations on the
availability of equitable remedies.
F. LITIGATION. RTM is not a party to any litigation,
proceeding or controversy pending before any court or administrative
agency, nor is RTM in receipt of any inquiry, notice, citation,
investigation or complaint from any governmental agency or department,
which might materially adversely affect either RTM's abilities to perform
its obligations under this Agreement or any other agreements contemplated
by this Agreement, nor does RTM know or have reasonable grounds to know
of any occurrence or condition that might adversely affect RTM's abilities
to perform its obligations under this Agreement or any other agreements
contemplated by this Agreement, nor does RTM 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.
G. NO DEFAULT. Neither the execution, delivery nor
performance of this Agreement or the other agreements contemplated herein
in accordance with their respective terms, does or will, after the giving
of notice, the lapse of time or otherwise, conflict with, result in a
breach of, or constitute a default under the charter or bylaws of RTM or
any contract or any agreement to which RTM is a party (except those for
which consent has been or will be obtained) or by which RTM is bound, or
any federal or state law, statute, ordinance, rule or regulation, or any
court or administrative order or process.
H. NO RESTRICTIONS. RTM is not a party to, subject to or
bound by any agreement, judgment, order, writ, injunction or decree of any
court or governmental body which could prevent the consummation of the
transactions contemplated herein. No applicable federal, state or local
law or ordinance prevents or prohibits the consummation of the
transactions contemplated herein or necessitates any filing or the taking
of any action by RTM other than actions that have been or that will be
taken prior to the Closing Date or the Effective Date, as contemplated
herein.
I. NO MISSTATEMENTS, ETC.. Neither this Agreement, the
Exhibits or Schedules attached hereto, nor any of the factual information
referenced in this Agreement that was provided or produced by RTM, when
read together, contains any misstatement of a material fact or omits to
state a material fact necessary to make the statements contained herein
or therein not misleading.
J. NO BROKER. All negotiations relative to this Agreement
and the transactions contemplated hereby have been carried on directly by
RTM with Seller without the intervention of any broker or other person
engaged by RTM so as to afford a basis for any claim for brokerage or
other commissions or fees relative to this
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Agreement or the transactions contemplated hereby. RTM agrees to bear
sole responsibility for any claims for brokerage or other commissions or
fees made by brokers engaged by RTM or a Buyer designated by RTM.
K. FINANCIAL STATEMENTS. RTM has delivered to Seller copies
of the financial information as listed on SCHEDULE 9.K. hereto
(collectively, the "RTM Financial Information"), which is incorporated
herein by reference. The RTM Financial Information, including any notes
thereto, have been prepared in accordance with generally accepted
accounting principles and practices consistently followed throughout the
periods indicated, and present fairly as of such date the financial
condition and assets and liabilities of RTM, and the results of operations
of RTM, to the extent presented for the periods indicated. There will not
be any materially adverse difference between: (i) the financial condition
of RTM as of the Effective Date; and (ii) the financial condition of RTM,
as reflected in the RTM Financial Information.
L. SOLVENCY. RTM is solvent as of the date of execution of
this Agreement and is generally paying its debts as they become due.
10. COVENANTS OF SELLER
Seller covenants and agrees with respect to the Company
Restaurants that, during the period from the date hereof to the Effective
Date, and, as specified below in SECTION 10.D., from and after the
Effective Date, Seller will:
A. OPERATE IN REGULAR MANNER. Operate each of the Company
Restaurants only in the usual, regular and ordinary manner and use
reasonable efforts (without entering into any written employment
agreements) to preserve intact its present business organization at the
restaurant level directly connected with the operations of the Company
Restaurants and not remove from the premises occupied by any of the
Company Restaurants any assets of a type which would be Purchased Assets
other than Inventories sold in the ordinary course of business; and
replenish and maintain Inventories at regular or normal intervals in
accordance with its past practice through the Effective Date.
B. MAINTENANCE OF PROPERTY. Maintain the Purchased Assets
(except Inventories, which may be used and replenished by Seller in
accordance with SECTION 10.A. above) in their current condition of repair,
ordinary wear and tear excepted.
C. BOOKS AND RECORDS. Maintain the books of account and
records relating to the operations of the Company Restaurants in the
usual, regular and ordinary manner on a basis consistent with past
practices.
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D. TAXES AND ASSESSMENTS. Pay when due and payable all
Taxes and assessments relating to the operation of the Company Restaurants
by Seller on or before such Effective Date and file all Tax Returns
relating to such Taxes and assessments whether such returns are required
to be filed before or after the Effective Date.
E. INSPECTION. Permit the representatives of RTM, including
engineers, architects and construction personnel, to inspect any of the
Company Restaurants and to inspect Seller's business records with respect
to any of the Company Restaurants or the Franchised Restaurants upon
reasonable notice and at any and all reasonable times during ordinary
business hours of Seller so long as the same does not materially or
unreasonably disrupt Seller's operation of the Company Restaurants.
F. RETENTION OF ASSETS. Not sell, assign, lease, convey,
encumber or otherwise dispose of or remove (without replacing) any assets
of a type which would be Purchased Assets (except Inventories, which may
be used and replenished by Seller in accordance with SECTION 10.A. above)
owned or used by it in connection with the operations of any of the
Company Restaurants other than with the prior written consent of RTM; not
engage in any activity or transaction in connection with any of the
Company Restaurants other than in the usual and ordinary course of
business or with the prior written consent of RTM.
G. NO AMENDMENTS; NEW AGREEMENTS. Except in the ordinary
course of business, not modify, amend or terminate any of the Assigned
Contracts, the Leases or the permits or licenses being assigned to and
assumed by RTM or a Buyer designated by RTM pursuant to this Agreement,
nor enter into any new agreements or contracts regarding any of the
Company Restaurants or Purchased Assets with terms beyond the Effective
Date which cannot be cancelled on not more than thirty (30) days' notice
without penalty by RTM or such Buyer, without the prior written consent
of RTM or such Buyer.
H. NO TAX SETTLEMENTS. Not withdraw, settle or otherwise
compromise any protest or reduction proceeding affecting real estate or
personal property taxes assessed against any Purchased Assets for any
fiscal period in which the Effective Date is to occur or any subsequent
fiscal period, without the prior written consent of RTM.
I. NOTICE OF CERTAIN EVENTS. Notify RTM in writing as soon
as possible upon Seller's receipt of any notices from any Persons or
governmental authorities pertaining to alleged illegal activities or
conditions at any of the Company Restaurants, and breach or alleged or
threatened breach of any Assigned Contract, Lease and/or Franchise
Agreement, or any other material adverse developments relating to any of
the Company Restaurants.
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J. FRANCHISE MATTERS. After the date of this Agreement,
Seller shall not enter into any new Franchise Agreement, nor modify, amend
or terminate (except in response to an uncured default pursuant to SECTION
6.B.) any existing Franchise Agreement, and shall cause Subsidiary not to
enter into any new Subsidiary Franchise Agreement or modify, amend or
terminate (except in response to an uncured default pursuant to SECTION
6.B.) any existing Subsidiary Franchise Agreement, unless (a) the prior
written consent of RTM is first had and obtained and (b) the prospective
franchisee is advised of the existence of this Agreement and the pending
sale of the Purchased Assets. From the date of this Agreement to the
Closing Date, Seller agrees that it will provide, on a timely basis, all
disclosure information required to be given to prospective franchisees
pursuant to the rules and regulations of the Federal Trade Commission and
applicable state franchise or similar laws. From the date of this
Agreement to the Closing Date, Seller shall file and diligently pursue all
required annual franchise renewals and take all other actions necessary
to maintain the effectiveness of any franchise filing which is required
for the offering of franchises in a particular state. For so long as the
Uniform Franchise Offering Circular Guidelines (as the same may be amended
from time to time) require RTM or a Buyer designated by RTM to provide to
prospective franchisees after the Closing Date information regarding
Seller (i.e., as a "predecessor" franchisor), Seller agrees to cooperate
with RTM or such Buyer and to promptly provide such information to RTM or
such Buyer (with RTM or such Buyer to pay any out-of-pocket costs (except
counsel fees) incurred by Seller in providing such information) following
Seller's receipt of a written request for the same from RTM or such Buyer.
K. INTERIM OPERATING RESULTS. Supply to RTM through the
Closing Date or Termination Date, whichever first occurs, copies of all
"weekly sheets" and periodic operating statements relating to the Company
Restaurants and copies of the sales reported by the Franchised
Restaurants, when they are received by Seller.
11. TITLE, ENVIRONMENTAL AND ENGINEERING MATTERS
A. TITLE MATTERS.
(1) TITLE POLICIES. The obligations of RTM to
consummate the transactions contemplated by this Agreement shall
be subject to RTM's ability to obtain an owner's or leasehold
title insurance policy, as applicable, issued by Chicago Title
Insurance Company ("Chicago") and/or Lawyer's Title Insurance
Company ("Lawyer's") (Chicago and Lawyer's are collectively
referred to as the "Title Company") with respect to each fee
simple or leasehold interest to be conveyed or assigned hereunder
on the regular and customary forms of title insurance policies
then being issued by the Title Company, with extended coverage,
insuring that RTM or a Buyer designated by RTM is the valid
owner, as of the Effective Date, of the fee simple or leasehold
estate
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being conveyed to it by the Deeds, New Leases or Lease
Assignments, as applicable. The costs of updating Seller's
existing title Commitments and/or Surveys, and the costs of
issuing such title policies at Closing, shall be paid one-half
(1/2) each by Seller and RTM; provided, however, that to the
extent the cost of the title policies issued by Lawyer's exceeds
the cost that would have been incurred had such title policies
been issued by Chicago, such excess cost shall be the
responsibility of RTM and shall be excluded in determining
Seller's share of such total costs. Each title policy (or the
final commitment if a policy is not obtained) shall contain no
exceptions to coverage other than the following exceptions, if
and to the extent approved by RTM in the manner provided below,
but only to the extent any specific exception is, in fact,
applicable to each specific Deed, New Lease or Lease Assignment
(each, a "Permitted Encumbrance"): (i) the liens of real estate
taxes not due and payable as of the Effective Date; (ii) license
and easements for public utilities; (iii) easements and
restrictions of record; (iv) all applicable zoning ordinances for
the governing municipality and other governmental regulations,
laws and ordinances; (v) such matters as are set forth on the
preliminary title commitments of the Title Company listed on
SCHEDULE 11.A(1) hereto (whether or not issued at the time of
execution of this Agreement) (the "Commitments"); (vi) the
underlying or prime lease[s] in the case of a Leased Restaurant;
and (vii) any other encumbrances which affect or burden a
specific Company Restaurant and which, either individually or in
the aggregate, do not materially interfere with or restrict the
use or operation of such Company Restaurant to be sold to RTM or
a Buyer designated by RTM.
(2) PRELIMINARY COMMITMENTS. Upon execution of this
Agreement, Seller shall provide to RTM copies of the Commitments
which were heretofore obtained by Seller, copies of each proposed
Permitted Encumbrance as set forth thereon, and copies of the
Surveys described in SECTION 11.A(4). Within thirty (30) days
after the date hereof, RTM shall specify to Seller and to the
Title Company any exceptions set forth in any such Commitment,
and/or revealed by any such Survey, which RTM objects to as a
Permitted Encumbrance. Any exception not so specified shall be
deemed approved by RTM. If Seller agrees that any proposed
Permitted Encumbrance to which RTM shall have objected should not
be a Permitted Encumbrance, then Seller shall use reasonable
efforts to cure, satisfy, discharge or remove each such proposed
Permitted Encumbrance to which RTM has objected, provided,
however, that Seller shall have no obligation to remove any title
exceptions to which RTM has objected. Seller shall notify RTM if
it disagrees with any objection to a proposed Permitted
Encumbrance by RTM within fifteen (15) days after Seller's
receipt of RTM's notice of such objection. If Seller fails or is
unable to remove any title exception to which RTM has objected
and such title exception, in the reasonable business judgement of
Seller and RTM, would have a material adverse effect on RTM's
ability to operate or finance the Company Restaurant
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affected thereby, and if any such matter is not otherwise
eliminated as an encumbrance prior to the Closing Date, then RTM
may elect not to purchase the Company Restaurant affected thereby
and to postpone such purchase, in which case RTM shall lease such
Company Restaurant in accordance with SECTION 11.C below. In
such event, a reduction shall be made in the Purchase Price for
such excluded Company Restaurant in accordance with SECTION 12.F.
of this Agreement.
(3) CONSENTS. Seller and Buyer shall cooperate in
taking all actions as shall be reasonably necessary to obtain (a)
any Required Consent of a lessor under a Lease which requires the
consent of such lessor to a Lease Assignment pertaining to such
Lease, and (b) any Required Consent of the parties under any
Assigned Contracts which require consents to the assignment of
such Assigned Contracts, and (c) any Required Consent under any
Permitted Encumbrance which requires consent to the transaction
contemplated in this Agreement, and (d) an estoppel letter or
estoppel certificate from each lessor under the Leases, as
contemplated in SECTION 8.T. above.
(4) SURVEYS. Upon execution of this Agreement,
Seller shall furnish to RTM copies of the surveys of the Real
Property for each Company Restaurant to be conveyed hereunder,
which surveys were heretofore obtained by Seller at its sole cost
and expense (collectively, the "Surveys"). Each such Survey
shall indicate the as-built location of buildings and structures
on the Real Property in question. The expense of any surveyor's
inspection reports and/or any updates to the Surveys required by
RTM or a Buyer designated by RTM and/or Title Company shall be
borne one-half each by RTM and Seller.
B. ENVIRONMENTAL MATTERS. Prior to the execution of this
Agreement, Seller has furnished to RTM Phase I environmental site
assessments (the "Assessments") prepared by Law Engineering ("Law")
relating to each of the Company Restaurants and/or parcel of Real
Property. Except with respect to the properties described in SECTION
11.D., RTM shall have a study period of thirty (30) days after the date
hereof within which to take such actions as may be recommended (e.g..,
additional testing or further file review) by Law in the Assessments or
as may be reasonably required by RTM or by a Buyer designated by RTM to
determine if there has been a release of Hazardous Material affecting any
of the Real Property and/or Company Restaurants. If there has been such
a release of Hazardous Material, Seller shall either pay directly for, or
shall reimburse RTM for the costs which RTM paid for such recommended
actions taken at such location; provided, however, that Seller's
obligation to pay for any such recommended actions taken by RTM shall not
exceed $12,500.00 at any one location and $150,000.00 in the aggregate.
If such actions taken indicate that there has been a release of Hazardous
Material affecting any of the Company Restaurants or Real Property. RTM
shall have the option to extend the study period an additional thirty (30)
days (or such longer period of time as is required by RTM's
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environmental consultants, at RTM's sole discretion); subject, however,
to the provisions of SECTION 15. If RTM discovers that there has been a
release of Hazardous Material affecting any of the Company Restaurants or
Real Property, then RTM may elect not to purchase the Company Restaurant
or Real Property in question (provided, however, in such event, the FF&E
for such Company Restaurant shall nevertheless be transferred and conveyed
at Closing by Seller to RTM or a Buyer designated by Buyer), but shall
lease the Company Restaurant in question, in accordance with SECTION 11.C.
below. In such event, a reduction shall be made in the Purchase Price in
accordance with SECTION 12.F. below. RTM agrees that it will engage Law
to undertake any recommended actions to determine the existence of
Hazardous Materials affecting the Real Property and/or Company Restaurants
to the extent Law is licensed and qualified to perform such services,
provided, however, that the terms and conditions of such engagement are
reasonably satisfactory to Seller and RTM.
C. EXCLUSION OF A RESTAURANT DUE TO TITLE OR ENVIRONMENTAL
MATTERS. Notwithstanding the foregoing, RTM shall have no right to refuse
to purchase any Company Restaurant because of an unsatisfied title
objection, or due to the presence of any Hazardous Material, if such
Company Restaurant is and remains fully operational and, prior to the
Closing of the purchase of such Company Restaurant by RTM or a Buyer
designated by RTM, Seller fully cures such title objection or fully
remediates such environmental condition at such Company Restaurant (to the
reasonable satisfaction of RTM and its consultants) at Seller's sole cost
and expense, as an Excluded Liability hereunder. If any such title
objection curative work or any such environmental remediation has not been
completed by the Closing Date or Seller chooses not to engage in such
curative work on remediation, RTM or a Buyer designated by RTM shall lease
such Company Restaurant pursuant to a New Lease pending the completion of
such curative and/or remedial work unless RTM or such Buyer would be
exposed to liability as an "operator" under applicable Environmental Laws,
in which event such Real Property and/or Company Restaurant shall be
excluded, without a New Lease unless RTM elects to lease the same under
a New Lease. Each New Lease have an initial term of twenty years (with
three five year renewal options) and require payment of annual rental
equal to 11% of the amount set forth on SCHEDULE 12.F.(1) with respect to
the applicable Company Restaurant and shall provide for an annual increase
of 2% of such rental, adjusted every two years. Each New Lease shall also
contain a purchase option in favor of RTM or such Buyer and a "put" option
requiring RTM or such Buyer to purchase the Company Restaurant in the
event Seller supplies RTM or such Buyer with either (a) a supplement from
Law to its Assessment for such Company Restaurant indicating that there
is no significant risk of Hazardous Materials affecting such Company
Restaurant or (b) a Phase II environmental assessment concluding either
that there is no significant risk of Hazardous Materials affecting such
Company Restaurant or that the environmental condition referred to in the
first sentence of SECTION 11.C. has been fully remediated. The purchase
price upon exercise of such purchase or put option shall be the amount
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by which the Purchase Price was originally reduced hereunder pursuant to
SECTION 12.F.. Each New Lease shall also provide that Seller shall be
responsible for any condition existing as of the Closing Date that exposes
Buyer to liability as an owner or operator under Environmental Laws and
that Seller shall indemnify and hold RTM or the Buyer designated by RTM
to purchase such Company Restaurant harmless for all losses, costs, claims
and liabilities incurred by RTM or such Buyer as a result of such
conditions existing prior to the Effective Date. The other terms and
conditions of any such New Lease shall be subject to the parties' mutual
agreement, which shall not be unreasonably withheld or conditioned by
either party.
D. LEASED RESTAURANTS. The parties agree that the Company
Restaurants listed on SCHEDULE 11.D. shall not be purchased on the Closing
Date, but shall be leased on the Closing Date pursuant to New Leases on
the terms set forth on SCHEDULE 11.D.. Accordingly, there will be no
further environmental testing conducted with respect to such Company
Restaurants listed on SCHEDULE 11.D..
12. CONDITIONS OF CLOSING
A. CONDITIONS FOR THE BENEFIT OF RTM. The obligations of
RTM to consummate the transactions provided for herein shall be subject
to the satisfaction, on or before the Closing Date, or such earlier date
as may be specified herein, of the following conditions, in addition to
such other conditions as may be provided for in this Agreement:
(1) Seller and Subsidiary have made all of the
deliveries required by SECTION 13.A.
(2) The representations and warranties of Seller and
Subsidiary contained herein shall have been true, and correct in
all material respects as of the date hereof and shall be true,
and correct in all material respects as of and at the Closing
Date and the Effective Date with the same effect as if made at
and as of such dates, except as provided or permitted hereunder,
and Seller shall have performed and complied in all material
respects with all agreements, covenants and conditions required
by this Agreement to be performed and complied with by them, at
or prior to the Closing Date.
(3) All consents (including all Required Consents)
and/or approvals (including those of the lenders of and the
boards of directors of RTM and Buyers designated by RTM)
necessary for the consummation of the transactions contemplated
by this Agreement shall have been obtained.
(4) Consents to the Lease Assignments under the
Leases shall have been obtained.
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(5) RTM shall have obtained all permits and licenses
and/or administrative approvals necessary for the operation of
the Company Restaurants, unless under local law or administrative
practice such permits and licenses and/or administrative
approvals are not available until title has passed. Seller shall
cooperate fully with RTM in obtaining such licenses and/or
administrative approvals.
(6) No suit, action or other proceeding (including
action under federal antitrust laws) to prohibit, delay or
otherwise materially and adversely affect the consummation of
this Agreement or to subject RTM to any liability resulting
directly or indirectly from the transactions contemplated hereby
shall have been instituted or threatened.
(7) RTM shall have received the opinion, dated as of
the Closing Date, of Seller's Counsel, in form and substance
reasonably satisfactory to Seller's Counsel and RTM's Counsel (it
being understood that, with respect to matters of Canadian law,
Seller's Counsel may rely upon foreign certificates or the
opinions of Canadian counsel), to the effect that:
(a) Seller is duly organized, validly
existing and in good standing under the laws of the State
of Tennessee. Seller is duly authorized to conduct
business and is in good standing under the laws of the
States of Alabama, Florida, Illinois, Kentucky and
Missouri.
(b) Subsidiary is duly organized, validly
existing and in good standing under the laws of Canada.
Subsidiary is duly authorized to conduct business and is
in good standing under the laws of the Provinces of
Alberta, British Columbia, Manitoba, Saskatchewan and
Ontario.
(c) Each of Subsidiary and Seller has the
requisite corporate power to carry on its business as it
is now being conducted.
(d) Neither the execution and delivery of
this Agreement or the other agreements contemplated
herein nor Seller's performance in accordance with their
respective terms are restricted by or violate the terms
of any existing constitution, law or administrative rule
or regulation applicable to Seller and/or to Subsidiary,
the charter or bylaws of Seller and/or Subsidiary, or, to
the best of counsel's current knowledge and belief, any
lease, option, agreement, mortgage, loan agreement or any
contractual or other obligation of Seller and/or of
Subsidiary, the effect of which would have a material
adverse effect on the transactions contemplated by this
Agreement.
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(e) To the best of counsel's current
knowledge and belief, no legal action or proceeding
against Seller is pending or threatened at the Closing
Date which, if successful, would prohibit consummation or
require substantial rescission of the transactions
contemplated by this Agreement.
(f) Seller has full power to execute,
deliver and perform this Agreement, and the other
agreements and instruments executed on even date herewith
pursuant to this Agreement.
(g) This Agreement, and the other agreements
and instruments executed on the Closing Date pursuant to
this Agreement have been duly and validly executed and
delivered by Seller and they constitute legal, valid and
binding obligations of Seller, enforceable in accordance
with their respective terms (subject to applicable
bankruptcy, insolvency and other laws affecting the
enforceability of creditor's rights generally and subject
to general principles of equity and subject to public
policy considerations as expressed in the Securities Act
of 1933 which may render certain indemnification
provisions unenforceable and subject to the provisions of
applicable securities laws).
(8) 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.
(9) Seller shall have delivered to RTM a certificate,
dated as of the Closing Date, certifying to the fulfillment of
the foregoing conditions. Seller may, conditioned upon prior
receipt of the written approval of RTM, amend the Schedules
attached hereto for the purpose of making immaterial corrections
and clarifications thereon applicable to Seller and consistent
with the terms and agreements contained herein which amendments
shall be attached to the certificate delivered pursuant to this
SECTION 12.A.(9). Unless otherwise agreed to in writing by the
parties hereto, if the Closing occurs, RTM shall be deemed to
waive any rights for breach of representation or warranty by
Seller to the extent that such amendment corrects such
representation or warranty. Nothing in this SECTION 12.A.(9)
shall impose any obligation on RTM either to accept any material
amendment to the Schedules provided for herein or to close the
transaction notwithstanding such amendment, unless RTM elects to
do so in its sole and absolute discretion.
B. CONDITIONS FOR THE BENEFIT OF SELLER. The obligations of
Seller to consummate the transactions provided for herein shall be subject
to the satisfaction, or before the Closing Date, of the following
conditions, in addition to such other conditions as may be provided for
in this Agreement:
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(1) RTM and a Buyer designated by RTM have made all
of the deliveries required by SECTION 13.B.
(2) The representations and warranties of RTM
contained herein shall have been true and correct in all material
respects as of the date hereof and (as to both RTM and any Buyer
designated by RTM) shall be true and correct at and as of the
Closing Date and the Effective Date with the same effect as if
made on and as of such dates, except as otherwise provided or
permitted hereunder, and RTM and a Buyer designated by RTM shall
have performed and complied in all material respects with all
agreements, covenants and conditions required by this Agreement
to be performed and complied with by it, at or prior to the
Closing Date.
(3) All consents and/or approvals (including those
of Seller's board of directors and lenders) necessary for the
consummation of the transactions contemplated by this Agreement
shall have been obtained.
(4) Consents to the Lease Assignments from the
lessors that are required under the Leases shall have been
obtained.
(5) No suit, action or other proceeding (including
action under federal antitrust laws) to prohibit, delay or
otherwise materially and adversely affect the consummation of
this Agreement or to subject Seller to any liability resulting
directly or indirectly from the transactions contemplated hereby
shall have been instituted or threatened.
(6) Seller shall have received an opinion, dated as
of the Closing Date from RTM's Counsel, in form and substance
reasonably satisfactory to Buyer's Counsel and Seller's Counsel
(which, notwithstanding anything hereinafter to the contrary,
shall not require any opinion with respect to the Investor) to
the effect that:
(a) RTM is a corporation duly organized,
validly existing and in good standing under the laws of
the State of Georgia and each state in which any of the
Purchased Assets to be purchased by RTM are located.
Each Buyer designated by RTM is a corporation duly
organized, validly existing and in good standing under
the laws of the state of its incorporation and each state
in which any of the Purchased Assets to be purchased by
such Buyer are located.
(b) RTM and any Buyer designated by RTM have
the requisite corporate power to carry on their
businesses as they now are being conducted.
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(c) Neither the execution and delivery of
this Agreement or the other agreements contemplated
herein (including the RTM Guaranty) nor performance in
accordance with their respective terms by RTM and any
Buyer designated by RTM are restricted by or violate the
terms of any existing constitution, law or administrative
rule or regulation applicable to either RTM or any Buyer
designated by RTM, the charter or bylaws of either RTM or
any Buyer designated by RTM, or, to the best of counsel's
current knowledge and belief, any lease, option,
agreement, mortgage, loan agreement or any contractual or
other obligation of either RTM or any Buyer designated by
RTM.
(d) To the best of counsel's current
knowledge and belief, no legal action or proceeding
against either RTM or any Buyer designated by RTM is
pending or threatened at the Closing Date which, if
successful, would prohibit consummation or require
substantial rescission of the transactions contemplated
by this Agreement.
(e) RTM and any Buyer designated by RTM have
full power to execute, deliver and perform this
Agreement, and the other agreements and instruments
executed on even date herewith pursuant to this
Agreement.
(f) This Agreement, and the other agreements
and instruments executed on the Closing Date pursuant to
this Agreement have been duly and validly executed and
delivered by RTM and any Buyer designated by RTM and they
constitute legal, valid and binding obligations of RTM
and any Buyer designated by RTM, enforceable in
accordance with their respective terms (subject to
applicable bankruptcy, insolvency and other laws
affecting the enforceability of creditor's rights
generally and subject to general principles of equity and
subject to public policy considerations as expressed in
the Securities Act of 1933 which may render certain
indemnification provisions unenforceable).
(7) 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.
(8) RTM and any Buyer designated by RTM shall have
delivered to Seller a certificate, dated as of the Closing Date,
certifying to the fulfillment of the foregoing conditions. RTM
may, conditioned upon prior receipt of the written approval of
Seller, amend the Schedules attached hereto for the purpose of
making immaterial corrections and clarifications thereon
applicable to RTM or a Buyer designated by RTM and consistent
with the terms and agreements contained herein, which amendments
shall be attached to the
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certificate delivered pursuant to this SECTION 12.B.(8). Unless
otherwise agreed to in writing by the parties hereto, if the
Closing occurs, Seller shall be deemed to waive any rights for
breach of representation or warranty by RTM or a Buyer designated
by RTM to the extent that such amendment corrects such
representation or warranty. Nothing in this SECTION 12.B.(8)
shall impose any obligation on Seller either to accept any
material amendment to the Schedules provided for herein or to
close the transaction notwithstanding such amendment, unless
Seller elects to do so in its sole and absolute discretion.
C. BEST EFFORTS AND RIGHT TO PERFORM. Seller and RTM each
shall use their best efforts to fulfill all of their respective pre-
Closing obligations under this Agreement; provided, however, that, unless
otherwise required by this Agreement, no party shall be required to make
any out-of-pocket payments (other than customary fees and charges and
salary and travel expenses) or incur any additional obligations to satisfy
such obligations or conditions. Seller and RTM shall have the right, but
not the obligation (unless otherwise required by this Agreement), to
assist the other in performing any pre-closing obligations or conditions
precedent of the other party.
D. FAILURE OF CONDITIONS. Except as otherwise specifically
provided for herein, if any of the foregoing conditions precedent to
Seller's obligations fail with respect to any Company Restaurant, Seller,
subject to SECTION 15, may elect, in its sole discretion, not to sell such
Company Restaurant but shall proceed with the purchase and sale hereunder
of the other Company Restaurants with a reduction of the applicable
Purchase Price made in accordance with SECTION 12.F. below. Except as
otherwise specifically provided for herein, if any of the foregoing
conditions precedent to RTM's obligations fail with respect to any
particular Company Restaurant, RTM, subject to SECTION 15, may elect, in
its sole discretion, not to purchase such Company Restaurant but shall
proceed with the purchase and sale hereunder of the other Company
Restaurants with a reduction of the applicable Purchase Price made in
accordance with SECTION 12.F. of this Agreement.
E. WAIVER OF CONDITIONS. Seller or RTM, as the case may be,
may waive any condition precedent to their respective obligations under
this Agreement; provided, however, that such waiver can be granted only
on the waiving party's behalf and only to the extent that it does not
affect any other party's rights hereunder.
F. REDUCTION OF PURCHASE PRICE.In the event that a
Company Restaurant is excluded from the Purchased Assets as permitted by
SECTION 2.B., SECTION 11.A.(2), SECTION 11.B or SECTION 11.C. and leased
pursuant to a New Lease, the Purchase Price and the Cash Payment shall
each be reduced by an amount equal to
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the amount set forth on SCHEDULE 12.F.(1) with respect to that Company
Restaurant. In the event that a Company Restaurant is excluded from the
Purchased Assets and is not leased to RTM or a Buyer designated by RTM
pursuant to a New Lease, the Purchase Price and the Cash Payment shall
each be reduced by an amount equal to the amount set forth on SCHEDULE
12.F.(2) with respect to that Company Restaurant. If a Company Restaurant
is leased pursuant to a New Lease but later purchased by RTM or a Buyer
designated by RTM, the purchase price for such Company Restaurant at the
time of such purchase shall be the amount by which the Purchase Price was
previously reduced pursuant to SCHEDULE 12.F.(1).
13. DELIVERIES AT THE CLOSING
A. SELLER'S DELIVERIES TO RTM. At the Closing, Seller shall
deliver to RTM or a Buyer designated by RTM, in addition to any and all
other instruments required hereunder to be so delivered by Seller, the
following:
(1) The Deeds (or New Leases, as applicable), each
duly executed by Seller or Realco, as applicable;
(2) The Lease Assignments in recordable form, each
duly executed by Seller and the lessors under each of the Leases,
if required;
(3) The Franchise Assignments, each duly executed by
Seller or Subsidiary, as applicable;
(4) The Trademark Assignments and Trade Secret
Assignment, each duly executed by Seller;
(5) The Contract Assignments, each duly executed by
Seller;
(6) The General Assignments, bills of sale and other
appropriate instruments of transfer, each duly executed by
Seller;
(7) Copies of the charter and bylaws of Seller and
Subsidiary and of resolutions adopted by the Board of Directors
of Seller authorizing and approving the execution and performance
of this Agreement and the other agreements contemplated by this
Agreement and the sale and transfer of the Company Restaurants,
all as certified by an appropriate officer of Seller as of the
Closing Date;
(8) A certificate as to the incumbency of each person
executing this Agreement and the other agreements contemplated by
this Agreement on behalf of Seller;
(9) A current certificate of corporate good standing
for Seller issued by the Tennessee Secretary of State and by the
Secretary of State of other
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appropriate office of the States of Alabama, Florida, Illinois,
Kentucky and Missouri;
(10) A current certificate of corporate good standing
for Realco issued by the Tennessee Secretary of State and by the
Secretary of State or other appropriate officer of the States of
Alabama, Illinois and Missouri;
(11) A current certificate of corporate good standing for
Subsidiary issued by appropriate authorities within Canada;
(12) The opinion of Seller's counsel referred to in
SECTION 12.A.(7);
(13) The certificate of Seller required by SECTION
12.A.(9);
(14) A certificate of "nonforeign" status of Seller
as described in the FIRPTA;
(15) The Noncompetition Agreement, duly executed by
Seller;
(16) Any and all Required Consents; estoppel letters
and/or estoppel certificates; release and/or satisfaction
documentation as to all encumbrances other than the Permitted
Encumbrances (including, without limitation, such releases and/or
satisfactions as to all Real Estate Mortgages and Chattel
Mortgages); or marked title commitments or binders showing the
satisfaction of all requirements, and containing only the
Permitted Encumbrances;
(17) The Vehicle Transfer Documents, duly executed by
Seller;
(18) The Office Lease, duly executed by Seller;
(19) The Commissary Agreement, duly executed by
Commissary Operations, Inc.; and
(20) Such additional instruments and documents as
Buyer's Counsel may reasonably request in order to fulfill the
terms and conditions of this Agreement.
B. BUYER'S DELIVERIES TO SELLER. At the Closing, RTM or a
Buyer designated by RTM shall deliver to Seller, in addition to any and
all other instruments required hereunder to be so delivered to Seller by
Buyer, the following:
(1) The Cash Payment;
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(2) The Deeds (or New Leases, as applicable), each
duly executed by RTM and/or a Buyer designated by RTM, if
necessary;
(3) The Lease Assignments, each duly executed by RTM
or a Buyer designated by RTM;
(4) The Franchise Assignments, each duly executed by
RTM or a Buyer designated by RTM;
(5) The Contract Assignments, each duly executed by
RTM or a Buyer designated by RTM;
(6) The General Assignments, bills of sale and other
appropriate instruments of transfer, each duly executed by RTM or
a Buyer designated by RTM, if necessary;
(7) Copies of the charter and bylaws of RTM and any
Buyer designated by RTM and of resolutions adopted by the Boards
of Directors of RTM and any Buyer designated by RTM authorizing
execution and performance by RTM and such Buyer, respectively, of
this Agreement and the other agreements contemplated by this
Agreement and the purchase of the Company Restaurants, all as
certified by appropriate officers of RTM and such Buyer,
respectively, as of the Closing Date;
(8) A certificate as to the incumbency of each person
executing this Agreement and the other agreements contemplated by
this Agreement on behalf of RTM and a Buyer designated by RTM;
(9) Current certificates or telegrams of corporate
good standing or qualification to do business of RTM and a Buyer
designated by RTM as certified by the secretary of state or other
appropriate officer of the States of Alabama, Florida, Illinois,
Kentucky, Missouri and Tennessee;
(10) The opinion of RTM's Counsel referred to in SECTION
12.B.(6);
(11) The certificate of RTM and any Buyer designated by
RTM required by SECTION 12.B.(8) ;
(12) The Note, duly executed by RTM or a Buyer
designated by RTM;
(13) The RTM Guaranty, duly executed by RTM, if the
Note is executed and delivered by a Buyer designated by RTM;
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(14) The Security Agreement, together with any other
documents or instruments required by the Security Agreement, each
duly executed by RTM or a Buyer designed by RTM to purchase the
Purchased Assets described in the Security Agreement; and
(15) Such additional instruments and documents Seller's
Counsel may reasonably request in order to fulfill the terms and
conditions of this Agreement.
C. OTHER DELIVERIES. At the Closing, all other consents,
permits, licenses and administrative approvals required to be obtained as
conditions precedent to the consummation of the transactions provided for
herein shall be delivered.
14. RISK OF LOSS AND CONDEMNATION
A. RISK OF LOSS. The risk of any destruction, loss or
damage to any of the Company Restaurants shall be the sole responsibility
of Seller until the Effective Date. For purposes of this SECTION 14, the
term "loss" shall include but not be limited to any condemnation or the
institution of any condemnation proceedings which affect the real property
on which any of the Company Restaurants is located. If any of the Company
Restaurants shall be destroyed or damaged by fire or other casualty or
shall suffer any loss prior to the Effective Date, RTM, subject to SECTION
15, may either (i) elect not to purchase such Company Restaurant but
proceed with the purchase and sale hereunder of the other Company
Restaurants being purchased with an appropriate reduction and/or refund
of the Purchase Price based upon the Company Restaurants and related
assets not being conveyed, or (ii) upon closing the purchase and sale of
such Company Restaurant hereunder, require Seller to remit to RTM (and RTM
shall be entitled to retain) all insurance proceeds received by Seller in
respect of such destruction, damage or loss to such Purchased Assets, and
assign to RTM the right to collect and retain any such insurance proceeds
not so received by RTM.
B. CONDEMNATION. In the event condemnation proceedings
which would have a material adverse effect on the intended use or
operation of a Company Restaurant by RTM or a Buyer designated by RTM are
instituted or threatened by the taking authority's submission of a firm
offer in lieu of condemnation or otherwise prior to the Closing Date, RTM
may either (i) elect not to purchase such Company Restaurant, subject to
SECTION 15, but proceed with the purchase and sale hereunder of the other
Company Restaurants being purchased with an appropriate reduction of the
Purchase Price based upon the Company Restaurants and related assets not
being conveyed, or (ii) proceed with the purchase of such Company
Restaurant without any reduction in the Purchase price and receive an
assignment from Seller of all of Seller's right, title and interest in and
to any proceeds or award resulting from such condemnation. In the event
such condemnation proceedings are instituted or threatened which would not
have a material adverse effect on RTM's intended use or
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operation of a Company Restaurant, RTM or a Buyer designated by RTM shall
proceed with the purchase of the Company Restaurant without any reduction
in the Purchase Price and receive an assignment from Seller of all of
Seller's right, title and interest in and to any proceeds or award
resulting from such condemnation. Seller agrees not to settle any
condemnation award with respect to any of the Company Restaurants without
Buyer's approval.
15. TERMINATION
A. BY AGREEMENT OR FAILURE OF CONDITIONS. This Agreement
may be terminated:
(1) By mutual consent of all parties hereto;
(2) By RTM if any of the conditions to RTM's
obligations to consummate the transactions contemplated in this
Agreement shall not have been satisfied, or waived by RTM, on or
prior to the Termination Date; or
(3) By Seller if any of the conditions to Seller's
obligations to consummate the transactions contemplated in this
Agreement shall not have been satisfied, or waived by Seller, on
or prior to the Termination Date; or
(4) By Seller if the aggregate number of Company
Restaurants that are to be excluded or leased pursuant to SECTION
11 (not including restaurants excluded under SECTIONS 2.B. or
11.D.) exceeds six (6) or if the Purchase Price is reduced by
more than Three Million Dollars ($3,000,000.00) (not including
restaurants excluded under SECTIONS 2.B. or 11.D.) pursuant to
SECTION 12.F..
B. LAPSE OF TIME. Any provision of this Agreement to the
contrary notwithstanding, if the Closing has not been held for any reason
whatsoever (other than a breach by a party of its obligations under this
Agreement, in which case that party shall not be entitled to terminate
this Agreement pursuant to this SECTION 15.B.) on or before the
Termination Date, either party may terminate this Agreement by fifteen
(15) days' prior written notice to the other party. Such notice may be
given on or after the fifteenth (15th) day prior to the Termination Date,
unless the terminating party has caused the event, or failed to satisfy
the condition, which is the reason for the failure to close. In the event
a termination notice is validly given by either party to the other
pursuant to this paragraph, such termination shall be effective at 11:59
p.m. on the last day of such 15-day notice period. Until such time each
party shall be obligated to use its best reasonable efforts, in good
faith, to consummate the transaction contemplated by this Agreement.
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C. NOTICE; REMEDIES. The rights of termination hereof as
provided herein shall be exercised by written notice of termination given
by the terminating party to the other party in the manner hereinafter
provided. Any such right of termination shall not preclude any legal or
equitable remedies which may be available to any non-defaulting party
hereto arising out of any default hereunder by the other party hereto.
In the event of a default by any party, the non-defaulting party shall
have such remedies against the defaulting party as may be available to the
non-defaulting party either pursuant to this Agreement and/or at law or
in equity, including the right to recover all costs, expenses or damages
resulting to such non-defaulting party from such default and the right to
specifically enforce this Agreement.
16. INDEMNIFICATION
A. INDEMNIFICATION BY SELLER. Seller will indemnify, defend
and hold RTM and a Buyer designated by RTM harmless after the Closing Date
from and against any costs (including, without limitation, reasonable
attorneys' fees and court costs and costs of investigation), losses,
damages, liabilities or expenses incurred by RTM or such Buyer as a result
of any of the following (the "Seller Indemnified Claims"):
(1) The breach of any of Seller's representations and
warranties made under or pursuant to this Agreement or any of the
other agreements contemplated by this Agreement;
(2) The non-fulfillment of any covenant, agreement
or obligation to be performed by Seller under or pursuant to this
Agreement or any of the other agreements contemplated by this
Agreement;
(3) 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
Seller or to have rendered services on Seller's behalf;
(4) Any litigation (including without limitation, the
Litigation), proceedings, controversies or claims against RTM or
such Buyer arising from, in connection with, or incident to acts
or omissions of Seller or other occurrences occurring prior to
the Effective Date relating to any of the Purchased Assets;
(5) Any litigation, proceedings, controversies or
claims against RTM or such Buyer arising from, in connection with
or incident to RTM's or such Buyer's terminating any
franchisee/licensee at Seller's request pursuant to SECTION 6.B.;
or
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(6) All Excluded Liabilities and any and all other
obligations or liabilities of Seller or Subsidiary or relating to
the Purchased Assets not expressly assumed by RTM or a Buyer
designated by RTM in this Agreement as a part of the Assumed
Liabilities.
B. INDEMNIFICATION BY RTM. RTM will indemnify and hold
Seller harmless on and after the Closing Date from and against all losses,
damages, liabilities or expenses incurred by Seller as a result of any of
the following (the "RTM Indemnified Claims"):
(1) The breach of any of representations and
warranties by RTM or a Buyer designated by RTM made under or
pursuant to this Agreement or any of the other agreements
contemplated by this Agreement;
(2) The non-fulfillment of any covenant, agreement
or obligation to be performed by RTM or a Buyer designated by RTM
under or pursuant to this Agreement or any of the other
agreements contemplated by this Agreement;
(3) 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
RTM or a Buyer designated by RTM or to have rendered services on
RTM's or such Buyer's behalf; or
(4) Any litigation, proceedings, controversies or
claims against Seller arising from, in connection with or
incident to acts or omissions of RTM or a Buyer designated by RTM
or other occurrences occurring on or after the Effective Date
relating to any of the Purchased Assets.
C. PARTICIPATION. Should any claim be made by a person not
a party to this Agreement with respect to any matter to which either of
the foregoing indemnities relates, the indemnified party (the
"Indemnitee") shall promptly notify the indemnifying party (the
"Indemnitor") thereof. The Indemnitee, on not less than thirty (30) days'
written notice to the Indemnitor containing the terms of the proposed
settlement, may make settlement of such claim and such settlement shall
be binding on both parties hereto for the purposes of this Section;
provided, however, that if within such thirty (30) day period the
Indemnitor shall have requested the Indemnitee to contest any such claim
at the expense of the Indemnitor, the Indemnitee shall promptly comply,
and the Indemnitor shall have the right to direct the defense of such
claim or any litigation based thereon at its own expense through counsel
of it own choosing. The Indemnitee 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 Indemnitor may settle in its own discretion. Any
payment or settlement made by the Indemnitor in such contest, together
with the total expense
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thereof, shall be binding on the Indemnitee and the Indemnitor for the
purposes only of this Section. Notwithstanding anything herein to the
contrary, an Indemnitor shall not, without the prior written consent of
the indemnified party, settle any claim in any manner which adversely
affects the Indemnitee.
D. TIME LIMITATIONS. The Indemnitor will have no liability
to the Indemnitee under or in connection with: (a) any Seller Indemnified
Claim or RTM Indemnified Claim under this Agreement (other than the
matters set forth below in items (b) and (c)) unless written notice
asserting an indemnification claim based thereon is given to the
Indemnitor prior to the later of (i) the second (2nd) anniversary of the
Closing Date or (ii) the first (1st) anniversary of the date on which a
covenant or agreement is to be performed hereunder; (b) any Seller
Indemnified Claim related to any Taxes unless written notice asserting
such an indemnification claim is given prior to the ninetieth (90th) day
after the day upon which any potential Tax liability is barred by all
applicable statutes of limitation; (c) any Seller Indemnified Claim
related to any environmental matters, unless written notice asserting such
indemnification claim is given prior to the sixth (6th) anniversary of the
Closing Date; provided, however, the liability of Seller relating to,
arising out of or based upon any covenants, agreements, representations
and warranties relating to the title to the Purchased Assets, the due
authorization of this Agreement or the Litigation described on SCHEDULE
8.H. may be asserted by RTM or a Buyer designated by RTM at any time; and,
provided, further, as to any Company Restaurant which is excluded from the
initial Closing Date purchase and sale pursuant to SECTION 2.B. or SECTION
11.C., the time periods set forth above shall be tolled until the actual
closing date as to such Company Restaurant(s).
17. EMPLOYEES
A. MEETINGS WITH EMPLOYEES. After the date hereof and at
any time prior to the Effective Date, RTM or its representatives shall
have the right meet with Restaurant Employees to arrange for the
transition of ownership of the Company Restaurants, provided, however,
that such meetings shall be held after notification to Seller but with a
representative of Seller being present and at such times and in such
manner so as not to materially adversely interfere with Seller's normal
business operations. After the Effective Date, RTM or a Buyer designated
by RTM, to the extent it hires any Restaurant Employees, will make
employees and files available to Seller at reasonable times to assist
Seller in connection with processing of claims and preparing for and
proceeding with litigation, if any, with respect to such claims.
B. RTM'S OFFER OF EMPLOYMENT. RTM or a Buyer designated by
RTM shall have the right, but not the obligation, to offer employment to
Restaurant Employees, effective on or after the Effective Date. Except
as provided in this Agreement, Seller shall be responsible for all
compensation to which such Restaurant Employees may
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be entitled with respect to service, claims or events giving rise to
claims, which occurred on or prior to the Effective Date. Nothing in this
Agreement shall be deemed to restrict the right of RTM or a Buyer
designated by RTM to deal with Restaurant Employees who accept employment
with buyer as employees at will and without regard to such employees'
prior service or seniority as employees of Seller, in the same manner as
it would be free to deal with such employees in the absence of this
Agreement.
C. NON-SOLICITATION OF EMPLOYEES. For a period of one (1)
year following the Closing Date, Seller agrees not to actively solicit any
of the employees of RTM or a Buyer designated by RTM who are employed in
connection with the Company Restaurants who, prior to the Effective Date,
were employed by Seller in connection with the Company Restaurants.
18. BULK TRANSFERS
RTM and any Buyer designated by RTM hereby waive compliance by
Seller with any applicable bulk sales laws. Seller shall indemnify RTM
and a Buyer designated by RTM against any liability (including, without
limitation, any reasonable attorneys fees) arising out of or resulting
from Seller's failure to comply with such laws, as an Excluded Liability
under this Agreement.
19. SURVIVAL OF TERMS
The representations, warranties, covenants, indemnities and
agreement of the respective parties hereto, as contained herein, in the
Schedules hereto, or any certificate or other document delivered pursuant
hereto, shall survive the Closing Date and the Effective Date and shall
continue thereafter in full force and effect only for such period(s) of
time as set forth in SECTION 16.D. notwithstanding any investigation
heretofore or hereafter made by or on behalf of the parties hereto.
20. WAIVER AND AMENDMENT
Any of the provisions of this Agreement may be waived in writing
at any time, by the party or parties which is or are entitled to the
benefit of such provision. Any of the provisions of this Agreement may
be amended at any time by written agreement of all parties.
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21. CONFIDENTIAL INFORMATION AND RETENTION OF DOCUMENTS
A. CONFIDENTIAL INFORMATION. All information given by any
party hereto to any other party shall be used only for the purposes of
this Agreement and the transactions contemplated in this Agreement and
shall be treated as confidential and not disclosed to others except the
parties' attorneys, accountants, agents, affiliates and lenders and, in
addition, as to RTM, to any Buyer designated by Buyer, and except insofar
as such data or information is published or is a matter of public
knowledge or is required to be disclosed by applicable law or legal
process. In the event that RTM or a Buyer designated by RTM does not
consummate the acquisition provided for herein for any reason whatsoever,
RTM and any such Buyer shall return to Seller all copies of data supplied
by Seller to RTM or any such Buyer or their representatives.
B. RETENTION OF DOCUMENTS. Seller agrees that, after the
Effective Date, all documents relating to the ownership and operation of
any of the Company Restaurants during the period prior to the Effective
Date shall be open for inspection by representatives of RTM or the Buyer
of such Company Restaurant(s) at any time during regular business hours
of Seller for any proper purpose until such time as such documents are
destroyed or possession thereof is given to RTM or such Buyer as provided
for in the following sentences, and that RTM or such Buyer at its expense
may during such period make such copies thereof as it may reasonably
request. Without limiting the generality of the foregoing, for a period
ending on the third (3rd) anniversary of the Closing Date, Seller shall
not destroy or give up possession of any document referred to in the
preceding sentence without first offering to RTM or such Buyer the
opportunity, at RTM's or such Buyer's expense (but without any other
payment), to obtain the same. Thereafter, Seller shall be free to dispose
of such documents as it deems fit.
22. ADDITIONAL TRANSFERS AND INSTRUMENTS
From time to time after the Effective Date and at the request of
RTM and without further consideration, Seller will execute and deliver to
RTM or a Buyer designated by RTM such other and further instruments of
assignment and transfer as may be necessary to complete the sale and
transfers hereunder and to give further assurances to RTM or such Buyer
with respect to the title to the Purchased Assets sold and transferred to
RTM or such Buyer hereunder.
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23. FEES AND EXPENSES
Except as otherwise specifically provided in this Agreement,
Seller and RTM, respectively, shall each bear their own costs and expenses
incurred in connection herewith and with the transactions contemplated
hereby, whether or not the sale of the Company Restaurants hereunder shall
be consummated or this Agreement subsequently shall be terminated. RTM
and Seller shall each pay one-half (1/2) of the recording fees (but not
related legal and other costs) incurred in connection with the recordation
of the Deeds or the Lease Assignments.
24. TRANSFER TAXES, ETC.
RTM and Seller shall each be responsible for and shall each pay
all one-half (1/2) of transfer taxes, sales taxes, documentary stamp and
similar transfer taxes, fees or charges imposed by state or local
governments which arise solely from the sale and transfer of the Purchased
Assets from Seller to RTM or a Buyer designated by RTM. Seller shall
cooperate with RTM to permit such sale to qualify for any exceptions to
such taxes, fees or charges which might be available.
25. NOTICES
Any notice which any party hereto may desire or may be required
hereunder to give to the other parties hereto shall be in writing and
shall be deemed to be duly given when received (or when first refused, if
that be the case) by personal delivery, by overnight delivery service
which provides return receipts, or by express, registered or certified
U.S. mail, postage prepaid, return receipt requested, addressed to such
other party as follows:
SELLER:Shoney's, Inc.
1727 Elm Hill Pike
Nashville, Tennessee 37210
Attn: Secretary
copy to: Tuke Yopp & Sweeney
17th Floor
Third National Bank Building
201 Fourth Avenue, North
Nashville, Tennessee 37219-2040
Attn: Gary M. Brown, Esq.
BUYER: RTM, Inc.
5995 Barfield Road
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Atlanta, Georgia 30328
Attn: Mr. Dennis E. Cooper
copies to: RTM, Inc.
5995 Barfield Road
Atlanta, Georgia 30328
Attn: Mr. J. Russell Welch
Arnall Golden & Gregory
1201 W. Peachtree Street
2800 One Atlantic Center
Atlanta, Georgia 30309-3450
Attn: Philip G. Skinner, Esq.
or to such other address as a party hereto hereafter may designate to the
other parties in writing.
26. 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 would clearly not admit such construction.
This instrument shall be construed and interpreted in accordance with the
laws of the State of Tennessee. Section or paragraph headings are
employed herein solely for convenience of reference, and such headings
shall not be used in construing any terms or provisions of this
instrument.
27. SUCCESSORS AND ASSIGNS
This Agreement and all of the provisions hereof shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective heirs, successors and assigns, provided, however, that neither
this Agreement nor any of the rights or obligations of any party hereto
may be assigned without the prior written consent of the other party
hereto; provided further, however, that RTM may assign any or all of its
rights and interests hereunder to one or more entities which are either:
(a) unaffiliated investors who purchase the Company Restaurants and lease
such Company Restaurants to RTM or one of RTM's Affiliates (as hereinafter
defined); or (b) controlled by or under common control with RTM (control
for these purposes meaning ownership of more than fifty percent (50%) of
the voting interests in an entity) (each, an "Affiliate"), in any or all
of which cases RTM nonetheless shall remain responsible for the
performance of all of its obligations hereunder.
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28. SEVERABILITY
Whenever possible, each provision and term of this Agreement shall
be interpreted in such manner as to be valid and enforceable; provided,
however, that in the event any provision or term of this Agreement should
be determined to be invalid or unenforceable, all other provisions and
terms of this Agreement and the application thereof to all persons and
circumstances subject thereto shall remain unaffected to the extent
permitted by law. If any application of any provision or term of this
Agreement to any person or circumstances should be determined to be
invalid or unenforceable, the application of such provision or term to
other persons and circumstances shall remain unaffected to the extent
permitted by law.
29. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original hereto and all of which together
shall constitute but one Agreement.
30. ENTIRE AGREEMENT
This Agreement and the Exhibits and Schedules hereto constitute
the entire agreement among the parties hereto and supersede all prior and
contemporaneous agreements and undertakings of the parties pertaining to
the subject matter hereof and there are no representations or warranties,
express or implied, other that those contained in this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed the day and year first above written.
SHONEY'S, INC.
/s/
___________________________________
By: W. Craig Barber
Title: Senior Executive Vice-
President and Chief Financial
Officer
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SHONEY'S OF CANADA, INC.
/s/
______________________________________
By: W. Craig Barber
Title: President
RTM, INC.
/s/
______________________________________
By: Dennis E. Cooper
Title: Senior Vice President
/s/
______________________________________
By: J. Russell Welch
Title: Senior Vice President and
Corporate Secretary
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EXHIBITS AND SCHEDULES
OMITTED FOR
FILING PURPOSES
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STOCK PURCHASE AGREEMENT
DATED AS OF AUGUST 3, 1995
BY AND BETWEEN
LEVMARK CAPITAL CORPORATION
AND
SHONEY'S, INC.
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TABLE OF CONTENTS
1. DEFINITIONS..............................................-1-
2. PURCHASE AND SALE OF SHARES..............................-5-
A. Sale of Shares...........................................-5-
B. Assets Not Being Purchased and Sold......................-5-
C. Transfer of Shares.......................................-5-
3. PURCHASE PRICE...........................................-5-
A. Purchase Price for the Shares............................-5-
B. Means of Payment.........................................-6-
4. NO ASSUMPTION OF OBLIGATIONS.............................-6-
5. AUDITED BALANCE SHEET AND ADJUSTMENTS TO
PURCHASE PRICE...........................................-6-
A. Proposed Balance Sheet...........................-6-
B. Right of Review..................................-6-
C. Audited Balance Sheet............................-7-
D. Adjustments......................................-7-
E. Post-Closing.....................................-7-
6. HSR NOTIFICATION.........................................-8-
7. SELLER'S REPRESENTATIONS AND WARRANTIES..................-8-
A. General..................................................-8-
B. Good Standing of Seller..................................-8-
C. Good Standing and Foreign Qualification of Company.......-8-
D. Board and Shareholder Authorization......................-9-
E. Consents.................................................-9-
F. Legality and Enforceability..............................-9-
G. Business of Company..............................-9-
H. Capital Structure of Company.....................-9-
I. Ownership of Shares..............................-10-
J. Litigation...............................................-10-
K. Financial Information....................................-11-
L. Accounts Receivable; Inventory...........................-12-
M. No Other Liabilities.............................-13-
N. Taxes............................................-13-
O. No Changes.......................................-14-
P. Material Contracts...............................-16-
Q. Insurance........................................-17-
R. No Conflicts.....................................-18-
S. No Restrictions..................................-18-
T. No Misstatements, etc....................................-18-
U. Mortgages................................................-18-
V. Property.................................................-19-
W. Trademark Matters........................................-20-
X. Conformance to Law.......................................-21-
(i)
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Y. Employee Benefit and Labor Matters...............-21-
Z. Licenses and Permits.............................-24-
AA. Brokers..........................................-24-
AB. Hazardous Materials..............................-24-
AC. Asbestos.........................................-25-
AD. Charter..........................................-25-
AE. Bylaws...........................................-25-
AF. Stock Records....................................-25-
AG. Salaried Employees...............................-26-
AH. Bank Accounts....................................-26-
AI. OSHA and Other Filings...........................-26-
AJ. Major Suppliers and Customers....................-26-
AK. Copies of Documents..............................-26-
8. BUYER'S REPRESENTATIONS AND WARRANTIES...................-27-
A. General..................................................-27-
B. Good Standing of Buyer...................................-27-
C. Board Authorization......................................-27-
D. Consents.................................................-27-
E. Legality and Enforceability..............................-28-
F. Litigation...............................................-28-
G. No Default.......................................-28-
H. Securities Matters.......................................-28-
I. No Restrictions..........................................-30-
J. No Misstatements, etc....................................-30-
K. No Broker................................................-31-
9. COVENANTS OF SELLER......................................-31-
A. Operate in Regular Manner................................-31-
B. Maintenance of Property..................................-31-
C. Books and Records........................................-31-
D. Taxes and Assessments....................................-31-
E. Inspection...............................................-31-
F. No Tax Settlements.......................................-32-
G. Notice of Certain Events.................................-32-
H. Capital Changes..................................-32-
I. Dividends........................................-32-
J. Certain Actions..................................-32-
K. Removal of Certain Encumbrances..................-33-
L. Hazardous Materials..............................-33-
M. Trademark........................................-34-
N. Remedial Actions.................................-34-
10. TITLE AND ENVIRONMENTAL MATTERS..........................-34-
A. Title Matters............................................-34-
B. Environmental Matters....................................-35-
11. CONDITIONS OF CLOSING....................................-35-
A. Conditions for the Benefit of Buyer......................-35-
B. Conditions for the Benefit of Seller.....................-38-
C. Best Efforts and Right to Perform........................-41-
D. Failure of Conditions....................................-41-
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E. Waiver of Conditions.....................................-41-
12. DELIVERIES AT THE CLOSING................................-41-
A. Seller's Deliveries to Buyer.............................-41-
B. Buyer's Deliveries to Seller.............................-42-
C. Other Deliveries.........................................-43-
13. TERMINATION..............................................-43-
A. By Agreement or Failure of Conditions....................-43-
B. Lapse of Time............................................-44-
C. Notice; Remedies.........................................-44-
14. INDEMNIFICATION..........................................-44-
A. Indemnification by Seller................................-44-
B. Indemnification by Buyer.................................-45-
C. Participation in Third Party Claims......................-45-
D. Litigation.......................................-46-
15. TAX MATTERS..............................................-47-
A. Tax Indemnities..................................-47-
B. Refunds and Tax Benefits.........................-48-
C. Contests.........................................-49-
D. Preparation of Tax Returns.......................-50-
E. Section 338(h)(10) Election......................-50-
F. Cooperation and Exchange of Information..........-52-
G. Miscellaneous....................................-52-
16. SURVIVAL OF TERMS........................................-53-
17. WAIVER AND AMENDMENT.....................................-53-
18. CONFIDENTIAL INFORMATION AND RETENTION OF DOCUMENTS......-54-
A. Confidential Information.................................-54-
B. Retention of Documents...................................-54-
C. Inspection of Documents..........................-54-
19. FEES AND EXPENSES........................................-55-
20. PUBLICITY................................................-55-
21. CERTAIN OPERATING SYSTEMS................................-55-
22. TRANSFER TAXES, ETC......................................-56-
23. NOTICES..................................................-56-
24. CONSTRUCTION.............................................-57-
25. SUCCESSORS AND ASSIGNS...................................-57-
26. SEVERABILITY.............................................-57-
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27. COUNTERPARTS.............................................-58-
28. ENTIRE AGREEMENT.........................................-58-
29. FURTHER ASSURANCES.......................................-58-
30. NO THIRD PARTY BENEFICIARIES.............................-58-
(iv)
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made on this
3rd day of August, 1995, by and between LEVMARK CAPITAL CORPORATION, a New
York corporation having its principal executive offices at 175 Memorial
Highway, New Rochelle, New York 10801 ("Buyer"), and SHONEY'S, INC., a
Tennessee corporation having its principal executive offices at 1727 Elm
Hill Pike, Nashville, Tennessee 37210 ("Seller").
WITNESSETH:
WHEREAS, Seller owns all of the issued and outstanding capital
stock of Mike Rose Foods, Inc., a Tennessee corporation ("Company"); and
WHEREAS, Buyer desires to acquire from Seller, and Seller desires
to transfer to Buyer, all of the issued and outstanding shares of capital
stock of Company in exchange for payment to Seller of the Purchase Price
(as defined herein) to be delivered on the Closing Date (as defined
herein), all upon the terms and conditions hereinafter set forth;
NOW, THEREFORE, for and in consideration of the premises and of
the mutual agreements, provisions, covenants and grants contained herein,
the parties hereto hereby agree as follows:
1. 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 the Company.
"ACCOUNTS PAYABLE" means all of the accounts and notes payable
owed by the Company.
"AFFILIATE" means, when used with respect to a specific Person,
another Person that directly, or indirectly through one or more
intermediaries, controls or is controlled by or is under common control
with the Person specified.
"ASBESTOS" shall have the meaning set forth in SECTION 7.AC.
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"BUYER" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"BUYER'S COUNSEL" means King & Spalding of Atlanta, Georgia.
"CHATTEL MORTGAGES" shall have the meaning set forth in SECTION
7.U.
"CLOSING" means the consummation of the purchase and sale of all
of the issued and outstanding shares of capital stock of Company as
provided in this Agreement.
"CLOSING DATE" means September 30, 1995, or any other Friday as
may be mutually agreed upon by the parties hereto.
"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" shall have the meaning set forth in the first recital
of this Agreement.
"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).
"DUE INQUIRY" means an inquiry by Seller of a group of employees
of the Company on July 31, 1995 in the presence of Buyer's representatives
with respect to particular matters in this Agreement.
"ENVIRONMENTAL LAWS" shall have the meaning set forth in SECTION
7.AB.
"ENVIRONMENTAL CONDITION" means any condition (other than
Scheduled Environmental Conditions) at the Site which: (1) is in violation
of applicable Environmental Laws; (2) involves the disposal or emission
of Hazardous Materials prior to the Closing Date that results in any
damages or injury to or claim by any third party; or (3) results in a
claim by any governmental or regulatory authority under applicable
Environmental Laws.
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"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 Company is also a
member.
"HAZARDOUS MATERIALS" means and shall include, without limitation,
hazardous substances as defined in CERCLA, 42 U.S.C. Section 9601(14),
hazardous wastes and hazardous constituents as defined in RCRA, 42 U.S.C.
Section 6901, et seq., toxic substances as defined in TSCA, 15 U.S.C. Section
2601 et seq., gasoline, 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" shall have the meaning set forth in SECTION 6.
"INVENTORIES" means, collectively, Company's inventories of raw
materials, work in process and finished goods, whether stored on or away
from the Site.
"1933 ACT" means the Securities Act of 1933, as amended.
"PERMITTED ENCUMBRANCE" shall have the meaning set forth in
SECTION 10.A.(1).
"NONCOMPETITION AGREEMENT" means an agreement to be entered into
between Seller and Company on the Closing Date, which agreement shall be
in the form attached hereto as EXHIBIT 1.
"PERSON" means an individual, partnership, corporation, trust or
other entity, or a government or agency or instrumentality thereof.
"PURCHASE PRICE" shall have the meaning set forth in SECTION 3.A.
"REAL ESTATE MORTGAGES" shall have the meaning set forth in
SECTION 7.U.
"SCHEDULED ENVIRONMENTAL CONDITION" means those matters identified
on SCHEDULE 1.A.
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"SELLER" shall have the meaning set forth in the introductory
paragraph of this Agreement.
"SELLER'S COUNSEL" means Tuke Yopp & Sweeney of Nashville,
Tennessee.
"SHARES" means the three hundred (300) issued and outstanding
shares of the fifty dollar ($50.00) par value common stock of Company.
"SITE" means Company's place of business at 189 Spence Lane,
Nashville, Davidson County, Tennessee.
"SUPPLY AGREEMENT" means an agreement to be entered into between
Seller and Company on the Closing Date, which agreement shall be in the
form attached hereto as EXHIBIT 2.
"TAXES" shall mean any federal, state, local or foreign income,
gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes
under Code Sec. 59A), 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.
"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.
"TERMINATION DATE" means October 15, 1995.
"TITLE COMPANY" shall have the meaning set forth in
SECTION 10.A.(1).
"TRADEMARK" means the trademark listed on SCHEDULE 1.B.
"TRADEMARK ASSIGNMENT" means an assignment between Seller and
Company pursuant to which the Trademark is assigned to Company, in form
and substance reasonably acceptable to the parties.
"WORKING CAPITAL" means the excess of: (i) cash plus trade
Accounts Receivable plus Inventories over (ii) Accounts Payable.
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All references herein to "Sections," "Schedules" and "Exhibits"
shall, unless otherwise indicated, refer to the sections, schedules and
exhibits which (through attachment or incorporation by reference) are a
part of this Agreement.
2. PURCHASE AND SALE OF SHARES
A. SALE OF SHARES. Seller agrees to sell, transfer and
convey to Buyer on the Closing Date, subject to the terms and conditions
set forth in this Agreement, free and clear of all liens, encumbrances,
claims, pledges or security interests or charges or interests of any kind
whether voluntarily incurred or arising by operation of law or otherwise,
the Shares. Buyer agrees to accept the transfer from Seller of the Shares
subject to the terms and conditions of this Agreement and in reliance upon
the representations, warranties and agreements of Seller set forth herein
and in the other agreements entered into pursuant to this Agreement.
B. ASSETS NOT BEING PURCHASED AND SOLD. No asset, property
or item other than the Shares is being conveyed to Buyer hereunder.
C. TRANSFER OF SHARES. Subject to the satisfaction or
waiver of the conditions set forth in SECTION 11, on the Closing Date,
Seller shall transfer the Shares by delivery of a stock certificate or
stock certificates representing all of the Shares, duly endorsed in blank
or with executed stock powers or assignments attached, in proper form for
transfer. With the exception of the monies required to be paid pursuant
to SECTION 3 (which monies shall be wire transferred to Seller's account
in Nashville, Tennessee pursuant to instructions to be provided by
Seller), the transfers and deliveries contemplated by this Agreement shall
be completed at the offices of Seller's Counsel, Suite 1700, Third
National Bank Building, Nashville, Tennessee 37219 (or at such other place
as may be agreed upon by the parties hereto) at 9:00 a.m. (Central Time)
on the Closing Date.
3. PURCHASE PRICE
A. PURCHASE PRICE FOR THE SHARES. The purchase price for the
Shares, which Buyer agrees to pay at Closing, shall be Fifty-four Million
Eight Hundred Fifty Thousand Dollars ($54,850,000.00) (the "Purchase
Price").
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B. MEANS OF PAYMENT. Buyer shall pay the Purchase Price to
Seller on the Closing Date by wire transfer of immediately available funds
in Nashville, Tennessee, as directed by Seller.
4. NO ASSUMPTION OF OBLIGATIONS Buyer does not and shall not assume
hereunder or be responsible or liable in any way or amount for or in
respect of any obligations, commitments, indebtedness or liabilities of
Seller of any kind or character whatsoever.
5. AUDITED BALANCE SHEET AND ADJUSTMENT TO PURCHASE PRICE
A. PROPOSED BALANCE SHEET. As promptly as practicable after the
Closing Date, Coopers & Lybrand, certified public accountants (the
"Auditors"), shall, at Buyer's expense, conduct and complete an audit in
accordance with generally accepted auditing standards of the balance sheet
of Company as of the Closing Date (the "Proposed Balance Sheet"). The
Proposed Balance Sheet shall be prepared in accordance with generally
accepted accounting principles applied consistently with past practices
and in accordance with the principles used in preparing the Balance Sheet
(as defined in SECTION 7.K.(1)). Seller shall use its best efforts to
assist and to cause Ernst & Young LLP, certified public accountants
("E&Y"), to assist the Auditors in completing the audit and the
preparation of the Proposed Balance Sheet.
B. RIGHT OF REVIEW. E&Y shall have the right to review the
Proposed Balance Sheet and all work papers and audit procedures relating
thereto. E&Y shall complete its review of the Proposed Balance Sheet
within thirty (30) days after the Proposed Balance Sheet has been made
available to E&Y. If E&Y is of the view that any adjustment should be
made to the Proposed Balance Sheet in order for the Proposed Balance Sheet
to be prepared in accordance with the requirements of SECTION 5.A., E&Y
shall give the Auditors and Buyer written notice of such adjustments. If
no such notice is given within thirty (30) days after the Proposed Balance
Sheet has been made available to E&Y, Seller and E&Y shall be deemed to
have accepted the Proposed Balance Sheet without adjustment. If the
Auditors agree with any of the adjustments proposed by E&Y, such
adjustments shall be made to the Proposed Balance Sheet. If there are any
proposed adjustments that are disputed by the Auditors, then the Auditors,
E&Y, Buyer and Seller shall negotiate in good faith to resolve all
disputed adjustments. If, after a period of thirty (30) days following
the date on which E&Y gives the Auditors written notice of any proposed
adjustments, any such adjustments still remain disputed, then the Auditors
and E&Y shall jointly
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select a nationally recognized accounting firm (the "Joint Firm") to
resolve any remaining disputed adjustments, and the decision of the Joint
Firm shall be final and binding on the parties hereto. The parties hereto
shall use their best efforts to cause the Joint Firm to resolve any such
remaining disputed adjustments as promptly as possible.
C. AUDITED BALANCE SHEET. After the Proposed Balance Sheet has
been prepared and any related adjustments thereto have been calculated and
agreed to pursuant to SECTION 5.A. and SECTION 5.B., all adjustments, if
any, so agreed to with respect to the Proposed Balance Sheet shall be
made. The Proposed Balance Sheet, as so revised by all such adjustments,
if any, is referred to hereinafter as the "Audited Balance Sheet."
D. ADJUSTMENTS. The parties hereto acknowledge that the Purchase
Price has been calculated based on certain assumptions with respect to the
financial condition of Company that will be disclosed on the Audited
Balance Sheet. Accordingly, the parties hereto agree that if Working
Capital of Company as reflected on the Audited Balance Sheet ("Audited
Working Capital") is less than Six Million Nine Hundred Ninety-Three
Thousand, Six Hundred Sixty Three Dollars ($6,993,663.00) (the "Benchmark
Amount"), Seller shall pay to Buyer on the "Post-Closing Date" (as
hereinafter defined) an amount (hereinafter referred to as the "Deficiency
Payment") equal to the amount by which the Audited Working Capital is less
than the Benchmark Amount. Seller shall also pay, in addition to any
Deficiency Payment, interest on such payment, at an annual interest rate
equal to the prime rate as announced by Trust Company Bank, N.A., Atlanta,
Georgia as of the Closing Date, for the period commencing on the Closing
Date and ending on the Post-Closing Date. The parties further agree that
if Audited Working Capital exceeds the Benchmark Amount, Buyer shall pay
to Seller on the Post-Closing Date an amount (hereinafter referred to as
the "Surplus Payment") equal to the amount by which the Audited Working
Capital exceeds the Benchmark Amount; provided, however, that
notwithstanding the amount by which Audited Working Capital exceeds the
Benchmark Amount, the Surplus Payment shall not exceed Two Hundred Fifty
Thousand Dollars ($250,000).
E. POST-CLOSING. Any payment that is required to be made
pursuant to SECTION 5.D. shall be made directly to Buyer or Seller, as the
case may be, at that party's address set forth in SECTION 23 within thirty
(30) days after the Audited Balance Sheet has been completed in accordance
with this SECTION 5 (including resolutions of disputed adjustments), or
on such other date or at such other time or place as Buyer and Seller
shall agree to in writing (the
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date of such post-closing hereunder being referred to herein as the "Post-
Closing Date"). All payments required to be made pursuant to SECTION 5.D.
shall be made by certified or bank check or by wire transfer of
immediately available funds.
6. HSR NOTIFICATION Promptly following execution hereof,
Buyer and Seller shall prepare and file the premerger notifications
required by the Hart-Scott-Rodino Antitrust Improvements Act of 1977 (the
"HSR Act"). Buyer shall pay any fees associated with such filing. Seller
shall cooperate with Buyer in preparing and filing such notification.
Seller shall reimburse Buyer for all of any filing fees (but not related
legal and other costs of preparation) associated with such filing within
thirty (30) days after the Termination Date if the Closing does not occur,
if the failure of the Closing to occur resulted solely from the failure
of Seller to satisfy its obligations hereunder or to satisfy the
conditions set forth in SECTION 11.A..
7. SELLER'S REPRESENTATIONS AND WARRANTIES
Seller represents and warrants to Buyer as follows:
A. GENERAL. The statements contained in SECTIONS 7.B.
through 7.AK. are true and correct and will, except where specific
reference is made to the date of this Agreement or to another date, be
true and correct as of the Closing Date.
B. GOOD STANDING OF SELLER. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Tennessee. Seller has all requisite corporate power and
authority to own, operate and lease its property and to carry on its
business as now being conducted and to enter into and perform its
obligations under this Agreement and under all other agreements
contemplated by this Agreement.
C. GOOD STANDING AND FOREIGN QUALIFICATION OF COMPANY.
Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Tennessee. Company has all
requisite corporate power and authority to own, operate and lease its
property and to carry on its business as now being conducted. Company is
duly qualified and in good standing as a foreign corporation in the states
of Louisiana and South Carolina, constituting each jurisdiction in which
such qualification is required.
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D. BOARD AND SHAREHOLDER AUTHORIZATION. Seller has
received, or will have received as of the Closing Date, the approval of
this Agreement and all other agreements contemplated by this Agreement
from its board of directors. The individuals executing this Agreement on
behalf of and in the name of Seller are duly authorized and empowered to
so act. There is no requirement that the execution or performance of this
Agreement be authorized or approved by Seller's shareholders.
E. CONSENTS. Seller has received, or will have received as
of the Closing Date, all necessary consents to the transactions
contemplated by this Agreement, and to the execution and performance of
this Agreement and all other agreements contemplated by this Agreement by
Seller and the consummation of the transactions contemplated hereby will
not require the consent, approval or authorization of any other Person not
so received.
F. LEGALITY AND ENFORCEABILITY. This Agreement has been
duly executed and delivered by Seller and is the legal, valid and binding
obligation of Seller enforceable against Seller in accordance with its
terms, subject to applicable bankruptcy laws and judicial limitations on
the availability of equitable remedies. The other agreements to be entered
into pursuant to this Agreement, when entered into, will be duly executed
and delivered by Seller and will be legal, valid and binding obligations
of Seller enforceable against Seller in accordance with their respective
terms, subject to applicable bankruptcy laws and judicial limitations on
the availability of equitable remedies.
G. BUSINESS OF COMPANY. Company does not have any
subsidiaries and does not own or control, directly or indirectly, any of
the capital stock of any corporation. Company does not own any interest
in any partnership or other entity. There are no outstanding contractual
obligations of Company to acquire any shares of capital stock or other
ownership interest of any corporation, partnership or other entity.
Company 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.
H. CAPITAL STRUCTURE OF COMPANY. Company has authorized
capital consisting of three hundred (300) shares of capital stock, of
fifty dollars ($50.00) par value each, of which three hundred (300) shares
are issued and outstanding. Company has no other issued or authorized
equity securities. There are no shares of capital stock held in the
treasury of Company. The issued and outstanding shares of Company are
validly issued, fully paid and
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nonassessable. There are no existing subscriptions, options, warrants,
calls, commitments, agreements or rights of any kind obligating Company
to issue any shares of stock or options or rights with respect thereto,
and there are no existing or outstanding securities of any kind
convertible into or exchangeable for shares of stock of Company. No
former shareholder of Company or any corporation heretofore merged with
or into Company has any claim or cause of action whatsoever against
Company 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 Company, Seller or Buyer, 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 outstanding
capital stock of Company has been issued and sold in compliance with all
federal and state securities laws. There are no preemptive rights in
respect of Company's capital stock.
I. OWNERSHIP OF SHARES. Except as disclosed on SCHEDULE
7.I, Seller owns of record and beneficially all of the issued and
outstanding capital stock of Company and has the right and power to
transfer and assign the Shares in Company 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. Except as disclosed on SCHEDULE 7.I,
Seller has the exclusive right, power and authority to vote the Shares.
Seller is the sole shareholder of Company, 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 Company prior
to the Closing Date. Upon the transfer of the Shares to Buyer, Buyer will
have good, valid and marketable title to all of the issued and
outstanding capital stock of Company, 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 Buyer.
J. LITIGATION.
(1)(a) There is no pending, or, after Due Inquiry, to
Seller's knowledge, threatened litigation relating to the Shares;
(b) there is no litigation, claim, suit, action, administrative
or arbitration proceeding or controversy pending or, after Due
Inquiry, to Seller's knowledge, threatened against Seller, nor is
Seller in receipt of any
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inquiry, notice, citation, investigation or complaint from any
governmental agency or department, which would adversely affect
Seller's ability to perform its obligations under this Agreement
nor does Seller, after Due Inquiry, have knowledge of any
occurrence or condition that might properly constitute a basis
for such litigation or proceeding or such inquiry, notice,
citation, investigation or complaint; and (c) Seller is not
subject to any judgment, order, writ, injunction or decree of any
court or administrative agency which would adversely affect
Seller's ability to perform its obligations hereunder.
(2) Except as set forth on SCHEDULE 7.J.(2): (a) there
is no litigation, claim, suit, action, administrative or
arbitration proceeding or controversy pending or, after Due
Inquiry, to Seller's knowledge, threatened against Company, nor
is Company in receipt of any inquiry, notice, citation,
investigation or complaint from any governmental agency or
department, which might adversely affect its business or
properties, nor does Seller 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;
(b) Company is not subject to any judgment, order, writ,
injunction or decree of any court or administrative agency; and
(c) after Due Inquiry, to Seller's knowledge, there is no event
which has occurred or condition which is in existence of any kind
or character pertaining to the business or assets of Company that
may materially and adversely affect such business or assets.
K. FINANCIAL INFORMATION. Seller has delivered to Buyer
copies of Company's unaudited balance sheet dated July 9, 1995 (the
"Balance Sheet Date"), a copy of which is attached hereto as EXHIBIT
7.K.(1) (the "Balance Sheet") and incorporated herein by reference.
Except as stated below, the Balance Sheet was prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied
with past practices utilized in preparing the audited consolidated
financial statements of Seller (however, materiality is determined as to
Company on a stand-alone basis) and presents fairly as of its date the
proforma financial condition of Company assuming the sale of the Shares
pursuant to this Agreement. Attached as EXHIBIT 7.K.(2) is an unaudited
statement of operations for the thirty-six weeks ended July 9, 1995 (the
"Income Statement"). Except as stated below, the Income Statement was
prepared in accordance with GAAP consistently applied with past practices
utilized in preparing the audited consolidated
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financial statements of Seller (however, materiality is determined as to
Company on a stand-alone basis) and presents fairly the revenues and
expenses of Company for the period indicated. The exceptions to the
Balance Sheet and Income Statement being prepared in accordance with GAAP
are as follows: (1) footnotes and other financial statement disclosures
required by GAAP have been omitted; (2) intercompany allocations reflected
therein are based upon Company's historical methods of allocation and may
not be representative of the actual costs attributable to the goods or
services in question; and (3) liabilities of Company assumed or
indemnified by Seller have been omitted.
L. ACCOUNTS RECEIVABLE; INVENTORY.
(1) The Accounts Receivable which are reflected on the
Balance Sheet or which have arisen since the Balance Sheet Date
(i) are, with the exception of a reasonable allowance for bad
debts that is reflected on the Balance Sheet, valid, existing and
fully collectible, (ii) represent monies due for goods sold or
services rendered in the ordinary course of business, (iii) are
not subject to any defenses, rights of set-off, assignment,
restrictions, security interests or other encumbrances except for
those set forth on SCHEDULE 7.U.(2), and (iv) as of the Closing
Date, shall include all Accounts Receivable generated from sales
of products from Company to Seller and its Affiliates during the
28-day period prior to the Closing Date (which amount of Accounts
Receivable owed by Seller and its Affiliates during such 28-day
period shall not in any case be less than One Million Seven
Hundred Fifty Thousand Dollars ($1,750,000.00) and all of which
Accounts Receivable are payable on 30-day terms from the date of
delivery). SCHEDULE 7.L. sets forth an aging schedule of all
Accounts Receivable as of the date set forth on SCHEDULE 7.L.,
and Company is not aware of any dispute regarding the
collectibility of any Accounts Receivable.
(2) All of the Inventories of Company included on the
Balance Sheet or subsequently acquired and to be properly
included on the Audited Balance Sheet are merchantable, with the
exception of a reasonable allowance for spoilage and/or
obsolescence that is reflected on the Balance Sheet, in the
ordinary and usual course of business of Company and are of a
quality and quantity usable and saleable in the ordinary and
usual course of the business of Company, and the quantities of
each type of inventory (whether raw materials, work-in-process or
finished goods) are not excessive, but are reasonable, adequate
and appropriate for the present operation of Company.
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The Inventories of Company included on the Balance Sheet are
valued for the purposes thereof at the lower of cost or market.
No food ingredient, finished article of food, food packaging or
food labelling included in the Inventories of Company is
adulterated or misbranded within the meaning of the Federal Food,
Drug and Cosmetic Act or prohibited under the Food, Drug and
Cosmetic Act from being introduced into interstate commerce. In
addition, all such items comply in all material respects with all
other applicable laws, rules and regulations.
M. NO OTHER LIABILITIES. As of the Closing Date, there will
be no liabilities or obligations of any nature of Company (whether
accrued, absolute, contingent or otherwise and whether due or to become
due), including, without limitation, liability for Taxes or employee
bonuses for periods ending on or before the Closing Date, except (a) to
the extent fully reflected or adequately reserved against in the Balance
Sheet; or (b) for liabilities which have arisen in the ordinary course of
business consistent with past practices since the Balance Sheet Date.
N. TAXES.
(1) Company 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. Company 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 Company with
respect to the periods covered thereby and Company has no
liabilities for Taxes with respect to such periods.
(2) Company is a member of the affiliated group (as
defined in Section 1504 of the Code) of which Seller is the
common parent. Seller has included or will include Company in
its consolidated federal income Tax Return for the taxable year
ended October 30, 1994 and for the taxable year of Seller that
includes the Closing Date, and Seller has included Company in its
consolidated, combined or unitary Tax Returns relating to state
Taxes as set forth in SCHEDULE 7.N. Except as set forth in
SCHEDULE 7.N., Company has not obtained an extension of time
within which to file any Tax Return which has not yet been filed.
Neither Seller nor, to Seller's knowledge after Due Inquiry,
Company has received written
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notice from any governmental agency in a jurisdiction in which
Company does not file a Tax Return stating that it is subject to
taxation by that jurisdiction. Company is not required to file
any Tax Return in any jurisdiction outside the United States and
is not the tax matters partner of any partnership.
(3) The amounts accrued as liabilities for Taxes on the
books of Company and reflected on the Balance Sheet are adequate
to satisfy all unpaid liabilities for Taxes of Company through
the Balance Sheet Date. Except as set forth on SCHEDULE 7.N.,
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 Company, which extension or waiver is
still in effect. Seller has delivered to Buyer 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 Company with
respect to any period ending on or after October 27, 1991. All
final adjustments made by the Internal Revenue Service with
respect to any federal Tax Return of Company (or which includes
Company) have been reported to the relevant state Tax authorities
as required by law. Company is not a party to any Tax sharing or
allocation agreement with any entity. Company (i) has not been
a member of affiliated group filing a consolidated federal Tax
Return other than the affiliated group of which Seller is the
common parent and (ii) has no liability for Taxes of any person
other than Seller under Treasury Regulation Section 1.1502-6 or any
similar provision of state law, or as a transferee or successor,
by contract or otherwise.
O. NO CHANGES. From March 19, 1995, to the Closing Date,
there has not been, except as disclosed on SCHEDULE 7.O.:
(a) any declaration or payment of dividends on any
capital stock of Company or any distribution with respect to, or
in redemption of, any of its Shares;
(b) any sale or transfer of any assets or properties of
Company 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 Company;
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(d) any change in the condition (financial or otherwise)
of properties, assets, liabilities, business or prospects of
Company, except for changes in the ordinary course of business
consistent with past practice, none of which has been materially
adverse;
(e) any transaction other than in the ordinary course of
business of Company consistent with past practice;
(f) any lease of personal or real property to or from any
person, firm or entity with respect to which Company is a party;
(g) any amendment of the charter or bylaws of Company;
(h) the granting or filing of any lien, encumbrance or
security interest against any of Company's 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 Company or Seller;
(j) any personal injury on the premises of Company or in
connection with its business that may give rise to a claim in
excess of Company's applicable insurance coverage;
(k) any increase in the compensation payable to or to
become payable by Company to any officer, employee or agent of
Company, except for normal compensation adjustments to salaries
or wages made in the ordinary course of business consistent with
past practice;
(l) any payment, other than in the ordinary course of
business of Company 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 Company;
(m) any material change in the method of accounting or
accounting practice by Company, except as required by GAAP; or
(n) any agreement, whether in writing or otherwise, to
take any action described in this SECTION 7.O..
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P. MATERIAL CONTRACTS. Except as set forth in SCHEDULE
7.P., Company is not a party to any:
(a) contract or agreement involving amounts payable to
or by Company during any 12-month period that will aggregate
$100,000.00 or more;
(b) management, consultant or employment contract;
(c) contract obligating Company to make severance or
similar payments to any employee or officer of Company upon
termination of employment or to make payments to any officer or
employee of Company 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 Company on a maximum of thirty (30) days notice;
(e) contract or agreement of any nature whatsoever with
Seller or any Affiliate of Seller, with any director or officer
of Company, Seller or any Affiliate of Seller, or with any person
related to any director or officer of Company, Seller or any
Affiliate of Seller;
(f) contract or agreement relating to any loan,
factoring or credit line;
(g) lease of real property;
(h) lease of personal or mixed property under which
Company is a lessor or lessee involving payments by or to Company
in excess of $75,000.00 in any 12-month period;
(i) joint venture, partnership or other agreement
involving sharing of profits;
(j) contract preventing Company from carrying on its
business anywhere in the world;
(k) outstanding power of attorney empowering any Person
to act on behalf of Company;
(l) outstanding offer or bid that, if accepted, would
result in (i) a contract required to be disclosed pursuant to
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this SECTION 7.P., or (ii) any other material contract or
commitment;
(m) purchase commitment for an amount that is in excess
of the normal, ordinary requirements of its business, or purchase
contract or commitment providing for prices substantially in
excess of the current market prices for comparable goods and
services, or any requirements or similar contracts;
(n) outstanding guaranty, subordination or other similar
type of agreement, whether or not entered into in the ordinary
course of business; or
(o) contract, commitment, or obligation otherwise
material to Company's business or not made in the ordinary course
of business.
SCHEDULE 7.P. describes the material terms of all oral contracts disclosed
in SCHEDULE 7.P. Company has duly complied in all material respects with
all provisions of every contract listed on SCHEDULE 7.P. (whether written
or oral) to which Company is a party and is not in default in any material
respect as to any such contract. No condition or state of facts exists
that, with notice or the passage of time, or both, would constitute a
default under any such contract. All contracts and other agreements to
which Company is a party are in full force and effect and are enforceable
by Company 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. No loan payable by
Company provides for any prepayment penalty or premium.
Q. INSURANCE. Seller has in full force and effect policies
of insurance, which policies are described on SCHEDULE 7.Q. attached
hereto, to cover Company's business, assets and properties from loss by
fire, windstorm and extended coverage as well as insurance for general
liability, automobile and workers' compensation. SCHEDULE 7.Q. also
contains a list of all claims (including but not necessarily limited to
workers' compensation, automobile and general liability) filed by or on
behalf of Company for insured losses which are pending and have not been
disposed of as of the Closing Date. Neither Seller nor, after Due
Inquiry, to Seller's knowledge, Company, has been notified as to a default
under or a threatened cancellation of any of such policies of insurance.
There are no pending claims against such insurance by Company as to which
any insurer is defending under reservation of rights or has denied
liability and, after Due Inquiry, to Seller's
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knowledge, there exists no claim under such insurance that has not been
properly filed by Seller or Company.
R. NO CONFLICTS. Neither the execution, delivery or
performance of this Agreement in accordance with its terms, does or will,
after the giving of notice, the lapse of time or otherwise:
(a) conflict with, result in a breach of, or constitute
a default under, the charter or bylaws of Company or Seller, as
applicable, or any contract, agreement or instrument to which
either Company or Seller, as applicable, is a party or by which
either Company or Seller, as applicable, is bound, or any federal
or state law, statute, ordinance, rule or regulation or any court
or administrative order or process;
(b) result in the creation of any lien, encumbrance,
claim or security interest of any nature whatsoever upon or in
any of the assets of Company; or
(c) terminate, amend or modify, or give any party the
right to terminate, amend, modify, abandon or refuse to perform,
any contract, agreement, arrangement, commitment or plan to which
Company is a party.
S. NO RESTRICTIONS. Neither Seller nor Company is a party
to, subject to or bound by any agreement, judgment, order, writ,
injunction or decree of any court or governmental body which could prevent
the consummation of the transactions contemplated herein. Further, no
applicable federal, state or local law or ordinance prevents or prohibits
the consummation of the transactions contemplated herein or necessitates
any filing or the taking of any action by Company or Seller or any
Affiliate thereof that has not been or that will be taken prior to the
Closing Date.
T. NO MISSTATEMENTS, ETC. This Agreement and the Schedules
and Exhibits hereto are accurate as of the date hereof and will be
accurate as of the Closing Date. Neither this Agreement nor the Schedules
attached hereto, when read together, contains any misstatement of a
material fact or omits to state a material fact necessary to make the
statements contained herein not misleading.
U. MORTGAGES. Except for the real estate mortgages listed on
SCHEDULE 7.U.1. (the "Real Estate Mortgages") and the equipment financing
or chattel mortgages listed on SCHEDULE 7.U.2. (the "Chattel Mortgages"),
there are no mortgages, security interests or other liens or encumbrances
affecting Company's assets. Neither Seller nor Company has received any
notice of default, nor are
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there any defaults, or events which, but for the passage of time or the
giving of notice, would constitute defaults, under the Real Estate
Mortgages or the Chattel Mortgages. All payments of principal, interest
and other payments as are required to be made as of the date hereof
relating to such Real Estate Mortgages and Chattel Mortgages have been
made and shall be made as of the Closing Date.
V. PROPERTY.
(1) SCHEDULE 7.V.(1) sets forth a complete and accurate
list and description of all the real and personal property that
Company owns, has agreed (or has an option) to purchase, sell or
lease, or may be obligated to purchase, sell or lease, in each
case the value of which (on an individual item-by-item basis)
exceeds $10,000.00.
(2) Company (i) has fee simple title to all of its real
property and has good, valid and marketable title to all the
personal and mixed, tangible and intangible properties and assets
which it purports to own, including all the real and personal
properties and assets reflected, but not shown as leased or
encumbered, on the Balance Sheet (except for Inventories and
assets sold in the ordinary course of business consistent with
past practice and supplies consumed in the ordinary course of
business), and (ii) except for Permitted Liens, owns such real
and personal property free and clear of all title defects or
objections, liens, restrictions, claims, charges, security
interests, easements or other encumbrances of any nature
whatsoever, including any mortgages, leases, chattel mortgages,
conditional sales contracts, collateral security arrangements and
other title or interest retention arrangements. "Permitted
Liens" shall mean (i) the security interests, easements and other
encumbrances described in SCHEDULE 7.V.(2); and (ii) liens for
Taxes not yet due and payable. All properties and assets of
Company are in the possession or control of Company. With the
exception of certain Inventories that are stored in offsite
public storage, Company has no personal property or leasehold
improvements which are not located at the Site.
(3) Except for Permitted Liens, no real property owned
or leased by Company is subject to (i) any governmental decree or
order (or threatened or proposed order known to Company) to be
sold or taken by public authority or (ii) any rights of way,
building use restrictions, exceptions, variances,
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reservations or limitations of any nature whatsoever, which are
not of record.
(4) The rights, properties and other assets presently
owned, leased or licensed by Company include all rights,
properties and other assets necessary to permit Company to
conduct its business in the same manner as its business has been
conducted during the past twenty-four (24) months or is currently
planned by Company to be conducted, without any need for
replacement, refurbishment or extraordinary repair, except in the
ordinary course of business and as disclosed on SCHEDULE 7.V.(4).
(5) At the Closing, each material item of Company's
equipment will, except as disclosed on SCHEDULE 7.V.(5), be in
good operating condition, normal wear and tear excepted.
(6) After Due Inquiry, Seller has no knowledge of any
structural deficiencies relating to the buildings or structures
located at the Site.
W. TRADEMARK MATTERS.
(1) Seller has good and valid title to, and is the
sole owner of, the Trademark in the United States for the goods
with which the Trademark is used and the registration thereof is
valid and subsisting and in full force and effect.
(2) Through the Closing Date, Seller shall cause
Company to continue to use the Trademark on each and every
trademark class of goods applicable to its operations in order to
maintain the Trademark in full force and effect free from any
claim of abandonment for nonuse and shall cause Company not to do
any act or knowingly omit to do any act whereby the Trademark may
become invalidated.
(3) Through the Closing Date, Seller shall take all
necessary steps in any proceeding before the United States Patent
and Trademark Office to maintain registration of the Trademark,
including, without limitation, filing of renewals, extensions,
affidavits of use and incontestability, and opposition,
interference and cancellation proceedings. Through the Closing
Date, Seller shall notify Buyer promptly in writing if the
registration relating to the Trademark may become abandoned or
dedicated or subject to an adverse final determination in any
proceeding in the United States Patent and Trademark Office or
any court regarding Company's
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ownership of the Trademark, its right to register same, or to
keep or maintain the validity of same.
(4) Except as specifically set forth in SCHEDULE
7.W., the Trademark is free of any liens, claims or encumbrances;
is not subject to any license (royalty bearing or royalty free)
and is not subject to any other arrangement requiring any payment
to any person or the obligation to grant rights to any person in
exchange. Except as specifically set forth in SCHEDULE 7.W., the
validity of the Trademark and title thereto: (i) have not been
questioned in any pending litigation; and (ii) are not the
subject(s) of any threatened or proposed litigation. Except as
specifically set forth in SCHEDULE 7.W., after Due Inquiry, to
Seller's knowledge the business of Company, as now conducted or
currently proposed to be conducted, does not conflict with and
has not been alleged to conflict with any patents, trademarks,
trade names, service marks or copyrights of others. The
consummation of the transactions contemplated hereby will not
result in the loss or impairment of the Trademark. Except as
specifically set forth in SCHEDULE 7.W., Seller does not know of
any use by others of the Trademark.
X. CONFORMANCE TO LAW. Except as set forth in SCHEDULE
7.X., neither Seller nor, after Due Inquiry, to Seller's knowledge,
Company has received any notice or claim from any governmental authority
to the effect that Seller or Company is in violation of any applicable
law, ordinance, regulation, order, codes or requirement which would
materially interfere with the business operations presently conducted by
Company.
Y. EMPLOYEE BENEFIT AND LABOR MATTERS.
(1) EMPLOYEE BENEFITS. (a) Neither Seller nor
Company 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 Company 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 Company on a payday by payday basis as base salary or
hourly wages for current services (individually a "Benefit Plan"
and collectively the "Benefit Plans"). Each of the Benefit Plans
and each other plan pursuant to which any current or former
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employee or director of Company is entitled to any compensation
or benefits is listed on SCHEDULE 7.Y.
(b) Except as specifically described on SCHEDULE
7.Y.:
(i) No ERISA Affiliate (other than Company)
provides, or has an obligation to provide, or makes, or
has had an obligation to make, contributions to provide,
compensation or benefits of under any plan, program or
arrangement which is subject to Title IV of ERISA ("ERISA
Affiliate Title IV Plan").
(ii) Company has furnished to Buyer 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 Buyer.
(iii) 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.
(iv) Each Benefit Plan and each ERISA Affiliate
Title IV Plan has been established, maintained and
administered in compliance with all applicable laws.
Company has no 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.
(v) Company has not incurred and no facts exist
which are reasonably likely to result in any liability to
Company 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 and any
deductions claimed by Company with respect to
contributions made to any Benefit Plan have been
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deductible in full on the income tax returns on which
Company has claimed such deduction.
(vi) Company has not (within the last six
years) 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. Company has not incurred, and no facts exist
which could reasonably be expected to result in,
liability to Company as a result of a termination,
withdrawal or funding waiver with respect to an ERISA
Affiliate Title IV Plan.
(vii) There are no claims which have been made
or threatened under a Benefit Plan or ERISA Affiliate
Title IV Plan which could reasonably be expected to
result in liability to Company (other than routine and
reasonable 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 neither Seller nor to Seller's
knowledge, after Due Inquiry, Company has any notice or
knowledge of any proposed or actual audit or
investigation by any governmental or other law
enforcement agency with respect to any Benefit Plan or
ERISA Affiliate Title IV Plan.
(viii) Company has the right under the terms of
each Benefit Plan and under applicable law to terminate
such plan at any time exclusively by action of Company,
and no additional contributions would be required in
order to properly effect the termination of such plan in
accordance with the terms of such plan and applicable
law.
(ix) Company neither makes nor has made, nor
has or has had an obligation to make, nor reimburses nor
has reimbursed, nor has or has had an obligation to
reimburse, another employer, directly or indirectly, for
making, contributions to a multiemployer plan as
described in Title IV of ERISA.
(x) Section 280G of the Code shall not apply to
any payments made by Company as a result of the
transactions contemplated by this Agreement, and there
are no
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additional payments to or increase in vesting for any
current or former employee or director or their
dependents which will be triggered as a result of the
change in the control of Company contemplated by this
Agreement.
(2) REPRESENTATION. Company is not subject to or
bound by any labor union, collective bargaining, guild or similar
agreement; since January 1, 1992, there has been no strike,
request for union representation or any other material labor
dispute, grievance or controversy pending, or, to the knowledge
of Seller, after Due Inquiry, threatened against Company.
Z. LICENSES AND PERMITS. Except as disclosed on SCHEDULE
7.Z.: (a) Company has all material permits, licenses, orders and approvals
(including, without limitation, all environmental permits licenses and
approvals) of all federal, state and local governmental or regulatory
bodies required for Company to carry on its business as presently
conducted; (b) all such permits, licenses, orders and approvals are in
full force and effect and no suspension or cancellation of any of them is
threatened; (c) Company has complied, in respect of its operations, real
property, equipment, all other property, practices and all other aspects
of its business, in all material respects, with all applicable laws
(whether statutory or otherwise), rules, regulations, orders, ordinances,
judgments and decrees of all governmental authorities (federal, state,
local or otherwise); (d) neither Seller nor Company has received any
notification of any asserted present or past failure to so comply; and (e)
Company has made all filings required by federal, state and local
statutes, regulations and ordinances including, without limitation, EPCRA,
42 U.S.C. Section 11001 et seq.
AA. BROKERS. With the exception of the assistance of Salomon
Brothers Inc., all negotiations relative to this Agreement and the
transactions contemplated hereby have been carried on directly by Seller
with Buyer without the intervention of any broker or other Person so as
to afford a basis for any claim for brokerage or other commissions or fees
relative to this Agreement or the transactions contemplated hereby.
Seller agrees to bear sole responsibility for any claims for brokerage or
other commissions or fees made by any brokers engaged by Seller including,
without limitation any amounts owed to Salomon Brothers Inc.
AB. HAZARDOUS MATERIALS. Except as set forth on SCHEDULE
7.AB., at all times during Company's use and occupancy of the Site
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through and including the date of this Agreement: (a) to the knowledge of
Seller, after Due Inquiry, Company has not used, stored or disposed of any
Hazardous Materials, except in compliance with all applicable federal,
state and local laws, ordinances, rules and regulations (the
"Environmental Laws") and, to the knowledge of Seller, after Due Inquiry,
no former user of the Site has used, stored or disposed of any Hazardous
Materials on or at the Site, except in compliance with all applicable
Environmental Laws; (b) to the knowledge of Seller, after Due Inquiry,
Company has complied with all applicable Environmental Laws in connection
with Company's use and occupancy of the Site; (c) neither Seller nor, to
the knowledge of Seller, after Due Inquiry, Company has received any
notice or advice from any governmental agency or any source whatsoever
with respect to Hazardous Materials on, from or affecting the Site; (d) to
the knowledge of Seller, after Due Inquiry, there are no underground
storage tanks on the Site, either active, out-of-service or abandoned;
(e) to the knowledge of Seller, after Due Inquiry, there has been no
"release" as that term is defined in CERCLA, 42 U.S.C. Section 9601(22), of any
Hazardous Material at, on or adjoining the Site; and (f) neither Seller
nor, to the knowledge of Seller after Due Inquiry, Company has received
any notice or advice of any claim or potential claim arising out of
Company's transportation, use or disposal of Hazardous Materials at the
Site or at any other location.
AC. ASBESTOS. Seller represents and warrants to Buyer that,
to Seller's knowledge, after Due Inquiry, there is no asbestos or material
containing asbestos ("Asbestos") in the buildings located on the Site, and
neither Seller nor to Seller's knowledge, after Due Inquiry, Company, has
received any notice or advice from any governmental agency or any source
whatsoever with respect to Asbestos on, affecting or installed in the
buildings located on the Site. Seller has provided Buyer with copies of
any and all investigations, test results, or audits intended to discover
the presence of Asbestos at the Site.
AD. CHARTER. True and correct copies of Company's charter
and all amendments thereto have been furnished to Buyer.
AE. BYLAWS. True and correct copies of Company's bylaws and
all amendments thereto have been furnished to Buyer.
AF. STOCK RECORDS. True and correct copies of all stock
records and corporate minutes of Company have been furnished to Buyer.
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AG. SALARIED EMPLOYEES. SCHEDULE 7.AG sets forth the names and
current annual salary of all salaried employees of Company who currently
are paid a salary more than $50,000.00 per year together with the date and
amount of the last salary increase for each such person.
AH. BANK ACCOUNTS. The Company has no bank accounts or safe
deposit boxes.
AI. OSHA AND OTHER FILINGS. Company has previously delivered to
Buyer all reports and filings made or filed by Company pursuant to the
Occupational Safety and Health Act, Resource Conservation and Recovery Act
and Executive Order 11246 and similar state and local laws, regulations
and orders since January 1, 1990.
AJ. MAJOR SUPPLIERS AND CUSTOMERS. SCHEDULE 7.AJ. sets forth a
list of each supplier of goods or services to, and each customer of,
Company to whom Company paid or billed in the aggregate more than
$250,000.00 during the fiscal year ended October 30, 1994 and to whom
Company paid or billed in the aggregate more than $170,000.00 during the
thirty-six (36) weeks ended July 9, 1995, together with in each case the
amount paid or billed during such period. Company is not engaged in any
dispute with any of such suppliers or customers. Neither Seller nor
Company believes that the consummation of the transactions contemplated
hereunder will have any adverse effect on the business relationship of
Company with any such supplier or customer. Seller agrees to promptly
notify Buyer in the event that Seller or Company receives any written or
oral notice that the consummation of the transactions contemplated
hereunder will have an adverse effect on the business relationship of
Company with any such supplier or customer.
AK. COPIES OF DOCUMENTS. If requested, Seller has delivered or
made available to Buyer true, correct and complete copies of the following
items:
(1) With respect to each parcel of real property listed
or described in SCHEDULE 7.V.(1), the deed evidencing Company's
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 Company 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 with respect to such property;
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(2) Each of the contracts, lease agreements, plans,
instruments, reports or documents that are in writing and are
listed in the Schedules attached hereto;
(3) The certificate evidencing the Trademark and any
item listed in SCHEDULE 7.W.;
(4) The pleadings and briefs filed in each pending suit
or proceeding listed in SCHEDULES 7.J.(1) and (2) and the
judgments, orders, injunctions, decrees, stipulations and awards
listed in said Schedules; and
(5) All Tax Returns filed by Company within the past
four (4) years.
8. BUYER'S REPRESENTATIONS AND WARRANTIES
Buyer represents and warrants to Seller as follows:
A. GENERAL. The statements contained in SECTIONS 8.B.
through 8.K. are true and correct and will, except where specific
reference is made to the date of this Agreement or to another date, be
true and correct as of the Closing Date.
B. GOOD STANDING OF BUYER. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the
State of New York and is not qualified to do business in any other state.
Buyer has all requisite corporate power and authority to own, operate and
lease its properties and to carry on its business as now being conducted
and to enter into and perform its obligations under this Agreement and
under all other agreements contemplated by this Agreement.
C. BOARD AUTHORIZATION. The execution, delivery and
performance of this Agreement and all other agreements contemplated by
this Agreement have been duly authorized by the board of directors of
Buyer. There is no requirement that this Agreement be approved by the
shareholders of Buyer. The individuals executing this Agreement on behalf
of and in the name of Buyer are duly authorized and empowered to so act.
D. CONSENTS. Buyer has, or will have as of the Closing Date,
all consents of Persons required for the execution and performance by
Buyer of this Agreement, and all other agreements contemplated by this
Agreement, and the consummation of the transactions
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contemplated hereby will not require the consent, approval or
authorization of any other Person or public authority.
E. LEGALITY AND ENFORCEABILITY. This Agreement has been duly
executed and delivered by Buyer and is the legal, valid and binding
obligation of Buyer enforceable against Buyer in accordance with its
terms, subject to applicable bankruptcy laws and judicial limitations on
the availability of equitable remedies.
F. LITIGATION. Buyer is not a party to any litigation,
proceeding or controversy pending before any court or administrative
agency or threatened against Buyer, nor is Buyer in receipt of any
inquiry, notice, citation, investigation or complaint from any
governmental agency or department, which might adversely affect Buyer's
ability to perform its obligations under this Agreement, nor does Buyer
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.
G. NO DEFAULT. Neither the execution, delivery nor
performance of this Agreement or the other agreements contemplated herein
in accordance with their respective terms, does or will, after the giving
of notice, the lapse of time or otherwise, conflict with, result in a
breach of, or constitute a default under the charter or bylaws of Buyer
or any contract or any agreement to which Buyer is a party (except those
for which consent has been or will be obtained) or by which Buyer is
bound, or any federal or state law, statute, ordinance, rule or
regulation, or any court or administrative order or process.
H. SECURITIES MATTERS.
(1) Buyer and Affiliates of Buyer have received, read
and are familiar with all information concerning the Shares and
the business and operations of Company for the purpose of making
an informed investment decision.
(2) Buyer and Affiliates of Buyer recognize the
highly speculative nature of an investment in the Shares.
(3) Buyer is an "accredited investor" as that term
is defined in Rule 506 of Regulation D promulgated under the 1933
Act. Buyer further represents that Buyer's overall commitment to
investments that are not readily marketable is not
disproportionate to its net worth and Buyer's purchase of the
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Shares will not cause such overall commitment to become
excessive.
(4) Buyer and Affiliates of Buyer who are assisting
Buyer have sufficient knowledge and experience in financial and
business matters that Buyer is capable of evaluating the merits
and risks of an investment in the Shares. Buyer and such
Affiliates have made other investments and, by reason of their
respective business and financial experience (and the collective
experience of their agents and employees), have acquired the
capacity to protect Buyer's interests in investments of this
nature. In reaching the conclusion that Buyer wishes to acquire
the Shares, Buyer and such Affiliates have carefully evaluated
Buyer's financial resources and investment position and the risks
associated with this investment in the Shares and believe that
Buyer will be able to bear the economic risks of this investment
in the Shares and will have no need for liquidity from this
investment in the Shares.
(5) Buyer and Affiliates of Buyer have had, if
requested, an opportunity to verify the accuracy of all
information furnished to Buyer or such Affiliates by Seller, and,
if requested, all documents, records and books pertaining to the
proposed investment in the Shares by Buyer have been made
available to Buyer and such Affiliates. In addition, Buyer and
such Affiliates have had an opportunity to ask questions of and
receive satisfactory answers from Seller, or a person or persons
acting on behalf of Seller, concerning the terms and conditions
of this investment in the Shares, and all such questions have
been answered to the full satisfaction of Buyer and such
Affiliates.
(6) Buyer will acquire the Shares for Buyer's own
account for investment and not with a view to, or for resale in
connection with, any distribution of the Shares within the
meaning of the 1933 Act, and Buyer does not now have any reason
to anticipate any change in Buyer's circumstances or other
particular occasion or event that would cause Buyer to sell the
Shares or any portion thereof.
(7) Buyer and Buyer's Affiliates recognize that this
investment in the Shares involves certain risks, and Buyer and
Buyer's Affiliates have taken full cognizance of and understand
such risks.
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(8) All information that Buyer has provided to
Seller or Company concerning Buyer and Buyer's Affiliates, the
financial position of Buyer and Buyer's Affiliates and the
knowledge of financial and business matters by Buyer and Buyer's
Affiliates as represented by Buyer to Seller is correct and
complete in all material respects.
(9) In connection with Buyer's purchase of the
Shares: (a) Buyer has been fully informed as to the circumstances
under which Buyer is required to take and hold the Shares
pursuant to the requirements of the 1933 Act and any applicable
state securities or "Blue Sky" laws; and (b) Buyer has been
informed by Seller that the Shares are not registered under the
1933 Act and may not be transferred, assigned or otherwise
disposed of unless the Shares are subsequently registered under
the 1933 Act or an exemption from such registration is available.
(10) Buyer understands that the Shares may not be
sold, assigned or transferred unless: (a) such sale, assignment
or transfer is exempt from registration under the 1933 Act and
any applicable state securities or "Blue Sky" laws; or (b) a
registration statement covering the Shares is effective under the
1933 Act.
(11) Seller and Buyer acknowledge and agree that the
representations, warranties, covenants and agreements of Seller
contained in this Agreement shall not be affected or diminished
in any way by any investigation by Buyer or by virtue of any
representation or warranty of Buyer contained in this Section
8.H.
I. NO RESTRICTIONS. Buyer is not a party to, subject to or
bound by any agreement, judgment, order, writ, injunction or decree of any
court or governmental body which could prevent the consummation of the
transactions contemplated herein. No applicable federal, state or local
law or ordinance prevents or prohibits the consummation of the
transactions contemplated herein or necessitates any filing or the taking
of any action by Buyer other than actions that have been or that will be
taken prior to the Closing Date, as contemplated herein.
J. NO MISSTATEMENTS, ETC. Neither this Agreement, the
Exhibits or Schedules attached hereto, nor any other statement or document
furnished to Seller by or on behalf of Buyer and relating to this
Agreement, when read together, contains any misstatement of
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a material fact or omits to state a material fact necessary to make the
statements contained herein or therein not misleading.
K. NO BROKER. With the exception of the assistance of
SunTrust Corporate Finance, all negotiations relative to this Agreement
and the transactions contemplated hereby have been carried on directly by
Buyer with Seller without the intervention of any broker or other person
so as to afford a basis for any claim for brokerage or other commissions
or fees relative to this Agreement or the transactions contemplated
hereby. Buyer agrees to bear sole responsibility for any claims for
brokerage or other commissions or fees made by brokers engaged by Buyer
including, without limitation, any amounts owed to SunTrust Corporate
Finance.
9. COVENANTS OF SELLER
Seller covenants and agrees that, during the period from the date
hereof to the Closing Date, Seller will cause:
A. OPERATE IN REGULAR MANNER. Company to be operated only in
the usual, regular and ordinary manner and use reasonable efforts (without
entering into any written employment agreements) to preserve intact its
present business organization.
B. MAINTENANCE OF PROPERTY. Company's properties to be
maintained in their current condition of repair, ordinary wear and tear
excepted, with certain costs thereof to be reimbursed by Buyer to Seller
as provided on SCHEDULE 7.V.(5).
C. BOOKS AND RECORDS. The books of account and records
relating to the operations of Company to be maintained in the usual,
regular and ordinary manner on a basis consistent with past practices.
D. TAXES AND ASSESSMENTS. All Taxes and assessments
relating to the operation of Company during taxable periods ending on or
before such Closing Date to be paid when due and payable and all Tax
Returns relating to such Taxes and assessments to be filed whether such
returns are required to be filed before or after the Closing Date.
E. INSPECTION. Representatives of Buyer, including lenders,
accountants, attorneys, engineers, architects and construction personnel,
to be permitted to inspect any property or business records of Company
upon reasonable notice and at any and all
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reasonable times during ordinary business hours of Company so long as the
same does not disrupt the operation of Company.
F. NO TAX SETTLEMENTS. Company not to withdraw, settle or
otherwise compromise any protest or reduction proceeding affecting real
estate or personal property Taxes assessed against any assets of Company
for any fiscal period in which the Closing Date is to occur or any
subsequent fiscal period, without the prior written consent of Buyer.
G. NOTICE OF CERTAIN EVENTS. Notify Buyer in writing as soon
as possible upon Seller's receipt of any notices from any Persons or
governmental authorities pertaining to Hazardous Materials on, from or
affecting the Site or to alleged illegal activities or conditions at any
of Company's properties or operations.
H. CAPITAL CHANGES. Company not to issue or sell or otherwise
make commitments with respect to the issuance or sale of any equity
interest in Company or otherwise make changes to its capital structure.
I. DIVIDENDS. Company not to declare or pay any dividends or
other distribution of any kind in respect of any equity interest, except
as described in SCHEDULE 7.O.
J. CERTAIN ACTIONS. Company not to take any of the following
actions:
(1) Dispose of any assets other than in the ordinary
course of business;
(2) Mortgage, pledge or subject to liens or other
encumbrances any assets or properties of Company;
(3) Purchase or commit to purchase any capital asset for
a price exceeding $100,000.00;
(4) Except for planned or normal increases in the
ordinary course of business with respect to non-officer
employees, increase (or announce any increase of) any salaries,
wages or employee benefits or hire, commit to hire or terminate
any employee;
(5) Amend its charter or bylaws;
(6) Issue, sell or repurchase any of its capital stock or
make any change in its issued and outstanding capital stock or
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issue any warrant, option or other right to purchase shares of
its capital stock or any security convertible into its capital
stock, or redeem, purchase or otherwise acquire any shares of its
capital stock, or declare any dividends or make any other
distribution with respect to its stock;
(7) Incur, assume or guarantee any obligation or
liability for borrowed money, or exchange, refund or renew any
outstanding indebtedness in such a manner as to reduce the
principal amount of such indebtedness and increase the interest
rate or balance outstanding;
(8) Cancel any debts owed to Company;
(9) Amend or terminate any material agreement, including
any employee benefit plan or any insurance policy, in force on
the date hereof;
(10) Solicit or entertain any offer for, or sell or agree
to sell, or participate in any business combination with respect
to, any assets of Company (except Inventories sold in the
ordinary course of business consistent with past practices) or
any of the Shares;
(11) Make any changes in its accounting methods,
principles or practices, except as may be required by GAAP;
(12) Enter into any contract or agreement of the type
described in SECTION 7.P.; or
(13) Do any act, omit to do any act or permit any act
within Seller's or Company's control which will cause a breach of
any representation, warranty, covenant or agreement contained in
this Agreement or any obligations contained in any contract.
K. REMOVAL OF CERTAIN ENCUMBRANCES.The liens and
encumbrances listed on SCHEDULES 7.I., 7.U.(1), 7.U.(2) and 7.W. to be
terminated and removed as of the Closing Date at Seller's sole cost and
expense, except as noted on such SCHEDULES.
L. HAZARDOUS MATERIALS. Company: (1) not to 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; (2) to comply in all material respects with
all applicable Environmental Laws, and to keep the Site free and clear of
any liens imposed pursuant to such
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Environmental Laws; and (3) not to install, or permit to be installed,
Asbestos on the Site.
M. TRADEMARK. All of Seller's right, title and interest
in and to the Trademark to be conveyed to Company on or before the Closing
pursuant to the Trademark Assignment.
N. REMEDIAL ACTIONS. Seller agrees to implement and/or complete,
at its expense prior to Closing, each of the recommended actions specified
in Section 5.0 of the report identified in Item 2 of SCHEDULE 7.AB. Such
actions by Seller shall include the complete performance and payment by
Seller of all of Company's obligations under that Agreement dated June 20,
1995, between Company and Walter Knestrick Contractors, Inc. If any of
such actions are not sufficient to cause each of the conditions to be
remediated by such action to comply with all applicable Environmental
Laws, Seller shall take such additional actions, at its expense, as are
reasonably requested by Company to bring such conditions into compliance.
10. TITLE AND ENVIRONMENTAL MATTERS
A. TITLE MATTERS.
(1) TITLE POLICY. The obligations of Buyer to consummate the
transactions contemplated by this Agreement shall be subject to Company's
ability to obtain an owner's title insurance policy issued by Chicago
Title Insurance Company (the "Title Company") with respect to Company's
fee simple interest in the Site on a regular and customary form of title
insurance policy then being issued by Title Company, insuring that Company
is the valid owner, as of the Closing Date, of the fee simple estate in
the Site. The cost of such title policy shall be the obligation of Buyer.
The policy (or the final commitment if a policy is not obtained) shall
contain no exceptions to coverage other than the following (each, a
"Permitted Encumbrance"): (i) the liens of real estate taxes not due and
payable as of the Closing Date; (ii) licenses and easements for public
utilities; (iii) easements and restrictions of record; (iv) all applicable
zoning ordinances for the governing municipality and other governmental
regulations, laws and ordinances; (v) such matters as are set forth on the
preliminary title commitment of Title Company received by Seller and
attached hereto as EXHIBIT 10.A.(1) (the "Commitment"); and (vi) any other
encumbrances which, either individually or in the aggregate, do not
materially interfere with or restrict the use of or materially and
adversely affect the value of the Site.
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(2) PRELIMINARY COMMITMENT. Within fifteen (15) days after
the date hereof, Buyer shall specify to Seller and to Title Company any
exception set forth in the Commitment which Buyer contends is not a
Permitted Encumbrance. Any exception not so specified shall be deemed
approved by Buyer.
(3) SURVEY. Seller has furnished to Buyer a survey of the
Site, which survey shall indicate the as-built location of buildings and
structures on the Site. Any updates to such surveys shall be at Buyer's
expense.
B. ENVIRONMENTAL MATTERS. Seller has furnished to Buyer a
Phase I environmental survey and a Report of Limited Sampling and Analysis
relating to the Site. Buyer shall have a study period of forty-five (45)
days after the date hereof within which to make, at its expense, such
tests as it deems advisable to determine if there is an Environmental
Condition on the Site and an additional fifteen (15) days within which to
receive and review the results of such tests. Seller shall pay and/or
reimburse Buyer for one-half of the out of pocket costs for any such
testing; provided, however, that Seller's obligation to pay for the costs
of such testing shall not exceed $12,500.00. If the testing indicates
that there is an Environmental Condition at the Site, Buyer shall have the
option to extend the study period an additional fifteen (15) days at its
sole discretion. If Buyer discovers an Environmental Condition at the
Site during the study period, Buyer may elect not to purchase the Shares
unless Seller agrees to remediate such Environmental Condition, in which
case Buyer shall have no right to refuse to purchase the Shares because
of the presence of any Environmental Condition existing at the Site.
11. CONDITIONS OF CLOSING
A. CONDITIONS FOR THE BENEFIT OF BUYER. The obligations of
Buyer to consummate the transactions provided for herein shall be subject
to the satisfaction, on or before the Closing Date, or such earlier date
as may be specified herein, of the following conditions, in addition to
such other conditions as may be provided for in this Agreement:
(1) Seller has made all of the deliveries required
by SECTION 12.A.
(2) The representations and warranties of Seller
contained herein shall have been true and correct in all material
respects as of the date hereof and shall be true and
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correct in all material respects as of and at the Closing Date
with the same effect as if made at and as of such dates, except
as provided or permitted hereunder, and Seller shall have
performed and complied in all material respects with all
agreements, covenants and conditions required by this Agreement
to be performed and complied with by them, at or prior to the
Closing Date.
(3) All consents and/or approvals (including those
of Buyer's board of directors and of its lenders) necessary for
the consummation of the transactions contemplated by this
Agreement shall have been obtained.
(4) No suit, action or other proceeding (including
action under federal antitrust laws) to prohibit, delay or
otherwise materially and adversely affect the consummation of
this Agreement or to subject Buyer or Company to any liability
resulting directly or indirectly from the transactions
contemplated hereby shall have been instituted or threatened.
(5) Buyer shall have received the opinion, dated as
of the Closing Date, of Seller's Counsel, in form and substance
reasonably satisfactory to Buyer's Counsel, to the effect that:
(a) Seller is a corporation
duly organized, validly existing and in
good standing under the laws of the
State of Tennessee.
(b) Company is a corporation
duly organized, validly existing and in
good standing under the laws of the
State of Tennessee and is duly
qualified to transact business in the
States of Louisiana and South Carolina.
(c) Each of Seller and Company
has the requisite corporate power to
carry on its business as it is now
being conducted.
(d) The Shares are validly
authorized, issued, fully paid and
nonassessable.
(e) The instruments of
transfer to be delivered by Seller to
Buyer on the Closing Date are
sufficient to transfer to Buyer all
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right, title and interest in and to the
Shares.
(f) Neither the execution and
delivery of this Agreement or the other
agreements contemplated herein nor
Seller's performance in accordance with
their respective terms are restricted
by or violate the terms of any existing
constitution, law or administrative
rule or regulation applicable to Seller
or Company, the charter or bylaws of
Seller or Company, or any lease,
option, agreement, mortgage, loan
agreement or any contractual or other
obligation of Seller or Company listed
on any Schedule to this Agreement.
(g) To the best of counsel's
current knowledge and belief, no legal
action or proceeding against Seller or
Company is pending or threatened at the
Closing Date which, if successful,
would prohibit consummation or require
substantial rescission of the
transactions contemplated by this
Agreement.
(h) Seller has full power to
execute, deliver and perform this
Agreement, and the other agreements and
instruments executed on even date
herewith pursuant to this Agreement.
(i) This Agreement, and the
other agreements and instruments
executed on even date herewith pursuant
to this Agreement have been duly and
validly executed and delivered by
Seller and they constitute legal, valid
and binding obligations of Seller,
enforceable in accordance with their
respective terms (subject to applicable
bankruptcy, insolvency and other laws
affecting the enforceability of
creditor's rights generally and subject
to general principles of equity and
subject to public policy considerations
as expressed in the 1933 Act which may
render certain indemnification
provisions unenforceable and subject to
the provisions of applicable securities
laws).
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(6) 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.
(7) The Trademark Assignment has been duly executed
and delivered by Seller.
(8) The Supply Agreement has been duly executed and
delivered by Seller.
(9) The Noncompetition Agreement has been duly
executed and delivered by Seller.
(10) Seller shall have delivered to Buyer a
certificate, dated as of the Closing Date, certifying to the
fulfillment of the foregoing conditions. Seller may, conditioned
upon prior receipt of the written approval of Buyer, amend the
Schedules attached hereto for the purpose of making immaterial
corrections and clarifications thereon applicable to Seller and
consistent with the terms and agreements contained herein, which
amendments shall be attached to the certificate delivered
pursuant to this SECTION 11.A.(10). Unless otherwise agreed to in
writing by the parties hereto, if the Closing occurs, Buyer shall
be deemed to waive any rights for breach of representation or
warranty by Seller to the extent that such amendment corrects
such representation or warranty. Nothing in this SECTION
11.A.(10) shall impose any obligation on Buyer either to accept
any material amendment to the Schedules provided for herein or to
close the transaction notwithstanding such amendment, unless
Buyer elects to do so in its sole and absolute discretion.
(11) Buyer shall have obtained financing for at least
Forty-five Million Dollars ($45,000,000.00) on the terms set
forth in the commitments for financing described in SECTION
13.A.(4) to allow it to complete the purchase of the Shares, it
being acknowledged and agreed that Buyer and its Affiliates (and
other entities, if any, investing through Buyer) shall fund at
least Twelve Million Dollars ($12,000,000.00) toward the Purchase
Price and expected transaction expenses.
B. CONDITIONS FOR THE BENEFIT OF SELLER. The obligations of
Seller to consummate the transactions provided for herein shall be subject
to the satisfaction, on or before the Closing Date, of the following
conditions, in addition to such other conditions as may be provided for
in this Agreement:
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(1) Buyer has made all of the deliveries required by
SECTION 12.B.
(2) The representations and warranties of Buyer
contained herein shall have been true and correct in all material
respects as of the date hereof and shall be true and correct at
and as of the Closing Date with the same effect as if made on and
as of such dates, except as otherwise provided or permitted
hereunder, and Buyer shall have performed and complied in all
material respects with all agreements, covenants and conditions
required by this Agreement to be performed and complied with by
it, at or prior to the Closing Date.
(3) All consents and/or approvals (including those
of Seller's board of directors and lenders) necessary for the
consummation of the transactions contemplated by this Agreement
shall have been obtained.
(4) No suit, action or other proceeding (including
action under federal antitrust laws) to prohibit, delay or
otherwise materially and adversely affect the consummation of
this Agreement or to subject Seller to any liability resulting
directly or indirectly from the transactions contemplated hereby
shall have been instituted or threatened.
(5) Seller shall have received an opinion, dated as
of the Closing Date, from Buyer's Counsel, in form and substance
reasonably satisfactory to Seller's Counsel to the effect that:
(a) Buyer is a corporation
duly organized, validly existing and in
good standing under the laws of the
State of New York.
(b) Buyer has the requisite
corporate power to carry on its
business as it is now being conducted.
(c) Neither the execution and
delivery of this Agreement or the other
agreements contemplated herein nor
Buyer's performance in accordance with
their respective terms are restricted
by or violate the terms of any existing
constitution, law or administrative
rule or regulation applicable to Buyer,
the
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charter or bylaws of Buyer or, to the
best of counsel's current knowledge and
belief, any lease, option, agreement,
mortgage, loan agreement or any
contractual or other obligation of
Buyer.
(d) To the best of counsel's
current knowledge and belief, no legal
action or proceeding against Buyer is
pending or threatened at the Closing
Date which, if successful, would
prohibit consummation or require
substantial rescission of the
transactions contemplated by this
Agreement.
(e) Buyer has full power to
execute, deliver and perform this
Agreement, and the other agreements and
instruments executed on even date
herewith pursuant to this Agreement.
(f) This Agreement, and the
other agreements and instruments
executed on even date herewith pursuant
to this Agreement, each have been duly
and validly executed and delivered by
Buyer and they constitute legal, valid
and binding obligations of Buyer,
enforceable in accordance with their
respective terms (subject to applicable
bankruptcy, insolvency and other laws
affecting the enforceability of
creditor's rights generally and subject
to general principles of equity and
subject to public policy considerations
as expressed in the 1933 Act which may
render certain indemnification
provisions unenforceable).
(6) 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.
(7) The Supply Agreement has been duly executed and
delivered by Company.
(8) Buyer shall have delivered to Seller a
certificate, dated as of the Closing Date, certifying to the
fulfillment of the foregoing conditions. Buyer may, conditioned
upon prior receipt of the written approval of Seller, amend the
Schedules
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attached hereto for the purpose of making immaterial corrections
and clarifications thereon applicable to Buyer and consistent
with the terms and agreements contained herein, which amendments
shall be attached to the certificate delivered pursuant to this
SECTION 11.B.(8). Unless otherwise agreed to in writing by the
parties hereto, if the Closing occurs, Seller shall be deemed to
waive any rights for breach of representation or warranty by
Buyer to the extent that such amendment corrects such
representation or warranty. Nothing in this SECTION 11.B.(8)
shall impose any obligation on Seller either to accept any
material amendment to the Schedules provided for herein or to
close the transaction notwithstanding such amendment, unless
Seller elects to do so in its sole and absolute discretion.
C. BEST EFFORTS AND RIGHT TO PERFORM. Seller and Buyer shall
use their best efforts to fulfill all of their respective pre-Closing
obligations under this Agreement; provided, however, that, unless
otherwise required by this Agreement, no party shall be required to make
any material out-of-pocket payments (other than customary fees and charges
and salary and travel expenses) or incur any additional material
obligations to satisfy such obligations or conditions. Seller and Buyer
shall have the right, but not the obligation (unless otherwise required
by this Agreement), to assist the other in performing any pre-Closing
obligations or conditions precedent of the other party.
D. FAILURE OF CONDITIONS. If any of the foregoing conditions
precedent to Seller's obligations fail, Seller, subject to SECTION 13, may
elect, in its sole discretion, not to sell the Shares. If any of the
foregoing conditions precedent to Buyer's obligations fail, Buyer, subject
to SECTION 13, may elect, in its sole discretion, not to purchase the
Shares.
E. WAIVER OF CONDITIONS. Seller or Buyer, as the case may
be, may waive any condition precedent to its obligations under this
Agreement; provided, however, that such waiver can be granted only on the
waiving party's behalf and only to the extent that it does not affect any
other party's rights hereunder.
12. DELIVERIES AT THE CLOSING
A. SELLER'S DELIVERIES TO BUYER. At the Closing, Seller
shall deliver to Buyer, in addition to any and all other instruments
required hereunder to be so delivered to Buyer by Seller, the following:
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(1) A stock certificate or stock certificates
representing the Shares, registered in the name of Seller and
duly endorsed in blank or with executed stock powers or
assignments attached, in proper form for transfer;
(2) Written resignations of all officers and
directors of Company effective as of the Closing Date;
(3) Copies of the charter and bylaws of Seller and
of Company and of resolutions adopted by the board of directors
of Seller authorizing and approving the execution and performance
of this Agreement and the other agreements contemplated by this
Agreement and the sale and transfer of the Shares, all as
certified by an appropriate officer of Seller as of the Closing
Date;
(4) A certificate as to the incumbency of each person
executing this Agreement and the other agreements contemplated by
this Agreement on behalf of Seller;
(5) A Certificate of Existence with respect to Seller
dated not more than seven (7) days prior to the Closing Date
issued by the Tennessee Secretary of State;
(6) A Certificate of Existence with respect to
Company 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
Company dated not more than seven (7) days prior to the Closing
Date issued by the appropriate officers of the States of
Louisiana and South Carolina;
(7) The Supply Agreement, duly executed by Seller;
(8) The Noncompetition Agreement, duly executed by
Seller;
(9) The opinion of Seller's Counsel referred to in
SECTION 11.A.(5); and
(10) The certificate of Seller required by SECTION
11.A.(10).
B. BUYER'S DELIVERIES TO SELLER. At the Closing, Buyer shall
deliver to Seller, in addition to any and all other instruments required
hereunder to be so delivered to Seller by Buyer, the following:
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(1) The Purchase Price;
(2) Copies of the charter and bylaws of Buyer and of
resolutions adopted by the board of directors of Buyer
authorizing Buyer's execution and performance of this Agreement
and the other agreements contemplated by this Agreement and the
purchase of the Shares, all as certified by an appropriate
officer of Buyer as of the Closing Date;
(3) A certificate as to the incumbency of each person
executing this Agreement and the other agreements contemplated by
this Agreement on behalf of Buyer;
(4) Certificates of corporate good standing (or
equivalent) with respect to Buyer dated not more than seven (7)
days prior to the Closing Date issued by the secretary of state
or other appropriate officer of the state of New York;
(5) The Supply Agreement, duly executed by Company;
(6) The opinion of Buyer's Counsel referred to in
SECTION 11.B.(5); and
(7) The certificate of Buyer required by SECTION
11.B.(8).
C. OTHER DELIVERIES. At the Closing, all other consents,
permits, licenses and administrative approvals required to be obtained as
conditions precedent to the consummation of the transactions provided for
herein shall be delivered.
13. TERMINATION
A. BY AGREEMENT OR FAILURE OF CONDITIONS. This Agreement may
be terminated:
(1) By mutual consent of all parties hereto;
(2) By Buyer if any of the conditions to Buyer's
obligations to consummate the transactions contemplated in this
Agreement shall not have been satisfied, or waived by Buyer, on
or prior to the Closing Date; or
(3) By Seller if any of the conditions to Seller's
obligations to consummate the transactions contemplated in
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this Agreement shall not have been satisfied, or waived by
Seller, on or prior to the Closing Date; or
(4) By Seller if, on or before August 31, 1995, Buyer
fails to obtain and furnish to Seller one or more commitments for
financing for at least Forty-five Million Dollars
($45,000,000.00) (it being acknowledged and agreed that Buyer and
its Affiliates (and other entities, if any, investing through
Buyer) shall fund at least Twelve Million Dollars
($12,000,000.00) toward the Purchase Price and expected
transaction expenses) to allow Buyer to purchase the Shares on a
basis that Buyer indicates to Seller is satisfactory and which
commitment contains terms and conditions that are reasonably
satisfactory to Seller.
B. LAPSE OF TIME. Any provision of this Agreement to the
contrary notwithstanding, if the Closing has not been held for any reason
whatsoever on or before the Termination Date, either party may terminate
this Agreement by written notice to the other party.
C. NOTICE; REMEDIES. The rights of termination hereof as
provided herein shall be exercised by written notice of termination given
by the terminating party to the other party in the manner hereinafter
provided. Any such right of termination shall not preclude any legal or
equitable remedies which may be available to any nondefaulting party
hereto arising out of any default hereunder by the other party hereto. In
the event of a default by any party, the nondefaulting party shall have
such remedies against the defaulting party as may be available to the
nondefaulting party either pursuant to this Agreement and/or at law or in
equity, including the right to recover all costs, expenses or damages
resulting from such default and the right to specifically enforce this
Agreement.
14. INDEMNIFICATION
A. INDEMNIFICATION BY SELLER. Seller will indemnify, defend
and hold Buyer and Company (collectively, the "Buyer 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 Buyer Parties (whether as a result of a third-
party claim, or otherwise) as a result of:
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(1) The breach of any of Seller's representations and
warranties made under or pursuant to this Agreement or any of the
other agreements contemplated by this Agreement;
(2) The nonfulfillment of any covenant, agreement or
obligation to be performed by Seller under or pursuant to this
Agreement or any of the other agreements contemplated by this
Agreement;
(3) 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
Seller or to have rendered services on Seller's behalf;
(4) The litigation described on SCHEDULE 7.J.(2) (the
"Litigation") (subject to the further conditions described in
SECTION 14.D.);
(5) Any Scheduled Environmental Condition; or
(6) Any Environmental Condition existing on the
Closing Date that was caused by Seller or is known to Seller.
B. INDEMNIFICATION BY BUYER. Buyer will indemnify, defend
and hold Seller harmless on and after the Closing Date from and against
all Costs incurred by Seller (whether as a result of a third-party claim,
or otherwise) as a result of:
(1) The breach of any of Buyer's representations and
warranties made under or pursuant to this Agreement or any of the
other agreements contemplated by this Agreement;
(2) The nonfulfillment of any covenant, agreement or
obligation to be performed by Buyer under or pursuant to this
Agreement or any of the other agreements contemplated by this
Agreement; or
(3) 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
Buyer or to have rendered services on Buyer's behalf.
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
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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 14 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 14. 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 or Company. 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.
D. LITIGATION. Seller will assume the defense of and will
control the Litigation and the settlement of such matters; provided,
however, that Seller (i) will use its best efforts to avoid any judgment
which would involve equitable relief (for example, reinstatement) of any
kind against any of the Buyer Parties, and (ii) will not enter into any
settlement involving such relief without Buyer's prior written consent.
It is understood and agreed that Seller shall have no obligation to
indemnify the Buyer Parties for any equitable relief that may be awarded
in the Litigation.
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15. TAX MATTERS
A. TAX INDEMNITIES.
(1) From and after the Closing Date, Seller agrees
to indemnify Buyer and Company against all Taxes (i) imposed on
Seller or any member of an affiliated group with which Seller
files a consolidated or combined income tax return with respect
to any taxable period that ends on or before the Closing Date,
including any Taxes resulting from or attributable to Seller's
sale of the Shares and the Section 338(h)(10) Election (as
defined herein), or (ii) imposed on Company with respect to any
taxable period that ends on or before the Closing Date, including
any Taxes resulting from or attributable to the Section
338(h)(10) Election (as defined herein), provided, however, that
no indemnity shall be provided under this Agreement for any Taxes
resulting from any transaction of Company occurring after the
Closing Date. Any indemnity payment made by Seller pursuant to
this SECTION 15.A. shall, in accordance with SECTION 15.G.(1), be
treated for tax purposes as an adjustment to the Purchase Price
and shall not include or require any gross-up for Taxes on such
indemnity payment.
(2) From and after the Closing Date, Buyer shall
indemnify Seller against all Taxes imposed on or with respect to
Company that are not subject to indemnification pursuant to
SECTION 15.A.(1). Any indemnity payment made by Buyer pursuant
to this SECTION 15.B. shall, in accordance with SECTION 15.G.(1),
be treated for tax purposes as an adjustment to the Purchase
Price and shall not include or require any gross-up for Taxes on
such indemnity payment.
(3) Any indemnity payment required under this SECTION
15.A. shall be made within ten (10) business days following
notice by the party to be indemnified that payment of the amount
for which indemnity is sought is then due to the appropriate Tax
authority; provided, however that no indemnity payment shall be
required to be made more than two (2) business days before it is
due to the appropriate Tax authority. In the case of a Tax that
is contested pursuant to SECTION 15.C., payment of the Tax to the
appropriate Tax authority will not be considered to be due until
a final non-appealable determination to such effect is made by
the appropriate Tax authority or a court.
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(4) For purposes of this Agreement, in the case of
any Tax that is imposed on a periodic basis and is payable for a
period that begins before the Closing Date and ends after the
Closing Date, the portion of such Tax payable for the period
ending on the Closing Date shall be (i) in the case of any Tax
other than a Tax based upon or measured by income, the amount of
such Tax for the entire period multiplied by a fraction, the
numerator of which is the number of days in the period ending on
the Closing Date and the denominator of which is the number of
days in the entire period and (ii) in the case of any Tax based
upon or measured by income, the amount which would be payable if
the taxable year ended on the Closing Date. Any credit or
prepayment shall be prorated based upon the fraction employed in
clause (i) of the next preceding sentence. In the case of any
Tax based upon or measured by capital (including net worth or
long-term debt) or intangibles, any amount thereof required to be
allocated under this SECTION 15.A.(4) shall be computed by
reference to the level of such items on the Closing Date.
B. REFUNDS AND TAX BENEFITS
(1) Buyer shall promptly pay or cause Company to pay
to Seller any refund or credit (including any interest paid or
credited with respect thereto) received by Buyer or Company of
Taxes (i) relating to taxable periods ending on or before the
Closing Date or (ii) attributable to an amount paid by Seller
under SECTION 15.A., but, in each case, only to the extent that
the right to such refund or credit was not included as an asset
of Company on the Balance Sheet. Buyer shall, if Seller so
requests and at Seller's expense, file for or cause Company to
file for and obtain any refund to which Seller (or Seller,
indirectly through Company) is entitled under this SECTION 15.B.
Buyer shall permit or cause Company to permit Seller to control
(at Seller's expense) the prosecution of any such refund claim,
and shall cause the relevant entity to authorize by appropriate
power of attorney such persons as Seller shall designate to
represent such entity with respect to such refund claim.
(2) If Seller pays an amount pursuant to SECTION
15.A., and the underlying adjustment resulting in the obligation
of Seller results in a Tax benefit to Buyer, any subsidiary or
any Affiliate of Buyer or Company or any entity with which
Company files a consolidated, combined or unitary tax return for
a period or portion thereof beginning after the Closing Date and
ending on or before the date of the Tax payment
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giving rise to the indemnity obligation, then, upon Seller's
request and at Seller's expense and provided that the period of
limitations for obtaining a refund such Taxes has not expired,
Buyer shall file or cause Company to file a claim for refund and
diligently pursue the same. Buyer shall permit or cause Company
to permit Seller to control (at Seller's expense) the prosecution
of any such refund claim, and shall cause the relevant entity to
authorize by appropriate power of attorney such persons as Seller
shall designate to represent such entity with respect to such
refund claim. Buyer shall pay or cause Company to pay to Seller,
upon receipt of any such refund, the amount of such refund
attributable to the Tax benefit, including allocable interest to
the extent actually received.
C. CONTESTS.
(1) After the Closing Date, Buyer shall notify Seller
in writing of the commencement of any Tax audit or administrative
or judicial proceeding or of any demand or claim on Buyer or
Company which, if determined adversely to the taxpayer or after
the lapse of time, would be grounds for indemnification under
SECTION 15.A. within fifteen (15) days after such commencement or
the receipt of such demand or claim. Such notice to Seller shall
contain factual information (to the extent known to Buyer or
Company) describing the asserted Tax liability in reasonable
detail and shall include copies of any notice or other document
received from any Tax authority in respect of any such asserted
Tax liability. If Buyer fails to give Seller notice of an
asserted Tax liability as required by this SECTION 15.C., then,
if Seller is precluded by the failure to give such notice from
contesting the asserted Tax liability in formal proceedings
before either the administrative or judicial forum, then Seller
shall not have any obligation to indemnify Buyer or Company for
any loss arising out of such asserted Tax liability.
(2) Seller may elect to direct, through counsel of
its own choosing and at its own expense, any audit, claim for
refund and administrative or judicial proceeding involving any
asserted liability with respect to which indemnity may be sought
under SECTION 15.A. (any such audit, claim for refund or
proceeding relating to an asserted Tax liability is referred to
herein as a "Contest"); provided, however, that Buyer and Company
and their duly appointed representatives shall have the right to
participate in any such Contest, at their own expense, to the
extent that such Contest relates to
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matters for periods after the Closing Date; and provided,
further, that Seller shall obtain the consent of Buyer and
Company prior to the resolution or settlement of any such dispute
to the extent it relates to matters after the Closing Date, which
consent shall not be unreasonably withheld or delayed. If Seller
elects to direct a Contest, within thirty (30) days after receipt
of the notice of asserted Tax liability, Seller shall notify
Buyer of its intent to do so, and Buyer shall cooperate and shall
cause Company or its respective successor or successors to
cooperate, at Seller's expense, in each phase of such Contest.
If Seller chooses to direct the Contest, Buyer promptly shall
empower and cause Company or its successor to empower (by power
of attorney and such other documentation as may be necessary and
appropriate) such representatives of Seller as it may designate
to represent Buyer or Company or their respective successors in
the Contest insofar as the Contest involves an asserted Tax for
which Seller may be required to indemnify Buyer or Company under
SECTION 15.A. If Seller elects not to direct the Contest, fails
to notify Buyer of its election as herein provided or contests
its obligation to indemnify under SECTION 15.A., Buyer or Company
may pay, compromise or contest, at their own expense, such
asserted Tax liability without prejudice to any right of Buyer or
Company to indemnification if otherwise entitled thereto
hereunder.
D. PREPARATION OF TAX RETURNS. Seller shall cause to be
prepared and filed any Tax Return relating to Company for any taxable
period ending on or before the Closing Date. Any such Tax Return shall
be prepared an 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. Buyer shall prepare or cause Company to prepare any Tax
Return relating to Company for any taxable period ending after the Closing
Date.
E. SECTION 338(h)(10) ELECTION.
(1) The parties shall cause an election to be made
under Sections 338(g) and 338(h)(10) of the Code (and any
corresponding elections under state, local or foreign tax law)
(collectively a "Section 338(h)(10) Election") in connection with
the sale of the Shares contemplated hereby and with respect to
Company and shall comply with the rules and regulations
applicable to such Section 338(h)(10) Election. Buyer shall pay
all expenses associated with the Section 338(h)(10) Election
including, without limitation, the costs of any necessary
appraisals.
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(2) On or prior to the Closing Date, Buyer and Seller
(and/or other entities as necessary) jointly shall execute two
copies (one for Buyer and one for Seller) of Internal Revenue
Service Form 8023-A (or any successor form) and all attachments
required to be filed therewith pursuant to applicable
regulations. The forms relating to the Section 338(h)(10)
Election for federal, state and local Tax purposes hereinafter
shall be referred to as the "SECTION 338 FORMS". Buyer and
Seller agree that the Section 338 Forms shall be filed with the
appropriate Tax authorities not earlier than sixty (60) days
before the latest date for the filing thereof. In no event shall
the Section 338 Forms be filed later than fifteen (15) days
before they are due. At least one hundred twenty (120) days
prior to the latest date for the filing of each Section 338 Form,
Buyer shall prepare and submit to Seller any necessary
corrections, amendments or supplements to such Section 338 Form
and the attachments thereto, as previously executed by Buyer and
Seller (and/or other entities as necessary). Buyer shall not
file any Section 338 Form or the attachments thereto, as
corrected, amended or supplemented, unless Buyer obtains Seller's
consent, which consent shall not be unreasonably withheld or
delayed. On or prior to the 30th day after Seller's receipt of
such corrections, amendments or supplements from Buyer, Seller
shall deliver to Buyer either (i) its consent to such filing or
(ii) a written notice specifying in reasonable detail all
disputed items and the basis therefor. If, within thirty (30)
days after Buyer's receipt of the written notice described in
clause (ii) above, Buyer and Seller have been unable to resolve
their differences, any remaining disputed issues shall be
submitted to a nationally recognized independent public
accounting firm in the United States (other than a firm which
then serves, has been selected to serve in the future or has
served within the past three years as the independent auditor for
Buyer) selected by Seller, and reasonably acceptable to Buyer, to
resolve the issues in a final and binding manner after hearing
the views of both parties. In that event, Buyer and Seller shall
execute and consent to the filing of the corrected, amended or
supplemented Section 338 Forms in the manner determined by such
accounting firm. The fees and expenses of the accounting firm
shall be paid by the non-prevailing party.
(3) For purposes of making the Section 338(h)(10)
Election, Buyer and Seller shall agree upon an allocation of
Buyer's "adjusted grossed-up basis" in the Shares (within the
meaning of the regulations under Section 338 of the Code) to
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the tangible and intangible assets of Company as of the Closing
Date (the "Allocation"). The Allocation shall be binding upon
Buyer and Seller for purposes of allocating the "deemed selling
price" (within the meaning of the regulations under Section 338
of the Code) among the assets of Company. Neither party shall
file any Tax Return, or take a position with a Tax authority,
that is inconsistent with the Allocation. If Buyer and Seller
shall not be able to agree to the Allocation, they shall submit
any dispute to a nationally recognized independent public
accounting firm in the United States which is mutually agreeable
to Buyer and Seller to resolve all disputed matters related to
the Allocation, and such resolution shall be binding on both
parties. The fees and expenses of the accounting firm shall be
shared equally by Buyer and Seller.
F. COOPERATION AND EXCHANGE OF INFORMATION. Seller and
Buyer will provide each other with such cooperation and information as
either of them reasonably may request of the other in filing any Tax
Return, amended return or claim for refund, determining a liability for
Taxes or a right to a refund of Taxes or participating in or conducting
any audit or other proceeding in respect of Taxes. Such cooperation and
information shall include providing copies of relevant Tax Returns or
portions thereof, together with accompanying schedules and related work
papers and documents relating to rulings or other determinations by Tax
authorities. Each party shall make its employees available on a mutually
convenient basis to provide explanations of any documents or information
provided hereunder. Each party will retain all returns, schedules and
work papers and all material records or other documents relating to Tax
matters of Company for the taxable period first ending after the Closing
Date and for all prior taxable periods until the later of (i) the
expiration of the statute of limitations of the taxable periods to which
such returns and other documents relate, without regard to extensions
except to the extent notified by the other party in writing of such
extensions for the respective Tax periods, or (ii) eight years following
the due date (without extension) for such returns. Any information
obtained under this SECTION 15.F. shall be kept confidential, except as
may be otherwise necessary in connection with the filing of returns or
claims for refund or in conducting an audit or other proceeding.
G. MISCELLANEOUS.
(1) The parties agree to treat all payments made
under this SECTION 15, under any other indemnity provision
contained
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in this Agreement, and for any misrepresentations or breach of
warranties or covenants as adjustments to the Purchase Price for
Tax purposes.
(2) For the purposes of this SECTION 15, all references
to Buyer, Seller and Company include successors.
(3) The covenants and agreements of the parties
hereto contained in this SECTION 15 shall survive the Closing and
shall remain in full force and effect with respect to: (a)
Seller's obligations until the expiration of all statutes of
limitations with respect to any Taxes that would be indemnifiable
by Seller under SECTION 15.A.(l); and (b) Buyer's obligations
until the expiration of all statutes of limitations with respect
to any Taxes that would be indemnifiable by Buyer under SECTION
15.A.(2) or SECTION 15.B. of this Agreement.
16. SURVIVAL OF TERMS
All of the representations and warranties of the respective
parties hereto, as contained herein, shall survive the Closing Date and
shall continue thereafter in full force and effect for a period of two (2)
years following the Closing Date notwithstanding any investigations
heretofore or hereafter made by or on behalf of any of the parties hereto,
provided, however, that the terms and provisions of SECTION 15 hereof
shall remain in full force and effect as set forth therein, the
representations and warranties set forth in SECTION 7.N. shall remain in
full force and effect for a period of ninety (90) days following the
expiration of all statute(s) of limitations applicable to the Taxes in
question, the representations and warranties set forth in SECTION 7.AB.
and SECTION 7.AC. shall remain in full force and effect for a period of
five (5) years following the Closing Date, and the representations and
warranties set forth in SECTION 7.H., SECTION 7.I., SECTION 7.V.(2) and
SECTION 7.Y.(1) shall be actionable by Buyer at any time there is a breach
thereof following the Closing Date. The limitations on survival set forth
in this SECTION 16 shall not affect or terminate any claim made by Buyer
against Seller prior to the expiration of the applicable survival period
with respect to any breach of a representation or warranty, which claim
shall remain effective until finally settled as between the parties.
17. WAIVER AND AMENDMENT
Any of the provisions of this Agreement may be waived in writing
at any time, by the party or parties which is or are
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entitled to the benefit of such provision. Any of the provisions of this
Agreement may be amended at any time by written agreement of all parties.
18. CONFIDENTIAL INFORMATION AND RETENTION OF DOCUMENTS
A. CONFIDENTIAL INFORMATION. All information given by any
party hereto to any other party shall be used only for the purposes of
this Agreement and the transactions contemplated in this Agreement and
shall be treated as confidential and not disclosed to others except the
parties' attorneys, accountants and agents and except insofar as such data
or information is published or is a matter of public knowledge or is
required to be disclosed by applicable law or legal process. In the event
that Buyer does not consummate the acquisition provided for herein for any
reason whatsoever, Buyer shall return to Seller all copies of data
supplied by Seller to Buyer or its representatives.
B. RETENTION OF DOCUMENTS. Seller agrees that, after the
Closing Date, all of Seller's documents relating to the ownership and
operation of Company during the period prior to the Closing Date shall be
open for inspection by representatives of Buyer at any time during regular
business hours of Seller for any proper purpose until such time as such
documents are destroyed or possession thereof is given to Buyer as
provided for in the following sentences, and that Buyer at its expense may
during such period make such copies thereof as it may reasonably request.
Without limiting the generality of the foregoing, for a period commencing
on the Closing Date and ending on the sixth anniversary of the Closing
Date, Seller shall not destroy or give up possession of any document
referred to in the preceding sentence without first offering to Buyer the
opportunity, at Buyer's expense (but without any other payment), to obtain
the same. Thereafter, Seller shall be free to dispose of such documents
as it deems fit.
C. INSPECTION OF DOCUMENTS. Buyer agrees that, subject to
Section 6.3 of the Supply Agreement, after the Closing Date, documents
relating to the ownership and operation of Company prior to the Closing
Date shall be open for inspection by representatives of Seller if needed
in the course of any audit, claim or litigation involving such operations
at any time during regular business hours of Seller for any proper purpose
until such time as such documents are destroyed or possession thereof is
given to Seller as provided for in the following sentences, and that
Seller at its expense may during such period make such copies thereof as
it may reasonably request. Without limiting the generality of the
foregoing, for a
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period commencing on the Closing Date and ending on the sixth anniversary
of the Closing Date, Buyer shall not and shall not allow Company to
destroy or give up possession of any document referred to in the preceding
sentence without first offering to Seller the opportunity, at Seller's
expense (but without any other payment), to obtain the same. Any
documents shall be held in confidence pursuant to SECTION 18.A.
Thereafter, Seller shall be free to dispose of such documents as it deems
fit.
19. FEES AND EXPENSES
Except as otherwise provided herein, Seller and Buyer,
respectively, shall each bear its own costs and expenses incurred in
connection herewith and with the transactions contemplated hereby, whether
or not the sale of the Shares hereunder shall be consummated or this
Agreement subsequently shall be terminated. Any recording costs shall be
paid by the party desiring recordation.
20. PUBLICITY
The parties agree that except, as required by law, neither of them
will make any public announcement regarding this Agreement without the
approval of the other party, such approval not to be unreasonably withheld
or delayed.
21. CERTAIN OPERATING SYSTEMS
Buyer and Seller recognize that Company requires additional
computer hardware and software systems to permit Company to perform
certain accounting and other functions such that Company can operate on
a stand-alone basis. Promptly following the date hereof, Seller, at its
expense, shall engage a consultant to advise Buyer and Seller as to the
most effective method for installing such systems at Company. Following
the receipt of the consultant's report, Seller and Buyer shall consult in
good faith and shall agree upon an appropriate system and the preferred
vendor therefor. Seller shall use its best efforts to cause such system
to be fully installed and operational (including reasonable and customary
employee training) prior to the Closing Date. If such system is not fully
operational prior to the Closing Date, Seller shall make available to
Company following the Closing access to Seller's network and MIS personnel
as may be necessary to permit Company to remain fully operational
consistent with past practice pending the
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final installation and operability of the new system at Company. In such
event, Buyer shall pay and/or reimburse Seller (in an amount not to exceed
$2,500.00 per month) for Seller's out-of-pocket costs incurred in allowing
such access, including any expenses incurred in connection with ensuring
security of Seller's computer system. At the Closing, Buyer shall
reimburse Seller for the amount of all out-of-pocket costs paid or payable
by Seller to the selected vendor for hardware and software and
installation thereof. In addition, prior to Closing, Seller shall, at its
expense, cause the telephone system of Company to be operational on a
stand-alone basis.
22. TRANSFER TAXES, ETC.
Notwithstanding SECTION 15, Buyer shall be responsible for and
shall pay any transfer taxes, sales and/or use taxes, documentary stamps
or similar taxes, fees or charges imposed by federal, state or local
governments as the result of the sale of any Shares to Buyer.
23. NOTICES
Any notice which any party hereto may desire or may be required
hereunder to give to the other parties hereto shall be in writing and
shall be deemed to be duly given when received (or when first refused, if
that be the case) by personal delivery, by overnight delivery service
which provides return receipts, or by express, registered or certified
U.S. mail, postage prepaid, return receipt requested, addressed to such
other party as follows:
BUYER: c/o Levmark Capital Corporation
175 Memorial Highway
New Rochelle, New York 10801
Attn: William J. Solomon
copy to: King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303-1763
Attn: Michael J. Egan III
SELLER: Shoney's, Inc.
1727 Elm Hill Pike
Nashville, Tennessee 37210
Attn: Secretary
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copy to: Tuke Yopp & Sweeney
17th Floor
Third National Bank Building
201 Fourth Avenue, North
Nashville, Tennessee 37219-2040
Attn: Gary M. Brown
or to such other address as a party hereto hereafter may designate to the
other party in writing.
24. 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 would clearly not admit such construction.
This instrument shall be construed and interpreted in accordance with the
laws of the State of Tennessee. Section or paragraph headings are
employed herein solely for convenience of reference, and such headings
shall not be used in construing any term or provisions of this instrument.
25. SUCCESSORS AND ASSIGNS
This Agreement and all of the provisions hereof shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective heirs, successors and assigns, provided, however, that neither
this Agreement nor any of the rights or obligations of any party hereto
may be assigned without the prior written consent of the other party
hereto; and provided further that Buyer may assign its rights hereunder
to any entity that is a direct or indirect wholly-owned subsidiary of
Levmark Corporation.
26. SEVERABILITY
Whenever possible, each provision and term of this Agreement shall
be interpreted in such manner as to be valid and enforceable; provided,
however, that in the event any provision or term of this Agreement should
be determined to be invalid or unenforceable, all other provisions and
terms of this Agreement and the application thereof to all persons and
circumstances subject thereto shall remain unaffected to the extent
permitted by law. If any application of any provision or term of this
Agreement to any person or circumstances should be determined to be
invalid or unenforceable, the application of such provision or term to
other
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persons and circumstances shall remain unaffected to the extent permitted
by law.
27. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original hereto and all of which together
shall constitute but one Agreement.
28. ENTIRE AGREEMENT
This Agreement and the agreements and documents to be executed and
delivered pursuant to this Agreement constitute the entire agreement among
the parties hereto and supersede all prior and contemporaneous agreements
and undertakings of the parties pertaining to the subject matter hereof
and there are no representations or warranties, express or implied, other
than those contained in this Agreement.
29. FURTHER ASSURANCES
After the Closing Date, Seller shall take all such actions and
deliver all such documents as shall be reasonably necessary or appropriate
to confirm and vest title to the Shares in Buyer.
30. NO THIRD PARTY BENEFICIARIES
With the exception of the parties to this Agreement, there shall
exist no right of any person to claim a beneficial interest in this
Agreement or any rights accruing by virtue of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed the day and year first above written.
SELLER:
SHONEY'S, INC.
By: /s/ W. Craig Barber
______________________________
Title: EVP & CFO
BUYER:
LEVMARK CAPITAL CORPORATION
By: /s/ William J. Solomon
____________________________
Title: Vice President
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<PAGE>
EXHIBITS AND SCHEDULES
OMITTED FOR
FILING PURPOSES
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<PAGE>
AMENDMENT TO STOCK PURCHASE AGREEMENT
THIS AMENDMENT TO STOCK PURCHASE AGREEMENT (the "Amendment") is
made on this 10th day of November, 1995, by and between LEVMARK CAPITAL
CORPORATION, a New York corporation having its principal executive offices
at 175 Memorial Highway, New Rochelle, New York 10801 ("Buyer"), and
SHONEY'S, INC., a Tennessee corporation having its principal executive
offices at 1727 Elm Hill Pike, Nashville, Tennessee 37210 ("Seller"), and
amends the Stock Purchase Agreement, dated August 3, 1995 (the
"Agreement"), by and between Buyer and Seller (the Agreement, as amended
hereby, is hereinafter referred to as the "Amended Agreement").
W I T N E S S E T H:
WHEREAS, Buyer and Seller previously entered into the Agreement
pursuant to which Buyer agreed to purchase, and Seller agreed to sell, all
of the issued and outstanding capital stock of Mike Rose Foods, Inc., a
Tennessee corporation (the "Company"), on the terms set forth therein; and
WHEREAS, Buyer and Seller now wish to amend and modify the terms
of the Agreement as set forth in this Amendment;
NOW, THEREFORE, for and in consideration of the premises and of
the mutual agreements, provisions, covenants and grants contained in this
Amendment and the Agreement, the parties hereto hereby agree as follows:
1. Schedule 1.A. to the Agreement is hereby amended by
revising Item 2 thereon to read as follows:
2. Existence and removal of and spillage (if any)
from the underground storage tank that was
located on the Site and removed on September 22,
1995 by Resource Consultants, Inc. and Specialty
Services (RCI Project No. 3-4638.00).
2. Schedule 1.A. to the Agreement is hereby further amended
by adding the following as Item 10:
10. On September 15, 1995 a limited amount of wastewater from
the wastewater treatment plant on the eastern side of the
Site was accidentally discharged into a ditch and local
surface water drainage. The discharge was treated and
remediated under the direction of the Tennessee
Department of Environment and Conservation, Division of
Water Pollution Control. The Company received no
citation, fines, or penalty for the
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discharge, and expects no enforcement action.
3. The phrase "Fifty-four Million Eight Hundred Fifty
Thousand Dollars ($54,850,000.00)" appearing in Section 3.A. of the
Agreement on page 5 of the Agreement is hereby deleted and the following
phrase is inserted in lieu therefor: "Fifty-five Million Dollars
($55,000,000.00)".
4. Schedule 7.V.(5) to the Agreement is hereby amended to
read in its entirety as follows:
STOCK PURCHASE AGREEMENT
DATED AS OF AUGUST 3, 1995
BETWEEN
LEVMARK CAPITAL CORPORATION
AND
SHONEY'S, INC.
Buyer has been made aware of certain deficiencies in a
"tube-in-tube" cooking system utilized by Company.
Seller makes no warranties or representations with
respect to such system.
5. The phrase "2,500.00 per month" appearing in Section 21
of the Agreement on page 56 of the Agreement is hereby deleted and the
following is inserted in lieu therefor: "the Monthly Computer Payment (as
hereinafter defined)".
6. The following three sentences are hereby added at the end
of Section 21 of the Agreement on page 56 of the Agreement: "For purposes
of this Section 21, the term "Monthly Computer Payment" shall mean a
monthly charge to Buyer for Buyer's usage of and access to Seller's
computer network and MIS personnel pursuant to this Agreement. For each
of the first six (6) months of such access and usage, the Monthly Computer
Payment shall equal $2,500 per month. Commencing with the seventh month
of Buyer's access to and usage of Seller's computer network and MIS
personnel, the Monthly Computer Payment shall increase every three (3)
months by the amount of $2,500 per month (e.g., the Monthly Computer
Payment commencing in the seventh month shall equal $5,000 per month, the
Monthly Computer Payment commencing in the tenth month shall equal $7,500,
etc.)."
7. The last sentence of Section 5.D. of the Agreement on
page 7 of the Agreement is hereby deleted and the following is inserted
in lieu therefor: "The parties further agree that if Audited Working
Capital exceeds the Benchmark Amount, Seller shall be entitled to deduct
from accounts payable obligations of Seller pursuant to the Supply
Agreement an amount equal to the amount by which the Audited Working
Capital exceeds the Benchmark Amount."
8. The phrase "except for those set forth on Schedule
7.U.(2)" appearing in Section 7.L.(1)(iii) of the Agreement on page 12 of
the Agreement is hereby deleted and the following
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<PAGE>
is inserted in lieu therefor: "except for those set forth on Schedule
7.U.(2) and for the right of Seller, pursuant to Section 5.D. hereof, to
deduct from accounts payable obligations of Seller pursuant to the Supply
Agreement an amount equal to any amount by which the Audited Working
Capital exceeds the Benchmark Amount".
9. Item (iv) of Section 7.L.(1) of the Agreement on page 12
of the Agreement, which provides
"(iv) as of the Closing Date, shall include all Accounts
Receivable generated from sales of products from Company
to Seller and its Affiliates during the 28-day period
prior to the Closing Date (which amount of Accounts
Receivable owed by Seller and its Affiliates during such
28-day period shall not in any case be less than One
Million Seven Hundred Fifty Thousand Dollars
($1,750,000.00) and all of which Accounts Receivable are
payable on 30-day terms from the date of delivery)"
is hereby deleted and the following is inserted in lieu therefor:
"(iv) as of the Closing Date, shall include an amount of
Accounts Receivable generated from sales of products from
Company to Seller and its Affiliates sufficient to cause
Working Capital of Company to be not less than the
Benchmark Amount".
10. The letter agreement between Buyer and Seller dated
August 2, 1995 relating to Buyer's rights to terminate the Agreement is
hereby terminated and shall be of no further force or effect.
11. The definition of "Termination Date" appearing on page 4
of the Agreement is hereby amended by changing "October 15, 1995" to
"November 10, 1995".
12. Section 13.B. of the Agreement is hereby amended by
adding the following. "Notwithstanding the foregoing, in the event the
Closing does not occur on or before the Termination Date, Buyer may
propose that the Termination Date be further amended to a date not later
than November 24, 1995 (any such date being an "Alternative Termination
Date"). If Seller, at its option, desires to accept such proposed
amendment, Seller shall so notify Buyer, in which case Buyer, within
twenty-four hours of such notice by Seller, shall pay to Seller by wire
transfer a non-refundable earnest money cash deposit (the "Deposit") in
an amount to be agreed upon by Seller and Buyer. The Deposit shall be
credited against the Purchase Price due pursuant to the Amended Agreement
only in the event the Closing occurs on or before the Alternative
Termination Date. If the Closing does not occur on or before the
Alternative Termination Date, the Deposit shall be retained by Seller as
liquidated and agreed damages, the parties acknowledging that Seller has
suffered damages resulting from the failure of the Closing to occur prior
to the Termination Date, but that such damages are difficult to ascertain.
Buyer hereby specifically acknowledges and agrees that the Deposit is not
refundable to Buyer for any
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<PAGE>
reason."
13. Buyer acknowledges and agrees that, after November 10,
1995, there is no limitation on Seller's right to terminate the Amended
Agreement pursuant to Section 13.B. of the Agreement notwithstanding
Buyer's compliance with the terms of the Amended Agreement, unless an
Alternative Termination Date is agreed upon as provided in Section 10 of
this Amendment. In the event that an Alternative Termination Date is
agreed upon as provided in Section 10 of this Amendment, Buyer
acknowledges and agrees that, after the Alternative Termination Date,
there is no limitation on Seller's right to terminate the Amended
Agreement pursuant to Section 13.B. of the Agreement notwithstanding
Buyer's compliance with the terms of the Amended Agreement. Buyer and
Seller acknowledge and agree that Seller is not waiving any rights of
Seller pursuant to the Amended Agreement.
14. Except as amended hereby, the terms and provisions of the
Agreement remain in full force and effect and are incorporated herein by
reference. Capitalized terms not otherwise defined in this Amendment
shall have the meanings ascribed thereto in the Agreement. This Amendment
may be executed in any number of counterparts, each of which shall for all
purposes be deemed an original and all of which together shall constitute
but one and the same instrument and shall become effective only upon
execution of one or more of such counterparts by each of the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed the day and year first above written.
SELLER:
SHONEY'S, INC.
By: /s/ W. Craig Barber
---------------------------------------
Title: EVP & CFO
BUYER:
LEVMARK CAPITAL CORPORATION
By: /s/ William J. Solomon
----------------------------------------
Title: Vice President
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SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (the "Agreement") is made this 17th day of
November, 1995, by and between MIKE ROSE FOODS, INC., a Tennessee
corporation, with its address at 189 Spence Lane, Nashville, Tennessee
37210 ("Seller"), and SHONEY'S, INC., a Tennessee corporation, with its
address at 1727 Elm Hill Pike, Nashville, Tennessee 37210 ("Buyer");
W I T N E S S E T H
WHEREAS, Seller desires to supply Buyer's requirements of the
products listed on SCHEDULE 1A (the "Shoney's Products"), SCHEDULE 1B (the
"Captain D's Products") and SCHEDULE 1C (the Other Products") (the
Shoney's Products, the Captain D's Products and the Other Products are
collectively referred to as the "Products"); and
WHEREAS, Buyer desires to purchase from Seller all of Buyer's
requirements of the Products, subject to the terms and provisions hereof;
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants herein contained, the parties agree as follows:
1. SALE. During the term and in accordance with the terms
hereof, Seller hereby agrees to sell and deliver and Buyer agrees to buy,
receive and pay for the quantity set forth below of the Products at the
prices hereinafter specified.
2. TERM. Unless terminated earlier or extended in
accordance with the terms hereof, this Agreement shall begin as of the
date set forth above (the "Effective Date") and extend through and
including October 31, 2000.
3. PRODUCT REQUIREMENT AND PURCHASE OBLIGATIONS.
3.1. REQUIREMENTS.
(a) OF BUYER. Seller shall make available and
sell to Buyer and Buyer shall purchase from Seller all of Buyer's
requirements of the Products that are to be used at restaurants
operated by Buyer. Notwithstanding the foregoing, Buyer shall
purchase at least the minimum quantities of the Products required
by SECTION 3.2. For the purposes of this Agreement, "restaurants
operated by Buyer" includes restaurants operated by Buyer through
subsidiaries or other entities in which Buyer owns, directly or
indirectly, a
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<PAGE>
greater than fifty percent (50%) equity interest, but shall not include
any restaurant the operation of which is licensed or franchised by Buyer
(unless Buyer owns, directly or indirectly, a greater than fifty percent
(50%) equity interest in the entity that is the franchisee/licensee of
such restaurant).
(b) OF THIRD PARTIES SUPPLIED BY BUYER OR BUYER'S
AFFILIATES. The parties acknowledge and agree that Buyer and
Buyer's affiliates (including Commissary Operations, Inc.) engage
in the food distribution business. The parties further
acknowledge and agree that customers of that business may
purchase or request to purchase goods that are the same or
similar to the Products. Buyer agrees that, unless a customer
specifies a different brand or type of good, it will, and it will
cause its affiliates (including Commissary Operations, Inc.) to,
purchase Products produced by Seller in order to fill customer
orders to the greatest extent possible. Such purchases by Buyer
or its affiliates (including Commissary Operations, Inc.) shall
count toward the minimum purchase requirements set forth in
SECTION 3.2. Seller acknowledges that any customer of Buyer is
free to specify a different brand or type of any particular good
and, should a customer do so, Buyer may, without violation of any
duty or obligation owed to Seller, supply such customer with the
specified goods. Buyer shall not recommend to any third party
that it purchase any products manufactured by any party other
than Seller that are the same or similar to the Products.
3.2. MINIMUM PURCHASES. During each of Buyer's fiscal
years (consisting of 13 four-week periods) ending on the last
Sunday of October of each year during the term of this Agreement,
Buyer shall make the minimum purchases of the Products (each, a
"Minimum Purchase") as set forth on SCHEDULES 1A, 1B AND 1C
attached hereto.
3.3. DISCONTINUANCE OF PRODUCTS. Notwithstanding any
other provision of this Agreement to the contrary, it is
acknowledged and agreed that Buyer, in its discretion, may
discontinue the use of any of the Products at any time. In the
event of any such discontinuance, Buyer shall purchase from
Seller any inventory of such discontinued Product being held by
Seller that Buyer has ordered and that Seller is unable to
dispose of promptly in the ordinary course of business (at prices
then being paid by Buyer) through sales to others as well as any
inventory of raw ingredients and packaging that Seller cannot use
in the normal course of business in products (including those
manufactured for others)
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other than the discontinued Products. Also, in the event of any such
discontinuance, Buyer shall purchase substitute Products (which may
consist of purchases of remaining Products in excess of the minimum
amounts set forth on SCHEDULES 1A, 1B OR 1C) so as to provide Seller with
the same or greater aggregate gross margin (excess of sales price over the
cost of raw ingredients, packaging and other production costs) that Seller
would have received had Buyer purchased the minimum quantity of such
discontinued Product during each annual period referred to in Section 3.2.
3.4. NEW PRODUCTS. If, during the term of this
Agreement, Buyer begins using any manufactured food item not
listed on SCHEDULES 1A, 1B, AND 1C in the restaurants operated by
Buyer or supplies any such item to third parties, and such item
is of a type that is manufactured and/or produced by Seller,
Buyer shall offer Seller the opportunity to submit an offer to
supply such item(s), based upon Buyer's specifications for such
item(s), to Buyer. If Seller's proposed product meets Buyer's
specifications and Buyer's price is the lowest (or equal to the
lowest) bid price for the product, Seller shall be selected as
the supplier of such item. It is expressly acknowledged and
agreed that this procedure does not give Seller a "right of first
refusal" to supply such item(s) and that Buyer has no obligation
to select Seller as the supplier of any such item(s) if its
product does not meet Buyer's specifications or if Seller's price
is not the lowest (or equal to the lowest) price. It is also
acknowledged and agreed that: (a) changes in specifications
pursuant to SECTION 6.2 shall not constitute products encompassed
by this SECTION 3.4, but shall continue to be Products
encompassed by SECTION 3.1; and (b) Buyer shall have no
obligation under this SECTION 3.4 with respect to any new food
item supplied to a third party if such third party specifies a
type or brand manufactured by a party other than Seller as
contemplated by SECTION 3.1(B).
4. PRICES.
4.1. INITIAL PRICES. Upon the Effective Date, the
prices for the Products shall be those set forth on SCHEDULE 3.
4.2. ADJUSTMENTS. The prices of the Products shall
be subject to adjustments as follows (it being acknowledged and
agreed that the purpose of such adjustments being to avoid any
change in the gross profit margin (in dollars, rather than
percentage) recognized by Seller on the sale of each Product as
a result of changes in the cost of the components of the
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Products that are addressed below):
(a) In the event Buyer changes the specifications of
a Product, as set forth in SECTION 6.2, the
price for that Product shall be adjusted
immediately to reflect the change (which may be
either an increase or a decrease) in the raw
ingredient, packaging and production costs
resulting from the change in the Product
specification.
(b) The prices of the Products shall be adjusted (on
a basis consistent with price adjustments using
March 1995 cost assumptions (SCHEDULE 2(B) as
the base. SCHEDULE 2(A) sets forth the costing
of each Product using the March 1995 cost
assumptions), effective at the beginning of each
month, to reflect changes in the cost to Seller
of raw ingredients of and packaging materials
for the Products. The prices for a particular
month shall be set no later than five (5)
business days prior to the beginning of that
month. For the purposes of this SECTION 4.2(C),
raw ingredients includes, without limitation,
any of the following: soybean oil, sugar, corn
syrups, flour, eggs or tomato paste. For the
purposes of this SECTION 4.2(C), packaging
materials includes, without limitation, any of
the following: packaging film, corrugated
packing material and plastic packaging
containers. For the purpose of determining any
price adjustment pursuant to this SECTION
4.2(B), the cost of raw ingredients or packaging
materials shall be compared to the cost of those
ingredients or materials, as the case may be,
based on March 1995 cost assumptions, which are
set forth on SCHEDULE 2(B) attached hereto.
(c) The procedures for effecting the price
adjustments contemplated by this Section 4.2 are
specified on SCHEDULE 3.
5. RAW MATERIALS.
5.1. PURCHASE REQUIREMENTS. At Buyer's direction and
on Buyer's behalf, Seller shall place orders for Seller's
requirements of any raw ingredient or packaging material that
constitutes ten percent (10%) or more of the cost of any of the
Products.
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5.2. PRICE ADJUSTMENTS. In determining any
adjustments in Product prices under SECTION 4.2(B), the raw
ingredient cost utilized in making such adjustments shall utilize
the costs under any contracts that Seller has entered into at
Buyer's request pursuant to SECTION 5.1. Seller shall bear the
market risk or benefit of the failure to enter into any such
contracts that Buyer has requested.
6. PRODUCT FORMULAE AND SPECIFICATIONS; CONFIDENTIALITY.
6.1. OWNERSHIP. It is acknowledged and agreed that,
with the exception of the "Captain D's" fish breader (the formula
for which is the sole and exclusive property of Buyer), the
formulae and specifications for the Products (the
"Specifications") are the sole and exclusive property of Seller.
6.2. SPECIFICATION CHANGES. Buyer, in its discretion,
may at any time, upon notice that is commercially reasonable
under the circumstances, change the Specifications for any of the
Products, subject to SECTION 4.2(A); provided, however, that if
Buyer changes a product specification in a manner that would
require any capital expenditures by Seller in order to comply
with such specifications and Seller chooses not to make such
capital expenditures and, therefore, not produce the respecified
Product, Buyer shall be free to purchase such respecified Product
from any alternative source that Buyer deems appropriate and
Buyer's minimum purchase obligations hereunder shall be reduced
by the required quantities of the Product in question. Buyer
shall not circumvent or attempt to circumvent its obligations
hereunder through respecification of Products.
6.3 ACCESS TO SPECIFICATIONS. Buyer shall have access
to the Specifications, at Seller's place of business, as
necessary to confirm Seller's compliance with its obligations
under this Agreement. The access to and use of the
Specifications shall be subject to the terms of that certain
Confidentiality and Noncompete Agreement between Buyer and Seller
of even date herewith (the "Noncompetition Agreement") and
SECTION 6.4 of this Agreement.
At Seller's option, at any time following Buyer or any of its
Affiliates engaging in "Company Activities" (as defined in the
Noncompetition Agreement), Buyer shall have no further access to
the Specifications, and Seller's compliance with this Agreement
may be monitored by Buyer only through an independent escrow
agent which shall be permitted to access
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the Specifications pursuant to a mutually agreeable escrow agreement in
order to confirm, on Buyer's behalf, Seller's compliance with its
obligations under this Agreement. The expenses of the escrow agent shall
be the obligation of Buyer.
6.4. CONFIDENTIALITY AND NON-SOLICITATION.
(a) Seller and Buyer each acknowledge that, in the
course of their relationship, each of them may
receive, work with, and be exposed to certain
confidential information and knowledge
concerning their respective businesses and their
affiliates, whether or not reduced to writing,
including, without limitation, information and
knowledge pertaining to products, inventions,
developments, data, know-how, formulations,
uses, research, processes, technology, designs,
materials, ideas, plans, trade secrets,
customers, proprietary information,
manufacturing methods and systems, and other
information relating to services offered and/or
sold by, or the businesses of, the parties
(respectively, the "Seller Confidential
Information" and the "Buyer Confidential
Information," and collectively, the
"Confidential Information"), which each party
desires to protect from unauthorized disclosure
or use. It is expressly acknowledged and agreed
that the Specifications are included within the
Seller Confidential Information; provided,
however, that the formulae and specifications
for the "Captain D's" fish breader are included
within Buyer Confidential Information.
(b) Seller acknowledges that the Buyer Confidential
Information is confidential and agrees not to
disclose such Buyer Confidential Information to
anyone outside of Seller without the prior
written consent of Buyer. In addition, Seller
agrees that it will not, without the prior
written consent of Buyer, use the Buyer
Confidential Information for any purpose other
than to fulfill its obligations to Buyer under
this Agreement.
(c) Buyer acknowledges that the Seller Confidential
Information is confidential and agrees not to
disclose such Seller Confidential Information to
anyone outside of Buyer without the prior
written consent of Seller. In addition, Buyer
agrees that
-6-
<PAGE>
<PAGE>
it will not, without the prior written consent
of Seller, use the Seller Confidential
Information for any purpose other than to fulfill
its obligations to Seller under this Agreement.
(d) Each of Buyer and Seller agrees to take the
following minimum safeguards with respect to the
other's Confidential Information:
(i) Only those employees who need to
receive the other party's Confidential
Information for the purposes authorized
by this Agreement shall have access to
such Confidential Information, and such
access shall be limited to only so much
of the other party's Confidential
Information as is necessary for the
particular employee to perform his or
her duties; and
(ii) All documents and writings that contain
the other party's Confidential In-
formation shall be maintained in locked
files separate and apart from other
information in that party's possession
and shall be removed therefrom only as
needed to carry out the purposes au-
thorized by this Agreement.
(e) Each of Seller and Buyer warrants that its
employees who shall have access to the other
party's Confidential Information are, or will be
prior to gaining such access, under written
obligation: (a) to hold in confidence all such
Confidential Information made available to them
in the course of their employment; and (b) to
use such Confidential Information only in the
course of Buyer's or Seller's (as the case may
be) respective businesses as permitted by this
Agreement.
(f) In the event any unauthorized disclosure of any
Confidential Information should occur, the
disclosing party shall promptly take all
commercially reasonable actions, including legal
proceedings, to protect the further
dissemination and use of such Confidential
Information, including actions seeking
injunctive relief, all at the expense of the
disclosing party. In the event the disclosing
party fails to take such action after written
request from the other party, the non-
disclosing party may take such action itself and
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<PAGE>
<PAGE>
shall be entitled to reimbursement from the
disclosing party for all costs and expenses
(including reasonable attorneys' fees) associated
with such actions.
(g) Upon termination of this Agreement, all
documents and writings of any kind provided to
one of the parties by the other hereunder
(including, without limitation, all Schedules
attached hereto) and all copies thereof shall be
returned promptly to the providing party at that
party's request, together with all documents and
writings derived by that party from the other
party's Confidential Information.
(h) In the event that either party violates the
terms of this Agreement by utilizing the other
party's Confidential Information to develop a
new product or device, either alone or in
conjunction with a third party, that party
agrees to transfer, assign and convey to the
other party all of its right, title and interest
in and to the new product or device developed in
violation of this Agreement with the other
party's Confidential Information.
(i) It is agreed that the provisions of this SECTION
6.4 shall not apply to any portion of the
Confidential Information which: (1) is or
becomes generally available to the public other
than as a result of a breach of one of the
parties' obligations hereunder; or (2) becomes
available to one of the parties to this
Agreement on a non-confidential basis from a
source other than the other party to this
Agreement which source the receiving party does
not know to be bound by a confidentiality
obligation to the other party.
(j) The parties' obligations to protect the
Confidential Information shall survive the
termination or expiration of any business
relationship of Buyer and Seller and shall
survive the termination or expiration of this
Agreement.
(k) Seller agrees that for so long as this Agreement
is in effect it shall not solicit or attempt to
solicit any business from any customers of
Commissary Operations, Inc.
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<PAGE>
<PAGE>
7. BOOKS AND RECORDS. During the term of this Agreement and
for a period of five (5) years following the termination of this
Agreement, Seller agrees to maintain full and complete records of its
business operations relating to Products purchased by Buyer including,
without limitation, cost accounting records and invoices that support the
raw ingredient and packaging costs of any of the Products. Upon prior
notice reasonable under the circumstances and subject to Section 6.3,
Seller shall allow representatives of Buyer to inspect such books and
records at all reasonable times in order to monitor Seller's compliance
with this Agreement. All inspections shall be at the expense of Buyer;
provided, however, if the inspection results in a discovery of a failure
by Seller to abide by the terms of this Agreement in any material respect,
then Seller shall pay or reimburse Buyer for any and all reasonable
expenses incurred by Buyer in connection with the inspection including,
but not limited to, legal and accounting fees, as well as any damages due
Buyer for Seller's failure.
8. F.O.B. TERMS. The purchase price set forth in SECTION 4 is
F.O.B., 189 Spence Lane, Nashville, Tennessee 37210. The term F.O.B. as
used in this Agreement is a price term only, and:
(a) Seller shall have the risk of loss until the Products
covered by this Agreement have been delivered to the facility of
Buyer and are approved after inspection by Buyer (unless such
Products are transported on vehicles of Buyer (whether owned or
leased), in which case Buyer shall have such risk of loss after
the Products are in Buyer's possession); and
(b) a tender of any document relating to the Products
shall not be a sufficient tender, tender under this Agreement
being required to be made only by a tender of the Products; and
(c) does not include the cost of transportation from
Seller's place of business, which costs shall be paid by Buyer.
9. ORDERS; DELIVERY AND INSPECTION. Orders for the Products shall
continue to be given and received, and delivery times established in
accordance with past practices between Buyer and Seller. Delivery of the
Products by Seller shall be made at Buyer's place of business at 2821
Eugenia Avenue, Nashville, Tennessee, or at such other place of business
of Buyer within the United States as may be designated by Buyer in any
purchase order or other document initiating a purchase under this
Agreement.
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<PAGE>
<PAGE>
Buyer shall have seventy-two (72) hours to inspect any shipment
of Products made hereunder. Upon failure of any Product or container to
conform to the provisions of this Agreement, including the
Specifications), Buyer may reject and return such Product or container,
in which case Seller shall pay all costs and expenses (including freight
and storage) incident to such inspection and/or rejection.
Notwithstanding any claimed right that Seller may have to "cure" under the
Uniform Commercial Code, upon three (3) shipments (it being acknowledged
and agreed that successive shipments from the same batch of a Product
constitute only one (1) "shipment") of any Product having been rejected
hereunder during any twelve (12) month period, Buyer may seek substitute
performance (by another seller, if Buyer so chooses) with respect to those
shipments of that Product, in which case any price differential shall be
absorbed by Seller and Buyer's purchase obligations hereunder shall be
reduced accordingly.
10. PAYMENT OF PURCHASE PRICE. Buyer shall pay the purchase price
for all Products delivered hereunder and not rejected by Buyer within
thirty (30) days after receipt of the appropriate invoice. The terms and
conditions of any sale shall be governed by this Agreement and any terms
and conditions of any invoice that are inconsistent with the terms of this
Agreement or contained on the reverse side of any such invoice shall be
of no force or effect. Any late payment shall bear simple interest at the
rate of one and one-half percent (1 1/2%) per month from the date that such
payment was due until paid.
11. SELLER'S GUARANTEE.Seller shall guarantee that any articles
comprising any shipment or other delivery made to Buyer pursuant to this
Agreement shall, as of the date of such shipment or delivery, not be
adulterated or misbranded within the meaning of the Federal Food, Drug and
Cosmetic Act and shall not be an article which may not under the
provisions of Section 404 or 505 be introduced into interstate commerce
and that any such article shall comply in all material respects with all
other laws, rules and regulations of the United States of America and all
political subdivisions thereof and with the applicable laws, rules and
regulations of the respective states and of their respective political
subdivisions whether now or hereafter enacted. This guarantee is in like
terms extended and shall be applicable to any state law or municipal
ordinance in which the definitions of adulteration or misbranding are
substantially the same as those in said federal act. Buyer agrees to
promptly, in writing, notify Seller of any demand, complaint or proceeding
for a claimed violation of any of the above-mentioned laws, giving the
name and address of the complaining party and the article concerned.
-10-
<PAGE>
<PAGE>
12. INDEMNIFICATION.
12.1. INDEMNIFICATION BY SELLER. Seller will indemnify,
defend and hold Buyer harmless from and against any costs
(including, without limitation, reasonable attorneys' fees and
court costs and costs of investigation), losses, damages,
liabilities or expenses (collectively "Costs") incurred by Buyer
(whether as a result of a third-party claim, or otherwise) as a
result of:
(a) the breach of Seller's guarantee under Section
11 with respect to any Products sold to Buyer by
Seller, unless the breach was caused by a
requirement or specification of Buyer;
(b) the nonfulfillment of any covenant, agreement or
obligation to be performed by Seller under or
pursuant to this Agreement; or
(c) alleged violations of rights under patents,
trademarks, copyrights or applications therefor,
unless the use of the allegedly infringing item
was required or specified by Buyer; or
(d) alleged violations by Seller of any statute,
regulation or ordinance of any governmental
authority in the manufacture, sale or delivery
of the goods or services furnished or required
to be furnished hereunder, unless the violation
was caused by a requirement or specification of
Buyer; or
(e) any negligent act or omission of Seller arising
out of or related to the manufacture (including,
without limitation, any claim arising out of a
failure to manufacture the Products in
accordance with the Specifications) or the sale
of the Products by Seller.
12.2. INDEMNIFICATION BY BUYER. Buyer will indemnify,
defend and hold Seller harmless from and against any Costs
incurred by Seller (whether as a result of a third-party claim,
or otherwise) as a result of:
(a) the nonfulfillment of any covenant, agreement or
obligation to be performed by Buyer under or
pursuant to this Agreement; or
-11-
<PAGE>
<PAGE>
(b) alleged violations by Buyer or Seller of rights
under patents, trademarks, copyrights or
applications therefor if the use of the
allegedly infringing item was required or
specified by Buyer; or
(c) alleged violations by Buyer (or by Seller if the
alleged violation was caused by a requirement or
specification of Buyer) of any statute,
regulation or ordinance of any governmental
authority with respect to the Products sold
hereunder; or
(d) any negligent act or omission of Buyer
(including, without limitation, any claim
arising out of Seller's actions taken in
accordance with instructions from Buyer) arising
out of or related to the manufacture or the sale
of the Products by Seller.
12.3. 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 12 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
-12-
<PAGE>
<PAGE>
the indemnifying party for the purposes only of this SECTION 12.
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.
13. TERMINATION.
13.1. TERMINATION BY BUYER. Buyer may terminate this
Agreement for cause only upon breach by Seller of any of its
obligations under this Agreement and failure by Seller to cure
such breach within thirty (30) days following written notice of
breach.
13.2. TERMINATION BY SELLER. Seller may terminate this
Agreement for cause only upon Buyer's breach of its obligations
under this Agreement and failure by Buyer to cure such breach
within thirty (30) days following written notice of breach.
14. REMEDIES.
14.1. The remedies available to the parties to this
Agreement, whether by virtue of the provisions of the Tennessee
Uniform Commercial Code, or by the terms of this Agreement, are
in addition to and cumulative with all remedies arising under any
collateral or ancillary agreements between the parties. In no
event shall either party be liable to the other for any punitive,
special or exemplary damages; provided, however, that this
sentence is not intended to and shall not limit the right of
either party to this Agreement to receive indemnity and full
reimbursement under SECTION 12 for any claims by or amounts
(whether deemed compensatory, exemplary or punitive) that one of
the parties becomes obligated to pay to a third party pursuant to
any judgment or settlement entered into in accordance with
SECTION 12.
14.2. Buyer shall have the right to bring an action
against Seller for specific performance of this Agreement, both
parties agreeing that the goods and services described hereunder
are unique.
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<PAGE>
<PAGE>
15. NOTICES, PURCHASE ORDERS.
15.1 Any notice required or desired to be furnished
under this Agreement shall be in writing, postage prepaid, and
shall be sent by United States, certified, registered or express
mail, by an overnight delivery service (E.G., Federal Express) or
by facsimile transmission and addressed or delivered to the party
receiving notice at the address designated below. Any notice
shall be deemed to be given (i) when received or when first
refused if mailed or sent by overnight delivery service, and (ii)
when received if transmitted by facsimile transmission. All such
notices shall be addressed as follows:
If to Buyer: Shoney's, Inc.
1727 Elm Hill Pike
Nashville, Tennessee 37210
ATTN: Purchasing Agent- Mike Rose Foods
FAX No.: (615) 231-_____
If to Seller: Mike Rose Foods, Inc.
189 Spence Lane
Nashville, Tennessee 37210
Attn:
FAX No.: (615) ____________
copy to: Mike Rose Foods, Inc.
c/o Levmark Capital Corporation
175 Memorial Highway
New Rochelle, New York 10801
Attn: William J. Solomon
FAX No.: (914) 654-9414
In like manner, any party may change the address to which notice
to it is to be sent.
15.2 Any orders by Buyer of any Products to be delivered
hereunder shall be on Buyer's standard purchase order (a copy of
which is attached hereto) and may be sent by regular mail to:
Mike Rose Foods, Inc.
189 Spence Lane
Nashville, Tennessee 37210
ATTN: __________________
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<PAGE>
<PAGE>
At the request of Seller, upon mailing any such order,
Buyer shall also send to Seller either a telecopy of such
purchase order to such location as may be reasonably designated
by Seller or telex containing the requested quantity and delivery
dates and location. At the request of Buyer, Seller also shall
accept orders from Buyer by electronic data interchange or
transmission. The terms and conditions of any sale shall be
governed by this Agreement and any terms and conditions of any
purchase order that are inconsistent with the terms of this
Agreement or contained on the reverse side of any such purchase
order shall be of no force or effect.
16. ASSIGNMENT. This Agreement and the covenants,
restrictions and limitations contained herein shall be binding upon and
shall inure to the benefit of each of the parties and their respective
successors and assigns; provided, however, that, except as provided
herein, neither Seller's nor Buyer's obligations under this Agreement may
be assigned or delegated without the written consent of the other party
hereto. Seller agrees that Buyer's affiliates (including, without
limitation, Commissary Operations, Inc.) may act as Buyer's agent for the
purpose of executing orders for Products under this Agreement. Seller
agrees that if, during the term of this Agreement, Buyer sells all or any
part of its restaurant businesses or assets (whether by means of an asset
or stock sale, exchange, merger, consolidation or otherwise), Buyer may
assign Buyer's rights and obligations hereunder insofar as they relate to
the restaurant business or assets being sold to the purchaser of such
restaurant business or assets. Buyer's minimum purchase obligations
hereunder shall be deemed satisfied to the extent that the purchaser of
such restaurant business or assets purchases Products from Seller pursuant
to this Agreement (as assigned). To the extent that the purchaser of such
restaurant businesses or assets fails to purchase the minimum requirements
of any of the Products utilized by the transferred restaurant business or
assets (and Buyer fails to purchase same) during any 12-month period
referred to in Section 3.2 ending following a sale of restaurant
businesses or assets, any such Product shall be treated as a discontinued
Product under SECTION 3.3.
17. WAIVER. The failure of either Buyer or Seller to seek
redress for the breach of, or to insist upon the strict performance of,
any term, clause or provision of this Agreement, shall not constitute a
waiver of such breach or non-performance, unless such waiver shall be in
writing and signed by the party executing the waiver. Any waiver so
signed shall not constitute a waiver of any different or subsequent breach
or non-performance.
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<PAGE>
<PAGE>
18. VALIDITY OF PROVISIONS. Whenever possible, each
provision and term of this Agreement shall be interpreted in such a manner
as to be valid and enforceable; provided, however, that in the event any
provision or term of this Agreement should be determined to be invalid or
unenforceable, all other provisions and terms of this Agreement and the
application thereof to all persons and circumstances subject thereto shall
remain unaffected to the extent permitted by law. If any application of
any provision or term of this Agreement to any person or circumstance
should be determined to be invalid or unenforceable, the application of
such provision or term to other persons and circumstances shall remain
unaffected to the extent permitted by law.
19. CONSTRUCTION. As used herein, 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 would clearly not
admit such construction. This Agreement shall be construed and
interpreted in accordance with the laws of the state of Tennessee
including, except when expressly inconsistent therewith, the provisions
of the Tennessee Uniform Commercial Code, T.C.A. Sections 47-1-101 ET SEQ.,
including all definitions contained therein. Section or paragraph
headings are employed herein solely for convenience of reference, and such
headings shall not in any way affect the meaning, validity or
enforceability of any term or provision of this Agreement. All references
herein to "section" or "paragraph" shall mean the appropriate numbered
section or paragraph of this Agreement except where reference is
particularly made to some other instrument or document.
20. FORCE MAJEURE. Either party shall be excused from
performance of its duties under this Agreement during any period of time
when that party is prevented from so performing due to act of God, war,
strike, riot, acts of governmental authorities, shortages in supply of
ingredients used in manufacturing the Products (other than as a result of
Seller's acts or omissions) or other cause beyond its control; provided,
however, that should such continue for a period of two (2) consecutive
months, the other party may, at its option, terminate this Agreement with
respect to any Products the delivery or manufacture of which has been
prevented.
21. RELATIONSHIP OF THE PARTIES. It is the express intention
of the parties hereto that Seller is and shall be an independent
contractor under this Agreement, and no partnership, joint venture or
fiduciary relationship shall exist between Buyer and Seller. This
Agreement does not constitute either party as the agent, legal
representative or employee of the other for any purpose whatsoever, and
neither party is granted any right or authority to assume or create any
obligation for or on behalf of, or in the name of, the
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<PAGE>
other party or in any way to bind the other party.
22. COSTS AND EXPENSES.Except as otherwise expressly provided
in this Agreement, each party hereto shall be responsible for the payment
of the fees and expenses (including legal fees and expenses) incurred by
that party in connection with this Agreement and the transactions
contemplated herein.
23. ENTIRE AGREEMENT; MODIFICATION. This Agreement, as
executed, constitutes the entire agreement between the parties and no
representation, promise, condition, warranty or understanding, other than
herein set forth, shall be binding upon any of the parties hereto. Seller
makes no implied warranty other than that of merchantability and fitness
for a particular purpose. None of the provisions of this Agreement shall
be waived, altered or amended except in a writing signed by the party to
be bound thereby.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement, each by its duly authorized officer or representative, as of
the date and year first above written.
MIKE ROSE FOODS, INC. SHONEY'S, INC.
By:____________________________ By:____________________________
Title:_________________________ Title:_________________________
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<PAGE>
<PAGE>
EXHIBITS AND SCHEDULES
OMITTED FOR
FILING PURPOSES
<PAGE>
<TABLE>
<CAPTION>
Years Ended
October 29, October 30, October 31,
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Earnings per Common Share - Primary
Average shares outstanding 41,405,428 41,042,134 39,868,386
Net effect of dilutive stock options-based on the treasury
stock method using average market price 113,688 256,927 529,520
---------- ---------- ----------
Totals 41,519,116 41,299,061 40,397,906
========== ========== ==========
Income from continuing operations before extraordinary charge
and cumulative effect of change in accounting principle $ 11,202,369 $ 52,317,557 $ 46,803,458
Income from discontinued operations 8,136,588 10,276,649 11,206,520
Income from gain on sale of discontinued operations 5,532,748
Extraordinary charge on early extinguishment of debt (1,037,808)
Cumulative effect of change in accounting for income taxes 4,468,386
---------- ---------- ----------
Net income $ 24,871,705 $ 66,024,784 $ 58,009,978
========== ========== ==========
Per share amount:
Income from continuing operations before extraordinary charge
and cumulative effect of change in accounting principle $ .27 $ 1.27 $ 1.16
Income from discontinued operations .20 .25 .28
Income from gain on sale of discontinued operations .13
Extraordinary charge on early extinguishment of debt (.03)
Cumulative effect of change in accounting for income taxes .11
---------- ---------- ----------
Net income $ .60 $ 1.60 $ 1.44
========== ========== ==========
Earnings per Common Share - Fully diluted:
Average shares outstanding 41,405,428 41,042,134 39,868,386
Net effect of dilutive stock options-based on the treasury
stock method using the quarter-end market price, if higher
than average market price 113,688 264,408 551,553
Assumed conversion of 8.5% zero coupon convertible debentures (A) 5,213,456 5,224,513
---------- ---------- ----------
Totals 41,519,116 46,519,998 45,644,452
========== ========== ==========
Income from continuing operations before extraordinary charge
and cumulative effect of change in accounting principle $ 11,202,369 $ 52,317,557 $ 46,803,458
Add 8.5% zero coupon convertible debentures interest, net of
income tax (A) 4,110,057 3,762,551
Total from continuing operations before extraordinary charge ---------- ---------- ----------
and cumulative effect of change in accounting principle 11,202,369 56,427,614 50,566,009
Income from discontinued operations 8,136,588 10,276,649 11,206,520
Income from gain on sale of discontinued operations 5,532,748
Extraordinary charge on early extinguishment of debt (1,037,808)
Cumulative effect of change in accounting for income taxes 4,468,386
---------- ---------- ----------
Net income $ 24,871,705 $ 70,134,841 $ 61,772,529
========== ========== ==========
Per share amount:
Income from continuing operations before extraordinary charge
and cumulative effect of change in accounting principle $ .27 $ 1.21 $ 1.11
Income from discontinued operations .20 .22 .25
Income from gain on sale of discontinued operations .13
Extraordinary charge on early extinguishment of debt (.02)
Cumulative effect of change in accounting for income taxes .10
---------- ---------- ----------
Net income $ .60 $ 1.51 $ 1.35
========== ========== ==========
(A) For the fiscal year 1995, both primary and fully diluted earnings per share utilized average shares
outstanding and common stock equivalents. No consideration was given to the convertible debentures
since they were not considered dilutive.
</TABLE>
<PAGE>
SUBSIDIARIES OF SHONEY'S, INC.
State (or other
jurisdiction) of
Name incorporation
---- ----------------
Barbwire's of Kansas, Inc. Kansas
Commissary Operations, Inc. Tennessee
Corporate Benefit Services,
Incorporated of Nashville Tennessee
Evadon Corporation Tennessee
Pargo's of Frederick, Inc. Tennessee
Pargo's of York, Inc. Tennessee
RJR Investments, Inc. Nevada
Shoney's of Canada, Inc. Canada
Shoney's Equipment Corporation Tennessee
Shoney's International, Inc. Nevada
Shoney's Investments, Inc. Nevada
Shoney's of Michigan, Inc. Tennessee
Shoney's Real Estate, Inc. Tennessee
<PAGE>
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in Post-Effective
Amendment No. 5 to the Registration Statement on Form S-8 (File No.
2-64257) and related Prospectus pertaining to the Shoney's, Inc.
Stock Option Plan; Post-Effective Amendment No. 4 to the
Registration Statement on Form S-8 (File No. 33-605) and related
Prospectus pertaining to the Shoney's, Inc. Employee Stock Purchase
Plan; Post-Effective Amendment No. 3 to the Registration Statement
on Form S-8 (File No. 2-84763) and related Prospectus pertaining to
the Shoney's, Inc. 1981 Stock Option Plan; Post-Effective Amendment
No. 2 to the Registration Statement on Form S-8 (File No. 33-25725)
and related Prospectus pertaining to the Shoney's, Inc. 1981 Stock
Option Plan; and the Registration Statement on Form S-8 (File No.
33-45076) and related Prospectus pertaining to the Shoney's, Inc.
Directors' Stock Option Plan; of our report dated December 14, 1995,
except for paragraphs 3 and 4 of Note 13, as to which the date is
January 2, 1996, with respect to the consolidated financial statements
and schedule of Shoney's, Inc. included in the Annual Report (Form 10-K)
for the year ended October 29, 1995.
Ernst & Young LLP
Nashville, Tennessee
January 26, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS
SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE FINANCIAL
STATEMENTS OF SHONEY'S, INC.
FOR THE PERIOD ENDED OCTOBER
29, 1995 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-29-1995
<PERIOD-START> OCT-30-1994
<PERIOD-END> OCT-29-1995
<CASH> 7,513,588
<SECURITIES> 0
<RECEIVABLES> 14,658,330
<ALLOWANCES> 1,644,509
<INVENTORY> 33,483,964
<CURRENT-ASSETS> 99,224,070
<PP&E> 710,544,277
<DEPRECIATION> 291,057,795
<TOTAL-ASSETS> 545,642,470
<CURRENT-LIABILITIES> 172,719,718
<BONDS> 0
0
0
<COMMON> 41,510,659
<OTHER-SE> (149,817,294)
<TOTAL-LIABILITY-AND-EQUITY> 535,015,994
<SALES> 1,029,314,432
<TOTAL-REVENUES> 1,053,332,420
<CGS> 922,544,856
<TOTAL-COSTS> 1,034,257,051
<OTHER-EXPENSES> 71,896,308
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,815,887
<INCOME-PRETAX> 19,075,369
<INCOME-TAX> 7,873,000
<INCOME-CONTINUING> 11,202,369
<DISCONTINUED> 8,136,588
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,871,705
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.60
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SHONEY'S, INC. AND SUBSIDIARIES
Col. A Col. B Col. C Col. D Col. E
- ---------------------- ---------- ---------------------------- ------------ ----------
Additions
----------------------------
Charged Charged
Balance at to Costs to Other Balance at
Beginning and Acounts - Deductions - End of
of Period Expenses Describe Describe Period
- ---------------------- ---------- ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Fiscal year ended
October 29, 1995:
Reserves and
allowances deducted
from asset accounts:
Allowance for
doubtful accounts $1,193,000 $1,045,000 $274,000(B) $ 867,000(A) $1,645,000
========= ========= ======= ========= =========
Fiscal year ended
October 30, 1994:
Reserves and
allowances deducted
from asset accounts:
Allowance for
doubtful accounts $1,846,000 $1,349,000 $ 59,000(B) $2,061,000(A) $1,193,000
========= ========= ======= ========= =========
Fiscal year ended
October 31, 1993:
Reserves and
allowances deducted
from asset accounts:
Allowance for
doubtful accounts $1,377,000 $ 564,000 $ 14,000(B) $ 109,000(A) $1,846,000
========= ========= ======= ========= =========
(A) Accounts written off.
(B) Recoveries from accounts written off in prior year.
</TABLE>