SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
INTERNATIONAL FRANCHISE SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|_| No fee required.
|X| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.01 per share (2) Aggregate number of
securities to which applies:
7,034,324
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$8,787,585
(4) Proposed maximum aggregate value of transaction:
$8,787,585
(5) Total fee paid:
$1,758
|X| Fee paid previously with preliminary materials
$1,758
Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form of schedule and the date of its filing.
(1) Amount previously paid:
--------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
--------------------------------------------------
(3) Filing Party:
--------------------------------------------------
(4) Date Filed:
--------------------------------------------------
<PAGE>
INTERNATIONAL FRANCHISE SYSTEMS, INC.
6701 DEMOCRACY BOULEVARD
SUITE 300
BETHESDA, MARYLAND 20817
Dear Shareholder:
You are cordially invited to attend a special meeting of the shareholders
of International Franchise Systems, Inc., a Delaware corporation (the
"Company"), to be held at the offices of Reed Smith Shaw & McClay LLP, 1301 K
Street NW, Suite 1100 East Tower, Washington, D.C. 20005, on Wednesday, August
19, 1998 at 10:00 a.m., local time (the "Special Meeting").
At the Special Meeting you will be asked to consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger (the "IFS Merger
Agreement"), dated as of May 19, 1998 among the Company, Crescent Capital, Inc.,
a Delaware corporation ("Crescent") and IFS Acquisition Corporation, a Delaware
corporation ("IFS Acquisition"), pursuant to which IFS Acquisition, a wholly
owned subsidiary of Crescent, will be merged with and into the Company (the "IFS
Merger"). The Company will be the surviving corporation in the IFS Merger and
immediately following the IFS Merger the entire equity interest in the Company
will be owned by Crescent. If the IFS Merger is consummated, each share of
common stock, par value $0.01 per share, of the Company (each a "Share" and the
holders thereof, the "Shareholders") will be converted into the right to receive
$3.60 per Share in cash, without interest (the "IFS Merger Consideration"),
except (a) Shares owned by IFS Acquisition, (b) Shares owned by Shareholders who
perfect appraisal rights in accordance with the Delaware General Corporation Law
(the "DGCL") and (c) treasury Shares held by the Company (each Share other than
such excluded Shares is a "Public Share" and the holders thereof, the "Public
Shareholders"). The receipt of cash for the Public Shares pursuant to the IFS
Merger Agreement will be a taxable transaction for United States federal income
tax purposes and may also be a taxable transaction under applicable state,
local, foreign and other tax laws.
Enclosed with this letter is a Notice of Special Meeting, Proxy Statement,
Proxy Card and return envelope. I urge you to read the enclosed material
carefully.
The Company's Board of Directors appointed a committee on March 11, 1998
consisting of two individual directors who are not directors, officers or
employees of Crescent and who are not officers or employees of the Company (the
"Special Committee"). The Special Committee has reviewed and considered the
proposed IFS Merger and in connection therewith has retained Scott &
Stringfellow, Inc. ("Scott & Stringfellow") as its financial advisor.
<PAGE>
YOUR BOARD OF DIRECTORS, BASED UPON THE UNANIMOUS RECOMMENDATION OF THE
SPECIAL COMMITTEE OF INDEPENDENT DIRECTORS, HAS APPROVED THE IFS MERGER AS BEING
IN THE BEST INTERESTS OF THE COMPANY AND THE PUBLIC SHAREHOLDERS OF THE COMPANY
AND RECOMMENDS THAT YOU VOTE FOR APPROVAL AND ADOPTION OF THE IFS MERGER
AGREEMENT AND APPROVAL OF THE TRANSACTIONS CONTEMPLATED THEREBY.
The Special Committee has received a written opinion from Scott &
Stringfellow, dated May 21, 1998 that, as of the date of such opinion and
subject to the considerations set forth therein, the consideration to be
received by the Public Shareholders pursuant to the IFS Merger is fair, from a
financial point of view, to such Shareholders. THE WRITTEN OPINION OF SCOTT &
STRINGFELLOW IS ATTACHED AS ANNEX C TO THE ACCOMPANYING PROXY STATEMENT AND
SHOULD BE READ CAREFULLY BY THE SHAREHOLDERS OF THE COMPANY.
Pursuant to the DGCL, the affirmative vote of at least a majority of all of
the outstanding Shares is required to approve and adopt the IFS Merger
Agreement. At the time of such voting, Crescent will own approximately 67
percent of the Shares and has advised the Company that it will vote its Shares
in favor of the approval and adoption of the IFS Merger Agreement. Accordingly,
approval and adoption of the IFS Merger Agreement is assured regardless of the
vote of any other Shareholder.
If the IFS Merger is consummated, Section 262 of the DGCL provides that
Shareholders who dissent from the proposed IFS Merger and who comply with the
other statutory requirements of Section 262 of the DGCL may exercise their
appraisal rights and receive in cash, after submitting to the required process
of judicial appraisal, the appraised value of their Public Shares (whether that
value is more or less than the IFS Merger Consideration).
Whether or not you plan to attend the Special Meeting, please complete,
sign and date the accompanying proxy and return it in the enclosed postage
prepaid envelope to H. Michael Bush, Secretary as soon as possible so that your
Shares will be represented at the Special Meeting. If you attend the Special
Meeting, you may revoke your proxy and vote in person.
Sincerely,
H. Michael Bush
Acting President
Bethesda, Maryland
July 23, 1998
<PAGE>
INTERNATIONAL FRANCHISE SYSTEMS, INC
6701 DEMOCRACY BOULEVARD
SUITE 300
BETHESDA, MARYLAND 20817
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON
WEDNESDAY, AUGUST 19, 1998
AT 10:00 A.M.
To the Shareholders of
International Franchise Systems, Inc.:
NOTICE IS HEREBY GIVEN that a special meeting of the shareholders of
International Franchise Systems, Inc., a Delaware corporation (the "Company"),
will be held at the offices of Reed Smith Shaw & McClay LLP, 1301 K Street NW,
Suite 1100 East Tower, Washington, D.C. 20005, on Wednesday, August 19, 1998 at
10:00 a.m., local time (the "Special Meeting"), for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an Agreement and
Plan of Merger (the "IFS Merger Agreement"), dated as of May 19, 1998 among
the Company, Crescent Capital, Inc., a Delaware corporation ("Crescent")
and IFS Acquisition Corporation, a Delaware corporation ("IFS
Acquisition"), pursuant to which IFS Acquisition, a wholly owned subsidiary
of Crescent, will be merged with and into the Company (the "IFS Merger").
The Company will be the surviving corporation in the IFS Merger and
immediately following the IFS Merger the entire equity interest in the
Company will be owned by Crescent. If the IFS Merger is consummated, each
share of common stock, par value $0.01 per share, of the Company (each a
"Share" and the holders thereof, the "Shareholders") will be converted into
the right to receive $3.60 per Share in cash, without interest (the "IFS
Merger Consideration"), except (a) Shares owned by IFS Acquisition, (b)
Shares owned by Shareholders who perfect appraisal rights in accordance
with the Delaware General Corporation Law (the "DGCL") and (c) treasury
Shares held by the Company (each Share other than such excluded Shares is a
"Public Share" and the holders thereof, the "Public Shareholders"). The
receipt of cash for the Public Shares pursuant to the IFS Merger Agreement
will be a taxable transaction for United States federal income tax purposes
and may also be a taxable transaction under applicable state, local,
foreign and other tax laws.
2. To transact such other business as may properly come before the Special
Meeting.
<PAGE>
The close of business on July 20, 1998 has been fixed as the record date
for the determination of Shareholders entitled to notice of and to vote at the
Special Meeting.
Pursuant to the DGCL, the affirmative vote of at least a majority of all of
the outstanding Shares is required to approve and adopt the IFS Merger
Agreement. At the time of such voting, Crescent will own approximately 67
percent of the Shares and has advised the Company that it will vote its Shares
in favor of the approval and adoption of the IFS Merger Agreement. Accordingly,
approval and adoption of the IFS Merger Agreement is assured regardless of the
vote of any other Shareholder.
If the IFS Merger is consummated, Section 262 of the DGCL provides that
Shareholders who dissent from the proposed IFS Merger and who comply with the
other statutory requirements of Section 262 of the DGCL may exercise their
appraisal rights and receive in cash, after submitting to the required process
of judicial appraisal, the appraised value of their Public Shares (whether that
value is more or less than the IFS Merger Consideration).
The Proxy Statement accompanying and forming a part of this notice contains
more detailed information with respect to the matters to be considered at the
Special Meeting (including a copy of the IFS Merger Agreement which is attached
as Annex A thereto).
Shareholders are invited to attend the Special Meeting. WHETHER OR NOT YOU
EXPECT TO ATTEND, WE URGE YOU TO SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED
PROXY CARD IN THE ENCLOSED POSTAGE PAID ENVELOPE. If you attend the Special
Meeting, you may vote your Shares in person, which will revoke any previously
executed proxy.
If your Shares are held of record by a broker, bank or other nominee and
you wish to attend the Special Meeting, you must obtain a letter from such
broker, bank or other nominee confirming your beneficial ownership of the Shares
and bring it to the Special Meeting. In order to vote your Shares at the Special
Meeting, you must obtain from the record holder a proxy issued in your name.
Your vote is important. PLEASE SIGN, DATE AND RETURN THE ENCLOSED PROXY
CARD TODAY.
By Order of the Board of
Directors INTERNATIONAL
FRANCHISE SYSTEMS, INC.
H. Michael Bush
Secretary
Bethesda, Maryland
July 23, 1998
<PAGE>
INTERNATIONAL FRANCHISE SYSTEMS, INC.
6701 DEMOCRACY BOULEVARD
SUITE 300
BETHESDA, MARYLAND 20817
PROXY STATEMENT
This proxy statement (this "Proxy Statement") is being furnished to the
shareholders of International Franchise Systems, Inc., a Delaware corporation
(the "Company"), in connection with the solicitation of proxies by the Company's
Board of Directors (the "IFS Board") for use at a special meeting of the
Company's shareholders to be held at the offices of Reed Smith Shaw & McClay
LLP, 1301 K Street NW, Suite 1100 East Tower, Washington, D.C. 20005, on
Wednesday, August 19, 1998 at 10:00 a.m., local time, and at any adjournment or
postponement thereof (the "Special Meeting").
At the Special Meeting, the holders (the "Shareholders") of each
outstanding share of common stock, par value $0.01 per share, of the Company
(the "Shares") will be asked to (i) consider and vote upon a proposal to approve
and adopt an Agreement and Plan of Merger (the "IFS Merger Agreement"), dated as
of May 19, 1998 among the Company, Crescent Capital, Inc., a Delaware
corporation ("Crescent") and IFS Acquisition Corporation, a Delaware corporation
("IFS Acquisition"), pursuant to which IFS Acquisition, a wholly owned
subsidiary of Crescent, will be merged with and into the Company (the "IFS
Merger"); the Company will be the surviving corporation in the IFS Merger and
immediately following the IFS Merger the entire equity interest in the Company
will be owned by Crescent; and (ii) to transact such other business as may
properly come before the Special Meeting. A copy of the IFS Merger Agreement is
attached to this Proxy Statement as Annex A.
If the IFS Merger is consummated, each Share will be converted into the
right to receive $3.60 per Share in cash, without interest (the "IFS Merger
Consideration"), except that (a) Shares owned by IFS Acquisition, (b) Shares
owned by Shareholders who perfect appraisal rights (the "Dissenting Shares") in
accordance with the Delaware General Corporation Law (the "DGCL") and (c)
treasury Shares held by the Company (the "Treasury Shares") will not be so
converted (each Share other than such excluded Shares is a "Public Share" and
the holders thereof, the "Public Shareholders"). The receipt of cash for the
Public Shares pursuant to the IFS Merger Agreement will be a taxable transaction
for United States federal income tax purposes and may also be a taxable
transaction under applicable state, local, foreign and other tax laws.
Pursuant to the DGCL, the affirmative vote of at least a majority of all of
the outstanding Shares is required to approve and adopt the IFS Merger
Agreement. At the time of such voting, Crescent will own approximately 67
percent of the Shares and has advised the Company that it will vote its Shares
in favor of the approval and
-1-
<PAGE>
adoption of the IFS Merger Agreement. Accordingly, approval and adoption of the
IFS Merger Agreement is assured regardless of the vote of any other Shareholder.
If the IFS Merger is consummated, Section 262 of the DGCL provides that
Shareholders who dissent from the proposed IFS Merger and who comply with the
other statutory requirements of Section 262 of the DGCL may exercise their
appraisal rights and receive in cash, after submitting to the required process
of judicial appraisal, the appraised value of their Public Shares (whether that
value is more or less than the IFS Merger Consideration).
This Proxy Statement and the accompanying form of proxy are first being
sent to Shareholders on or about July 23, 1998. Only Shareholders of record as
of the close of business on July 20, 1998 are entitled to vote at the Special
Meeting. Shareholders are entitled to one vote for each Share held of record. On
June 30, 1998, there were 7,027,324 Shares outstanding and entitled to vote at
the Special Meeting. The presence in person or by proxy of the holders of not
less than a majority of the Shares entitled to vote at the Special Meeting will
constitute a quorum to transact business at the Special Meeting.
-2-
<PAGE>
TABLE OF CONTENTS
Page
TABLE OF CONTENTS.............................................................i
GLOSSARY OF DEFINED TERMS...................................................iii
SUMMARY.......................................................................1
INTRODUCTION.................................................................11
THE COMPANIES................................................................11
The Company................................................................11
Domino's Store System......................................................12
DPG ......................................................................12
Crescent...................................................................13
IFS Acquisition............................................................13
THE SPECIAL MEETING..........................................................14
Purpose of the Special Meeting.............................................14
Record Date; Shares Outstanding............................................14
Quorum; Voting at the Special Meeting......................................14
Revocability of Proxy......................................................15
Solicitation of Proxies....................................................16
SPECIAL FACTORS..............................................................16
General....................................................................16
Restructuring of IFS Affiliates............................................16
Background of the IFS Merger...............................................17
Purpose and Structure of the IFS Merger....................................21
Financing of the IFS Merger................................................22
Recommendations of the Special Committee and the IFS Board.................22
Opinion of Scott & Stringfellow............................................23
Certain Effects of the IFS Merger..........................................33
Plans for the Company After the IFS Merger.................................33
Interests of Certain Persons in the IFS Merger.............................34
Related Party Transactions.................................................35
Indemnification............................................................36
Certain United States Federal Income Tax Consequences of the IFS Merger....36
Regulatory Approvals.......................................................39
Dissenters' Appraisal Rights...............................................39
THE TERMS OF THE IFS MERGER..................................................41
The IFS Merger.............................................................41
-i-
<PAGE>
Effective Time of the IFS Merger...........................................41
Effect of the IFS Merger...................................................41
Treatment of the Public Shares and IFS Acquisition Shares..................41
Treatment of the Class B Warrants..........................................42
Treatment of the Unit Purchase Options.....................................42
Treatment of Options.......................................................42
Surrender of Share Certificates............................................43
Withholding Rights.........................................................44
Conditions to the IFS Merger; Amendment, Waiver and Termination............44
Representations and Warranties.............................................46
Certain Agreements.........................................................47
Reasonable Efforts.........................................................47
Indemnification............................................................47
Accounting Treatment.......................................................48
SELECTED FINANCIAL INFORMATION...............................................48
EXECUTIVE COMPENSATION.......................................................49
OWNERSHIP OF EQUITY SECURITIES...............................................51
DIVIDENDS AND PRICE RANGE OF SHARES..........................................54
INDEPENDENT PUBLIC ACCOUNTANTS...............................................55
OTHER MATTERS................................................................55
SHAREHOLDERS' PROPOSALS FOR THE 1998 ANNUAL MEETING..........................56
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..............................56
AVAILABLE INFORMATION........................................................57
ANNEXES
A. Agreement and Plan of Merger, dated as of May 19, 1998, by and among
International Franchise Systems, Inc., Crescent Capital, Inc. and IFS
Acquisition Corporation
B. Section 262 of the Delaware General Corporation Law
C. Fairness Opinion of Scott & Stringfellow, Inc. in connection with the IFS
Merger
-ii-
<PAGE>
GLOSSARY OF DEFINED TERMS
"Abacus/Lacosint SPA" means the Agreement for Sale and Purchase for Shares
in Domino's Pizza Group Limited between Abacus (C.I.) Limited and Lacosint
Establishment and International Franchise Systems, Inc. dated as of June 26,
1997.
"Certificate of Merger" means the certificate of merger filed with the
Secretary of State for the State of Delaware in connection with the IFS Merger.
"Class B Warrant" means the Company's Class B Redeemable Common Stock
Purchase Warrants entitling the holder thereof to purchase from the Company one
Share at an exercise price of $10.00 per Share until and including December 8,
1999.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commissary" means the production facility and wholesale supply business
operated by DPG for all Domino's Stores in the Territory pursuant to the
Commissary Agreement.
"Commissary Agreement" means the Know-How and Technical Knowledge, License
and Managerial Agreement, by and between DPII and DPG, dated as of December 29,
1993.
"Company" means International Franchise Systems, Inc., a Delaware
corporation.
"Crescent" means Crescent Capital, Inc., a Delaware corporation.
"Crescent Public Shareholders" means the holders of the Crescent Public
Shares.
"Crescent Public Shares" means the shares of Class A Common Stock of
Crescent held by parties other than WLP.
"DGCL" means the Delaware General Corporation Law.
"Dissenting Shares" means Shares owned by Shareholders who perfect
appraisal rights in accordance with the DGCL.
"Domino's SPA" means the Stock Purchase Agreement, dated as of May 26,
1997, between DPII and the Company pursuant to which DPII purchased 300,000
restricted Shares.
-iii-
<PAGE>
"Domino's Stores" means the pizza stores owned, operated and/or franchised
in the Territory by the Company.
"DPG" means Domino's Pizza Group Limited, a United Kingdom corporation.
"DPI" means Domino's Pizza, Inc., a Michigan corporation.
"DPII" means Domino's Pizza International, Inc., a Delaware corporation.
"Effective Time" means the date and time the IFS Merger becomes effective,
which shall be the time the Certificate of Merger is duly filed with the
Secretary of State for the State of Delaware, or such other time as the parties
agree shall be specified in the Certificate of Merger.
"Engagement Letter" means the engagement letter between Scott &
Stringfellow and the Company, dated as of March 19, 1998.
"Englewood" means Englewood Consulting Corporation.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"IFS" means International Franchise Systems, Inc., a Delaware corporation.
"IFSAC" means IFS Acquisition Corporation, a Delaware corporation.
"IFS Acquisition" means IFS Acquisition Corporation, a Delaware
corporation.
"IFS Merger" means the merger contemplated in the IFS Merger Agreement,
pursuant to which IFS Acquisition, a wholly-owned subsidiary of Crescent, will
be merged with and into the Company.
"IFS Merger Agreement" means the Agreement and Plan of Merger, dated as of
May 19, 1998 by and among the Company, Crescent and IFS Acquisition.
"IFS Merger Consideration" means $3.60 per Share in cash, without interest.
"IFS Merger Proposal" means the IFS Merger Agreement and the transactions
contemplated thereby.
"Indemnified Parties" means each present or former director and officer of
the Company.
-iv-
<PAGE>
"IRS" means the Internal Revenue Service.
"LLC" means HS Real Company, LLC, a Delaware limited liability company.
"LLG&M" means LeBoeuf, Lamb, Greene & MacRae, L.L.P.
"Master Franchise Agreement" means the master franchise agreement dated
December 29, 1993 by and between DPII and DPG.
"Merger" means the IFS Merger.
"Options" means the options issued under any of the Stock Option Plans.
"Patterson" means Patterson Travis, Inc.
"Paying Agent" means Jersey Transfer & Trust Co.
"Public Shareholders" means the holders of the Public Shares.
"Public Shares" means the Shares, other than: (i) the Shares owned by IFS
Acquisition; (ii) Shares owned by Shareholders who perfect appraisal rights in
accordance with the DGCL; and (iii) Treasury Shares held by the Company.
"RBS Facility" means the British Pound denominated secured term-loan for
approximately $13 million to be provided by RBS.
"RBS" means the Royal Bank of Scotland.
"Record Date" means the close of business on July 20, 1998.
"RSS&M" means Reed Smith Shaw & McClay LLP.
"Scott & Stringfellow" means Scott & Stringfellow, Inc.
"SEC" means the United States Securities and Exchange Commission.
"Share" means the shares of common stock, par value $0.01 per share, of the
Company.
"Share Certificate" means the certificates of common stock representing the
Shares.
-v-
<PAGE>
"Shareholders" means the holders of the Shares.
"Special Committee" means the special committee of individual directors
appointed by the Company's Board of Directors on March 11, 1998 to evaluate the
merger proposal.
"Special Meeting" means the special meeting of the Shareholders of the
Company, to be held at the offices of Reed Smith Shaw & McClay LLP, 1301 K
Street NW, Suite 1100 East Tower, Washington, D.C. 20005, on Wednesday, August
19, 1998 at 10:00 a.m., local time.
"Stock Option Plan" means the 1994 Stock Incentive Plan, 1997 Stock
Incentive Plan, 1995 Non-Employee Directors Plan, 1997 Non-Employee Directors
Plan and 1995 Consultants and Advisors Incentive Plan.
"Territory" means the United Kingdom, Northern Ireland and the Republic of
Ireland.
"Treasury Shares" means Shares held by the treasury of the Company.
"Unit Purchase Option Expiration Date" means December 8, 1999
"Unit Purchase Option" means the 107,732 options to purchase one Share of
the Company and one Class B Redeemable Common Stock Purchase Warrant issued to
Patterson Travis, Inc.
"Unit" means one Share of the Company and one Class B Redeemable Common
Stock Purchase Warrant.
"WLP" means Woodland Limited Partnership, a Delaware limited partnership
whose general partner is Woodland Group.
"Woodland Group" means Woodland Group, Inc., a Delaware corporation, and
the general partner of WLP.
-vi-
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement, including the Annexes hereto, which are a part of this
Proxy Statement. This summary is not, and is not intended to be, complete in
itself. Reference is made to, and this summary is qualified in its entirety by,
the more detailed information contained elsewhere in or incorporated by
reference into this Proxy Statement. Capitalized terms used but not defined in
this Summary shall have the meanings ascribed to them elsewhere in this Proxy
Statement. Shareholders are encouraged to read carefully all of the information
contained in this Proxy Statement, including the Annexes hereto.
THE COMPANIES
The Company. The Company and its subsidiaries have the exclusive right to own,
operate and franchise Domino's pizza stores ("Domino's Stores") in the United
Kingdom, Northern Ireland and the Republic of Ireland (the "Territory") pursuant
to a master franchise agreement (the "Master Franchise Agreement"), dated as of
December 29, 1993, with Domino's Pizza International, Inc. ("DPII"), a
wholly-owned subsidiary of Domino's Pizza, Inc., a Michigan corporation ("DPI").
The Company also has the right to operate a fresh pizza dough production
facility and wholesale supply business (the "Commissary") for all Domino's
Stores in the Territory pursuant to an agreement with DPII (the "Commissary
Agreement").
The Company is a Delaware corporation incorporated on October 22, 1993. In
December 1993, the Company acquired Domino's Pizza Group Limited ("DPG"), the
United Kingdom subsidiary of the U.S.-based parent company, DPI, which included
existing operations, the rights as subfranchisor to 77 franchise agreements for
Domino's Stores, assets relating to the Commissary and assets relating to the
existing franchise operation. As of March 29, 1998, the Company is operating 159
Domino's Stores in the Territory.
Domino's Stores in the Territory sell pizzas which are made primarily of
fresh ingredients. The Commissary supplies Domino's Stores with fresh dough,
real mozzarella cheese, a proprietary mix of tomato sauce and spices and high
quality fresh toppings. The Company has expanded its existing commissary
facility with additional capacity and state-of-the-art food handling equipment.
In addition, in October, 1996, the Company opened a second distribution center
in the north of England.
The Company is a subsidiary of Crescent. As of June 30, 1998, Crescent
owned 4,700,000 restricted Shares or approximately 67 percent of the total
Shares issued and
-1-
<PAGE>
outstanding. Prior to the Effective Time, Crescent will have contributed all its
Shares to IFS Acquisition.
Pursuant to a Stock Purchase Agreement, dated as of May 26, 1997 (the
"Domino's SPA") by and between Domino's Pizza International, Inc. and
International Franchise Systems, Inc., DPII purchased 300,000 restricted Shares.
As a group, the directors and officers of the Company own approximately
145,080 Shares or just under 2 percent of the Shares (not including any Shares
which may be deemed owned by Mr. Colin Halpern through Crescent).
The address of the Company is 6701 Democracy Boulevard, Suite 300,
Bethesda, Maryland 20817. The Company's telephone number is (301) 897-4870.
Dominos Store System. DPI opened its first store in 1960 and today is the
world's leader in pizza delivery, with over 5,952 company-owned and franchised
stores as of December 31, 1997. It had system-wide revenues of approximately
$3.2 billion for the fiscal year 1997.
DPG. DPG was organized in the United Kingdom on December 13, 1993, to hold all
of the assets, including the franchise agreements, relating to DPI's franchise
operations in the Territory. On December 30, 1993, the Company purchased all of
the issued and outstanding stock of DPG from Tuskpride, a subsidiary of DPI
which owned the stock of DPG.
In June 1997, pursuant to the Agreement for Sale and Purchase for Shares in
Domino's Pizza Group Limited between Abacus (C.I.) Limited and Lacosint
Establishment and International Franchise Systems, Inc., dated as of June 26,
1997 ("Abacus/Lacosint SPA"), certain entities controlled by British businessman
Mr. Nigel Wray purchased 180,000 shares or approximately 15 percent of DPG's
common stock from the Company for a purchase price of approximately $3 million.
In addition, one of the entities controlled by Mr. Wray was granted a stock
option to purchase a further 60,000 shares, or approximately 5 percent of DPG's
common stock, for an aggregate purchase price of $1.5 million. The option
exercise period commenced on June 26, 1997 and terminates on June 26, 1999.
The registered office of DPG is situated at 41 Vine Street, London, EC3N
2AA, United Kingdom.
Crescent. Crescent is a publicly held corporation incorporated in the state of
Delaware on January 15, 1991. The only business of Crescent is the holding of
Shares.
-2-
<PAGE>
Crescent is a subsidiary of Woodland Limited Partnership, a Delaware
limited partnership ("WLP"). WLP owns approximately 92 percent of the issued and
outstanding shares of common stock of Crescent. The general partner of WLP is
Woodland Group, Inc. ("Woodland Group"), a Delaware corporation which is
controlled by members of Mr. Colin Halpern's immediate family. Therefore,
Crescent, through WLP and its general partner Woodland Group, is controlled by
members of Mr. Halpern's immediate family.
Due to the capital structures of the Company and Crescent, both the Company
and IFS Acquisition are under the common control of Crescent. Through its
control of Crescent, WLP has indirect voting control over the Company and,
consequently, can determine the vote on any matter submitted for Shareholder
approval.
The address of Crescent is 6701 Democracy Boulevard, Suite 300, Bethesda,
Maryland 20817. Crescent's telephone number is (301) 530-1708.
IFS Acquisition. IFS Acquisition was incorporated in the state of Delaware on
March 4, 1998. IFS Acquisition is a wholly owned subsidiary of Crescent and was
incorporated for the sole purpose of effecting the IFS Merger. IFS Acquisition
has had no prior business and upon consummation of the IFS Merger its separate
corporate existence will cease.
Prior to the Effective Time, Crescent will have contributed its Shares to
IFS Acquisition. Consequently, prior to the Effective Time, IFS Acquisition will
own 4,700,000 Shares or approximately 67 percent of the issued and outstanding
Shares.
The address of IFS Acquisition is 6701 Democracy Boulevard, Suite 300,
Bethesda, Maryland 20817. IFS Acquisition's telephone number is (301) 530-1708.
THE SPECIAL MEETING
Time, Date and Place. The Special Meeting will be held at the offices of Reed
Smith Shaw & McClay LLP, 1301 K Street NW, Suite 1100 East Tower, Washington,
D.C. 20005, on Wednesday, August 19, 1998 at 10:00 a.m., local time.
Purpose of the Special Meeting. Shareholders will be asked to consider and vote
upon the proposal to adopt and approve the IFS Merger Agreement and the
transactions contemplated thereby (the "IFS Merger Proposal"). A copy of the IFS
Merger Agreement is attached to this Proxy Statement as Annex A. The
attorneys-in-fact named in the accompanying proxy also will have discretionary
authority to vote
-3-
<PAGE>
upon other business, if any, that properly comes before the Special Meeting. See
"THE SPECIAL MEETING -- Purpose of the Special Meeting."
Record Date; Shares Outstanding. The Shareholders of record at the close of
business on July 20, 1998 (the "Record Date") are entitled to notice of and to
vote at the Special Meeting. There were 7,027,324 Shares outstanding and
entitled to vote as of the Record Date. Each Share is entitled to one vote with
respect to all matters presented at the Special Meeting. As of the Record Date,
the Company's directors and executive officers owned 145,080 Shares (which is
approximately 2 percent of the outstanding Shares on the Record Date) (not
including any Shares which may be deemed owned by Mr. Colin Halpern through
Crescent) all of which are expected to be voted FOR the IFS Merger Proposal. As
of the Record Date, Crescent owned 4,700,000 Shares, all of which will be voted
FOR the adoption of the IFS Merger Proposal. See "THE SPECIAL MEETING -- Record
Date; Shares Outstanding."
Quorum; Voting at the Special Meeting. The presence, in person or by proxy, of
the holders of a majority of the Shares entitled to vote at the Special Meeting
is necessary to constitute a quorum for the transaction of business at the
Special Meeting. The affirmative vote of the holders of at least a majority of
the outstanding Shares is required to adopt and approve the IFS Merger Proposal.
At the time of such voting, Crescent will own approximately 67 percent of the
Shares and has advised the Company that it will vote its Shares in favor of the
approval and adoption of the IFS Merger Agreement. Accordingly, approval and
adoption of the IFS Merger Agreement is assured regardless of the vote of any
other Shareholder. See "THE SPECIAL MEETING -- Quorum; Voting at the Special
Meeting."
Revocability of Proxy. Any Shareholder who executes and returns a proxy may
revoke such proxy at any time before it is voted by: (i) filing with the
Secretary of the Company, at or before the Special Meeting, a written notice of
revocation bearing a later date than such proxy; (ii) duly executing a
subsequent proxy relating to the same Shares and delivering it to the Secretary
of the Company at or before the Special Meeting with a subsequent date; or (iii)
attending the Special Meeting and voting in person by ballot. Attendance at the
Special Meeting will not, in and of itself, constitute revocation of such proxy.
See "THE SPECIAL MEETING -- Revocability of Proxy."
SPECIAL FACTORS
Background of the Merger. For a description of the events leading to the
approval and adoption of the IFS Merger Agreement by the IFS Board, see "SPECIAL
FACTORS -- Background of the IFS Merger."
-4-
<PAGE>
Restructuring of IFS Affiliates. Contemporaneously with the IFS Merger, Crescent
intends to repurchase all outstanding shares of common stock of Crescent
currently held by parties other than WLP (the "Crescent Public Shares" and the
holders thereof, the "Crescent Public Shareholders"). It is anticipated that the
purchase of the Crescent Public Shares will be accomplished through the
individual solicitation of the Crescent Public Shareholders by Crescent officers
or directors and the purchase and sale of the Crescent Public Shares will close
at the same time as the IFS Merger. As a result of the repurchase of the
Crescent Public Shares, registration of Crescent under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") will be terminated and Crescent
will no longer be required to file periodic reports with the United States
Securities and Exchange Commission (the "SEC"). See "SPECIAL FACTORS --
Restructuring of IFS Affiliates."
Purpose and Structure of the Merger. The purpose of the IFS Merger is the
acquisition of the Public Shares by Crescent, which represent all of the
remaining equity interest in the Company not currently owned by Crescent. For a
description of the reasons for such acquisition by Crescent, see "SPECIAL
FACTORS -- Purpose and Structure of the IFS Merger." The acquisition from the
Public Shareholders of the equity interest represented by the Public Shares
outstanding as of the Effective Time, as defined in "SPECIAL FACTORS --
General", is structured as a cash-out merger in order to transfer ownership of
that equity interest to Crescent is a single transaction.
Recommendations of the Special Committee and the IFS Board. A Special Committee
of two directors of the Company who are not directors, officers or employees of
Crescent or officers or employees of the Company concluded that the terms of the
IFS Merger are fair to the Public Shareholders.
The IFS Board reviewed the terms and conditions of the IFS Merger Agreement
and, based on the recommendation of the Special Committee, determined that the
IFS Merger Proposal is advisable and in the best interests of the Public
Shareholders. The IFS Board unanimously approved the IFS Merger Agreement, and
the transactions contemplated thereby, and unanimously recommends that the
Shareholders vote for the IFS Merger Proposal.
For a discussion of the factors considered by the Special Committee and the
IFS Board in making their recommendations, see "SPECIAL FACTORS --
Recommendations of the Special Committee and the IFS Board."
Opinion of Scott & Stringfellow. Scott & Stringfellow, Inc. ("Scott &
Stringfellow") delivered a written opinion on May 21, 1998, to the Special
Committee to the effect that, as of the date of such opinion, the consideration
to be received by
-5-
<PAGE>
the Public Shareholders pursuant to the IFS Merger Agreement was fair from a
financial point of view to such Public Shareholders. Each Shareholder should
carefully read "SPECIAL FACTORS -- Opinion of Scott & Stringfellow" and the
opinion of Scott & Stringfellow, dated as of May 21, 1998 in its entirety. A
copy of such opinion, setting forth the assumptions made, the matters
considered, the scope and limitations on the review undertaken and the
procedures followed by Scott & Stringfellow in rendering such opinion, is
attached as Annex C to this Proxy Statement.
Certain Effects of the Merger. Upon consummation of the IFS Merger, each Public
Share will be converted into the right to receive the IFS Merger Consideration,
without interest, and the Public Shareholders will cease to have any ownership
interest in the Company or rights as Shareholders. The Public Shareholders will
no longer benefit from any increase in the value of the Company and will no
longer bear the risk of any decrease in the value of the Company. Following the
IFS Merger, Crescent will own 100 percent of the equity interests in the
Company.
As a result of the IFS Merger, the Company will be privately held and there
will be no public market for the Shares. Upon consummation of the IFS Merger,
the Shares will cease to be traded and registration of the Shares under the
Exchange Act will be terminated. See "SPECIAL FACTORS -- Certain Effects of the
IFS Merger."
Plans for the Company After the IFS Merger. For a discussion of Crescent's plans
for the Company and its subsidiaries after the IFS Merger, see "SPECIAL FACTORS
- -- Plans for the Company After the IFS Merger."
Interests of Certain Persons in the IFS Merger. For a discussion of the
interests of certain directors and employees of the Company in the IFS Merger,
see "SPECIAL FACTORS -- Interests of Certain Persons in the IFS Merger."
Related Party Transactions. For a discussion of current relationships and
certain transactions among certain executive officers and directors of the
Company and affiliates of the Company and the Company, see "SPECIAL FACTORS --
Related Party Transactions."
Indemnification. For a discussion of certain agreements by the Company with
respect to the indemnification of directors and officers of the Company, see
"SPECIAL FACTORS -- Indemnification."
Certain United States Federal Income Tax Consequences of the IFS Merger. The
receipt of cash for the Public Shares pursuant to the IFS Merger Agreement will
-6-
<PAGE>
be a taxable transaction for federal income tax purposes and may also be a
taxable transaction under applicable state, local, foreign and other tax laws.
The Public Shareholders should consult their own tax advisors regarding the
United States federal income tax consequences of the IFS Merger, as well as any
tax consequences under the laws of any state or other jurisdiction. The Company
will not recognize any gain or loss as a result of the IFS Merger for United
States federal income tax purposes. See "SPECIAL FACTORS -- Certain United
States Federal Income Tax Consequences of the IFS Merger."
Regulatory Approvals. No federal or state regulatory approvals are required to
be obtained, nor any regulatory requirements complied with, in connection with
consummation of the IFS Merger by any party to the IFS Merger Agreement, except
for the requirements of the DGCL in connection with shareholder approvals of the
IFS Merger Agreement and the requirements of the federal securities laws.
Dissenters' Appraisal Rights. Section 262 of the DGCL provides that Shareholders
who dissent from the proposed IFS Merger and who comply with the other statutory
requirements of Section 262 of the DGCL may exercise their appraisal rights and
receive in cash, after submitting to the required process of judicial appraisal,
the appraised value of their Public Shares (whether that value is more or less
than the IFS Merger Consideration). See "SPECIAL FACTORS -- Dissenters'
Appraisal Rights."
THE IFS MERGER
General. Upon the terms and subject to the conditions of the IFS Merger
Agreement, IFS Acquisition will be merged with and into the Company, with the
Company surviving as a wholly owned subsidiary of Crescent. For a detailed
discussion, see "THE TERMS OF THE IFS MERGER."
Effective Time of Merger. Pursuant to the IFS Merger Agreement, the Effective
Time will occur upon the filing of the Certificate of Merger with the Secretary
of State for the State of Delaware, or at such other time as the parties to the
IFS Merger Agreement agree shall be specified in the Certificate of Merger (the
"Effective Time").
Treatment of Public Shares in the IFS Merger. Each outstanding Public Share
(other than the Dissenting Shares) at the Effective Time of the IFS Merger will
be converted into the right to receive the IFS Merger Consideration ($3.60 per
Share in cash, without interest).
Exchange of Share Certificates. As soon as reasonably practicable after the
Effective Time, IFS Acquisition will instruct Jersey Transfer & Trust Co. (the
"Paying
-7-
<PAGE>
Agent") to mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding Shares ("Share
Certificates"): (i) a letter of transmittal to be used by such holder in
forwarding such holder's Share Certificates to the Paying Agent and (ii)
instructions for effecting the surrender of such holder's Share Certificates in
exchange for the IFS Merger Consideration. Upon surrender to the Paying Agent of
a Share Certificate for cancellation, together with such letter of transmittal,
duly executed, the holder of such Share Certificate will be entitled to receive
the IFS Merger Consideration which such holder has the right to receive in
respect of the Share Certificate surrendered, and the Share Certificate so
surrendered will be canceled. HOLDERS OF SHARE CERTIFICATES SHOULD NOT SEND IN
THEIR SHARE CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL.
Conditions to the Merger. The respective obligations of the Company and IFS
Acquisition to effect the IFS Merger are subject to the satisfaction or waiver
of certain conditions described in the IFS Merger Agreement and elsewhere
herein. None of the parties to the IFS Merger Agreement has any present
intention to waive any material condition to the IFS Merger.
Termination. The IFS Merger Agreement may be terminated at any time prior to the
Effective Time of the IFS Merger, whether before or after Shareholder approval,
by the mutual written consent of the Special Committee, the IFS Board, the
Crescent Board and IFS Acquisition or by certain of the parties under certain
circumstances as described in the IFS Merger Agreement and elsewhere herein.
Accounting Treatment. The IFS Merger will be accounted for as a "purchase" as
such term is used under generally accepted accounting principles for accounting
and financial reporting purposes.
DIVIDEND AND PRICE RANGE OF THE SHARES
The Company. The Company's Shares are traded separately and as part of a unit (a
"Unit") which includes one Share, and one warrant to purchase one Share through
December 9, 1999 at $10.00 per Share (a "Class B Warrant"). The Company's Units,
Shares and Class B Warrants are listed on the OTC Bulletin Board, an
inter-dealer, over-the-counter market, under the symbols DOMSU, DOMS, and DOMSZ.
Quotes for stock traded on the OTC Bulletin Board are not listed in newspapers.
The high and low bid prices of the Units and Common Stock, as reported by
Nasdaq, were as follows:
-8-
<PAGE>
<TABLE>
<CAPTION>
Common Units
High Low High Low
<S> <C> <C> <C> <C>
1998
1st Quarter $2.625 $2.00 $3.50 $1.75
2nd Quarter 3.1875 3.00 (did not (did not
trade) trade)
1997
1st Quarter $1.3125 $0.50 $1.25 $0.50
2nd Quarter 2.25 1.13 2.13 1.19
3rd Quarter 2.38 1.13 2.31 1.25
4th Quarter 2.88 1.75 2.38 1.56
1996
1st Quarter $1.87 $0.50 $2.00 $0.62
2nd Quarter 1.50 0.62 1.50 0.62
3rd Quarter 1.75 0.62 1.75 0.62
4th Quarter 1.25 0.50 1.25 0.50
1995
1st Quarter $ --- $ --- $6.25 $5.75
(beginning January 11, 1995)
2nd Quarter 5.00 5.00 6.375 5.50
(beginning June 23, 1995)
3rd Quarter 6.125 5.00 7.00 5.125
4th Quarter 8.00 0.75 8.25 0.875
</TABLE>
These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions. Quotations
have been obtained through Standard & Poor's Comstock.
The Company has not paid any cash dividends on its Shares and does not
intend to pay cash dividends on its Shares for the foreseeable future.
Crescent. Crescent Class A Common Stock has never been listed and no
trading market has ever developed.
Crescent has not paid any cash dividends on its Class A Common Stock and
does not intend to pay cash dividends on its Class A Common Stock for the
foreseeable future.
-9-
<PAGE>
SELECTED FINANCIAL INFORMATION
The following selected financial information for the 52 weeks ended
December 28, 1997 and December 29, 1996 has been derived from the audited
consolidated financial statements of the Company. The selected financial
information set forth below for the 13 weeks ended March 29, 1998 and March 30,
1997 has been derived from the unaudited consolidated quarterly financial
statements of the Company. The selected financial information set forth below
should be read in conjunction with the historical financial statements and
related notes of the Company incorporated by reference into this Proxy
Statement.
Financial Year
Statement of Operations Data ($):
<TABLE>
<S> <C> <C>
52 Weeks Ended December
------------------------------------------------------
28, 1997 29, 1996
------------------------------------------------------
Revenues................................................ 28,360,981 21,239,834
Income from Continuing Operations....................... 2,508,683 514,029
Net Income per Share from Continuing Operations......... 0.36 0.08
52 Weeks Ended December
------------------------------------------------------
Balance Sheet Data ($): 28, 1997 29, 1996
------------------------------------------------------
Total Assets............................................ 16,768,734 13,470,170
Long-Term Debt.......................................... 1,515,252 460,240
Total Stockholder's Equity.............................. 8,598,120 7,179,374
Quarterly
Statement of Operations Data ($):
13 Weeks
------------------------------------------------------
December 29, 1997 December 30, 1996
to to
March 29, 1998 March 30, 1997
------------------------------------------------------
Revenues................................................. 7,719,397 6,694,399
Income from Continuing Operations........................ 74,939 144,468
Net Income per Share from Continuing Operations.......... 0.01 0.02
13 Weeks
------------------------------------------------------
Balance Sheet Data (US$): December 29, 1997 December 30, 1996
to to
March 29, 1998 March 30, 1997
------------------------------------------------------
Total Assets............................................. 17,346,618 16,768,734
Long-Term Debt........................................... 1,421,091 1,515,252
Total Stockholder's Equity............................... 8,674,836 8,598,120
</TABLE>
-10-
<PAGE>
INTRODUCTION
This Proxy Statement is being furnished to Shareholders in connection with
the solicitation of proxies by the IFS Board for use at the Special Meeting.
Each copy of this Proxy Statement mailed to a Shareholder is accompanied by a
form of proxy for use at the Special Meeting. The Special Meeting is scheduled
to be held at the offices of Reed Smith Shaw & McClay LLP, 1301 K Street NW,
Suite 1100 East Tower, Washington, D.C. 20005, on Wednesday, August 19, 1998 at
10:00 a.m., local time.
SHAREHOLDERS ARE REQUESTED TO COMPLETE, SIGN AND DATE THE ACCOMPANYING
PROXY AND RETURN IT PROMPTLY TO THE COMPANY IN THE ENCLOSED POSTAGE PAID
ENVELOPE.
THE COMPANIES
The Company. The Company and its subsidiaries have the exclusive right to own,
operate and franchise Domino's Stores in the Territory pursuant to the Master
Franchise Agreement with DPII. The Company also has the right to operate the
Commissary, a fresh pizza dough production facility and wholesale supply
business, for all Domino's Stores in the Territory pursuant to an agreement with
DPII.
The Company is a Delaware corporation, incorporated on October 22, 1993. In
December 1993, the Company acquired DPG, which included existing operations, the
rights as subfranchisor to 77 franchise agreements for Domino's Stores, assets
relating to the Commissary and assets relating to the existing franchise
operations. As of March 29, 1998, the Company is operating 159 Domino's Stores
in the Territory.
Domino's Stores in the Territory sell pizzas which are made primarily of
fresh ingredients. The Commissary supplies Domino's Stores with fresh dough,
real mozzarella cheese, a proprietary mix of tomato sauce and spices and high
quality fresh toppings. The Company has expanded its existing commissary
facility with additional capacity and state-of-the-art food handling equipment.
In addition, in October 1996, the Company opened a second distribution center in
the north of England.
The Company is a subsidiary of Crescent. Crescent owned 4,700,000
restricted Shares or approximately 67 percent of the total Shares issued and
outstanding. Prior to the Effective Time, Crescent will have contributed all its
Shares to IFS Acquisition.
Pursuant to the Domino's SPA, DPII purchased 300,000 restricted Shares.
-11-
<PAGE>
As a group, the directors and officers of the Company own approximately
145,080 Shares or approximately 2 percent of the Shares (not including any
Shares which may be deemed owned by Mr. Colin Halpern through Crescent).
The principal executive office of the Company is located at 6701 Democracy
Boulevard, Suite 300, Bethesda, Maryland 20817. The Company's telephone number
is (301) 897-4870.
Domino's Store System. DPI opened its first store in 1960 and today is the
world's leader in pizza delivery, with over 5,952 company-owned and franchised
stores as of December 31, 1997. It had system-wide revenues of approximately
$3.2 billion for the year 1997.
The Company acquired the rights to the Territory from DPII in December
1993. Since that time, the relationship between the Company and DPII has been
governed principally by the Master Franchise Agreement. The initial term of the
Master Franchise Agreement runs from December 31, 1995 through December 31,
2006.
DPII and the Company entered into the Domino's SPA, whereby IFS agreed to
sell to DPII 300,000 Shares in consideration for royalty concessions under the
Master Franchise Agreement. The Domino's SPA provides that DPII may not sell,
transfer or otherwise dispose of its shares before May 26, 2001 and any
transferee receiving stock in violation of this prohibition will have no rights
with respect to the shares. Under the Domino's SPA, DPII has the right to put
the 300,000 Shares to the Company for $1.2 million ($4.00 per share) commencing
on May 27, 2001 and the Company has the right to purchase the 300,000 Shares at
anytime prior to May 26, 2001 for the same price.
Pursuant to the Commissary Agreement, DPII has agreed to provide the
Company, on an ongoing basis, all information and materials necessary to make
the Company familiar with the methods used to operate and manage a Domino's
commissary. The Company must maintain the confidentiality of such information
and, subject to limited exceptions, cannot use it in any other business. The
Commissary Agreement has a term co-extensive with the Master Franchise
Agreement, with termination and default provisions and restrictions on transfers
substantially similar to those contained in the Master Franchise Agreement.
DPG. DPG was organized in the United Kingdom on December 13, 1993, to hold all
of the assets, including the franchise agreements, relating to DPI's franchise
operations in the Territory. On December 30, 1993, the Company purchased all of
the issued and outstanding stock of DPG from Tuskpride, a subsidiary of DPI
which owned the stock of DPG.
-12-
<PAGE>
In June 1997, pursuant to the Abacus/Lacosint SPA certain entities
controlled by British businessman Mr. Nigel Wray, purchased 180,000 shares or
approximately 15 percent of DPG's common stock from the Company for a purchase
price of approximately $3 million. In addition, one of the entities controlled
by Mr. Wray was granted a stock option to purchase a further 60,000 shares or
approximately 5 percent of DPG's common stock for an aggregate purchase price of
approximately $1.5 million. The option exercise period commenced on June 26,
1997 and terminates on June 26, 1999.
The registered office of DPG is situated at 41 Vine Street, London, EC3N
2AA, United Kingdom.
Crescent. Crescent is a publicly held corporation incorporated in the state of
Delaware on January 15, 1991. The only business of Crescent is the holding of
Shares.
Crescent is a subsidiary of WLP, whose general partner is the Woodland
Group. WLP owns approximately 92 percent of the issued and outstanding common
stock of Crescent. The general partner of WLP is Woodland Group, Inc., a
Delaware corporation which is controlled by members of Mr. Colin Halpern's
immediate family. Therefore, Crescent, through WLP and its general partner
Woodland Group, is controlled by members of Mr. Halpern's immediate family.
Due to the capital structures of the Company and Crescent, both the Company
and IFS Acquisition are under the common control of Crescent. Through its
control of Crescent, WLP has indirect voting control over the Company and,
consequently, can determine the vote on any matter submitted for Shareholder
approval.
The address of Crescent is 6701 Democracy Boulevard, Suite 300, Bethesda,
Maryland 20817. Crescent's telephone number is (301) 530-1708.
IFS Acquisition. IFS Acquisition was incorporated in the state of Delaware on
March 4, 1998. IFS Acquisition is a wholly owned subsidiary of Crescent and was
incorporated for the sole purpose of effecting the IFS Merger. IFS Acquisition
has had no prior business and upon consummation of the IFS Merger, its separate
corporate existence will cease.
Prior to the Effective Time, Crescent will have contributed its Shares to
IFS Acquisition. Consequently, prior to the Effective Time IFS Acquisition will
own 4,700,000 Shares or approximately 67 percent of the issued and outstanding
Shares.
-13-
<PAGE>
The address of IFS Acquisition is 6701 Democracy Boulevard, Suite 300,
Bethesda, Maryland 20817. IFS Acquisition's telephone number is (301) 897-4870.
THE SPECIAL MEETING
Purpose of the Special Meeting. At the Special Meeting, Shareholders will be
asked to consider and vote upon the proposal to approve and adopt the IFS Merger
Agreement and the transactions contemplated thereby. Shareholders will also be
asked to transact such other business as may properly come before the Special
Meeting.
The IFS Board, based upon the factors described elsewhere herein, including
the fairness opinion of Scott & Stringfellow and the recommendations of the
Special Committee, has concluded that the IFS Merger Agreement and the
transactions contemplated thereby are advisable and in the best interests of the
Shareholders and has approved the IFS Merger Agreement and the transactions
contemplated thereby. THE IFS BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS
VOTE IN FAVOR OF THE IFS MERGER PROPOSAL AT THE SPECIAL MEETING.
Record Date; Shares Outstanding. The close of business on July 20, 1998 has been
fixed as the Record Date for the determination of the Shareholders entitled to
notice of and to vote at the Special Meeting. On the Record Date, there were
7,027,324 Shares issued and outstanding and entitled to vote at the Special
Meeting. All directors and executive officers of the Company are expected to
vote, or cause to be voted, all Shares over which they exercise voting control
(an aggregate of 145,080 Shares which is approximately 2 percent of the
outstanding Shares on the Record Date (not including any Shares which may be
deemed owned by Mr. Colin Halpern through Crescent)) FOR the adoption of the IFS
Merger Proposal. In addition, Crescent will vote all its Shares FOR the adoption
of the IFS Merger Proposal.
Quorum; Voting at the Special Meeting. The presence, either in person or by
proxy, of the holders of a majority of the Shares entitled to vote at the
Special Meeting is necessary to constitute a quorum at the Special Meeting. The
adoption of the IFS Merger Agreement requires the affirmative vote of at least a
majority of the outstanding Shares. Votes may be cast for or against the IFS
Merger Agreement or Shareholders may abstain from voting. At the time of such
voting, Crescent will own approximately 67 percent of the Shares and has advised
the Company that it will vote its Shares in favor of the approval and adoption
of the IFS Merger Agreement. Accordingly, approval and adoption of the IFS
Merger Agreement is assured regardless of the vote of any other Shareholder.
-14-
<PAGE>
At the Special Meeting, abstentions and "broker non-votes" will be counted
for purposes of determining the presence or absence of a quorum. An abstention
with respect to the IFS Merger will have the effect of a vote against the IFS
Merger Agreement. A "broker non-vote" will occur when a broker holding Shares in
street name (i.e., as nominee for the beneficial owner) returns an executed
proxy (or voting directions) indicating that the broker does not have
discretionary authority to vote on a proposal. Under the DGCL, a "broker
non-vote" is counted as present for quorum purposes but is not considered
entitled to vote on the specified matter. Therefore, "broker non-votes"
generally have no effect on the outcome of a vote on a specific matter. However,
because the adoption of the IFS Merger Agreement requires the affirmative vote
of a specified minimum percentage of all of the outstanding Shares, rather than
the vote of a specified percentage of the Shares present at the meeting and
entitled to vote, "broker non-votes" will have the effect of votes against the
adoption of the IFS Merger Agreement.
Proxies will be voted as specified by the Shareholders. If a Shareholder
does not return a signed proxy, such Shareholder's Shares will not be voted.
Shareholders are urged to mark the appropriate box on the form of proxy enclosed
herewith to indicate how their Shares are to be voted. Each Shareholder is
entitled to cast one vote per Share held by such Shareholder on each matter to
be voted upon at the Special Meeting. If a Shareholder returns a signed proxy,
but does not indicate how such Shareholder's Shares are to be voted, the Shares
represented by the proxy will be voted FOR the adoption of the IFS Merger
Proposal. The proxy also confers discretionary authority on the
attorneys-in-fact named in the accompanying form of proxy to vote the Shares
represented thereby on any other matter that may properly arise at the Special
Meeting, including consideration of a motion to adjourn or postpone the Special
Meeting to another time and/or place.
Revocability of Proxy. Returning a signed proxy will not affect the rights
of a Shareholder to attend the Special Meeting and vote in person. Any
Shareholder who executes and returns a proxy may revoke such proxy at any time
before it is voted by: (i) filing with the Secretary of the Company, at or
before the Special Meeting, a written notice of revocation bearing a later date
than such proxy; (ii) duly executing a subsequent proxy relating to the same
Shares and delivering it to the Secretary of the Company at or before the
Special Meeting with a subsequent date; or (iii) attending the Special Meeting
and voting in person by ballot. Attendance at the Special Meeting will not, in
and of itself, constitute revocation of such proxy.
In the event that a quorum is not present at the Special Meeting when
convened, or if for any other reason the Company believes that additional time
should be allowed for the solicitation of proxies, the Company may adjourn the
Special Meeting by a
-15-
<PAGE>
vote of the majority of the Shares represented at such meeting with respect to
such adjournment. The attorneys-in-fact named in the enclosed form of proxy will
vote all Shares for which they have voting authority in favor of such
adjournment.
As of the date of this Proxy Statement, the IFS Board does not know of any
other matters to be presented for action by the Shareholders at the Special
Meeting. If, however, any other matters not now known are properly brought
before the Special Meeting, the attorneys-in-fact named in the accompanying
proxy will vote the proxies upon such matters according to their discretion and
best judgment.
Solicitation of Proxies. Pursuant to the IFS Merger Agreement, the entire cost
of the Company's solicitation of proxies and surrender of the Public Shares will
be borne by Crescent. In addition to solicitations by mail, solicitations may
also be made by personal interview, facsimile transmission, telegram and
telephone. Arrangements will be made with brokerage houses and other custodians,
nominees and fiduciaries to send proxies and proxy material to their principals,
and the Company will reimburse them for their customary expenses in so doing.
SPECIAL FACTORS
General. Upon the terms and subject to the conditions of the IFS Merger
Agreement, IFS Acquisition will acquire the Company in a business combination in
which IFS Acquisition will merge with and into the Company, which will thereupon
become a wholly owned subsidiary of Crescent. The IFS Merger will become
effective upon the filing of the Certificate of Merger with the Secretary of
State for the State of Delaware, or at such later date or time specified in the
Certificate of Merger (the "Effective Time"). Under the IFS Merger Agreement,
each outstanding Share (other than Shares held by IFS Acquisition, the Treasury
Shares and the Dissenting Shares) will be converted into the right to receive
the IFS Merger Consideration. Following consummation of the IFS Merger, the
registration of Shares under the Exchange Act will be terminated and the Company
will no longer be required to file periodic reports with the SEC.
Restructuring of IFS Affiliates. Contemporaneously with the IFS Merger, Crescent
intends to repurchase all Crescent Public Shares. It is anticipated that the
purchase of the Crescent Public Shares will be accomplished through the
individual solicitation of the Crescent Public Shareholders by Crescent
management and the purchase and sale of the Crescent Public Shares will close at
the same time as the IFS Merger. As a result of the repurchase of the Crescent
Public Shares, registration of Crescent under the Exchange Act will be
terminated and Crescent will no longer be required to file periodic reports with
the SEC.
-16-
<PAGE>
The repurchase of the Crescent Public Shares is expected to be financed
with part of the proceeds of a British Pound denominated secured term-loan for
(pound)7.8 million (approximately $13 million, using an exchange rate of $1.67 =
(pound)1.00)(the "RBS Facility") to be provided by the Royal Bank of Scotland
("RBS") in the United Kingdom. Although the Company has executed a letter of
intent and term sheet with RBS which describes the terms of the RBS Facility, as
of July 20, 1998 no loan agreement has been entered into between the Company and
RBS regarding the RBS Facility. See "-- Financing of the IFS Merger."
In connection with both the Crescent and the Company "going private"
transactions, HS Real Company, LLC, a Delaware limited liability company ("LLC")
has been established to operate as the borrowing entity for the RBS Facility.
Background of the IFS Merger. The Company was incorporated in the State of
Delaware in October 1993 for the purpose of acquiring DPG, at that time a United
Kingdom subsidiary of DPI, and the rights as subfranchisor to the Domino's
Stores and related assets in the Territory then owned by DPG. In early 1995, the
Company sold units in an initial public offering consisting of Shares and
warrants to purchase Shares in the Company in order to gain access to capital
for, among other purposes, financing expansion of the Domino's franchise in the
Territory, establishing new pizza ingredient production facilities, repaying
certain debts owed by the Company and general corporate purposes.
Beginning in mid-1997 Crescent began a review of potential structural
changes and business transactions for the Company. See "-- Purpose and Structure
of the IFS Merger."
In early 1998 Crescent decided that the best means of achieving its
business goals was to acquire all of the equity interest in the Company
represented by the Public Shares. Following such decision of the Crescent Board
of Directors (the "Crescent Board"), a letter dated March 11, 1998 was delivered
to the IFS Board, the text of which was as follows:
-17-
<PAGE>
"International Franchise Systems, Inc.
Dear Board of Directors:
IFS Acquisition Corporation, a Delaware corporation ("IFSAC"), a wholly
owned subsidiary of Crescent Capital, Inc. ("Crescent"), is pleased to submit an
offer to acquire International Franchise Systems, Inc. ("IFS") in a cash-out
merger transaction in which IFSAC will merge with and into IFS (the "Merger").
Crescent is currently the owner of approximately 67 percent of the issued and
outstanding shares of common stock of IFS. After the exercise of all outstanding
options for shares of common stock of IFS by the holders thereof, and after
certain planned transactions between Crescent and IFSAC, IFSAC will be the owner
of approximately 63 percent of the common stock of IFS.
IFSAC hereby offers to pay, at the time of the Merger, $2.80 per share to
the holders of the issued and outstanding shares of IFS which are not then owned
by IFSAC. All such shares shall be canceled in the Merger.
This offer is subject to the negotiation of a definitive merger agreement
and other documentation of the Merger which are, in form and substance,
satisfactory to IFSAC and which include customary representations, warranties,
covenants and conditions.
This offer will expire on April 3, 1998 at 11.59 p.m. if not previously
accepted or rejected by IFS."
After receiving the offer from IFS Acquisition, the Company appointed the
Special Committee on March 11, 1998, consisting of Messrs. Bernard Goldman and
David Coffer, two members of the IFS Board who are not employed by the Company
and are not directors, officers or employees of Crescent, to consider the
fairness to the Shareholders of the proposed merger and to report its
determination regarding the fairness of the proposed merger to the IFS Board.
The Special Committee was further authorized to establish procedures, review
such information and engage such financial advisors and legal counsel as it
deemed reasonable and necessary to fully and adequately discharge its
responsibilities and render its decision on the proposed merger. Shortly after
its appointment, the Special Committee retained Reed Smith Shaw & McClay LLP
("RSS&M") as its legal counsel. On March 19, 1998, the Company issued a press
release announcing that it had received the merger proposal and that the Company
had established the Special Committee to evaluate and consider the offer.
Because IFS Acquisition's merger proposal was supported by the Company's
majority Shareholder, Crescent, the Special Committee did not attempt to find an
alternative acquiror for the securities of the Company.
-18-
<PAGE>
The Special Committee and its legal counsel discussed the procedures to be
followed in analyzing the offer from IFS Acquisition to acquire the Public
Shares. As part of this discussion, RSS&M advised the Special Committee as to
the Special Committee's legal responsibilities and the legal principles
applicable to, and the legal consequences of, actions taken by the Special
Committee with respect to the offer by IFS Acquisition.
The Special Committee then appointed on March 19, 1998 Scott &
Stringfellow, a registered broker-dealer, a registered investment advisor and a
recognized investment banking firm, to serve as financial advisor to the Special
Committee for the purpose of advising the Special Committee and assisting the
Special Committee in negotiations with IFS Acquisition. Prior to its retention
by the Special Committee, Scott & Stringfellow had not rendered financial
advisory or underwriting services to Crescent, the Company or any of their
affiliates. The Special Committee instructed Scott & Stringfellow to commence
its investigation and analysis of the value of the Public Shares.
During March 1998, Scott & Stringfellow reviewed certain financial and
other information concerning the Company and Crescent.
On April 2, 1998 Scott & Stringfellow met with the Special Committee to
discuss the results of its analyses and to obtain further direction from the
Special Committee. Representatives of Scott & Stringfellow discussed with the
Special Committee the analyses they had performed with respect to the value of
the Public Shares. The Special Committee also discussed with Scott &
Stringfellow its findings in connection with Scott & Stringfellow's
investigation of the Company and questioned Scott & Stringfellow concerning the
assumptions made in connection with its analyses and the facts on which these
analyses were based. Scott & Stringfellow explained to the Special Committee the
assumptions and relative limits of its analyses.
Scott & Stringfellow presented its analyses and advised the Special
Committee that the $2.80 per Share offer did not, in Scott & Stringfellow's
opinion, give appropriate emphasis to valuation factors considered by it to be
most relevant, including the following: (i) the balance sheet items for cash and
cash equivalents due from Crescent (ii) due from an officer of the Company (iii)
investments in marketable securities of Crescent which totaled $5,494,637 as of
December 28, 1997 and which Scott & Stringfellow considered to be equivalent to
cash (iv) the discounted cash flow valuation analysis (v) the analysis of
selected publicly traded companies (vi) the analysis of precedent transactions
for selected control acquisitions in the restaurant industry (vii) the analysis
of premiums for acquisitions of remaining minority interest (viii) analysis of
the Domino's SPA between DPII and the Company (ix) and the Abacus/Lacosint SPA.
-19-
<PAGE>
The Special Committee then concluded that it could not recommend to the IFS
Board the offer of $2.80 per Share. In reaching its decision, the Special
Committee took into account the fact that Scott & Stringfellow stated that it
did not believe it would be able to render a fairness opinion as to the proposed
$2.80 per Share price.
The Special Committee discussed with Crescent that it had concluded that
the $2.80 per share was not sufficient to warrant a recommendation that the
offer should be accepted. Several discussions were held during which the range
of an acceptable price was discussed.
In the days following the meeting of the Special Committee on April 2,
1998, the Crescent Board took under consideration the Special Committee's
arguments and, on April 15, 1998, increased its offer price to $3.60 per Share.
On April 17, 1998, the Special Committee and Scott & Stringfellow spoke via
conference call to consider the revised offer of $3.60 per Share. Scott &
Stringfellow presented an analysis of the $3.60 offer and concluded that it was
prepared to give an opinion that such offer was fair, from a financial point of
view, to the Public Shareholders. The Special Committee discussed the $3.60 per
Share offer in detail. The Special Committee also examined the advantages and
disadvantages of continuing to urge Crescent to make an even higher offer,
including Crescent's ability to decline to proceed with the transaction if the
Special Committee insisted on a higher price (with the result that the Public
Shareholders would not receive a substantial premium for the Public Shares when
compared to the Company's pre-announcement stock price of $2.1875 for the
Company's publicly traded Shares and $1 3/4 for the Units on March 18, 1998).
Based on the Scott & Stringfellow opinion and the valuation analyses
presented by Scott & Stringfellow to the Special Committee, the Special
Committee's belief that the $3.60 per Share price was the best offer available,
and the other factors described below in "-- Recommendation of the Special
Committee and Board of Directors of the Company," the Special Committee
unanimously decided to recommend the approval and adoption of the $3.60 per
Share offer. The Special Committee then issued a press release, on April 17,
1998, announcing the agreement between Crescent and the Special Committee on the
revised offer.
Also on April 17, 1998, LeBoeuf, Lamb, Greene & MacRae, L.L.P. ("LLG&M"),
legal counsel to Crescent, delivered a first draft of the IFS Merger Agreement
to RSS&M. On April 22, 1998, RSS&M provided LLG&M and Crescent with their
comments on the draft IFS Merger Agreement and on April 24, 1998 representatives
of RSS&M and representatives of LLG&M held a telephone conference to negotiate a
final version of the IFS Merger Agreement containing terms
-20-
<PAGE>
and conditions which are customary for similar transactions. See Annex A, The
IFS Merger Agreement.
On May 11, 1998, the Special Committee received the written presentation of
Scott & Stringfellow and determined that the IFS Merger Agreement and the
transactions contemplated thereby were advisable and in the best interests of
the Shareholders. Accordingly, at such meeting the Special Committee unanimously
approved the IFS Merger Agreement and the transactions contemplated thereby and
directed that the IFS Merger Agreement be submitted to the IFS Board for
approval.
On May 15, 1998, the IFS Board met to receive the report of the Special
Committee in which the Special Committee unanimously recommended to the IFS
Board that the IFS Board accept the $3.60 per Share offer and approve and adopt
the IFS Merger Proposal. Following the presentation and after further
discussion, the IFS Board on May 15, 1998 unanimously approved the IFS Merger
Proposal. The Company issued a press release dated May 19, 1998 announcing that,
based on the recommendation of the Special Committee, the IFS Board had approved
the IFS Merger Proposal due to Crescent's revised offer of $3.60 per Share.
Purpose and Structure of the IFS Merger. The purpose of the IFS Merger is for
Crescent to acquire all of the equity interest in the Company represented by the
Public Shares for the reasons described below. The IFS Board has, pursuant to
the IFS Merger Agreement, called the Special Meeting of Shareholders to consider
whether to vote to approve and adopt the IFS Merger Agreement. In the IFS
Merger, each Public Share will be converted into the right to receive an amount
in cash equal to $3.60, without interest.
In determining to acquire the Public Shares at this time, Crescent focused
on a number of factors including: (i) the managerial, administrative and
financial burdens imposed by the presence of Company management in the United
States rather than the United Kingdom and the absence of any compelling reasons
for continuing the presence of Company management in the United States; (ii) the
elimination of compliance costs associated with the Company's status as a
publicly-owned Delaware corporation; and (iii) that its original strategic goal
of developing the Company into a multinational holding company for domestic and
international franchise businesses has not proved feasible.
If consummated, the IFS Merger will terminate the Company's public status.
That will eliminate significant compliance costs, estimated at approximately
$450,000 per year, associated with such status (including the costs of preparing
reports and other information required pursuant to the Exchange Act). Following
consummation of the IFS Merger, the Company will be able to eliminate the time,
expense and
-21-
<PAGE>
energy incurred in connection with stock transfers, proxy notices, annual
reports, compliance with the Exchange Act and similar expenses.
The acquisition of the Public Shares has been structured as a cash-out
merger in order to provide a prompt and orderly transfer of ownership of the
equity interest represented by the Public Shares to Crescent.
Financing of the IFS Merger. The IFS Merger is expected to be financed with part
of the proceeds of a British Pound denominated secured term-loan for
approximately (pound)7.8 million (approximately $13 million, using an exchange
rate of $1.67 = (pound)1.00) to be provided by RBS in the United Kingdom.
Although the Company has executed a letter of intent and term sheet with RBS
which describes the principal terms of the RBS Facility, as of July 20, 1998 no
loan agreement has been entered into between the Company and RBS regarding the
RBS Facility.
The principal terms of the RBS Facility term sheet include: (i) the RBS
Facility will be drawn down in one amount and is repayable in five installments,
with the last installment repayable not later than June 30, 2003 and with the
first installment repayable not later than the earlier of June 30, 1999 and any
public offering of DPG shares; (ii) all proceeds of any public offering of DPG
shares must be used to prepay the principal upon receipt unless certain
financial thresholds are met; (iii) the RBS Facility shall bear an interest rate
of LIBOR plus a margin of 400 basis points, subject to certain adjustments; (iv)
the RBS Facility shall be secured with a first priority security interest in DPG
stock pledged to LLC by the Company in connection with the inter-company loan
from LLC to IFS Acquisition; and (v) the RBS Facility will be governed by the
laws of England.
Funding of the RBS Facility by RBS is subject to certain conditions
precedent, including satisfactory security arrangements with the other holder of
DPG shares and evidence that 80 percent of Shareholders have voted in favor of
the IFS Merger Proposal.
Recommendations of the Special Committee and the IFS Board. At its May 11, 1998
meeting, the Special Committee received the written presentation of Scott &
Stringfellow and determined that the IFS Merger Agreement and the transactions
contemplated thereby were advisable and in the best interests of the
Shareholders. Accordingly, at such meeting the Special Committee unanimously
approved the IFS Merger Agreement and the transactions contemplated thereby and
directed that the IFS Merger Agreement be submitted to the IFS Board for
approval.
At its May 15, 1998 meeting, the IFS Board determined that the IFS Proposal
was advisable and in the best interests of the Shareholders. Accordingly, at
such
-22-
<PAGE>
meeting the IFS Board unanimously approved the IFS Merger Proposal and directed
that the IFS Merger Agreement be submitted to the Shareholders for approval.
The determination of the IFS Board to approve the IFS Merger Proposal was
based upon its consideration of a number of factors, including, without
limitation, the following:
(i) the determination by Scott & Stringfellow, the Special
Committee's financial advisor, that the IFS Merger Consideration of $3.60
per Share to be received by the Public Shareholders in the IFS Merger is
fair, from a financial point of view, to such Shareholders;
(ii) the determination by the Special Committee that the IFS Merger
Agreement and the transactions contemplated thereby are advisable and in
the best interests of the Shareholders; and
(iii) the determination that the U.S. equity markets would likely
never fully reflect the value of the Company.
The IFS Board also considered certain risks and potential disadvantages
associated with the IFS Merger, including the risk that the expected cost
savings might be offset by unanticipated increases in expenses or revenue
losses.
The foregoing discussion of the factors which were given weight by the IFS
Board is not intended to be exhaustive but is believed to include all material
factors considered by the IFS Board. After considering all such factors, the IFS
Board unanimously approved the IFS Merger Proposal and unanimously recommends to
the Shareholders that they approve the adoption of the IFS Merger Agreement.
THE IFS BOARD UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE IN FAVOR OF
THE IFS MERGER AGREEMENT AT THE SPECIAL MEETING.
Opinion of Scott & Stringfellow. On March 19, 1998, the Special Committee of the
IFS Board retained Scott & Stringfellow to render an opinion to the Special
Committee concerning the fairness, from a financial point of view, to the Public
Shareholders of the IFS Merger Consideration.
At the May 11, 1998 meeting of the Special Committee, Scott & Stringfellow
delivered its written presentation. Scott & Stringfellow also reviewed the
information referred to below which underlies Scott & Stringfellow's financial
analysis and its opinion, and, based on the analysis referred to below,
delivered its written opinion,
-23-
<PAGE>
dated May 21, 1998, that, as of the date of such opinion, the cash consideration
to be received by the Public Shareholders is fair from a financial point of view
to such Shareholders.
Scott & Stringfellow did not make an independent evaluation or appraisal of
the Company's assets or liabilities (contingent or otherwise), nor was Scott &
Stringfellow furnished with such evaluations or appraisals. No limitations were
imposed by the IFS Board or the Company on Scott & Stringfellow with respect to
the information reviewed or the procedures followed by Scott & Stringfellow in
rendering its opinion. The Company and its management cooperated fully with
Scott & Stringfellow in connection with its investigations. As set forth in its
written opinion, Scott & Stringfellow assumed and relied upon, without assuming
responsibility for independent verification, the accuracy and completeness of
the information reviewed by Scott & Stringfellow or that was furnished to Scott
& Stringfellow by or on behalf of the Company. With respect to the financial
projections provided to Scott & Stringfellow, Scott & Stringfellow assumed that
such projections were reasonably prepared and reflected the best currently
available estimates and good faith judgments of the management of the Company as
to the future financial performance of the Company. Scott & Stringfellow also
assumed, based on the information provided to Scott & Stringfellow and without
assuming responsibility for the independent verification thereof, that no
material undisclosed or contingent liability (disclosed or undisclosed) or
opportunity (disclosed or undisclosed) exists with respect to the Company. Scott
& Stringfellow's opinion is necessarily based on the economic, market and other
conditions as in effect on, and the information available to Scott &
Stringfellow as of, the date of its opinion. Scott & Stringfellow was not
requested to, and did not, solicit third party indications of interest in
acquiring all or part of the Company. Scott & Stringfellow conducted valuation
analyses of the Company, but was not asked to and did not recommend a specific
per Share price to be paid by IFS Acquisition for Public Shares. Scott &
Stringfellow's opinion does not take into account the likely tax consequences of
the IFS Merger Proposal on the Public Shareholders or of any other tax
consequences.
In conducting its analysis and arriving at its opinion, Scott &
Stringfellow: (i) reviewed the audited and unaudited financial statements and
other information contained in the Company's Annual Reports to Shareholders and
Annual Reports on Form 10-KSB for the fiscal years ended December 31, 1995,
December 29, 1996 and December 28, 1997, and certain interim reports to
Shareholders and Quarterly Reports on Form 10-QSB; (ii) discussed the past and
current operations, financial condition and prospects of the Company with its
management; (iii) reviewed with management certain business plans of the Company
and certain financial projections of the Company's future performance prepared
by the management of the Company; (iv) compared the results of operations of the
Company with those of certain publicly
-24-
<PAGE>
traded companies which Scott & Stringfellow deemed relevant; (v) compared the
proposed financial terms of the transaction with the financial terms of certain
other mergers and acquisitions which Scott & Stringfellow deemed relevant; (vi)
reviewed certain publicly available information with respect to historical
market prices and trading activity for the Shares and for certain publicly
traded companies which Scott & Stringfellow deemed relevant; (vii) compared the
price per share offered in the Transaction to the historical market prices of
the Shares; (viii) analyzed a discounted cash flow scenario of the Company based
upon estimates of projected financial performance prepared by the management of
the Company; (ix) reviewed the IFS Merger Agreement dated May 19, 1998; (x)
performed a financial and legal analysis of a recent stock sale by the Company
of 300,000 Shares to DPII; (xi) performed a financial and legal analysis of the
sale of a minority interest in DPG by the Company; and (xii) reviewed such other
financial studies and analyses and performed such other investigations and taken
into account such other matters as Scott & Stringfellow deemed necessary.
In preparing its opinion for the IFS Board, Scott & Stringfellow performed
a variety of financial and comparative analyses and considered a variety of
factors, as described below. The summary of such analyses does not purport to be
a complete description of the analyses underlying Scott & Stringfellow's
opinion. The preparation of a fairness opinion is a complex analytic process
involving various subjective determinations as to the most appropriate and
relevant methods of financial analysis and the application of those methods to
the particular circumstances, and, therefore, such an opinion is not readily
summarized.
In arriving at its opinion, Scott & Stringfellow did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, Scott & Stringfellow believes that its analyses must be
considered as a whole and that selecting portions of its analyses or portions of
the factors considered by it, without considering all analyses and factors,
could create a misleading or incomplete view of the processes underlying such
analyses and its opinion. In its analyses, Scott & Stringfellow made numerous
assumptions with respect to the Company, industry performance, general business,
regulatory, economic, market and financial conditions and other matters, many of
which are beyond the control of the Company. No company, transaction or business
used in such analyses as a comparison is identical to the Company or the IFS
Merger Proposal, nor is an evaluation of the results of such analyses entirely
mathematical. Rather it involves necessarily complex considerations of and
judgments concerning financial and operating characteristics and other factors
that could affect the acquisition, public trading or other values of the
companies, business segments or transactions being analyzed. The estimates
contained in such analyses and the ranges of valuations
-25-
<PAGE>
resulting from any particular analysis are not necessarily indicative of actual
values or predicative of future results or values, which may be significantly
more or less favorable than those suggested by such analyses. In addition,
analyses relating to the value of business or securities do not purport to be
appraisals or to reflect the prices at which businesses or securities actually
may be sold.
The following is a summary of the report presented by Scott & Stringfellow
to the Special Committee of the IFS Board on May 11, 1998.
Analysis of Selected Publicly Traded Companies. Scott & Stringfellow reviewed
and compared certain financial, operating and stock market information of the
Company, including revenues and earnings growth trends, leverage ratios, market
capitalization, historical stock price and ranges, as well as publicly available
operating and balance sheet information, of selected publicly traded companies
whose operating characteristics and/or industry focus Scott & Stringfellow
believes resemble those of the Company to varying degrees. Those comparable
companies classified for analysis as "Pizza Restaurant Companies" were NPC
International, Papa John's International, Inc., Pizza Inn, Inc., PJ America,
Inc., Sbarro, Inc. Showbiz Pizza Time, Inc. and Uno Restaurants Corporation.
Those comparable companies that were franchisees and classified as "Restricted
Franchisees" for analysis were Apple South Inc., DavCo Restaurants, Inc.,
DenAmerica Corp., Family Steak Houses of Florida, Inc., Frisch's Restaurant
Inc., Main Street & Main Inc. and Morgan's Foods, Inc. Those comparable
companies that were franchisors and classified as "Micro-Cap Franchisors" for
analysis were Casa Ole Restaurants, Eateries, Inc., Miami Subs Corporation,
Nathan's Famous Inc., Pollo Tropical Inc. and Skyline Chili, Inc. Those
comparable companies that were United Kingdom restaurant companies and
classified as "UK Restaurant Companies" for analysis were Pizza Express PLC,
City Centre Restaurants PLC, Harry Ramsden's PLC, Celebrated Group PLC, J.D.
Whetherspoon PLC and Ask Central PLC (together the Pizza Restaurants, the
Restricted Franchisees, Micro-Cap Franchisors and the UK Restaurant Companies
are referred to as the "Selected Companies"). Scott & Stringfellow created a
range of market multiples for the Selected Companies by dividing the aggregate
value calculated as total common shares outstanding multiplied by the closing
market prices per share on March 18, 1998 plus the latest reported total debt
(including capitalized leases), preferred stock and minority interest (combined,
the sum is "Total Enterprise Value") of each of the Selected Companies by such
company's net revenues, EBITDA and EBIT for the latest four fiscal quarters as
reported in publicly available information and by dividing the closing market
price per share on March 18, 1998 by EPS for the latest four fiscal quarters as
reported in publicly available information ("LTM P/E") and, as projected for the
1998 and 1999 calendar years, as represented by the average of the estimates
thereof reported by publicly available sources. In addition, Scott &
Stringfellow reviewed the multiple of reported book equity, as determined by
-26-
<PAGE>
multiplying the shares outstanding by the market closing price, and dividing by
the most recently reported book equity for all Selected Companies except for the
UK Restaurant Companies. Scott & Stringfellow determined the relevant ranges of
multiples derived from the Selected Companies, and the average multiples across
each of the four industry segments. These figures are detailed in the chart that
follows:
Restaurant Companies
Average Value Range of Values
Revenues 1.5x 0.7x to 2.3x
EBITDA 10.8x 5.9x to 20.1x
EBIT 16.0x 8.2x to 30.2x
P/E LTM 24.3x 15.6x to 43.7x
P/E 1998 18.9x 13.8x to 31.0x
P/E 1999 16.6x 11.8x to 24.2x
Book Equity 3.6x 1.0x to 6.1x
Restricted Franchisees
Average Value Range of Values
Revenues 0.7x 0.4x to 1.2x
EBITDA 8.0x 6.7x to 9.5x
EBIT 20.4x 11.7x to 43.7x
P/E LTM 22.5x 8.1x to 40.2x
P/E 1998 19.7x 15.9x to 22.9x
P/E 1999 15.5x 12.8x to 17.6x
Book Equity 1.7x 0.6x to 2.4x
Micro-Cap Franchisors
Average Value Range of Values
Revenues 0.7x 0.3x to 1.2x
EBITDA 9.0x 3.0x to 22.1x
EBIT 22.8x 5.4x to 63.7x
P/E LTM 15.4x 14.0x to 18.0x
P/E 1998 11.6x 7.4x to 14.9x
P/E 1999 Not Meaningful Not Meaningful
Book Equity 1.6x 0.8x to 2.7x
UK Restaurant Companies
Average Value Range of Values
Revenues 4.2x 1.5x to 6.1x
EBITDA 19.6x 12.2x to 26.2x
EBIT 28.5x 18.1x to 38.2x
P/E LTM 34.9x 28.4x to 42.0x
P/E 1998 25.0x 16.1x to 31.3x
P/E 1999 20.8x 15.9x to 23.9x
-27-
<PAGE>
Scott & Stringfellow compared the ranges and average multiples for EBITDA,
EBIT, P/E LTM, P/E 1998 AND P/E 1999 of the Selected Companies to the Company's
market multiples (based on the revised per share offer price of $3.60 announced
on April 17, 1998). In reviewing the operations of the Selected Companies, Scott
& Stringfellow determined that no company was directly comparable to the
Company. Scott & Stringfellow calculated imputed valuation ranges of the Company
by applying the results of the Company to the average multiples derived from its
analysis of the Selected Companies. When computing Total Enterprise Value for
IFS, Scott & Stringfellow added outstanding debt, including capital leases, and
subtracted cash, a note due from Crescent, the Company's investment in
marketable securities of Crescent and a loan to an officer of the Company, as
well as the cash from the deemed exercise of the outstanding options to purchase
stock of the Company. This analysis resulted in a range of imputed values for
the Company of $1.62 to $5.50 per share.
Analysis of Precedent Transactions for Selected Control Acquisitions in the
Restaurant Industry. Scott & Stringfellow analyzed the purchase prices and
multiples paid or proposed to be paid in selected merger and acquisition
transactions that have occurred since June 1996 in the restaurant industry (the
"Restaurant Transactions"). This analysis was based on the following publicly
available information for selected Restaurant Transactions and included: Miami
Subs Corp./Arthur Treacher's Inc.; HomeTown Buffet Inc./Buffets Inc.; Cable Car
Beverage/Triarc Cos Inc.; Krystal Co./Port Royal Holdings Inc.; Bugaboo Creek
Steak House Inc./Longhorn Steaks Inc.; Timber Lodge Steakhouse Inc./GB Foods
Inc.; TPI Enterprises Inc./Shoney's Inc.; DAKA International Inc./Compass Group
PLC; Pollo Tropical/Larry Harris; DavCo/DavCo Acquisition Company; Ground Round
Restaurants/GRR Holdings LLC; Sagebrush Inc./WSMP Inc.; Skyline Chili Inc./Fleet
Equity Partners; Bertucci's Inc./Joseph Crugnale led Group; El Chico Restaurants
Inc./Cracken, Harkey & Co., LLC et al.; Rudy's Restaurant Group/Benihana Inc.
and the IFS Merger Proposal. Scott & Stringfellow selected transactions in which
it believed that the target company had operating characteristics and/or
industry focus that resembled those of the Company. Scott & Stringfellow
calculated the Total Enterprise Value, based on the purchase price, as a
multiple of net revenues, EBITDA and EBIT and the shares outstanding multiplied
by the applicable closing price ("Equity Value") as a multiple of book equity
and net income for each target company for the four fiscal quarters immediately
preceding the announcement. This analysis indicated the following ranges:
-28-
<PAGE>
Comparable Restaurant Control Acquisitions
Average Value Range of Values
Revenues 1.0x 0.3x to 2.0x
EBITDA 8.9x 4.2x to 18.8x
EBIT 7.7x 5.4x to 65.8x
Book Equity 2.1x 0.6x to 4.8x
Net Income 19.6x 3.6x to 32.7x
Scott & Stringfellow then calculated the imputed valuation ranges of the
Company by applying the results for the preceding four fiscal quarters of the
Company to the average multiples derived from its analysis of the Restaurant
Transactions. This analysis indicated a range of imputed values for the Company
of $2.40 to $4.17 per Share.
Premium Analysis for Selected Control Acquisitions in the Restaurant Industry.
Scott & Stringfellow also presented an analysis of the premiums paid in
connection with the Restaurant Transactions. Scott & Stringfellow calculated the
percentage premium per share paid by the acquiror in each of the Restaurant
Transactions involving a publicly traded target as a percentage of the stock
price of the target company one day, one week and four weeks before the initial
announcement of the offer.
Comparable Restaurant Control Acquisition Premiums
Average Value Range of Values IFS Offer
One Day Before 27.7% -32.9% to 132.0% 64.4%
One Week Before 32.7% -35.5% to 169.8% 64.4%
Four Weeks Before 39.1% -20.4% to 176.2% 36.8%
Scott & Stringfellow compared the above-mentioned analysis for premiums
paid in the Restaurant Transactions to the Company's closing market price of
Shares one day, one week and four weeks before the initial announcement on March
19, 1998 of the IFS Merger Proposal. Scott & Stringfellow then calculated the
imputed valuation range of the Company's shares by applying the average premiums
derived from its analysis of the Restaurant Transactions to the closing market
price of IFS Shares on the appropriate date. This analysis of average premiums
resulted in a range of values for the Company of $2.79 to $3.65 per share.
Analysis of Premiums for Acquisitions of Remaining Minority Interest. Scott &
Stringfellow also analyzed transactions involving the purchase of remaining
minority interest transactions that have occurred since April 1995 (the
"Minority Purchase Transactions"). The analysis of Minority Purchase
Transactions was generated from publicly available information from the
following transactions: BET Holdings
-29-
<PAGE>
Inc./CEO Robert Johnson & Liberty Media; Cinergi Pictures Entertainment
Inc./Investor Group; Mascott Corp/DINE LLC; BT Office Products International
Inc/Koninklijke KNP BT NV; American Paging Inc./Telephone and Data Systems Inc.;
Guaranty National Corp/Orion Capital Corp.; XLConnect Solutions Inc./Xerox
Corp.; Seaman Furniture Co./Senior Mgt. And Major Shareholder led group;
Rayonier Timberlands LP/Rayonier Inc.; Wandel & Goltermann Technologies
Inc./Wandel & Goltermann Mgt.; Brad Ragan Inc. (Goodyear Tire & Rubber
Co.)/Goodyear Tire & Rubber Co.; Intl. Paper Timberlands, Ltd./Intl. Paper
Forest Resources Company; United States Cellular Corp./Telephone and Data
Systems Inc.; Larcan TTC Inc./Larcan Inc.; Ground Round Restaurants
Inc./Christian Gunter & David DiPasquale; Mako Marine International Inc./TRACKAQ
Inc. (Tracker Markine LP) and the IFS Merger Proposal.
Scott & Stringfellow calculated the premium per share paid by the acquiror
in each of the Minority Purchase Transactions as a percentage of the stock price
of the target company one day, one week and four weeks before the original
announcement of the transaction. This analysis indicated the following ranges of
premiums paid.
Minority Purchase Premiums
Average Value Range of Values IFS Offer
One Day Before 11.0% -11.1% to 53.7% 64.4%
One Week Before 17.6% -1.2% to 58.5% 64.4%
Four Weeks Before 19.9% -17.0% to 58.2% 36.8%
Scott & Stringfellow compared these ranges of premiums paid in the Minority
Purchase Transactions to the Company's closing market price of Shares one day,
one week and four weeks before the announcement of the IFS Merger Proposal.
Scott & Stringfellow then calculated the imputed valuation range of the
Company's Shares by applying the average premiums derived from its analysis of
the Minority Purchase Transactions to the closing market price of the Shares on
the appropriate date. This analysis resulted in a range of imputed values for
the Shares of the Company of $2.43 to $3.15 per share.
Discounted Cash Flow Analysis. Scott & Stringfellow performed discounted cash
flow analyses of the projected free cash flows of the Company for the fiscal
years 1998 through 2003. These analyses were based on the estimate of projected
financial performance for the Company as prepared by the Company's senior
management beginning with fiscal year 1998 through 2000, and projections
prepared by Scott & Stringfellow for the years 2001 through 2003.
The Company's senior management provided Scott & Stringfellow with
financial projections relating to the operation of the Company for the fiscal
years 1998 through
-30-
<PAGE>
2000. The Company does not as a matter of course make public forecasts or
projections as to future revenues or earnings. Such projections were not
prepared with a view to complying with published guidelines of the American
Institute of Certified Public Accountants or the SEC regarding projections and
forecasts and were not prepared in accordance with GAAP. None of such
projections have been reviewed by the Company's independent public accountants.
In addition, because the projections are based on a number of assumptions which
are inherently subject to significant economic and competitive uncertainties and
contingencies, many of which are beyond the control of the Company, and upon
assumptions with respect to future business decisions that are subject to
change, there can be no assurance that they will be realized, and actual results
may vary materially from those projected.
In calculating the values for the discounted cash flow analyses, Scott &
Stringfellow based residual values for the Company on senior management's
projections as outlined below, as well as senior management's projections for:
(i) depreciation expense, (ii) balance sheet information and (iii) capital
expenditure requirements. Scott & Stringfellow analyzed the valuation of the
Company based on the financial projections prepared by senior management of the
Company.
Although Scott & Stringfellow made certain adjustments it deemed
appropriate, it relied on the financial projections prepared by the Company's
senior management in performing its analysis described herein. For the reasons
set forth above, projections are inherently uncertain and Scott & Stringfellow
assumes no responsibility for the accuracy or the completeness of such
projections. Future performance may be significantly less favorable or more
favorable than projected.
The following is a summary of the financial projections.
Financial Projections (in thousands)
1998 1999 2000
---- ---- ----
Sales $36,071 $43,597 $51,132
Gross Profits 9,129 11,582 13,438
Operating Income 1,477 3,001 4,033
EBITDA 2,309 3,916 5,039
Net Income 983 1,868 2,468
Using this financial information, Scott & Stringfellow calculated the
projected free cash flow in each year based on projected unleveraged net income
(earnings before interest and after taxes) for the 1998 through 2003 fiscal
years as adjusted for: (i) certain projected non-cash items (such as
depreciation and amortization); (ii) forecasted capital expenditures (including
discretionary capital expenditures); and (iii) forecasted working capital
requirements (the sum of which is "Free Cash Flow"). Scott & Stringfellow
discounted the stream of projected Free Cash Flows back to
-31-
<PAGE>
January 1, 1998 (start of fiscal year 1998) using a discount rate of 18 percent.
The discount rate was designed to reflect the Company's estimated cost of
capital which was based on: (i) prevailing interest rates, including the
Company's after-tax cost of debt and the current risk free rate; (ii) the
long-term observed risk premium for securities over the risk free rate; (iii) an
estimated illiquidity risk premium; and (iv) the calculated Beta for Shares,
taking into account the Company's capital structure. To estimate the residual
value of the Company at the end of the forecast, Scott & Stringfellow applied a
range of multiples to the Company's projected 2003 EBITDA between 5.5x to 7.5x.
To arrive at a residual value, Scott & Stringfellow utilized the Company's 2003
EBITDA, then applied the aforementioned range of EBITDA multiples to arrive at a
future estimated value. Scott & Stringfellow discounted the future residual
value back to January 1, 1998 at the same discount rate of 18 percent. Scott &
Stringfellow added the present value of the cash flows and the present value of
the final residual equity value, subtracted all estimated outstanding debt,
including capital leases, and added back cash, a note due from Crescent, the
Company's investment in marketable securities of Crescent, and a loan to an
officer of the Company, as well as the cash from the deemed exercise of an
option to purchase Shares to arrive at a total equity value for the Company.
This total equity value was divided by the total number of shares of the Company
(fully diluted) to derive a reference range of values for the Company of $3.29
to $3.92 per Share.
Scott & Stringfellow reviewed the Domino's SPA and related documents
between DPII and the Company. The Domino's SPA involved the sale of 300,000
Shares to DPII in consideration for certain royalty concessions. The 300,000
Shares were not registered under the Securities Act. Under the Domino's SPA,
DPII has the right to put the 300,000 Shares to the Company for $1.2 million
($4.00 per Share) commencing on May 27, 2001 and the Company has the right to
purchase the 300,000 Shares at anytime prior to May 26, 2001 for the same price.
Scott & Stringfellow analyzed the expected return to DPII based on the put/call
arrangement in the Domino's SPA. This analysis resulted in a range of imputed
values for the Shares of the Company of $3.10 to $3.60 per share.
Scott & Stringfellow reviewed the Abacus/Lacosint SPA. The agreement
involves the sale of a minority interest in DPG, a wholly owned United Kingdom
subsidiary of the Company, to the parties mentioned above as well as granting of
an option for an additional interest in DPG. Scott & Stringfellow reviewed the
price for DPG and factored in discounts for minority interest in a private
company and additional expenses incurred by the Company in the United States.
This analysis resulted in an estimated imputed value for the shares of the
Company of $3.29 per share.
-32-
<PAGE>
Pursuant to the engagement letter, dated March 19, 1998 (the "Engagement
Letter"), Scott & Stringfellow was paid a fee, and will be paid an additional
fee upon the successful consummation of the IFS Merger, plus expenses in
connection with this engagement. The Company has agreed to indemnify Scott &
Stringfellow and its officers, agents and employees and its affiliates from and
against any losses, damages, liabilities, expenses or claims (or actions in
respect thereof, including without limitation, shareholder or derivative actions
and arbitration proceedings) related to or otherwise arising out of the
engagement or Scott & Stringfellow's role in connections therewith (other than
those determined to have resulted from Scott & Stringfellow's gross negligence
or willful misconduct). In the ordinary course of business, Scott & Stringfellow
may have traded securities of the Company for its own account and the accounts
of its customers, and, accordingly, may have held long, short or both positions
in the Shares.
EXCEPT AS DESCRIBED HEREIN, NEITHER SCOTT & STRINGFELLOW NOR ANY AFFILIATE OF
SCOTT & STRINGFELLOW HAS PERFORMED ANY INVESTMENT BANKING OR OTHER FINANCIAL
SERVICES FOR, OR HAD ANY MATERIAL FINANCIAL RELATIONSHIP WITH THE COMPANY DURING
THE TWO YEARS PRECEDING THE DATE HEREOF.
Certain Effects of the IFS Merger. Upon consummation of the IFS Merger, each
Public Share will be converted into the right to receive the IFS Merger
Consideration, without interest, and the Public Shareholders will cease to have
any ownership interest in the Company or rights as Shareholders. The Public
Shareholders will no longer benefit from any increase in the value of the
Company and will no longer bear the risk of any decrease in the value of the
Company. Following the IFS Merger, Crescent will own 100 percent of the Shares.
As a result of the IFS Merger, the Company will be privately held and there
will be no public market for the Shares. Upon consummation of the IFS Merger,
the Shares will cease to be traded and registration of the Shares under the
Exchange Act will be terminated.
Plans for the Company After the IFS Merger. There is no guarantee that the
assets, business and operations of the Company and its subsidiaries will
continue to be managed substantially as they are currently being managed.
Management of the Company or its subsidiaries may cause the Company or
subsidiaries to make such changes as are deemed appropriate and intends to
continue to review the Company's and subsidiaries' assets, business, operations,
properties, policies, corporate structure, capitalization and management, and to
consider if any changes would be desirable in light of the circumstances then
existing.
-33-
<PAGE>
The Company or a successor entity may decide to publicly offer some or all
of its shares of DPG stock.
Interests of Certain Persons in the IFS Merger. The following table sets forth,
as of June 30, 1998, the number of Shares and/or Options beneficially owned by
each executive officer or director of the Company. Other than the individuals
named below, no executive officer or director of the Company beneficially owns
any Shares or Options.
Names of Beneficial Owners Amount and Nature of Percentage of Class
Beneficial Ownership
Colin Halpern 10,000(1) *
H. Michael Bush 35,000(2) *
Gerald Halpern 48,000(3) *
David Coffer 32,000(4) *
Bernard Goldman 20,080(5) *
All directors and officers
as a group (5 persons) 145,080 2%
- -------------
(1) Represents Options to purchase Shares exercisable within 60 days of June
30, 1998. Mr. Colin Halpern holds Options to acquire an additional 30,000
Shares which will be exercisable upon consummation of the transaction.
(2) Represents Options to purchase Shares exercisable with 60 days of June 30,
1998. Mr. Bush holds Options to acquire an additional 55,000 Shares which
will be exercisable upon consummation of the transaction.
(3) Of these Shares, 23,000 are owned in an Individual Retirement Account for
the benefit of Mr. Gerald Halpern and 25,000 represent Options which are
currently exercisable. Mr. Halpern holds Options to acquire an additional
50,000 Shares which will be exercisable upon consummation of the
transaction.
(4) Mr. Coffer was granted an Option under the 1995 Consultants and Advisors
Stock Incentive Plan prior to becoming a director. Mr. Coffer holds Options
to acquire an additional 30,000 Shares which will be exercisable upon
consummation of the transaction.
(5) Mr. Goldman holds Options to acquire an additional 10,000 shares which will
be exercisable upon consummation of the transaction.
The following table sets forth, as of December 28, 1997, Option holding and
Option values for Options beneficially owned by each executive officer or
director of the Company.
-34-
<PAGE>
<TABLE>
<CAPTION>
Aggregate 1997 FY-End Option Holdings and Option Values
Securities Securities Value of Value of
underlying underlying unexercised unexercised
unexercised unexercised in-the-money in-the-money
Options at Options at Options at Options at
FY-End FY-End FY-End(1) FY-End(1)
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Colin Halpern 10,000 25,000 $22,500 $ 34,570
H. Michael Bush 35,000 55,000 $78,750 $135,300
Gerald Halpern 25,000 50,000 $59,500 $119,000
</TABLE>
- ---------------
(1) Represents the difference between the Option exercise price and closing
market price for the Company's Shares on December 31, 1997 ($2.875). The
Compensation Committee of the IFS Board will allow all Options issued
under any Stock Option Plan, whether exercisable or not, to be exercisable
immediately prior to the IFS Merger and thereby entitle the holders of any
Options to receive an amount in cash as provided in the IFS Merger
Agreement.
Related Party Transactions. The Company has entered into several transactions
with affiliates.
Englewood Consulting. In May 1997, the Company entered into a consulting
agreement with Englewood Consulting Group, Inc. ("Englewood"). Englewood is a
Florida corporation owned by Mrs. Gail Halpern, Mr. Colin Halpern's spouse. Mr.
Halpern is an employee of Englewood. This agreement continues until December 31,
1999 and is renewable for successive one year periods until terminated by either
party by giving 30 days prior written notice. Mr. Halpern is the sole employee
of Englewood Consulting Group, Inc. During fiscal year 1997, the Company paid
$120,000 to Englewood.
WLP. WLP is a Delaware limited partnership controlled by members of Mr. Colin
Halpern's family. WLP owns approximately 92 percent of the outstanding common
stock of Crescent, the holder of approximately 67 percent of the common stock of
the Company. Mr. Colin Halpern is the President and sole director of Crescent.
Through its ownership of the stock of Crescent, WLP is able to control the
election of directors and any other matter submitted for Shareholder approval.
Crescent. The Company has advanced funds from time to time to Crescent. As of
March 29, 1998 the total amount due to the Company from Crescent for funds
advanced was $2,917,807. The funds were advanced on a short-term basis and are
not interest bearing. As of December 29, 1996, the amount due the Company from
Crescent was $1,839,325.
-35-
<PAGE>
Advances to Colin Halpern. The Company has advanced funds from time to time to
Mr. Colin Halpern. At March 29, 1998, the total amount due to the Company from
Mr. Colin Halpern was $163,575 reflecting an increase of $38,559 from December
29, 1996.
Indemnification. The Company agreed in the IFS Merger Agreement that the
Company, in its capacity as the surviving corporation, shall provide with
respect to each present or former director and officer of the Company and its
subsidiaries and affiliates (both present and past) (the "Indemnified Parties")
the indemnification rights (including any rights to advancement of expenses)
which such Indemnified Parties had from the Company, or such subsidiary or
affiliate, immediately prior to the Effective Time of the IFS Merger, whether
under the DGCL or the Company's certificate of incorporation, the Company's
bylaws or the bylaws of such subsidiary or affiliate or otherwise. In addition,
the IFS Merger Agreement provides that the indemnification rights so provided
shall survive the closing indefinitely and are intended to benefit the Company,
the surviving corporation and each of the Indemnified Parties and his or her
heirs and representatives and is binding on all successors and assigns of
Crescent and the surviving corporation.
Such indemnification rights include indemnification of any Indemnified
Party who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the Company), including proceedings involving alleged violations of the
federal securities laws, provided the Indemnified Party acted in good faith and
in a manner reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding,
provided such Indemnified Party had no reasonable cause to believe his or her
conduct was unlawful. Any such indemnification (unless ordered by a court) must
be made only as authorized in the specific case upon a determination that the
indemnification of the Indemnified Party is proper in the circumstances because
the person has met the applicable standard of conduct. Insofar as
indemnification for liabilities arising under the federal securities laws may be
permitted to an Indemnified Party, the Company has been advised that in the
opinion of the SEC such indemnification is against public policy and is,
therefore, unenforceable.
Certain United States Federal Income Tax Consequences of the IFS Merger. The
following summary, based on the advice of LLG&M, discusses the material United
States federal income tax consequences of the IFS Merger to the Shareholders.
The summary is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), applicable Treasury regulations thereunder and administrative rulings
and judicial authority as of the date hereof, including modifications made by
the Taxpayer Relief Act of 1997. All of the foregoing are subject to change, and
any
-36-
<PAGE>
such change could affect the continuing validity of the discussion. The
discussion assumes that the Public Shareholders hold the Public Shares as a
"capital asset" within the meaning of Section 1221 of the Code and does not
address the tax consequences that may be relevant to a particular shareholder
subject to special treatment under certain federal income tax laws, such as
dealers in securities, banks, insurance companies, tax-exempt organizations,
corporate shareholders which are collapsible corporations, non-United States
persons and holders who acquired Public Shares pursuant to the exercise of
options or otherwise as compensation or through a tax-qualified retirement plan,
nor any consequences arising under the laws of any state, locality or foreign
jurisdiction.
The following discussion is limited to the United States federal income tax
consequences relevant to a Shareholder that is a citizen or resident of the
United States, or any state thereof, or a corporation or other entity created or
organized under the laws of the United States, or any political subdivision
thereof, or an estate the income of which is subject to United States federal
income tax regardless of its source or a trust whose administration is subject
to the primary supervision of a United States court and which has one or more
United States persons who have the authority to control all substantial
decisions of the trust.
No ruling from the Internal Revenue Service (the "IRS") concerning the
federal income tax consequences of the purchase, ownership and disposition of
the Public Shares will be requested. The consequences set forth in this
discussion are not binding on the IRS or the courts and no assurance can be
given that contrary positions will not be successfully asserted by the IRS or
adopted by a court if the issues are litigated. The Company has not sought and
will not seek any rulings from the IRS with respect to the positions of the
Company discussed herein, and there can be no assurance that the IRS will not
take a different position concerning the United States federal tax consequences
of the purchase, ownership or disposition of the Public Shares.
General. The receipt of cash by a Public Shareholder in the IFS Merger or
pursuant to the exercise of dissenters' appraisal rights will be a taxable
transaction for United States federal income tax purposes under the Code and may
also be a taxable transaction under applicable state, local or foreign income or
other tax laws. Generally, a Public Shareholder will recognize gain or loss in
an amount equal to the difference between the cash received by the Public
Shareholder pursuant to the IFS Merger and the Public Shareholder's adjusted tax
basis in the Public Shares owned immediately prior to the Effective Time by such
Public Shareholder.
For United States federal income tax purposes, such gain or loss will be a
capital gain or loss in the hands of the Public Shareholder, and a long-term
capital gain or
-37-
<PAGE>
loss if the Public Shareholder meets one of the holding periods set forth below
as of the Effective Time. There are significant limitations on the deductibility
of capital losses by individuals or corporations. Capital losses can offset
capital gains on a dollar-for-dollar basis and, in the case of an individual
stockholder, capital losses in excess of capital gains can be deducted to the
extent of $3,000 annually. An individual can carry forward unused capital losses
indefinitely. A corporation can utilize capital losses only to offset capital
gain income. Generally, a corporation's unused capital losses can be carried
back three years and forward five years.
Long-term capital gains recognized on marketable securities such as the
Public Shares will be taxable at a maximum rate of 20 percent for an individual
if the individual's holding period is more than 18 months and 28 percent if the
holding period is more than one year but not more than 18 months, and 35 percent
for corporations. Ordinary income is taxable at a maximum rate of 39.6 percent
for individuals and 35 percent for corporations.
For United States federal income tax purposes, no gain or loss will be
recognized by IFS Acquisition or the Company.
Information Reporting and Backup Withholding. A Public Shareholder may be
subject to backup withholding at the rate of 31 percent with respect to
"reportable payments," which may include payments of dividends and the gross
proceeds of a sale of the Public Shares. The payor will be required to deduct
and withhold the prescribed amounts unless such Public Shareholder: (i) is a
corporation or comes within other exempt categories and, when required,
demonstrates this fact; or (ii) provides a correct taxpayer identification
number, certifies as to no loss to exemption from backup withholding and
otherwise complies with applicable requirements of the backup withholding rules.
A Public Shareholder who does not provide the Company with his or her correct
taxpayer identification number may be subject to penalties imposed by the IRS.
Amounts paid as backup withholding do not constitute an additional tax and will
be credited against the Public Shareholder's federal income tax liabilities, so
long as the required information is provided to the IRS. The Company will report
to the IRS the amount of any "reportable payments" for each calendar year and
the amount of tax withheld, if any, with respect to payments for the Shares.
THE PRECEDING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE IFS MERGER AND DOES NOT PURPORT TO BE A COMPLETE
ANALYSIS OR DISCUSSION OF ALL POTENTIAL TAX EFFECTS RELEVANT THERETO. THUS,
PUBLIC SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF
-38-
<PAGE>
THE IFS MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE APPLICABILITY
AND EFFECT OF FEDERAL, STATE, LOCAL, AND OTHER APPLICABLE TAX LAWS AND THE
EFFECT OF ANY PROPOSED CHANGES IN THE TAX LAWS.
Regulatory Approvals. No federal or state regulatory approvals are required to
be obtained, nor any regulatory requirements complied with, in connection with
consummation of the IFS Merger by any party to the IFS Merger Agreement, except
for the requirements of the DGCL in connection with shareholder approvals of the
IFS Merger Agreement and the requirements of the federal securities laws.
Dissenters' Appraisal Rights. The DGCL sets forth certain rights and remedies
applicable to Shareholders who may object to the IFS Merger. These rights are
available only to Shareholders through the Effective Time who comply with the
requirements of Section 262 of the DGCL.
Set forth below is a summary of the rights provided to the Shareholders by
Section 262 of the DGCL. A copy of Section 262 of the DGCL is attached to this
Proxy Statement as Annex B. The following discussion is not a complete statement
of the law relating to appraisal rights and is qualified in its entirety by
reference to Annex B. This discussion and Annex B should be reviewed carefully
by any Shareholder who wishes to exercise statutory appraisal rights or who
wishes to preserve the right to do so, because the failure to comply strictly
with the procedures set forth therein will be likely to result in the loss of
such appraisal rights. Any Shareholder who contemplates the assertion of
appraisal rights is urged to consult his or her own counsel.
Section 262 of the DGCL provides that, when a merger is to be submitted for
approval at a meeting of shareholders, not less than 20 days prior to such
meeting each constituent corporation must notify each of the holders of its
stock for which appraisal rights are available that such appraisal rights are
available and include in each such notice a copy of Section 262 of the DGCL.
This Proxy Statement constitutes such notice to the Shareholders.
The Shareholders who desire to exercise their appraisal rights must satisfy
all of the following conditions. Any such Shareholder must be a holder of record
of Shares from the date he or she makes a written demand for appraisal (as
described below) through the Effective Time and must continuously hold his or
her Dissenting Shares throughout the period between such dates. A written demand
for appraisal of the Dissenting Shares must be delivered to the Secretary of the
Company before the Shareholder vote at the Special Meeting. The demand will be
sufficient if it reasonably informs the Company of the identity of the
Shareholder and that the Shareholder
-39-
<PAGE>
intends thereby to demand the appraisal of his or her Dissenting Shares. Any
written demand for appraisal of Dissenting Shares must be in addition to and
separate from any proxy or vote abstaining from or voting against the IFS Merger
Agreement. Although a Shareholder must vote against, abstain from voting or fail
to vote on the IFS Merger Agreement to preserve his or her rights to appraisal,
a vote against, a failure to vote or an abstention from voting will not, in and
of itself, constitute a demand for appraisal within the meaning of Section 262
of the DGCL.
Holders of Dissenting Shares electing to exercise their appraisal rights
under Section 262 of the DGCL must neither vote for approval of the IFS Merger
Agreement nor consent thereto in writing. A Shareholder who signs and returns a
proxy card without expressly specifying a vote against approval of the IFS
Merger Agreement or a direction to abstain, by checking the applicable box on
the proxy card enclosed herewith, will effectively waive appraisal rights as to
those Shares because, in the absence of express instructions to the contrary,
such Shares will be voted in favor of the IFS Merger Agreement. Accordingly, a
Shareholder who desires to perfect his or her appraisal rights with respect to
any Shares must, as one of the procedural steps involved in such perfection:
either (i) refrain from executing and returning a proxy card and from voting in
person in favor of the IFS Merger Agreement; or (ii) check either the "Against"
or the "Abstain" box next to the proposal on such card or vote in person at the
Special Meeting against the IFS Merger Agreement or register in person at the
Special Meeting an abstention with respect thereto.
A demand for appraisal must be executed by or for the Shareholder, fully
and correctly, exactly as such Shareholder's name appears on the Share
Certificate representing his or her Dissenting Shares. If the Dissenting Shares
are owned of record by more than one person, as in a joint tenancy or tenancy in
common, such demand must be executed by all joint owners. An authorized agent,
including an agent for two or more joint owners, may execute the demand for
appraisal for a Shareholder. However, the agent must identify the beneficial
owner and expressly disclose the fact that, in exercising the demand, such
person is acting as agent for the record owner. If a Shareholder holds
Dissenting Shares through a broker who in turn holds the Dissenting Shares
through a central securities depository nominee, a demand for appraisal of such
Dissenting Shares must be made by or on behalf of the depository nominee and
must identify the depository nominee as the holder of record.
-40-
<PAGE>
THE TERMS OF THE IFS MERGER
The following is a summary of the material provisions of the IFS Merger
Agreement. A copy of the IFS Merger Agreement is attached as Annex A to this
Proxy Statement and is incorporated herein by reference. All capitalized terms
used but not defined herein shall have the meaning ascribed to such terms in the
IFS Merger Agreement. The following summary does not purport to be complete and
is qualified in its entirety by reference to the IFS Merger Agreement.
The IFS Merger. The IFS Merger provides for the merger of IFS Acquisition with
and into the Company. The Company will be the surviving corporation and will
continue its corporate existence under the laws of the State of Delaware. At the
Effective Time the separate corporate existence of IFS Acquisition shall cease.
The surviving corporation shall possess all the rights, privileges, immunities,
powers and purposes of IFS Acquisition and the Company, and the surviving
corporation shall assume and become liable for all liabilities and obligations
of IFS Acquisition and the Company.
Effective Time of the IFS Merger. The Effective Time will occur upon the filing
of the Certificate of Merger setting forth the information required by Section
251 of the DGCL with the Secretary of State for the State of Delaware, or such
other time as the parties to the IFS Merger Agreement agree shall be specified
in the Certificate of Merger. The Certificate of Merger will be signed as
promptly as practicable after the satisfaction or waiver of the conditions set
forth in the IFS Merger Agreement.
Effect of the IFS Merger. At the Effective Time, the effect of the IFS Merger
shall be as provided in the applicable provisions of the DGCL.
Treatment of the Public Shares and IFS Acquisition Shares. At the Effective
Time, each Public Share outstanding immediately prior to the Effective Time,
except for the Dissenting Shares, will, by virtue of the IFS Merger and without
any action on the part of the Public Shareholders, be converted into the right
to receive the IFS Merger Consideration upon surrender of the Share Certificate
representing such Public Share.
Each Share held by IFS Acquisition immediately prior to the Effective Time
shall be canceled at the Effective Time.
Each share of common stock of IFS Acquisition outstanding immediately prior
to the Effective Time will, by virtue of the IFS Merger and without any action
on the part of the holder thereof, be converted into and exchangeable for one
fully-paid and non-assessable share of the Company.
-41-
<PAGE>
Shareholders who do not vote in favor of the IFS Merger at the Special
Meeting and who have properly elected to dissent in the manner provided in
Section 262 of the DGCL may exercise their appraisal rights and receive in cash,
after submitting to the required process of judicial appraisal, the appraised
value of their Public Shares (whether that value is more or less than the IFS
Merger Consideration). See "SPECIAL FACTORS -- Dissenters' Appraisal Rights."
Treatment of the Class B Warrants. Pursuant to the IFS Merger Agreement, at the
Effective Time each holder of the Company's Class B Warrants entitling the
holder to purchase from the Company one Share at an exercise price of $10.00 per
Share shall have the right to receive, thereafter, by exercising the Class B
Warrant prior to the Class B Warrant Expiration Date, $3.60 in cash for each
Class B Warrant they have exercised. The Company does not expect the holders of
the Class B Warrants to exercise their conversion rights and expects the Class B
Warrants to expire without the occurrence of any conversions. The Class B
Warrants expire on December 8, 1999.
The Company's Class A Redeemable Common Stock Purchase Warrants to purchase
one Share at an exercise price of $5.00 per Share expired on June 8, 1997.
Treatment of the Unit Purchase Options. In connection with the Company's initial
public offering of securities to the public, on September 9, 1994 the Company
issued to Patterson Travis, Inc. ("Patterson") unit purchase options (each, a
"Unit Purchase Option"). Each such Unit Purchase Option entitles Patterson to
purchase from the Company for an exercise price of $8.25 in cash until and
including December 8, 1999 (the "Unit Purchase Option Expiration Date"), (i) one
Share and (ii) one Class B Redeemable Common Stock Purchase Warrant to purchase
one Share at an exercise price of $16.50 per Share. At the Effective Time,
Patterson shall have the right to receive thereafter, by exercising each Unit
Purchase Option prior to the Unit Purchase Option Expiration Date, (i) $3.60 in
cash for each Share the holder of the Unit Purchase Option is entitled to
receive upon the exercise of the Unit Purchase Option and (ii) $3.60 in cash
upon the subsequent exercise of the class B warrant received pursuant to the
exercise of the Unit Purchase Option. The Company does not expect Patterson to
exercise the Unit Purchase Options and expects the Unit Purchase Options to
expire without exercise.
Treatment of Options. At the Effective Time, each holder of an option to
purchase Shares issued pursuant to the 1994 Stock Incentive Plan, the 1997 Stock
Incentive Plan, the 1995 Non-Employee Directors Plan, the 1997 Non-Employee
Directors Plan and the 1995 Consultants and Advisors Stock Incentive Plan (as
amended) (together the "Stock Option Plans", and each option issued thereunder,
an "Option") shall become entitled to receive for each Option held as of the
Effective Time an amount
-42-
<PAGE>
in cash equal to the product of (i) the excess, if any, of the IFS Merger
Consideration over the applicable exercise price of such Option and (ii) the
number of Shares subject to such Option.
The Compensation Committee of the IFS Board will allow all Options issued
under any Stock Option Plan, whether exercisable or not, to be exercisable
immediately prior to the IFS Merger.
Surrender of Share Certificates. Crescent has designated the Paying Agent to act
as the paying agent under the IFS Merger Agreement. Immediately prior to the
Effective Time, IFS Acquisition shall deposit with the Paying Agent an amount in
cash equal to the IFS Merger Consideration multiplied by the number of Public
Shares (other than the Dissenting Shares), to be held by the Paying Agent
pursuant to the terms of the Paying Agent Agreement, for the benefit of the
Public Shareholders (other than the holders of the Dissenting Shares). The
Paying Agent shall, pursuant to irrevocable instructions, make the payments
provided for under the IFS Merger Agreement out of the funds so deposited with
it.
Promptly after the Effective Time, the surviving corporation shall cause
the Paying Agent to mail to each holder of record as of the Effective Time of an
outstanding Share Certificate a letter of transmittal and instructions for use
in effecting the surrender of such Share Certificates for payment in accordance
with the IFS Merger Agreement. Upon the surrender to the Paying Agent of a Share
Certificate, together with a duly executed letter of transmittal, the holder
thereof shall be entitled to receive cash in an amount equal to the product of
the number of Public Shares represented by such Share Certificate and the IFS
Merger Consideration, less any applicable withholding tax, and such Share
Certificate shall then be canceled.
Until surrender pursuant to the procedures described above, each Share
Certificate (other than the Share Certificates representing the Dissenting
Shares) shall represent for all corporate purposes, as of the Effective Time,
solely the right to receive the IFS Merger Consideration in cash multiplied by
the number of Public Shares evidenced by such Share Certificate, without
interest thereon.
At and after the Effective Time the Public Shareholders shall cease to have
any rights as Shareholders of the Company, except for their right to surrender
their Share Certificates representing their Public Shares and to receive the IFS
Merger Consideration, or to perfect such holder's rights, if any, to receive
payment with respect to the Public Shares for which such Public Shareholder has
validly demanded appraisal rights in accordance with the DGCL (which demand has
not been withdrawn).
-43-
<PAGE>
After the Effective Time there shall be no further registration of
transfers on the stock records of the Company of Shares which were outstanding
immediately prior to the Effective Time. If a Share Certificate formerly
representing such Shares is presented to the surviving corporation, such Share
Certificates shall be canceled and exchanged for cash as provided in the IFS
Merger Agreement without any interest thereon.
Any portion of the deposit made available to the Paying Agent pursuant to
the IFS Merger which remains unclaimed by the Public Shareholders one year after
the Effective Time shall be returned to the surviving corporation, upon demand,
after which time the Paying Agent's duties as to such amounts shall terminate.
Any Public Shareholder who has not exchanged his, her or its Public Shares for
the IFS Merger Consideration in accordance with the IFS Merger Agreement prior
to the time that the unclaimed amounts are returned to the surviving corporation
will thereafter only be able to look to the surviving corporation for payment of
their claims for the IFS Merger Consideration, without interest, but will have
no greater rights against the surviving corporation than may be accorded a
general creditor of the surviving corporation.
Any portion of the deposits made available to the Paying Agent to pay for
Public Shares for which appraisal rights have been perfected will be returned to
the surviving corporation upon demand, subject, however, to the obligation of
the surviving corporation to return such amounts to the Paying Agent at such
time as such appraisal rights are no longer perfected.
Withholding Rights. Pursuant to the IFS Merger Agreement, IFS Acquisition, the
surviving corporation and the Paying Agent are entitled to deduct and withhold
from the amounts payable to any Public Shareholder such amounts as IFS
Acquisition, the surviving corporation or the Paying Agent is required to deduct
and withhold with respect to the making of such payment under applicable tax
law. To the extent that amounts are so deducted and withheld by IFS Acquisition,
the surviving corporation or the Paying Agent, such amounts shall be treated for
all purposes of the IFS Merger Agreement as having been paid to the relevant
Public Shareholder.
Conditions to the IFS Merger; Amendment, Waiver and Termination. Pursuant to the
IFS Merger Agreement, the obligations of each of Crescent, IFS Acquisition and
the Company to effect the IFS Merger are subject to the following conditions:
(i) the proposal to approve and adopt the IFS Merger Agreement at the Special
Meeting shall have received the affirmative vote of the holders of at least a
majority of all of the outstanding Shares; (ii) the absence of any statute,
rule, regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) enacted, issued, promulgated, enforced or
entered prohibiting the
-44-
<PAGE>
consummation of the IFS Merger; (iii) the receipt of all other required
authorizations, consents and approvals by third parties; (iv) the performance of
and compliance with, in all material respects, all agreements and obligations
contained in the IFS Merger Agreement and required to be performed or complied
with at or prior to the Effective Time by the respective parties to the IFS
Merger Agreement; (v) the material truth and correctness of all representations
and warranties of the parties to the IFS Merger Agreement; (vi) Scott &
Stringfellow shall have reaffirmed orally its fairness opinion as of the date of
mailing this Proxy Statement and again at the Effective Time and shall not have
withdrawn its written fairness opinion; and (vii) on or prior to July 1, 1998,
Crescent and IFS Acquisition shall procure bank financing commitments from
financial institutions, and on or prior to the Effective Time the financial
institutions shall have made available to IFS Acquisition the proceeds of the
financing.
Crescent may waive the satisfaction of any obligation, covenant, agreement
or condition under the IFS Merger Agreement on behalf of Crescent or IFS
Acquisition. The waiver by the Company of any of its rights under the IFS Merger
Agreement requires the prior approval of the Special Committee. The Company has
made no determination as to whether it would waive any condition, and any such
determination would be made on behalf of the Company by the Special Committee
based on the facts and circumstances existing at the time such waiver is
requested. The IFS Merger Agreement may be amended by written agreement of
Crescent, IFS Acquisition and the Company, with the approval of the Special
Committee, at any time prior to the Effective Time.
The IFS Merger Agreement may be terminated at any time prior to the
Effective Time, either before or after approval by the Shareholders of the
Company, by: (i) mutual written consent duly authorized by the Special
Committee, the IFS Board, the Crescent Board and the Board of Directors of IFS
Acquisition; (ii) any of Crescent, IFS Acquisition or the Company if any court
of competent jurisdiction or administrative agency, commission, governmental or
regulatory authority, domestic or foreign, shall have issued an order, decree or
ruling or taken any other action restraining, enjoining or otherwise prohibiting
the IFS Merger and such order, decree, ruling or other action shall have become
final and nonappealable; (iii) any of Crescent, IFS Acquisition or the Company
if the Effective Time shall not have occurred on or before December 31, 1998;
provided, however, the right to terminate the IFS Merger Agreement under this
provision is not available to any party whose failure to fulfill any obligation
under the IFS Merger Agreement has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date; (iv) Crescent or
IFS Acquisition, if, consistent with the terms of the IFS Merger Agreement, the
IFS Board or the Special Committee withdraws, modifies or changes its
recommendation of the IFS Merger Agreement or the IFS Merger in a manner adverse
to Crescent or IFS Acquisition or shall have resolved to do any of the foregoing
or the IFS Board or the
-45-
<PAGE>
Special Committee shall have recommended to the Shareholders of the Company any
competing transaction; or (v) the Company (such determination to be made on
behalf of the Company by the Special Committee in its sole discretion), if,
consistent with the terms of the IFS Merger Agreement, the IFS Board or the
Special Committee withdraws its recommendation of the IFS Merger Agreement or
the IFS Merger or shall have resolved to do either of the foregoing or the IFS
Board or the Special Committee shall have recommended to the Shareholders of the
Company any competing transaction.
The IFS Merger Agreement provides that in the event of its termination, no
party thereto will have any liability or further obligation to any other party
to the IFS Merger Agreement; provided that any termination shall be without
prejudice to the rights of any party to the IFS Merger Agreement arising out of
any wilful breach by any other party of any covenant or agreement contained in
the IFS Merger Agreement. In the event the IFS Merger Agreement is terminated,
Crescent is responsible for all costs and expenses incurred by such party. If
the IFS Merger is not consummated due to the failure to satisfy a condition to
consummation of the IFS Merger or to the termination of the IFS Merger
Agreement, the IFS Board currently intends to continue to conduct the Company's
operations in the normal course, consistent with past practice.
Representations and Warranties. The IFS Merger Agreement contains various
representations and warranties of the Company to Crescent and IFS Acquisition,
including the following matters: (i) the due organization and valid existence of
the Company and its subsidiaries and affiliates; (ii) the capitalization of the
Company and its subsidiaries and affiliates; (iii) the due authorization,
execution and delivery of the IFS Merger Agreement and its binding effect on the
Company; (iv) regulatory filings and approvals; (v) the absence of conflicts
between the IFS Merger Agreement and the transactions contemplated thereby with
the Company's certificate of incorporation or bylaws, any contract to which it
or its subsidiaries or affiliates are parties or any law, rule, regulation,
order, writ, injunction or decree binding upon the Company or its subsidiaries
or affiliates; (vi) the accuracy of the information provided by the Company for
inclusion in this Proxy Statement; (vii) the absence of any brokers or finders
(other than Scott & Stringfellow); and (viii) the accuracy of the information
provided by the Company to Scott & Stringfellow.
The IFS Merger Agreement also contains representations and warranties of
Crescent and IFS Acquisition to the Company, including the following matters:
(i) the due organization and valid existence of each of Crescent and IFS
Acquisition; (ii) the due authorization, execution and delivery of the IFS
Merger Agreement by Crescent and IFS Acquisition and its binding effect on such
parties; (iii) regulatory filings and approvals; (iv) the absence of conflicts
of the IFS Merger Agreement and the
-46-
<PAGE>
transactions contemplated thereby with the certificate of incorporation or
bylaws (or equivalent documents) of each of Crescent and IFS Acquisition, or
with any contract binding upon Crescent or IFS Acquisition, or with any law,
rule, regulation, order, writ, injunction or decree binding upon any of such
parties; (v) the accuracy of the information provided by Crescent and IFS
Acquisition for inclusion in this Proxy Statement; (vi) the absence of brokers
and finders; and (vii) the accuracy of the information provided by the Company
to Scott & Stringfellow.
Certain Agreements. The IFS Merger Agreement provides that the Company will as
soon as practicable: (i) acting through the IFS Board and subject to the
fiduciary duties thereof and applicable law, call and convene the Special
Meeting; (ii) prepare and file with the SEC a preliminary proxy statement and
mail the definitive proxy statement to its Shareholders; and (iii) subject to
the fiduciary duties under applicable law of the Company's directors, use its
reasonable efforts to obtain the necessary approvals by its Shareholders of the
IFS Merger Agreement and the transactions contemplated thereby. The IFS Merger
Agreement provides that the proxy statement will include, subject to their
fiduciary duties, the respective recommendations of the IFS Board and the
Special Committee to the Shareholders for approval of the IFS Merger Agreement
and the transactions contemplated thereby.
Reasonable Efforts. Pursuant to the IFS Merger Agreement, each of the parties
will use its reasonable efforts to take, or cause to be taken, all appropriate
actions, and to do, or cause to be done, all things necessary, proper or
advisable under applicable law or otherwise to consummate the IFS Merger,
including obtaining any required consents of third parties and governmental
authorities.
Indemnification. The Company agreed in the IFS Merger Agreement that the
Company, in its capacity as the surviving corporation, shall provide with
respect to each Indemnified Party the indemnification rights (including any
rights to advancement of expenses) which such Indemnified Parties had from the
Company, or such subsidiary or affiliate, immediately prior to the Effective
Time of the IFS Merger, whether under the DGCL or the Company's certificate of
incorporation, the Company's bylaws or the bylaws of such subsidiary or
affiliate or otherwise. In addition, the IFS Merger Agreement provides that the
indemnification rights so provided shall survive the closing indefinitely and
are intended to benefit the Company, the surviving corporation and each of the
Indemnified Parties and his or her heirs and representatives and is binding on
all successors and assigns of Crescent and the surviving corporation.
Such indemnification rights include indemnification of any Indemnified
Party who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or
-47-
<PAGE>
investigative (other than an action by or in the right of the Company),
including proceedings involving alleged violations of the federal securities
laws, provided the Indemnified Party acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, provided
such Indemnified Party had no reasonable cause to believe his or her conduct was
unlawful. Any such indemnification (unless ordered by a court) must be made only
as authorized in the specific case upon a determination that the indemnification
of the Indemnified Party is proper in the circumstances because the person has
met the applicable standard of conduct. Insofar as indemnification for
liabilities arising under the federal securities laws may be permitted to an
Indemnified Party, the Company has been advised that in the opinion of the SEC
such indemnification is against public policy and is, therefore, unenforceable.
Accounting Treatment. The IFS Merger will be accounted for under the "purchase"
method of accounting whereby the purchase price will be allocated among the
Company's assets and liabilities based on the fair market value of the assets
acquired and liabilities assumed.
SELECTED FINANCIAL INFORMATION
On December 10, 1997, the Company terminated its appointment of Moore
Stephens, P.C. as their auditors. Subsequently, the Company appointed Ernst &
Young, Chartered Accountants, as its auditors.
The following selected financial information for the fiscal years ended
December 28, 1997 and December 29, 1996 has been derived from the audited
consolidated financial statements of the Company. The selected financial
information set forth below for the 13 weeks ended March 29, 1998 and March 30,
1997 has been derived from the unaudited consolidated quarterly financial
statements of the Company. The selected financial information set forth below
should be read in conjunction with the historical financial statements and
related notes of the Company incorporated by reference into this Proxy
Statement.
-48-
<PAGE>
Financial Year
Statement of Operations Data ($):
<TABLE>
<S> <C> <C>
52 Weeks Ended December
-----------------------------------------------------
28, 1997 29, 1996
-----------------------------------------------------
Revenues............................................... 28,360,981 21,239,834
Income from Continuing Operations...................... 2,508,683 514,029
Net Income per Share from Continuing Operations........ 0.36 0.08
52 Weeks Ended December
-----------------------------------------------------
Balance Sheet Data ($): 28, 1997 29, 1996
-----------------------------------------------------
Total Assets........................................... 16,768,734 13,470,170
Long-Term Debt......................................... 1,515,252 460,240
Total Stockholder's Equity............................. 8,598,120 7,179,374
Quarterly
Statement of Operations Data ($):
13 Weeks
----------------------------------------------------
December 29, 1997 December 30, 1996
to to
March 29, 1998 March 30, 1997
----------------------------------------------------
Revenues................................................. 7,719,397 6,694,399
Income from Continuing Operations........................ 74,939 144,468
Net Income per Share from Continuing Operations.......... 0.01 0.02
13 Weeks
----------------------------------------------------
Balance Sheet Data ($): December 29, 1997 December 30, 1996
to to
March 29, 1998 March 30, 1997
----------------------------------------------------
Total Assets............................................. 17,346,618 16,768,734
Long-Term Debt........................................... 1,421,091 1,515,252
Total Shareholder's Equity............................... 8,674,836 8,598,120
</TABLE>
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the aggregate cash
compensation paid by the Company for the 52 weeks ended December 28, 1997 to
those executive officers whose salary and bonus exceeded $100,000 and the Chief
Executive Officer.
-49-
<PAGE>
<TABLE>
<CAPTION>
Compensation
Annual Compensation Long Term Compensation Awards
Name and Other Restricted Securities
Principal Salary Annual Stock Underlying All Other
Position Year Compensation Bonus(1) Compensation(2) Award(s) Options Compensation
-------- ---- ------------ ----- ------------ -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Colin Halpern 1997(3) $152,000 $100,000 $27,238 0 25,000 0
Chairman(4) 1996 96,000 0 23,283 0 10,000 0
1995 96,000 0 56,043 0 0 0
H. Michael Bush 1997 $70,000 $60,000 $5,000 0 75,000 0
Acting President, 1996 50,000 10,000 --- 0 15,000 0
Chief Financial
Officer, Secretary
Gerald Halpern 1997 $93,000 $60,000 $31,568 0 75,000 0
Executive Vice 1996 72,000 0 30,860 0 0 0
President 1995 72,000 0 34,814 0 0 0
</TABLE>
(1) Represents amounts paid under the Company bonus plan.
(2) For 1997, Mr. Colin Halpern's compensation includes $18,322 car allowance
and $8,916 for insurance and for 1996 includes $15,840 car allowance and
$7,443 for insurance and for 1995 includes $15,840 car allowance, $7,443
for insurance and $32,760 for housing allowance. For Mr. Gerald Halpern,
the 1997 figure includes $25,668 housing allowance and $5,900 for
insurance, the 1996 figure includes $24,960 housing allowance and $5,900
for insurance and 1995 includes $28,914 housing allowance and $5,900 for
insurance. Where no amount is given, the dollar value of perquisites paid
to the named executive officer does not exceed the lesser of $50,000 or 10
percent of the total of annual salary and bonus reported for the named
executive officer.
(3) For 1997, Mr. Colin Halpern's compensation reflects $120,000 of
compensation paid to Englewood for consulting services. Englewood is owned
by Mrs. Gail Halpern, Mr. Colin Halpern's spouse. Mr. Colin Halpern is the
sole employee of Englewood.
(4) Mr. Colin Halpern served as President from December 1993 through May 1996.
The following tables set forth as to the executive officers, certain
information relating to options for the purchase of Common Stock granted and
exercised during fiscal year 1997 and held at the end of fiscal year 1997.
-50-
<PAGE>
<TABLE>
<CAPTION>
Percent of Total
Options
Granted to Exercise
Options Employees or Base
Name Granted in Fiscal Year Price Expiration Date
<S> <C> <C> <C> <C>
Colin Halpern 5,000(1) 4.14% $0.5625 1/2/07
5,000 4.14% $1.15625 4/1/07
5,000 4.14% $2.25 7/1/07
5,000 4.14% $2.00 10/1/07
H. Michael Bush 75,000(2) 27.60% $0.50 8/12/06
Gerald Halpern 75,000(2) 27.60% $0.50 8/12/06
</TABLE>
(1) Represents Options granted under the Company's 1997 Non-Employee Director
Plan. Mr. Colin Halpern was not an executive officer of the Company at the
time of grant. Such Options are exercisable after the first anniversary of
the grant until ten years from the date of grant.
(2) One-third of such Options were exercisable on August 18, 1997, one-third
are exercisable on August 18, 1998, and the remaining one-third are
exercisable on August 18, 1999. No Option is exercisable after August 18,
2006.
<TABLE>
<CAPTION>
Value of
Securities Securities unexercised Value of
underlying underlying in-the- unexercised
Shares unexercised unexercised money in-the-money
acquired options at options at option at option at
on Value FY-End FY-End FY-End(1) FY-End(1)
Name exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Colin Halpern 0 0 10,000 25,000 $22,500 $ 34,570
H. Michael Bush 0 0 35,000 55,000 $78,750 $135,300
Gerald Halpern 0 0 25,000 50,000 $59,500 $119,000
</TABLE>
(1) Represents the difference between the option exercise price and the closing
market price for the Shares on December 31, 1997 ($2.875).
OWNERSHIP OF EQUITY SECURITIES
The Company. The table below sets forth certain information as of June 30, 1998
regarding the beneficial ownership, as defined in regulations of the SEC, of
Shares of: (i) each person who is known to the Company to be the beneficial
owner of more than 5 percent of the outstanding Shares; (ii) each director of
the Company; and (iii) all directors and executive officers as a group. On June
30, 1998 there were 7,027,324 Shares outstanding. Unless otherwise specified,
the named beneficial owner has sole voting and investment power. The information
in the table below was furnished by the persons listed. "Beneficial Ownership"
as used herein has been determined in accordance with the rules and regulations
of the SEC and is not to be construed as a representation that any of such
Shares are in fact beneficially owned by any person.
-51-
<PAGE>
<TABLE>
<CAPTION>
Names and Addresses of Amount and Nature of Percentage of Class
Beneficial Owners Beneficial Ownership
<S> <C> <C>
Crescent Capital, Inc. (1) 4,700,000 66.9%
6701 Democracy Blvd.
Suite 300
Bethesda, Maryland 20817
Domino's Pizza International, Inc. 300,000 4.3%
Colin Halpern 10,000(2) *
H. Michael Bush 35,000(3) *
Gerald Halpern 48,000(4) *
David Coffer 32,000(5) *
Bernard Goldman 20,080(6) *
All directors and officers
as a group (5 persons) 145,080 2%
- -------------
* Less than 1 percent
</TABLE>
(1) Since December, 1993, WLP, a limited partnership of which Woodland Group is
a General Partner, has owned approximately 92 percent of Crescent's issued
and outstanding shares of common stock. Woodland Group is owned one-third
by Mr. Jay Halpern, one-third by Mrs. Nancy Gillon and one-third by Mrs.
Gail Halpern. Mrs. Halpern is the wife of Mr. Colin Halpern. Mr. Jay
Halpern and Mrs. Nancy Gillon are the children of Gail and Colin Halpern.
By reason of their indirect ownership of approximately 92 percent of the
outstanding common stock of Crescent, Mr. Jay Halpern, Ms. Gillon and Mrs.
Halpern may be deemed to have a beneficial interest in the shares owned by
Crescent. Mr. Jay Halpern, Ms. Gillon and Mrs. Halpern disclaim beneficial
ownership of such securities.
(2) Represents Options to purchase Shares exercisable within 60 days of June
30, 1998. Mr. Colin Halpern holds Options to acquire an additional 30,000
Shares which will be exercisable upon consummation of the transaction.
(3) Represents Options to purchase Shares exercisable within 60 days of June
30, 1998. Mr. Bush holds Options to acquire an additional 55,000 Shares
which will be exercisable upon consummation of the transaction.
(4) Of these Shares, 23,000 are owned in an Individual Retirement Account for
the benefit of Mr. Gerald Halpern and 25,000 represent Options which are
currently exercisable. Mr. Halpern holds Options to acquire an additional
50,000 Shares which will be exercisable upon consummation of the
transaction. All 23,000 shares in such Individual Retirement Account were
purchased by Mr. Halpern within the last two years, as follows: 2,000
shares on August 2, 1996 at $1.05 per share, 5,000 shares on November 26,
1996 at $0.85 per share, 3,000 shares on June 30, 1997 at $1.938 per share,
3,000 shares on June 30, 1997 at $1.125 per share, 1,000 shares on June 30,
1997 at $2.063 per share, 2,500 shares on July 7, 1997 at $2.125 per share,
2,500 shares on July 10, 1997 at $2.25 per share, 3,000 shares on May 19,
1998 at $3.125 per share and 1,000 shares on May 20, 1998 at $3.188 per
share.
(5) Mr. Coffer was granted an Option under the 1995 Consultants and Advisors
Stock Incentive Plan prior to becoming a director. Mr. Coffer holds Options
to acquire an additional 30,000 Shares which will be exercisable upon
consummation of the transaction. All of the 32,000 shares owned by Mr.
Coffer were purchased by him within the last two years, as follows: 8,000
shares on March 27, 1997 at $1.11 per share, 4,000 shares on April 3, 1997
at $1.235 per share, 5,000 shares on April 20, 1998 at (pound)1.88 per
share, 5,000 shares on May 1, 1998 at (pound)1.915 per share, 5,000 shares
on June 16, 1998 at (pound)1.95 per share and 5,000 shares on June 19, 1998
at (pound)1.8675 per share.
(6) Mr. Goldman holds Options to acquire an additional 10,000 Shares which will
be exercisable upon consummation of the transaction. 15,080 of the 20,080
shares owned by Mr. Goldman were
-52-
<PAGE>
purchased by him within the last two years, as follows: 10,000 shares on
February 21, 1997 at $0.60 per share, 5,000 shares on March 19, 1997 at
$0.64 per share and 80 shares on May 23, 1997 at $2.51 per share.
Crescent. The table below sets forth certain information as of June 30, 1998
regarding the beneficial ownership, as defined in regulations of the SEC, of
shares of Crescent common stock of: (i) each person who is known to Crescent to
be the beneficial owner of more than 5 percent of the outstanding shares of
Crescent; (ii) each director of Crescent; and (iii) all directors and executive
officers as a group. On June 30, 1998 there were 545,000 shares of Crescent
Class A Common Stock and 2,000,000 shares of Crescent Class B Common Stock
outstanding. Unless otherwise specified, the named beneficial owner has sole
voting and investment power. The information in the table below was furnished by
the persons listed. "Beneficial Ownership" as used herein has been determined in
accordance with the rules and regulations of the SEC and is not to be construed
as a representation that any of such shares are in fact beneficially owned by
any person.
<TABLE>
<CAPTION>
Names and Addresses of Amount and Nature of
Beneficial Owners Beneficial Ownership Percentage of Class
Class A Class B Class A Class B
<S> <C> <C> <C> <C>
Woodland Limited Partnership (1) 332,860 2,000,000 60.99% 100%
1301 K St. N.W., Suite 1100
Washington, D.C. 20005
Colin Halpern 0 0 0% 0%
All directors and officers 0 0 0% 0%
as a group (1 person)
- -----------------------
</TABLE>
(1) WLP, a limited partnership of which Woodland Group is the General Partner,
owns substantially all of WLP's issued and outstanding shares of Common
Stock. Woodland Group is owned one-third by Mr. Jay Halpern, one-third by
Mrs. Nancy Gillon and one-third by Mrs. Gail Halpern. Mrs. Gail Halpern is
the wife of Mr. Colin Halpern. Mr. Jay Halpern and Mrs. Nancy Gillon are
the children of Gail and Colin Halpern. By reason of their ownership of the
outstanding stock of Woodland Group, Mr. Jay Halpern, Mrs. Gillon and Mrs.
Gail Halpern may be deemed to have a beneficial interest in the shares of
the Crescent owned by WLP. However, Mr. Halpern, Ms. Gillon and Mrs.
Halpern disclaim beneficial ownership of such securities.
IFS Acquisition. On June 30, 1998 there were no IFS Acquisition shares
outstanding. Prior to the Effective Timer, Crescent will have contributed its
Shares to IFS Acquisition. Consequently, prior to the Effective Time, IFS
Acquisition will own 4,700,000 Shares or approximately 67 percent of the issued
and outstanding Shares.
-53-
<PAGE>
DIVIDENDS AND PRICE RANGE OF SHARES
The Company. The Company's Shares are traded separately and as part of a unit (a
"Unit") which includes one Share, and one Class B Warrant to purchase one Share
through December 8, 1999 at $10.00 per share. The Company's Units, Shares and
Class B Warrants are listed on the OTC Bulletin Board, an inter-dealer,
over-the-counter market, under the symbols DOMSU, DOMS, and DOMSZ. Quotes for
stock traded on the OTC Bulletin Board are not listed in newspapers.
The high and low bid prices of the Units and Common Stock, as reported by
Nasdaq, were as follows:
<TABLE>
<CAPTION>
Common Units
High Low High Low
<S> <C> <C> <C> <C>
1998
1st Quarter $2.625 $2.00 $3.50 $1.75
2nd Quarter 3.1825 3.00 (did not (did not
trade) trade)
1997
1st Quarter $1.3125 $0.50 $1.25 $0.50
2nd Quarter 2.25 1.125 2.125 1.1875
3rd Quarter 2.375 1.125 2.3125 1.25
4th Quarter 2.875 1.75 2.375 1.5625
1996
1st Quarter $1.87 $0.50 $2.00 $0.62
2nd Quarter 1.50 0.62 1.50 0.62
3rd Quarter 1.75 0.62 1.75 0.62
4th Quarter 1.25 0.50 1.25 0.50
1995
1st Quarter $ --- $ --- $6.25 $5.75
(beginning January 11,
1995)
2nd Quarter 5.00 5.00 6.375 5.50
(beginning June 23, 1995)
3rd Quarter 6.125 5.00 7.00 5.125
4th Quarter 8.00 0.75 8.25 0.875
</TABLE>
These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions. Quotations
have been obtained through Standard & Poor's Comstock.
The Company has not paid any cash dividends on its Shares and does not
intend to pay cash dividends on its Shares for the foreseeable future. The
Company intends
-54-
<PAGE>
to retain future earnings to finance future developments. The Company intends to
retain future earnings to finance future developments.
Crescent. Crescent Class A Common Stock has never been listed and no
trading market has ever developed.
Crescent has not paid any cash dividends on its Class A Common Stock and
does not intend to pay cash dividends on its Class A Common Stock for the
foreseeable future. Crescent intends to retain future earnings to finance future
developments.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company has engaged the firm of Ernst & Young, Chartered Accountants,
as its auditors.
It is anticipated that a representative of Ernst & Young, Chartered
Accountants, will be present at the Special Meeting, and will be given the
opportunity to make any statement he or she desires to make and will be
available to respond to questions.
OTHER MATTERS
The IFS Board does not know of other matters which are likely to be brought
before the Special Meeting. However, in the event that any other matters
properly come before the Special Meeting, the persons named in the enclosed
proxy are expected to vote the Shares represented by such proxy on such matters
in accordance with their best judgment.
The cost of preparing, assembling and mailing this Proxy Statement, the
Notice of Meeting and the enclosed proxy is to be borne by Crescent.
In addition to the solicitation of proxies by the use of the mails, the
Company may utilize some of its officers and employees (who will receive no
compensation in addition to their regular salaries) to solicit proxies
personally and by telephone. The Company may request banks, brokers and other
custodians, nominees and fiduciaries to forward copies of this Proxy Statement
to their principals and to request authority for the execution of proxies, and
will reimburse such persons for their expenses in so doing.
-55-
<PAGE>
SHAREHOLDERS' PROPOSALS FOR THE 1998 ANNUAL MEETING
If the IFS Merger is not consummated, or if it is not consummated within
the time period currently contemplated, the Company will hold a 1998 Annual
Meeting of Shareholders in November 1998. As described in the Company's proxy
statement relating to its 1997 Annual Meeting of Shareholders, in order for
proposals of the Company's shareholders to be considered for inclusion in the
proxy statement relating to its 1998 Annual Meeting of Shareholders, such
proposals must have been received at the Company's executive office not later
than December 15, 1997.
The Company will provide the Shareholders, without charge, a copy of the
Company's Annual Report on Form 10-KSB filed with the SEC for the 52 weeks ended
December 28, 1997, including the financial statements and schedules attached
thereto, upon written request to Mr. H. Michael Bush, Secretary, at
International Franchise Systems, Inc., 6701 Democracy Boulevard, Suite 300,
Bethesda, Maryland 20817.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the SEC by the Company File No.
000-26270 are incorporated by reference in this Proxy Statement: (i) the Annual
Report on Form 10-KSB for the 52 weeks ended December 28, 1997; (ii) the
Quarterly Report on Form 10-QSB for the 13 weeks ended March 29, 1998; (iii) the
Current Report on Form 8-K, dated March 19, 1998, and filed on March 24, 1998;
and (iv) the Current Report on Form 8-K, dated May 19, 1998 and filed on May 21,
1998.
All documents and reports filed by the Company with the SEC pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Proxy Statement and prior to the date of the Special Meeting shall be deemed to
be incorporated by reference in this Proxy Statement and to be a part hereof
from the respective dates of the filing of such documents or reports.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein (or in any other subsequently filed document which also is or is deemed
to be incorporated by reference herein) modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement.
-56-
<PAGE>
A COPY OF THE COMPANY'S 1997 ANNUAL REPORT ON FORM 10-KSB IS BEING DELIVERED
WITH THIS PROXY STATEMENT.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS TO SUCH
DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE TO
SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER TO WHOM THIS PROXY STATEMENT IS DELIVERED, ON WRITTEN OR ORAL
REQUESTS OF SUCH PERSON AND BY FIRST CLASS MAIL OR OTHER EQUALLY PROMPT MEANS
WITHIN ONE BUSINESS DAY OF RECEIPT OF SUCH REQUEST, TO INTERNATIONAL FRANCHISE
SYSTEMS, INC., 6701 DEMOCRACY BOULEVARD, SUITE 300, BETHESDA, MARYLAND 20817,
ATTN: H. MICHAEL BUSH, SECRETARY (TELEPHONE: (301) 897-4870). IN ORDER TO ENSURE
DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETING, REQUESTS MUST BE
RECEIVED NO LATER THAN FIVE BUSINESS DAYS PRIOR TO THE SPECIAL MEETING.
AVAILABLE INFORMATION
The Company and Crescent are subject to the informational requirements of
the Exchange Act and in accordance therewith file reports, proxy statements and
other information with the SEC. Such reports, proxy statements and other
information can be inspected and copied at the public reference facilities of
the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549 and at the regional offices of the SEC located at 7 World Trade Center,
13th Floor, Suite 1300, New York, New York 10048 and Suite 1400, Citicorp
Center, 14th Floor, 500 West Madison Street, Chicago, Illinois 60661. Copies of
such material can also be obtained at prescribed rates by writing to the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549. In addition, such reports, proxy statements and other
information can be inspected at the offices of the NYSE, 20 Broad Street, New
York, New York 10005, and are available from the Edgar filings obtained through
the SEC internet website (http://www.sec.gov).
-57-
<PAGE>
ANNEX A
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF MAY 19, 1998
AMONG
INTERNATIONAL FRANCHISE SYSTEMS, INC.,
CRESCENT CAPITAL, INC.
AND
IFS ACQUISITION CORPORATION
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
THE IFS MERGER
1.1. The IFS Merger........................................................2
1.2. Effective Time; Closing...............................................2
1.3. Effect of the IFS Merger..............................................2
1.4. Conversion of Shares..................................................2
1.5. Stock Options.........................................................3
1.6. Surrender of Shares; Stock Transfer Books.............................4
1.7. Class B Warrants......................................................5
1.8. Unit Purchase Options.................................................6
ARTICLE II
THE SURVIVING CORPORATION
2.1. Certificate of Incorporation..........................................6
2.2. Bylaws................................................................6
2.3. Directors and Officers................................................6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.1. Organization and Standing.............................................6
3.2. Capitalization........................................................7
3.3. Authority for Agreement...............................................7
3.4. No Conflict...........................................................8
3.5. Required Filings and Consents.........................................8
3.6. Disclosure Documents..................................................8
3.7. Brokers...............................................................9
3.8. Information Provided to Scott & Stringfellow..........................9
A-i
<PAGE>
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CRESCENT AND IFS ACQUISITION
4.1. Organization and Standing.............................................9
4.2. Authority for Agreement..............................................10
4.3. No Conflict..........................................................10
4.4. Required Filings and Consents........................................10
4.5. Information for Company Disclosure Documents.........................10
4.6. Brokers..............................................................11
4.7. Information Provided to Scott & Stringfellow.........................11
ARTICLE V
COVENANTS
5.1. Conduct of the Business Pending the IFS Merger.......................11
5.2. Access to Information; Confidentiality...............................12
5.3. Further Action; Reasonable Efforts...................................12
5.4. Stockholders' Meeting................................................13
5.5. Competing Transaction................................................13
5.6. Proxy Statement......................................................13
5.7. Indemnification......................................................14
5.8. Public Announcements.................................................14
5.9. Notices of Certain Events............................................14
ARTICLE VI
CONDITIONS
6.1. Conditions to the Obligation of Each Party...........................15
6.2. Additional Conditions to the Obligations of Crescent and IFS
Acquisition..........................................................15
6.3. Additional Conditions to the Obligations of the Company..............16
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1. Termination..........................................................17
7.2. Effect of Termination................................................18
7.3. Amendments...........................................................18
7.4. Waiver...............................................................18
A-ii
<PAGE>
ARTICLE VIII
GENERAL PROVISIONS
8.1. No Third Party Beneficiaries.........................................18
8.2. Entire Agreement.....................................................18
8.3. Succession and Assignment............................................18
8.4. Counterparts.........................................................18
8.5. Headings.............................................................19
8.6. Governing Law........................................................19
8.7. Severability.........................................................19
8.8. Specific Performance.................................................19
8.9. Construction.........................................................19
8.10. Non-Survival of Representations and Warranties.......................19
8.11. Certain Definitions..................................................19
8.12. Fees and Expenses....................................................20
8.13. Notices..............................................................20
EXHIBIT A Ownership of International Franchise Systems, Inc. Common Stock and
Options
A-iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (the "Agreement") dated as of May 19, 1998,
among International Franchise Systems, Inc., a Delaware corporation (the
"Company"), Crescent Capital, Inc., a Delaware corporation ("Crescent"), and IFS
Acquisition Corporation, a Delaware corporation and wholly owned subsidiary of
Crescent ("IFS Acquisition").
W I T N E S S E T H:
WHEREAS, as of the date hereof, Crescent owns an aggregate of 4,700,000
shares (the "Crescent Shares") of the Common Stock, par value $.01 per share, of
the Company (the "Shares"), representing approximately 67% of the total number
of Shares issued and outstanding as of the date hereof;
WHEREAS, Crescent has proposed to the Board of Directors of the Company
that Crescent acquire the 2,327,324 Shares not owned by Crescent (the "Public
Shares") through a merger (the "IFS Merger") of IFS Acquisition with and into
the Company pursuant to the terms of this Agreement; and
WHEREAS, the Boards of Directors of each of Crescent and IFS Acquisition
believe that it is in the best interests of each of Crescent and IFS Acquisition
and their respective stockholders, and the Board of Directors of the Company
believes that it is in the best interests of the Company and its stockholders,
to enter into this Agreement and to consummate the merger of IFS Acquisition
with and into the Company in accordance with the terms of this Agreement; and
WHEREAS, a Special Committee (the "Special Committee") of directors of the
Board of Directors of the Company has unanimously recommended that the Board of
Directors of the Company approve and authorize this Agreement and the IFS
Merger, which recommendation was based in part on the opinion of Scott &
Stringfellow, independent financial advisors to the Special Committee, that the
consideration to be received by the holders of Public Shares in the IFS Merger
is fair to such holders from a financial point of view; and
WHEREAS, the Boards of Directors of the Company, Crescent and IFS
Acquisition and the Special Committee have approved this Agreement and the IFS
Merger upon the terms set forth in this Agreement;
NOW, THEREFORE, in consideration of the representations, warranties and
agreements herein contained, the parties hereto agree as follows:
A-1
<PAGE>
ARTICLE I
THE IFS MERGER
1.1. The IFS Merger. Upon the terms and subject to the conditions set forth
in this Agreement, and in accordance with the General Corporation Law of the
State of Delaware ("DGCL"), at the Effective Time (as defined below) IFS
Acquisition shall be merged with and into the Company. As a result of the IFS
Merger, the separate corporate existence of IFS Acquisition shall cease and the
Company shall continue as the surviving corporation of the IFS Merger. In its
capacity as the surviving corporation of the IFS Merger, the Company is
sometimes referred to herein as the "Surviving Corporation."
1.2. Effective Time; Closing. As promptly as practicable after the
satisfaction or, if permissible, waiver of the conditions set forth in Article
VI, the parties hereto shall cause the IFS Merger to be consummated by filing a
certificate of merger (the "Certificate of Merger") with the Secretary of State
for the State of Delaware, in such form as is required by, and executed in
accordance with the relevant provisions of, the DGCL. The IFS Merger shall
become effective at such time as the Certificate of Merger is duly filed with
the Secretary of State for the State of Delaware, or at such other time as the
parties hereto agree shall be specified in the Certificate of Merger (the date
and time the Merger becomes effective, the "Effective Time"). On the date of
such filing, a closing shall be held at the offices of LeBoeuf, Lamb, Greene &
MacRae, L.L.P., 125 West 55th Street, New York, New York 10019, or such other
place as the parties shall agree.
1.3. Effect of the IFS Merger. At the Effective Time, the effect of the IFS
Merger shall be as provided in the applicable provisions of the DGCL.
1.4. Conversion of Shares. At the Effective Time:
(a) each Share held by the Company as treasury stock or owned by Crescent,
IFS Acquisition or any direct or indirect subsidiary of either of them
immediately prior to the Effective Time shall be cancelled and retired and cease
to exist and no payment shall be made with respect thereto;
(b) each Public Share outstanding immediately prior to the Effective Time
shall, except as otherwise provided in paragraph (a) or paragraph (e) of this
Section 1.4, be converted into the right to receive $3.60 in cash, without
interest (such cash amount being referred to herein as the "IFS Merger
Consideration") payable to the holder thereof upon the surrender of the
certificate formerly representing such outstanding Public Shares;
(c) the holders of certificates representing Public Shares shall cease to
have any rights as stockholders of the Company, except such rights, if any, as
they may have pursuant to the DGCL;
A-2
<PAGE>
(d) each share of common stock of IFS Acquisition outstanding immediately
prior to the Effective Time shall be converted into and become one share of
common stock of the Surviving Corporation and shall constitute the only
outstanding shares of capital stock of the Surviving Corporation; and
(e) anything in this Agreement to the contrary notwithstanding, any issued
and outstanding Public Shares held by a person who objects to the IFS Merger (a
"Dissenting Stockholder") and complies with all the provisions of the DGCL
concerning the right of holders of Shares to dissent from the IFS Merger and
require appraisal of their Shares ("Dissenting Shares") shall not be converted
as described in Section 1.4(b) but shall become, by virtue of the IFS Merger,
the right to receive such consideration as may be determined to be due to such
Dissenting Stockholder pursuant to the DGCL. If, after the Effective Time, such
Dissenting Stockholder withdraws his demand for appraisal or fails to perfect or
otherwise loses his right of appraisal, in any case pursuant to the DGCL, such
Shares shall be deemed to have been converted as of the Effective Time into the
right to receive the IFS Merger Consideration. The Company shall give Crescent
and IFS Acquisition (i) prompt notice of any demands for appraisal of Public
Shares received by the Company and (ii) the opportunity to participate in and
direct all negotiations and proceedings with respect to any such demands. The
Company shall not, without the prior written consent of Crescent, make any
payment with respect to, or settle, offer to settle or otherwise negotiate, any
such demands.
1.5. Stock Options. (a) At the Effective Time, each holder of an option to
purchase Shares issued pursuant to grants under the 1994 Stock Incentive Plan,
1997 Stock Incentive Plan, 1995 Non-Employee Directors Plan, 1997 Non-Employee
Directors Plan and 1995 Consultants and Advisors Stock Incentive Plan (as
amended) (together, the "Stock Option Plans", and each option issued thereunder,
an "Option") shall become entitled to receive (subject to any required tax
withholding) from the Surviving Corporation, for each Option held by such holder
as of the Effective Time, an amount in cash equal to the product of (i) the
excess, if any, of the IFS Merger Consideration over the applicable exercise
price of such Option (determined on a Share by Share basis) and (ii) the number
of Shares subject to such Option that are currently exercisable in accordance
with the provisions of the Stock Option Plans immediately prior to the Effective
Time (such amount with respect to any Option, the "Option Consideration").
(b) Promptly after the date hereof, the Company shall cause to be mailed to
each holder of Options any notification with respect to the effect of the IFS
Merger on such Options as may be required by the Stock Option Plans. No interest
shall accrue or be paid to the beneficial owner or holder of any Option with
respect to the Option Consideration payable upon the cancellation of any Option.
(c) No further Options shall be granted pursuant to the Stock Option Plans
after the Effective Time.
A-3
<PAGE>
1.6. Surrender of Shares; Stock Transfer Books. (a) Prior to the Effective
Time, Crescent shall designate a bank or trust company reasonably acceptable to
the Company to act as agent (the "Paying Agent") for the holders of Public
Shares in connection with the IFS Merger to receive the funds to which holders
of Public Shares shall become entitled pursuant to Section 1.4(b). Immediately
prior to the Effective Time, IFS Acquisition shall deposit with the Paying Agent
an amount in cash equal to the IFS Merger Consideration multiplied by the number
of Public Shares (other than the Dissenting Shares) (the "Fund"), to be held by
the Paying Agent pursuant to the terms of the Paying Agent Agreement, for the
benefit of the Public Shareholders (other than the holders of the Dissenting
Shares). The Paying Agent, pursuant to irrevocable instructions, shall make the
payments provided in Sections 1.4(b).
(b) Promptly after the Effective Time, the Surviving Corporation shall
cause to be mailed to each person who was, at the Effective Time, a holder of
record of Public Shares entitled to receive the IFS Merger Consideration
pursuant to Section 1.4(b) a form of letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the certificates
evidencing such Public Shares (the "Share Certificates") shall pass, only upon
proper delivery of the Share Certificates to the Paying Agent) and instructions
for use in effecting the surrender of the Share Certificates for payment
therefor. Upon surrender to the Paying Agent of a Share Certificate, together
with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, and such other documents as may be
required pursuant to such instructions, the holder of such Share Certificate
shall be entitled to receive in exchange therefor the IFS Merger Consideration
for each Share formerly evidenced by such Share Certificate, and such Share
Certificate shall then be cancelled. Until so surrendered, each such Share
Certificate shall, at and after the Effective Time, represent for all purposes
only the right to receive such IFS Merger Consideration. No interest shall
accrue or be paid to any beneficial owner of Public Shares or any holder of any
Share Certificate with respect to the IFS Merger Consideration payable upon the
surrender of any Share Certificate. If payment of the IFS Merger Consideration
is to be made to a person other than the person in whose name the surrendered
Share Certificate is registered on the stock transfer books of the Company, it
shall be a condition of payment that the Share Certificate so surrendered shall
be endorsed in blank or to the Paying Agent or otherwise be in proper form for
transfer and that the person requesting such payment shall have paid all
transfer and other taxes required by reason of the payment of the IFS Merger
Consideration to a person other than the registered holder of the Share
Certificate surrendered or shall have established to the satisfaction of the
Surviving Corporation that such taxes either have been paid or are not
applicable.
(c) At any time following the one year period after the Effective Time, the
Surviving Corporation shall be entitled to require the Paying Agent to deliver
to it any portion of the Fund which had been made available to the Paying Agent
and not disbursed to holders of Public Shares (including, without limitation,
all interest and other income received by the Paying Agent in respect of all
amounts held in the Fund or other funds made available to it), and thereafter
each such holder shall be entitled to look only to the Surviving Corporation
(subject to
A-4
<PAGE>
abandoned property, escheat and other similar laws), and only as general
creditors thereof, with respect to any IFS Merger Consideration that may be
payable upon due surrender of the Share Certificates held by such holder. The
foregoing notwithstanding, neither the Surviving Corporation nor the Paying
Agent shall be liable to any holder of a Public Share for any IFS Merger
Consideration delivered in respect of such Public Share to a public official
pursuant to any abandoned property, escheat or other similar law.
After the Effective Time, the stock transfer books of the Company shall be
closed and thereafter there shall be no further registration of transfers of
Public Shares on the records of the Company. From and after the Effective Time,
the holders of Public Shares outstanding immediately prior to the Effective Time
shall cease to have any rights with respect to such Public Shares except as
otherwise provided herein or by applicable law.
(d) Promptly after the Effective Time, the Surviving Corporation shall
cause to be mailed to each holder of Options a check payable to such holder in
an amount equal to the Option Consideration payable with respect to all Options
held by such holder.
(e) IFS Acquisition, the Surviving Corporation and the Paying Agent, as the
case may be, shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any holder of Public Shares
and/or Options such amounts that IFS Acquisition, the Surviving Corporation or
the Paying Agent is required to deduct and withhold with respect to the making
of such payment under the Internal Revenue Code of 1986, as amended (the
"Code"), the rules and regulations promulgated thereunder or any provision of
state, local or foreign tax law. To the extent that amounts are so withheld by
IFS Acquisition, the Surviving Corporation or the Paying Agent, such amounts
shall be treated for all purposes of this Agreement as having been paid to the
holder of the Public Shares and/or Options in respect of which such deduction
and withholding was made by IFS Acquisition, the Surviving Corporation or the
Paying Agent.
(f) Any portion of the deposits made available to the Paying Agent to pay
for Public Shares for which appraisal rights have been perfected will be
returned to the Surviving Corporation upon demand, subject, however, to the
obligation of the Surviving Corporation to return such amounts to the Paying
Agent at such time as such appraisal rights are no longer perfected.
1.7. Class B Warrants. At the Effective Time, each holder of the Company's
Redeemable Class B Common Stock Purchase Warrants entitling the holder to
purchase from the Company one Share at an exercise price of $10.00 per Share
(each, a "Class B Warrant") until and including December 8, 1999 (the "Class B
Warrant Expiration Date"), shall have the right to receive thereafter, by
exercising such Class B Warrant prior to the Class B Warrant Expiration Date,
$3.60 in cash for each Class B Warrant so exercised.
A-5
<PAGE>
1.8. Unit Purchase Options. At the Effective Time, the holder of options to
purchase units from the Company issued to such holder on September 9, 1994 (each
such unit entitling the holder to purchase from the Company for an exercise
price of $8.25 in cash until and including December 8, 1999 (the "Unit Purchase
Option Expiration Date"), (i) one Share and (ii) one Class B Redeemable Common
Stock Purchase Warrant to purchase one Share at an exercise price of $16.50 per
Share (each, a "Unit Purchase Option")) shall have the right to receive
thereafter, by exercising each Unit Purchase Option prior to the Unit Purchase
Option Expiration Date, (i) $3.60 in cash for each Share the holder of the Unit
Purchase Option is entitled to receive upon the exercise of the Unit Purchase
Option and (ii) $3.60 in cash upon the subsequent exercise of the Class B
Warrant received pursuant to the exercise of the Unit Purchase Option.
ARTICLE II
THE SURVIVING CORPORATION
2.1. Certificate of Incorporation. At the Effective Time and subject to the
terms of Section 5.7, the certificate of incorporation of the Company as in
effect immediately prior to the Effective Time shall be the certificate of
incorporation of the Surviving Corporation until thereafter amended in
accordance with the DGCL, such certificate of incorporation and the bylaws of
the Surviving Corporation.
2.2. Bylaws. Subject to the terms of Section 5.7, the bylaws of the Company
in effect immediately prior to the Effective Time shall be the bylaws of the
Surviving Corporation until amended in accordance with the DGCL, and the
certificate of incorporation and such bylaws of the Surviving Corporation.
2.3. Directors and Officers. From and after the Effective Time, until
successors are duly elected or appointed and qualified in accordance with
applicable law, (i) the directors of the Company immediately prior to the
Effective Time shall be the directors of the Surviving Corporation and (ii) the
officers of the Company immediately prior to the Effective Time shall continue
as the officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed and qualified.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Crescent and IFS Acquisition as
follows:
3.1. Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has full corporate power and authority to conduct its business as
presently conducted and to enter into
A-6
<PAGE>
and perform this Agreement and to carry out the IFS Merger. The Company is duly
qualified to do business as a foreign corporation and is in good standing in
every other jurisdiction in which the failure to so qualify would have a
Material Adverse Effect (as defined below) on the Company. The Company has
furnished to Crescent and IFS Acquisition true and complete copies of its
certificate of incorporation (the "Company Certificate of Incorporation") and
bylaws (the "Company Bylaws"), each as amended to date and presently in effect.
"Material Adverse Effect" shall mean, with respect to any party hereto, any
change, event or effect that, when taken together with all other adverse
changes, events or effects, is or is reasonably likely to be materially adverse
to the business, operations, properties or financial condition of such party and
its subsidiaries and affiliates, taken as a whole.
3.2. Capitalization. The authorized capital stock of the Company consists
of 19,000,000 shares of common stock, par value $.01 per share. As of May 15,
1998: (i) 7,027,324 Shares are issued and outstanding, all of which are validly
issued, fully paid and nonassessable; (ii) 7,000 Shares are held in the treasury
of the Company; (iii) 1,077,324 Class B Warrants, entitling the holder of each
Class B Warrant to purchase one Share at a conversion price of $10.00 per Share
up to and including December 8, 1990, are issued and outstanding; (iv) Unit
Purchase Options for 107,732 Units, entitling the holder of the Unit Purchase
Option to purchase Units at a price of $8.25 per Unit, are issued and
outstanding. The Company has previously furnished to Crescent and IFS
Acquisition a detailed schedule of outstanding Options, including the exercise
prices and existing provisions therefor. See Schedule attached hereto as Exhibit
A. Except as provided in this Section 3.2, (A) no subscription, warrant, option,
convertible security or other right (contingent or otherwise) to purchase or
acquire any shares of capital stock of the Company is authorized or outstanding;
(B) the Company has no obligation (contingent or otherwise) to issue any
subscription, warrant, option, convertible security or other such right or to
issue or distribute to holders of any shares of its capital stock any evidence
of indebtedness or assets of the Company; and (C) the Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any shares of
its capital stock or any interest therein or to pay any dividend or make any
other distribution in respect thereof.
3.3. Authority for Agreement. The execution, delivery and performance by
the Company of this Agreement has been duly authorized by all necessary
corporate action (including without limitation the unanimous recommendation of
the Special Committee), other than the approval of stockholders of the Company
to the extent required by applicable law. This Agreement has been duly executed
and delivered by the Company and, assuming the due authorization, execution and
delivery by Crescent and IFS Acquisition, constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms. The affirmative vote of holders of a majority of the outstanding shares
of Common Stock of the Company entitled to vote at a duly called and held
meeting of stockholders is the only vote of the Company's stockholders necessary
to approve this Agreement.
A-7
<PAGE>
3.4. No Conflict. The execution and delivery of this Agreement by the
Company do not, and the performance of this Agreement by the Company and the
consummation of the IFS Merger will not: (i) conflict with or violate the
Company Certificate of Incorporation or Company Bylaws or equivalent
organizational documents of any of its subsidiaries or affiliates; (ii) conflict
with or violate any law, rule, regulation, order, judgment or decree applicable
to the Company or any of its subsidiaries or affiliates or by which any property
or asset of the Company or any of its subsidiaries or affiliates is bound or
affected; or (iii) result in any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any right of termination, amendment, acceleration or cancellation
of, or result in the creation of a lien or other encumbrance on any property or
asset of the Company or any of its subsidiaries or affiliates pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which the Company or any of its
subsidiaries or affiliates is a party or by which the Company or any of its
subsidiaries or affiliates or any property or asset of any of them is bound or
affected, except in the case of clauses (i), (ii) and (iii) for any such
conflicts, violations, breaches, defaults or other occurrences which would not,
individually or in the aggregate, have a Material Adverse Effect on the Company
and its subsidiaries and affiliates taken as a whole, or prevent or materially
delay the performance by the Company of any of its obligations under this
Agreement.
3.5. Required Filings and Consents. The execution and delivery of this
Agreement by the Company do not, and the performance of this Agreement by the
Company will not, require any consent, approval, authorization or permit of, or
filing with or notification to, any governmental or regulatory authority,
domestic or foreign, except (i) for applicable requirements, if any, of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), state
securities or "blue sky" laws ("Blue Sky Laws") and filing and recordation of
appropriate merger documents as required by the DGCL and (ii) where failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not, individually or in the aggregate, have a
Material Adverse Effect on the Company and its subsidiaries and affiliates taken
as a whole, or prevent or materially delay the performance by the Company of any
of its obligations under this Agreement or the consummation of the Merger.
3.6. Disclosure Documents. (a) Each document required to be filed by the
Company with the Securities and Exchange Commission ("SEC") in connection with
the transactions contemplated by this Agreement (the "Company Disclosure
Documents"), including, without limitation, the IFS Proxy Statement (as defined
below) to be filed with the SEC in connection with the IFS Merger, and any
amendments or supplements thereto will, when filed, comply as to form in all
material respects with the applicable requirements of the Exchange Act.
(b) At the time the IFS Proxy Statement or any amendment or supplement
thereto is first mailed to stockholders of the Company and at the time of the
Stockholders' Meeting, the IFS Proxy Statement, as supplemented or amended, if
applicable, will not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to
A-8
<PAGE>
make the statements made therein, in the light of the circumstances under which
they were made, not misleading. At the time of the filing of any Company
Disclosure Document, if any, other than the Proxy Statement and at the time of
any distribution thereof, such Company Disclosure Document will not contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. The foregoing notwithstanding, the
Company makes no representation or warranty with respect to any information
supplied by Crescent, IFS Acquisition or any of their representatives which is
contained in any of the Company Disclosure Documents.
3.7. Brokers. No broker, finder or investment banker (other than Scott &
Stringfellow) is entitled to any brokerage, finder's or other fee or commission
in connection with this Agreement or the IFS Merger based upon arrangements made
by or on behalf of the Company. The Company has heretofore furnished to Crescent
and IFS Acquisition a complete and correct copy of all agreements between the
Company and Scott & Stringfellow pursuant to which such firm would be entitled
to any payment relating to this Agreement or the IFS Merger.
3.8. Information Provided to Scott & Stringfellow. To the knowledge of the
Company, the information provided by the Company to Scott & Stringfellow in the:
(i) Master Franchise Agreement dated as of December 29, 1993, between Domino's
Pizza International, Inc. and Domino's Pizza Group Limited as amended on
September 28, 1995, May 26, 1997 and June 24, 1997; (ii) Agreement for the Sale
and Purchase for Shares in Domino's Pizza Group Limited dated as of June 26,
1997, between International Franchise Systems, Inc., Abacus (C.I.) Limited and
Lacosint Establishment and accompanying documents; (iii) Prospectus dated
September 9, 1994 for the sale of Units of International Franchise Systems,
Inc.; and (iv) 1997 Audited Financial Statements for the Company as filed with
the Annual Report on Form 10-KSB for the 52 weeks ended December 28, 1997, does
not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CRESCENT AND IFS ACQUISITION
Crescent and IFS Acquisition represent and warrant to the Company as
follows:
4.1. Organization and Standing. Each of Crescent and IFS Acquisition is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has full corporate power and authority to conduct
its business as presently conducted and to enter into and perform this Agreement
and to carry out the IFS Merger.
A-9
<PAGE>
4.2. Authority for Agreement. The execution, delivery and performance by
each of Crescent and IFS Acquisition of this Agreement, and the consummation by
each of Crescent and IFS Acquisition of the IFS Merger, has been duly authorized
by all necessary corporate action. This Agreement has been duly executed and
delivered by Crescent and IFS Acquisition and, assuming the due authorization,
execution and delivery by the Company, constitutes a legal, valid and binding
obligation of each of Crescent and IFS Acquisition enforceable against Crescent
or IFS Acquisition in accordance with its terms.
4.3. No Conflict. The execution and delivery of this Agreement by Crescent
and IFS Acquisition do not, and the performance of this Agreement by Crescent
and IFS Acquisition and the consummation of the IFS Merger will not: (i)
conflict with or violate the certificate of incorporation or bylaws of Crescent
or IFS Acquisition or any of their subsidiaries or affiliates; (ii) conflict
with or violate any law, rule, regulation, order, judgment or decree applicable
to Crescent or IFS Acquisition or any of their respective subsidiaries or
affiliates or by which any property or asset of Crescent or IFS Acquisition or
their respective subsidiaries or affiliates is bound or affected; or (iii)
result in any breach of or constitute a default (or an event which with notice
or lapse of time or both would become a default) under, or give to others any
right of termination, amendment, acceleration or cancellation of, or result in
the creation of a lien or other encumbrance on any property or asset of Crescent
or IFS Acquisition or their respective subsidiaries or affiliates pursuant to,
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Crescent or IFS
Acquisition or their respective subsidiaries or affiliates is a party or by
which Crescent or IFS Acquisition or their respective subsidiaries or affiliates
or any property or asset of any of them is bound or affected, except in the case
of clauses (ii) and (iii) for any such conflicts, violations, breaches, defaults
or other occurrences which would not, individually or in the aggregate, prevent
or delay the performance by Crescent or IFS Acquisition of their respective
obligations under this Agreement or the consummation of the IFS Merger.
4.4. Required Filings and Consents. The execution and delivery of this
Agreement by Crescent and IFS Acquisition do not, and the performance of this
Agreement by Crescent and IFS Acquisition will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, domestic or foreign, except (i) for
applicable requirements, if any, of the Exchange Act, state securities or Blue
Sky Laws and filing and recordation of appropriate merger documents as required
by Delaware Law and (ii) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not,
individually or in the aggregate, prevent or delay the performance by Crescent
and IFS Acquisition of any of their respective obligations under this Agreement
or the consummation of the IFS Merger.
4.5. Information for Company Disclosure Documents. The information supplied
by Crescent or IFS Acquisition for inclusion in the Company Disclosure Documents
shall not contain any untrue statement of material fact, or omit to state any
material fact required to be
A-10
<PAGE>
stated therein or necessary in order to make the statements made therein, in the
light of the circumstances under which they are made, not misleading (i) in the
case of the IFS Proxy Statement at the time the IFS Proxy Statement or any
amendment or supplement thereto is first mailed to stockholders of the Company
and at the time of the Stockholders' Meeting and (ii) in the case of any Company
Disclosure Document other than the IFS Proxy Statement, at the time of the
filing thereof and at the time of any distribution thereof. The foregoing
notwithstanding, neither Crescent nor IFS Acquisition makes any representation
or warranty with respect to any information supplied by the Company or any of
its representatives which is contained in any of the foregoing documents.
4.6. Brokers. No broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with this Agreement
or the IFS Merger based upon arrangements made by or on behalf of Crescent or
IFS Acquisition.
4.7. Information Provided to Scott & Stringfellow. To the knowledge of
Crescent and IFS Acquisition, the information provided by the Company to Scott &
Stringfellow in the: (i) Master Franchise Agreement dated as of December 29,
1993, between Domino's Pizza International, Inc. and Domino's Pizza Group
Limited as amended on September 28, 1995, May 26, 1997 and June 24, 1997; (ii)
Agreement for the Sale and Purchase for Shares in Domino's Pizza Group Limited
dated as of June 26, 1997, between International Franchise Systems, Inc., Abacus
(C.I.) Limited and Lacosint Establishment and accompanying documents; (iii)
Prospectus dated September 9, 1994 for the sale of Units of International
Franchise Systems, Inc.; and (iv) 1997 Audited Financial Statements for the
Company as filed with the Annual Report on Form 10-KSB for the 52 weeks ended
December 28, 1997, does not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the statements made
therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE V
COVENANTS
5.1. Conduct of the Business Pending the IFS Merger. (a) The Company
covenants and agrees that between the date of this Agreement and the Effective
Time, unless Crescent and IFS Acquisition shall otherwise agree in writing, the
businesses of the Company and its subsidiaries shall be conducted only in, and
the Company and its subsidiaries and affiliates shall not take any action except
in, the ordinary course of business and in a manner consistent with prior
practice.
(b) The Company agrees and covenants that between the date of this
Agreement and the Effective Time, the Company shall not, nor shall the Company
permit any of its subsidiaries or affiliates to: (i) declare or pay any
dividends on or make other distributions in
A-11
<PAGE>
respect of any of its capital stock, except for dividends or distributions by a
subsidiary or affiliate of the Company to the Company or another subsidiary or
affiliate of the Company; (ii) split, combine or reclassify any of its capital
stock or issue or authorize or propose the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock; (iii)
repurchase or otherwise acquire or permit any subsidiary or affiliate to
purchase or otherwise acquire, any shares of its capital stock; or (iv) issue,
deliver or sell, or authorize or propose the issuance, delivery or sale of, any
shares of its capital stock or any securities convertible into any such shares
of its capital stock, or any rights, warrants or options to acquire any such
shares or convertible securities, other than the issuance of shares of Common
Stock of the Company upon the exercise of Options outstanding as of the date of
this Agreement under the Stock Option Plans.
5.2. Access to Information; Confidentiality. (a) From the date hereof to
the Effective Time, the Company shall, and shall cause the officers, directors,
employees, auditors and agents of the Company to, afford the officers, employees
and agents of Crescent and IFS acquisition reasonable access at all reasonable
times during regular business hours to the officers, employees, agents,
properties, offices, plants and other facilities, books and records of the
Company and its subsidiaries and affiliates, and shall furnish Crescent and IFS
Acquisition with financial, operating and other data and information as Crescent
or IFS Acquisition, through its officers, employees or agents, may reasonably
request.
(b) No investigation pursuant to this Section 5.2 shall affect any
representation or warranty in this Agreement of any party hereto or any
condition to the obligations of the parties hereto.
(c) Information afforded or furnished to Crescent or IFS Acquisition by the
Company pursuant to this Section 5.2 shall be kept confidential by Crescent and
IFS Acquisition and shall not be disclosed to third parties by them except: (i)
with the consent of the Company; (ii) as may be required by law, regulation or
by legal process (including by deposition, interrogatory, request for documents,
subpoena, civil investigative demand or similar process); or (iii) as may be
necessary in connection with the consummation of the IFS Merger.
5.3. Further Action; Reasonable Efforts. Upon the terms and subject to the
conditions hereof, each of the parties hereto shall use its reasonable efforts
to take, or cause to be taken, all appropriate action, and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the IFS Merger, including, without
limitation, using its reasonable efforts to obtain all licenses, permits,
consents, approvals, authorizations, qualifications and orders of governmental
authorities and parties to contracts with the Company and its subsidiaries and
affiliates as are necessary for the consummation of the IFS Merger and to
fulfill the conditions to the IFS Merger. In case at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the officers and directors of the Surviving
Corporation will be authorized to
A-12
<PAGE>
execute and deliver, in the name and on behalf of the Company or IFS
Acquisition, any deeds, bills of sale, assignments or assurances and to take and
do, in the name and on behalf of the Company or IFS Acquisition, any other
actions and things they may deem desirable to vest, perfect or confirm of record
or otherwise in the Surviving Corporation any and all right, title and interest
in, to and under any of the rights, properties or assets of the Company acquired
or to be acquired by the Surviving Corporation as a result of, or in connection
with, the IFS Merger.
5.4. Stockholders' Meeting. The Company shall, in accordance with
applicable law and the Company Certificate of Incorporation and Company Bylaws:
(i) duly call, give notice of, convene and hold a special meeting of its
stockholders as promptly as practicable for the purpose of considering and
taking action on this Agreement and the IFS Merger (the "Stockholders' Meeting")
and (ii) include in the IFS Proxy Statement (A) the recommendation of the Board
of Directors of the Company that the stockholders of the Company approve and
adopt this Agreement, unless the Board of Directors or the Special Committee,
after consultation with counsel, determines to withdraw such recommendation in
light of their respective applicable fiduciary duties, and (B) the opinion of
Scott & Stringfellow that the consideration to be received by the holders of
Public Shares in the IFS Merger is fair to such holders from a financial point
of view. The Company shall use its reasonable efforts to solicit from holders of
Public Shares entitled to vote at the Stockholders' Meeting proxies in favor of
such approval. At the Stockholders' Meeting, Crescent and IFS Acquisition shall
cause the shares of Common Stock of the Company owned by Crescent or any of its
direct or indirect subsidiaries to be voted in favor of the approval and
adoption of this Agreement and the IFS Merger.
5.5. Competing Transaction. The Company may participate in discussions and
negotiate with any person concerning any merger, sale of assets, sale of shares
of capital stock or similar transaction involving the Company or any subsidiary
or affiliate of the Company or division of the Company (any such transaction
being referred to herein as a "Competing Transaction"), if the Special
Committee, after consultation with counsel, determines that such action is
necessary in light of its fiduciary obligations to the stockholders of the
Company.
5.6. Proxy Statement. As promptly as practicable following the execution
and delivery of this Agreement by all parties hereto, the Company shall prepare
and file a proxy statement with the SEC in accordance with the Exchange Act (the
"IFS Proxy Statement"), and shall use its reasonable efforts to have the Proxy
Statement cleared by the SEC. Crescent, IFS Acquisition and the Company shall
also take any action required to be taken under Blue Sky Laws or state
securities laws in connection with the IFS Merger. Crescent, IFS Acquisition and
the Company shall cooperate with each other in taking such action and in the
preparation of the IFS Proxy Statement. Crescent, IFS Acquisition and their
counsel shall be given the opportunity to review the IFS Proxy Statement and any
amendments thereto prior to dissemination of the IFS Proxy Statement to holders
of shares of Common Stock of the Company. The Company shall provide Crescent,
IFS Acquisition and their counsel with a copy of any written comments or
telephonic notification of any verbal comments the Company may receive from the
SEC or its
A-13
<PAGE>
staff with respect to the Proxy Statement after the receipt thereof and shall
permit Crescent, IFS Acquisition and their counsel to participate in the
preparation of any written responses and telephonic notification of any verbal
responses of the Company or its counsel. Each of the Company, Crescent and IFS
Acquisition agrees to use its reasonable efforts, after consultation with the
other parties hereto, to respond promptly to all such comments of or requests by
the SEC and to cause the IFS Proxy Statement and all required amendments and
supplements thereto to be mailed to the holders of shares of Common Stock of the
Company entitled to vote at the Stockholders' Meeting at the earliest
practicable time.
5.7. Indemnification.
(a) Until such time as the applicable statute of limitations shall have
expired, the Surviving Corporation shall provide with respect to each present or
former director and officer of the Company and its subsidiaries and affiliates
(both present and past) (the "Indemnified Parties"), the indemnification rights
(including any rights to advancement of expenses) which such Indemnified Parties
had, whether from the Company or such subsidiary or affiliate, immediately prior
to the Effective Time, whether under the DGCL or the Company Certificate of
Incorporation, the Company Bylaws or the bylaws of such subsidiary or affiliate
or otherwise.
(b) This Section 5.7 shall survive the Closing indefinitely and is intended
to benefit the Company, the Surviving Corporation and each of the Indemnified
Parties and his or her heirs and representatives (each of whom shall be entitled
to enforce this Section 5.7 against Crescent or the Surviving Corporation to the
extent specified herein) and shall be binding on all successors and assigns of
Crescent and the Surviving Corporation.
5.8. Public Announcements. Crescent and the Company shall consult with each
other before issuing any press release or otherwise making any public statements
with respect to this Agreement or the IFS Merger and shall not issue any such
press release or make any such public statement prior to such consultation,
except as may be required by law, in which case Crescent or the Company, as
applicable, shall use its reasonable efforts to consult with the other party
before issuing such release or making any such public statement.
5.9. Notices of Certain Events. Crescent and IFS Acquisition shall promptly
notify the Company of:
(a) any notice or other communication from any person alleging that the
consent of such person is or may be required in connection with the transactions
contemplated by this Agreement;
(b) any notice or other communication from any Governmental Authority in
connection with the transactions contemplated by this Agreement. "Governmental
Authority" shall mean any federation, nation, state, sovereign or government,
any federal, regional, state or local
A-14
<PAGE>
political subdivision, any governmental or administrative body, instrumentality,
department or agency or any court, administrative hearing body, commission or
other similar dispute resolving panel or body, and any other entity exercising
executive, legislative, judicial, regulatory or administrative functions of a
government.
ARTICLE VI
CONDITIONS
6.1. Conditions to the Obligation of Each Party. The respective obligations
of Crescent, IFS Acquisition and the Company to effect the IFS Merger are
subject to the satisfaction of the following conditions, unless waived in
writing by all parties:
(a) Stockholder Approval. This Agreement and the IFS Merger shall have been
approved and adopted by the requisite vote of the stockholders of the Company to
the extent required by the DGCL, the Company Certificate of Incorporation, the
Company Bylaws and the certificates of incorporation of Crescent and IFS
Acquisition.
(b) No Order. No foreign, United States or state governmental authority or
other agency or commission or foreign, United States or state court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
law, rule, regulation, executive order, decree, injunction or other order
(whether temporary, preliminary or permanent) which is then in effect and has
the effect of: (i) making the acquisition of Shares by Crescent or IFS
Acquisition illegal or otherwise restricting, preventing or prohibiting
consummation of the IFS Merger; (ii) seeking to prohibit or limit materially the
ownership or operation by the Company, Crescent or any of their respective
subsidiaries or affiliates of all or any material portion of the business or
assets of the Company, Crescent or any of their respective subsidiaries or
affiliates as a result of the IFS Merger; or (iii) compelling the Company,
Crescent, IFS Acquisition or any of their respective subsidiaries or affiliates
to dispose of or hold separate all or any material portion of the business or
assets of the Company, Crescent, IFS Acquisition or any of their respective
subsidiaries or affiliates as a result of the IFS Merger; provided, however,
that each of the parties shall have used its reasonable efforts to prevent the
entry of any such injunction or other order and to appeal as promptly as
practicable any injunction or other order that may be entered.
(c) Update of Fairness Opinion. At the time of mailing of the IFS Proxy
Statement and at the Effective Time, Scott & Stringfellow shall have reaffirmed
orally the fairness opinion previously prepared and delivered by it to the
Special Committee and Scott & Stringfellow shall not have withdrawn such
opinion.
6.2. Additional Conditions to the Obligations of Crescent and IFS
Acquisition. The obligations of Crescent and IFS Acquisition to effect the IFS
Merger are subject to the
A-15
<PAGE>
satisfaction of the following further conditions, any or all of which may be
waived by Crescent and IFS Acquisition.
(a) Performance of Covenants, etc. The Company shall have performed in all
material respects all of its obligations hereunder required to be performed by
it at or prior to the Effective Time, and the representations and warranties of
the Company contained in this Agreement shall be true and correct in all
respects at and as of the Effective Time (as if made at and as of such time,
except that those representations and warranties which address matters only as
of a particular date shall remain true and correct as of such date) except where
the breach or inaccuracy thereof would not, individually or in the aggregate,
have a Material Adverse Effect, on the Company.
(b) Consents and Approvals. Crescent and IFS Acquisition shall have
received or be satisfied that they will receive all consents and approvals
contemplated by Section 4.4 and any other consents of third parties necessary in
connection with the consummation of the IFS Merger if the failure to obtain any
such consent would have a Material Adverse Effect on the Company.
(c) Financing. On or prior to July 1, 1998, Crescent and IFS Acquisition
shall procure bank financing commitments ("Commitment Letter") from financial
institutions to be identified therein in connection with the IFS Merger. On or
prior to the Effective Time, the financial institutions that are parties to the
Commitment Letter shall have made available to IFS Acquisition the proceeds of
the financing contemplated by such Commitment Letter on the terms set forth in
such Commitment Letter. Immediately prior to the Effective Time, IFS Acquisition
shall deposit with the Paying Agent an amount in cash equal to the IFS Merger
Consideration multiplied by the number of Public Shares (other than the
Dissenting Shares), to be held by the Paying Agent pursuant to the terms of the
Paying Agent Agreement, for the benefit of the Public Shareholders (other than
the holders of the Dissenting Shares).
6.3. Additional Conditions to the Obligations of the Company. The
obligations of the Company to effect the IFS Merger are subject to the
satisfaction of the following further conditions, any or all of which may be
waived only by the Special Committee:
(a) Performance of Covenants, etc. Crescent and IFS Acquisition shall have
performed in all material respects all of their obligations hereunder required
to be performed by them at or prior to the Effective Time, and the
representations and warranties of Crescent and IFS Acquisition contained in this
Agreement shall be true and correct in all respects, at and as of the Effective
Time as if made at and as of such time (except that those representations and
warranties which address matters only as of a particular date shall remain true
and correct as of such date), except where the breach or inaccuracy thereof
would not, individually or in the aggregate, have a Material Adverse Effect.
A-16
<PAGE>
(b) Consents and Approvals. The Company shall have received or be satisfied
that they will receive all consents and approvals contemplated by Section 3.5
and any other consents of third parties necessary in connection with the
consummation of the IFS Merger if the failure to obtain any such consent would
have a Material Adverse Effect on Crescent or IFS Acquisition.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1. Termination. This Agreement may be terminated and the IFS Merger may
be abandoned at any time prior to the Effective Time, whether before or after
approval by the stockholders of the Company:
(a) By mutual written consent duly authorized by the boards of directors of
Crescent and IFS Acquisition, the IFS Board and the Special Committee.
(b) By any of Crescent, IFS Acquisition or the Company if any court of
competent jurisdiction or administrative agency, commission, governmental or
regulatory authority, domestic or foreign, shall have issued an order, decree or
ruling or taken any other action restraining, enjoining or otherwise prohibiting
the IFS Merger and such order, decree, ruling or other action shall have become
final and nonappealable;
(c) By any of Crescent, IFS Acquisition or the Company if the Effective
Time shall not have occurred on or before December 31, 1998; provided, however,
that the right to terminate this Agreement under this Section 7.1(c) shall not
be available to any party whose failure to fulfill any obligation under this
Agreement has been the cause of, or resulted in, the failure of the Effective
Time to occur on or before such date;
(d) By Crescent or IFS Acquisition, if, consistent with the terms of this
Agreement, the Board of Directors of the Company or the Special Committee
withdraws, modifies or changes its recommendation of this Agreement or the IFS
Merger in a manner adverse to Crescent or IFS Acquisition or shall have resolved
to do any of the foregoing or the Board of Directors of the Company or the
Special Committee shall have recommended to the stockholders of the Company any
Competing Transaction; or
(e) By the Company (such determination to be made on behalf of the Company
by the Special Committee in its sole discretion), if, consistent with the terms
of this Agreement, the Board of Directors of the Company or the Special
Committee withdraws its recommendation of this Agreement or the IFS Merger or
shall have resolved to do either of the foregoing or the Board of Directors of
the Company or the Special Committee shall have recommended to the stockholders
of the Company any Competing Transaction.
A-17
<PAGE>
7.2. Effect of Termination. In the event of the termination of this
Agreement pursuant to Section 7.1, this Agreement shall forthwith become void,
and there shall be no liability on the part of any party hereto, except as set
forth in Section 8.12, provided that nothing herein shall relieve any party from
liability for any wilful breach hereof.
7.3. Amendments. This Agreement may not be amended except by action of the
Board of Directors of each of the parties hereto (and, in the case of the
Company, with the approval of the Special Committee) set forth in an instrument
in writing signed on behalf of each of the parties hereto.
7.4. Waiver. At any time prior to the Effective Time, whether before or
after any Stockholders' Meeting, any party hereto, by action taken by its Board
of Directors (and, in the case of the Company, with the approval of the Special
Committee), may (i) extend the time for the performance of any of the covenants,
obligations or other acts of any other party hereto or (ii) waive compliance
with any of the agreements, covenants or conditions of any other party or with
any conditions to its own obligations. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party by its duly authorized
officer.
ARTICLE VIII
GENERAL PROVISIONS
8.1. No Third Party Beneficiaries. Other than the provisions of Section
5.7, nothing in this Agreement shall confer any rights or remedies upon any
person other than the parties hereto.
8.2. Entire Agreement. This Agreement constitutes the entire agreement
among the parties with respect to the subject matter hereof and supersedes any
prior understandings, agreements, or representations by or among the parties,
written or oral, with respect to the subject matter hereof.
8.3. Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties named herein and their respective
successors. No party may assign either this Agreement or any of its rights,
interests, or obligations hereunder without the prior written approval of the
other party, provided, however, that IFS Acquisition may freely assign its
rights to another wholly owned subsidiary of Crescent without such prior written
approval.
8.4. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
A-18
<PAGE>
8.5. Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.6. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to principles
of conflicts of law thereof.
8.7. Severability. If any term or provision of this Agreement is invalid,
illegal or unenforceable, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the IFS Merger is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or unenforceable, the parties hereto shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner to the fullest
extent permitted by applicable law in order that the IFS Merger may be
consummated as originally contemplated to the fullest extent possible.
8.8. Specific Performance. Each of the parties acknowledges and agrees that
the other party would be damaged irreparably in the event any of the provisions
of this Agreement are not performed in accordance with their specific terms or
otherwise are breached. Accordingly, each of the parties agrees that the other
party shall be entitled to an injunction or injunctions to prevent breaches of
the provisions of this Agreement and to enforce specifically this Agreement and
the terms and provisions hereof in any action instituted in any court of the
United States or any state thereof having jurisdiction over the parties and the
matter, in addition to any other remedy to which it may be entitled, at law or
in equity.
8.9. Construction. The language used in this Agreement shall be deemed to
be the language chosen by the parties hereto to express their mutual intent, and
no rule of strict construction shall be applied against any party.
8.10. Non-Survival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. Nothing in this
Section 8.10 shall limit any covenant or agreement of the parties which by its
terms contemplates performance after the Effective Time of the IFS Merger.
8.11. Certain Definitions. For purposes of this Agreement, the term
"affiliate," except, as hereinafter provided, shall have the same meaning as set
forth in Rule 12b-2 of Regulation 12B of the General Rules and Regulations under
the Exchange Act, and the term "person" shall mean any individual, corporation,
partnership (general or limited), limited liability company, limited liability
partnership, trust, joint venture, joint-stock company, syndicate, association,
entity, unincorporated organization or government or any political subdivision,
A-19
<PAGE>
agency or instrumentality thereof. Further, the term "affiliate" of the Company
when used in this Agreement shall not include Crescent or IFS Acquisition or any
controlled subsidiary or controlled affiliate of Crescent or IFS Acquisition;
and the term "affiliate" of Crescent or IFS Acquisition shall not include the
Company or any controlled subsidiary or controlled affiliate of the Company.
8.12. Fees and Expenses. Whether or not the IFS Merger is consummated, all
costs and expenses incurred in connection with this Agreement and the IFS Merger
shall be paid by Crescent.
8.13. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by telecopy
or by registered or certified mail (postage prepaid, return receipt requested)
to the respective parties at the following addresses, or at such other address
for a party as shall be specified in a notice given in accordance with this
Section 8.13:
If to Crescent or IFS Acquisition:
Crescent Capital, Inc.
6701 Democracy Boulevard
Suite 300
Bethesda, Maryland 20817
Attn: Colin Halpern
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, New York 10019
Attn: Stephen Rooney, Esq.
If to the Company:
International Franchise Systems, Inc.
6701 Democracy Boulevard
Suite 300
Bethesda, Maryland 20817
Attn: Colin Halpern
A-20
<PAGE>
with a copy to the Special Committee of the
Board of Directors of the Company:
Reed Smith Shaw & McClay, L.L.P.
2500 One Liberty Place
1650 Market Street
Philadelphia, Pennsylvania 19103
Attn: Michael Pollack, Esq.
IN WITNESS WHEREOF, Crescent, IFS Acquisition and the Company have caused
this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
A-21
<PAGE>
CRESCENT CAPITAL, INC.
By: /s/ Colin Halpern
Name: Colin Halpern
Title: President
IFS ACQUISITION CORPORATION
By: /s/ Colin Halpern
Name: Colin Halpern
Title: Chairman
INTERNATIONAL FRANCHISE SYSTEMS, INC.
By: /s/ H. Michael Bush
Name: H. Michael Bush
Title: President
A-22
<PAGE>
EXHIBIT A
OWNERSHIP OF
INTERNATIONAL FRANCHISE SYSTEMS, INC.
COMMON STOCK AND OPTIONS
(May 19, 1998)
A. Common Stock
Holder Security Number
- ------ -------- ------
IFS Treasury Common Stock 7,000
Crescent Capital Common Stock 4,700,000
Domino's Pizza Int'l Inc. Common Stock 300,000
Public Shareholders Common Stock 2,027,324
B. Preferred Stock
Although preferred stock is authorized by IFS's certificate of
incorporation no preferred stock has been issued by IFS to date.
C. Warrants
1. Class B Warrants:
Holder Security Number
Public Shareholders Class B Warrant 1,077,324
D. Unit Purchase Option
Holder Security Number
Patterson Travis, Inc. Unit Purchase Option 107,732
-1-
<PAGE>
E. Common Stock Options
1. List of Stock Options Granted to IFS Employees
a. Grants under the 1994 Stock Incentive Plan (plan terminated effective
December 31, 1996):
Holder Number of Options Exercise Price
H. Michael Bush 15,000 1.25
b. Grants under the 1997 Stock Incentive Plan (plan adopted effective
January 1, 1997):
Holder Number of Options Exercise Price
- ------ ----------------- --------------
H. Michael Bush 75,000 .50
Gerald Halpern 75,000 .50
Tony Betley 12,000 .50
Bill Eubank 12,000 .50
Chris Moore 8,000 .50
Jane Roberts 6,000 .50
Michael Tyldesley 3,000 .50
Colin Jarrold 6,000 .50
Patti Preston 3,000 .50
Stuart Halpern 12,000 .50
Jay Milling 6,000 .50
Mark Huckle 6,000 .50
John Cowle 6,000 .50
Gareth Franks 12,000 .50
Carl Bennett 6,000 .50
Tim Crawley 2,000 .50
Anna Palmer Moore 4,000 .50
Paul Raymond 6,000 .50
Gilliam Logan 9,000 .50
Andy Franks 3,000 .50
Patti Preston 10,000 1.125
-2-
<PAGE>
2. List of Stock Options Granted to Non-Employee Directors
a. Grants under the 1995 Non-Employees Directors Plan (plan terminated
effective December 31, 1996):
Holder Number of Option Exercise Price
Colin Halpern 10,000 .625
b. Grants under the 1996 Non-Employee Directors Plan (Plan declared null
and void):
None.
c. Grants under the 1997 Non-Employee Directors Plan (plan adopted
effective January 1, 1997):
Holder Number Options Exercise Price
Colin Halpern 5,000 .5625
3. List of Stock Options Granted to IFS Consultants
a. Grants under 1995 Consultants and Advisors Stock Incentive Plan as
Amended (Nonqualified Stock Options):
Holder Number of Options Exercise Price
- ------ ----------------- --------------
I. Fisher 50,000 1.50
Yav Gottesman 50,000 1.50
D. Coffer 25,000 1.31
C. Halpern 5,000 1.15625
C. Halpern 5,000 2.25
C. Halpern 5,000 2.00
C. Halpern 5,000 2.4375
B. Goldman 5,000 2.4375
C. Halpern 5,000 2.312
B. Goldman 5,000 2.321
D. Coffer 5,000 2.312
-3-
<PAGE>
ANNEX B
ss. 262. Appraisal Rights.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to 228 of this
title shall be entitled to an appraisal by the Court of Chancery of the fair
value of the stockholder's shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss. 251 (other than a merger effected pursuant to ss.
251(g) of this title), ss. 252, ss. 254, ss. 257, ss. 258, ss. 263 or ss. 264 of
this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of ss. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to ss.ss. 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository
B-1
<PAGE>
receipts at the effective date of the merger or consolidation will be either
listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under ss. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsection (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to ss. 228 or ss.
253 of this title, each constituent corporation, either before the effective
date of the merger or consolidation or within ten days thereafter, shall notify
each of the holders of any class or series of stock of such constituent
corporation who are entitled to appraisal rights of the approval of the merger
or consolidation and
B-2
<PAGE>
that appraisal rights are available for any or all shares of such class or
series of stock of such constituent corporation, and shall include in such
notice a copy of this section; provided that, if the notice is given on or after
the effective date of the merger or consolidation, such notice shall be given by
the surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of the
merger or consolidation, shall, also notify such stockholders of the effective
date of the merger or consolidation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of such
holder's shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such holder's shares. If such notice did not
notify stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders of
any class or series of stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger or consolidation or (ii)
the surviving or resulting corporation shall send such a second notice to all
such holders on or within 10 days after such effective date; provided, however,
that if such second notice is sent more than 20 days following the sending of
the first notice, such second notice need only be sent to each stockholder who
is entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is required
to give either notice that such notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more than 10
days prior to the date the notice is given, provided, that if the notice is
given on or after the effective date of the merger or consolidation, the record
date shall be such effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the close of
business on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
B-3
<PAGE>
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
B-4
<PAGE>
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
B-5
<PAGE>
ANNEX C
[SCOTT & STRINGFELLOW LETTERHEAD]
May 21, 1998
Special Committee of the Board of Directors
International Franchise Systems, Inc.
6701 Democracy Blvd., Suite 300
Bethesda, MD 20817
Members of the Board:
We understand that International Franchise Systems, Inc. (the "Company") is
contemplating entering into an Agreement and Plan of Merger (the "Agreement")
with IFS Acquisition Corporation ("IFSAC"), a wholly owned subsidiary of
Crescent Capital, Inc. ("Crescent"), which together with certain members of
management and their affiliates (collectively, the "Affiliated Shareholders"),
and after certain planned transactions between Crescent and IFSAC, will control
approximately 63% of the total fully-diluted shares outstanding of the Company
with the remaining shares owned by shareholders other than the Affiliated
Shareholders (the "Non-Affiliated Shareholders"), under which IFSAC will acquire
for $3.60 per share in cash all issued and outstanding shares of common stock
("IFS Common Stock"), par value $0.01, of the Company owned by Non-Affiliated
Shareholders (the "Transaction"). We additionally understand that the
consummation of the Transaction requires and will be conditioned on the holders
of a majority of the outstanding shares voting to approve the Transaction, and
other conditions customary to transactions of this type. We further understand
that, pursuant to the Agreement, after receiving shareholder approval, IFSAC and
the Company will cause IFSAC to be merged into the Company (the "Merger") with
the Company surviving the Merger. We further understand that, pursuant to the
Agreement, the holders of any issued and outstanding shares of IFS Common Stock
(other than Affiliated Shareholders and holders who have validly exercised
appraisal rights under the Delaware General Corporate Law) will receive $3.60
per share in cash in the Merger.
You have requested our opinion as to the fairness, from a financial point of
view, of the cash consideration to be paid to the Non-Affiliated Shareholders
under the terms of the Transaction.
Scott & Stringfellow, Inc. ("S&S"), as part of its investment banking business,
is regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. In the
ordinary course of our business as a broker-dealer, we may, from time to time,
have a long or short position
C-1
<PAGE>
in, and buy or sell, debt or equity securities of the Company for our own
account or for the accounts of our customers. S&S will receive a fee from the
Company for rendering this opinion.
In arriving at our opinion, we have, among other things:
(1) reviewed the audited and unaudited financial statements and other
information contained in the Company's Annual Reports to Shareholders and Annual
Reports on Form 10-KSB for the fiscal years ended December 31, 1995, December
29, 1996 and December 28, 1997, and certain interim reports to Shareholders and
Quarterly Reports on Form 10-QSB;
(2) discussed the past and current operations, financial condition, and
prospects of the Company with its management;
(3) reviewed with management certain business plans of the Company and certain
financial projections of the Company's future performance prepared by management
of the Company;
(4) compared the results of operations of the Company with those of certain
publicly traded companies which we deemed relevant;
(5) compared the proposed financial terms of the transaction with the financial
terms of certain other mergers and acquisitions which we deemed relevant;
(6) reviewed certain publicly available information with respect to historical
market prices and trading activity for IFS Common Stock and for certain publicly
traded companies which we deemed relevant;
(7) compared the price per share offered in the Transaction to the historical
market prices of IFS Common Stock;
(8) analyzed a discounted cash flow scenario of the Company based upon estimates
of projected financial performance prepared by the management of the Company;
(9) reviewed the IFS Merger Agreement dated May 19, 1998;
(10) reviewed a stock purchase agreement in which the Company entered into an
agreement to sell 300,000 shares of stock to Domino's Pizza International, Inc.;
(11) reviewed the sale of a minority interest in Domino's Pizza Group Limited by
the Company; and
(12) reviewed such other financial studies and analyses and performed such other
investigations and taken into account such other matters as we deemed necessary.
C-2
<PAGE>
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all information supplied or otherwise made available to us by
the Company, and we have not assumed any responsibility for independent
verification of such information or any independent valuation or appraisal of
any of the assets of the Company. We have relied solely upon the management of
the Company as to the reasonableness and achievability of all financial and
operational forecasts and projections, and the assumptions and bases therefor,
provided to us and referred to above, and we have assumed that such forecasts
and projections reflect the best currently available estimates and judgments of
such management and that such forecasts and projections will be realized in the
amounts and in the time periods currently estimated by such management. Our
opinion is necessarily based upon market, economic and other conditions as they
exist and can be evaluated on the date hereof and the information made available
to us through the date hereof. Our opinion does not address the relative merits
of the transaction contemplated by the Agreement as compared to any alternative
business strategies that might exist for the Company, nor does it address the
effect of any other business combination in which the Company might engage. It
is understood that subsequent developments may affect this opinion and that we
do not have any obligation to update, revise or reaffirm this opinion.
Our advisory services and the opinion expressed herein are provided to the
Company's Board of Directors for its use in evaluating the Transaction
contemplated by the Agreement and does not constitute a recommendation to the
Board of Directors of the Company as to whether the Shareholders should enter
into the Transaction. This opinion may not be summarized, excerpted from or
otherwise publicly referred to without our prior written consent.
On the basis of, and subject to the foregoing, we are of the opinion that, as of
the date hereof, the cash consideration of $3.60 per share to be received by the
Non-Affiliated Shareholders of IFS Common Stock in this Transaction is fair,
from a financial point of view, to such holders.
Very truly yours,
SCOTT & STRINGFELLOW, INC.
/s/ Scott & Stringfellow, Inc.
C-3
