<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 2, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CONSOLIDATED PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
INDIANA 37-0684070
(State of Incorporation) (I.R.S. Employer
Identification No.)
</TABLE>
500 CENTURY BUILDING
36 SOUTH PENNSYLVANIA STREET
INDIANAPOLIS, INDIANA 46204
(317) 633-4100
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
JAMES W. BEAR
CONSOLIDATED PRODUCTS, INC.
500 CENTURY BUILDING
36 SOUTH PENNSYLVANIA STREET
INDIANAPOLIS, INDIANA 46204
(317) 633-4100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
Copies of all communications to:
<TABLE>
<S> <C>
BERKLEY W. DUCK BOB F. THOMPSON
ICE MILLER DONADIO & RYAN BASS, BERRY & SIMS PLC
ONE AMERICAN SQUARE, BOX 82001 2700 FIRST AMERICAN CENTER
INDIANAPOLIS, INDIANA 46282-0002 NASHVILLE, TENNESSEE 37238-2700
(317) 236-2200 (615) 742-6200
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If the only securities registered on this Form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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- ---------------------------------------------------------------------------------------------------------
PROPOSED
TITLE OF SHARES AMOUNT MAXIMUM PROPOSED AMOUNT OF
TO BE TO BE OFFERING PRICE MAXIMUM REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE
<S> <C> <C> <C> <C>
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Common Stock..................... 2,702,500 shares $17.00 $45,942,500 $15,843
- ---------------------------------------------------------------------------------------------------------
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</TABLE>
(1) Includes 352,500 shares of Common Stock that the Underwriters have the
option to purchase from the Company to cover over-allotments, if any.
(2) Estimated, pursuant to Rule 457(c), solely for the purpose of calculating
the registration fee on the basis of the average high and low price
reported for the Common Stock on the Nasdaq National Market on June 28,
1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, DATED JULY 2, 1996
PROSPECTUS
2,350,000 SHARES
CONSOLIDATED PRODUCTS, INC.
[CONSOLIDATED PRODUCTS LOGO] COMMON STOCK [STEAK N SHAKE LOGO]
All of the 2,350,000 shares of Common Stock offered hereby are being
offered by Consolidated Products, Inc. (the "Company"). The Common Stock is
traded on the Nasdaq National Market under the symbol "COPI." On June 26, 1996,
the last sale price of the Common Stock as reported on the Nasdaq National
Market was $17.00 per share. See "Price Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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- ------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share....................................... $ $ $
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Total(3)........................................ $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting estimated expenses of $350,000 payable by the Company.
(3) The Company has granted to the Underwriters a 30-day over-allotment option
to purchase up to 352,500 additional shares of Common Stock on the same
terms and conditions as set forth above. If all such shares are purchased by
the Underwriters, the total Price to Public will be $ , the total
Underwriting Discount will be $ and the total Proceeds to Company
will be $ . See "Underwriting."
-------------------------
The shares of Common Stock are offered subject to receipt and acceptance by
the several Underwriters, to prior sale, and to the several Underwriters' right
to reject any order in whole or in part and to withdraw, cancel or modify the
offer without notice. It is expected that certificates for the shares of Common
Stock will be available for delivery on or about , 1996.
-------------------------
J.C. Bradford&Co. Montgomery Securities
, 1996
<PAGE> 3
[INSIDE FRONT COVER AND INSIDE BACK COVER]
[A COLLAGE OF PICTURES OF FOOD ITEMS, INTERIOR AND EXTERIOR VIEWS OF
STEAK N SHAKE RESTAURANTS AND VARIOUS ADVERTISING SLOGANS]
<PAGE> 4
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS, IF ANY, MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and consolidated financial
statements and related notes thereto appearing elsewhere or incorporated by
reference in this Prospectus. Unless the context requires otherwise, all
references to the "Company" in this Prospectus include Consolidated Products,
Inc. and its subsidiaries, and all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option.
THE COMPANY
The Company is engaged primarily in the ownership, operation and
franchising of Steak n Shake(R) restaurants through its wholly-owned subsidiary,
Steak n Shake, Inc. ("Steak n Shake"). Founded in 1934 in Normal, Illinois,
Steak n Shake is one of the oldest restaurant chains in the country. Steak n
Shake's reputation and long-standing customer loyalty have been earned over many
years by the consistent quality of the dining experience. Steak n Shake has 156
Company-operated restaurants and 45 franchised restaurants located in 12
midwestern and southeastern states.
The Steak n Shake concept occupies a distinctive market niche offering full
service dining room and counter seating as well as drive-thru and carry-out
service. Counter and dining room sales are approximately two-thirds of the sales
mix while sales for consumption off the premises represent approximately
one-third of the sales mix. All food is freshly prepared, made-to-order and
promptly served on china with flatware and glassware by friendly wait staff.
Steak n Shake offers a core menu of steakburgers made from 100% pure U.S. beef,
including cuts of t-bone, strip and sirloin steaks, thin and crispy french fries
and hand-dipped milk shakes. Over the years, Steak n Shake has responded to
changing customer tastes with greater menu variety without losing its focus or
customer appeal, by making carefully planned menu additions such as a grilled
chicken breast sandwich, beef and chicken taco salads and various homestyle
soups and salads. Steak n Shake believes that its restaurants offer a
significantly higher quality food product, ambiance and service level than is
available in fast-food restaurants, at only a slightly higher price.
Steak n Shake restaurants are generally open 24 hours a day, seven days a
week, and in addition to the core menu offer a breakfast menu from 2:00 a.m.
until 11:00 a.m. During fiscal 1995, lunch and dinner sales accounted for
approximately 38% and 44% of sales, respectively, while breakfast and late night
sales accounted for 6% and 12% of sales, respectively. The average check was
$4.90 per person, although the average check during the peak lunch and dinner
hours was $5.50 and $5.80, respectively.
Steak n Shake restaurants have a distinctive exterior appearance and
interior decor. The exterior design of a Steak n Shake restaurant has the unique
character of a branded logo embracing building shape, awning detail, building
graphics and pylon signing. The interior decor is reminiscent of the nostalgic
diner era using chrome, glass, neon and tile in a contemporary manner. Food
preparation takes place in view of the customer, as reflected by Steak n Shake's
slogan "In Sight It Must Be Right(R)".
3
<PAGE> 5
In fiscal 1992, the Company embarked upon an expansion program that
contemplated the addition of 39 new Company-operated Steak n Shake units by the
end of fiscal 1997. However, by the end of fiscal 1995, the Company had exceeded
this goal by opening 40 Company-operated restaurants in three fiscal years.
During fiscal 1996, the Company expects to open 27 Company-operated restaurants,
of which 22 were open and five were under construction as of July 1, 1996. For
fiscal 1997, 32 Company-operated units are expected to be opened.
Due to the success of the new restaurants and the progress made in further
developing its infrastructure and organizational quality, the Company has
gradually increased the objectives of the expansion plan in each of the years
subsequent to fiscal 1992. The Company's five-year plan for fiscal 1997 through
fiscal 2001 calls for an annual increase of at least 20% in the number of
Company-operated Steak n Shake units. In addition to the 240 Company-operated
units contemplated by the plan, the Company intends to expand its franchise
system through the opening of 162 franchised units during the five-year period.
The plan, if successful, would result in approximately 600 systemwide Steak n
Shake restaurants by the end of fiscal 2001, of which approximately 400 would be
Company-operated.
The Company's expansion strategy is based upon a cluster strategic
marketing approach in existing and contiguous markets. The execution of this
market intensification strategy involves opening a sufficient number of
restaurants in a media market in order to implement effectively Steak n Shake's
marketing program which focuses on building brand awareness, understanding of
the Steak n Shake concept and customer loyalty. The addition of Company-operated
restaurants in markets where the Company's television marketing effort has been
implemented allows the Company to leverage its advertising costs over more units
and to benefit from management efficiencies. In existing markets, the Company's
media advertising expenditures are intended to create high levels of customer
recognition and immediate market acceptance for new units. The Company's new
restaurants opened in existing media markets have typically experienced higher
than average sales volumes. In new market areas, the Company's strategy is to
construct a sufficient number of units to allow the Company to begin the
effective use of media advertising within a relatively short period of time.
For the 52 weeks ended April 10, 1996, the 123 Company-operated Steak n
Shake restaurants open throughout the period generated average restaurant
revenues of approximately $1,339,000 and average restaurant cash flow before
rent, depreciation and amortization of approximately $419,000 (or 31.3% of
revenues). For this same period, the 15 Company-operated Steak n Shake
restaurants opened during the 52 weeks ended April 12, 1995 generated average
restaurant revenues of approximately $1,487,000 and average restaurant cash flow
before rent, depreciation and amortization of approximately $470,000 (or 31.6%
of revenues). The Company purchased the land for ten of these 15 restaurants,
and the average total investment to open these ten restaurants including land,
site improvements, building and equipment was approximately $1,275,000.
The principal executive offices of the Company, an Indiana corporation, are
located at 500 Century Building, 36 South Pennsylvania Street, Indianapolis,
Indiana 46204, and its telephone number is (317) 633-4100.
THE OFFERING
Common Stock offered by the Company..... 2,350,000 shares
Common Stock to be outstanding after the
offering................................ 16,213,714 shares(1)
Use of proceeds......................... To repay indebtedness, finance the
development of additional Steak n
Shake restaurants and for general
corporate purposes.
Nasdaq National Market symbol........... COPI
- -------------------------
(1) Excludes 652,803 shares subject to issuance as of July 1, 1996 pursuant to
awards granted under the Company's employee and director stock plans.
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL AND OPERATING DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR(1) TWENTY-EIGHT
------------------------------------------------------ WEEKS ENDED(1)
---------------------
APRIL 12, APRIL 10,
1991 1992 1993 1994 1995 1995 1996
-------- ---------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(53 WEEKS)
STATEMENT OF EARNINGS DATA:
Revenues....................... $117,119 $127,444 $134,156 $161,173 $190,133 $ 96,034 $ 114,668
Earnings before income taxes... 5,439 7,022 8,411 11,324 16,126 6,536 9,040
Net earnings................... 3,264 4,172 5,191 7,174 10,026 4,036 5,580
Net earnings per common and
common equivalent share:
Primary.................... $ .46 $ .55 $ .62 $ .80 $ .86(2) $ .42 $ .40(2)
Fully diluted.............. .34 .40 .45 .58 .74 .32 .40
Weighted average shares
outstanding (000's):
Primary.................... 7,142 7,527 8,421 8,938 11,650(2) 9,710 14,057(2)
Fully diluted.............. 11,374 12,488 13,225 13,666 13,940 13,859 14,094
STEAK N SHAKE RESTAURANT
OPERATING DATA:
Percentage change in Company-
operated same store
sales(3)..................... 3.8% 11.5% 5.9% 8.9% 5.7% 8.2% (1.3)%(4)
Average unit net sales for
Company-operated units(5).... $ 893 $ 1,008 $ 1,078 $ 1,195 $ 1,279 $ 668 $ 680
Percentage change in average
unit net sales............... 5.8% 12.9% 6.9% 10.9% 7.0% 9.5% 1.8%
Systemwide sales............... $126,459 $141,088 $150,672 $185,776 $226,261 $ 102,707 $ 131,967
Number of restaurants open at
end of period:
Company-operated........... 104 104 108 118 137 127 149
Franchised................. 15 16 19 23 34 29 43
-------- -------- -------- -------- -------- -------- --------
Total.......................... 119 120 127 141 171 156 192
======== ======== ======== ======== ======== ======== ========
<CAPTION>
APRIL 10, 1996
AS
STATEMENT OF FINANCIAL POSITION DATA: ACTUAL ADJUSTED(6)
--------- ---------
<S> <C> <C>
Total assets.......................................................................... $ 118,300 $ 145,903
Total debt, including current portion................................................. 43,819 33,819
Shareholders' equity.................................................................. 49,352 86,955
</TABLE>
- -------------------------
(1) For accounting purposes, the Company has adopted a 52/53 week fiscal year
ending on the last Wednesday in September. The second quarter consists of 16
weeks with the first, third and fourth quarters each consisting of 12 weeks
(13 weeks in the fourth quarter of a 53-week fiscal year).
(2) Primary earnings per share are not comparable to the respective prior
periods because of the increase in the number of shares outstanding arising
from the conversion of the Company's 10% Subordinated Convertible Debentures
(the "Debentures") into Common Stock effective April 3, 1995.
(3) The term "same store sales" refers to the sales of only those units open for
at least six months prior to the beginning of the periods being compared.
(4) Same store sales increased 0.9% after excluding existing units in close
proximity (generally three miles) to new units opened during the periods.
(5) Average unit net sales are for units that have been open during the entire
fiscal period.
(6) Reflects the sale of the 2,350,000 shares of Common Stock offered hereby at
an assumed public offering price of $17.00 per share and the application of
the estimated net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."
5
<PAGE> 7
RISK FACTORS
In addition to the other information contained or incorporated by reference
in this Prospectus, the following risk factors should be considered carefully in
evaluating an investment in the Common Stock offered hereby.
EXPANSION STRATEGY
The Company's five-year plan for fiscal 1997 through fiscal 2001 calls for
an annual increase of at least 20% in the number of Company-operated Steak n
Shake units. In addition to the 240 Company-operated units contemplated by the
plan, the Company intends to expand its franchise system through the opening of
162 franchised units during the five-year period. The plan, if successful, would
result in approximately 600 systemwide Steak n Shake restaurants by the end of
fiscal 2001, of which approximately 400 would be Company-operated. The Company's
strategy is to develop Company-operated units primarily in existing market areas
and in markets contiguous thereto, and to pursue expansion into other market
areas through franchise relationships.
The ability of the Company to meet its expansion goals will be dependent
upon a number of factors, many of which are beyond the control of the Company,
including but not limited to: the selection and availability of attractive sites
for new restaurants; the negotiation of acceptable purchase or lease terms for
restaurant sites; the availability of adequate financing both to the Company and
to its franchisees; the Company's ability to attract qualified franchisees and
the ability of franchisees to perform their obligations to the Company; the
ability of the Company to hire, train and retain competent managers and other
personnel; the ability of the Company to obtain necessary governmental permits
and approvals; and suitable economic and business conditions in the markets in
which restaurants are to be located.
There can be no assurance that the new restaurants will continue to
generate sales or profit margins consistent with those of existing
Company-operated restaurants, or that the Company will not encounter
unanticipated problems or liabilities in connection with the new restaurants.
There can be no assurance that the Company will be successful in opening the
anticipated number of restaurants as scheduled. The opening of new restaurants
has adversely affected sales for a period thereafter at existing
Company-operated restaurants in close proximity to those new restaurants. Due to
its market intensification strategy, the Company expects that other existing
Company-operated restaurants in close proximity to new restaurants will be
affected similarly in the future.
Management believes that the Company's existing borrowing capacity, the
proceeds of this offering and anticipated cash flow from operations will be
adequate to meet the working capital needs of the Company and provide the funds
needed for the expansion plan through fiscal 1997. The Company's ability to meet
the objectives of its expansion plan beyond fiscal 1997 also will be dependent
upon its ability to obtain additional capital through borrowings, the issuance
of equity and/or debt securities or sale and leaseback transactions. The Company
has no commitments with respect to any such additional financing. Although the
Company believes that its inability to meet the objectives of its expansion plan
because of the unavailability of additional financing would not in and of itself
materially adversely affect the profitability of its existing operations, there
can be no assurance that such financing will be available or, if available, will
be on terms which will be acceptable to the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" and "Business -- Expansion Strategy."
GEOGRAPHIC CONCENTRATION
For the 28 weeks ended April 10, 1996, approximately 25%, 23% and 15% of
the Company's net sales were derived from the St. Louis, Missouri, Indianapolis,
Indiana and central Florida markets, respectively. As a result, the Company's
results of operations may be materially affected by weather, economic or
business conditions within these markets. Also, given the Company's present
geographic concentration, adverse publicity relating to Steak n Shake
restaurants could have a more pronounced adverse effect on the Company's overall
sales than might be the case if the Company's restaurants were more broadly
dispersed.
6
<PAGE> 8
Due to the Company's geographic concentration, the Company has limited
experience in penetrating new markets, and there can be no assurance that the
restaurants located in new markets will perform in a manner consistent with the
restaurants in the Company's core markets.
THE RESTAURANT INDUSTRY
Historically, the restaurant industry has been affected by changes in
consumer tastes and by national, regional and local economic conditions and
demographic trends. The performance of individual restaurants may be affected by
factors such as traffic patterns, demographic factors and the type, number and
location of competing restaurants. Although management believes that the Company
has successfully responded to changes in the restaurant industry, in the future
factors such as inflation, increased food, labor and employee benefit costs and
the lack of availability of experienced management personnel and hourly
employees could adversely affect the restaurant industry in general and the
Company's restaurants in particular.
COMPETITION
The restaurant business is one of the most intensely competitive industries
in the United States, with price, menu offerings, location and service all being
significant competitive factors. The Company's competitors include national,
regional and local chains as well as local owner-operated establishments.
Although the Company believes its resources are adequate for its operations and
expansion plan through fiscal 1997, there are established competitors with
financial and other resources greater than those of the Company in all of the
Company's current and proposed future market areas. The Company faces
competition for sites on which to locate new restaurants and for personnel, as
well as for customers.
RISKS ASSOCIATED WITH FRANCHISING
The development of the 162 franchised Steak n Shake restaurants included in
the current five-year expansion plan will be dependent upon the Company entering
into agreements for the construction of the additional franchised restaurants
and upon the ability of existing franchisees to meet their commitments for the
opening of new restaurants in their respective development areas. The Company's
existing development agreements require franchisees to construct 42 additional
restaurants over the next five years. There can be no assurance that the
franchisees will strictly adhere to these development commitments. Although the
Company has existing franchise relationships (one of which is with a corporation
controlled by E. W. Kelley, Chairman of the Company, and in which five other
directors of the Company have an indirect financial interest), the Company
competes for qualified franchisees with a wide variety of investment
opportunities, and there can be no assurance that the Company will be able to
attract qualified franchisees to meet its overall expansion goals. The success
of the Company's franchisees ultimately will be dependent upon matters over
which the Company has limited direct control including the management skills and
financial resources of the franchisees. The factors that could affect the
Company's expansion strategy also could affect the ability of franchisees to
meet their commitments to the Company. See "-- Expansion Strategy" and "Business
- -- Franchising."
GOVERNMENT REGULATION
The Company's business is subject to extensive state and local government
regulation, including regulations relating to building, public health, safety
and fire codes. The failure to obtain or retain required licenses could
adversely affect the operations of the Company's restaurants. Delays or failures
in obtaining such licenses, permits or approvals could delay or prevent the
opening of a restaurant in a particular area. The Company's business is also
subject to other government actions that are beyond the Company's control,
including worker's compensation insurance rates, unemployment and other taxes.
At the federal level, there are proposals under consideration to increase the
minimum hourly wage requirements. These and other initiatives could adversely
affect the restaurant industry in general and the Company's results of
operations in particular. The Company's franchising activities are subject to
federal and state regulations governing the content of franchise offering
materials and to certain state registration requirements. Compliance with these
requirements could delay or prevent the marketing of franchises.
7
<PAGE> 9
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon the continued availability of the services of
Alan B. Gilman, its President and Chief Executive Officer, and its other
executive officers who collectively have been with the Company an average of
approximately ten years. The loss of the services of Mr. Gilman or other key
personnel could have a material adverse effect on the Company's business. See
"Management."
CONTROL BY E. W. KELLEY AND AFFILIATES
As of May 31, 1996, E. W. Kelley, Chairman of the Company, was the
beneficial owner of 2,451,339 shares, or 17.7% of the outstanding Common Stock,
and will be the beneficial owner of 15.1% of the outstanding Common Stock
following this offering. Included in the shares beneficially owned are 1,294,542
shares owned by Kelley & Partners, Ltd., a limited partnership of which Mr.
Kelley and S. Sue Aramian, the Vice Chairwoman and a director of the Company,
are managing general partners, two other directors are general partners and two
other directors are limited partners. The significant investment and management
positions of Mr. Kelley and his affiliates may allow them to continue to
exercise effective control over the affairs of the Company following the
completion of this offering. See "Management" and "Principal Shareholders."
Mr. Kelley and certain of his affiliates have engaged in various
transactions with the Company in the past and may do so in the future. Although
the Company believes that all such transactions have been on terms no less
favorable to it than would have been available in the absence of these
relationships, potential conflicts of interest exist with respect thereto. See
"Business -- Franchising."
STOCK PRICE VOLATILITY
Quarterly operating results of the Company or other restaurant companies,
changes in general conditions in the economy, the financial markets or the
restaurant industry, natural disasters, changes in earnings estimates or
recommendations by research analysts, or other developments affecting the
Company or its competitors could cause the market price of the Common Stock to
fluctuate substantially. In addition, in recent years the stock market and
restaurant industry shares in particular have experienced extreme price and
volume fluctuations. This volatility has had a significant effect on the market
prices of securities issued by many companies for reasons unrelated to the
operating performance of these companies.
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS
This Prospectus contains certain statements that are "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
Those statements include, but may not be limited to, the discussions of the
Company's expansion strategy, expectations concerning its future profitability,
capital sources and needs, marketing plans, franchising program and unit
economics. Investors in the Common Stock are cautioned that reliance on any
forward-looking statement involves risks and uncertainties, and that although
the Company believes that the assumptions on which the forward-looking
statements contained herein are reasonable, any of those assumptions could prove
to be inaccurate, and as a result, the forward-looking statements based on those
assumptions also could be incorrect. The uncertainties in this regard include,
but are not limited to, those identified above. In light of these and other
uncertainties, the inclusion of a forward-looking statement herein should not be
regarded as a representation by the Company that the Company's plans and
objectives will be achieved.
8
<PAGE> 10
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the Nasdaq National Market under the symbol
"COPI." The following table sets forth the range of high and low closing prices
(rounded to the nearest eighth) for the Common Stock as reported by the Nasdaq
National Market for each of the quarters indicated.
<TABLE>
<CAPTION>
HIGH LOW
-------------- --------------
<S> <C> <C> <C> <C>
FISCAL 1994
First Quarter................................. $ 8 5/8 $ 6 3/8
Second Quarter................................ 8 1/2 7 1/8
Third Quarter................................. 9 1/4 7
Fourth Quarter................................ 9 1/2 7 3/4
FISCAL 1995
First Quarter................................. 9 1/8 7 7/8
Second Quarter................................ 11 3/8 8 1/8
Third Quarter................................. 13 7/8 10 7/8
Fourth Quarter................................ 13 7/8 11 7/8
FISCAL 1996
First Quarter................................. 15 1/4 13
Second Quarter................................ 17 1/8 12 5/8
Third Quarter (through June 26, 1996)......... 17 3/4 15 1/2
</TABLE>
On June 26, 1996, the closing sale price of the Common Stock as reported by
the Nasdaq National Market was $17.00 per share. As of June 26, 1996, there were
approximately 4,000 beneficial owners of the Common Stock.
DIVIDEND POLICY
The Company has distributed annual 10% stock dividends for each of the last
five years. It is the current policy of the Board of Directors to continue the
issuance of annual stock dividends. Except for the payment in 1990 of a special
dividend which included $4.25 in cash and $3.00 in principal amount of the
Debentures as part of a recapitalization plan, the Company has not paid cash
dividends during the past five years and currently intends to use the cash
provided by operations to finance its expansion program.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock offered
hereby at an assumed public offering price of $17.00 per share are estimated to
be $37,602,500 ($43,295,375 if the Underwriters' over-allotment option is
exercised in full) after deducting the underwriting discount and estimated
offering expenses payable by the Company. The Company intends to use the net
proceeds as follows: (i) to repay all of the debt outstanding under the
Company's Revolving Credit Agreement ($11,000,000 at July 1, 1996) which has
been used to finance the development of new restaurants and for the renovation
of existing restaurants, (ii) to fund the Steak n Shake expansion plan and (iii)
for general corporate purposes. The Company's Revolving Credit Agreement matures
in December 1997 and bears interest at a rate based on LIBOR plus 0.875% or the
prime rate, at the election of the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." Pending the application of the proceeds as described above,
the Company plans to invest the net proceeds in short-term, investment grade,
interest-bearing securities.
9
<PAGE> 11
CAPITALIZATION
The following table sets forth the short-term obligations and
capitalization of the Company at April 10, 1996, and, as adjusted, reflects the
sale of the 2,350,000 shares of Common Stock being offered hereby at an assumed
public offering price of $17.00 per share and the application of the estimated
net proceeds therefrom. See "Use of Proceeds" and the Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
APRIL 10, 1996
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt and capital lease obligations......... $ 6,245 $ 6,245
======== ========
Obligations under capital leases, net of current portion................ $ 7,574 $ 7,574
Revolving line of credit................................................ 10,000 --
Senior note, net of current portion..................................... 20,000 20,000
-------- --------
37,574 27,574
-------- --------
Shareholders' equity:(1)
Common Stock -- $.50 stated value, 25,000,000 shares authorized,
13,879,680 shares issued (16,229,680 shares, as adjusted)(2)....... 6,940 8,115
Additional paid-in capital............................................ 50,085 86,513
Retained earnings (deficit)........................................... (6,167) (6,167)
Treasury stock (66,747 shares)........................................ (1,506) (1,506)
-------- --------
Total shareholders' equity......................................... 49,352 86,955
-------- --------
Total capitalization............................................... $86,926 $ 114,529
======== ========
</TABLE>
- -------------------------
(1) The payment of stock dividends reduces retained earnings by an amount equal
to the fair market value of the shares issued and increases Common Stock and
additional paid-in capital by a like amount. See "Dividend Policy."
(2) Excludes 627,147 shares subject to issuance as of April 10, 1996 pursuant to
awards granted under the Company's employee and director stock plans.
10
<PAGE> 12
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated financial data presented in the following table
summarize certain consolidated financial information of the Company and, with
the exception of the selected data as of and for the 28-week periods ended April
12, 1995 and April 10, 1996, are derived from Consolidated Financial Statements
which have been audited by Ernst & Young LLP, independent auditors. The selected
data for the 28-week periods ended April 12, 1995 and April 10, 1996 are derived
from unaudited financial statements which, in the opinion of management, reflect
all adjustments (consisting only of normal recurring adjustments) necessary for
fair presentation of the results of operations for such periods. The information
for the 28-week periods is not necessarily indicative of operating results to be
expected for the entire fiscal year. The selected consolidated financial data
should be read in conjunction with, and are qualified in their entirety by
reference to, the Consolidated Financial Statements and the Notes thereto
included elsewhere or incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
TWENTY-EIGHT
WEEKS ENDED(1)
FISCAL YEAR(1) -----------------------
---------------------------------------------------- APRIL 12, APRIL 10,
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Revenues
Net sales....................... $115,436 $126,024 $132,509 $158,636 $186,740 $94,342 $ 112,025
Franchise fees.................. 524 633 784 1,139 1,880 929 1,383
Other, net...................... 1,159 787 863 1,398 1,513 763 1,260
-------- -------- -------- -------- -------- ------- --------
117,119 127,444 134,156 161,173 190,133 96,034 114,668
-------- -------- -------- -------- -------- ------- --------
Costs and expenses
Cost of sales................... 31,842 32,519 34,507 41,702 49,073 25,074 29,761
Restaurant operating costs...... 55,266 60,102 61,994 73,478 85,572 44,003 51,049
Selling, general and
administrative................ 11,094 13,513 14,345 17,918 21,043 10,623 13,352
Depreciation and amortization... 5,064 5,396 5,684 5,916 7,021 3,513 4,378
Amortization of pre-opening
costs......................... -- -- 397 1,555 1,965 975 1,613
Rent............................ 2,937 3,294 3,718 4,641 6,049 3,032 3,835
Interest........................ 5,477 5,598 5,100 4,639 3,284 2,278 1,640
-------- -------- -------- -------- -------- ------- --------
111,680 120,422 125,745 149,849 174,007 89,498 105,628
-------- -------- -------- -------- -------- ------- --------
Earnings before income taxes...... 5,439 7,022 8,411 11,324 16,126 6,536 9,040
Income taxes...................... 2,175 2,850 3,220 4,150 6,100 2,500 3,460
-------- -------- -------- -------- -------- ------- --------
Net earnings...................... $ 3,264 $ 4,172 $ 5,191 $ 7,174 $ 10,026 $ 4,036 $ 5,580
======== ======== ======== ======== ======== ======= ========
Net earnings per common and common
equivalent share:
Primary......................... $ .46 $ .55 $ .62 $ .80 $ .86(2) $ .42 $ .40(2)
Fully diluted................... .34 .40 .45 .58 .74 .32 .40
Weighted average shares
outstanding:
Primary......................... 7,142 7,527 8,421 8,938 11,650(2) 9,710 14,057(2)
Fully diluted................... 11,374 12,488 13,225 13,666 13,940 13,859 14,094
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR END
---------------------------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF FINANCIAL POSITION DATA:
Total assets............................................. $66,084 $67,062 $70,643 $80,328 $99,834
Obligations under capital leases, excluding current
portion................................................ 13,880 12,742 11,178 9,886 8,263
Senior debt, excluding current portion................... 22,500 20,500 17,750 14,250 20,000
Subordinated debt, excluding current portion............. 14,869 12,496 12,076 11,988 --
Shareholders' equity (deficit)........................... (2,816) 1,779 11,107 19,715 42,615
</TABLE>
- -------------------------
(1) For accounting purposes, the Company has adopted a 52/53 week fiscal year
ending on the last Wednesday in September. The second quarter consists of 16
weeks with the first, third and fourth quarters each consisting of 12 weeks
(13 weeks in the fourth quarter of a 53-week fiscal year).
(2) Primary earnings per share are not comparable to the respective prior
periods because of the increase in the number of shares outstanding arising
from the conversion of the Debentures into Common Stock effective April 3,
1995.
11
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
In November 1990, the Board of Directors of the Company adopted a
recapitalization plan pursuant to which it declared a special dividend
distribution of $4.25 in cash and $3.00 in principal amount of the Debentures
for each share of Common Stock outstanding. The plan was intended to provide to
shareholders a significant portion of the value of their Common Stock in cash
and interest-bearing debentures, while allowing them to retain their ownership
interests in the Company. In order to finance the plan and consolidate debt, the
Company borrowed $23,800,000 of senior debt, $6,400,000 of which was used to
repay existing debt. Approximately $11,600,000 of the Debentures were converted
from debt to equity in fiscal 1995.
The recapitalization plan imposed significant limitations on the
availability of funds for expansion of the Steak n Shake business, and in fiscal
1990, the Company intended to open only four units per year over the next five
years. By fiscal 1992, improved earnings and cash flow allowed the Company to
adopt a more aggressive expansion plan under which 39 Company-operated units
were to be constructed over the five-year period fiscal 1993 through fiscal
1997. However, by the end of fiscal 1995, the Company had exceeded this goal by
opening 40 Company-operated restaurants in three fiscal years.
The goals of the expansion program have been gradually increased in each
year subsequent to fiscal 1992. The Company's five-year plan for fiscal 1997
through fiscal 2001 calls for an annual increase of at least 20% in the number
of Company-operated Steak n Shake units. In addition to the 240 Company-operated
units contemplated by the plan, the Company intends to expand its franchise
system through the opening of 162 franchised units during the five-year period.
The plan, if successful, would result in approximately 600 systemwide Steak n
Shake restaurants by the end of fiscal 2001, of which approximately 400 would be
Company-operated.
RESULTS OF OPERATIONS
In the following discussion, the term "same store sales" refers to the
sales of only those units open at least six months prior to the beginning of the
periods being compared. The opening of new restaurants has adversely affected
sales for a period thereafter at existing Company-operated restaurants in close
proximity to those new restaurants. Due to its market intensification strategy,
the Company expects that other existing Company-operated restaurants in close
proximity to new restaurants will be affected similarly in the future.
12
<PAGE> 14
The following table sets forth the percentage relationship to total
revenues, unless otherwise indicated, of items included in the Company's
consolidated statements of earnings and certain Steak n Shake operating data for
the periods indicated:
<TABLE>
<CAPTION>
TWENTY-EIGHT
WEEKS ENDED
FISCAL YEAR ---------------------
---------------------------------- APRIL 12, APRIL 10,
1993 1994 1995 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues
Net sales............................ 98.8% 98.4% 98.2% 98.2% 97.7%
Franchise fees....................... 0.6 0.7 1.0 1.0 1.2
Other, net........................... 0.6 0.9 0.8 0.8 1.1
--------- --------- --------- --------- ---------
100.0 100.0 100.0 100.0 100.0
--------- --------- --------- --------- ---------
Costs and expenses
Cost of sales(1)..................... 26.0 26.3 26.3 26.6 26.6
Restaurant operating costs(1)........ 46.8 46.3 45.8 46.6 45.6
Selling, general and
administrative.................... 10.7 11.1 11.1 11.1 11.7
Depreciation and amortization........ 4.2 3.7 3.7 3.7 3.8
Amortization of pre-opening costs.... 0.3 1.0 1.0 1.0 1.4
Rent................................. 2.8 2.9 3.2 3.2 3.3
Interest............................. 3.8 2.8 1.7 2.3 1.4
Earnings before income taxes........... 6.3 7.0 8.5 6.8 7.9
Income taxes........................... 2.4 2.6 3.2 2.6 3.0
--------- --------- --------- --------- ---------
Net earnings........................... 3.9% 4.4% 5.3% 4.2% 4.9%
========= ========= ========= ========= =========
Steak n Shake Restaurant Operating
Data:
Percentage change in Company-operated
same store sales.................. 5.9% 8.9% 5.7% 8.2% (1.3%)(2)
Average unit net sales for Company-
operated units ($000's)(3)........ $ 1,078 $ 1,195 $ 1,279 $ 668 $ 680
Percentage change in average unit net
sales............................. 6.9% 10.9% 7.0% 9.5% 1.8%
Systemwide sales ($000's)............ $150,672 $185,776 $226,261 $102,707 $131,967
Number of restaurants open at end of
period:
Company-operated.................. 108 118 137 127 149
Franchised........................ 19 23 34 29 43
--------- --------- --------- --------- ---------
Total................................ 127 141 171 156 192
========= ========= ========= ========= =========
</TABLE>
- -------------------------
(1) Cost of sales and restaurant operating costs are expressed as a percentage
of net sales.
(2) Same store sales increased 0.9% after excluding existing units in close
proximity (generally three miles) to new units opened during the periods.
(3) Average unit net sales are for units that have been open during the entire
fiscal period.
13
<PAGE> 15
COMPARISON OF TWENTY-EIGHT WEEKS ENDED APRIL 10, 1996 TO TWENTY-EIGHT WEEKS
ENDED APRIL 12, 1995
Revenues. Revenues increased $18,634,000 to $114,668,000, or 19.4%, due
primarily to an increase in Steak n Shake's net sales of $17,928,000. The
increase in net sales of Steak n Shake was due to the opening of 41 new units
since the beginning of the third quarter of fiscal 1994 partially offset by a
decrease in same store sales of 1.3% and the closure of six low-volume units.
The decrease in same store sales was attributable to a decrease of 4.1% in
customer counts partially offset by a 2.9% increase in check average. Steak n
Shake instituted price increases of 1.7% and 1.4% in February 1995 and January
1996, respectively. Steak n Shake's same store sales increased 0.9% after
excluding existing units in close proximity (generally three miles) to the new
units opened during the periods. Management believes that the soft retail
environment and inclement weather late in the quarter ended December 20, 1995
had a negative impact on Steak n Shake's sales.
Franchise fees, which includes both initial franchise fees and royalties on
franchisee sales, increased $454,000 to $1,383,000 due primarily to the opening
of 20 Steak n Shake franchised units since the beginning of fiscal 1995.
Other revenues increased $496,000 due to the increase in the number of
properties leased to franchisees by the Company's franchise financing
subsidiary. See "Business -- Franchising."
Costs and Expenses. Cost of sales increased $4,687,000, or 18.7%, as a
result of net sales increases. As a percentage of net sales, cost of sales
remained unchanged at 26.6%.
Restaurant operating costs increased $7,046,000, or 16.0%, due to higher
sales volume. Restaurant operating costs, as a percentage of net sales,
decreased to 45.6% from 46.6%, primarily as a result of the increase in Steak n
Shake sales and improved labor utilization.
Selling, general and administrative expenses increased $2,730,000, or
25.7%. As a percentage of revenues, selling, general and administrative expenses
increased to 11.7% from 11.1%. Marketing expense, as a percentage of revenues,
increased to 3.1% from 2.7% and accounted for $988,000 of the increase,
primarily as a result of increased television advertising. Additionally, the
increase in expenses was attributable to personnel related costs, which included
costs for additional staffing in connection with the development of new
restaurants.
The $865,000 increase in depreciation and amortization expense was
attributable to the net depreciable capital additions since the beginning of
fiscal 1995.
The $637,000 increase in the amortization of pre-opening costs was
attributable to the increase in the number of new Company-operated units opened.
Rent expense increased $803,000, or 26.5%, as a result of sale and
leaseback transactions since the beginning of fiscal 1995 involving eight
Company-operated properties and a net increase in the number of other leased
properties.
Interest expense decreased $638,000 as a result of the conversion of the
Debentures into Common Stock on April 3, 1995 and the Company's adoption of the
Statement of Financial Accounting Standards No. 34, "Capitalization of
Interest", during fiscal 1995, partially offset by interest on borrowings under
the Company's revolving line of credit and senior note agreements.
Income Taxes. The Company's effective income tax rate increased slightly to
38.3% from 38.2% for the 28 weeks ended April 12, 1995 and from 37.8% for fiscal
1995. The increase from the prior period and from fiscal 1995 resulted from a
decrease in federal tax credits as a percentage of earnings before income taxes.
A valuation allowance against gross deferred tax assets has not been provided
based upon the expectation of future taxable income.
Net Earnings. Net earnings increased $1,544,000 to $5,580,000, or 38.2%,
primarily as a result of the increase in Steak n Shake's operating earnings.
Fully diluted earnings per share increased from $.32 to $.40. The decrease in
primary earnings per share resulted from an increase in the number of shares
outstanding arising from the conversion of the Debentures into Common Stock on
April 3, 1995.
14
<PAGE> 16
COMPARISON OF YEAR ENDED SEPTEMBER 27, 1995 TO YEAR ENDED SEPTEMBER 28, 1994
Revenues. Revenues increased $28,959,000 to $190,133,000, or 18.0%, due
primarily to an increase in Steak n Shake net sales of $27,253,000. The increase
in net sales of Steak n Shake was due to an increase of 5.7% in same store sales
and the opening of 37 new Company-operated restaurants since the beginning of
the third quarter of fiscal 1993 partially offset by the closure of three
low-volume restaurants during the same period. The same store sales increase was
attributable to increases of 2.5% in check average and 3.0% in customer counts.
Steak n Shake instituted a 1.2% price increase in January 1994 and a 1.7% price
increase in February 1995.
Franchise fees increased $741,000 to $1,880,000, due to the opening of 15
Steak n Shake franchised restaurants since the beginning of fiscal 1994.
Costs and Expenses. Cost of sales increased $7,370,000, or 17.7%, as a
result of net sales increases. As a percentage of net sales, cost of sales
remained unchanged at 26.3%.
Restaurant operating costs increased $12,094,000, or 16.5%, primarily due
to higher labor costs and other operating costs resulting from the increased
sales volume. Restaurant operating costs, as a percentage of net sales,
decreased to 45.8% from 46.3% as a result of the economies of scale realized
with increased Steak n Shake sales.
Selling, general and administrative expenses increased $3,125,000, or
17.4%. As a percentage of revenues, selling, general and administrative expenses
remained unchanged at 11.1%. Marketing expense, as a percentage of revenues,
increased to 2.8% from 2.6% and accounted for $1,135,000 of the increase,
primarily as a result of increased television advertising. The remaining
$1,990,000 increase was attributable to personnel related costs, which included
costs related to additional staffing in connection with the development of new
restaurants.
The $1,105,000 increase in depreciation and amortization expense was
attributable to the net depreciable capital additions since the beginning of
fiscal 1994.
The $410,000 increase in the amortization of pre-opening costs was
attributable to the increase in the number of new Company-operated restaurants
opened.
Rent expense increased $1,408,000, or 30.3%, as a result of sale and
leaseback transactions since the beginning of fiscal 1994 involving 12
Company-operated properties and a net increase in the number of other leased
properties.
Interest expense decreased $1,356,000 as a result of the conversion of the
Debentures on April 3,1995, the Company's adoption of the Statement of Financial
Accounting Standards No. 34, "Capitalization of Interest" in fiscal 1995 and
reductions in capital lease obligations.
Income Taxes. The increase in the Company's effective income tax rate to
37.8% from 36.7% resulted from a decrease in federal tax credits. A valuation
allowance against gross deferred tax assets has not been provided based upon the
expectation of future taxable income.
Net Earnings. Net earnings increased $2,852,000 to $10,026,000, or 39.8%,
primarily as a result of the increase in Steak n Shake's operating earnings and
the decrease in interest expense. Fully diluted earnings per share increased
from $.58 to $.74.
COMPARISON OF YEAR ENDED SEPTEMBER 28, 1994 TO YEAR ENDED SEPTEMBER 29, 1993
Revenues. Revenues increased $27,017,000 to $161,173,000, or 20.1%, due
primarily to an increase in Steak n Shake net sales of $25,294,000. The increase
in net sales of Steak n Shake was due to an increase of 8.9% in same store sales
and the opening of 21 new restaurants since the beginning of the third quarter
of fiscal 1992. The same store sales increase was attributable to increases of
4.7% in check average and 3.8% in customer counts. Steak n Shake instituted a
1.3% price increase in March 1993 and a 1.2% price increase in January 1994.
Franchise fees increased $355,000 to $1,139,000 due to the opening of seven
Steak n Shake franchised restaurants since the beginning of fiscal 1993.
15
<PAGE> 17
The $535,000 increase in other revenues, net was primarily due to income
from property transactions during fiscal 1994 and a loss in connection with the
disposal of one of the specialty restaurants during fiscal 1993. See "Business
- -- Consolidated Specialty Restaurants, Inc."
Costs and Expenses. Cost of sales increased $7,195,000, or 20.9%, as a
result of net sales increases. As a percentage of net sales, cost of sales
increased slightly to 26.3% from 26.0%.
Restaurant operating costs increased $11,484,000, or 18.5%, primarily due
to higher labor costs and other operating costs resulting from increased sales
volumes. Restaurant operating costs, as a percentage of net sales, decreased to
46.3% from 46.8% as a result of the economies of scale realized with increased
Steak n Shake sales.
Selling, general and administrative expenses increased $3,573,000, or
24.9%. As a percentage of revenues, selling, general and administrative expenses
increased to 11.1% from 10.7%. Marketing expense, as a percentage of revenues,
remained unchanged at 2.7% and accounted for $708,000 of the increase. The
increase as a percentage of revenues was attributable to personnel related
costs, which included costs related to additional staffing in connection with
the development of new restaurants.
The $233,000 increase in depreciation and amortization expense was
attributable to the net depreciable capital additions since the beginning of
fiscal 1993.
The $1,158,000 increase in the amortization of pre-opening costs was
attributable to the increase in the number of new Company-operated restaurants
opened.
Rent expense increased $922,000, or 24.8%, as a result of sale and
leaseback transactions since the beginning of fiscal 1993 involving seven Steak
n Shake restaurants and a net increase in the number of other leased properties.
Interest expense decreased $461,000 as a result of the reduction in debt
outstanding and a decrease in capital lease obligations.
Income Taxes. The decrease in the Company's effective income tax rate to
36.7% from 38.3% resulted from an increase in federal tax credits. A valuation
allowance against gross deferred tax assets has not been provided based upon the
expectation of future taxable income.
Net Earnings. Net earnings increased $1,983,000 to $7,174,000, or 38.2%,
primarily as a result of the increase in Steak n Shake's operating earnings and
the decrease in interest expense. Fully diluted earnings per share increased
from $.45 to $.58.
EFFECTS OF GOVERNMENTAL REGULATIONS AND INFLATION
Since most of the Company's employees are paid hourly rates related to
federal and state minimum wage laws, increases in the legal minimum wage
directly increase the Company's operating costs. Inflation in food, labor and
other operating costs directly affects the Company's operations.
16
<PAGE> 18
QUARTERLY FINANCIAL DATA
The following table presents unaudited quarterly financial data for the ten
fiscal quarters beginning September 30, 1993 and ending April 10, 1996. The
second quarter of each fiscal year includes 16 weeks and all other quarters
include 12 weeks. The second quarter, which falls during the winter months,
usually reflects lower average weekly unit volumes, and sales can be adversely
affected by severe winter weather.
<TABLE>
<CAPTION>
QUARTER 1 QUARTER 2 QUARTER 3 QUARTER 4
--------------------------- --------------------------- ----------------- -----------------
1994 1995 1996 1994 1995 1996 1994 1995 1994 1995
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues........... $34,306 $40,333 $48,111 $46,307 $55,701 $66,556 $39,505 $46,124 $41,056 $47,974
Earnings before
income taxes..... 2,573 3,354 4,424 2,288 3,182 4,616 3,280 4,608 3,183 4,982
Net earnings....... 1,593 2,079 2,754 1,418 1,957 2,826 2,030 2,848 2,133 3,142
Net earnings per
common and common
equivalent share:
Primary.......... .18 .22 .20(1) .16 .20 .20(1) .23 .21(1) .24 .23(1)
Fully diluted.... .13 .16 .20 .12 .15 .20 .16 .21 .17 .23
</TABLE>
- -------------------------
(1) Primary earnings per share are not comparable to the respective prior
periods because of the increase in the number of shares outstanding arising
from the conversion of the Debentures into Common Stock on April 3, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company primarily needs capital for the development of new Steak n
Shake restaurants. During fiscal 1994 and 1995, the Company opened 11 and 21 new
Steak n Shake units, respectively, and incurred capital expenditures of
$20,567,000 and $42,899,000, respectively. During the 28 weeks ended April 10,
1996, 15 additional Company-operated units were opened, and capital expenditures
totaled $26,166,000 as compared to $21,064,000 for the comparable period in the
prior fiscal year. The primary sources of funds for the Company's expansion
program have been cash flow from operations, borrowings and capital generated by
sale and leaseback transactions.
The Company has borrowings of $10,000,000 available under its $25,000,000
Senior Note Agreement and Private Shelf Facility (the "Senior Note Agreement")
over the period ending September 27, 1998, at interest rates based upon market
rates at the time of borrowing. As of July 1, 1996, outstanding borrowings under
the Senior Note Agreement had an average interest rate of 7.6%. The Company's
$30,000,000 Revolving Credit Agreement matures in December 1997 and bears
interest at a rate based on LIBOR plus 0.875% or the prime rate, at the election
of the Company. The amount outstanding under the Revolving Credit Agreement was
$11,000,000 as of July 1, 1996. The Company expects to be able to secure a new
revolving credit facility upon expiration of the current agreement. The
Company's debt agreements contain restrictions which, among other things,
require the Company to maintain certain financial ratios. See the Note to the
Consolidated Financial Statements captioned "Debt."
The Company's current expansion plan calls for 240 new Company-operated
restaurants to be opened during the five-year period from fiscal 1997 to fiscal
2001. The average cost of a new restaurant including land, site improvements,
building and equipment for fiscal 1996 is expected to be approximately
$1,425,000. Management believes that the Company's existing borrowing capacity,
the proceeds of this offering and anticipated cash flow from operations will be
adequate to meet the working capital needs of the Company and provide the funds
needed for the expansion plan through fiscal 1997. Thereafter, the Company's
ability to meet the objectives of its expansion plan will be dependent, in part,
upon its ability to generate additional capital through borrowings, the issuance
of equity and/or debt securities or sale and leaseback transactions. The Company
has no commitments with respect to any such additional financing, and there can
be no assurance that such financing will be available or, if available, will be
on terms acceptable to the Company.
17
<PAGE> 19
BUSINESS
The Company is engaged primarily in the ownership, operation and
franchising of Steak n Shake restaurants through its wholly-owned subsidiary,
Steak n Shake, Inc. Founded in 1934 in Normal, Illinois, Steak n Shake is one of
the oldest restaurant chains in the country. Steak n Shake has 156
Company-operated restaurants and 45 franchised restaurants, located in 12
midwestern and southeastern states. Steak n Shake restaurants are generally open
24 hours a day, seven days a week, and in addition to the core menu offer a
breakfast menu from 2:00 a.m. until 11:00 a.m. During fiscal 1995, lunch and
dinner sales accounted for approximately 38% and 44% of sales, respectively,
while breakfast and late night sales accounted for 6% and 12% of sales,
respectively.
THE STEAK N SHAKE CONCEPT
Management's key concept strategies are to:
Capitalize on distinct market niche. Steak n Shake occupies a distinct
niche in the restaurant industry. The restaurants offer full service dining with
counter and dining room seating as well as drive-thru and carry-out service.
Counter and dining room sales represent approximately two-thirds of the sales
mix while sales for off-premises dining represent approximately one-third of the
sales mix. Unlike most quick-service restaurants, all food is freshly prepared,
made-to-order in view of the customer and is served promptly on china with
flatware and glassware by friendly wait staff. Steak n Shake's prices are
considerably less than most casual dining concepts with an average check of
$4.90 per person in fiscal 1995, although the average check during the peak
lunch and dinner hours was $5.50 and $5.80, respectively. The Company believes
that Steak n Shake offers a much more compelling value and higher quality level
of core menu items than competitive quick-service and casual dining chains.
Focus on core menu items while offering variety. For over 60 years, Steak n
Shake's menu has featured core items which include steakburgers, thin and crispy
french fries and hand-dipped milk shakes. The Company believes that its focus on
certain menu items has allowed it to serve consistent, high quality food which,
in turn, has built brand loyalty with its customers. Menu items are prepared in
accordance with the Company's strict specifications using high quality
ingredients such as 100% pure U.S. beef, including cuts of T-bone, strip and
sirloin steaks, used in its steakburgers. Over the years, Steak n Shake has
responded to changing customer tastes with greater menu variety without losing
its focus or customer appeal, by making carefully planned menu additions such as
a grilled chicken breast sandwich, beef and chicken taco salads and various
homestyle soups and salads.
Emphasize customer satisfaction. Steak n Shake's reputation and
long-standing customer loyalty have been earned over many years by the
consistent quality of the dining experience. The success of Steak n Shake
depends on its employees' commitment to consistently exceed the customer's
expectations. All restaurant employees participate in a formal training program
that focuses on enhancing customer satisfaction and includes classroom and
on-the-job instruction. Restaurant managers are required to complete a
comprehensive eight-week training program on restaurant operating procedures,
employee relations and customer service. In order to ensure consistent execution
of the Company's standards for service, self-stamped comment cards are placed in
every restaurant, and management performs periodic on-site visits and formal
inspections.
RESTAURANT DESIGN
Steak n Shake restaurants have a distinctive exterior appearance and
interior decor. The exterior design of a Steak n Shake restaurant has the unique
character of a branded logo embracing building shape, awning detail, building
graphics and pylon signing. The interior decor is reminiscent of the nostalgic
diner era using chrome, glass, neon and tile in a contemporary manner. Food
preparation takes place in view of the customer, as reflected by Steak n Shake's
slogan "In Sight It Must Be Right(R)". The kitchen area is designed to allow for
efficiency of work flow, thereby minimizing the amount of space required.
All of the Steak n Shake restaurants are free-standing structures except
for ten units, of which seven are part of travel centers. Restaurants
constructed prior to 1973 are similar in architectural style but differ in size
resulting in seating capacities varying from 39 to 138 customers. Restaurants
built since 1973 are generally 3,800 square
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<PAGE> 20
feet in area and seat approximately 100 customers. The travel center units are
located in complexes that typically include a fuel service area and a
convenience store. These units are located on interstate highways and serve both
the general traveler and truck traffic. The travel center unit exteriors and
interiors are the same as those of the free-standing units.
The Company has engaged in an extensive program of remodeling older Steak n
Shake units to conform them to current restaurant design specifications. Since
the beginning of fiscal 1994, the Company has remodeled 34 units at an average
cost of approximately $170,000 per unit. The Company has identified 25
additional units for remodeling over the next three years in order to complete
the remodeling program.
UNIT ECONOMICS
For the 52 weeks ended April 10, 1996, the 123 Company-operated Steak n
Shake restaurants open throughout the period generated average restaurant
revenues of approximately $1,339,000 and average restaurant cash flow before
rent, depreciation and amortization of approximately $419,000 (or 31.3% of
revenues). For this same period, the 15 Company-operated Steak n Shake
restaurants opened during the 52 weeks ended April 12, 1995 generated average
restaurant revenues of approximately $1,487,000 and average restaurant cash flow
before rent, depreciation and amortization of approximately $470,000 (or 31.6%
of revenues). The Company purchased the land for ten of these 15 restaurants,
and the average total investment to open these ten restaurants including land,
site improvements, building and equipment was approximately $1,275,000. The
comparable investment for fiscal 1995 was approximately $1,350,000, and the
Company expects the comparable investment for fiscal 1996 will average
approximately $1,425,000.
EXPANSION STRATEGY
In fiscal 1992, the Company embarked upon a Steak n Shake expansion program
that contemplated the addition of 39 new Company-operated units by the end of
fiscal 1997. By July 1, 1996, the Company had opened 62 new Company-operated
restaurants, including 22 units opened since September 27, 1995, as follows:
<TABLE>
<CAPTION>
NUMBER OF
FISCAL YEAR UNITS ADDED
- ---------------------- ------------
<S> <C>
1993.................. 8
1994.................. 11
1995.................. 21
1996 (through July 1). 22
</TABLE>
During the remainder of fiscal 1996, the Company expects to open an
additional five units, all of which were under construction as of July 1, 1996.
For fiscal 1997, 32 Company-operated units are expected to be opened.
Due to the success of the new restaurants and the progress made in further
developing its infrastructure and organizational quality, the Company has
gradually increased the objectives of the expansion plan in each of the years
subsequent to fiscal 1992. The Company's five-year plan for fiscal 1997 through
fiscal 2001 calls for an annual increase of at least 20% in the number of
Company-operated Steak n Shake units. In addition to the 240 Company-operated
units contemplated by the plan, the Company intends to expand its franchise
system through the opening of 162 franchised units during the five-year period.
The plan, if successful, would result in approximately 600 systemwide Steak n
Shake restaurants by the end of fiscal 2001, of which approximately 400 would be
Company-operated. As a part of its continuing planning process, management
reviews the relationship of the number of Company-operated to franchised
restaurants and the selection of areas for development by the Company and by
franchisees.
The Company's expansion strategy is based upon a cluster strategic
marketing approach in existing and contiguous markets. The execution of this
market intensification strategy involves opening a sufficient number of
restaurants in a media market in order to implement effectively Steak n Shake's
marketing program which focuses on building brand awareness, understanding of
the Steak n Shake concept and customer loyalty. The addition of Company-operated
restaurants in markets where the Company's television marketing effort has been
implemented allows the Company to leverage its advertising costs over more units
and to benefit from
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<PAGE> 21
management efficiencies. In existing markets, the Company's media advertising
expenditures are intended to create high levels of customer recognition and
immediate market acceptance for new units. The Company's new restaurants opened
in existing media markets have typically experienced higher than average sales
volumes. In new market areas, the Company's strategy is to construct a
sufficient number of units to allow the Company to begin the effective use of
media advertising within a relatively short period of time.
The Company seeks to maximize media exposure while limiting advertising
costs to a targeted percentage of the revenues generated by the restaurants in a
particular media market. Examples of the implementation of this strategy are the
Company's development of the Cincinnati, Ohio market and the Orlando/Daytona,
Florida market. Since the beginning of fiscal 1994, the Company has added four
new restaurants in Cincinnati, bringing the total number of restaurants in that
market to seven. This increased number of restaurants allowed the Company to
begin television advertising in Cincinnati in October 1995 at the lowest of the
Company's three advertising levels. Similarly, the Company began television
advertising in the Orlando/Daytona market in the summer of 1994, when it had
seven restaurants in this market. Since that time, the Company has added ten new
restaurants in this market and increased its level of advertising expenditures.
The Company believes that each of these markets has the potential for
significant additional growth. The Company is pursuing this strategy in the
Dayton, Ohio market, and its near-term expansion plans also include the
development of the existing Tampa, Florida market and of new markets in
Jacksonville, Florida, Nashville, Tennessee, Lexington, Kentucky and the
southwest suburbs of Chicago, Illinois.
Another strategy is to link existing major Steak n Shake markets by
developing Steak n Shake units along interstate highways. Since the beginning of
fiscal 1995, 21 Company-operated and 11 franchised restaurants have been opened
at locations along interstate highways, and four additional units are currently
under construction.
The Company's franchising program is designed to extend brand name
recognition of Steak n Shake and derive additional revenues without substantial
investment by the Company. Due to the recent successes of its franchising
program, franchising has become an important element of the Company's expansion
strategy, and the Company's expansion plan contemplates the controlled addition
of franchised restaurants at an accelerated rate. See "-- Franchising."
SITE SELECTION
Management believes that the site selection process is critical to the
success of its restaurants, and senior management devotes significant time and
resources in analyzing each prospective site. A variety of factors are
considered in the site selection process, including local market demographics,
site visibility and accessibility, highway interchanges and proximity to
significant generators of potential customers such as major retailers, regional
malls, shopping centers, office complexes, hotels and entertainment centers
including stadiums, arenas and multi-screen theaters.
The Company's Vice President, Real Estate and Franchising, and the real
estate managers identify and research sites for review by the Company's senior
management prior to submission to the Board of Directors for purchase or lease
approval. Upon identification of a site, its success including the potential
return on investment is assessed by utilization of financial models which
evaluate the unit's projected sales and earnings. Management believes this
detailed process, along with a critical approval path, ensures the management
discipline and scrutiny to acquire sites that have the most potential to meet
the Company's required performance criteria.
20
<PAGE> 22
RESTAURANT LOCATIONS
The following table lists, as of July 1, 1996, the locations of the 201
Steak n Shake restaurants, the number of units in each state and the number of
units in each city if more than one:
ARKANSAS (2)
* Jonesboro
* Little Rock
FLORIDA (29)
Bradenton
Daytona Beach
Gainesville
Lakeland (2)
Lake Buena Vista
Lake Mary
Merritt Island
Ocala
Orange City
Orlando (6)
Ormond Beach
Oviedo
Palm Coast
Sanford
* Tallahassee (2)
Tampa (4)
West Melbourne
Wildwood
Winter Haven
GEORGIA (14)
* Albany
* Atlanta (9)
* Brunswick
* Tifton
* Valdosta
* Warner Robbins
ILLINOIS (37)
Alton
Belleville
Bloomington (2)
Bradley
Carbondale
Champaign
Collinsville
Danville (2)
Decatur (3)
East Peoria
Effingham
Fairview Heights
Galesburg
* Jacksonville
Joliet
* Lincoln
Marion
Mattoon
Mt. Vernon
Normal (2)
Pekin
Peoria (4)
Peru
* Quincy
* Springfield (3)
Urbana (2)
INDIANA (48)
Anderson
Bloomington (3)
Carmel (2)
* Clarksville
Columbus
Elkhart
* Evansville (2)
Ft. Wayne (2)
Goshen
Greenwood
Indianapolis (19)
Kokomo (2)
Lafayette (2)
Lebanon
Marion
Michigan City
Mishawaka
Muncie
Plainfield
Richmond
Seymour
South Bend
Terre Haute
IOWA (1)
Davenport
KANSAS (1)
Overland Park
KENTUCKY (6)
Florence
* Louisville (3)
* Owensboro
Paducah
MICHIGAN (5)
Battle Creek
Benton Harbor
Grand Rapids
Holland
Portage
MISSOURI (47)
Arnold
* Branson
* Cape Girardeau
* Columbia
* Farmington
Fenton
Festus
Independence
* Jefferson City
* Joplin
* Poplar Bluff
* Rolla
St. Louis (31)
Sullivan
* Springfield (3)
OHIO (8)
Cincinnati (5)
Dayton
Middletown
Troy
TENNESSEE (3)
* Chattanooga (2)
* Dickson
- -------------------------
* Franchised units.
The Company leases 100 of the 156 Company-operated restaurants. The Company
prefers to own its restaurant properties, and seeks to do so whenever it can
negotiate favorable purchase terms. The Company will also enter into
build-to-suit arrangements and sale and leaseback arrangements on a very
selective basis. Steak n Shake restaurant leases typically have an initial term
of 18 to 25 years and renewal terms aggregating 20 years or more and require the
Company to pay real estate taxes, insurance and maintenance costs.
21
<PAGE> 23
[Map Showing Location of Restaurants]
22
<PAGE> 24
RESTAURANT OPERATIONS
Restaurant Management. The operations of the restaurants are the
responsibility of the Vice President of Operations and National General Manager,
five division managers, 24 district managers and the unit-level restaurant
management teams.
Division managers are responsible for the operations of the restaurants in
the division as well as supervision of the division support team, which includes
district managers, training and recruiting managers, division training
supervisors and maintenance and administration staff. District managers
generally have responsibility for the operating performance of six to eight
restaurants. The management team of a typical Steak n Shake restaurant consists
of a general manager, a restaurant manager and three assistant managers. The
number of assistant managers varies depending upon the volume of the unit.
The general manager of each restaurant has primary responsibility for the
day-to-day operation of the restaurant and is responsible for maintaining
Company-established operating standards and procedures. The general manager is
the key person in the success of a Steak n Shake restaurant. An experienced,
well-trained general manager promotes compliance with the Company's high
standards for food quality and customer service. Steak n Shake seeks to employ
restaurant managers who are customer service oriented and who manage the
restaurant from the dining room. Steak n Shake recognizes the important role of
a seasoned, well-trained and properly motivated restaurant team. The Company has
initiated innovative programs that involve training, hiring and career
development, and a wide variety of benefits to reward and recognize adherence to
Steak n Shake's high standards.
Recruiting and hiring programs have been intensified to seek the qualified
people required to support the Company's aggressive growth plans. Recruiting
efforts focus on hiring talented people through a variety of sources which
includes development and promotion of existing employees, as well as recruiting
people externally with prior casual dining restaurant experience. Additionally,
Steak n Shake has a program that recruits college students enrolled in
hospitality and restaurant schools, as well as liberal arts and business majors.
The Company believes that offering competitive compensation, including
incentive bonus plans tied to performance goals for all levels of restaurant
management personnel, is important to attracting and retaining competent and
highly motivated managers. Awards under the incentive bonus plan are based upon
attainment of defined operating performance standards. The Employee Stock
Purchase Plan also provides an opportunity for employees to become shareholders
on favorable terms.
Training. Each restaurant team member participates in a formal training
program that utilizes work station video presentations, training manuals, a
scheduled evaluation process and recognition awards which signify proficiency in
specific areas. This training process, which takes place within the restaurant,
is continuously reinforced and monitored.
Steak n Shake's goal is to continue to develop strong restaurant management
teams by providing carefully designed leadership training programs. Each
geographic division designates specific restaurants where intensified on-the-job
management training occurs under careful supervision by experienced restaurant
managers. Restaurant managers are required to complete a comprehensive
eight-week training program during which time they are instructed in subjects
such as the standards of food quality and preparation, customer service and
employee relations. Restaurant managers also are provided with video training
presentations and operations manuals relating to food preparation, customer
service standards, restaurant operation practices and Company procedures. During
fiscal 1995, 332 individuals entered the Company's management training program
as compared to 267 in fiscal 1994. During the fiscal year to date period ending
July 1, 1996, 295 individuals entered the training program, approximately 25% of
whom were promoted from within the Company.
The general managers, together with division personnel, are responsible for
hiring the hourly employees for each restaurant. Each restaurant employs
approximately 40 to 80 hourly employees, many of whom work part-time. Prior to
the opening of a restaurant, the Company's Division Recruiting and Training
Manager assembles a team of experienced employees to train and educate the new
employees. The training period for new employees lasts approximately two weeks
and includes one week of general training prior to opening and one week of
23
<PAGE> 25
on-the-job supervision at the restaurant. Ongoing employee training remains the
responsibility of the restaurant general manager under the supervision of a
division training supervisor.
Customer Satisfaction and Quality Control. Management believes that
employee commitment to consistently exceed customer expectations is critical to
the success of Steak n Shake. The Company intends to continue to develop and
implement standards of execution that will result in the efficient delivery of
high quality, good-tasting food served by friendly, competent wait staff.
Restaurant management is responsible for ensuring that the restaurants are
operated in accordance with strict operational procedures and quality
requirements. Compliance for Company-operated units is monitored through the use
of customer comment cards, periodic on-site visits and formal inspections by the
division and district managers as well as division training personnel, and for
franchised units through periodic inspections by the Company's two franchise
field representatives. Unfavorable comment cards are responded to by division
management.
Purchasing and Distribution Center Operations. Purchases are negotiated
centrally for most food and beverage products and supplies to ensure uniform
quality, adequate quantities and competitive prices. Food and supply items
undergo ongoing research, development and testing in an effort to maintain the
highest quality products and to be responsive to changing customer tastes. The
Company has not experienced any significant delays in receiving food and
beverage products, restaurant supplies or equipment.
Steak n Shake operates a distribution center in Bloomington, Illinois from
which food products (except for items purchased by the restaurants locally such
as bakery goods, produce and dairy products) and restaurant supplies are
delivered to 129 Company-operated and 24 franchised restaurants located in the
Midwest. The distribution center was built in 1975 and has adequate capacity to
handle the Company's current requirements for the Midwest. The remaining
Company-operated Steak n Shake restaurants, located primarily in the Southeast,
obtain food products and supplies which meet the Company's quality standards and
specifications from an independent distributor.
Restaurant Reporting. Systems and technology are essential for the
management oversight needed to monitor Steak n Shake's high standards for
quality of food with quick and friendly service and to achieve desirable
operating margins. Operational and financial controls are maintained through the
use of point of sale systems in each restaurant, personal computers in the
division offices and an automated data processing system at the corporate
office. The management accounting system polls data from the point of sale
system and generates daily reports of sales, sales mix, customer counts, check
average, cash, labor and food cost. Inventories are taken of key products daily
and of all products at the end of each four-week accounting period. Management
utilizes this data to monitor the effectiveness of controls and to prepare
periodic financial and management reports. The system is also utilized for
financial and budget analysis, planning and analysis of sales by revenue center
and product mix and labor utilization. Planned system developments include
additional enhancements, such as sales forecasting, labor scheduling and
ordering of food products and supplies. Cash is controlled through frequent
deposits in local bank operating accounts followed by transfers to the principal
corporate operating account.
Marketing. Management believes that Steak n Shake's commitment to customer
service and value is the most effective approach to attracting and retaining
customers, and that the strategy of locating multiple restaurants within a
defined geographic area has enabled newer restaurants to benefit from the name
recognition and reputation for quality and value developed by existing
operations. Accordingly, Steak n Shake's marketing strategy is directed toward
building brand loyalty.
Steak n Shake's media program, particularly television advertising, plays a
significant role in its marketing strategy. The advertising theme focuses on
demonstrating the specific product and service benefits that have been inherent
in the Steak n Shake concept for over 60 years and upon which Steak n Shake's
reputation has been built. In addition to its media program, Steak n Shake
relies upon word of mouth and point of purchase advertising to attract customers
and generate additional sales. Steak n Shake's strategy does not involve price
led marketing.
Additional marketing activities designed to build brand awareness and
loyalty, create new customer trials and introduce new products include quarterly
free-standing newspaper inserts and seasonal in-store offerings centered around
short-term, special promotions or product introductions. The fully integrated
marketing program
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<PAGE> 26
also utilizes menu clip-ons, table cards, ceiling danglers and signage. During
fiscal 1995, the Company expended 2.9% of net sales on media and marketing
materials.
FRANCHISING
General. The Company's franchising program is designed to extend its brand
name recognition of Steak n Shake in selected markets and derive additional
revenues without substantial investment by the Company. Due to the recent
successes of its franchising program, franchising has become an important
element of the Company's expansion strategy, and the Company's expansion plan
calls for the controlled addition of franchised restaurants at an accelerated
rate.
At July 1, 1996, the Company had 45 franchised Steak n Shake restaurants
operated by 16 franchisees, located in Arkansas, Florida, Georgia, Illinois,
Indiana, Kentucky, Missouri and Tennessee. These restaurants are located in
areas contiguous to markets in which there are Company-operated restaurants.
Thirty-five of the franchised units have been added since June 1991, including
11 in fiscal 1995 and 11 in fiscal 1996 to date, and two franchised units are
currently under construction.
Principal Franchisees. Steak n Shake's principal franchise relationships
include: (i) an area development agreement with MAPCO Petroleum, Inc., a
subsidiary of MAPCO, Inc., a New York Stock Exchange energy company, pursuant to
which MAPCO Petroleum, Inc., which has retail fuel and convenience store outlets
in nine southern and southeastern states, is to open 14 additional restaurants
in travel centers to be developed along interstate highways in several southern
and southeastern states over the next three years; (ii) an agreement with SnS
Southern, Inc., pursuant to which SnS Southern, Inc. is to open 11 additional
restaurants in Georgia, northern Florida and Alabama over the next three years;
and (iii) an agreement with Kelley Restaurants, Inc., for the development of a
total of eight Steak n Shake restaurants in the Atlanta, Georgia and Charlotte,
North Carolina markets over the next three years. Kelley Restaurants, Inc. is
controlled by E. W. Kelley, the Chairman of the Company.
Approval. Franchisees undergo a rigorous selection process supervised by
the Vice President, Real Estate and Franchising, and require final approval by
senior management. Steak n Shake seeks franchisees with significant experience
in the restaurant business who have demonstrated the financial and management
capabilities required to develop and operate one or more franchised restaurants.
The Company initially enters into an agreement with the franchisee for the
development of one unit. After the franchisee has demonstrated the ability to
operate that unit in accordance with Company standards, the Company will
consider entering into a broader franchise relationship.
Training and Development. Steak n Shake assists franchisees with both the
development and the ongoing operation of their restaurants. Steak n Shake
management personnel assist with site selection, approve all franchise sites and
provide franchisees with prototype plans and specifications for construction of
their restaurants. Training staff provides both on-site and off-site instruction
to franchised restaurant management employees. Managers of franchised
restaurants are required to obtain the same training as that required of
managers of Company-operated units. Steak n Shake's support continues after a
restaurant opening with periodic training programs, the provision of manuals and
updates relating to product specifications, customer service and quality control
procedures, advertising and marketing materials and assistance with particular
advertising and marketing needs. Steak n Shake also makes available to
franchisees certain accounting services and management information reports
prepared at the corporate office for a monthly fee based on Steak n Shake's
actual costs. The Company has two franchise field representatives who monitor
franchisee operations.
Operations. All franchised restaurants are required, pursuant to their
respective franchise agreements, to serve Steak n Shake approved menu items. In
addition, although not required to do so, a majority of franchisees purchase
food, supplies and smallwares through Steak n Shake's distribution center, and
use Steak n Shake's point of sale systems. Access to these services enables
franchisees to benefit from Steak n Shake's purchasing power and assists Steak n
Shake in monitoring compliance with its standards and specifications for uniform
quality.
Franchise Agreement. The standard Steak n Shake franchise agreement
currently has an initial term of 20 years. Among other obligations, the
agreement requires the franchisee to pay an initial franchise fee of $30,000 for
the first unit in a market, $25,000 for each subsequent unit and a continuing
royalty of 4% of monthly
25
<PAGE> 27
gross sales. The franchise agreement also requires the franchisee to pay 5% of
monthly gross sales to the Company for advertising, of which 80% is to be spent
on local, regional or national marketing and 20% is to be used by Steak n Shake
for creative and promotional development, outside independent marketing agency
fees and technical and professional marketing advice.
Financing Assistance. In certain circumstances, the Company's financing
subsidiary, SNS Investment Company, Inc., will assist qualified franchisees in
financing the development of one or more franchised units by purchasing or
leasing approved sites from third parties, constructing the restaurant and
leasing or subleasing the finished facility to the franchisee. The lease terms
and rentals, including a surcharge by the Company for administrative services,
are negotiated based on prevailing real estate and construction rates in effect
in the franchised area. Through July 1, 1996, six restaurants had been financed
through this subsidiary.
CONSOLIDATED SPECIALTY RESTAURANTS, INC.
The Company also operates 11 theme restaurants located in Indiana and
Illinois through a wholly-owned subsidiary, Consolidated Specialty Restaurants,
Inc. ("CSR"). Eight of these restaurants are steakhouses operated under the name
of Colorado Steakhouse. The Company has substantially completed the capital
investment required to develop this concept, and is in the process of refining
and evaluating the operations of these restaurants. The Company does not intend
to expand the operations of CSR unless the existing restaurants demonstrate
satisfactory levels of profitability and return on investment.
EMPLOYEES
As of July 1, 1996, the Company had approximately 10,500 employees. None of
the employees is represented by a collective bargaining agreement. Approximately
two-thirds of the Company's hourly employees are part-time.
TRADEMARKS
"Steak n Shake(R)", "Takhomasak(R)", "Famous For Steakburgers(R)",
"FAXASAK(R)", "In Sight It Must Be Right(R)" and the "Wing and Circle(R)" logo
are federally registered trademarks and servicemarks of Steak n Shake. Steak n
Shake has licensed exclusive use of the "Steak n Shake" trademark in the states
of Rhode Island and California and within a three-county area of New Jersey,
which would restrict expansion of Steak n Shake into those geographical areas.
CSR holds federal registrations for "The Charley Horse" and "Colorado
Steakhouse" as well as other federal and state trademarks and servicemarks
applicable to its restaurant businesses as well as state registrations. The
Company is not aware of any infringing uses that could materially affect its
business. The Company will protect its trademark rights by appropriate legal
action whenever necessary.
LEGAL PROCEEDINGS
On May 31, 1995, Pepsi-Cola Company ("Pepsi") filed suit against Steak n
Shake, Inc. in the United States District Court for the Southern District of
Indiana alleging that Steak n Shake had breached a ten-year contract with Pepsi.
Under the contract in question, Steak n Shake agreed to serve certain Pepsi
products in return for cash payments aggregating in excess of $1,000,000, to be
made by Pepsi to Steak n Shake over the term of the contract, and the provision
by Pepsi of a joint marketing program. When Pepsi failed to provide the promised
marketing program, Steak n Shake terminated the contract for cause.
Pepsi claims that it was not legally required to provide the marketing
program in question, and it seeks damages in the amount of the profits it would
have made had the contract not been terminated. Pepsi's damage claims are based
upon its alleged lost profits over the remaining term of the contract. Pepsi
originally estimated its damages at approximately $2,800,000, but has since
claimed that those damages are increasing in relation to Steak n Shake's
increased cola sales. Steak n Shake denies it breached the contract, denies that
Pepsi would have made any profit on the contract had it been completed and
intends to vigorously defend this matter. Steak n Shake also has filed a
counterclaim against Pepsi seeking $360,000 in liquidated damages as a result of
Pepsi's breach of the contract.
There are no other legal proceedings pending against the Company which, if
adversely resolved, would have a material effect upon the Company.
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<PAGE> 28
MANAGEMENT
The directors and executive officers of the Company and their respective
ages and positions with the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ---------------------------------------------------
<S> <C> <C>
E. W. Kelley....................... 79 Chairman and Director
S. Sue Aramian..................... 64 Vice Chairwoman, Secretary and Director
Alan B. Gilman..................... 65 President, Chief Executive Officer and Director
Alva T. Bonda...................... 79 Director
Neal Gilliatt...................... 78 Director
Charles E. Lanham.................. 64 Director
J. Fred Risk....................... 67 Director
James Williamson, Jr............... 64 Director
Robert P. Cronin................... 72 Director of Steak n Shake, Inc.
James W. Bear...................... 50 Senior Vice President, Administration and Finance
and Treasurer
Kevin F. Beauchamp................. 38 Vice President and Controller
Kevin E. Dooley.................... 52 Vice President, Development
Duane E. Geiger.................... 33 Vice President, Information Systems, Financial
Planning and Audit
William H. Hart.................... 46 Vice President, Purchasing
John P. Hawes...................... 44 Vice President, Human Resources
Gary T. Reinwald................... 48 Vice President, Operations and National General
Manager
James E. Richmond.................. 58 Vice President, Real Estate and Franchising
Victor F. Yeandel.................. 39 Vice President, Marketing
Mary H. Mueller.................... 47 General Counsel and Assistant Secretary
</TABLE>
Mr. Kelley has been a director of the Company since 1981 and Chairman since
1984. From 1981 to 1984, he served as Vice Chairman and Chief Executive Officer.
He served as President and Chief Executive Officer from January 1992 until July
1992, and continued to serve as Chief Executive Officer until October 1992.
Since 1974, he has been a Managing General Partner of Kelley & Partners, Ltd., a
Florida limited partnership which holds investments in companies engaged in
snack food distribution and restaurant operations and is a principal shareholder
of the Company. Prior to 1981, Mr. Kelley was the chief executive officer of
Fairmount Foods Company, a large consumer goods company listed on the New York
Stock Exchange.
Ms. Aramian has been Vice Chairwoman since 1990, a director since 1981 and
was named Secretary in 1995. She served as Vice President from 1984 to 1990. Ms.
Aramian has been a Managing General Partner of Kelley & Partners, Ltd. since
1974.
Mr. Gilman was elected President and a director in July 1992 after serving
as a consultant to the Company on special projects since February 1992 and
assumed the additional position of Chief Executive Officer effective October
1992. From 1985 to 1992, Mr. Gilman was a private investor, and from 1980 to
1985, he served as President of Murjani International, Ltd., an international
marketing firm. Prior to such time, Mr. Gilman served as a principal executive
of various divisions of Federated Department Stores, Inc., including Chairman
and Chief Executive Officer of the Abraham & Straus Division in New York.
Mr. Bonda has served as a director since 1982 and was Chairman of the Ohio
Board of Regents and former Chairman of Penril Corp., a manufacturer of
electronic equipment, until 1987. Mr. Bonda is a general partner of Kelley &
Partners, Ltd.
27
<PAGE> 29
Mr. Gilliatt was elected to the Board of Directors in 1991 and is the
former Chairman of the Executive Committee of Interpublic Group of Companies,
Inc., an advertising and public relations concern, where he served for many
years in senior marketing positions.
Mr. Lanham has served as a director since 1971. He is Chairman of Klipsch,
Lanham & Associates, Inc., an investment firm, and is Vice Chairman of Overhead
Door Company of Indianapolis, Inc. Mr. Lanham is a limited partner of Kelley &
Partners, Ltd.
Mr. Risk has served as a director since 1971 and is Chairman of the Board
of Sovereign Group, Inc., a private investment firm. Mr. Risk was the Chairman
of the Board of Forum Group, Inc., a developer and operator of retirement home
facilities, from 1976 until August 1992. Forum Group, Inc. filed voluntary
Chapter 11 proceedings under the Bankruptcy Act in February 1992. Mr. Risk is a
limited partner of Kelley & Partners, Ltd.
Mr. Williamson has served as a director of the Company since 1985 and
served as President and Chief Executive Officer of the Company from April 1985
until his retirement in July 1990. Mr. Williamson is a general partner of Kelley
& Partners, Ltd.
Mr. Cronin has served as a director of Steak n Shake since 1971 and was
President of Steak n Shake from 1971 until 1981.
Mr. Bear was elected Senior Vice President, Administration and Finance and
Treasurer in 1991. Prior thereto, he served as Vice President and Treasurer of
the Company from 1980 to 1991.
Mr. Beauchamp joined the Company as Vice President and Controller in 1993.
From 1990 to 1993, Mr. Beauchamp was Director of Accounting for a division of
The Limited, Inc. Prior to such time, Mr. Beauchamp served in various capacities
at Price Waterhouse LLP over a period of 11 years, which included a three-year
Managers' International Program in Europe, and ultimately served as a Senior
Manager.
Mr. Dooley joined the Company as Vice President, Development in 1993 and is
responsible for engineering and construction. Prior to such time, Mr. Dooley was
a Director of Engineering with Wendy's, Inc. since 1991. From 1987 to 1990, he
served as Director of Facilities, Engineering and Construction at Norris Food
Service, Inc. (a Hardee's Food System, Inc. franchisee). Before 1987, Mr. Dooley
served in various capacities, over a period of 17 years, at Hardee's Food
System, Inc. and ultimately served as Director of Construction and Maintenance.
Mr. Geiger was appointed Vice President, Information Systems, Financial
Planning and Audit in 1995. From 1992 to 1995, Mr. Geiger served as Director of
Financial Planning and Audit and Assistant Treasurer for the Company. Prior to
such time, Mr. Geiger served in various capacities at Ernst & Young LLP, over a
period of eight years, and ultimately served as a Manager.
Mr. Hart has been Vice President, Purchasing of the Company since 1991 and
was Vice President of Operations of CSR from 1990 to 1991.
Mr. Hawes joined the Company as Vice President, Human Resources in 1994.
Prior to such time, Mr. Hawes served in various capacities at Gilbert/Robinson,
Inc., a specialty restaurant operator, for a total of 16 years and ultimately
served as Vice President of Administration.
Mr. Reinwald has been Vice President, Operations and National General
Manager of Steak n Shake since 1983, and served in various capacities in the
Company for 19 years prior to that date.
Mr. Richmond joined the Company as Vice President, Real Estate and
Franchising in 1986 and is responsible primarily for real estate and franchise
matters.
Mr. Yeandel joined the Company as Vice President, Marketing in 1995. From
1992 to 1995, Mr. Yeandel served as Vice President, Franchise Development for
Long John Silver's, Inc. Prior to such time, Mr. Yeandel held various marketing
positions with Long John Silver's, Inc. since 1987.
Mrs. Mueller was appointed General Counsel in July 1995 and Assistant
Secretary in August 1994. From 1994 to July 1995, Mrs. Mueller served as the
Company's Associate General Counsel for Real Estate and Franchising. From 1992
to 1994, Mrs. Mueller served as Associate City Attorney for the city of South
Bend, Indiana. Prior to such time, Mrs. Mueller served as General Counsel for
the Indiana Toll Road since 1983.
28
<PAGE> 30
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock as of May 31, 1996 by (i) each person who
is known to be the beneficial owner of more than 5% of the Common Stock, (ii)
each director, (iii) the Company's President and the other four most highly
compensated executive officers in fiscal 1995, and (iv) the Company's directors
and executive officers, as a group:
<TABLE>
<CAPTION>
PERCENT OF CLASS
SHARES -----------------------------------
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED PRIOR TO OFFERING AFTER OFFERING
- ------------------------------------------ ------------------ ----------------- --------------
<S> <C> <C> <C>
E. W. Kelley.............................. 2,451,339(1)(2)(3) 17.7% 15.1%
Kelley & Partners, Ltd.................... 1,294,542(2) 9.3 8.0
S. Sue Aramian............................ 1,644,302(2)(3)(4) 11.9 10.1
James W. Bear............................. 312,332(5) 2.2 1.9
Alva T. Bonda............................. 1,596,622(2)(6) 11.5 9.8
Neal Gilliatt............................. 18,737(7) * *
Alan B. Gilman............................ 118,334(8) * *
Charles E. Lanham......................... 259,465(9) 1.9 1.6
Gary T. Reinwald.......................... 190,714(10) 1.4 1.2
J. Fred Risk.............................. 85,863(11) * *
James Williamson, Jr...................... 1,490,590(2)(12) 10.8 9.2
All directors and executive officers as a
group
(19 persons)............................ 4,851,569(13) 34.4 29.5
</TABLE>
- -------------------------
* Less than 1%
(1) Includes 38,656 shares which may be acquired pursuant to stock options
exercisable within 60 days; 530,725 shares owned directly by Mr. Kelley;
394,843 shares owned of record and beneficially by Kelley, Inc.; and 16,412
shares owned of record and beneficially by KAHM, Inc. Kelley, Inc., and
KAHM, Inc. are corporations controlled by Mr. Kelley.
(2) Includes 1,294,542 shares owned of record and beneficially by Kelley &
Partners, Ltd., of which Mr. Kelley and Ms. Aramian are Managing General
Partners and Messrs. Bonda and Williamson are General Partners.
(3) Includes 176,161 shares owned of record and beneficially by King Cola,
Inc., of which Mr. Kelley and Ms. Aramian are officers and directors.
(4) Includes 23,692 shares which may be acquired pursuant to stock options
exercisable within 60 days.
(5) Includes 34,539 shares which may be acquired pursuant to stock options
exercisable within 60 days. Also includes 6,704 shares owned of record and
beneficially held by Mr. Bear's wife, with respect to which he disclaims
beneficial ownership.
(6) Includes 14,466 shares which may be acquired pursuant to stock options
exercisable within 60 days. Also includes 101,996 shares owned of record
and beneficially by Mr. Bonda's wife, with respect to which he disclaims
beneficial ownership.
(7) Includes 9,634 shares which may be acquired pursuant to stock options
exercisable within 60 days. Also includes 2,662 shares owned of record and
beneficially by Mr. Gilliatt's wife, with respect to which he disclaims
beneficial ownership.
29
<PAGE> 31
(8) Includes 26,386 shares which may be acquired pursuant to stock options
exercisable within 60 days.
(9) Includes 14,466 shares which may be acquired pursuant to stock options
exercisable within 60 days. Also includes 5,781 shares owned by Mr.
Lanham's wife, with respect to which he disclaims beneficial ownership.
(10) Includes 30,692 shares which may be acquired pursuant to stock options
exercisable within 60 days. Also includes 194 shares owned by Mr.
Reinwald's son, with respect to which he disclaims beneficial ownership.
(11) Includes 2,420 shares which may be acquired pursuant to stock options
exercisable within 60 days. Also includes 3,420 shares owned by Mr. Risk's
wife, with respect to which he disclaims beneficial ownership.
(12) Includes 9,634 shares which may be acquired pursuant to stock options
exercisable within 60 days. Also includes 10,057 shares owned of record and
beneficially by Mr. Williamson's wife, with respect to which he disclaims
beneficial ownership.
(13) Includes 254,147 shares which may be acquired pursuant to stock options
exercisable within 60 days held by all directors and officers as a group.
30
<PAGE> 32
DESCRIPTION OF COMMON STOCK
The Company's Articles of Incorporation, as amended, currently authorize
the issuance of up to 25,000,000 shares of Common Stock. As of July 1, 1996,
13,863,714 shares of Common Stock were outstanding. Upon the consummation of
this offering, the Company will have 16,213,714 shares of Common Stock
outstanding. An additional 986,035 shares of Common Stock are reserved for
issuance upon the exercise of employee and director stock options, of which
options to purchase 652,803 shares are outstanding as of July 1, 1996. The
following description of the Common Stock is qualified in its entirety by
reference to the Articles of Incorporation.
RIGHTS OF HOLDERS OF COMMON STOCK
Holders of Common Stock are entitled to receive, pro rata, dividends when
and as declared by the Board of Directors at its discretion out of any funds
lawfully available therefor. In the event of liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to participate
ratably in the distribution of such assets remaining after payment of
liabilities, in each case subject to any preferential liquidation or redemption
rights. The Common Stock does not have any preemptive rights or redemption or
sinking fund provisions. The issued and outstanding shares of Common Stock are,
and the Common Stock issued in this offering will be, fully paid and
nonassessable.
Holders of Common Stock are entitled to vote at all meetings of
shareholders of the Company for the election of directors and on any other
matters which may be submitted to a vote of the shareholders, with each share
entitled to one vote. In voting for directors, the Common Stock does not have
cumulative voting rights, which means that the holders of more than 50% of the
shares voting can elect all directors if they choose to do so and, in such
event, the holders of the remaining shares will not be able to elect any person
or persons to the Board of Directors.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock of the Company is
Harris Trust and Savings Bank.
CERTAIN PROVISIONS OF INDIANA LAW
As an Indiana corporation, the Company is governed by the provisions of the
Indiana Business Corporation Law (the "BCL").
Voting Requirements for Certain Business Combinations. Chapter 43 of the
BCL establishes a five-year period beginning with the acquisition of 10% of the
voting power of the outstanding voting shares of a "resident domestic
corporation" (which definition includes the Company) during which certain
business transactions involving the acquiring shareholder are prohibited unless,
prior to the acquisition of such interest, the board of directors approves the
acquisition of such interest or the proposed business combination. After the
five-year period expires, a business combination involving the acquiring
shareholder may take place only upon approval by a majority of the disinterested
shares, or if the other shareholders receive a formula price based on the higher
of the highest price paid by the acquiring shareholder or at the time of the
announcement of the proposed transaction, whichever is higher. The minimum price
for shares other than common shares is to be determined under criteria similar
to that for common shares, except the minimum price as defined cannot be less
than the highest preferential amount to which the shares are entitled in the
event of any liquidation, dissolution or winding up of the corporation.
Changes of Control. Under Chapter 42 of the BCL, with certain exceptions, a
person proposing to acquire or acquiring voting shares of an "issuing public
corporation" (which definition includes only corporations having at least 100
shareholders and in which more than 10% of its shareholders are Indiana
residents, 10% of its shares are owned by Indiana residents, or which have
10,000 or more shareholders who are Indiana residents) sufficient to entitle
that person to exercise voting power within any of the ranges of one-fifth to
one-third of all voting power, more than one-third but less than one-half of all
voting power, or a majority or more of all voting power (a "control share
acquisition") may give a notice of such fact to the corporation containing
certain specified data. The acquiring person may request that the directors call
a special meeting of shareholders for the purpose of
31
<PAGE> 33
considering the voting rights to be accorded the shares so acquired ("control
shares"), and the control shares have voting rights only to the extent granted
by a resolution approved by the shareholders. The resolution must be approved by
a majority of the votes entitled to be cast by each voting group entitled to
vote separately on the proposal, excluding shares held by the acquiring person
and shares held by management. Control shares as to which the required notice
has not been filed and any control shares not accorded full voting rights by the
shareholders may be redeemed at fair market value by the corporation if it is
authorized to do so by its articles of incorporation or bylaws before a control
share acquisition has occurred. The Company has not adopted such a provision in
its Articles of Incorporation or Bylaws. Shareholders are entitled to dissenters
rights with respect to the control share acquisition in the event that the
control shares are accorded full voting rights and the acquiring person has
acquired control shares with a majority of all voting power.
Other Provisions of the BCL. The BCL specifically authorizes directors, in
considering the best interest of a corporation, to consider both the long- and
short-term interests of the corporation, as well as the effects of any action on
shareholders, employees, suppliers and customers of the corporation, and
communities in which offices or other facilities of the corporation are located
and any other factors the directors consider pertinent. Under the BCL, directors
are not required to approve a proposed business combination or other corporate
action if they determine in good faith that the action is not in the best
interest of the corporation. In addition, the BCL states that directors are not
required to redeem any rights under or render inapplicable a shareholder rights
plan or to take or decline to take any other action solely because of the effect
such action or inaction might have on a proposed change of control of the
corporation or the amounts to be paid to shareholders upon such a change of
control. The Delaware Supreme Court has held that defensive measures in response
to a potential takeover must be "reasonable in relation to the threat posed."
The BCL explicitly provides that the different or higher degree of scrutiny
imposed in Delaware and certain other jurisdictions upon director actions taken
in response to potential changes in control will not apply.
The BCL requires directors to discharge their duties, based on the facts
then known to them, in good faith, with the care an ordinary, prudent person in
a like position would exercise under similar circumstances and in a manner the
director reasonably believes to be in the best interest of the corporation. A
director is not liable for any action taken as a director or for failure to take
any action unless the director has breached or failed to perform the duties of
the director's office in compliance with the foregoing standard and the breach
or failure to perform constitutes willful misconduct or recklessness.
32
<PAGE> 34
UNDERWRITING
Pursuant to the Underwriting Agreement, and subject to the terms and
conditions thereof, the Underwriters named below, acting through J.C. Bradford &
Co. and Montgomery Securities as representatives of the several Underwriters
(the "Representatives"), have agreed, severally, to purchase from the Company
the number of shares of Common Stock set forth below opposite their respective
names:
<TABLE>
<CAPTION>
NAME OF UNDERWRITER NUMBER OF SHARES
-------------------------------------------------------------- ----------------
<S> <C>
J.C. Bradford & Co............................................
Montgomery Securities.........................................
---------
Total......................................................... 2,350,000
=========
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions contained therein, to purchase all shares of Common Stock
offered hereby if any of such shares are purchased.
The Company has been advised by the Representatives that the Underwriters
propose initially to offer the shares of Common Stock to the public at the
public offering price set forth on the cover page of this Prospectus and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to certain other dealers. After the initial
public offering, the public offering price and such concessions may be changed.
The offering of the Common Stock is made for delivery when, as and if
accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offer without notice. The Underwriters
reserve the right to reject any order for the purchase of shares.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of the effectiveness of the offering, to
purchase up to 352,500 additional shares of Common Stock to cover over-
allotments, if any. To the extent the Underwriters exercise this option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof which the number of shares of Common Stock to be purchased by
it shown in the table above bears to the total number of shares in such table,
and the Company will be obligated, pursuant to the option, to sell such shares
to the Underwriters. The Underwriters may exercise such option only to cover
over-allotments made in connection with the sale of the shares of Common Stock
offered hereby. If purchased, the Underwriters will sell such additional shares
on the same terms as those on which the 2,350,000 shares are being offered.
The Company, all executive officers and directors of the Company, and
Kelley & Partners, Ltd., have agreed that they will not, without the prior
written consent of the Representatives, sell, transfer, assign or otherwise
dispose of any shares of Common Stock owned by them prior to the expiration of
120 days from the date of this Prospectus.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters and controlling persons, if any, against certain liabilities,
including liabilities under the Securities Act, or will contribute to payments
which the Underwriters or any such controlling persons may be required to make
in respect thereof.
In connection with this offering, certain Underwriters and selling group
members (if any) who in the past have acted as market makers in the Common Stock
may engage in passive market making activities in the Common Stock on the Nasdaq
National Market in accordance with Rule 10b-6A under the Exchange Act.
Underwriters and other participants in the distribution of the Common Stock
generally are prohibited during a specified time period (the "qualifying
period"), determined in light of the timing of the distribution, from bidding
for or purchasing the Common Stock or a related security except to the extent
permitted under applicable
33
<PAGE> 35
rules, primarily Rules 10b-6 and 10b-6A. Rule 10b-6A allows, among other things,
an Underwriter or member of the selling group (if any) for the Common Stock to
effect "passive market making" transactions on the Nasdaq National Market in the
Common Stock during the qualifying period at a price that does not exceed the
highest independent bid for that security at the time of the transaction. Such a
passive market maker must not display a bid for the subject security at a price
in excess of the highest independent bid, and generally must lower its bid if
all independent bids are lowered. Moreover, the passive market maker's net
purchases of such security on each day of the qualifying period shall not exceed
30% of its average daily trading volume during a reference period preceding the
distribution.
LEGAL MATTERS
Certain legal matters in connection with this offering will be passed upon
for the Company by Ice Miller Donadio & Ryan, Indianapolis, Indiana, and for the
Underwriters by Bass, Berry & Sims PLC, Nashville, Tennessee.
EXPERTS
The consolidated financial statements of Consolidated Products, Inc. at
September 28, 1994 and September 27, 1995, and for each of the three years in
the period ended September 27, 1995, appearing in this Prospectus have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-3 under the Securities Act with
respect to the Common Stock offered hereby (the "Registration Statement"). This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits thereto. Certain items were omitted in accordance
with the rules and regulations of the Commission. For further information
regarding the Company and the Common Stock offered by this Prospectus, reference
is made to the Registration Statement, including all amendments thereto and the
schedules and exhibits filed as part thereof.
The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Reports, proxy statements and other information
filed by the Company can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549; and its regional offices located at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material can
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
34
<PAGE> 36
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Company (file
number 0-8445) pursuant to the Exchange Act are incorporated and made a part of
this Prospectus by reference, except as superseded or modified herein:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
September 27, 1995.
2. The Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended December 20, 1995 and April 10, 1996.
3. The Company's Current Report on Form 8-K dated October 6, 1995.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act, subsequent to the date of this Prospectus and prior
to the termination of this offering, shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the dates of filing
of such documents. Any statement contained in a document incorporated or deemed
to be incorporated by reference in this Prospectus shall be deemed to be
modified or superseded for purposes of this Prospectus 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 in this Prospectus modifies
or supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
Any person, including any beneficial owner, receiving a copy of this
Prospectus may obtain without charge, upon written or oral request, a copy of
any of the documents incorporated by reference herein (not including exhibits to
such documents unless such exhibits are specifically incorporated by reference
in the information that this Prospectus incorporates). Requests for such copies
should be directed to S. Sue Aramian, Secretary, Consolidated Products, Inc.,
500 Century Building, 36 South Pennsylvania Street, Indianapolis, Indiana 46204;
telephone number (317) 633-4100.
35
<PAGE> 37
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................................ F-2
Consolidated Statements of Financial Position as of September 28, 1994, September 27,
1995 and April 10, 1996 (Unaudited)................................................. F-3
Consolidated Statements of Earnings for the years ended September 29, 1993, September
28, 1994 and September 27, 1995 and the twenty-eight weeks ended April 12, 1995 and
April 10, 1996 (Unaudited).......................................................... F-4
Consolidated Statements of Shareholders' Equity for the years ended September 30,
1992, September 29, 1993, September 28, 1994 and September 27, 1995 and the
twenty-eight weeks ended April 10, 1996 (Unaudited)................................. F-5
Consolidated Statements of Cash Flows for the years ended September 29, 1993,
September 28, 1994 and September 27, 1995 and the twenty-eight weeks ended April 12,
1995 and April 10, 1996 (Unaudited)................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 38
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Consolidated Products, Inc.
We have audited the accompanying consolidated statements of financial
position of Consolidated Products, Inc. as of September 28, 1994 and September
27, 1995, and the related consolidated statements of earnings, shareholders'
equity and cash flows for each of the three years in the period ended September
27, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Consolidated
Products, Inc. at September 28, 1994 and September 27, 1995, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended September 27, 1995, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Indianapolis, Indiana
November 20, 1995, except for the
Subsequent Event -- Stock Dividend note,
as to which the date is December 12, 1995
F-2
<PAGE> 39
CONSOLIDATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
SEPTEMBER 28, 1994 SEPTEMBER 27, 1995 APRIL 10, 1996
------------------ ------------------ --------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash, including cash equivalents of $9,012,000 in
1994, $615,000 in 1995, and $700,000 in 1996.... $ 10,326,159 $ 1,350,139 $ 1,145,585
Receivables....................................... 2,165,177 5,123,102 4,109,681
Inventories....................................... 3,009,516 3,619,687 3,614,895
Deferred income taxes............................. 801,000 747,000 747,000
Other current assets.............................. 3,112,136 3,611,261 4,078,072
------------ ------------ ------------
Total current assets.............................. 19,413,988 14,451,189 13,695,233
------------ ------------ ------------
PROPERTY AND EQUIPMENT
Land.............................................. 12,352,930 21,425,346 27,799,467
Buildings......................................... 14,200,657 18,138,352 24,261,501
Leasehold improvements............................ 25,568,627 31,062,184 34,531,256
Equipment......................................... 42,934,328 51,194,014 57,686,177
Construction in progress.......................... 3,334,106 7,957,312 7,942,590
------------ ------------ ------------
98,390,648 129,777,208 152,220,991
Less accumulated depreciation and amortization.... (46,735,270) (51,664,749) (54,287,515)
------------ ------------ ------------
Net property and equipment........................ 51,655,378 78,112,459 97,933,476
------------ ------------ ------------
NET LEASED PROPERTY................................. 7,259,328 5,970,236 5,473,938
DEFERRED INCOME TAXES............................... 758,000 558,000 558,000
OTHER ASSETS........................................ 1,241,390 741,913 639,083
------------ ------------ ------------
$ 80,328,084 $ 99,833,797 $118,299,730
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable.................................. $ 7,246,178 $ 9,242,512 $ 10,330,249
Accrued expenses.................................. 12,602,512 14,292,194 14,798,584
Current portion of senior note.................... 3,500,000 4,250,000 5,000,000
Current portion of obligations under capital
leases.......................................... 1,140,864 1,170,946 1,245,492
------------ ------------ ------------
Total current liabilities......................... 24,489,554 28,955,652 31,374,325
------------ ------------ ------------
OBLIGATIONS UNDER CAPITAL LEASES.................... 9,885,522 8,262,690 7,573,693
REVOLVING LINE OF CREDIT............................ -- -- 10,000,000
SENIOR NOTE......................................... 14,250,000 20,000,000 20,000,000
SUBORDINATED CONVERTIBLE DEBENTURES................. 11,988,400 -- --
SHAREHOLDERS' EQUITY
Common stock -- $.50 stated value, 25,000,000
shares authorized -- shares issued: 1994,
7,490,818; 1995, 12,471,879; 1996, 13,879,680... 3,745,409 6,235,940 6,939,840
Additional paid-in capital........................ 14,696,829 31,952,996 50,085,054
Retained earnings (deficit)....................... 3,004,530 6,405,050 (6,167,515)
Less treasury stock -- at cost: 1994, 265,690
shares; 1995, 139,564 shares; 1996, 66,747
shares.......................................... (1,732,160) (1,978,531) (1,505,667)
------------ ------------ ------------
Total shareholders' equity........................ 19,714,608 42,615,455 49,351,712
------------ ------------ ------------
$ 80,328,084 $ 99,833,797 $118,299,730
============ ============ ============
</TABLE>
See accompanying notes.
F-3
<PAGE> 40
CONSOLIDATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED TWENTY-EIGHT WEEKS ENDED
----------------------------------------------- ---------------------------
SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 27, APRIL 12, APRIL 10,
1993 1994 1995 1995 1996
------------- ------------- ------------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Net sales....................... $132,509,229 $158,636,627 $186,739,591 $94,341,756 $112,025,399
Franchise fees.................. 783,970 1,138,949 1,880,220 928,905 1,382,480
Other, net...................... 863,031 1,397,811 1,512,766 763,286 1,259,688
------------ ------------ ------------ ----------- ------------
134,156,230 161,173,387 190,132,577 96,033,947 114,667,567
------------ ------------ ------------ ----------- ------------
COSTS AND EXPENSES
Cost of sales................... 34,506,742 41,702,229 49,072,393 25,074,100 29,761,061
Restaurant operating costs...... 61,993,885 73,477,598 85,572,053 44,002,715 51,048,581
Selling, general and
administrative................ 14,345,247 17,917,935 21,042,628 10,622,405 13,352,299
Depreciation and amortization... 5,683,554 5,916,278 7,021,497 3,513,463 4,378,067
Amortization of pre-opening
costs......................... 397,189 1,555,294 1,965,334 975,244 1,612,734
Rent............................ 3,718,450 4,640,733 6,048,909 3,032,131 3,834,980
Interest........................ 5,100,429 4,639,397 3,283,619 2,277,877 1,640,298
------------ ------------ ------------ ----------- ------------
125,745,496 149,849,464 174,006,433 89,497,935 105,628,020
------------ ------------ ------------ ----------- ------------
EARNINGS BEFORE INCOME TAXES...... 8,410,734 11,323,923 16,126,144 6,536,012 9,039,547
INCOME TAXES...................... 3,220,000 4,150,000 6,100,000 2,500,000 3,460,000
------------ ------------ ------------ ----------- ------------
NET EARNINGS...................... $ 5,190,734 $ 7,173,923 $ 10,026,144 $ 4,036,012 $ 5,579,547
============ ============ ============ =========== ============
NET EARNINGS PER COMMON AND COMMON
EQUIVALENT SHARE:
Primary......................... $.62 $.80 $.86 $.42 $.40
Fully diluted................... .45 .58 .74 .32 .40
WEIGHTED AVERAGE SHARES
OUTSTANDING:
Primary......................... 8,421,272 8,937,845 11,650,498 9,710,122 14,056,957
Fully diluted................... 13,225,317 13,666,152 13,940,094 13,858,535 14,094,189
</TABLE>
See accompanying notes.
F-4
<PAGE> 41
CONSOLIDATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL TREASURY STOCK
COMMON PAID-IN RETAINED ---------------------
STOCK CAPITAL EARNINGS SHARES AMOUNT
---------- ----------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1992................... $2,804,673 $ 200,121 $ 957,391 658,923 $2,183,253
Net earnings.................................. 5,190,734
Shares issued under stock option plan......... 116,844 (172,420) (344,607)
Shares exchanged to exercise stock options.... 42,415 336,338
Shares granted under Capital Appreciation
Plan........................................ 101,799 (28,100) (110,451)
Shares forfeited under Capital Appreciation
Plan........................................ 438 3,993 10,751
Changes in unamortized value of shares granted
under Capital Appreciation Plan............. 84,859
Tax benefit relating to incentive stock
plans....................................... 299,986
Ten percent common stock dividend declared
December 10, 1992 (550,795 shares).......... 275,398 4,130,963 (4,406,361)
Cash dividends paid in lieu of fractional
shares...................................... (6,547)
Shares issued from stock offering (495,000
shares)..................................... 247,500 2,929,000
Shares issued for conversion of subordinated
debentures (123,914 shares)................. 61,957 363,500
---------- ----------- ------------ -------- ----------
BALANCE AT SEPTEMBER 29, 1993................... 3,389,528 8,142,651 1,735,217 504,811 2,160,143
Net earnings.................................. 7,173,923
Shares issued under stock option plan......... 6,007 (238,293) (726,620)
Shares exchanged to exercise stock options.... 38,572 371,628
Shares granted under Capital Appreciation
Plan........................................ 194,192 (34,400) (72,408)
Shares granted to Profit Sharing Plan......... 425 (5,000) (41,029)
Changes in unamortized value of shares granted
under Capital Appreciation Plan............. 40,446
Tax benefit relating to incentive stock
plans....................................... 370,715
Ten percent common stock dividend declared
December 20, 1993 (637,386 shares).......... 318,693 5,577,127 (5,895,820)
Cash dividends paid in lieu of fractional
shares...................................... (8,790)
Shares issued for Employee Stock Purchase
Plan........................................ 23,120 320,798
Shares issued for conversion of subordinated
debentures (28,136 shares).................. 14,068 84,914
---------- ----------- ------------ -------- ----------
BALANCE AT SEPTEMBER 28, 1994................... 3,745,409 14,696,829 3,004,530 265,690 1,732,160
Net earnings.................................. 10,026,144
Shares issued under stock option plan......... (32,012) (70,532) (328,263)
Shares exchanged to exercise stock options.... 14,906 193,958
Shares granted under Capital Appreciation
Plan........................................ 695,734 (70,500) (233,141)
Changes in unamortized value of shares granted
under Capital Appreciation Plan............. 613,817
Tax benefit relating to incentive stock
plans....................................... 471,945
Ten percent common stock dividend declared
December 20, 1994 (767,174 shares).......... 383,587 6,233,289 (6,616,876)
Cash dividends paid in lieu of fractional
shares...................................... (8,748)
Shares issued for Employee Stock Purchase
Plan........................................ 24,858 368,992
Shares issued for conversion of subordinated
debentures (4,164,171 shares)............... 2,082,086 9,518,219
---------- ----------- ------------ -------- ----------
BALANCE AT SEPTEMBER 27, 1995................... 6,235,940 31,952,996 6,405,050 139,564 1,978,531
Net earnings.................................. 5,579,547
Shares issued under stock option plan......... 7,268 (55,228) (72,826) (335,540)
Shares exchanged to exercise stock options.... 8,009 127,390
Shares granted under Capital Appreciation
Plan........................................ 6,200 (8,000) (117,050)
Shares issued for conversion of warrants...... 36,603 163,397
Changes in unamortized value of shares granted
under Capital Appreciation Plan............. (147,664)
Ten percent common stock dividend declared
December 12, 1995 (1,246,670 shares)........ 623,335 17,515,715 (18,139,050)
Cash dividends paid in lieu of fractional
shares...................................... (13,062)
Shares issued for Employee Stock Purchase
Plan........................................ 36,694 501,974
---------- ----------- ------------ -------- ----------
BALANCE AT APRIL 10, 1996 (UNAUDITED)........... $6,939,840 $50,085,054 $ (6,167,515) 66,747 $1,505,667
========== =========== ============ ======== ==========
</TABLE>
See accompanying notes.
F-5
<PAGE> 42
CONSOLIDATED PRODUCTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED TWENTY-EIGHT WEEKS ENDED
--------------------------------------------- ---------------------------
SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 27, APRIL 12, APRIL 10,
1993 1994 1995 1995 1996
------------- ------------- ------------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings...................... $ 5,190,734 $ 7,173,923 $ 10,026,144 $ 4,036,012 $ 5,579,547
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and
amortization............... 5,683,554 5,916,278 7,021,497 3,513,463 4,378,067
Amortization of pre-opening
costs...................... 397,189 1,555,294 1,965,334 975,244 1,612,734
Provision for deferred income
taxes...................... 461,000 1,092,000 254,000 -- --
Changes in receivables and
inventories................ (834,381) (849,931) (381,328) 267,186 (294,245)
Changes in other assets...... (437,657) (2,684,948) (1,970,901) (1,905,399) (1,806,717)
Changes in income taxes
payable.................... (526,859) 1,104,806 647,934 574,173 556,513
Changes in accounts payable
and accrued expenses....... (1,207,160) 4,624,389 3,271,363 1,594,067 979,383
(Gain) loss on disposal of
property................... 74,830 (81,920) 160,190 (19,726) 70,066
------------ ------------ ------------ ------------ ------------
Net cash provided by operating
activities...................... 8,801,250 17,849,891 20,994,233 9,035,020 11,075,348
------------ ------------ ------------ ------------ ------------
INVESTING ACTIVITIES
Additions of property and
equipment....................... (14,765,513) (20,566,614) (42,898,950) (21,064,062) (26,165,718)
Net proceeds from disposal of
property and equipment.......... 1,699,662 7,097,144 6,715,490 1,428,630 3,645,432
------------ ------------ ------------ ------------ ------------
Net cash used in investing
activities...................... (13,065,851) (13,469,470) (36,183,460) (19,635,432) (22,520,286)
FINANCING ACTIVITIES
Proceeds from long-term debt...... -- -- 10,000,000 -- 5,000,000
Principal payments on debt and
capital lease obligations....... (2,861,688) (3,650,192) (4,327,641) (3,957,271) (4,698,581)
Proceeds from revolving line of
credit.......................... -- -- -- 5,500,000 10,000,000
Proceeds from equipment and
property leases................. 834,860 845,486 695,386 417,064 429,608
Lease payments on subleased
properties...................... (801,832) (768,618) (637,673) (367,975) (376,441)
Cash dividends paid in lieu of
fractional shares............... (6,547) (8,790) (8,748) (8,748) (13,062)
Cash paid in lieu of fractional
shares.......................... -- -- (4,260) (4,260) --
Proceeds from exercise of stock
options......................... 125,113 360,999 102,293 58,606 360,192
Proceeds from stock offering...... 3,176,500 -- -- -- --
Proceeds from employee stock
purchase plan................... -- 343,918 393,850 393,850 538,668
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities............ 466,406 (2,877,197) 6,213,207 2,031,266 11,240,384
------------ ------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS....................... (3,798,195) 1,503,224 (8,976,020) (8,569,146) (204,554)
Cash and cash equivalents at
beginning of year................. 12,621,130 8,822,935 10,326,159 10,326,159 1,350,139
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD............................ $ 8,822,935 $ 10,326,159 $ 1,350,139 $ 1,757,013 $ 1,145,585
============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
F-6
<PAGE> 43
CONSOLIDATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 29, 1993, SEPTEMBER 28, 1994 AND SEPTEMBER 27, 1995
(UNAUDITED WITH RESPECT TO INFORMATION AS OF APRIL 10, 1996
AND THE PERIODS ENDED APRIL 12, 1995 AND APRIL 10, 1996)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements of Consolidated Products, Inc. (the
"Company") include the accounts of Consolidated Products, Inc. (parent) and its
three wholly-owned subsidiaries: Steak n Shake, Inc., Consolidated Specialty
Restaurants, Inc. and SNS Investment Company. All intercompany items have been
eliminated. The Company's fiscal year ends on the last Wednesday in September.
Cash, Including Cash Equivalents
The Company's policy is to invest cash in excess of operating requirements
in income producing investments. Cash equivalents primarily consist of bank
repurchase agreements, U.S. Government securities and money market accounts,
substantially all of which have maturities of three months or less.
Receivables
At September 27, 1995 and April 10, 1996 receivables include $3,150,000 and
$1,829,894, respectively, related to the cost of three and two properties,
respectively, for which sale and leaseback contracts have been entered into for
the sale of these properties.
Inventories
Inventories are valued at the lower of cost (first-in, first-out method) or
market.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are recognized on the straight-line
method over the estimated useful lives of the assets (15 to 25 years for
buildings and 5 to 10 years for restaurant equipment). Leasehold improvements
are amortized by the straight-line method over the shorter of the estimated
useful lives of the improvements or the terms of the related leases.
Leased Property
The lower of fair market value or the discounted value of that portion of a
capital lease attributable to building costs is capitalized and amortized by the
straight-line method over the term of such leases and included with depreciation
expense. The portions of such leases relating to land are accounted for as
operating leases.
Franchise Fees
Unit franchise fees and area development fees are recorded as revenue when
the related restaurant begins operations. Royalty fees based on franchise sales
are recognized as revenue on the accrual basis of accounting.
Pre-Opening Costs
Pre-opening costs, which represent expenses incurred before a new
restaurant opens, are capitalized and then amortized from the opening date over
a one-year period.
F-7
<PAGE> 44
CONSOLIDATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED SEPTEMBER 29, 1993, SEPTEMBER 28, 1994 AND SEPTEMBER 27, 1995
(UNAUDITED WITH RESPECT TO INFORMATION AS OF APRIL 10, 1996
AND THE PERIODS ENDED APRIL 12, 1995 AND APRIL 10, 1996)
Income Taxes
The Company uses the liability method prescribed by the Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Employees' Profit Sharing Plan
The Consolidated Products, Inc. Employees' Profit Sharing Plan is a defined
contribution plan covering substantially all employees of the Company after they
have attained age 21 and completed one year of service. Contributions to the
Plan, which are subject to the discretion of the Board of Directors, amounted to
$585,000 for 1993, $710,000 for 1994 and $880,000 for 1995.
Deferred Debt Costs
Certain fees and expenses incurred to obtain long-term financing are being
amortized over the life of the related borrowings. These costs totaled $554,000
of which the unamortized balance was $325,000 as of September 27, 1995.
Advertising Expenses
Advertising costs are charged to expense as incurred. These expenses
totaled $3,558,000 for 1993, $4,266,000 for 1994 and $5,401,000 for 1995.
Unaudited Interim Consolidated Financial Statements
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements.
In the opinion of the Company, all adjustments (consisting of only normal
recurring accruals) considered necessary to present fairly the consolidated
financial position as of April 10, 1996, and the consolidated statements of
earnings, shareholders' equity and cash flows for the twenty-eight weeks ended
April 12, 1995 and April 10, 1996, have been included.
Stock Options
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The Company is required to adopt the provisions of this Statement
for its fiscal year beginning September 26, 1996. The Company will continue to
measure compensation cost in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" and provide the necessary
footnote disclosure in accordance with Statement of Financial Accounting
Standards No. 123.
F-8
<PAGE> 45
CONSOLIDATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED SEPTEMBER 29, 1993, SEPTEMBER 28, 1994 AND SEPTEMBER 27, 1995
(UNAUDITED WITH RESPECT TO INFORMATION AS OF APRIL 10, 1996
AND THE PERIODS ENDED APRIL 12, 1995 AND APRIL 10, 1996)
INCOME TAXES
The components of the provision for income taxes consist of the following:
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal................................................ $1,924,000 $1,983,000 $4,486,000
State.................................................. 835,000 1,075,000 1,360,000
Deferred................................................. 461,000 1,092,000 254,000
---------- ---------- ----------
Total income taxes....................................... $3,220,000 $4,150,000 $6,100,000
========== ========== ==========
</TABLE>
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is:
<TABLE>
<CAPTION>
1993 1994 1995
---------- ---------- ----------
<S> <C> <C> <C>
Tax at U.S. statutory rates.............................. $2,860,000 $3,863,000 $5,578,000
State income taxes, net of federal tax benefit........... 551,000 710,000 884,000
Employer's FICA tax credit............................... -- (201,000) (260,000)
Targeted jobs tax credit................................. (135,000) (135,000) (35,000)
Other.................................................... (56,000) (87,000) (67,000)
---------- ---------- ----------
Total income taxes....................................... $3,220,000 $4,150,000 $6,100,000
========== ========== ==========
</TABLE>
Income taxes paid totaled $3,290,000 in 1993, $2,807,000 in 1994 and
$5,199,000 in 1995 and $1,927,000 and $2,848,000 in the twenty-eight weeks ended
April 12, 1995 and April 10, 1996, respectively.
Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted marginal tax rates and laws that will be in effect
when the differences are expected to reverse. The components of the Company's
net deferred tax asset consist of the following:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Deferred tax assets:
Insurance reserves................................................. $ 783,000 $ 776,000
Capital leases..................................................... 1,062,000 1,022,000
Other.............................................................. 456,000 933,000
---------- ----------
Total deferred tax assets....................................... 2,301,000 2,731,000
---------- ----------
Deferred tax liabilities:
Depreciation....................................................... 293,000 743,000
Restaurant pre-opening costs....................................... 327,000 585,000
Other.............................................................. 122,000 98,000
---------- ----------
Total deferred tax liabilities.................................. 742,000 1,426,000
---------- ----------
Net deferred tax asset............................................... 1,559,000 1,305,000
Less current portion................................................. 801,000 747,000
---------- ----------
$ 758,000 $ 558,000
========== ==========
</TABLE>
F-9
<PAGE> 46
CONSOLIDATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED SEPTEMBER 29, 1993, SEPTEMBER 28, 1994 AND SEPTEMBER 27, 1995
(UNAUDITED WITH RESPECT TO INFORMATION AS OF APRIL 10, 1996
AND THE PERIODS ENDED APRIL 12, 1995 AND APRIL 10, 1996)
LEASED ASSETS AND LEASE COMMITMENTS
<TABLE>
<CAPTION>
SEPTEMBER 28, SEPTEMBER 27, APRIL 10,
1994 1995 1996
------------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Leased property under capital leases less accumulated
amortization of $9,378,291, $9,079,286, and
$9,374,781............................................ $ 4,540,791 $ 3,802,939 $ 3,506,625
Long-term portion of net investment in direct financing
leases................................................ 2,718,537 2,167,297 1,967,313
---------- ---------- ----------
Net leased property..................................... $ 7,259,328 $ 5,970,236 $ 5,473,938
========== ========== ==========
</TABLE>
The Company leases the majority of its physical facilities under
noncancelable lease agreements. Steak n Shake restaurants typically have initial
terms of eighteen to twenty-five years and renewal terms aggregating twenty
years or more and Consolidated Specialty Restaurants typically have terms of ten
to fifteen years and three five-year renewal terms. These leases require the
subsidiaries to pay real estate taxes, insurance and maintenance costs. Certain
leased facilities, no longer being operated by the subsidiaries which have been
subleased to third parties, are classified as non-operating properties in the
table below of minimum future rental payments. Minimum future rental payments
have not been reduced by minimum sublease rentals of $3,500,000 related to
capital leases and $6,953,000 related to operating leases receivable in the
future under noncancelable subleases.
At September 27, 1995, obligations under noncancelable capital leases and
operating leases (excluding real estate taxes, insurance and maintenance costs)
require the following minimum future rental payments:
<TABLE>
<CAPTION>
CAPITAL LEASES OPERATING LEASES
(000'S) (000'S)
---------------------- ----------------------
NON- NON-
OPERATING OPERATING OPERATING OPERATING
YEAR PROPERTY PROPERTY TOTAL PROPERTY PROPERTY
- --------------------------------------------- --------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
1996......................................... $ 1,604 $ 672 $ 2,276 $ 5,620 $ 791
1997......................................... 1,583 672 2,255 5,504 794
1998......................................... 1,525 672 2,197 5,460 799
1999......................................... 1,312 672 1,984 5,288 799
2000......................................... 1,133 604 1,737 4,923 715
After 2000................................... 3,018 532 3,550 40,994 3,055
-------- ------ -------- -------- ------
Total minimum future rental payments......... 10,175 3,824 13,999 $67,789 $ 6,953
======== ======
Less amount representing interest............ 3,416 1,149 4,565
-------- ------ --------
Total obligations under capital leases....... 6,759 2,675 9,434
Less current portion......................... 854 317 1,171
-------- ------ --------
Long-term obligations under capital leases... $ 5,905 $ 2,358 $ 8,263
======== ====== ========
</TABLE>
During 1995 and 1994, the Company received net proceeds of $5,544,242
involving five properties, and $6,647,325 involving seven properties,
respectively, from sale and leaseback transactions. Since these leases are
classified as operating, any related gains on the transactions have been
deferred and are being amortized in proportion to the related gross rental
charged to expense over the eighteen-year lease terms.
F-10
<PAGE> 47
CONSOLIDATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED SEPTEMBER 29, 1993, SEPTEMBER 28, 1994 AND SEPTEMBER 27, 1995
(UNAUDITED WITH RESPECT TO INFORMATION AS OF APRIL 10, 1996
AND THE PERIODS ENDED APRIL 12, 1995 AND APRIL 10, 1996)
Direct financing leases resulted from subleasing certain of the
aforementioned leased facilities and the leasing of certain Company owned
facilities, identified for disposal. Net investment in direct financing leases
consisted of:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Total minimum lease payments to be received.......................... $4,996,508 $3,899,160
Less unearned income................................................. 1,963,715 1,391,265
---------- ----------
Net investment in direct financing leases............................ 3,032,793 2,507,895
Less current portion included in receivables......................... 314,256 340,598
---------- ----------
Long-term net investment............................................. $2,718,537 $2,167,297
========== ==========
</TABLE>
At September 27, 1995, minimum annual lease payments on direct financing
leases of approximately $625,000 per year are receivable over the next five
years.
DEBT
Senior Note
On September 27, 1995, the Company entered into a $25,000,000 ten-year
Senior Note Agreement and Private Shelf Facility (the "Agreement"). At September
27, 1995, the Company had borrowed $10,000,000 under this Agreement. The
borrowings bear interest at 7.7% and the amounts maturing in each of the five
fiscal years subsequent to September 27, 1995 are as follows: 1996 -- $0; 1997
- -- $0; 1998 -- $433,333; 1999 -- $433,333; 2000 -- $945,238. The Company was
also committed to borrowing an additional $5,000,000 under this Agreement by
November 15, 1995 at an interest rate of 7.4%. The remaining $10,000,000
available under this Agreement may be borrowed over the three-year period ending
September 27, 1998 at interest rates based upon market rates at the time of
borrowing. A 12.44% senior note agreement with this same lender dated November
1, 1990 was consolidated into this Agreement. The amount from the previous
senior note outstanding at September 27, 1995 was $14,250,000 and is repayable
as follows: 1996 -- $4,250,000; 1997 -- $5,000,000; 1998 -- $5,000,000. The
Agreement is unsecured and contains restrictions which, among other things,
require the Company to maintain certain financial ratios.
10% Subordinated Convertible Debentures
On April 4, 1995, the Company completed the call of its 10% Subordinated
Convertible Debentures due November 20, 2002 ("the Debentures"). Holders of the
Debentures ("Holders") electing conversion of their Debentures into common stock
received one share of the Company's common stock for each $2.82 of Debenture
principal held on the date of conversion plus cash for any remaining fractional
portion. Holders electing redemption of their Debentures received cash in the
principal amount of the Debentures, plus accrued interest up to April 4, 1995.
The call of the Company's Debentures resulted in $10,468,000 of the Company's
long-term debt being converted to equity.
Revolving Credit Agreement
On September 26, 1995, the Company extended its bank commitment for an
unsecured revolving line of credit of $30,000,000 to December 1997. The line of
credit, with borrowing rates based on LIBOR plus 87.5 basis points or the prime
rate of interest, includes an option for conversion into a five-year term loan
with a ten-year amortization schedule. No borrowings were outstanding under the
line of credit as of September 27, 1995 and $10,000,000 was outstanding at April
10, 1996.
F-11
<PAGE> 48
CONSOLIDATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED SEPTEMBER 29, 1993, SEPTEMBER 28, 1994 AND SEPTEMBER 27, 1995
(UNAUDITED WITH RESPECT TO INFORMATION AS OF APRIL 10, 1996
AND THE PERIODS ENDED APRIL 12, 1995 AND APRIL 10, 1996)
During fiscal 1995, interest capitalized in connection with financing
additions to property and equipment amounted to $538,000 pursuant to the
Company's adoption of the Statement of Financial Accounting Standards No. 34,
"Capitalization of Interest" in fiscal 1995.
Interest paid on all debt amounted to $3,863,000 in 1993, $4,259,000 in
1994 and $4,063,000 in 1995 and $2,512,000 and $1,974,000 in the twenty-eight
weeks ended April 12, 1995 and April 10, 1996, respectively.
NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Primary earnings per common and common equivalent share are computed by
dividing net earnings by the weighted average number of common shares
outstanding and common equivalent shares. Common equivalent shares include
shares subject to purchase under stock options and stock warrants. Primary
weighted average shares and equivalents increased due to an increase in the
number of shares outstanding arising from the conversion of the Company's 10%
subordinated convertible debentures into the Company's common stock effective
April 3, 1995.
Fully diluted earnings per common and common equivalent share assumes, in
addition to the above, that the Debentures were converted at the date of
issuance, and that net earnings are increased by the actual amount of interest
expense, net of income taxes, related to the Debentures.
The following table presents information necessary to calculate earnings
per common and common equivalent share:
<TABLE>
<CAPTION>
TWENTY-EIGHT
FISCAL YEAR WEEKS ENDED
------------------------------------- -------------------------
1993 1994 1995 APRIL 12, APRIL 10,
1995 1996
--------- ---------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
S> <C> <C> <C> <C> <C>
PRIMARY:
Shares outstanding:
Weighted average shares
outstanding..................... 8,026,596 8,572,628 11,291,284 9,389,322 13,727,947
Share equivalents................. 394,676 365,217 359,214 320,800 329,010
----------- ----------- ----------- ----------- -----------
Adjusted shares outstanding.......... 8,421,272 8,937,845 11,650,498 9,710,122 14,056,957
=========== =========== =========== =========== ===========
FULLY DILUTED:
Shares outstanding:
Weighted average shares
outstanding..................... 8,026,596 8,572,628 11,291,284 9,389,322 13,727,947
Share equivalents................. 399,137 393,935 442,894 372,513 366,242
Conversion of Debentures............. 4,799,584 4,699,589 2,205,916 4,096,700 --
----------- ----------- ----------- ----------- -----------
Adjusted shares outstanding.......... 13,225,317 13,666,152 13,940,094 13,858,535 14,094,189
=========== =========== =========== =========== ===========
Net earnings:
Net earnings for primary earnings per
share computation................. $5,190,734 $7,173,923 $10,026,144 $ 4,036,012 $ 5,579,547
Add-interest expense net of income
taxes, applicable to Debentures... 736,769 722,368 333,003 333,003 --
----------- ----------- ----------- ----------- -----------
Net earnings, as adjusted for fully
diluted earnings per share
computation....................... $5,927,503 $7,896,291 $10,359,147 $ 4,369,015 $ 5,579,547
=========== =========== =========== =========== ===========
</TABLE>
F-12
<PAGE> 49
CONSOLIDATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED SEPTEMBER 29, 1993, SEPTEMBER 28, 1994 AND SEPTEMBER 27, 1995
(UNAUDITED WITH RESPECT TO INFORMATION AS OF APRIL 10, 1996
AND THE PERIODS ENDED APRIL 12, 1995 AND APRIL 10, 1996)
ACCRUED EXPENSES
<TABLE>
<CAPTION>
SEPTEMBER 28, SEPTEMBER 27, APRIL 10,
1994 1995 1996
------------- ------------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Salaries and wages.................................... $ 3,682,695 $ 4,402,889 $ 4,191,389
Insurance............................................. 2,521,690 2,938,352 3,037,312
Property taxes........................................ 1,695,990 1,940,653 1,866,431
Other................................................. 4,702,137 5,010,300 5,703,452
------------ ------------ ------------
$ 12,602,512 $ 14,292,194 $14,798,584
============ ============ ============
</TABLE>
CAPITAL APPRECIATION PLANS
The Capital Appreciation Plans established in 1991 and 1994 provide for
tandem awards of Common Stock (restricted shares) and book units of up to
241,576 and 145,200 shares and related units, respectively. These awards are
restricted for a period of three years and are returnable to the Company if the
grantee is not employed (except for reasons of retirement, permanent disability
or death) by the Company at the end of the period. The stock is valued at 100%
of market value at the date of grant, and the book units, which are granted in
an equal number to the shares of stock, provide for a cash payment at the end of
the three-year period equal to the sum of the net change in book value per share
and the common stock dividends paid per share during the period. The total value
of the stock grant (based upon market value at the date of the grant) is
credited to treasury stock and amortized to compensation expense ratably over
the three-year period. The 1991 Plan expired on December 31, 1993, however, the
total number of shares and book units granted under the 1991 Plan for which
restrictions have not lapsed was 83,187 at September 27, 1995; 119,790 at
September 28, 1994; and 152,275 at September 29, 1993. The total number of
shares and book units granted under the 1994 Plan for which restrictions have
not lapsed was 79,805 at September 27, 1995 and 65,395 shares were reserved for
future grants. The amount charged to expense under the Plans was $191,320 in
1993; $345,365 in 1994; and $438,067 in 1995.
STOCK OPTION PLANS
Employee Stock Option Plan
In February 1995, the shareholders approved the 1995 Employee Stock Option
Plan ("the 1995 Plan"), which provides for the granting of 363,000 stock
options. All options granted under the 1995 Plan are incentive stock options
exercisable as to 20% on the date of grant and 20% on each anniversary of the
date of grant thereafter until fully exercisable. The options expire five years
from the date of grant. Options were granted under the 1995 Plan to officers and
key employees selected by the Stock Option Committee. At September 27, 1995,
127,270 options have been granted under the 1995 Plan and 25,366 are
exercisable.
In February 1993, the shareholders approved the 1992 Employee Stock Option
Plan ("the 1992 Plan"), which provides for the granting of 266,200 stock
options. All options granted under the 1992 Plan are incentive stock options
exercisable on the same terms as the 1995 Plan. The options expire five years
from the date of grant. Options were granted under the 1992 Plan to officers and
key employees selected by the Stock Option Committee. At September 27, 1995,
265,167 options have been granted under the 1992 Plan and 122,313 are
exercisable.
F-13
<PAGE> 50
CONSOLIDATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED SEPTEMBER 29, 1993, SEPTEMBER 28, 1994 AND SEPTEMBER 27, 1995
(UNAUDITED WITH RESPECT TO INFORMATION AS OF APRIL 10, 1996
AND THE PERIODS ENDED APRIL 12, 1995 AND APRIL 10, 1996)
The Company's 1983 Employee Stock Option Plan ("the 1983 Plan") expired on
September 30, 1992. All options outstanding at September 27, 1995 under the 1983
Plan are nonqualified stock options exercisable on the same terms as the 1992
Plan. At September 27, 1995, 195,791 options were exercisable under the 1983
Plan.
As of September 27, 1995, 612,463 shares of Common Stock were subject to
issuance upon the exercise of outstanding options. The following table
summarizes the changes in options outstanding and related average prices under
the 1995, 1992 and 1983 Plans:
<TABLE>
<CAPTION>
AVERAGE
SHARES PRICE
-------- -------
<S> <C> <C>
Outstanding at September 30, 1992........................... 741,875 $2.97
Fiscal 1993 Activity:
Granted................................................... 144,547 5.64
Exercised................................................. (236,407) 1.91
Canceled.................................................. (22,496) 4.23
-------
Outstanding at September 29, 1993........................... 627,519 3.95
Fiscal 1994 Activity:
Granted................................................... 125,235 7.95
Exercised................................................. (168,299) 2.59
Canceled.................................................. (14,288) 4.02
-------
Outstanding at September 28, 1994........................... 570,167 5.23
Fiscal 1995 Activity:
Granted................................................... 132,837 11.78
Exercised................................................. (80,396) 3.68
Canceled.................................................. (10,145) 7.37
-------
Outstanding at September 27, 1995........................... 612,463 $6.77
=======
</TABLE>
Nonemployee Director Stock Option Plans
The Company's 1991, 1994, 1995 and 1996 Nonemployee Director Stock Option
Plans ("the 1991, 1994, 1995 and 1996 Plans") provide for the grant of
nonqualified stock options at a price equal to the fair market value of the
Common Stock on the date of the grant. Options outstanding under each Plan are
exercisable as to 20% on the date of grant and 20% on each anniversary of the
date of grant thereafter until fully exercisable. The options expire five years
from the date of grant.
An aggregate of 45,095 shares of Common Stock are reserved for the grant of
options under the 1991 Plan. At September 27, 1995, all of the options
authorized under the 1991 Plan have been granted at a price of $3.03, of which
21,581 are exercisable. No options have been canceled since the inception of the
1991 Plan and 14,495 options have been exercised.
An aggregate of 35,937 shares of Common Stock are reserved for the grant of
options under the 1994 Plan. At September 27, 1995, all of the options
authorized under the 1994 Plan have been granted at a price of $7.42 of which
14,375 are exercisable. No options have been canceled or exercised since the
inception of the 1994 Plan.
An aggregate of 30,250 shares of Common Stock are reserved for the grant of
options under the 1995 Plan. At September 27, 1995, all of the options
authorized under the 1995 Plan have been granted at a price of $8.35 of which
6,050 are exercisable. No options have been canceled or exercised since the
inception of the 1995 Plan.
F-14
<PAGE> 51
CONSOLIDATED PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
YEARS ENDED SEPTEMBER 29, 1993, SEPTEMBER 28, 1994 AND SEPTEMBER 27, 1995
(UNAUDITED WITH RESPECT TO INFORMATION AS OF APRIL 10, 1996
AND THE PERIODS ENDED APRIL 12, 1995 AND APRIL 10, 1996)
An aggregate of 16,500 shares of Common Stock are reserved for the grant of
options under the 1996 Plan. At April 10, 1996, all of the options authorized
under the 1996 Plan have been granted at a price of $14.55 of which 3,300 are
exercisable. No options have been canceled or exercised since the inception of
the 1996 Plan.
EMPLOYEE STOCK PURCHASE PLAN
In February 1993, the shareholders approved a tax-qualified Employee Stock
Purchase Plan, providing for a maximum of 66,550 shares of Common Stock per year
for five years. The Plan is available to all eligible employees of the Company
and its subsidiaries as determined by the Board of Directors and has a calendar
plan year. Employees are able to purchase shares of Common Stock each year
through payroll deductions from 2% to 10% of compensation up to a maximum
allowable fair market value of $10,000 or 1,000 shares per year, whichever is
less. The purchase price will be the lesser of 85% of the market price, as
defined, on the first or last trading day of the plan year. During fiscal 1994
and fiscal 1995, 50,864 shares and 54,688 shares, respectively, have been
purchased and issued to employees.
RELATED PARTY TRANSACTIONS
Kelley & Partners, Ltd. owned 1,326,002 shares, or 9.8%, of the Company at
September 27, 1995. Additionally, certain of the partners, who also serve as
officers and/or directors of the Company, collectively controlled 1,808,742
shares, or 13.3% of the Company's outstanding stock at September 27, 1995.
Kelley & Partners, Ltd. and affiliates held $4,860,100 of the Debentures at
September 28, 1994, all of which were converted into shares of the Company's
common stock upon call of the Debentures (see Debt note). Interest expense on
related party debt was $490,262 in 1993, $488,193 in 1994 and $249,681 in 1995.
SUBSEQUENT EVENT -- STOCK DIVIDEND
On December 12, 1995, the Company declared a 10% stock dividend
distributable on January 15, 1996 to shareholders of record on December 22,
1995. Accordingly, all references in the consolidated financial statements
related to per share amounts, average shares and equivalents outstanding,
conversion prices and information concerning Stock Option and Capital
Appreciation Plans have been adjusted retroactively to reflect the stock
dividend.
F-15
<PAGE> 52
(INSIDE BACK COVER)
[STEAK N SHAKE MENU]
<PAGE> 53
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES OF COMMON STOCK OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
SOLICITATION OR OFFER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 6
Price Range of Common Stock............ 9
Dividend Policy........................ 9
Use of Proceeds........................ 9
Capitalization......................... 10
Selected Consolidated Financial Data... 11
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 12
Business............................... 18
Management............................. 27
Principal Shareholders................. 29
Description of Common Stock............ 31
Underwriting........................... 33
Legal Matters.......................... 34
Experts................................ 34
Available Information.................. 34
Incorporation of Certain Documents by
Reference............................ 35
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,350,000 SHARES
[CONSOLIDATED PRODUCTS LOGO]
CONSOLIDATED PRODUCTS, INC.
[STEAK N SHAKE LOGO]
COMMON STOCK
-------------------------
PROSPECTUS
-------------------------
J.C. Bradford &Co.
Montgomery Securities
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 54
PART II
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below are estimates of all expenses incurred or to be incurred by
the registrant in connection with the issuance and distribution of the
securities to be registered, excluding underwriting discounts and commissions:
<TABLE>
<S> <C>
Registration fees.................................................. $ 15,843
NASD fees.......................................................... 5,095
Transfer agent's fees.............................................. 1,000*
Printing and engraving costs....................................... 150,000*
Legal fees and expenses............................................ 87,500*
Accounting fees and expenses....................................... 50,000*
State blue sky fees and expenses................................... 10,000*
Miscellaneous...................................................... 30,562
---------
Total......................................................... $350,000
=========
</TABLE>
- -------------------------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Indiana Business Corporation Law ("BCL"), the provisions of which
govern the registrant, empowers an Indiana corporation to indemnify present and
former directors, officers, employees or agents or any person who may have
served at the request of the corporation as a director, officer, employee or
agent of another corporation ("Eligible Persons") against liability incurred in
any proceeding, civil or criminal, in which the Eligible Person is made a party
by reason of being or having been in any such capacity, or arising out of his
status as such, if the individual acted in good faith and reasonably believed
that (a) the individual was acting in the best interests of the corporation, (b)
if the challenged action was taken other than in the individual's official
capacity as an officer, director, employee or agent, the individual's conduct
was at least not opposed to the corporation's best interest, or (c) if in a
criminal proceeding, either the individual had reasonable cause to believe his
or her conduct was lawful or no reasonable cause to believe his or her conduct
was unlawful.
The BCL further empowers a corporation to pay or reimburse the reasonable
expenses incurred by an Eligible Person in connection with the defense of any
such claim, including counsel fees; and, unless limited by its articles of
incorporation, the corporation is required to indemnify an Eligible Person
against reasonable expenses if he or she is wholly successful in any such
proceeding, on the merits or otherwise. Under certain circumstances, a
corporation may pay or reimburse an Eligible Person for reasonable expenses
prior to final disposition of the matter. Unless a corporation's articles of
incorporation otherwise provide, an Eligible Person may apply for
indemnification to a court which may order indemnification upon a determination
that the Eligible Person is entitled to mandatory indemnification for reasonable
expenses or that the Eligible Person is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances without regard to
whether his or her actions satisfied the appropriate standard of conduct.
Before a corporation may indemnify any Eligible Person against liability or
reasonable expenses under the BCL, a quorum consisting of directors who are not
parties to the proceeding must (1) determine that indemnification is permissible
in the specific circumstances because the Eligible Person met the requisite
standard of conduct, (2) authorize the corporation to indemnify the Eligible
Person and (3) if appropriate, evaluate the reasonableness of expenses for which
indemnification is sought. If it is not possible to obtain a quorum of
uninvolved directors, the foregoing action may be taken by a committee of two or
more directors who are not parties to the proceeding, special legal counsel
selected by the Board of Directors or such a committee, or by the shareholders
of the corporation.
In addition to the foregoing, the BCL states that the indemnification it
provides shall not be deemed exclusive of any other rights to which those
indemnified may be entitled under any provision of the articles of
II-1
<PAGE> 55
incorporation, bylaws, resolution or other authorization adopted, after notice
by a majority vote of all the voting shares then issued and outstanding. The BCL
also empowers an Indiana corporation to purchase and maintain insurance on
behalf of any Eligible Person against any liability asserted against or incurred
by him or her in any capacity as such, or arising out of his or her status as
such, whether or not the corporation would have had the power to indemnify him
or her against such liability.
The Amended Articles of Incorporation and the Bylaws of the registrant
contain provisions pursuant to which the officers and directors of the
registrant are entitled to indemnification as a matter of right against expenses
and liabilities incurred by them by reason of their having acted in such
capacities if such person has been wholly successful in the defense of such
claims or acted in good faith in what he reasonably believed to be in or not
opposed to the best interests of the registrant. Such rights are not exclusive
of any other rights of indemnification to which such persons may be entitled by
contract or as a matter of law.
The registrant maintains directors' and officers' liability insurance, the
effect of which is to indemnify the directors and officers of the corporation
and its subsidiaries against certain losses caused by errors, misleading
statements, wrongful acts, omissions, neglect or breach of duty by them or any
matter claimed against them in their capacities as directors and officers.
ITEM 16. EXHIBITS.
The following exhibits have been filed as a part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ------
<S> <C>
1.01 Form of Underwriting Agreement.
4.01 Specimen certificate representing Common Stock of Consolidated Products, Inc.
(formerly Steak n Shake, Inc.). (Incorporated by reference to Exhibit 4.1 to
Registration Statement No. 2-80542 on Form S-8 filed with the Commission on April 7,
1989.)
4.02 Amended and Restated Credit Agreement by and between Consolidated Products, Inc. and
Bank One, Indianapolis, N.A. dated December 30, 1994 (amending that earlier credit
agreement between parties dated as of March 10, 1994 and effective as of February
23, 1994, relating to a $5,000,000 revolving line of credit which was not filed
pursuant to Rule 601 of the Securities and Exchange Commission), relating to a
$30,000,000 revolving line of credit. (Incorporated by reference to Exhibit 4.06 to
the Registrant's Current Report on Form 10-Q for the fiscal quarter ended December
21, 1994.)
4.03 Note Purchase Agreement by and between Consolidated Products, Inc. and The
Prudential Insurance Company of America dated as of September 27, 1995 related to
$39,250,000 senior note agreement and private shelf facility. (Incorporated by
reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated
October 6, 1995.)
4.04 First Amendment to Amended and Restated Credit Agreement by and between Consolidated
Products, Inc. and Bank One, Indianapolis, N.A. dated September 26, 1995.
(Incorporated by reference to Exhibit 4.2 to the Registrant's Report on Form 8-K
dated October 6, 1995.)
5.01 Opinion of Ice Miller Donadio & Ryan.
23.01 Consent of Ice Miller Donadio & Ryan. (Included in Exhibit 5.01.)
23.02 Consent of Ernst & Young LLP.
24.01 Power of Attorney. (See the Signature Page to this Registration Statement.)
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(l) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the
II-2
<PAGE> 56
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
3. For purposes of determining any liability under the Securities Act,
each filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
4. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE> 57
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF INDIANAPOLIS, STATE OF INDIANA, ON JULY 1, 1996.
CONSOLIDATED PRODUCTS, INC.
By: /s/ ALAN B. GILMAN
------------------------------------
Alan B. Gilman, President
POWER OF ATTORNEY
Each person whose signature appears below irrevocably constitutes Alan B.
Gilman, James W. Bear and Mary H. Mueller, and each or any of them (with full
power to act alone), as his or her true and lawful attorneys-in-fact and agents
with full power of substitution and resubstitution, for him or her and in his or
her name, place and stead, in any and all capacities, to sign any and all
amendments to this registration statement, and any registration statement
relating to the same offering as this registration statement that is to be
effective upon filing pursuant to Rule 462(b) promulgated under the Securities
Act of 1933, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitutes, may lawfully do or cause to
be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON JULY 1, 1996.
<TABLE>
<S> <C>
/s/ E. W. KELLEY Director
- ------------------------------------------
E. W. Kelley
/s/ ALAN B. GILMAN President (Principal Executive Officer) and
- ------------------------------------------ Director
Alan B. Gilman
/s/ JAMES W. BEAR Senior Vice President, Administration and
- ------------------------------------------ Finance and Treasurer (Principal Financial
James W. Bear Officer)
/s/ KEVIN F. BEAUCHAMP Vice President and Controller (Principal
- ------------------------------------------ Accounting Officer)
Kevin F. Beauchamp
/s/ S. SUE ARAMIAN Director
- ------------------------------------------
S. Sue Aramian
/s/ ALVA T. BONDA Director
- ------------------------------------------
Alva T. Bonda
</TABLE>
II-4
<PAGE> 58
<TABLE>
<S> <C>
/s/ NEAL GILLIATT Director
- ------------------------------------------
Neal Gilliatt
/s/ CHARLES E. LANHAM Director
- ------------------------------------------
Charles E. Lanham
/s/ J. FRED RISK Director
- ------------------------------------------
J. Fred Risk
/s/ JAMES WILLIAMSON, JR. Director
- ------------------------------------------
James Williamson, Jr.
</TABLE>
II-5
<PAGE> 59
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------- ------------
<S> <C> <C>
1.01 Form of Underwriting Agreement.
4.01 Specimen certificate representing Common Stock of Consolidated Products,
Inc. (formerly Steak n Shake, Inc.). (Incorporated by reference to
Exhibit 4.1 to Registration Statement No. 2-80542 on Form S-8 filed with
the Commission on April 7, 1989.)
4.02 Amended and Restated Credit Agreement by and between Consolidated
Products, Inc. and Bank One, Indianapolis, N.A. dated December 30, 1994
(amending that earlier credit agreement between parties dated as of March
10, 1994 and effective as of February 23, 1994, relating to a $5,000,000
revolving line of credit which was not filed pursuant to Rule 601 of the
Securities and Exchange Commission), relating to a $30,000,000 revolving
line of credit. (Incorporated by reference to Exhibit 4.06 to the
Registrant's Current Report on Form 10-Q for the fiscal quarter ended
December 21, 1994.)
4.03 Note Purchase Agreement by and between Consolidated Products, Inc. and
The Prudential Insurance Company of America dated as of September 27,
1995 related to $39,250,000 senior note agreement and private shelf
facility. (Incorporated by reference to Exhibit 4.1 to the Registrant's
Current Report on Form 8-K dated October 6, 1995.)
4.04 First Amendment to Amended and Restated Credit Agreement by and between
Consolidated Products, Inc. and Bank One, Indianapolis, N.A. dated
September 26, 1995. (Incorporated by reference to Exhibit 4.2 to the
Registrant's Report on Form 8-K dated October 6, 1995.)
5.01 Opinion of Ice Miller Donadio & Ryan.
23.01 Consent of Ice Miller Donadio & Ryan. (Included in Exhibit 5.01.)
23.02 Consent of Ernst & Young LLP.
24.01 Power of Attorney. (See the Signature Page to this Registration
Statement.)
</TABLE>
<PAGE> 1
EXHIBIT 1.01
CONSOLIDATED PRODUCTS, INC.
_________ SHARES
OF
COMMON STOCK
UNDERWRITING AGREEMENT
__________________, 1996
J.C. BRADFORD & CO.
MONTGOMERY SECURITIES
As Representatives of the Several Underwriters
c/o J.C. Bradford & Co.
J.C. Bradford Financial Center
330 Commerce Street
Nashville, Tennessee 37201
Ladies and Gentlemen:
Consolidated Products, Inc., an Indiana corporation (the "Company")
proposes to sell to the underwriters named in Schedule I hereto (the
"Underwriters") for whom you are acting as the representatives (the
"Representatives") ___________ shares (the "Firm Shares"), of common stock,
$1.00 par value (the "Common Stock"), of the Company. Such shares of Common
Stock are to be sold to the Underwriters, acting severally and not jointly, in
such amounts as are set forth in Schedule I hereto opposite the name of such
Underwriter. The Company proposes to grant to the Underwriters an option to
purchase up to ___________ additional shares of Common Stock as provided for in
Section 2 of this Agreement for the purpose of covering over-allotments (the
"Option Shares"). The Firm Shares and the Option Shares purchased pursuant to
this Agreement are herein called the "Shares."
1. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the Underwriters that:
(a) The Company meets the requirements for use of, and
has filed with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), a registration statement on Form S-3
<PAGE> 2
(Registration No. 333-______), including the related preliminary
prospectus relating to the Shares, and has filed one or more
amendments thereto. Copies of such registration statement and any
amendments, including any post-effective amendments, and all forms of
the related prospectuses contained therein and any supplements
thereto, have been delivered to you. Such registration statement,
including the prospectus, Part II, the information incorporated by
reference, all financial schedules and exhibits thereto, and all
information deemed to be a part of such Registration Statement
pursuant to Rule 430A under the Securities Act, as amended at the time
when it shall become effective, and any related registration statement
that is to be effective upon filing filed pursuant to Rule 462(b)
under the Securities Act, is herein referred to as the "Registration
Statement," and the prospectus included as part of the Registration
Statement on file with the Commission that discloses all the
information that was omitted from the prospectus on the effective date
pursuant to Rule 430A of the Rules and Regulations (as defined below)
and in the form filed pursuant to Rule 424(b) under the Securities Act
is herein referred to as the "Final Prospectus." The prospectus
included as part of the Registration Statement on the date when the
Registration Statement became effective is referred to herein as the
"Effective Prospectus." Any prospectus included in the Registration
Statement and in any amendment thereto prior to the effective date of
the Registration Statement is referred to herein as a "Preliminary
Prospectus." For purposes of this Agreement, "Rules and Regulations"
mean the rules and regulations promulgated by the Commission under
either the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as applicable.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus, at the time of filing thereof, complied with the
requirements of the Securities Act and the Rules and Regulations, and
did not include any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances under
which they were made, not misleading; except that the foregoing does
not apply to statements or omissions made in reliance upon and in
conformity with written information furnished to the Company by any
Underwriter specifically for use therein (it being understood that the
only information so provided is the information included in the last
paragraph on the cover page and in the first and third paragraphs
under the caption "Underwriting" in the Preliminary, Effective and
Final Prospectus). When the Registration Statement becomes effective
and at all times subsequent thereto up to and including the First
Closing Date (as hereinafter defined), (i) the Registration Statement,
the Effective Prospectus and Final Prospectus and any amendments or
supplements thereto will contain all statements which are required to
be stated therein in accordance with the Securities Act and the Rules
and Regulations and will comply with the requirements of the
Securities Act and the Rules and Regulations, and (ii) neither the
Registration Statement, the Effective Prospectus nor the Final
Prospectus nor any amendment or supplement thereto will include any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the
2
<PAGE> 3
statements therein, in light of the circumstances in which they are
made, not misleading; except that the foregoing does not apply to
statements or omissions made in reliance upon and in conformity with
written information furnished to the Company by any Underwriter
specifically for use therein (it being understood that the only
information so provided is the information included in the last
paragraph on the cover page and in the first and third paragraphs
under the caption "Underwriting" in the Final Prospectus).
(c) The documents which are incorporated by reference in
any Preliminary, Effective and Final Prospectus or from which
information is so incorporated by reference, when they become
effective or were filed with the Commission, as the case may be,
complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as applicable, and the Rules and
Regulations, and any documents so filed prior to the termination of
this offering and incorporated by reference subsequent to the
effective date of the Registration Statement shall, when they are
filed with the Commission, conform in all material respects with the
requirements of the Securities Act and the Exchange Act, as
applicable, and the Rules and Regulations.
(d) Each of the Company and each subsidiary of the
Company (as used herein, the term "subsidiary" includes any
corporation, joint venture or partnership in which the Company or any
subsidiary of the Company has a direct or indirect ownership interest)
is duly incorporated and validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization with
full power and authority to own its properties and conduct business as
now conducted and is duly qualified or authorized to do business and
is in good standing in all jurisdictions wherein the nature of its
business or the character of property owned or leased may require it
to be qualified or authorized to do business. Each of the Company and
its subsidiaries hold all licenses, consents and approvals, and has
satisfied all eligibility and other similar requirements imposed by
federal and state regulatory bodies, administrative agencies or other
governmental bodies, agencies or officials, in each case as required
for the conduct of the business in which it is engaged and is
contemplated to be engaged in the Effective Prospectus and the Final
Prospectus.
(e) The outstanding capital stock of each of the Company's
corporate subsidiaries has been duly authorized and validly issued and
is fully paid and nonassessable. Except as set forth on Exhibit 1(e)
hereto, (i) the Company owns all of the outstanding shares of capital
stock of the Company's corporate subsidiaries, free and clear of all
liens, claims, encumbrances, security interests, restrictions,
stockholder agreements, voting trusts or other claims of third
parties, (ii) the Company has no other subsidiaries and is not a
partner or joint venturer in any partnership or joint venture, (iii)
the Company's subsidiaries do not have outstanding any option to
purchase, or any rights or warrants to subscribe for, or any
securities or obligations convertible into, or any contracts or
commitments to issue or sell any shares of capital stock or an
ownership interest of such subsidiary, and (iv) there are no
preemptive rights or other rights to subscribe for or
3
<PAGE> 4
purchase any shares of the capital stock or an ownership interest of
the Company's subsidiaries.
(f) The capitalization of the Company as of [APRIL 10,
1996] is as set forth under the caption "Capitalization" in the
Effective Prospectus and the Final Prospectus, and the Company's
capital stock conforms to the description thereof contained under the
caption "Description of Common Stock" in the Effective Prospectus and
the Final Prospectus. All the issued shares of capital stock of the
Company have been duly authorized and validly issued, and are fully
paid and nonassessable. None of the issued shares of capital stock of
the Company have been issued in violation of any preemptive or similar
rights. The Shares to be sold by the Company hereunder have been duly
and validly authorized and, upon issuance and delivery and payment
therefor in the manner herein described, will be validly issued, fully
paid and nonassessable. Except as set forth in the Effective
Prospectus and the Final Prospectus, (i) the Company does not have
outstanding any options to purchase, or any rights or warrants to
subscribe for, or any securities or obligations convertible into, or
any contracts or commitments to issue or sell, any shares of Common
Stock and (ii) there are no preemptive rights or other rights to
subscribe for or to purchase, or any restriction upon the transfer of,
any shares of Common Stock pursuant to the Company's articles of
incorporation, bylaws or any agreement or other instrument to which
the Company is a party or by which it may be bound. Neither the
filing of the Registration Statement nor the offer or sale of the
Shares as contemplated by this Agreement gives rise to any rights,
other than those which have been waived or satisfied, for or relating
to the registration of any shares of Common Stock or any other
securities of the Company. The Underwriters will receive good and
marketable title to the Shares to be issued and delivered hereunder,
free and clear of all liens, encumbrances, claims, security interests,
restrictions, stockholders' agreements and voting trusts whatsoever.
(g) All offers and sales by the Company of the Company's
securities prior to the date hereof were at all relevant times duly
registered or the subject of an available exemption from the
registration requirements of the Securities Act, and were duly
registered or the subject of an available exemption from the
registration requirements of the applicable state securities or Blue
Sky laws.
(h) The Company has full legal right, power and authority
to enter into this Agreement and to sell and deliver the Shares to be
sold by it to the Underwriters as provided herein, and this Agreement
has been duly authorized, executed and delivered by the Company and
constitutes a valid and binding agreement of the Company enforceable
against the Company in accordance with its terms. No consent,
approval, authorization or order of any court or governmental agency
or body or third party is required for the performance of this
Agreement by the Company or the consummation by the Company of the
transactions contemplated hereby, except such as have been obtained
and such as may be required by the National Association of Securities
Dealers, Inc. ("NASD") or under the
4
<PAGE> 5
Securities Act or state securities or Blue Sky laws in connection with
the purchase and distribution of the Shares by the Underwriters. The
issue and sale of the Shares by the Company, the Company's performance
of this Agreement and the consummation of the transactions
contemplated hereby will not result in a breach or violation of, or
conflict with, any of the terms and provisions of, or constitute a
default by the Company or any of its subsidiaries under, any
indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which the Company or any of its
subsidiaries is a party or to which the Company or any of its
subsidiaries or any of their respective properties is subject, the
articles of incorporation, bylaws or other governing instruments of
the Company or any of its subsidiaries or any statute or any judgment,
decree, order, rule or regulation of any court or governmental agency
or body applicable to the Company or any of its subsidiaries or any of
their respective properties. Neither the Company nor any of its
subsidiaries is in violation of its articles of incorporation, bylaws
or other governing instruments or any law, administrative rule or
regulation or arbitrators' or administrative or court decree, judgment
or order or in violation or default (there being no existing state of
facts which with notice or lapse of time or both would constitute a
default) in the performance or observance of any material obligation,
agreement, covenant or condition contained in any contract, indenture,
deed of trust, mortgage, loan agreement, note, lease, agreement or
other instrument or permit to which it is a party or by which it or
any of its properties is or may be bound.
(i) The consolidated financial statements and the related
notes of the Company, included or incorporated by reference in the
Registration Statement, the Effective Prospectus and the Final
Prospectus present fairly the financial position, results of
operations and changes in financial position and cash flow of the
Company at the dates and for the periods to which they relate and have
been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods
indicated, except as otherwise set forth in such financial statements
or the related notes. The other financial statements and schedules
included or incorporated by reference in the Registration Statement
conform to the requirements of the Securities Act and the Rules and
Regulations and present fairly the information presented therein for
the periods shown. The financial and statistical data set forth in
the Effective Prospectus and the Final Prospectus under the captions
"Prospectus Summary," "Price Range of Common Stock," "Dividend
Policy," "Use of Proceeds," "Capitalization," "Selected Consolidated
Financial Data," "Management's Discussions and Analysis of Financial
Condition and Results of Operations," "Business" and "Principal
Shareholders" fairly presents the information set forth therein on the
basis stated in the Effective Prospectus and the Final Prospectus.
Ernst & Young LLP, whose reports are included or incorporated by
reference in the Effective Prospectus and the Final Prospectus, are
independent accountants as required by the Securities Act and the
Rules and Regulations.
(j) Subsequent to [April 10, 1996], neither the Company
nor any of its subsidiaries has sustained any material loss or
interference with its business or properties
5
<PAGE> 6
from fire, flood, hurricane, accident or other calamity, whether or
not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, which is not disclosed in the
Effective Prospectus and the Final Prospectus; and subsequent to the
respective dates as of which information is given in the Registration
Statement, the Effective Prospectus and the Final Prospectus, (i)
neither the Company nor any of its subsidiaries has incurred any
material liabilities or obligations, direct or contingent, or entered
into any transactions not in the ordinary course of business, and (ii)
there has not been any change in the capital stock, long-term debt,
obligations under capital leases or short-term borrowings of the
Company and its subsidiaries, or any issuance of options, warrants or
rights to purchase interests or the capital stock of the Company or
its subsidiaries, or any adverse change, or any development involving
a prospective adverse change, in the general affairs, management,
business, prospects, financial position, net worth or results of
operations of the Company or any of its subsidiaries, except in each
case as described in the Effective Prospectus and the Final
Prospectus.
(k) Except as described in the Effective Prospectus and
the Final Prospectus, there is not pending, or to the knowledge of the
Company threatened, any legal or governmental action, suit,
proceeding, inquiry or investigation, to which the Company, any of its
subsidiaries or any of their officers or directors is a party, or to
which the property of the Company or any of its subsidiaries is
subject, before or brought by any court or governmental agency or
body, wherein an unfavorable decision, ruling or finding could prevent
or materially hinder the consummation of this Agreement or result in a
material adverse change in the business condition (financial or
other), prospects, financial position, net worth or results of
operations of the Company or any of its subsidiaries.
(l) There are no contracts or other documents required by
the Securities Act or by the Rules and Regulations to be described in
the Registration Statement, the Effective Prospectus or the Final
Prospectus or to be filed as exhibits to the Registration Statement or
required to be filed by the Company under the Exchange Act which have
not been described, incorporated by reference or filed as required.
All such contracts to which the Company or any of its subsidiaries is
a party have been duly authorized, executed and delivered by the
Company or such subsidiary, constitute valid and binding agreements of
the Company or such subsidiary and are enforceable against the Company
or such subsidiary in accordance with the terms thereof. The Company
or such subsidiary has performed all its obligations required to be
performed by it, and is neither in default nor has it received notice
of any default or dispute under, any such contract or other material
instrument to which it is a party or by which its property is bound or
affected. To the best knowledge of the Company, no other party under
any such contract or other material instrument to which it is a party
is in default in any material respect thereunder.
(m) Except as described in the Effective Prospectus and
the Final Prospectus, the Company and each of its subsidiaries has
good and marketable title to all real and material personal property
owned by it, free and clear of all liens, charges, encumbrances
6
<PAGE> 7
or defects, except those reflected in the financial statements
hereinabove described. The real and personal property and buildings
referred to in the Effective Prospectus and the Final Prospectus which
are leased from others by the Company or its subsidiaries are held
under valid, subsisting enforceable leases. The Company or its
subsidiaries owns or leases all such properties as are necessary to
their respective operations as now conducted.
(n) The Company's system of internal accounting controls
is sufficient to meet the broad objectives of internal accounting
control insofar as those objectives pertain to the prevention or
detection of errors or irregularities in amounts that would be
material in relation to the Company's financial statements.
(o) The Company and each of its subsidiaries has filed
all foreign, federal, state and local income and franchise tax returns
required to be filed through the date hereof and has paid all taxes
shown as due therefrom to the extent such taxes have become due and
are not being contested in good faith; and there is no tax deficiency
that has been, nor does the Company have knowledge of any tax
deficiency which is likely to be, asserted against the Company or any
of its subsidiaries, which if determined adversely could materially
and adversely affect the earnings, assets, affairs, business prospects
or condition (financial or other) of the Company or any of its
subsidiaries.
(p) The Company and each of its subsidiaries operates its
business in conformity with all applicable statutes, common laws,
ordinances, decrees, orders, rules and regulations of governmental
bodies. The Company and each of its subsidiaries has all licenses,
approvals or consents to operate its businesses in all locations in
which such businesses are currently being operated, and the Company is
not aware of any existing or imminent matter which may materially
adversely impact its or any of its subsidiaries' operations or
business prospects other than as specifically disclosed in the
Effective Prospectus and the Final Prospectus.
(q) Neither the Company nor any of its subsidiaries has
failed to file with the applicable regulatory authorities any
statements, reports, information or forms required by all applicable
laws, regulations or orders; all such filings or submissions were in
compliance with applicable laws when filed, and no deficiencies have
been asserted by any regulatory commission, agency or authority with
respect to such filings or submissions. Neither the Company nor any
of its subsidiaries has failed to maintain in full force and effect
any licenses, registrations or permits necessary or proper for the
conduct of its respective businesses, or received any notification
that any revocation or limitation thereof is threatened or pending,
and there is not to the knowledge of the Company pending any change
under any law, regulation, license or permit which could materially
adversely affect the business, operations, property or business
prospects of the Company. Neither the Company nor any of its
subsidiaries has received any notice of violation of or been
7
<PAGE> 8
threatened with a charge of violating and is not under investigation
with respect to a possible violation of any provision of any law,
regulation or order.
(r) No labor dispute exists or is imminent with any of
the employees of the Company or any of its subsidiaries or otherwise
which could materially adversely affect the Company or any of its
subsidiaries. The Company is not aware of any existing or imminent
labor disturbance by employees of the Company or any of its
subsidiaries which could be expected to materially adversely effect
the condition (financial or otherwise), results of operations,
properties, affairs, management, business affairs or business
prospects of the Company or any of its subsidiaries.
(s) The Company and each of its subsidiaries owns the
licenses, copyrights, trademarks, service marks and trade names
presently employed by it in connection with the businesses now
operated by it, and neither the Company nor any of its subsidiaries
has received any notice of infringement of or conflict with asserted
rights of others with respect to any of the foregoing which, alone or
in the aggregate, if the subject of an unfavorable decision, ruling or
finding, could result in any material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or
business prospects of the Company or any of its subsidiaries.
(t) All license and franchise agreements of the Company
have been entered into in compliance with all applicable federal and
state law including, without limitation, the rules, regulations and
announced policies of the Federal Trade Commission and all disclosure
and/or registration requirements under state franchise law.
(u) Neither the Company nor any of its subsidiaries is in
violation of any federal, state, local or foreign law or regulation
relating to occupational safety and health or to the storage, handling
or transportation of hazardous or toxic materials and the Company and
each of its subsidiaries has received all permits, licenses or other
approvals required of it under applicable federal, state and foreign
occupational safety and health and environmental laws and regulations
to conduct its respective businesses, and the Company and each of its
subsidiaries is in compliance with all terms and conditions of any
such permit, license or approval, except any such violation of law or
regulation, failure to receive required permits, licenses or other
approvals or failure to comply with the terms and conditions of such
permits, licenses or approvals which would not result in a material
adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or prospects of the Company or any of its
subsidiaries.
(v) Neither the Company or any of its subsidiaries nor,
to the knowledge of the Company, any director, officer, agent,
employee or other person acting on behalf of the Company or any of its
subsidiaries has (i) used, or authorized the use of, any corporate or
other funds for unlawful payments, contributions, gifts or
entertainment (ii) made unlawful expenditures relating to political
activity to government officials or others, or (iii)
8
<PAGE> 9
established or maintained any unlawful or unrecorded funds in
violation of any federal, state, local or foreign law or regulation,
including Section 30A of the Exchange Act. Neither the Company or any
of its subsidiaries nor, to the knowledge of the Company, any
director, officer, agent, employee or other person acting on behalf of
the Company or any of its subsidiaries has accepted or received any
unlawful contributions, payments, gifts or expenditures.
(w) Neither the Company or any of its subsidiaries nor
any of the directors, officers, employees or agents of the Company or
any of its subsidiaries have taken and will not take, directly or
indirectly, any action designed to cause or result in, or which has
constituted or which might be expected to constitute, stabilization or
manipulation of the price of the Common Stock.
(x) The outstanding shares of Common Stock are traded on, and
the Shares have been approved upon notice of issuance for designation
on, the Nasdaq National Market (the "Nasdaq"). The Company has filed
with the Commission and the NASD all reports, documents and statements
required to be filed pursuant to the Securities Act, the Exchange Act,
the Rules and Regulations and all the rules and regulations of the
NASD relating to qualification for trading on the Nasdaq, and each of
such reports, documents and statements at the time that they were
filed complied with the requirements of the Securities Act, the
Exchange Act and the Rules and Regulations.
2. Purchase, Sale and Delivery of the Shares.
(a) On the basis of the representations, warranties,
agreements and covenants herein contained and subject to the terms and
conditions herein set forth, the Company agrees to sell to the several
Underwriters, and each of the Underwriters, severally and not jointly,
agrees to purchase at a purchase price of $______ per share, the
number of Firm Shares set forth opposite such Underwriter's name in
Schedule I hereto.
(b) The Company hereby grants to the Underwriters an option to
purchase, solely for the purpose of covering over-allotments in the
sale of Firm Shares, all or any portion of the Option Shares at the
purchase price per share set forth above. The option granted hereby
may be exercised as to all or any part of the Option Shares at any
time within 30 days after the date of the Final Prospectus. The
Underwriters shall not be under any obligation to purchase any Option
Shares prior to the exercise of such option. The option granted
hereby may be exercised by the Underwriters by J.C. Bradford & Co.
("Bradford") giving written notice to the Company setting forth the
number of Option Shares to be purchased and the date and time for
delivery of and payment for such Option Shares and stating that the
Option Shares referred to therein are to be used for the purpose of
covering over-allotments in connection with the distribution and sale
of the Firm Shares. If such notice is given prior to the First
Closing Date (as defined herein), the date set forth therein for such
delivery and payment shall not be earlier than two full business
9
<PAGE> 10
days thereafter or the First Closing Date, whichever occurs later. If
such notice is given on or after the First Closing Date, the date set
forth therein for such delivery and payment shall not be earlier than
three full business days thereafter. In either event, the date so set
forth shall not be more than four full business days after the date of
such notice. The date and time set forth in such notice is herein
called the "Option Closing Date." Upon exercise of the option, the
Company shall become obligated to sell to the Underwriters, and,
subject to the terms and conditions herein set forth, the Underwriters
shall become obligated to purchase, for the account of each
Underwriter, from the Company, severally and not jointly, the number
of Option Shares specified in such notice. Option Shares shall be
purchased for the accounts of the Underwriters in proportion to the
number of Firm Shares set forth opposite such Underwriter's name in
Schedule I hereto, except that the respective purchase obligations of
each Underwriter shall be adjusted so that no Underwriter shall be
obligated to purchase fractional Option Shares.
(c) Certificates in definitive form for the Firm Shares
which each Underwriter has agreed to purchase hereunder shall be
delivered by or on behalf of the Company to the Underwriters for the
account of such Underwriter against payment by such Underwriter or on
its behalf of the purchase price therefor by wire transfer of
immediately available funds to the order of the Company at the offices
of Bradford, 330 Commerce Street, Nashville, Tennessee 37201, or at
such other place as may be agreed upon by Bradford and the Company, at
10:00 A.M., Nashville time, on the third full business day after this
Agreement becomes effective, or, at the election of the
Representatives, on the fourth full business day after this Agreement
becomes effective, if it becomes effective after 4:30 P.M. Eastern
time, or at such other time not later than the seventh full business
day thereafter as the Representatives and the Company may determine,
such time of delivery against payment being herein referred to as the
"First Closing Date." The First Closing Date and the Option Closing
Date are herein individually referred to as the "Closing Date" and
collectively referred to as the "Closing Dates." Certificates in
definitive form for the Option Shares which each Underwriter shall
have agreed to purchase hereunder shall be similarly delivered by or
on behalf of the Company on the Option Closing Date. The certificates
in definitive form for the Shares to be delivered will be in good
delivery form and in such denominations and registered in such names
as Bradford may request not less than 48 hours prior to the First
Closing Date or the Option Closing Date, as the case may be. Such
certificates will be made available for checking and packaging at a
location in New York, New York as may be designated by Bradford, at
least 24 hours prior to the First Closing Date or the Option Closing
Date, as the case may be. It is understood that Bradford may (but
shall not be obligated to) make payment on behalf of any Underwriter
or Underwriters for the Shares to be purchased by such Underwriter or
Underwriters. No such payment shall relieve such Underwriter or
Underwriters from any of its or their obligations hereunder.
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<PAGE> 11
3. Offering by the Underwriters. After the Registration
Statement becomes effective, the several Underwriters propose to offer for sale
to the public the Firm Shares and any Option Shares which may be sold at the
price and upon the terms set forth in the Final Prospectus.
4. Covenants of the Company. The Company covenants and agrees
with each of the Underwriters that:
(a) The Company shall comply with the provisions of and
make all requisite filings with the Commission pursuant to Rules 424
and 430A of the Rules and Regulations and shall notify the
Representatives promptly (in writing, if requested) of all such
filings. The Company shall notify the Representatives promptly of any
request by the Commission for any amendment of or supplement to the
Registration Statement, the Effective Prospectus or the Final
Prospectus or for additional information; the Company shall prepare
and file with the Commission, promptly upon the Representatives'
request, any amendments of or supplements to the Registration
Statement, the Effective Prospectus or the Final Prospectus which, in
the Representatives' opinion, may be necessary or advisable in
connection with the distribution of the Shares; and the Company shall
not file any amendment of or supplement to the Registration Statement,
the Effective Prospectus or the Final Prospectus which is not approved
by the Representatives after reasonable notice thereof. The Company
shall advise the Representatives promptly of the issuance by the
Commission or any jurisdiction or other regulatory body of any stop
order or other order suspending the effectiveness of the Registration
Statement, suspending or preventing the use of any Preliminary
Prospectus, the Effective Prospectus or the Final Prospectus or
suspending the qualification of the Shares for offering or sale in any
jurisdiction, or of the institution of any proceedings for any such
purpose; and the Company shall use its best efforts to prevent the
issuance of any stop order or other such order and, should a stop
order or other such order be issued, to obtain as soon as possible the
lifting thereof.
(b) The Company will take or cause to be taken all
necessary action and furnish to whomever the Representatives direct
such information as may be reasonably required in qualifying the
Shares for offer and sale under the securities or Blue Sky laws of
such jurisdictions as the Underwriters may designate and will continue
such qualifications in effect for as long as may be reasonably
necessary to complete the distribution of the Shares.
(c) Within the time during which a Final Prospectus
relating to the Shares is required to be delivered under the
Securities Act, the Company shall comply with all requirements imposed
upon it by the Securities Act, as now and hereafter amended, and by
the Rules and Regulations, as from time to time in force, so far as is
necessary to permit the continuance of sales of or dealings in the
Shares as contemplated by the provisions hereof and the Final
Prospectus. If during such period any event occurs as a result of
which the Final Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state a
material fact necessary to make the
11
<PAGE> 12
statements therein, in the light of the circumstances then existing,
not misleading, or if during such period it is necessary to amend the
Registration Statement or supplement the Final Prospectus to comply
with the Securities Act, the Company shall promptly notify the
Representatives and shall amend the Registration Statement or
supplement the Final Prospectus (at the expense of the Company) so as
to correct such statement or omission or effect such compliance.
(d) The Company will furnish without charge to the
Representatives and make available to the Underwriters copies of the
Registration Statement (four of which shall be signed and shall be
accompanied by all exhibits, including any which are incorporated by
reference, which have not previously been furnished), each Preliminary
Prospectus, the Effective Prospectus and the Final Prospectus, and all
amendments and supplements thereto, including any prospectus or
supplement prepared after the effective date of the Registration
Statement, in each case as soon as available and in such quantities as
the Underwriters may reasonably request.
(e) The Company will (i) deliver to the Representatives
at such office or offices as the Representatives may designate as many
copies of the Preliminary Prospectus and Final Prospectus as the
Representatives may reasonably request, and (ii) for a period of not
more than nine months after the Registration Statement becomes
effective, send to the Underwriters as many additional copies of the
Final Prospectus and any supplement thereto as the Representatives may
reasonably request.
(f) The Company shall make generally available to its
security holders, in the manner contemplated by Rule 158(b) under the
Securities Act as promptly as practicable and in any event no later
than 45 days after the end of its fiscal quarter in which the first
anniversary of the effective date of the Registration Statement
occurs, an earnings statement satisfying the provisions of Section
11(a) of the Securities Act covering a period of at least 12
consecutive months beginning after the effective date of the
Registration Statement.
(g) The Company will apply the net proceeds from the sale
of the Shares to be sold by it as set forth under the caption "Use of
Proceeds" in the Final Prospectus.
(h) During a period of five years from the effective date
of the Registration Statement or such longer period as the
Representatives may reasonably request, the Company will furnish to
the Representatives copies of all reports and other communications
(financial or other) furnished by the Company to its stockholders and,
as soon as available, copies of any reports or financial statements
furnished or filed by the Company to or with the Commission, Nasdaq or
any national securities exchange on which any class of securities of
the Company may be listed.
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<PAGE> 13
(i) The Company will, from time to time, after the
effective date of the Registration Statement file with the Commission
such reports as are required by the Securities Act, the Exchange Act
and the Rules and Regulations, and shall also file with foreign, state
and other governmental securities commissions in jurisdictions where
the Shares have been sold by the Underwriters (as the Representatives
shall have advised the Company in writing) such reports as are
required to be filed by the securities acts and the regulations of
those states and jurisdictions.
(j) Except pursuant to this Agreement or with the
Representatives' written consent, for a period of 120 days from the
effective date of the Registration Statement, the Company will not,
and the Company has provided agreements executed by each of its
executive officers, directors and Kelly and Partners, Ltd. providing
that for a period of 120 days from the effective date of the
Registration Statement, such person or entity will not, offer for
sale, sell (other than the issuance by the Company of Common Stock
pursuant to the exercise of options granted pursuant to existing
employee benefit plans and agreements, other existing compensation
agreements and existing stock options or outstanding warrants or
securities convertible into Common Stock), grant any options (other
than pursuant to existing employee benefit plans and agreements),
rights or warrants with respect to any shares of Common Stock,
securities convertible into Common Stock or any other capital stock of
the Company, or otherwise dispose of, directly or indirectly, any
shares of Common Stock or such other securities or capital stock.
(k) Neither the Company or any of its subsidiaries nor
any of their officers, directors or affiliates will take, directly or
indirectly, any action designed to cause or result in, or which might
constitute or be expected to constitute, stabilization or manipulation
of the price of the Common Stock.
(l) The Company and each of its subsidiaries will either
conduct its business and operations as described in the Final
Prospectus or, if the Company or any of its subsidiaries makes any
material change to its business or operations as so conducted,
promptly disclose such change generally to the Company's
securityholders.
5. Expenses. The Company agrees with the Underwriters that (a)
whether or not the transactions contemplated by this Agreement are consummated
or this Agreement becomes effective or is terminated, the Company will pay all
fees and expenses incident to the performance of the obligations of the Company
hereunder, including, but not limited to, (i) the Commission's registration
fee, (ii) the expenses of printing (or reproduction) and distributing the
Registration Statement (including the financial statements therein and all
amendments and exhibits thereto), each Preliminary Prospectus, the Effective
Prospectus, the Final Prospectus, any amendments or supplements thereto and
this Agreement and other underwriting documents, including Underwriter's
Questionnaires, Underwriter's Powers of Attorney, Blue Sky Memoranda,
Agreements Among Underwriters and Selected Dealer Agreements, (iii) fees and
expenses of accountants and counsel for the Company, (iv) expenses of
registration or qualification of the
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<PAGE> 14
Shares under state Blue Sky and securities laws, including the fees and
disbursements of counsel to the Underwriters in connection therewith, (v)
filing fees and expenses incident to receiving required review by the NASD of
the terms of the sale of the Shares, (vi) filing fees and expenses of listing
the Shares on the Nasdaq, (vii) all travel, lodging and reasonable living
expenses incurred by the Company in connection with marketing, dealer and other
meetings attended by the Company and the Underwriters in marketing the Shares,
(viii) the costs and charges of the Company's transfer agent and registrar and
the cost of preparing the certificates for the Shares, and (ix) all other costs
and expenses incident to the performance of its obligations hereunder not
otherwise provided for in this Section; and (b) all out-of-pocket expenses,
including counsel fees, disbursements and expenses, incurred by the
Underwriters in connection with investigating, preparing to market and
marketing the Shares and proposing to purchase and purchasing the Shares under
this Agreement, will be borne and paid by the Company if the sale of the Shares
provided for herein is not consummated (i) by reason of the termination of this
Agreement by the Company pursuant to Section 12(a)(i) or (ii) by reason of the
termination of this Agreement by the Representatives pursuant to Section
12(b)(ii), (iii), (iv) or (v) of this Agreement.
6. Conditions of the Underwriters' Obligations. The respective
obligations of the Underwriters to purchase and pay for the Firm Shares shall
be subject, in their discretion, to the accuracy of the representations and
warranties of the Company herein as of the date hereof and as of the Closing
Date as if made on and as of the Closing Date, to the accuracy of the
statements of the Company's officers made pursuant to the provisions hereof, to
the performance by the Company of all of its covenants and agreements hereunder
and to the following additional conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective not later than 5:30
P.M., Washington, D.C. time, on the day following the date of this
Agreement, or such later time and date as shall have been consented to
by the Representatives and all filings required by Rule 424 and Rule
430A of the Rules and Regulations shall have been made; no stop order
suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that purpose shall have been
instituted or threatened or, to the knowledge of the Company or the
Underwriters, shall be contemplated by the Commission; any request of
the Commission for additional information (to be included in the
Registration Statement or the Final Prospectus or otherwise) shall
have been complied with to the Representative's satisfaction; and the
NASD, upon review of the terms of the public offering of the Shares,
shall not have objected to such offering, such terms or the
Underwriters' participation in the same.
(b) No Underwriter shall have advised the Company that
the Registration Statement, Preliminary Prospectus, Effective
Prospectus or Final Prospectus, or any amendment or any supplement
thereto, contains an untrue statement of fact which, in the
Representatives' reasonable judgment, is material, or omits to state a
fact which, in the Representatives' reasonable judgment, is material
and is required to be stated therein or
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<PAGE> 15
necessary to make the statements therein not misleading and the
Company shall not have cured such untrue statement of fact or stated a
statement of fact required to be stated therein.
(c) The Representatives shall have received an opinion,
dated the Closing Date, from Ice Miller Donadio & Ryan, counsel for
the Company, to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation under the laws of the State
of Indiana, with corporate power and authority to own its
properties and conduct its business as now conducted, and is
duly qualified to do business as a foreign corporation in good
standing in all other jurisdictions where the failure to so
qualify would have a material adverse effect upon the Company
and its subsidiaries. The Company holds all licenses,
certificates, permits, franchises and authorizations from
governmental authorities necessary for the conduct of its
business.
(ii) Each of the Company's subsidiaries is validly
existing and in good standing under the laws of the state or
jurisdiction of its incorporation or organization, as the case
may be, with power and authority to own its properties and
conduct it business as now conducted, and is duly qualified or
authorized to do business and is in good standing in all other
jurisdictions where the failure to so qualify would have a
material adverse effect upon the business of the Company and
its subsidiaries. The outstanding stock of each of the
Company's corporate subsidiaries is duly authorized, validly
issued, fully paid and nonassessable. The Company owns all of
the outstanding stock of each of the Company's corporate
subsidiaries, free and clear of all liens, encumbrances,
equities and claims. The partnership and joint venture
interests of each of the partnerships and joint ventures in
which the Company or any subsidiary is a partner or joint
venturer are duly authorized, validly issued, fully paid and
nonassessable and the partnership and joint venture interests
owned by the Company or a subsidiary thereof are owned clear
of any lien, encumbrance, pledge, equity or claim of any kind.
The Company's subsidiaries do not have outstanding any options
to purchase, or any rights or warrants to subscribe for, or
any securities or obligations convertible into, or any
contracts or commitments to issue or sell any shares of
capital stock or an ownership interest of such subsidiary and
there are no preemptive rights or other rights to subscribe
for or purchase any shares of the capital stock or any
ownership interest of the Company's subsidiaries. Each of the
Company's subsidiaries holds all licenses, certificates,
permits, franchises and authorizations from governmental
authorities necessary for the conduct of its business.
(iii) As of the dates specified therein, the
Company had authorized and issued capital stock as set forth
under the caption "Capitalization" in the Final Prospectus.
All of the outstanding shares of Common Stock have been duly
15
<PAGE> 16
authorized and are validly issued, fully paid and
nonassessable, and the Shares to be sold by the Company have
been duly authorized, and upon issuance thereof and payment
therefor as provided herein, will be validly issued, fully
paid and nonassessable; none of the issued shares have been
issued in violation of or subject to any preemptive rights
provided for by law, agreement or the Company's articles of
incorporation. The Company does not have outstanding any
options to purchase, or any rights or warrants to subscribe
for, or any securities or obligations convertible into, or any
contracts or commitments to issue or sell any shares of
capital stock, and there are no preemptive rights or other
rights to subscribe for or purchase any shares of the capital
stock of the Company, or any restriction upon the transfer of,
the Shares pursuant to the Company's articles of incorporation
or bylaws or any agreement or other instrument to which the
Company is a party or by which it may be bound, except as
described in the Effective Prospectus and Final Prospectus.
Neither the filing of the Registration Statement nor the offer
or sale of the Shares as contemplated by this Agreement gives
rise to any rights, other than those which have been waived or
satisfied, for or relating to the registration of any shares
of Common Stock or any other securities of the Company. The
Underwriters will receive good and marketable title to the
Shares to be issued and delivered by the Company pursuant to
this Agreement, free and clear of all liens, encumbrances,
claims, security interests, restrictions, stockholders
agreements and voting trusts whatsoever. The capital stock of
the Company and the Shares conform to the description thereof
contained in the Final Prospectus. All offers and sales of
the Company's interests and securities prior to the date
hereof were at all relevant times duly registered or exempt
from the registration requirements of the Securities Act and
were duly registered or the subject of an exemption from the
registration requirements of applicable state securities or
Blue Sky laws.
(iv) No consent, approval, authorization or order
of any court or governmental agency or body or third party is
required for the performance of this Agreement by the Company
or the consummation by the Company of the transactions
contemplated hereby, except such as have been obtained under
the Securities Act and such as may be required by the NASD and
under state securities or Blue Sky laws in connection with the
purchase and distribution of the Shares by the several
Underwriters, as to which such counsel need not express an
opinion. The performance of this Agreement by the Company and
the consummation by the Company of the transactions
contemplated hereby will not conflict with or result in a
breach or violation by the Company of any of the terms or
provisions of, or constitute a default by the Company under,
any material indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument known to
such counsel to which the Company or any of its subsidiaries
is a party or to which the Company or any of its subsidiaries
or their properties is subject, the articles of incorporation
or bylaws of the Company or any of its subsidiaries, any
statute, or
16
<PAGE> 17
any judgment, decree, order, rule or regulation of any court
or governmental agency or body known to such counsel to be
applicable to the Company or any of their subsidiaries or
their properties.
(v) The Company has full legal right, power and
authority to enter into this Agreement and to issue, sell and
deliver the Shares to be sold by it to the Underwriters as
provided herein, and this Agreement has been duly authorized,
executed and delivered by the Company and constitutes the
valid and legally binding obligation of the Company
enforceable against the Company in accordance with its terms.
(vi) Except as described in the Final Prospectus,
there is not pending or, to the best knowledge of such
counsel, threatened any action, suit, proceeding, inquiry or
investigation, to which the Company or any of its subsidiaries
is a party, or to which the property of the Company or any of
its subsidiaries is subject, before or brought by any court or
governmental agency or body, which, if determined adversely to
the Company or any of its subsidiaries, could result in any
material adverse change in the business, financial position,
net worth or results of operations, or could materially
adversely affect the properties or assets, of the Company or
any of its subsidiaries.
(vii) No default exists, and no event has occurred
which with notice or after the lapse of time to cure or both,
would constitute a default, in the due performance and
observance of any term, covenant or condition of any material
indenture, mortgage, deed of trust, loan agreement, lease or
other agreement or instrument known to such counsel to which
the Company or any of its subsidiaries is a party or to which
its properties are subject, or of the articles of
incorporation or bylaws of the Company or any of its
subsidiaries.
(viii) Neither the Company nor any of its
subsidiaries is in violation of any law, ordinance,
administrative or governmental rule or regulation applicable
to the Company or any decree of any court or governmental
agency or body having jurisdiction over the Company or any of
its subsidiaries which would have a material adverse effect on
the Company or any of its subsidiaries.
(ix) The Registration Statement and all
post-effective amendments thereto have become effective under
the Securities Act, and, to the knowledge of such counsel, no
stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose
have been instituted or are threatened, pending or
contemplated by the Commission. All filings required by Rule
424 and Rule 430A of the Rules and Regulations have been made;
the Registration Statement, the Effective Prospectus and Final
Prospectus, and any amendments or supplements thereto, as of
their respective effective or
17
<PAGE> 18
issue dates, complied as to form in all material respects with
the requirements of the Securities Act and the Rules and
Regulations; the descriptions in the Registration Statement,
the Effective Prospectus and the Final Prospectus of statutes,
regulations, legal and governmental proceedings, and contracts
and other documents are accurate in all material respects and
present fairly in all material respects the information
required to be stated; and such counsel does not know of any
pending or threatened legal or governmental proceedings,
statutes or regulations required to be described in the Final
Prospectus which are not described as required nor of any
contracts or documents of a character required to be described
in the Registration Statement or the Final Prospectus or to be
filed as exhibits to the Registration Statement which are not
described and filed as required.
In addition to the matters set forth above, such opinion shall also
include a statement to the effect that nothing has come to the attention of
such counsel which leads them to believe that the Registration Statement, the
Effective Prospectus and the Final Prospectus or any amendment or supplement
thereto contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they were made
(except that such counsel need express no view as to financial statements,
schedules and other financial or statistical information included, or
incorporated by reference therein).
The opinions to be rendered pursuant to paragraph (c) may be limited
to federal law, and as to foreign and state law matters, to the laws of the
states or jurisdictions in which such counsel is admitted to practice. Such
counsel may rely upon opinions of other counsel in rendering such opinions
provided that such counsel shall state that they believe that both the
Representatives and they are justified in relying upon such opinions and that
such counsel is reasonably satisfactory to you.
(d) The Underwriters shall have received an opinion or
opinions, dated the Closing Date, of Bass, Berry & Sims PLC, counsel
for the Underwriters, with respect to the Registration Statement and
the Final Prospectus, and such other related matters as the
Underwriters may require, and the Company shall have furnished to such
counsel such documents as they may reasonably request for the purpose
of enabling them to pass upon such matters.
(e) The Representatives shall have received from Ernst &
Young LLP, a letter dated the date hereof and, at the Closing Date, a
second letter dated the Closing Date, in form and substance
satisfactory to the Representatives, stating that they are independent
public accountants with respect to the Company within the meaning of
the Securities Act and the applicable Rules and Regulations, and to
the effect that:
18
<PAGE> 19
(i) In their opinion, the consolidated financial
statements and schedules examined by them and included or incorporated
by reference in the Registration Statement comply as to form in all
material respects with the applicable accounting requirements of the
Securities Act and the published Rules and Regulations and are
presented in accordance with generally accepted accounting principles;
and they have made a review in accordance with standards established
by the American Institute of Certified Public Accountants of the
interim consolidated financial statements, selected financial data
and/or condensed financial statements derived from audited financial
statements of the Company;
(ii) The unaudited selected consolidated financial
information included in the Preliminary Prospectus and the Final
Prospectus under the captions "Prospectus Summary" and "Selected
Consolidated Financial Data" for the five years ended September 25,
1995, agrees with the corresponding amounts in the audited
consolidated financial statements included or incorporated by
reference in the Final Prospectus or previously reported on by them;
(iii) On the basis of a reading of the latest available
interim financial statements (unaudited) of the Company and its
subsidiaries, a reading of the minute books of the Company and its
subsidiaries, inquiries of officials of the Company and its
subsidiaries responsible for financial and accounting matters and
other specified procedures, all of which have been agreed to by the
Representatives, nothing came to their attention that caused them to
believe that:
(A) The unaudited consolidated financial
statements included or incorporated by reference in the
Registration Statement, including the amounts included under
the captions "Prospectus Summary" and "Selected Consolidated
Financial Data" do not comply as to form in all material
respects with the accounting requirements of the federal
securities laws and the related published rules and
regulations thereunder or are not in conformity with generally
accepted accounting principles applied on a basis
substantially consistent with the basis for the audited
financial statements contained or incorporated by reference in
the Registration Statement;
(B) Any other unaudited consolidated financial
statement data included in the Final Prospectus do not agree
with the corresponding items in the audited consolidated
financial statements from which data was derived and any such
unaudited data were not determined on a basis substantially
consistent with the basis for the corresponding amounts in the
audited financial statements contained or incorporated by
reference in the Final Prospectus;
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<PAGE> 20
(C) at a specified date not more than five days
prior to the date of delivery of such respective letter, there
was any change in the capital stock, decline in total assets
or shareholders' equity or increase in long-term debt of the
Company and its subsidiaries, in each case as compared with
amounts shown in the latest balance sheets included in the
Final Prospectus, except in each case for changes, decreases
or increases which are described in such letters; and
(D) for the period from the closing date of the
latest statements of earnings included in the Effective
Prospectus and the Final Prospectus to a specified date not
more than five days prior to the date of delivery of such
respective letter, there were any decreases in revenues, net
earnings or net earnings per share of the Company, in each
case as compared with the corresponding period of the
preceding year, except in each case for decreases which are
described in such letter.
(iv) They have carried out certain specified procedures,
not constituting an audit, with respect to certain amounts,
percentages and financial information specified by you which are
derived from the general accounting records of the Company and its
subsidiaries, which appear in the Effective Prospectus and the Final
Prospectus and have compared and agreed such amounts, percentages and
financial information with the accounting records of the Company and
its subsidiaries or to analyses and schedules prepared by the Company
and its subsidiaries from its detailed accounting records.
In the event that the letters to be delivered referred to above set forth any
such changes, decreases or increases, it shall be a further condition to the
obligations of the Underwriters that the Underwriters shall have determined,
after discussions with officers of the Company responsible for financial and
accounting matters and with Ernst & Young LLP, that such changes, decreases or
increases as are set forth in such letters do not reflect a material adverse
change in the total assets, shareholders' equity or long-term debt of the
Company as compared with the amounts shown in the latest balance sheets of the
Company included in the Final Prospectus, or a material adverse change in
revenues, net earnings or net earnings per share of the Company, in each case
as compared with the corresponding period of the prior year.
(f) There shall have been furnished to the Representatives a
certificate, dated the Closing Date and addressed to you, signed by the Chief
Executive Officer and by the Chief Financial Officer of the Company to the
effect that:
(i) the representations and warranties of the Company in
Section 1 of this Agreement are true and correct, as if made at and as
of the Closing Date,
20
<PAGE> 21
and the Company has complied with all the agreements and satisfied all
the conditions on its part to be performed or satisfied at or prior to
the Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that
purpose have been initiated or are pending, or to their knowledge,
threatened under the Securities Act;
(iii) all filings required by Rule 424 and Rule 430A of the
Rules and Regulations have been made;
(iv) they have carefully examined the Registration
Statement, the Effective Prospectus and the Final Prospectus, and any
amendments or supplements thereto, and such documents do not include
any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they
were made; and
(v) since the effective date of the Registration
Statement, there has occurred no event required to be set forth in an
amendment or supplement to the Registration Statement, the Effective
Prospectus or the Final Prospectus which has not been so set forth.
(g) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Final Prospectus, and except as
stated therein, the Company has not sustained any material loss or interference
with its business or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor dispute or any
court or governmental action, order or decree, or become a party to or the
subject of any litigation which is material to the Company, nor shall there
have been any material adverse change, or any development involving a
prospective material adverse change, in the business, properties, key
personnel, capitalization, prospects, net worth, results of operations or
condition (financial or other) of the Company, which loss, interference,
litigation or change, in the Representatives' reasonable judgment shall render
it unadvisable to commence or continue the offering of the Shares at the
offering price to the public set forth on the cover page of the Prospectus or
to proceed with the delivery of the Shares.
(h) The shares shall be listed on the Nasdaq.
All such opinions, certificates, letters and documents delivered
pursuant to this Agreement will comply with the provisions hereof only if they
are reasonably satisfactory to the Representatives and their counsel. The
Company shall furnish to the Representatives such conformed copies of such
opinions, certificates, letters and documents in such quantities as the
Representatives shall reasonably request.
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<PAGE> 22
The respective obligations of the Underwriters to purchase and pay for
the Option Shares shall be subject, in their discretion, to each of the
foregoing conditions to purchase the Firm Shares, except that all references to
the "Closing Date" shall be deemed to refer to the Option Closing Date, if it
shall be a date other than the Closing Date.
7. Condition of the Company's Obligations. The obligations
hereunder of the Company are subject to the condition set forth in Section 6(a)
hereof.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless
each Underwriter, and each person, if any, who controls any
Underwriter within the meaning of the Securities Act, against any
losses, claims, damages or liabilities to which such Underwriter or
controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based in whole or in
part upon: (i) any inaccuracy in the representations and
warranties of the Company contained herein; (ii) any failure of the
Company to perform its obligations hereunder or under law; (iii) any
untrue statement or alleged untrue statement of any material fact
contained or incorporated by reference in (A) the Registration
Statement, any Preliminary Prospectus, the Effective Prospectus or
Final Prospectus, or any amendment or supplement thereto, or (B) in
any Blue Sky application or other written information furnished by the
Company filed in any state or other jurisdiction in order to qualify
any or all of the Shares under the securities laws thereof (a "Blue
Sky Application"); or (iv) the omission or alleged omission to state
in the Registration Statement, any Preliminary Prospectus, the
Effective Prospectus or Final Prospectus or any amendment or
supplement thereto, or any Blue Sky Application a material fact
required to be stated therein or necessary to make the statements
therein not misleading; and will reimburse each Underwriter and each
such controlling person for any legal or other expenses reasonably
incurred by such Underwriter or such controlling person in connection
with investigating or defending any such loss, claim, damage,
liability or action as such expenses are incurred; provided, however,
that the Company will not be liable in any such case to the extent
that any such loss, claim, damage, or liability arises out of or is
based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement, any
Preliminary Prospectus, the Effective Prospectus or Final Prospectus,
or any amendment or supplement thereto, or any Blue Sky Application in
reliance upon and in conformity with written information furnished to
the Company by any Underwriter specifically for use therein (it being
understood that the only information so provided is the information
included in the last paragraph on the cover page and in the first and
third paragraphs under the caption "Underwriting" in any Preliminary
Prospectus and the Final Prospectus and the Effective Prospectus).
(b) Each Underwriter will indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the
Registration Statement and each person,
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<PAGE> 23
if any, who controls the Company within the meaning of the Securities
Act against any losses, claims, damages or liabilities to which the
Company or any such director, officer or controlling person may become
subject, under the Securities Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Effective Prospectus or
Final Prospectus, or any amendment or supplement thereto, or any Blue
Sky Application, or arise out of or are based upon the omission or the
alleged omission to state in the Registration Statement, any
Preliminary Prospectus, the Effective Prospectus or Final Prospectus,
or any amendment or supplement thereto, or any Blue Sky Application a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon
and in conformity with written information furnished to the Company by
any Underwriter specifically for use therein (it being understood that
the only information so provided is the information included in the
last paragraph on the cover page and in the first and third paragraphs
under the caption "Underwriting" in any Preliminary Prospectus and in
the Effective Prospectus and the Final Prospectus);
(c) Promptly after receipt by an indemnified party under
this Section 8 of notice of the commencement of any action, including
governmental proceedings, such indemnified party will, if a claim in
respect thereof is to be made against the indemnifying party under
this Section 8 notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified
party otherwise than under this Section 8. In case any such action is
brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party
will be entitled to participate therein, and to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel satisfactory to such
indemnified party; and after notice from the indemnifying party to
such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified
party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation except
that the indemnified party shall have the right to employ separate
counsel if, in the indemnified party's reasonable judgment, it is
advisable for the indemnified party to be represented by separate
counsel, and in that event the fees and expenses of separate counsel
shall be paid by the indemnifying party.
(d) In order to provide for just and equitable
contribution in circumstances in which the indemnity agreement
provided for in the preceding part of this Section 8 is for any reason
held to be unavailable to the Underwriters or the Company or is
insufficient to hold harmless an indemnified party, then the Company
shall contribute to the damages paid by the Underwriters, and the
Underwriters shall contribute to the damages paid by
23
<PAGE> 24
the Company; provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. In determining
the amount of contribution to which the respective parties are
entitled, there shall be considered the relative benefits received
by each party from the offering of the Shares (taking into account the
portion of the proceeds of the offering realized by each), the
parties' relative knowledge and access to information concerning the
matter with respect to which the claim was asserted, the opportunity
to correct and prevent any statement or omission, and any other
equitable considerations appropriate under the circumstances. The
Company and the Underwriters agree that it would not be equitable if
the amount of such contribution were determined by pro rata or per
capita allocation (even if the Underwriters were treated as one entity
for such purpose). No Underwriter or person controlling such
Underwriter shall be obligated to make contribution hereunder which in
the aggregate exceeds the underwriting discount applicable to the
Shares purchased by such Underwriter under this Agreement, less the
aggregate amount of any damages which such Underwriter and its
controlling persons have otherwise been required to pay in respect of
the same or any similar claim. The Underwriters' obligations to
contribute hereunder are several in proportion to their respective
underwriting obligations and not joint. For purposes of this Section,
each person, if any, who controls an Underwriter within the meaning of
Section 15 of the Securities Act shall have the same rights to
contribution as such Underwriter, and each director of the Company,
each officer of the Company who signed the Registration Statement, and
each person, if any, who controls the Company within the meaning of
Section 15 of the Securities Act, shall have the same rights to
contribution as the Company.
(e) No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement of any
pending or threatened action, suit or proceeding in respect of which
any indemnified party is a party or is (or would be, if a claim were
to be made against such indemnified party) entitled to indemnity
hereunder, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the
subject matter of such action, suit or proceeding.
9. Default of Underwriters. If any Underwriter defaults in its
obligation to purchase Shares hereunder and if the total number of Shares which
such defaulting Underwriter agreed but failed to purchase is ten percent or
less of the total number of Shares to be sold hereunder, the non-defaulting
Underwriters shall be obligated severally to purchase (in the respective
proportions which the number of Shares set forth opposite the name of each
non-defaulting Underwriter in Schedule I hereto bears to the total number of
Shares set forth opposite the names of all the non-defaulting Underwriters),
the Shares which such defaulting Underwriter or Underwriters agreed but failed
to purchase. If any Underwriter so defaults and the total number of Shares
with respect to which such default or defaults occur is more than ten percent
of the total number of Shares to be sold hereunder, and arrangements
satisfactory to the other Underwriters and the Company for the purchase of such
Shares by other persons (who may include the non-defaulting Underwriters)
24
<PAGE> 25
are not made within 36 hours after such default, this Agreement, insofar as it
relates to the sale of the Shares, will terminate without liability on the part
of the non-defaulting Underwriters or the Company except for (i) the provisions
of Section 8 hereof, and (ii) the expenses to be paid or reimbursed by the
Company pursuant to Section 5. As used in this Agreement, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 9. Nothing herein shall relieve a defaulting Underwriter from
liability for its default.
10. Survival Clause. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company, its
officers and the Underwriters set forth in this Agreement or made by or on
behalf of them, respectively, pursuant to this Agreement shall remain in full
force and effect, regardless of (a) any investigation made by or on behalf of
the Company, any of its officers or directors, any Underwriter or any
controlling person, (b) any termination of this Agreement and (c) delivery of
and payment for the Shares.
11. Effective Date. This Agreement shall become effective at
whichever of the following times shall first occur: (a) at 11:30 A.M.,
Washington, D.C. time, on the next full business day following the date of this
Agreement or (b) at such time after the Registration Statement has become
effective as the Representatives shall release the Firm Shares for sale to the
public; provided, however, that the provisions of Sections 5, 8, 10 and 11
hereof shall at all times be effective. For purposes of this Section 11, the
Firm Shares shall be deemed to have been so released upon the release by the
Representatives for publication, at any time after the Registration Statement
has become effective, of any newspaper advertisement relating to the Firm
Shares or upon the release by the Representatives of telegrams offering the
Firm Shares for sale to securities dealers, whichever may occur first.
12. Termination.
(a) The Company's obligations under this Agreement may be
terminated by the Company by notice to the Representatives (i) at any
time before it becomes effective in accordance with Section 11 hereof,
or (ii) in the event that the condition set forth in Section 7 shall
not have been satisfied at or prior to the First Closing Date.
(b) This Agreement may be terminated by the
Representatives by notice to the Company (i) at any time before it
becomes effective in accordance with Section 11 hereof; (ii) in the
event that at or prior to the First Closing Date the Company shall
have failed, refused or been unable to perform any agreement on the
part of the Company to be performed hereunder or any other condition
to the obligations of the Underwriters hereunder is not fulfilled;
(iii) if at or prior to the Closing Date trading in securities on the
New York Stock Exchange, the American Stock Exchange, Nasdaq, or the
over-the-counter market shall have been suspended or materially
limited or minimum or maximum prices shall have been established on
either of such exchanges or such market, or a banking moratorium shall
have been declared by Federal or state authorities; (iv) if at or
prior to the Closing Date trading in securities of the Company shall
have been suspended;
25
<PAGE> 26
or (v) if there shall have been such a material adverse change in
general economic, political or financial conditions or if the effect
of international conditions on the financial markets in the United
States shall be such as, in your reasonable judgment, makes it
inadvisable to commence or continue the offering of the Shares at the
offering price to the public set forth on the cover page of the
Prospectus or to proceed with the delivery of the Shares.
(c) Termination of this Agreement pursuant to this
Section 12 shall be without liability of any party to any other party
other than as provided in Sections 5 and 8 hereof.
13. Notices. All communications hereunder shall be in writing
and, if sent to any of the Underwriters, shall be mailed or delivered or
telegraphed and confirmed in writing to the Representatives in care of J. C.
Bradford & Co., J. C. Bradford Financial Center, 330 Commerce Street,
Nashville, Tennessee 37201, Attention: Kip Reed Caffey, or if sent to the
Company shall be mailed, delivered or telegraphed and confirmed in writing to
the Company at 36 South Pennsylvania Street, Fifth Floor, Indianapolis, Indiana
46204, Attention: James B. Bear.
14. Miscellaneous. This Agreement shall inure to the benefit of
and be binding upon the several Underwriters, the Company and their respective
successors and legal representatives. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person any legal
or equitable right, remedy or claim under or in respect of this Agreement.
This Agreement and all conditions and provisions hereof are intended to be for
the sole and exclusive benefit of the Company and the several Underwriters and
for the benefit of no other person except that (a) the representations and
warranties of the Company contained in this Agreement also shall be for the
benefit of any person or persons who control any Underwriter within the meaning
of Section 15 of the Securities Act, and (b) the indemnities by the
Underwriters also shall be for the benefit of the directors of the Company,
officers of the Company who have signed the Registration Statement and any
person or persons who control the Company within the meaning of Section 15 of
the Securities Act. No purchaser of Shares from any Underwriter will be deemed
a successor because of such purchase. The validity and interpretation of this
Agreement shall be governed by the laws of the State of Tennessee. 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. The Representatives hereby represent and warrant to the Company
that the Representatives have authority to act hereunder on behalf of the
several Underwriters, and any action hereunder taken by the Representatives
will be binding upon all the Underwriters.
26
<PAGE> 27
If the foregoing is in accordance with your understanding of our
agreement, please indicate your acceptance thereof in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
among the Company and each of the several Underwriters.
Very truly yours,
CONSOLIDATED PRODUCTS, INC.
By:________________________________
Title:_____________________________
Confirmed and accepted as of the
date first above written.
J.C. BRADFORD & CO.
MONTGOMERY SECURITIES
For themselves and as
Representatives of the Several
Underwriters
By:________________________________
Partner
27
<PAGE> 28
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
Underwriter
- -----------
Number of
Firm Shares to
Be Purchased
------------
<S> <C>
J.C. Bradford & Co. ..........................
Montgomery Securities ........................
-------------
TOTAL
=============
</TABLE>
28
<PAGE> 1
EXHIBIT 5.01
July 1, 1996
Board of Directors
Consolidated Products, Inc.
36 South Pennsylvania Street
Indianapolis, IN 46204
Gentlemen and Ms. Aramian:
We have acted as counsel to Consolidated Products, Inc., an Indiana
corporation (the "Company"), in connection with the filing of a Registration
Statement on Form S-3 (the "Registration Statement") with the Securities and
Exchange Commission (the "Commission") for the purposes of registering under
the Securities Act of 1933, as amended (the "Securities Act"), an aggregate of
2,702,500 shares of Common Stock of the Company (the "Shares") which are to be
offered to the public.
In connection therewith, we have investigated those questions of law we have
deemed necessary or appropriate for purposes of this opinion. We have also
examined originals, or copies certified or otherwise identified to our
satisfaction, of those documents, corporate or other records, certificates and
other papers that we deemed necessary to examine for the purpose of this
opinion, including:
1. The Company's Articles of Incorporation as amended to date;
2. The Bylaws of the Company as amended to date;
3. Resolutions relating to the offering of the Shares and the filing of the
Registration Statement adopted by the Company's Board of Directors (the
"Resolutions");
4. A specimen certificate representing the Shares; and
5. The Registration Statement.
We have also relied, without investigation as to the accuracy thereof, on
other certificates of and oral and written communications from public officials
and officers of the Company.
<PAGE> 2
Board of Directors
Consolidated Products, Inc.
July 1, 1996
Page 2
For purposes of this opinion, we have assumed (i) the authenticity of all
documents submitted to us as originals and the conformity to authentic
originals of all documents submitted to us as certified or photostatic copies;
(ii) that the Shares will be issued pursuant to the terms of the Registration
Statement; (iii) that the Resolutions will not be amended, altered or
superseded before the issuance of the Shares; and (iv) that no changes will
occur in the applicable law or the pertinent facts before the issuance of the
Shares.
Based upon the foregoing and subject to the qualifications set forth in this
letter, we are of the opinion that the Shares are validly authorized and, when
(a) the pertinent provisions of the Securities Act and all relevant state
securities laws have been complied with and (b) the Shares have been delivered
against payment therefor as contemplated by the Registration Statement, the
Shares will be legally issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this Firm under the caption
"Legal Matters" in the Prospectus included as a part of the Registration
Statement. In giving this consent, we do not admit that we are within the
category of persons whose consent is required under Section 7 of the Securities
Act or under the rules and regulations relating thereto.
Very truly yours,
ICE MILLER DONADIO & RYAN
<PAGE> 1
EXHIBIT 23.02
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Consolidated Financial Data" and "Experts" and to the use of our report dated
November 20, 1995 (except for the Subsequent Event - Stock Dividend note, as to
which the date is December 12, 1995), in the Registration Statement (Form S-3)
and related Prospectus of Consolidated Products, Inc. for the registration of
2,702,500 shares of its Common Stock.
Ernst & Young LLP
Indianapolis, Indiana
June 28, 1996
