<PAGE>
As Filed With the
Securities and Exchange Commission
On October 11, 2000
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Materials Pursuant to (S) 240.14a-12
BFX HOSPITALITY GROUP, INC.
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-
11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
$1,997..........................................
(2) Form, Schedule or Registration Statement No.:
Schedule 14A....................................
(3) Filing Party:
Registrant......................................
(4) Date Filed:
August 17, 2000.................................
<PAGE>
BFX HOSPITALITY GROUP, INC.
226 Bailey Avenue, Suite 101
Fort Worth, Texas 76107
(817) 332-4761
Dear Fellow Stockholder,
You are cordially invited to attend a special meeting of stockholders of
BFX Hospitality Group, Inc., a Delaware corporation (the "Company"), to be held
in the Longhorn Room of the Stockyards Hotel, 109 East Exchange Avenue, Fort
Worth, Texas, on ___________, 2000 at 10:00 o'clock a.m. (C.S.T.) (including any
adjournment or postponement, the "Special Meeting").
Throughout the Special Meeting, you will be asked to consider and vote upon
a proposal to approve the merger (the "Merger") of the Company with and into
American Hospitality, LLC, a Delaware limited liability company ("American"),
with American continuing as the surviving company (the "Surviving Company"),
pursuant to an Agreement and Plan of Merger dated as of August 11, 2000 (the
"Merger Agreement"), by and among the Company, American and Hospitality
Concepts, LLC, a Delaware limited liability company ("Hospitality"), which owns
all of the outstanding units of American. A copy of the Merger Agreement is
attached to the accompanying proxy statement as Appendix I.
Subject to the terms and conditions of the Merger Agreement, at the
effective time of the Merger (the "Effective Time"), each share of common stock,
$.05 par value, of the Company ("Common Stock") outstanding immediately before
the Effective Time, including each associated right to purchase shares upon
certain events occurring under the Rights Agreement dated February 11, 1999
between the Company and Continental Stock Transfer & Trust Company (other than
shares held by the Company or any of its subsidiaries as treasury stock and
shares held by dissenting stockholders who have validly exercised and perfected
their rights under Delaware law) will be converted into the right to receive
$2.25 in cash (the "Merger Consideration"). All of the outstanding ownership
units of American are presently owned, and after the Effective Time will
continue to be owned, by Hospitality.
As of ___________, 2000 (the "Record Date"), Robert H. McLean and the other
management members of the Company who constitute the owners of Hospitality (the
"Management Group") beneficially owned 1,141,914 shares of Common Stock
(representing approximately 25.95% of the outstanding Common Stock).
Pursuant to the Delaware General Corporation Law, the affirmative vote of
holders of a majority of the issued and outstanding shares of Common Stock is
required to approve the Merger Agreement. Each share of Common Stock is entitled
to one vote on each matter to be acted upon or which may properly come before
the Special Meeting. It is anticipated that the members of the Management Group
and their spouses will vote the 1,141,914 shares of Common Stock beneficially
owned by them, representing approximately 25.95% of the outstanding Common
Stock, in favor of approval of the Merger Agreement. In addition, it is
anticipated that the members of the board of directors of the Company (the
"Board") who are not members of the Management Group will vote
<PAGE>
the 285,805 shares of Common Stock beneficially owned by them, representing
approximately 6.49% of the outstanding Common Stock, in favor of approval of the
Merger Agreement.
Hospitality was formed to enable members of the Management Group to acquire
indirectly, through the Merger, the Company. At the Effective Time, the members
of the Management Group will own beneficially and of record all outstanding
units of Hospitality, which owns all of the outstanding units of American, as
the Surviving Company.
If the Merger is consummated, the Board will take all actions necessary to
vest and make exercisable as of the Effective Time all outstanding options,
whether vested or not, and the Company shall give written notice to the holder
of each option of the acceleration and exercisability of the options as of the
Effective Time in accordance with the relevant plan. Each option holder shall
be paid by Hospitality at the Effective Time the difference between $2.25 and
the exercise price for such options.
Due to the inherent conflicts of interest related to the Merger, the Board
appointed an independent committee of the Board (the "Independent Committee")
comprised of three of the directors of the Company, John M. Edgar, Bruno
D'Agostino and Russell J. Sarno, who are neither officers of the Company nor
members of the Management Group, to review, evaluate and negotiate the terms of
the proposed Merger and to make a recommendation to the Board concerning the
proposed Merger. The Independent Committee retained two financial advisors,
Sanders Morris Harris, Inc. of Houston, Texas and George K. Baum & Company of
Kansas City, Missouri (the "Financial Advisors") to render fairness opinions. On
August 11, 2000, George K. Baum & Company delivered its written opinion to the
Board, after having already delivered its written opinion to the Independent
Committee, to the effect that the Merger Consideration of $2.25 in cash per
share of Common Stock to be received in the Merger by the Company's stockholders
was, as of that date, fair, from a financial point of view, to the stockholders
of the Company. On August 11, 2000, Sanders Morris Harris, Inc. delivered to the
Board a copy of the same written opinion that it had previously delivered to the
Independent Committee, to the effect that the Merger Consideration of $2.25 in
cash per share of Common Stock to be received in the Merger by the stockholders
who are not members of the Management Group (the "Public Stockholders") was, as
of that date, fair, from a financial point of view, to the Public Stockholders.
Copies of the Financial Advisors' written opinions are attached as Appendix II
and Appendix III to the accompanying proxy statement. You are urged to read the
opinions in their entirety for a description of the assumptions made, the
matters considered and the procedures followed by the Financial Advisors.
For the reasons set forth in the attached proxy statement, upon the
recommendation of the Independent Committee, the Company's seven member Board
(not including the three interested directors who excused themselves from the
meeting) has unanimously determined that the proposed Merger is in the best
interests of the Company and its stockholders, approved the terms of the Merger
Agreement and recommended that the Merger Agreement be approved and adopted by
the stockholders of the Company. THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE
"FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND CONSUMMATION OF THE
MERGER. THE BOARD ALSO RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" ANY
ADJOURNMENT OR POSTPONEMENT OF THE SPECIAL MEETING TO SOLICIT ADDITIONAL PROXIES
(IF NECESSARY).
<PAGE>
Attached is a Notice of Special Meeting of Stockholders and a proxy
statement containing a discussion of the background of, reasons for and terms of
the Merger. You are urged to read this material carefully. WHETHER OR NOT YOU
PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED
PROXY CARD AND MAIL IT PROMPTLY USING THE ENCLOSED PRE-ADDRESSED, POSTAGE-PAID,
RETURN ENVELOPE. FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A VOTE AGAINST
THE MERGER AGREEMENT. If you attend the Special Meeting, you may vote in person
if you wish, even if you have previously returned your proxy card. Your prompt
cooperation will be greatly appreciated.
Very truly yours,
Robert H. McLean
Chairman of the Board and President
<PAGE>
BFX HOSPITALITY GROUP, INC.
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
____________, 2000
TO THE STOCKHOLDERS:
A special meeting of the stockholders of BFX Hospitality Group, Inc., a
Delaware corporation (the "Company"), will be held in the Longhorn Room of the
Stockyards Hotel, 109 East Exchange Avenue, Fort Worth, Texas on _____________,
2000, at 10:00 o'clock a.m. (C.S.T.) (including any adjournment or postponement,
the "Special Meeting"), for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of August 11, 2000 (the "Merger
Agreement"), by and among the Company, Hospitality Concepts, LLC, a Delaware
limited liability company ("Hospitality"), and American Hospitality, LLC, a
Delaware limited liability company ("American"), and the merger of the Company
with and into American (the "Merger") as contemplated by the Merger Agreement;
2. To authorize adjournment or postponement of the Special Meeting for
the purpose of soliciting additional proxies (if necessary); and
3. To transact such other business as may properly come before the
Special Meeting.
The Board has fixed the close of business on _____________, 2000 as the
record date (the "Record Date") for the determination of the stockholders
entitled to notice of and to vote at the Special Meeting. Accordingly, only
holders of record of the Company's common stock, $.05 par value per share
("Common Stock"), at the close of business on the Record Date will be entitled
to vote at the Special Meeting, either by proxy or in person. Each share of
Common Stock is entitled to one vote on each matter to be acted on or which may
properly come before the Special Meeting.
The affirmative vote of a majority of the issued and outstanding shares of
Common Stock is required for approval of the Merger Agreement and consummation
of the Merger.
In connection with the Merger, holders of Common Stock who comply with
certain requirements and procedures set forth in Section 262 of the Delaware
General Corporation Law (the "DGCL") may be entitled to assert certain
dissenters' rights. A copy of Section 262 of the DGCL is attached as Appendix
IV to the accompanying proxy statement.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN AND
DATE THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY, USING THE ENCLOSED PRE-
ADDRESSED, POSTAGE-PAID RETURN ENVELOPE. IF YOU ATTEND THE SPECIAL MEETING, YOU
MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY
CARD. YOUR PROMPT ATTENTION IS APPRECIATED.
<PAGE>
Please do not send in any stock certificates at this time. Upon approval
of the Merger, you will be sent instructions regarding the procedures to
exchange your certificates evidencing Common Stock of the Company for the merger
consideration.
By Order of the Board of Directors,
Robert Korman
Secretary
Fort Worth, Texas
Dated _____________, 2000
<PAGE>
BFX HOSPITALITY GROUP, INC.
226 Bailey Avenue, Suite 101
Fort Worth, Texas 76107
(817) 332-4761
----------------------------------------
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
_____________, 2000
----------------------------------------
THE SPECIAL MEETING
Time, Date and Place
This proxy statement is being furnished in connection with the solicitation
of proxies by the board of directors (the "Board") of BFX Hospitality Group,
Inc., a Delaware corporation (the "Company"), for use at the special meeting of
stockholders to be held at 10:00 o'clock a.m. (C.S.T.) on _____________, 2000 in
the Longhorn Room of the Stockyards Hotel, 109 East Exchange Avenue, Fort
Worth, Texas (including any adjournment or postponement, the "Special Meeting").
Matters to Be Considered at the Special Meeting
At the Special Meeting, stockholders of the Company will be asked to
approve the merger (the "Merger") of the Company with and into American
Hospitality, LLC, a Delaware limited liability company ("American"), which is a
wholly owned subsidiary of Hospitality Concepts, LLC, a Delaware limited
liability company ("Hospitality"), with American continuing as the surviving
company (the "Surviving Company"), pursuant to an Agreement and Plan of Merger
dated as of August 11, 2000, as amended (the "Merger Agreement"), by and among
the Company, American and Hospitality, and to approve and adopt the Merger
Agreement. The Merger Agreement provides, subject to the approval of a majority
of the stockholders of the Company at the Special Meeting and subject to the
satisfaction or waiver of certain other conditions, that: (i) the Company will
be merged with and into American, with American continuing as the Surviving
Company; (ii) each share of the Company's common stock, par value $0.05 per
share ("Common Stock"), that is issued and outstanding at the effective time of
the Merger (the "Effective Time"), including the associated right to purchase
shares upon certain events occurring under the Rights Agreement dated February
11, 1999 between the Company and Continental Stock Transfer & Trust Company, but
excluding shares of Common Stock held by the Company or any of its subsidiaries
as treasury stock and shares held by dissenting stockholders who have validly
exercised and perfected their rights under Delaware law
Page - 1
<PAGE>
(the "Dissenting Stockholders"), will be converted into the right to receive
$2.25 per share in cash, without interest, subject to any applicable back-up or
other withholding requirements (the "Merger Consideration"); and (iii) each
outstanding option to purchase shares of Common Stock, whether vested or not, as
of the date of the Merger will be converted into the right to receive the
excess, if any, of the Merger Consideration over the exercise price of the
shares under the option ("Option Consideration"). Under the terms of the Merger
Agreement, the Merger is subject to the satisfaction or waiver of certain
special conditions, in addition to other conditions that are typical in
transactions similar to the Merger. These include (i) concurrently with the
closing of the Merger and on terms reasonably acceptable to Hospitality (a) sale
of all of the membership interests of Cabo-Fort Worth #1, L.L.C. to Hospitality,
(b) sale of all of the assets of Cat's Meow, Inc. to Cat's Meow, LLC, a wholly
owned subsidiary of Hospitality, (c) sale of all of the assets of Lucile's
Stateside Bistro-Texas, Inc. to Lucile's, LLC, a wholly owned subsidiary of
Hospitality, (d) sale of all of the assets of Stockyards Hotel, Inc. to
Stockyards Hotel, LLC, a wholly owned subsidiary of Hospitality, (e) sale of all
of the intellectual property assets of American Food Classics, Inc. to
Hospitality and (f) sale of all of the intellectual property assets of the
Company to Hospitality; (ii) no increased liability related to the Company's
superfund site in Vestal, New York or any other liability resulting from
violations of any environmental laws in excess of that provided on the Company's
June 30, 2000 balance sheet; (iii) extension on terms reasonably acceptable to
Hospitality of the existing lease for the Company's Cat's Meow facility in New
Orleans, Louisiana, which terminates on September 30, 2009; and (iv) obtaining
financing on satisfactory terms. A copy of the executed Merger Agreement is
included in this proxy statement as Appendix I.
Hospitality has been formed to acquire indirectly, through the Merger, the
Company. Robert H. McLean ("Mr. McLean") is the Chairman, President and Chief
Executive Officer of the Company and is currently the sole owner of Hospitality.
Mr. McLean is currently discussing provisions governing management, capital
contributions, budgets, transfer and voting of units and buy-out options that
may form part of the limited liability company agreement with five other members
of the Company's management, Robert Korman ("Mr. Korman"), Frank J. Milan ("Mr.
Milan"), Terry Kearney ("Mr. Kearney"), Hampton Hodges ("Mr. Hodges") and Walter
D. Rogers, Jr. ("Mr. Rogers"). It is anticipated that before the Merger occurs,
Messrs. McLean, Korman, Milan, Kearney, Hodges and Rogers (together, the
"Management Group") will own 60%, 15%, 10%, 10%, 2.5%, and 2.5% of Hospitality,
respectively. As of the Record Date, the members of the Management Group
beneficially owned 1,141,914 shares of Common Stock, representing approximately
25.95% of the outstanding Common Stock.
Pursuant to the Delaware General Corporation Law (the "DGCL"), the
affirmative vote of holders of at least a majority of the outstanding shares of
Common Stock is required to approve the Merger Agreement. It is anticipated
that the members of the Management Group and their spouses will vote the
1,141,914 shares of Common Stock beneficially owned by them, representing
approximately 25.95% of the outstanding Common Stock, in favor of the approval
of the Merger Agreement. In addition, it is anticipated that the members of the
Board who are not members of the Management Group will vote the 285,805 shares
of Common Stock beneficially owned by them, representing approximately 6.49% of
the outstanding Common Stock, in favor of approval of the Merger Agreement.
Page - 2
<PAGE>
The Board appointed an independent committee of the Board (the "Independent
Committee") to review, evaluate and negotiate the terms of the Merger Agreement
and to make a recommendation to the Board concerning the proposed Merger. The
Independent Committee is comprised of three directors, John M. Edgar, Bruno
D'Agostino and Russell J. Sarno, who are neither officers of the Company nor
members of the Management Group (but who will receive cash in exchange for their
shares of Common Stock and existing options to buy Common Stock, upon
consummation of the Merger). The Independent Committee retained two investment
banking firms, Sanders Morris Harris, Inc. of Houston, Texas and George K. Baum
& Company of Kansas City, Missouri (together, the "Financial Advisors") to
render fairness opinions. On August 11, 2000, George K. Baum & Company delivered
its written opinion to the Board, after having already delivered its opinion to
the Independent Committee, to the effect that the Merger Consideration of $2.25
in cash per share of Common Stock to be received in the Merger by the Company's
stockholders was, as of that date, fair, from a financial point of view, to the
Company's stockholders. On August 11, 2000, Sanders Morris Harris, Inc.
delivered to the Board a copy of the same written opinion that it had previously
delivered to the Independent Committee, to the effect that the Merger
Consideration of $2.25 in cash per share of Common Stock to be received in the
Merger by the stockholders who are not members of the Management Group (the
"Public Stockholders") was, as of that date, fair, from a financial point of
view, to the Public Stockholders. Copies of the Financial Advisors' written
opinions are attached as Appendix II and Appendix III to this proxy statement.
You are urged to read the opinions in their entirety for a description of the
assumptions made, the matters considered and the procedures followed by the
Financial Advisors.
Based on the unanimous recommendation of the Independent Committee, the
Board (not including Messrs. McLean, Rogers and Hodges who excused themselves
from the meeting) unanimously determined that the Merger is in the best
interests of the Company and all of its stockholders, including the Public
Stockholders, approved the terms of the Merger Agreement and recommended that
the Merger Agreement be approved and adopted by the stockholders of the Company.
All shares of Common Stock represented by properly executed proxies
received prior to or at the Special Meeting and not revoked will be voted in
accordance with the instructions indicated in such proxies. IF NO INSTRUCTIONS
ARE INDICATED, THOSE PROXIES WILL BE VOTED FOR THE APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND CONSUMMATION OF THE MERGER, AND FOR ADJOURNMENT AND
POSTPONEMENT OF THE SPECIAL MEETING AND IN THE DISCRETION OF THE PERSONS NAMED
IN THE PROXY WITH RESPECT TO SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
SPECIAL MEETING. A stockholder may revoke a proxy at any time before it is voted
at the Special Meeting by (i) executing and delivering to the secretary of the
Company a proxy bearing a later date, (ii) filing written notice of revocation
with the secretary of the Company stating that the proxy is revoked or (iii)
attending the Special Meeting and voting in person.
In addition to the solicitation of proxies by use of the mails, directors,
officers and employees of the Company, without receiving additional
compensation, may solicit proxies by telephone, telecopier or personal
interview. The Company will also request brokerage houses and other custodians,
nominees and fiduciaries to forward soliciting material to the beneficial owners
of Common Stock held of record by such custodians and will reimburse such
custodians for their
Page - 3
<PAGE>
expenses in forwarding soliciting materials. The Company has retained Beacon
Hill Partners, Inc. a proxy solicitation firm, to aid in the solicitation of
proxies and in the planning and organization of the Special Meeting for a fee of
$6,000 plus expenses.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION, PASSED UPON THE
MERITS OR FAIRNESS OF THE TRANSACTION OR PASSED UPON THE ADEQUACY OR ACCURACY OF
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
The Board knows of no additional matters that will be presented for
consideration at the Special Meeting. Execution of the accompanying proxy,
however, confers on the designated proxy holders discretionary authority to vote
in accordance with their best judgment on such other business, if any, that may
properly come before, and all matters incident to the conduct of, the Special
Meeting or any adjournments or postponements of the Special Meeting.
The date of this proxy statement is ___________, 2000.
AVAILABLE INFORMATION
The Company, Hospitality and the Management Group have filed with the
Securities and Exchange Commission (the "SEC"), a Rule 13E-3 Transaction
Statement on Schedule 13E-3 (including any amendments, the "Schedule 13E-3")
under the Securities Exchange Act of 1934 (the "Exchange Act") with respect to
the Merger. This proxy statement does not contain all of the information
contained in the Schedule 13E-3 and its exhibits, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. The Company is
subject to the informational requirements of the Exchange Act and files reports,
proxy statements and other information with the SEC in accordance with the
Exchange Act.
The Schedule 13E-3 and its exhibits, and the reports, proxy statements and
other information filed by the Company with the SEC under the Exchange Act can
be inspected and copied at the public reference facilities maintained by the SEC
at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's
Regional Offices at Suite 1300, Seven World Trade Center, New York, New York
10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies also can be obtained at prescribed rates from
the Public Reference Section of the SEC at Room 1024, 450 Fifth Street,
N.W., Washington, D.C. 20549 or by calling 1-800-SEC-0330. The SEC also
maintains an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC. The address for that site on the world wide web is sec.gov. The
information about the Company on the SEC's web site is part of this proxy
statement and references in this proxy statement to any web site are references
only to the information contained on the web sites and do not include any other
information that may be obtained by hyperlink or reference to any other web
site.
Except as otherwise indicated in this proxy statement, all information
about the Company contained in this proxy statement has been supplied by the
Company, and all information about Hospitality, American and the members of the
Management Group contained in this proxy statement
Page - 4
<PAGE>
has been supplied by Hospitality or the members of the Management Group or is
based on publicly available documents on file with the SEC and other public
records.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OTHER PERSON.
Page - 5
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SUMMARY TERM SHEET........................................................................10
SELECTED FINANCIAL DATA...................................................................17
THE PARTIES...............................................................................18
The Company..........................................................................18
Hospitality and its Subsidiaries.....................................................18
Members of the Management Group......................................................18
THE SPECIAL MEETING.......................................................................19
Time, Date and Place.................................................................19
Record Date, Voting Securities and Quorum............................................20
Vote Required........................................................................20
Proxies..............................................................................21
THE MERGER AND RELATED SPECIAL FACTORS....................................................22
Background of the Company............................................................22
Purpose of and Reasons for the Merger; Certain Effects of the Merger.................31
Determination of Fairness of the Merger by the Independent Committee and the
Board of Directors..............................................................33
Determination of Fairness of the Merger by Hospitality, American and the
Management Group................................................................38
Opinions of Independent Committee's Financial Advisors...............................38
Sanders Morris Harris, Inc......................................................39
Value Range Comparison.....................................................41
Discounted Cash Flow Analysis..............................................41
Premium Over Recent Stock Prices...........................................43
Valuation of Cat's Meow....................................................44
Valuation of Lucile's......................................................44
Valuation of Stockyards Hotel and H3 Ranch Restaurant......................44
Valuation of Cabo Facilities...............................................44
Valuation of the EPA Liability.............................................44
Comparable Company Analysis................................................44
Comparable Transactions and Premiums.......................................46
George K. Baum & Company........................................................48
Comparable Company Analysis................................................49
Discounted Cash Flow Analysis..............................................50
Mergers and Acquisitions Premium Analysis..................................51
Going Private Premium Analysis.............................................51
Stock Trading Analysis.....................................................51
Certain Projections..................................................................53
Conflicts of Interests...............................................................55
Future Plans of the Company..........................................................57
Rights of Dissenting Stockholders....................................................58
Estimated Fees and Expenses; Sources of Funds........................................61
Expenses.............................................................................63
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
THE MERGER AGREEMENT......................................................................63
The Merger...........................................................................63
Effective Time.......................................................................63
Certificate of Formation and Limited Liability Company Agreement of the Surviving
Company.........................................................................63
Directors and Officers of the Surviving Company......................................64
Conversion of Securities in the Merger; Treatment of Derivatives.....................64
Payment for and Surrender of Company Common Shares...................................65
Closing of Stock Transfer Records....................................................66
Representations and Warranties.......................................................66
Acquisition Proposals................................................................67
Interim Operations of the Company....................................................68
Certain Filings and Other Actions....................................................68
Access to Information................................................................69
Insurance; Indemnity.................................................................69
Financing............................................................................70
Conditions...........................................................................70
Conditions to Each Party's Obligation To Effect the Merger......................70
Conditions to Obligation of the Company To Effect the Merger....................70
Conditions to Obligation of Hospitality to Effect the Merger....................71
Termination..........................................................................71
Termination by Mutual Consent...................................................71
Termination by Either the Company or Hospitality................................71
Termination by the Company......................................................72
Termination by Hospitality......................................................72
Effect of Termination and Abandonment...........................................72
Amendment............................................................................73
Material U.S. Federal Income Tax Consequences of the Merger..........................73
Accounting Treatment of the Merger...................................................75
Regulatory Approvals.................................................................75
Litigation...........................................................................75
MARKET INFORMATION........................................................................76
SECURITY OWNERSHIP........................................................................77
PURCHASES OF COMMON STOCK BY AND OTHER
TRANSACTIONS WITH CERTAIN PERSONS....................................................78
TRANSACTION OF OTHER BUSINESS.............................................................79
INDEPENDENT ACCOUNTANTS...................................................................79
DOCUMENTS INCORPORATED BY REFERENCE.......................................................80
</TABLE>
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<PAGE>
APPENDICES
Appendix I - Agreement and Plan of Merger
Appendix II - Opinion of Sanders Morris Harris, Inc.
Appendix III - Opinion of George K. Baum & Company
Appendix IV - Section 262 of the Delaware General Corporation Law
Appendix V - Form of Proxy
Page - 8
<PAGE>
INDEX OF DEFINITIONS
Terms Defined in this Proxy Pages
Statement: Where Defined
Acquisition Proposal.....................67
Action...................................68
American..................................1
Amex...................................33,76
Available Information....................18
Bank of Boston...........................23
Baum.....................................25
beneficially owned.......................77
BFX......................................76
Board.....................................1
broker non-votes.........................20
Certain Projections......................53
Certificates.............................67
Change of Control.....................15,73
Common Stock..............................1
Company................................1,10
Company Common Shares....................64
Comparable Companies.....................49
CTI...................................17,18
DCF Analysis.............................41
DGCL......................................2
Dissenters' Rights.......................58
dissenting stockholders...................2
DLLCA....................................63
EBIT.....................................45
EBITDA...................................44
Effective Time.........................1,63
EPA .....................................22
EPS...................................45,50
Exchange Act..............................4
fair value...............................58
Financial Advisors.....................3,25
FMV......................................41
FTC......................................75
FYE......................................55
Governmental Entity......................66
Hospitality...............................1
HSR Act..................................75
Indemnified Party........................69
Independent Committee....................3
leveraged buy-out........................75
LLC Agreement............................64
LTM......................................50
Management Group..........................2
market check.............................36
Terms Defined in this Proxy Pages
Statement: Where Defined
Merger....................................1
Merger Agreement..........................1
Merger Consideration......................2
Mr. Hodges................................2
Mr. Kearney...............................2
Mr. Korman................................2
Mr. McLean................................2
Mr. Milan.................................2
Mr. Rogers................................2
Non-Merger Consideration Shares..........64
Option Consideration...................2,65
our......................................10
P/Es.....................................50
Paying Agent.............................65
Payment Fund.............................65
Person...................................67
Prophet..................................31
Public Announcement Date.................34
Public Stockholders......................33
Record Date..............................20
record holder............................58
Sanders..................................25
Schedule 13E-3............................4
SEC.......................................4
Special Meeting...........................1
stockholder..............................58
Subsidiary...............................64
Surviving Company........................ 1
Third Party..............................67
VAP......................................52
Vestal Superfund Site....................22
we.......................................10
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<PAGE>
SUMMARY TERM SHEET
This summary highlights selected information from this proxy statement and
may not contain all of the information that you should consider before
determining whether to vote for approval and adoption of the merger agreement
and consummation of the merger. You should carefully read the entire proxy
statement before making your decision.
In this proxy statement, we refer to BFX Hospitality Group, Inc. and its
subsidiaries as "we," "our" or "the Company."
Stockholders are urged to read carefully this proxy statement in its
entirety.
<TABLE>
<S> <C>
Time, Date and Place The special meeting will be held on ___________, 2000 at
10:00 a.m., local time, in the Longhorn Room of the
Stockyards Hotel, 109 East Exchange Avenue, Fort Worth,
Texas.
Purposes of the Special Meeting You will be asked to consider and vote on the approval and
adoption of the merger agreement with Hospitality and
American (attached as Appendix I) and such other matters
as may properly come before the special meeting or any
postponements or adjournments of the special meeting.
Voting Rights The close of business on ___________, 2000 has been
fixed as the record date for determining holders of our
common stock entitled to notice of and to vote at the
special meeting. Each share of our common stock
outstanding on the record date is entitled to one vote at the
special meeting. As of the record date, 4,400,866 shares of
our common stock were outstanding. The presence, in
person or by proxy, of the holders of a majority of the
shares of our common stock entitled to vote at the special
meeting is necessary to constitute a quorum for the
transaction of business at the special meeting.
A stockholder may revoke a proxy at any time before
voting by delivering a written notice of revocation to the
secretary of the company, by executing and delivering a
later-dated proxy or by attending the special meeting and
voting in person. UNLESS CONTRARY INSTRUCTIONS ARE INDICATED
ON THE PROXY, ALL SHARES OF COMMON STOCK REPRESENTED BY VALID
PROXIES WILL BE VOTED FOR APPROVAL OF THE MERGER AGREEMENT AND
CONSUMMATION OF THE MERGER, AND FOR ANY ADJOURNMENT OR POSTPONEMENT
OF THE MEETING (IF NECESSARY).
</TABLE>
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<TABLE>
<S> <C>
Required Vote The affirmative vote of holders of a majority of all of the
outstanding shares of common stock is required to approve
the merger agreement. It is anticipated that the members of
the management group and their spouses will vote the
1,141,914 shares of common stock beneficially owned by them
(representing approximately 25.95% of the outstanding
common stock) in favor of the merger agreement. It also
is anticipated that the members of the board of directors
who are not members of the management group will vote
the 285,805 shares of common stock beneficially owned by
them (representing approximately 6.49% of the outstanding
common stock) in favor of the merger agreement. The
affirmative vote of a majority of the shares represented at
the meeting is required to approve any postponement or
adjournment of the meeting.
Effective Time of the Merger The merger is expected to become effective as of the date
and time of the filing of a certificate of merger with the
Secretary of State of the State of Delaware, which is
anticipated to occur approximately one business day after
the approval of the merger agreement by the company's
stockholders and the satisfaction or waiver of the other
conditions to the merger, as stated in the merger agreement.
Recommendation of the Board of Based on, among other things, the recommendation of the
Directors independent committee and the fairness opinions of
Sanders Morris Harris, Inc., and George K. Baum &
Company, who rendered fairness opinions to the
independent committee and the board of directors, the
board of directors (with Messrs. McLean, Rogers and
Hodges excusing themselves from the meeting) has
determined that the merger is fair and in the best interests
of the company and its stockholders, including those
stockholders who are not members of the management
group, has approved the merger agreement and
unanimously recommends that the stockholders vote FOR
approval of the merger agreement and consummation of the merger.
The board of directors also unanimously recommends that the
stockholders vote FOR adjournment or postponement of the
Special meeting for soliciting additional proxies (if necessary).
</TABLE>
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<PAGE>
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<S> <C>
Opinions of Independent The independent committee retained Sanders Morris Harris,
Committee's Financial Advisors Inc., and George K. Baum & Company to render fairness
opinions in connection with the merger. On August 11,
2000, George K. Baum & Company delivered its written
opinion to the board of directors, after having already
delivered its opinion to the independent committee, to
the effect that, as of that date and subject to the
qualifications and assumptions set forth in that opinion,
the consideration of $2.25 in cash per share of common
stock to be received by the stockholders in the merger is
fair from a financial point of view to the stockholders
of the company. On August 11, 2000, Sanders Morris Harris,
Inc. delivered to the board of directors a copy of the
same written opinion that it had previously delivered to
the independent committee, to the effect that, as of that
date and subject to the qualifications and assumptions
set forth in that opinion, the consideration of $2.25 in
cash per share of common stock to be received in the merger
by the stockholders who are unaffiliated with the management
group is fair from a financial point of view to the
stockholders of the company who are unaffiliated with the
management group. Copies of those written opinions, which set
forth, among other things, assumptions made, matters considered
and limitations on the review undertaken in connection with the
opinions, are attached as Appendices II and III and are
incorporated by reference. YOU SHOULD CAREFULLY READ THE
OPINIONS IN THEIR ENTIRETY.
Management Group's Hospitality, American and the members of the management
Determination of Fairness to group (including Messrs. McLean, Korman, Milan, Kearney,
Public Stockholders Hodges and Rogers) believe that the merger is fair and in
the best interests of the company and those stockholders
who are unaffiliated with the management group based on,
among other things, their knowledge of the company and
its future prospects, the fairness opinions and the
recommendations of the independent committee and the
board of directors (with Messrs. McLean, Rogers and
Hodges excusing themselves from the meeting). Each of
Hospitality, American, and Messrs. McLean, Korman, Milan,
Kearney, Hodges and Rogers expressly adopts the fairness
opinions of each of the financial advisors and the analyses
underlying those fairness opinions.
Conflicts of Interest In considering the recommendation of the board of
directors with respect to the merger, you should be aware
that, upon consummation of the merger:
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
. the members of the management group will be the
sole equity owners of Hospitality and, indirectly, the
surviving company;
. the members of the management group will receive
the same merger consideration for their shares of the
company's common stock and the same consideration
for any unexercised options that they own as all other
stockholders and option holders receive; and
. each director of the company will receive the same
merger consideration for the shares of common stock
that he owns; and no member of the board of directors
owns any unexercised options.
Accordingly, the members of the management group and
the directors of the company have a direct economic
interest in the merger. The board of directors of the
company appointed an independent committee of three
directors who are neither officers of the company nor
members of the management group (and whose economic
interest was not deemed to be sufficient to affect their
independence) to review, evaluate and negotiate the terms
of the merger agreement and to make a recommendation to
the board of directors concerning the merger. The
independent committee retained independent financial
advisors and independent legal counsel.
Certain Effects of the Merger Following the merger, the management group will own all
of the units of Hospitality, and Hospitality will own all of
the units of American, as the surviving company, and all of
the units of the other subsidiaries that will acquire the
company's existing operating subsidiaries as part of the
merger. Thus, the members of the management group will
be the sole indirect beneficiaries of any future earnings and
growth of the company, and the company's stockholders
who are not members of the management group will not
benefit from any increases in the value of the company or
any payment of dividends on the units of Hospitality and
will not bear the risk of any decreases in value of the
company. As a result of the merger, the company will be
privately held, there will be no public market for its capital
stock and the existing common stock of the company will
cease to be listed on the American Stock Exchange.
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Future Plans for the Company The management of Hospitality and the surviving company
will evaluate their business and operations after the
consummation of the merger and make such changes as are
deemed appropriate. Hospitality's expenses will be
substantially reduced below those of the company because
it will not be subject to the expenses of being a public
company.
Merger Agreement The company, American and Hospitality have entered into
the merger agreement, providing for the merger of the
company with and into American, with American being the
surviving company, and providing for the acquisition of the
assets of three of the company's four operating subsidiaries
(Cat's Meow, Lucile's and Stockyards Hotel) by three
newly formed, wholly owned subsidiaries of Hospitality.
The merger agreement also provides for Hospitality to
acquire all of the outstanding membership interests of the
fourth subsidiary, Cabo-Fort Worth #1, L.L.C. A copy of
the merger agreement is attached as Appendix I. Under the
terms of the merger agreement, each share of the
company's common stock that is issued and outstanding
immediately before the effective date, including the
associated right to purchase shares upon certain events
occurring under our rights agreement (but not including
shares of common stock held by the company or any of its
subsidiaries as treasury stock and shares of common stock
held by dissenting stockholders), will be converted into the
right to receive $2.25 in cash, without interest. As a result
of the merger, the surviving company will be owned by
Hospitality and Hospitality will be owned by the members
of the management group. The company has agreed not to
participate or engage in any discussions with anyone other
than Hospitality and the management group regarding any
acquisition proposal involving the company, except with
respect to unsolicited written proposals or offers if the
independent committee or the board of directors reasonably
believes that there is a substantial risk that a failure to
consider an unsolicited written proposal or offer would
violate its fiduciary duties. Hospitality is entitled to a
breakup fee of $500,000 if it terminates the merger
agreement as a result of:
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
. the independent committee or board of directors
withdrawing or modifying its approval or
recommendation of the merger or recommending or
approving a third party proposal; or
. the company soliciting takeover proposals of any
type.
In addition, any termination that results in the payment of
the breakup fee will also result in a "change of control"
under employment agreements between the company and
some of the members of the management group, which
would cost the company an estimated $2,190,000 if those
management group members elect to terminate their
employment with the company.
Appraisal Rights If the merger is consummated, dissenting stockholders will
be entitled to demand payment of the fair value of their
shares of common stock in accordance with the procedures
set forth in Section 262 of the Delaware General
Corporation Law. Stockholders wishing to exercise
appraisal rights must:
. continue to hold their shares through the effective
time of the merger;
. vote against or abstain from voting for the approval
and adoption of the merger agreement;
. deliver to the company, before the taking of the vote
on the merger at the special meeting, a written
demand for appraisal, providing reasonable
identification of the holder of record; and
. strictly comply with the other requirements of the
Delaware General Corporation Law.
Failure to follow the procedures required by Section 262 of
the Delaware General Corporation Law may result in the
loss of appraisal rights (in which event a stockholder will
be entitled to receive the consideration for the shares of
common stock that the stockholder owns in accordance
with the merger agreement).
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Material U.S. Federal Income Tax The receipt of cash for publicly traded stock pursuant to a
Consequences of the Merger merger is a taxable transaction to the stockholders involved
for U.S. federal income tax purposes under the Internal
Revenue Code of 1986, as amended, and may be a taxable
transaction for foreign, state and local income tax purposes
as well. Stockholders should consult their own tax
advisors regarding U.S. federal income tax consequences
of the merger, as well as any tax consequences under state,
local or foreign laws.
Accounting Treatment of the The merger will be accounted for as a leveraged buy-out,
Merger as such term is used under generally accepted accounting
principles, for accounting and financial reporting purposes.
Estimated Fees and Expenses; We expect to incur an estimated $1,014,500 in fees and expenses in
Sources of Funds connection with the merger. The total merger
consideration to be paid for our common stock and options
is expected to be $9,984,199. Thus, the total financing for
the merger will be approximately $10,999,000, of which
$7,200,000 will be furnished from borrowings and
$3,799,000 from the company's cash on hand. Upon
completion of the merger, Hospitality will have
approximately $3,200,000 available to fund an estimated
$2,523,000 in accrued liabilities (approximately
$2,000,000 of which is to be spent in September 2000 and
fiscal year 2001) that relate to the company's superfund
site in Vestal, New York. In addition, the Company
expects to spend approximately $650,000 to reconcept the
existing Cabo facility in downtown Fort Worth, Texas,
approximately $300,000 to make improvements to and
complete the Stockyards Hotel convention and group sales
facilities and $567,000 to purchase these facilities in fiscal
year 2001 if their performance meets expectations.
</TABLE>
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<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth our selected financial data for each of the
periods indicated. You should read this information along with our consolidated
financial statements and the notes to those financial statements that are
included in our annual report on Form 10-K for the fiscal year ended September
30, 1999, and in our quarterly reports on Form 10-Q for the fiscal quarters
ended December 31, 1999, March 31, 2000 and June 30, 2000, which are
incorporated by reference.
<TABLE>
<CAPTION>
------------------------------------------------------------------ Nine months
Year ended September 30 ended June 30
------------------------------------------------------------------ --------------------
1995 1996 1997 1998 1999 1999 2000
------- ------- ------- ------- ------- ------- -------
(in thousands except per share and ratio amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations Data:
Net revenues $ 6,946 $ 9,298 $10,518 $11,513 $17,212 $12,857 $13,041
Income (loss) from ======= ======= ======= ======= ======= ======= =======
continuing
operations/(1)/ $ (156) $ (921) $(7,854) $(2,509) $(1,785) $ (228) $ 501
Income (loss) from
discontinued operations (1,053) 2,315 14,512 -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss) $(1,209) $ 1,394 $ 6,658 $(2,509) $(1,785) $ (228) $ 501
Basic and diluted ======= ======= ======= ======= ======= ======= =======
earnings (loss) per
share:
Continuing operations $ (0.03) $ (0.14) $ (1.13) $ (0.47) $ (0.44) $ (0.06) $ 0.13
Discontinued operations (0.19) 0.36 2.09 -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss) $ (0.22) $ 0.22 $ 0.96 $ (0.47) $ (0.44) $ (0.06) $ 0.13
======= ======= ======= ======= ======= ======= =======
Balance Sheet Data (at end
of period):
Working capital $ 2,824 $ 3,743 $10,797 $ 3,184 $ 1,224 $ 2,131 $ 841
Current assets $ 5,429 $ 6,917 $16,563 $ 6,840 $ 4,326 $ 3,887 $ 4,480
Total assets $17,224 $23,164 $28,084 $22,810 $18,993 $20,320 $18,416
Long-term debt $ -- $ 2,493 $ 1,212 $ 1,075 $ 937 $ 972 $ --
Total liabilities $ 2,605 $ 5,671 $ 6,978 $ 7,431 $ 5,609 $ 5,378 $ 4,562
Stockholders' equity $14,619 $17,493 $21,106 $15,379 $13,384 $14,942 $13,854
Current ratio 2.08 2.18 2.87 1.87 1.39 2.21 1.23
Book value per share $ 2.57 $ 2.67 $ 3.53 $ 3.71 $ 3.35 $ 3.72 $ 3.49
Total liabilities to
equity 0.18 0.32 0.33 0.48 0.42 0.36 0.33
Cash dividends -- -- -- -- -- -- --
Number of outstanding
shares, net of
treasury shares 5,685 6,544 5,975 4,149 3,999 4,020 3,969
____________
(1) Effective June 3, 1997, the Company sold the assets of Current Technology, Inc. ("CTI") to Danaher Corporation.
The sale of CTI represented the discontinuation of the Company's electronic products line of business. As a result,
the selected financial data shows the effects of the sale of CTI as if it had occurred at the beginning of fiscal 1995
and had been reported as discontinued operations.
</TABLE>
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<PAGE>
THE PARTIES
The Company
The Company is a Delaware corporation. Its principal executive offices are
located at 226 Bailey Avenue, Suite 101, Fort Worth, Texas 76107, and its
telephone number at such location is (817) 332-4761. For a further discussion of
the Company, its business and its current financial condition, see the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 1999, and the
Company's Quarterly Reports on Form 10-Q for the quarters ended December 31,
1999, March 31, 2000 and June 30, 2000, and the Company's Current Reports on
Form 8-K dated August 16, 2000 and September 25, 2000, copies of which are
incorporated by reference and which may be obtained as described under
"Available Information."
Hospitality and its Subsidiaries
Hospitality is a recently formed Delaware limited liability company.
Hospitality has recently formed four wholly owned subsidiaries: (1) American, a
Delaware limited liability company, which will be the surviving company in the
Merger with the Company; (2) Cat's Meow, LLC, a Louisiana limited liability
company, which will acquire the Company's Cat's Meow business as part of the
Merger; (3) Lucile's LLC, a Texas limited liability company, which will acquire
the Company's Lucile's business as part of the Merger; and (4) Stockyards Hotel,
LLC, a Texas limited liability company, which will acquire the Company's
Stockyards Hotel business as part of the Merger. The membership interests of
the Company's wholly owned, operating subsidiary, Cabo-Fort Worth #1, L.L.C.
will be acquired by Hospitality as part of the Merger. Hospitality's principal
offices are located at 226 Bailey Avenue, Suite 101, Fort Worth, Texas 76107,
and its telephone number at such location is (817) 332-4761. Messrs. McLean,
Korman, Milan, Kearney, Hodges and Rogers are expected to be the sole owners of
Hospitality. Neither Hospitality nor any of its subsidiaries currently conducts
any business activities or has any assets.
Members of the Management Group
Robert H. McLean co-founded the Company in 1980 and has served as Chief
Executive Officer of the Company since 1989. Mr. McLean has also served as
Chairman of the Board and President of the Company since September 1998. Mr.
McLean received a B.B.A. in Business Administration from the University of Texas
at Austin in 1963 and a J.D. from the University of Texas School of Law in 1966.
Walter D. Rogers, Jr. has been engaged in personal investments since
January 1999. Mr. Rogers served as President of Current Technology, Inc., a
subsidiary of the Company ("CTI") from May 1992 until June 1997 when CTI was
sold to Danaher Corporation. From June 1997 to January 1999, Mr. Rogers served
as President of Current Technology, Inc. Mr. Rogers served as Executive Vice
President of Current Technology, Inc. from October 1990 to May 1992 and served
as Vice President of the Company between March 1988 and October 1990. Mr.
Rogers received a B.S. degree in Business Administration and Accounting from the
University of Alaska in 1972.
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<PAGE>
Hampton Hodges co-founded the Company in 1980 and has been engaged in
personal investments since 1985. Mr. Hodges received a Bachelor of Science
degree from the United States Military Academy at West Point in 1961.
Robert Korman, a Certified Public Accountant, has served as Vice President,
Treasurer, and Chief Financial Officer of the Company since February 1989. Mr.
Korman served as the Treasurer of the Company from December 1982 to February
1989. Mr. Korman was elected as the Secretary of the Company in February 1994.
Frank J. Milan has served as a Vice President of the Company since April
1994. From 1989 to April 1994, Mr. Milan served as an executive director of
Entertainment Centers of America, Inc. Previously, Mr. Milan was a director of
operations or general manager for several large entertainment complexes
including Dallas Alley and Billy Bob's Texas.
Terry Kearney has served as a Vice President of the Company since February
1997. From August 1994 to February 1997, Mr. Kearney was general manager of
Lucile's, A Stateside Bistro, a subsidiary of the Company. From 1993 to 1994,
Mr. Kearney was general manager of Buffalo Cantina in Minneapolis, Minnesota and
thereafter food and beverage director of Minneapolis Entertainment Company, Inc.
From 1988 to 1993, Mr. Kearney was a general manager in Minneapolis, Minnesota
with Strang Management Company, a franchisee of Applebee's International.
The business address for each member of the Management Group is 226 Bailey
Avenue, Suite 101, Fort Worth, Texas 76107 and their telephone number at such
location is (817) 332-4761.
THE SPECIAL MEETING
Time, Date and Place
This proxy statement is being furnished in connection with the solicitation
of proxies by the Board for use at the Special Meeting. The Special Meeting
will be held on _____________, 2000 at 10:00 a.m., local time, in the Longhorn
Room of the Stockyards Hotel, 109 East Exchange Avenue, Fort Worth, Texas.
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<PAGE>
Record Date, Voting Securities and Quorum
The Board has fixed the close of business on _____________, 2000 as the
record date (the "Record Date") for the determination of the stockholders
entitled to notice of and to vote at the Special Meeting. Accordingly, only
holders of record of Common Stock, at the close of business on the Record Date
will be entitled to vote at the Special Meeting, either by proxy or in person.
This proxy statement and the accompanying proxy card are being mailed to the
Company's stockholders on or about _____________, 2000.
Each share of Common Stock is entitled to one vote on each matter to be
acted on or which may properly come before the Special Meeting. As of the
Record Date, there were 4,400,866 shares of Common Stock outstanding and
entitled to vote. The Common Stock constitutes the only class of securities
entitled to vote at the Special Meeting.
The presence at the Special Meeting, in person or by proxy, of the holders
of a majority of the shares of Common Stock outstanding on the Record Date will
constitute a quorum at the Special Meeting. Votes cast by proxy or in person at
the Special Meeting will be counted by the persons appointed by the Company to
act as the inspectors for the Special Meeting. The presiding officer of the
meeting will appoint two independent election judges to count votes at the
Special Meeting. One of the two judges will be a representative of the Company's
registrar and transfer agent. Shares represented by proxies that reflect
abstentions or include "broker non-votes" will be treated as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum. If a quorum is not present at the Special Meeting and the persons named
as proxies are authorized to propose and vote for one or more adjournments or
postponements of the Special Meeting, it is expected that the meeting will be so
adjourned or postponed to solicit additional proxies. During any vote to
adjourn or postpone the Special Meeting, to permit further solicitation of
proxies in favor of the proposals, no proxy that is voted against the proposal
may be voted in favor of any such adjournment or postponement.
Vote Required
Under Delaware law, the Merger Agreement must be approved by the
affirmative vote of the holders of a majority of the issued and outstanding
shares of Common Stock on the Record Date. The Independent Committee determined
not to include a provision in the Merger Agreement to require the approval of
the transaction by a majority of the Public Stockholders. Hospitality and the
members of the Management Group rejected such a requirement. Hospitality
asserted that Delaware law does not require such a vote. In addition,
Hospitality maintained that since the Management Group will receive the same
Merger Consideration as the Public Stockholders, the Management Group would not
accept being disenfranchised in such an important vote. Further, any
stockholder who has voted against approval of the Merger Agreement is protected
by Delaware law as such stockholder can exercise dissenter's rights. See "-
Rights of Dissenting Stockholders" and "- Determination of Fairness of the
Merger by the Independent Committee and the Board of Directors." Abstentions and
"broker non-votes" will have the effect of votes against approval of the Merger
Agreement.
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<PAGE>
Proxies
Shares of Common Stock that are represented by properly executed proxy
cards received by the Company at or prior to the Special Meeting, and not duly
and timely revoked, will be voted according to the instructions indicated on the
proxy card. Unless contrary instructions are given, the persons named on the
proxy card intend to vote the shares of Common Stock so represented FOR the
approval of the Merger Agreement, consummation of the Merger, and FOR any
adjournment or postponement of the Special Meeting for soliciting of additional
proxies (if necessary).
The Board is not currently aware of any other matters that are to be
presented at the Special Meeting. As to any other business that may properly
come before the Special Meeting, the persons named on the proxy card for the
Common Stock will vote according to their best judgment.
Any holder of Common Stock has the power to revoke a proxy at any time
before it is voted at the Special Meeting by delivering a written notice of
revocation or a duly executed proxy bearing a later date to the secretary of the
Company, or by voting by ballot at the Special Meeting.
The Company will pay all expenses of this solicitation, including the cost
of preparing, assembling, and mailing this proxy soliciting material and Notice
of Special Meeting of Stockholders. The Company estimates such expenses to
equal approximately $207,000, of which it has spent approximately $135,000 to
date. Additional solicitation of holders of Common Stock by mail, telephone,
telegraph or by personal solicitation may be done by directors, officers and
regular employees of the Company, for which they will receive no additional
compensation. The Company has retained Beacon Hill Partners, Inc. to assist it
in connection with the solicitation of proxies, which may be by mail, telephone
or by personal solicitation. The Company has agreed to pay Beacon Hill
Partners, Inc. $6,000 plus expenses for its services. Brokerage houses and
other nominees, fiduciaries and custodians nominally holding shares of the
Common Stock as of the Record Date will be requested to forward proxy soliciting
material to the beneficial owners of those shares, and will be reimbursed by the
Company for their reasonable expenses.
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<PAGE>
THE MERGER AND RELATED SPECIAL FACTORS
Background of the Company
Although the Company has been publicly held for 19 years, it is very small,
presently generating approximately $13,548,000 in annualized revenues after
giving effect to the pending sale of the two Cabo units in Houston, Texas.
Except for the period of time before the onset of the environmental problems at
the Company's superfund site in Vestal, New York, little interest in the shares
of Common Stock has been generated. As of the Record Date, the Company had
4,400,866 shares outstanding, with approximately 1,317 stockholders of record as
recorded by the Company's transfer agent and register on July 31, 2000.
The Company was founded in December 1980 as Buffton Oil & Gas, Inc. It
became publicly held in May 1981, with the completion of a $6,000,000 common
stock offering at $1.00 per share ($5.00 per share after giving effect to a one-
for-five reverse stock split on October 1, 1985).
In its early history the Company had some success in oil and gas
exploration. However, the oil and gas industry suffered a severe collapse
beginning in 1982 and, based on the instability in the oil and gas industry and
its prospects for the future, the Board made a decision to use the Company's
remaining cash and borrowed funds to diversify the Company's operations into
manufacturing. In 1983 the Company changed its name to Buffton Corporation to
reflect this diversification. Over the next seven years, the Company acquired
several manufacturing companies.
In December 1982 the Company purchased the Northeast Division of Robintech,
Inc. in Vestal, New York, consisting of PVC pipe and electrical cable and
harness manufacturing. In 1985 the State of New York began investigating
possible groundwater problems in the Southern Tier of New York, including the
area where the Vestal plant was located. The Environmental Protection Agency
("EPA") notified the Company that certain chemicals were found at the bottom of
one of the Company's industrial water wells. It was subsequently determined
that the former owner of the real estate, Robintech, Inc., had contaminated the
property. However, Robintech, Inc. was in bankruptcy and unable to address the
problem it caused. As a result, under applicable environmental laws, the
remediation of the problem fell solely on the Company despite the Company not
being responsible for the contamination. In addition, the manufacturing
processes used by the Company did not use any of the chemicals found in the well
water and the Company's environmental records were clear that it had properly
disposed of any chemicals used in its manufacturing processes in accordance with
applicable environmental laws.
In 1987 the Vestal plant site was designated as an EPA superfund site (the
"Vestal Superfund Site"). Over the 13-year period following this designation
the Company has spent approximately $3,000,000 in consulting fees, legal fees,
testing, EPA expenses and other costs related to the Vestal Superfund Site. In
1998 the Company signed a Consent Decree with the United States, which obligated
it to clean up the site, repair the well system and continue ongoing operation
and maintenance of the industrial water well system until the groundwater
reaches a level of purity as prescribed by the EPA (estimated by the EPA to be
15 to 30 years). The EPA estimated the additional costs related to remediation
of contaminated dirt and installation of a well monitoring
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system would be $3,000,000. Of this amount, approximately $2,000,000 is expected
to be spent in September 2000 and fiscal year 2001.
The Vestal Superfund Site has been the single most negative event in the
Company's history. It has been a depressing factor overhanging the Company for
the past 13 years. The amount of time that management has been required to
devote in attempting to solve the Vestal Superfund Site has been very costly.
The amount of out-of-pocket expenses is expected to be approximately $6,000,000
to $8,000,000 from inception through remediation of the contaminated dirt and
the implementation and ongoing operation and maintenance of the monitoring
system. The Vestal Superfund Site has depressed the trading price of the Common
Stock, limited the Company's sources of financing, made difficult or eliminated
growth opportunities for the Company through acquisitions and erased the market
value of the Company's Vestal, New York plant site. These circumstances continue
to adversely affect the Company and the value of the Common Stock.
From 1982 to 1986 the Company was financed by Texas American Bank in Fort
Worth, Texas. Due to problems plaguing the banking industry in Texas, in 1986
the Company changed lenders to the First National Bank of Boston ("Bank of
Boston") working primarily with its Dallas office. The Company had a good
relationship with the Bank of Boston until 1989 when several adverse
circumstances arose. The Company experienced a downturn in the PVC piping
industry and incurred its first quarterly loss. Meanwhile, the Bank of Boston
found itself in a severe downturn affecting the banking industry in the
northeastern United States. As a result, the Bank of Boston decided to close
its operations in the Southwest. Despite the Company's loan not being in
default, the Bank of Boston informed the Company that the Company had two years
to pay off the financing provided by the Bank of Boston. The decision taken by
the Bank of Boston and the manner in which it implemented such decision put a
severe hardship on the Company. It was commercially unrealistic for the Company
to find a replacement lender, particularly with the losses the Company incurred
in 1989 and 1990. To comply with the Bank of Boston's payoff demand, the
Company decided to begin the process of selling its manufacturing businesses.
Through a series of divestitures beginning in March 1991 the Company paid off
the Bank of Boston in 1992 and refinanced its debt. In February 1994 the Company
became free of bank debt.
In 1989 The Board appointed a strategic planning committee and retained
the services of the investment banking firm Dean Witter Reynolds, Inc. to
evaluate certain business plan alternatives available to the Company and to
identify a single industry into which the Company might redeploy its assets.
Based on the information provided by the strategic planning committee and Dean
Witter Reynolds, Inc., the Board decided to begin redeploying the Company's
assets into the hospitality and restaurant industry.
In 1990 the Company acquired an interest in a nightclub in New Orleans
(located on Bourbon Street) called Cat's Meow. In a series of transactions
culminating in January 1994, the Company acquired 100% ownership of Cat's Meow.
In April 1993 the Company opened Lucile's, A Stateside Bistro, in Fort
Worth, Texas. Lucile's is a restaurant that features popular American food
items.
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Effective January 1996, the Company purchased Cabo, The Original "Mix Mex"
Grill, which consisted of a 1,500 square foot restaurant in Houston, Texas.
Following the acquisition of Cabo, the Company built two additional units (one
in downtown Houston and one in downtown Fort Worth) and expanded the original
unit in Houston. In September 1999, the Company was approached by a group of
investors in Houston, Texas, offering to purchase the Cabo concept, along with
all of the existing Cabo units. Negotiations were pursued over many months, and
in September 2000 the Company sold the Cabo concept, along with the two units in
Houston for $3,500,000 in cash. The Company retained the Cabo unit in Fort
Worth and, in connection with the sale, is required to change the name and menu
of the Cabo unit in Fort Worth within 180 days of the date of the sale.
Effective January 1996 the Company purchased the Stockyards Hotel, which
consisted of 52 rooms, a very small restaurant, a bar and a valet parking lot.
Since acquiring the Stockyards Hotel, the Company completed a refurbishment and
added a new restaurant, H3 Ranch, which opened in August 1998.
By 1997, the Company's only operating assets were its hospitality-related
businesses. To reflect its new asset base, in July 1997 the Company changed its
name to BFX Hospitality Group, Inc.
In April 1997 the Company acquired a hotel management company named Hotels
of Distinction, Inc. and employed the services of its principals, Alan Tremain
and John-Claude Mathot. Mr. Tremain and Mr. Mathot were interested in joining
the Company for the purpose of identifying hotel acquisitions and obtaining
management contracts. An effort to acquire hotels and management contracts was
made in 1997 and 1998, but was abandoned in the third quarter of fiscal 1998 as
a result of unattractive market prices. The Company terminated the employment
of Tremain and Mathot, paid them severance and acquired their shares of Common
Stock, all in accordance with their employment agreements.
As stated above, the Company is very small, with one restaurant/hotel
property, one nightclub and two restaurants. None of these properties lend
themselves readily to multi-unit concepts. As a result, the Company does not
attract significant interest from securities analysts and the investment
community. The Company knows of no securities analysts that follow and report
on the Company's Common Stock, and, in general, receives very few inquiries from
the investment community.
On June 28, 2000, a quarterly meeting of the Board was held during which
Mr. McLean informed the Board that he was evaluating whether to make a proposal
involving the acquisition of the outstanding Common Stock of the Company through
a merger or other leveraged buy-out transaction. Mr. McLean informed the Board
that it might be in the best interest of the stockholders for Mr. McLean and
possibly certain other members of management to purchase all of the outstanding
Common Stock for a price to be negotiated between $2.00 and $2.25 per share,
subject to certain conditions, as follows:
1. No significant additional EPA liability in excess of that provided on
the Company's June 30, 2000 balance sheet;
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<PAGE>
2. Satisfactory extension of the Cat's Meow lease, which terminates on
September 30, 2009;
3. Exercise of the renewal option of the Vestal lease, which terminates on
February 28, 2001 unless renewed;
4. Completion of the sale of the Cabo concept and the two Cabo units in
Houston, Texas for $3,500,000 (which was removed as a condition to the
Merger on August 2, 2000 and in September 2000 such sale was
consummated);
5. Satisfactory financing.
The Board appointed Messrs. Edgar, D'Agostino and Sarno, three of the
directors of the Company who are neither officers of the Company nor members of
the Management Group, to serve on the Independent Committee created to review,
evaluate and negotiate the terms of the Merger Agreement and to make a
recommendation to the Board concerning the proposed Merger. The Board authorized
the Independent Committee to engage its own financial and legal advisors at the
Company's expense.
The Independent Committee hired Baum to determine the fairness of the
Merger Consideration to the Company's stockholders from a financial point of
view. The Independent Committee hired Sanders to determine the fairness of the
Merger Consideration to the Public Stockholders from a financial point of view.
The Independent Committee selected two financial advisors (rather than only one)
to further ensure that the proposed merger consideration was fair to the
Company's stockholders, including the Public Stockholders. The Independent
Committee believes that each financial advisor acts as an independent check on
the other and thereby increases the certainty that the Merger Consideration is
fair to the Company's stockholders, including the Public Stockholders.
On June 30, 2000, the Independent Committee engaged Bryan Cave LLP, a law
firm in which John M. Edgar, Chairman of the Independent Committee, is a
partner, as its special legal counsel. The Independent Committee received
proposals from four investment banking firms regarding serving as the financial
advisors to the Independent Committee. On July 7, 2000, Mr. Edgar polled the
members of the Independent Committee by telephone to select two financial
advisors, Sanders Morris Harris, Inc. of Houston, Texas ("Sanders") and George
K. Baum & Co. of Kansas City, Missouri ("Baum"). On July 7, it retained the
services of Sanders and on July 11, it retained the services of Baum. Sanders
and Baum are referred to together as the "Financial Advisors."
In addition to other qualifications, the Financial Advisors were selected
because they had no prior relationship with the Company or with the Management
Group. Each Financial Advisor was asked to prepare and provide to the
Independent Committee a fairness opinion with respect to the proposed
transaction with the Management Group. The Independent Committee authorized the
Financial Advisors to commence an examination of the Company and explore
appropriate valuation methodologies for the purpose of rendering an opinion
regarding whether the consideration to be paid in any transaction would be fair
from a financial point of view to the Public Stockholders. Sanders' fairness
opinion states that the Merger Consideration is fair from a financial point of
view to the Public Stockholders, while Baum's fairness opinion states that the
Merger Consideration is fair from a financial point of view to all of the
Company's stockholders, including the Public Stockholders as well as the
Management Group. Baum believes that the analyses underlying its fairness
opinion regarding the Merger Consideration and the Merger Consideration's
fairness from a financial point of view are the
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<PAGE>
same regardless of whether the opinion addresses the Public Stockholders or
addresses all of the stockholders of the Company.
The Financial Advisors undertook a review of the Company's business,
operations and prospects with a view toward advising the Independent Committee
as to the fairness, from a financial point of view, of the consideration to be
proposed by the Management Group. The scope and nature of that examination is
discussed in "-Opinion of Independent Committee's Financial Advisors." The
Financial Advisors each provided the Independent Committee with a written report
with respect to their examination of the Company and the various valuation
methodologies that were used in determining the fairness, from a financial point
of view, of the price to be paid to the stockholders.
On July 10, 2000, the Independent Committee convened by telephone to
discuss the duties and responsibilities of the Independent Committee and what
additional information would be required from the Company in order for the
Independent Committee to perform its work. The additional information was
determined to include the following:
(a) a chronological history of the Company;
(b) historical gross book value of the Company from inception to the
present;
(c) historical book value per share of the Company from inception to the
present;
(d) the Company's stock price from inception to the present;
(e) the Company's earnings per share from inception to the present;
(f) the Company's historical common stock repurchases
The Independent Committee also discussed the prospects for the Company remaining
publicly held, the Vestal Superfund Site and historical information concerning
the Company's operations, financial performance and common stock. In considering
the prospects for the Company remaining publicly held, the Independent Committee
discussed the following items:
(a) the failure of the Company to benefit from its public status through
the use of its shares for acquisitions or in equity offerings to raise
cash;
(b) the inability of the Company to issue debt securities in the public
market;
(c) the depressive effect of the Vestal Superfund Site on the stock price
and the amount of time the Company must devote to explanations of the
Vestal Superfund Site to investors and stockholders;
(d) the failure of the stock price to reflect the enhanced earnings
performance of the Company;
(e) the fact that although the Company has been publicly held for 19 years,
it is very small, presently generating approximately $13,548,000 in
annualized revenues after giving effect to the sale of the two Cabo
units in Houston, Texas;
(f) the lack of investor interest in the Company's common stock as
reflected by the fact that no securities analysts follow or report on
the Common Stock;
(g) the lack of visibility of the Company despite its public status; and
(h) the relative lack of benefits derived from the Company's public status
compared to the costs of remaining publicly held.
The Independent Committee discussed the price range of the Management Group's
offer and considered the effect of the following conditions on the offer:
(a) the Cat's Meow lease extension;
(b) the Vestal lease renewal;
(c) the results of ongoing environmental work on the Vestal Superfund Site;
and
(d) the sale of the Cabo-Houston sites.
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<PAGE>
The Independent Committee also discussed possible effects on alternate offers of
the "change of control" provisions contemplated in the Management Group's offer,
which require the Board to deem any withdrawal of its recommendations a change
of control under the employment agreements of some of the members of the
Management Group, as provided in those employment agreements entered into prior
to 1999. The Independent Committee also discussed the appropriateness of a
break-up fee in connection with the Management Group's offer and any subsequent
offer.
On July 12, 2000, Mr. Edgar and the Independent Committee's legal counsel
met with Mr. McLean and his legal counsel to discuss Mr. McLean's proposal and
to negotiate the terms and conditions of a merger agreement prepared by the
Independent Committee's legal counsel. Mr. McLean's original proposal was $2.00
to $2.25 per share. Mr. Edgar negotiated for a higher price per share. Mr.
McLean rejected raising his offer beyond the $2.25 price per share, but Mr.
McLean did agree to set the price at $2.25 per share. Mr. Edgar and counsel to
the Independent Committee reviewed the draft of the Merger Agreement and
discussed the terms with Mr. McLean. Mr. McLean's proposed break-up fee of
$970,000 was rejected by Mr. Edgar as excessive. The break-up fee was set at
$500,000. It was further agreed at this meeting that if the Board recommended
approval of the Merger Agreement and subsequently withdrew its recommendation,
such withdrawal would be deemed a "change of control" under the employment
agreements of Messrs. McLean, Korman, Milan and Kearney.
On July 15, 2000, the Independent Committee met in person to discuss the
potential negative effects that the "change of control" provisions of the Merger
Agreement might have on any potential alternative offer, and the appropriateness
of the proposed break-up fee. In addition, the Independent Committee noted that
although the Company is obligated to pay the Management Group's legal expenses
in the Merger, if the Merger were not consummated due to any breach of the
Merger Agreement by the Management Group, then the legal expenses initially paid
by the Company on behalf of the Management Group would be reimbursed to the
Company. Mr. McLean has personally guaranteed the Management Group's obligations
in this regard. The Independent Committee also discussed the prospects for the
Company staying public and reviewed the information received from the Company
regarding historical book value, historical book value per share, historical
stock price and historical profits and losses. In addition, the Independent
Committee's legal counsel was present, by telephone, to advise the members of
the Independent Committee with respect to their fiduciary responsibilities in
the performance of their duties on the Independent Committee.
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<PAGE>
The Independent Committee discussed the prospects for hospitality and restaurant
companies generally, and concluded that both industries were extremely
competitive and would remain so for the foreseeable future. The liquidation or
auction alternatives to the Merger Agreement were discussed, and the Independent
Committee generally felt that prospects for either alternative were not good,
particularly in light of the EPA issues related to the Vestal Superfund Site.
The Independent Committee also discussed the timing of any potential transaction
and believed that the Merger could be concluded on a more timely basis than any
other potential transaction for the following reasons:
. the Merger Agreement was substantially negotiated,
. the Management Group would not need an extensive due diligence
period, and
. the Management Group was unlikely to terminate the Merger Agreement for
matters discovered during due diligence.
On July 18, 2000, the Independent Committee met at the Company's offices
with Messrs. McLean, Korman, Kearney and Milan (Mr. Milan being present by
conference telephone), to discuss new concepts developed by management, the
financial condition of the Company, the Company's financial prospects and the
prospects of the Company staying public.
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<PAGE>
Mr. McLean presented the Independent Committee with new restaurant concepts
which had been developed but not implemented. Mr. McLean estimated that it would
take 12-18 months to implement any one of these concepts and determine whether
it was successful. Mr. McLean informed the Independent Committee that he felt
the Company should take a conservative approach for at least the first six
months of FYE 2001 with respect to investments in any new concepts until the EPA
issues with the Vestal Superfund Site are more clearly defined. Mr. McLean also
discussed the difficulty in obtaining financing for restaurant and bar
businesses as lenders are reluctant to invest in or secure loans with these
types of companies. The EPA issues with the Vestal Superfund Site represent an
additional impediment to obtaining favorable financing for the Company. The
Independent Committee was informed that the commencement of the dirt removal at
the Vestal Superfund Site was to begin in September 2000. The uncertainty as to
the extent of contamination and the required remediation of the Vestal Superfund
Site will require the Company to forego spending significant sums of money in
opening new concepts for at least six months or until such time as the
environmental problems at the Vestal Superfund Site have been clearly defined.
As a result, a business plan for the Company involving developing, constructing
and opening new concepts should not be implemented until such time. Also at the
July 18th meeting, Mr. Korman discussed the apparent lack of interest in the
Company by its stockholders as evidenced by the lack of communication from the
stockholders to the Company and the frequency of days in which the stock of the
Company does not trade in the market.
On July 28, 2000, the Independent Committee met by teleconference, whereat
the Independent Committee's legal counsel made a presentation on the fiduciary
duties of the Independent Committee.
On August 1, 2000, the Independent Committee convened by telephone with its
legal counsel and representatives of Sanders to discuss the preliminary
conclusions in Sanders' fairness opinion and the methodology and assumptions
being used by Sanders. See "-Opinions of Independent Committee's Financial
Advisors."
On August 2, 2000, the Independent Committee met in person to discuss
various aspects of the Company, the proposed transaction, the conditions to
closing in the Merger Agreement and the timing of the Merger.
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<PAGE>
The Independent Committee discussed the price per share offered by the
Management Group and considered the effect of the following conditions on the
offer:
. the Cat's Meow lease extension;
. the Vestal lease renewal;
. the results of ongoing environmental work on the Vestal Superfund Site;
and
. the sale of the Cabo-Houston sites.
Mr. Edgar contacted Mr. McLean and Mr. McLean agreed to remove the sale of the
two Cabo units in Houston as a condition to the closing.
On August 4, 2000, the Independent Committee convened by telephone with its
legal counsel and representatives of Baum to discuss the preliminary conclusions
in Baum's fairness opinion, and the methodology and assumptions being used by
Baum. See "-Opinions of Independent Committee's Financial Advisors-George K.
Baum & Company."
On August 7, 2000, the Independent Committee convened by telephone with its
legal counsel and representatives of Sanders to discuss the conclusions reached
in Sanders' fairness opinion and the methodologies and assumptions used therein.
The Independent Committee also explored with Sanders whether other potential
transactions were reasonably likely under the circumstances facing the Company.
See "-Opinions of Independent Committee's Financial Advisors-Sanders Morris
Harris, Inc."
On August 10, 2000, the Independent Committee met in person with its legal
counsel and representatives of George K. Baum to discuss the conclusions reached
in Baum's fairness opinion. In addition, the Independent Committee engaged in a
significant review of the various facts and information made available to it
over the course of its existence and discussed at prior meetings of the
Independent Committee and reviewed the reports provided by the Financial
Advisors. See "-Opinions of Independent Committee's Financial Advisors." The
Independent Committee also reviewed a draft of a report summarizing its
conclusions, again reviewed in detail the Merger Agreement and discussed its
various duties with its legal counsel. At this meeting, the Independent
Committee unanimously decided to accept the fairness opinions of the Financial
Advisors and to recommend acceptance of the Merger Agreement to the Board.
See - "Determination of Fairness of the Merger by the Independent Committee
and the Board of Directors."
On July 27, 2000, Mr. McLean's proposal was publicly announced through a
press release issued by the Company. On July 31, Mr. McLean filed an amendment
to his Schedule 13D with the SEC to reflect his intentions with respect to the
Company.
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<PAGE>
Members of the Management Group jointly filed a Schedule 13D with the SEC
on August 4, 2000, Amendment No. 1 to Schedule 13D on August 15, 2000 and
Amendment No. 2 to Schedule 13D on October 3, 2000. It is anticipated that the
members of the Management Group will enter into an agreement that will provide
certain rights and responsibilities among the members of Hospitality. The terms
of that agreement have not yet been determined.
At the Independent Committee's meeting on August 10, 2000, after
considering the reports provided by the Financial Advisors, which indicated that
$2.25 per share was fair from a financial point of view to the Public
Stockholders and based on their own investigation, knowledge and experience, and
consideration of various other factors, the members of the Independent Committee
concluded that the proposed price of $2.25 per share was fair from a financial
standpoint to the Public Stockholders.
On August 11, 2000, a special meeting of the Board was held to discuss the
terms of the proposal submitted by Mr. McLean. Due to inherent conflicts of
interest, Messrs. McLean, Rogers and Hodges excused themselves and left the room
for a portion of the Board meeting to enable the independent members of the
Board to review and discuss each fairness opinion with each Financial Advisor,
to review and discuss the report of the Independent Committee, to review and
discuss the Merger Agreement and to vote on the Merger Agreement without the
presence of Messrs. McLean, Rogers and Hodges. Each of the Financial Advisors
separately reviewed for the Board their financial analyses, prepared
independently of each other, and indicated that, based upon the various
considerations and assumptions described below under "- Opinion of Independent
Committee's Financial Advisors," each of the Financial Advisors advised the
Board that the $2.25 per share in cash to be received by the stockholders in
connection with the proposed Merger was fair from a financial point of view to
the Public Stockholders. See " - Opinion of Independent Committee's Financial
Advisors." The Independent Committee then submitted its report to the Board
recommending the approval of the Merger Agreement and the transactions
contemplated thereby. The Board then unanimously adopted a resolution approving
the Merger Agreement and recommending that the stockholders of the Company
approve the Merger Agreement. See "- Conflicts of Interest." Following the
special meeting of the Board, the parties executed and delivered the Merger
Agreement and publicly announced such execution through a press release issued
by the Company.
On September 28, 2000, the Independent Committee convened by telephone to
discuss various correspondence it had received from Mr. Robert Epstein, in his
capacity as Managing General Partner of Prophet Capital Management, Ltd.
("Prophet"), and his legal counsel, indicating that Prophet might be interested
in making a proposal to purchase all of the outstanding common stock of the
Company. The Independent Committee discussed the fact that Mr. Epstein had
initially contacted the Independent Committee by letter dated August 14, 2000,
stating that the $2.25 per share offer approved by the Board was not in the best
interests of the Public Stockholders and he felt compelled to make an offer that
better reflected the fair value of the Company. The Independent Committee
discussed the fact that Mr. Edgar, Chairman of the Independent Committee, had
communicated with Mr. Epstein on several occasions attempting to meet with him
personally, become better informed about Prophet and to finalize a
confidentiality agreement. No decisions were made at this meeting concerning Mr.
Epstein's interest in the Company.
Following the meeting of the Independent Committee, on the afternoon of
September 28, 2000, legal counsel for Mr. Epstein faxed a proposal to Mr. Edgar
stating that Prophet was interested in acquiring all of the outstanding common
stock of the Company for $2.50 per share, subject to appropriate due diligence
and execution of a definitive merger agreement. Shortly thereafter a
confidentiality agreement was finalized and on October 9, 2000, due diligence
information was made available to representatives of Prophet.
Purpose of and Reasons for the Merger; Certain Effects of the Merger
The principal purposes for the Merger are: (i) to give the Public
Stockholders the opportunity to dispose of their shares of Common Stock at a
fair value, and (ii) to permit the members of the Management Group to acquire
all of the shares of the Company. The Company has been unable to realize many
of the benefits of being a public company, with the market price of the Common
Stock, in the view of management, being depressed due to the Company's small
market capitalization and the lack of interest by the investment community in
trading the Common Stock. In addition, the Company has not been able to engage
in certain alternate transactions due to the Vestal Superfund Site and the
resulting depressed market price of the Common Stock discussed under "Background
of the Company." Other than as set forth in this proxy statement, the members
of the Management Group have no reason for proposing the Merger at this
particular time (as opposed to any other time),
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<PAGE>
and are not aware of any material development affecting the future value of the
Common Stock that is not described in this proxy statement. See "- Future Plans
of the Company."
Members of the Management Group have elected to take the Company private at
this time because the members of the Management Group feel that in generating
only $13,548,000 in annualized sales after giving effect to the sale of the Cabo
units in Houston, the Company is too small to remain public. The price of the
Common Stock historically has not had an opportunity, among other things, to
rise consistently in the public market due to the problems and uncertainty
connected, among other things, with the Vestal Superfund Site, the financing
constraints caused by actions taken by the Bank of Boston and the expenses and
risks necessarily incurred in the development and opening of new food and
beverage concepts. The uncertainty connected with the Vestal Superfund Site is
likely to continue to depress the price of the Common Stock even though the
Company is profitable this year. With public interest in the Internet and
technology stocks, the Company believes it will continue to be difficult for
restaurant stocks to compete for attention in the public markets. With the
Common Stock consistently trading at depressed price levels, the Company has not
been able and most likely would not in the future be able to use its publicly
traded shares to raise equity funds or to make acquisitions.
The Company believes that there is a lack of investor interest in the
Common Stock as a result of not having any securities analysts reporting on and
following the Company. To attract the following of securities analysts in the
restaurant and hospitality industry, the Company would need to develop a growth
strategy that would include developing a food and beverage concept susceptible
to multi-unit development. Depending on the outcome of the current clean-up
activities being undertaken at the Vestal Superfund Site, the Company believes
that it will take three to five years to successfully develop and implement such
a concept.
In making a bid for the Company at $2.25 per share, the Management Group
will cash out the Public Stockholders at a price per share that has been
determined to be fair and represents an increase of 157% in the trading price
immediately prior to the public announcement. As a result of the cashing out of
the Public Stockholders, the Public Stockholders will no longer benefit from any
future success of the Company, nor would they experience any possible decrease
in the value of their stock attributable to any lack of success of the Company.
The Merger has been structured to enable the Management Group to acquire
all of the shares of the Company while maximizing stockholder value. The Merger
will terminate all shares of Common Stock held by the Company's current
stockholders. Accordingly, the Company's stockholders (in their capacity as
existing stockholders of the Company) will share in neither future earnings and
growth of American, as the Surviving Company, or Hospitality, as the owner of
American, nor the risks associated with achieving such earnings and growth
following the Merger. The Merger will entitle the Company's stockholders to
receive a cash payment of $2.25 per share of Common Stock in a transaction which
has been determined by the Independent Committee and the Board, as discussed
under "- Determination of Fairness of the Merger by the Independent Committee
and the Board of Directors," to be fair to the Public Stockholders, or to seek
dissenters' rights as described under "- Rights of Dissenting Stockholders." The
Merger Consideration was the result of negotiations between representatives of
the Management Group and the members of the Independent Committee and their
respective advisors following the receipt of the Management
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<PAGE>
Group's proposal. Following the Merger, the members of the Management Group, as
the owners of Hospitality, will be the sole beneficiaries of any future earnings
and growth of the Company's existing business and will have the ability to
benefit from any divestitures, strategic acquisitions or other corporate
opportunities that may be pursued by the Company in the future and will bear all
of the risks associated with such decisions.
The Company's status as a private company will allow the Company to
eliminate the time and expenses devoted by its management and certain other
employees to matters that relate exclusively to the Company being a publicly
held company. Additionally, the Company will be able to reduce certain other
costs that relate to being a publicly held company, estimated by the Company to
be between $300,000 and $400,000 per year, including the following: the cost of
preparing, printing and mailing certain corporate reports and proxy statements,
the expense of a transfer agent, the cost of investor relations activities and
the cost of Board fees and expenses. As a result of the Merger, the Surviving
Company will be privately held and there will be no public market for its common
stock. Upon consummation of the Merger, the Common Stock will cease to be listed
on the American Stock Exchange (the "Amex").
In connection with the Merger and the discussions relating to the Merger,
the Management Group advised the Company that, relating to the structure of the
Merger, they considered alternatives that would have allowed the Public
Stockholders to maintain an equity interest in the Company, but no such
alternative would have accomplished the purposes of the Merger described in this
proxy statement. In particular, the Company would not be able to realize the
savings from no longer being a publicly held company if it retained public
stockholders. The Management Group also looked into providing the Public
Stockholders with debt securities or a contingent payout, but felt that the
trustee and other administrative expenses canceled out any added benefits that
those alternatives offered. The proposed merger will permit the Company's
stockholders to vote on the transaction, permit the Company's stockholders to
exercise their dissenters' rights, if they so choose, permit sufficient time to
raise the necessary financing and ensure that all of the Common Stock will be
acquired, while also providing the Public Stockholders with an immediate cash
payout.
The Merger will be a taxable transaction to the holders of the Common Stock
who receive Merger Consideration or cash pursuant to the exercise of dissenters'
rights for federal income tax purposes and may be taxable for state, local,
foreign and other tax purposes. See "The Merger Agreement - Material U.S.
Federal Income Tax Consequences of the Merger."
Determination of Fairness of the Merger by the Independent Committee and the
Board of Directors
On August 11, 2000, the Board met to review and discuss each fairness
opinion with each Financial Advisor, and to review and discuss the report and
recommendation of the Independent Committee and the Merger Agreement. Due to
inherent conflicts of interest, Messrs. McLean, Rogers and Hodges excused
themselves and left the room for a portion of the Board meeting to enable the
independent members of the Board to review and discuss the above-mentioned items
and to allow the independent members of the Board to vote on the Merger
Agreement without the presence of Messrs. McLean, Rogers and Hodges. The Board
then unanimously determined that the Merger is in the best interests of the
Company and the Public Stockholders, approved the Merger
Page - 33
<PAGE>
Agreement and recommended to the stockholders that they approve the Merger
Agreement. See "-Conflicts of Interests."
In making its determination with respect to the fairness, from a financial
point of view, of the Merger, including the amount of the Merger Consideration,
and in determining to recommend approval of the Merger Agreement to the Board,
the Independent Committee considered a number of factors, as did the other
disinterested member of the Board in approving the Merger Agreement. In
analyzing the proposed Merger, the Independent Committee met on a number of
separate occasions, consulted with its financial and legal advisors and had
numerous discussions with Mr. McLean and his representatives. The material
factors considered by the Independent Committee and the Board include those set
forth below.
i. The Independent Committee and the Board considered the historical
market prices and trading activity of the Common Stock and the fact that
the Merger Consideration would enable the Company's stockholders to realize
a substantial premium over the prices at which the Common Stock traded
during the last 12 months, including the ten business day average of
reported closing prices for the Common Stock ending on July 26, 2000, the
day prior to the Company's press release on July 27, 2000 reporting Mr.
McLean's proposal (the "Public Announcement Date"). As reported by Amex,
the Company's shares were not actively traded on July 25 and 26, 2000, with
the volume of shares traded equal to less than 100 shares and the share
price ending each day at the price it opened, $1.00 per share. The Merger
Consideration represents a 142% premium over the ten business day average
of $0.93 and a 130% premium over $0.98, the average of the closing prices
during the 120 business days prior to the Public Announcement Date.
Although such prices may not adequately reflect the value of the Common
Stock in the view of management, the historical market prices of the Common
Stock for such periods were deemed relevant because they indicate the
arm's-length trading prices of the Common Stock for each period as
determined in the open market. In the judgment of the Independent
Committee and the Board, the fact that the Merger Consideration represents
a substantial premium over such prices is a significant factor in the
determination of fairness.
ii. The Independent Committee and the Board considered the opinions
of the Financial Advisors that, as of August 11, 2000, the Merger
Consideration of $2.25 in cash per share of Common Stock to be received by
the Company's stockholders in the Merger was fair from a financial point of
view to the Public Stockholders and also considered the analyses underlying
those opinions. See "- Opinion of Independent Committee's Financial
Advisors." Copies of the written opinions, dated as of August 11, 2000,
setting forth, among other things, the assumptions made and the matters
considered are attached as Appendices II and III to this proxy statement
and should be carefully read in their entirety.
iii. The Independent Committee and the Board considered information
with respect to the financial condition, results of operations, business
and prospects of the Company, as well as the risks involved in achieving
such prospects, costs associated with being a publicly held company, the
current state of the hospitality and restaurant industry, including the
Independent Committee's views regarding the economic and market conditions
affecting the Company and the hospitality and restaurant industry and
matters that relate to
Page - 34
<PAGE>
the Vestal Superfund Site. For a detailed summary of these matters, see
"- Background of the Company." The Independent Committee and the Board
believe that the hospitality and restaurant industry will continue to face
intense competition and that this degree of competition could adversely
affect the future growth prospects of the industry and the Company. In
addition, the Company is very small, presently generating approximately
$13,548,000 in annualized revenues after giving effect to the pending sale
of the two Cabo units in Houston, Texas. Therefore, the Independent
Committee determined that in addition to the depressive effects on the
share price caused by the Vestal Superfund Site, there is significant risk
that the Company could not achieve future growth at a rate that would
support a price per share higher than the Merger Consideration.
iv. The Independent Committee and the Board also evaluated the Merger
Consideration in light of the following factors: price, the ability and
likelihood of Hospitality and the Management Group to consummate the
proposed transaction, the percentage of Common Stock owned by members of
the Management Group, the proposed structure of the transaction and
anticipated closing date, the fact that the Merger would afford the Public
Stockholders an opportunity to dispose of their Common Stock at fair value,
without payment of brokerage fees, and the fiduciary obligations of the
Independent Committee and the Board to the Company's stockholders. Based
upon information and documents provided by Hospitality concerning their
discussions with Amresco Commercial Finance, Inc. with respect to a
$5,000,000 acquisition loan and John Hancock Real Estate Finance, Inc. with
respect to a $2,200,000 mortgage loan on the Stockyards Hotel, the
Independent Committee and the Board believed that Hospitality could obtain
the financing required to complete the Merger. In addition, because of the
percentage of outstanding shares of Common Stock owned by members of the
Management Group, the Independent Committee and the Board considered it
likely that the Merger would be approved by the stockholders of the
Company. These factors, when combined with the structure of the
transaction as a merger, led the Independent Committee and the Board to
conclude that the Merger could be completed more quickly than any
alternative transaction and with less disruption to the Company's
operations.
v. The Independent Committee and the Board considered the Company's
ongoing liability with respect to the Company's Vestal Superfund Site.
Based on EPA estimates, the Vestal Superfund Site will require additional
expenditures of $2,523,000 related to the remediation of the contaminated
dirt and the installation, operation and maintenance of a well monitoring
system for the next ten years. Of this amount, approximately $2,000,000 is
expected to be spent in September 2000 and fiscal year 2001. The Company's
Consent Decree with the United States obligates the Company to clean up the
site, repair the well system and continue ongoing operation and maintenance
of the industrial water well system until the ground water reaches a level
of purity as prescribed by the EPA (estimated by the EPA to take fifteen to
thirty years). The Vestal Superfund Site could cost the Company up to an
additional $2,000,000 if it takes thirty years to reach the level of purity
as prescribed by the EPA. The Vestal Superfund Site has been a depressing
factor overhanging the Company for thirteen years and the Independent
Committee and the Board believed it was likely to continue depressing the
price of Common Stock for several years and limiting the Company's sources
of equity financing.
Page - 35
<PAGE>
vi. The Independent Committee and the Board considered the risks to
the Company and the Company's stockholders of entering into the Merger
Agreement, including (a) Hospitality being a newly formed company without
any significant assets prior to consummation of the Merger, (b)
Hospitality's ability to consummate the Merger being dependent on its
ability to obtain financing and (c) the provisions of the Merger Agreement
requiring the Company to bear all reasonable third party costs and expenses
of Hospitality and for Hospitality to reimburse the Company for such costs
and expenses in the event that the Company terminates the Merger as
provided under certain provisions in the Merger Agreement.
vii. The Independent Committee and the Board also considered the
fact that consummation of the Merger would preclude the stockholders from
having the opportunity to participate in the future growth prospects of
American, as the Surviving Company, and Hospitality as the owner of
American. Accordingly, in reaching its conclusion to approve the Merger
Agreement, the Independent Committee and the Board considered the Certain
Projections (as defined below) and determined, based in part on these
projections and on analyses conducted by the Financial Advisors regarding
these projections, that the future prospects of the Company are adequately
reflected in the Merger Consideration. The Independent Committee and the
Board believed that it was appropriate to consider management's projections
in its analysis because management is in the best position to analyze the
financial prospects of the Company. In addition, the Independent Committee
and the Board recognized that the members of the Management Group will have
the sole opportunity to benefit from any increases in the value of
American, as the Surviving Company, and Hospitality as the owner of
American following the Merger and that they necessarily had a conflict of
interest as a result. See "- Conflicts of Interest," "- Future Plans of the
Company," "- Certain Projections" and "- Purpose of and Reasons for the
Merger; Certain Effects of the Merger."
viii. The Independent Committee and the Board considered whether the
Company should actively seek other potential buyers for the Company, but
decided to not solicit other offers. The Independent Committee and the
Board believed that the length of time between the Public Announcement Date
and the Effective Time provided a substantial amount of time within which
to gauge the level of interest in the Company and to permit potential
buyers to come forward, in effect a "market check." The Independent
Committee and the Board also believed that the prospects for a transaction
between the Company and any potential unaffiliated strategic or financial
third party buyers were limited due to the Company's multi-concept
structure, that it would be difficult to attain value through a divestiture
of Company assets and that there were limitations on the ability of a
financial buyer to finance a leveraged buy-out of the Company at a price
materially above the prices considered during the course of negotiations
with the Management Group. Most importantly, the Independent Committee and
the Board were concerned that shopping the Company would negatively affect
the Company's labor pool. With the entertainment and restaurant industry
being characterized by high turnover rates, especially during periods of
plentiful jobs, any uncertainty about the Company's future ownership might
be the catalyst that causes certain valuable employees of the Company to
seek alternative employment. The Independent Committee and the Board also
considered the provisions of the Merger Agreement which legally and
practically permit the
Page - 36
<PAGE>
the Company to respond meaningfully to third party proposals for
alternative transactions. Specifically, the terms of the Merger Agreement
authorize the Company under certain circumstances to (a) engage in
negotiations with third parties who submit in writing an acquisition
proposal for a transaction which, among other things, the Independent
Committee and the Board determine in good faith is as or more likely to
occur than the Merger and would be more favorable to the stockholders of
the Company and (b) terminate the Merger Agreement in order to permit the
Company to enter into such a transaction. See "The Merger Agreement -
Acquisition Proposals."
ix. The Independent Committee and the Board considered the value
attributed to the Company in the Company's Liquidation Analysis dated May
10, 2000. The analysis assumes that it would take one year to complete the
sale of the Company's assets and that as a result, any initial distribution
would not occur until the following year. The analysis also assumes that a
liquidating trust would need to be established to manage the Company's
activities (primarily as they relate to the Vestal Superfund Site and the
lease of the property located in Vestal, New York). Distributions would
occur over a five-year period, although the distribution period might need
to be extended to ten or more years to meet the requirements relating to
the Vestal Superfund Site. The amounts used to estimate the proceeds from
the sale of the Company's various subsidiaries were based upon a cash
purchase price, reasonable multiples of cash flow and additional
information furnished to the Company by outside disinterested parties.
Under the Liquidation Analysis, the Company's stockholders would receive an
initial payout of $2.11 per share, followed by payouts of $0.16, $0.05,
$0.05, $0.05 and $0.05 per share over the next five years for a total
payout of $2.47 per share. The Merger Consideration is thus comparable to
payouts received under the Liquidation Analysis which, when discounted by
10% to present value, would equal $2.18 per share.
In view of the various factors considered by the Independent Committee in
connection with its evaluation of the Merger and the Merger Consideration, the
Independent Committee did not find it necessary to quantify or otherwise attempt
to assign relative importance to the specific factors considered in making its
determination, nor did it evaluate whether such factors were of equal
importance. However, based upon these factors, the evaluation of all the
relevant information provided to them by the Financial Advisors and taking into
account the existing trading ranges for the Common Stock, the Independent
Committee determined that the Merger, including the Merger Consideration, was
fair from a financial point of view to the Public Stockholders and represented
the highest value reasonably obtainable under the circumstances. The
Independent Committee and the other disinterested member of the Board believe
that the Merger was considered in a manner that was procedurally fair to the
Company's stockholders and that the directors properly discharged their
responsibilities and duties.
Messrs. McLean, Rogers and Hodges are the only members of the Board who are
members of the Management Group. Accordingly, Messrs. McLean, Rogers and Hodges
did not participate on the Independent Committee and excused themselves for the
portion of the Board meeting where the Board reviewed and discussed the fairness
opinions with the Financial Advisors, reviewed and discussed the report of the
Independent Committee and the terms of the Merger Agreement and voted on the
Merger Agreement. See "- Conflicts of Interest."
Page - 37
<PAGE>
The members of the Independent Committee have been compensated for serving
on the Independent Committee, with such compensation not being contingent on the
outcome of the Merger. Mr. Edgar is to receive $4,500 per day for each day
spent in connection with each in-person meeting of the Independent Committee and
$1,000 per telephonic meeting of the Independent Committee and Messrs.
D'Agostino and Sarno are each to receive $2,500 per day for each day spent in
connection with each in-person meeting and $1,000 per telephonic meeting of the
Independent Committee. To date the Company has paid Mr. Edgar $50,000 and
Messrs. D'Agostino and Sarno $30,000 each.
The Company believes that the manner in which the Merger is to be
implemented is procedurally fair to the Public Stockholders based on the
following factors: (i) the Independent Committee was formed to promote and
protect the interests of all stockholders, including the Public Stockholders;
(ii) the Independent Committee was comprised solely of members of the Board who
are neither members of the Management Group nor officers of the Company (but who
will receive cash in exchange for their Common Stock); (iii) the Independent
Committee retained independent financial advisors and independent legal counsel;
and (iv) the Independent Committee represented the interests of the Company's
stockholders throughout the negotiations with Mr. McLean and his counsel as to
the terms of the Merger Agreement.
The Independent Committee and the Board believe the Merger to be fair and
in the best interests of all of the stockholders of the Company, including the
Public Stockholders. Should the Merger Agreement be approved by a majority of
the Company's stockholders but by only a minority of the Public Stockholders,
the Independent Committee and the Board still believe the Merger Agreement
should be consummated. The Independent Committee and the Board did not want to
make the consummation of the Merger contingent on the vote of the Public
Stockholders because of the possibility that apathy and disinterest by the
Public Stockholders may cause this important transaction to fail. It is to be
expected that a significant percentage of the Company's stockholders may not
return their proxy card or vote at the Special Meeting. By not returning their
proxy card or voting at the Special Meeting, these stockholders will effectively
be voting against the Merger Agreement.
Determination of Fairness of the Merger by Hospitality, American and the
Management Group
Although they did not participate in the Board's review and discussion
concerning the fairness opinions of the Financial Advisors and the report of the
Independent Committee, Messrs. McLean, Rogers and Hodges, as well as the other
members of the Management Group and Hospitality and American, are familiar with
the contents of and analyses made in each document, and each member of the
Management Group and Hospitality and American expressly adopt the fairness
opinion of each of the Financial Advisors. Each of Hospitality, American, and
the members of the Management Group believes the contents of and the analyses
made in each of the fairness opinions to be accurate and determinative of the
Company's fair value, and, based on such knowledge and belief, believes the
Merger to be fair and in the best interests of the Public Stockholders. See
"- Opinions of Independent Committee's Financial Advisors."
In making their determination of the fairness of the Merger, the Management
Group, Hospitality and American considered each of the factors that the
Independent Committee considered in making its determination, including the
fairness opinions. See " - Determination of Fairness of the Merger by the
Independent Committee and the Board of Directors." The list below contains
factors often considered when making determinations of fairness in transactions
of this type and the consideration, if any, given to the factors by the
Management Group, Hospitality and American:
i. Current Market Prices -the current market prices of the Common Stock
at the time the Merger was proposed were not considered indicative of
the Company's value and that shareholders were therefore unable to
realize fair value for their shares in the market;
ii. Historical Market Prices - the historical market prices of the Common
Stock were not considered relevant due to the Company's change in
operations in 1997 to a food, beverage and hospitality company and
other factors discussed in the section called "Background of the
Company;"
iii. Net Book Value - the net book value of the Company was not considered
relevant because of the number of factors that could negatively
affect value, such as (a) the value of a food and beverage or
hospitality concept is not related to net book value but rather to
the cash flow generated by the concept, (b) uncertain liability
associated with the Vestal Superfund Site and its effect on the value
of the Vestal, New York real estate, (c) uncertain liabilities
related to exposure to claims and litigation inherent in the
nightclub business and (d) the inability of the Surviving Company to
realize the value of deferred taxes currently carried on the books of
the Company;
iv. Going Concern Value - the going concern value was not calculated
because the information to be provided by such a valuation was
considered duplicative of the fairness opinions and liquidation
analysis and the cost of obtaining a valuation was therefore not
warranted;
v. Liquidation Value - the liquidation value of the Company was
considered to be comparable to the Merger Consideration, as discussed
in subparagraph ix. of the section called " -Determination of
Fairness of the Merger by the Independent Committee and the Board of
Directors;"
vi. Prior Purchases - the purchase price paid in prior purchases of the
Company's stock was not considered because there were no such
transactions other than ordinary trading transactions;
vii. Reports, Opinions and Appraisals - other than the fairness opinions
and the liquidation analysis discussed above, there were no reports,
opinions or appraisals to be considered;
viii. Firm Offers - other firm offers were not considered because there
were no firm offers of which any of the Management Group, American or
Hospitality were aware.
None of the Management Group, Hospitality nor American believed it
necessary to quantify or assign any relative importance to the specific factors
considered in making its determination of fairness, nor did they evaluate
whether such factors were of equal importance. However, based upon these
factors, each of the members of the Management Group and Hospitality and
American determined that the Merger, including the Merger Consideration, was
fair to the Public Stockholders.
Opinions of Independent Committee's Financial Advisors
The two Financial Advisors were retained by the Independent Committee to
render opinions as to the fairness from a financial point of view of the cash
consideration to be received by the stockholders (including the Public
Stockholders) in the Merger. Each of the Financial Advisors is a nationally
recognized investment banking firm that engages in the valuation of businesses
and securities in connection with mergers and acquisitions, going private
transactions, leveraged buy-outs, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted
Page - 38
<PAGE>
securities, private placements, and valuations for estate, corporate, and other
purposes. Each of the Financial Advisors was selected based upon this expertise
and based on the fact that it had no prior relationship with the Company or the
Management Group.
Sanders Morris Harris, Inc.
Sanders rendered its opinion to the Independent Committee, to the effect
that, as of August 11, 2000, and based upon and subject to the various
considerations described in the opinion, the consideration was fair, from a
financial point of view, to the Public Stockholders. The full text of Sanders'
written opinion dated as of August 11, 2000, sets forth, among other things, the
assumptions made, matters considered, and scope and limitations of the review
undertaken, and is attached as Appendix II hereto and incorporated by reference.
Stockholders of the Company are urged to, and should, read Sanders' opinion
carefully and in its entirety. Sanders' opinion was prepared for the use of the
Independent Committee in connection with the Merger and does not address the
relative merits of the proposed Merger or constitute a recommendation to the
Public Stockholders as to how they should vote in connection with the Merger.
In addition, the opinion addresses only the financial fairness of the
consideration to be received by the Public Stockholders in the Merger and does
not address the relative merits of the Merger or any alternatives, the
underlying decisions of the Independent Committee and of the full Board to
engage in the Merger or any other aspect of the Merger. The summary of Sanders'
opinion set forth below is qualified in its entirety by reference to Sanders'
opinion and should be read together with the full text of the opinion.
In arriving at its opinion, Sanders has, among other things:
(1) Reviewed the August 7, 2000 draft of the Agreement and Plan of Merger;
(2) Reviewed the July 28, 2000 draft of the Company's Proxy Statement;
(3) Reviewed the Company's Liquidation Analysis dated May 10, 2000;
(4) Reviewed the June 1998 Consent Decree between the United States of
America and the Company;
(5) Reviewed the Record of Decision with respect to the Vestal Superfund
Site;
(6) Reviewed the Company's audited financial statements and annual report
for the year ended September 30, 1999;
(7) Reviewed the Company's unaudited financial statements for the quarter
ended March 31, 2000;
(8) Reviewed the Company's confidential unaudited financial statements for
the four-week period ended May 28, 2000;
(9) Reviewed summary projections and assumptions for each of the Company's
operating facilities for 2000 to 2005 prepared and provided by
management at Sanders' request;
(10) Reviewed the Company's summary history provided by management;
(11) Reviewed the letter dated June 28, 2000 from Robert H. McLean to the
Independent Committee preliminarily setting forth Mr. McLean's
proposal;
(12) Reviewed a July 26, 2000 proposal from John Hancock Real Estate
Finance, Inc. with respect to a $2,200,000 mortgage loan on the
Stockyards Hotel;
Page - 39
<PAGE>
(13) Reviewed an August 1, 2000 proposal from Amresco Commercial Finance,
Inc. with respect to a $5,000,000 loan;
(14) Reviewed the July 19, 2000 memo from Robert Korman to James Pryde
regarding the Merger;
(15) Reviewed the July 21, 2000 memo from Robert Korman to Clyde Buck
regarding the book value of the Company;
(16) Reviewed the Cat's Meow lease agreement dated September 30, 1989;
(17) Reviewed the Vestal, New York Superfund site lease agreement dated
January 1, 1997; and
(18) Discussed various assets, liabilities and operations of the Company
involved in the Merger.
In conducting its analyses, Sanders also held discussions with members of
the Company's senior management regarding the past and current business
operations, financial condition and future prospects of the Company. With the
permission of the Independent Committee, Sanders assumed that financing for the
Merger had been irrevocably obtained on the terms set forth in preliminary loan
proposal letters from financing sources previously reviewed by Sanders, and that
the Merger Agreement had been executed and delivered by the parties thereto on
terms substantially similar to those contained in the most recent draft thereof
supplied to and reviewed by Sanders as of the date of its opinion.
Sanders was provided with a memorandum that had been prepared by Mr. Korman
at its request regarding an analysis of the Company's business over the five-
year period from 2000 to 2005. This memorandum was subsequently provided to
Baum and was based on several assumptions, the most significant of which include
the Company remaining public and existing operations not being expanded by
developing and opening new food and beverage concepts.
The five-year analysis set forth below was not prepared by the Company with
a view to public disclosure or compliance with published guidelines of the SEC
or the American Institute of Certified Public Accountants regarding prospective
financial information, nor was the information prepared with the assistance of,
or reviewed, compiled or examined by, independent accountants. The analysis
reflects numerous assumptions, all of which were made by management of the
Company, with respect to industry performance, general business, economic,
market and financial conditions and other matters, all of which are difficult to
predict and many of which are beyond the Company's control. Accordingly, there
can be no assurance that the assumptions made in preparing the analysis set
forth below will prove accurate, and actual results may be materially greater or
lesser than those contained in the analysis set forth below. The inclusion of
the five-year analysis in this proxy statement should not be regarded as an
indication that the Company or any of its financial advisors or other
representatives, or their respective officers and directors, consider such
information to be an accurate prediction of future events or necessarily
achievable. In light of the uncertainties inherent in forward looking
information of any kind, we caution undue reliance on such information. We do
not intend to update, revise or correct such projections if they become
inaccurate (even in the short term). As a result of the uncertainty and
limitations in the five-year analysis, Sanders chose not to base any part of its
determination of fairness on the five-year analysis.
The five-year analysis included in Mr. Korman's memorandum consisted of the
following estimated earnings per share, expected to be generated from the
Company's existing operations.
<TABLE>
<CAPTION>
Year
----------------------------------------
2000 2001 2002 2003 2004 2005
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Estimated earnings $0.14 $0.10 $0.10 $0.11 $0.12 $0.11
per share
</TABLE>
Sanders relied upon and assumed the accuracy and completeness of the
financial and other information made available to it and did not assume
responsibility for independent verification of such information. It assumed,
and the management of the Company has represented, that the information provided
by the Company, including the Certain Projections, had a reasonable basis and
reflected the best currently available estimates and judgments of the Company's
management as to the recent and likely future performance of the Company.
Sanders did not make any adjustments to the Certain Projections. See "- Certain
Projections." Sanders also relied on representations of the Company's
management that they were not aware of any information or fact that would make
the information provided to Sanders incomplete or misleading.
In rendering its opinion, Sanders assumed and relied upon, without
independent verification, the accuracy and completeness of all information
reviewed by it for the purposes of its opinion. Sanders assumed that the Merger
would be consummated on the terms set forth in the Merger Agreement and that, in
the course of obtaining necessary regulatory and third-party consents for the
Merger, no restriction would be imposed that would have a material adverse
effect on the future results of operations or financial condition of the
Company. Sanders did not make any independent valuation or appraisal of the
assets or liabilities of the Company, nor was Sanders furnished with any such
appraisals. Sanders' opinion was necessarily based on economic, market,
financial and other conditions as they existed on, and on the information made
available to Sanders as of, the date of such opinion. It should be understood
that, although subsequent developments may affect its opinion, except as agreed
upon by the Company, Sanders does not have any obligation to update, revise or
reaffirm its opinion.
In arriving at its opinion, Sanders did not solicit indications of interest
from any potential buyers of part or all of the Company, nor did it have
discussions with any party other than the
Page - 40
<PAGE>
Company's affiliates with respect to the acquisition of the Company or any of
its assets. Furthermore, Sanders was not involved in the negotiations of the
terms of the Merger and has based its opinion solely on the terms of the Merger
Agreement as negotiated by others.
The following is a summary of the most significant factors considered and
the principal financial analyses performed by Sanders to arrive at its opinion
dated August 11, 2000.
Value Range Comparison. Sanders' fairness analysis consisted primarily of
an analysis that the value of cash received per share for all outstanding shares
of the Company was equal to or greater than the midpoint of the range of fair
market value per share for all outstanding shares of the Common Stock. Sanders
determined that the fair market value for the Common Stock ("FMV") lay within a
range of $1.82 to $2.59 per share with a mid-point of $2.21 and that the cash to
be received per share was $2.25. The following table summarizes Sanders' value
range comparison:
Value Range Comparison
Estimated Fair Market Value for 100% of the Common Stock $7.5 - $11.0 mil.
Estimated Value After Adjustment for Options/(1)/ $8.2 - $11.7 mil.
Final Estimated Value Per Share/(2)/ $1.82 - $2.59
Final Mid-Point $2.21
Value for Cash Received Per Share of Common Stock $2.25
/(1)/ Increased fair market value by $650,750 to consider potential proceeds
from options.
/(2)/ Increased original shares outstanding from 4,000,000 to 4,500,000 to
consider existing stock options.
Since the mid-point of the Company's value per share for 100% of the Common
Stock was approximately $2.21 and the cash to be paid to the Public Stockholders
was $2.25 per share, the exchange appeared to be fair to the Public
Stockholders.
Discounted Cash Flow Analysis. Sanders' primary fairness analysis
methodology consisted of a discounted cash flow analysis, or an analysis of the
Company's internal rate of return (the "DCF Analysis"), which is one method
Sanders believes investors use to evaluate bar, restaurant and hotel
acquisitions.
The following table shows the results from the DCF Analysis for each of the
Company's facilities. Sanders believes a buyer of part or all of the Company
would conduct a similar analysis and that these values are good indications of
the FMV of the components of the Company.
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<PAGE>
FMV of the Company as of July 31, 2000
Fair Market Value
---------------------
(in thousands, except
per-share amounts)
Cat's Meow $3,750 - $5,250
Lucile's 728
Stockyards Hotel & H3 3,075
Cabo (3 restaurants) 3,500
Cash and Equivalents (as of March 31, 2000)/(1)/ 2,512
Income Tax Refund Due/(2)/ 698
The Company - Corporate Office Assets/(3)/ 100
-----------------
Total Assets $14,363 - $15,863
EPA Liability $3,000 - $5,000
Other Liabilities (as of March 31, 2000)/(4)/ 1,819
-----------------
Total Liabilities $4,819 - $6,819
FMV of the Company's Equity $7,544 - $11,044
Shares Outstanding 3,964
FMV Per Share $1.90 - $2.53
Adjustment for Company stock options:
Final FMV of Company Equity/(5)/ $8,195 - $11,695
Fully-Diluted Shares Outstanding/(6)/ 4,519
-----------------
Final FMV Per Share $1.82 - $2.59
-----------------
Final Mid-Point $2.21
/(1)/ Book value as of March 31, 2000.
/(2)/ The Company received its tax refund in cash on June 1, 2000.
/(3)/ From management's orderly liquidation analysis.
/(4)/ March 31, 2000 book value of accounts payable ($592,000), accrued
liabilities ($710,000) and income tax liabilities ($517,000).
/(5)/ The Company may receive up to $650,750 in proceeds from the exercise of
options.
/(6)/ The exercise of the total number of outstanding options will increase the
total number of shares outstanding by 550,000 shares.
Sanders also performed a DCF Analysis on the Company as a whole based on
projections for the Company assuming it remained a public company. Sanders
prepared consolidated projections based on discussions with and data provided by
management.
Page - 42
<PAGE>
Discounted Cash Flow Analysis
Fair Market Value
---------------------
(in thousands, except
per-share amounts)
The Company's Restaurants and Hotel/(1)/ $6,424
Cash and Equivalents (as of March 31, 2000)/(2)/ 2,512
Income Tax Refund Due/(3)/ 698
Cash From Sale of the Cabo units in Houston 3,500
---------------
Total Assets $13,134
EPA Superfund Site Liability (net of possible lease
revenues or possible value of the building) $3,000 - $5,000
Other Liabilities/(4)/ 1,819
---------------
Total Liabilities (as of March 31, 2000) $4,819 - $6,819
FMV of the Company's Equity $6,315 - $8,315
Shares Outstanding 3,964
FMV Per Share $1.59 - $2.10
/(1)/ Excludes the Cabo units in Houston.
/(2)/ Book value as of March 31, 2000.
/(3)/ The Company received its tax refund in cash on June 1, 2000.
/(4)/ March 31, 2000 book value of accounts payable ($592,000), accrued
liabilities ($710,000) and income tax liabilities ($517,000).
The FMV range per share of Common Stock of $1.59 to $2.10 as determined by
using a DCF Analysis on the Company as a whole is below the DCF Analysis range
of $1.82 to $2.59 calculated on the components of the Company. It is based on
certain assumptions and environmental contingencies and, in Sanders' opinion, is
not as representative of how an actual buyer would evaluate the Company.
Premium Over Recent Stock Prices. An offer of $2.25 per share in cash
would be an attractive premium over the range of recent prices for the Common
Stock. (See also section on comparable transactions and premiums.)
Premiums to Stock Price
Average Daily Average Daily Premium of a
Stock Price Volume (shares) $2.25 Price
------------- --------------- -------------
07/12/00 $0.81 4,300 178%
Prior 7 days of trading 0.89 1,957 153
Prior 30 days of trading 0.88 2,970 156
Prior 60 days of trading 0.89 2,276 153
Prior 90 days of trading 0.93 2,584 142
Prior 120 days of trading 0.98 3,118 130
Page - 43
<PAGE>
Valuation of Cat's Meow. Finally, it has been Sanders' experience that
bars and restaurants are considered to be relatively high-risk ventures and that
buyers of such entities usually seek rates of return equal to 25% to 35%,
depending on the level of risk. Based on a DCF Analysis of Cat's Meow using a
pre-tax discount rate of 35% and a terminal value or the estimated value of an
entity in a DCF Analysis at the end of several years but with a limited number
of cash flow years, of four times estimated 2004 earnings before interest,
taxes, depreciation and amortization ("EBITDA"), Sanders arrived at a value of
$4,500,000 for Cat's Meow. However, Sanders felt a buyer might also value Cat's
Meow by paying 2.5 to 3.5 times normal EBITDA (i.e., the average of the actual
results of EBITDA for fiscal year 1999 and the expected results of EBITDA for
fiscal year 2000), which indicated a valuation range of $3,800,000 to
$5,300,000. Sanders believes a buyer would consider both methods and thus, a
reasonable valuation range for Cat's Meow would be $3,800,000 to $5,300,000.
Valuation of Lucile's. Based on a DCF Analysis of Lucile's using a pre-
tax discount rate of 25% and a terminal value of five times estimated 2004
EBITDA, Sanders arrived at an implied value of $700,000 for Lucile's.
Valuation of Stockyards Hotel and H3 Ranch Restaurant. Based on a DCF
Analysis of Stockyards Hotel and H3 Ranch Restaurant using a pre-tax discount
rate of 25% and a terminal value of five times estimated 2004 EBITDA, Sanders
arrived at an implied value of $3,100,000 for Stockyards Hotel and H3 Ranch
Restaurant.
Valuation of Cabo Facilities. Sanders felt that the recent offer of
$3,500,000 for the Cabo units in Houston was a good indicator of their FMV. The
Company expected the sale to close in August 2000. The Fort Worth Cabo is
currently losing money (i.e., negative free cash flow and close to break-even
level of cash flow from operations). To become a viable entity, the Company
estimates it would have to spend approximately $600,000 to $700,000 to refurbish
the facility. Therefore, Sanders ascribed no value to the Fort Worth facility.
Valuation of the EPA Liability. The Company believes the liability
related to the Vestal Superfund Site has an indeterminable total, with no upper
limit on what will eventually be spent on the clean up because the total amount
of soil to be remediated has not yet been determined. According to management,
approximately $2,000,000 will have to be spent during September 2000 and fiscal
year 2001. The Company believes that its out-of-pocket expenditures for the
Vestal Superfund Site over the next 10 to 30 years from March 31, 2000 will be
approximately $2,700,000 to $5,400,000. Due to the uncertainty of future cash
flows from the leasing of the facility (e.g., the current tenant does not plan
to renew the current lease expiring February 28, 2001) and future liabilities
attributed to remediation of the Vestal Superfund Site, Sanders believes the
fair market value of this liability (net of possible lease revenues) is
approximately $3,000,000 to $5,000,000.
Comparable Company Analysis. Sanders did not consider ratios of somewhat
comparable public companies to be important and would not have expected real
cash buyers of bars, restaurants or the Company to have given any significant
weight to such valuation methodology. Nevertheless, Sanders reviewed certain
financial ratios for the following public companies with restaurant operations:
Page - 44
<PAGE>
. Cooker Restaurant Corp. . Morgan Food, Inc.
. Grill Concept, Inc. . Silver Diner, Inc.
. Meritage Hospitality Group . Total Entertainment Restaurant Corp.
. Mexican Restaurants, Inc.
Based on publicly available information, Sanders compared multiples of
certain financial criteria (based on July 28, 2000 market prices) for somewhat
comparable companies to the Company. Sanders reviewed seven somewhat comparable
public companies and noted three key ratios. The three key valuation multiples
used in their analysis were: (i) enterprise value (i.e., market value of equity
plus total debt) to EBITDA, (ii) enterprise value to earnings before interest
and taxes ("EBIT") and (iii) enterprise value to revenues. In addition to
individual company multiples, Sanders calculated the mean (i.e., average),
adjusted mean (i.e., average excluding highest and lowest multiples) and median
of each ratio. Sanders did not consider multiples based on earnings per share
("EPS") because most of the seven comparable companies had negative EPS, and
therefore the valuation would not have been meaningful.
Key Comparable Company Multiples
Enterprise Value to: High Low Adjusted Mean
-------------------- ---- --- -------------
EBITDA 206.1x 4.5x 7.5x
EBIT 62.8x 7.0x 15.8x
Revenues 0.9x 0.2x 0.5x
EBITDA multiples for the seven comparable companies ranged from 4.5x to
206.1x on July 28, 2000. The adjusted mean multiple for the comparable
companies was 7.5x. Sanders multiplied the Company's fiscal 1999 EBITDA of
$716,000 by 7.5, which resulted in an implied enterprise value of $5,370,000 or
$1.35 per share with 3,963,866 shares outstanding.
EBIT multiples for the seven comparable companies ranged from 7.0x to
62.8x. The adjusted mean multiple for the comparable companies was 15.8x.
Sanders excluded this calculation because the Company's negative fiscal 1999
EBIT would have produced a negative enterprise value.
The seven comparable public companies had a range of enterprise
value/revenue ratios of 0.2x to 0.9x. The adjusted mean revenue multiple for
the seven comparable public companies was 0.5x. Sanders then multiplied 0.5x by
the Company's fiscal 1999 revenue of $17,212,000, resulting in an enterprise
value of $8,606,000 or $2.17 per share with 3,963,866 shares outstanding.
Sanders then averaged the two enterprise values cited above for the Company
to arrive at an average implied enterprise value of $6,988,000. In order to
arrive at an equity value, Sanders subtracted certain liabilities and added
excess cash. As of March 31, 2000, the Company had $3,210,000 in cash
(including $689,000 received on June 1, 2000 as an income tax refund) and
$4,552,000 in total debt. This gave the Company an implied equity value of
$5,646,000 (i.e., $6,988,000 minus $4,552,000 plus $3,210,000) or $1.42 per
share as of July 28, 2000.
Page - 45
<PAGE>
Comparable Transactions and Premiums. Sanders considered several
transactions in the restaurant industry, but felt that none were similar enough
to the Merger to make its analysis of such transactions more important than its
DCF Analyses. For example, the sizes of the transactions and the market
capitalization of many of the companies involved were materially different. The
following table summarizes Sanders' research on somewhat comparable transactions
and the premiums offered. Based on the average premium offered in these
transactions of 33.9%, the premium the Public Stockholders will receive over the
recent stock prices appeared to be fair to Sanders.
<TABLE>
<CAPTION>
Comparable Transactions
-------------------------------------------------------------------------------------------
Target Acquirer Announcement Premium/(1)/
------ -------- ------------ -------
<S> <C> <C> <C>
Cucos, Inc. Jacksonville Restaurant 7/14/00 2.7%
Roadhouse Grill, Inc. Management Group 5/3/00 50.4
Quality Dining, Inc. Investor Group 2/23/00 125.5
TCBY Enterprises Capricorn Investors III 2/10/00 63.8
Rainforest Cafe, Inc. Landry's Seafood 2/9/00 27.9
O'Charley, Inc. Management Group 1/26/00 NA
Rainforest Cafe, Inc. Lakes Gaming, Inc. 12/22/99 15.1
Avado Brands, Inc. Management Group 11/10/99 36.0
Quiznos Corp. Schaden Acquisition 6/23/99 15.2
Rock Bottom Restaurants RB Capital, Inc. 3/19/99 18.3
Rallys, Inc. Checkers Drive-In 1/29/99 16.2
Logan's Roadhouse, Inc. CBRL Group, Inc. 12/11/98 17.6
Back Bay Restaurant Group SRC Holdings 12/3/98 17.9
Average Premium -----
33.9%
-------------------------------------------------------------------------------------------
</TABLE>
(1) The percentage amount by which the offer price is above the 20-day
(preceding announcement) average stock price of the target.
The preparation of a fairness opinion is a complex process involving
subjective judgments and is not necessarily susceptible to a partial analysis or
summary description. Sanders believes that selecting any portion of Sanders'
analyses, without considering all analyses, would create a misleading or
incomplete view of the processes underlying the analyses and its opinion. In
addition, Sanders may have deemed various assumptions more or less probable than
other assumptions, so that the ranges of valuations resulting for any particular
analysis described above should not be taken to be Sanders' view of the actual
value of the Company, which may be more or less than suggested by the analyses.
The analyses performed by Sanders are not necessarily indicative of actual
value, which may be significantly more or less favorable than suggested by such
analyses. Such analyses were performed solely as part of Sanders' analysis of
whether the Merger Consideration to be received by the Public Stockholders
pursuant to the Merger Agreement was fair from a financial point of view to such
stockholders, and were conducted in connection with the delivery of Sanders'
opinion. The analyses do not purport to be appraisals or to be indicative of
actual values or future results, or to reflect the prices at which the Company
or its assets might actually be sold.
Page - 46
<PAGE>
As described above, Sanders' opinion provided to the Independent Committee
was one of a number of factors taken into consideration by the Independent
Committee in making its determination to recommend adoption of the Merger
Agreement and the transactions resulting from it. Consequently, Sanders'
analyses described above should not be viewed as determinative of the opinion of
the Independent Committee, the Board or management with respect to the value of
the Company. The cash to be received by the Public Stockholders pursuant to the
Merger Agreement was determined through negotiations between the Independent
Committee and the Management Group and was approved by the Independent Committee
as well as the entire Board (not including Messrs. McLean, Hodges and Rogers who
excused themselves from the portion of the meeting relating to the Merger).
Sanders was selected by the Independent Committee to render a fairness
opinion in connection with the Merger because of Sanders' reputation and
expertise as an investment banking firm. Sanders, as part of its investment
banking business, is regularly engaged in the valuation of businesses and their
securities in connection with going-private transactions, mergers and
acquisitions, underwritings of equities, private placements and valuations for
estate, corporate and other purposes. In the ordinary course of its business,
Sanders may actively trade the Company's equity securities for its own account
and for the accounts of customers and, accordingly, may at any time hold a long
or short position in such securities. Sanders does not believe that it has
owned any shares of Common Stock during the past year, although it may have
traded the Common Stock for the accounts of its customers.
In accordance with its engagement letter, Sanders' opinion is addressed to
the Independent Committee for its use in connection with its review and
evaluation of the proposed Merger. Neither the opinion nor the underlying
analyses may be relied upon by any person other than the members of the
Independent Committee without the prior written consent of Sanders.
Accordingly, under the terms of the engagement letter and the opinion letter
prepared pursuant to the engagement letter, no stockholders of the Company may
rely or allege any reliance on Sanders' opinion or analysis in connection with
the stockholder's consideration of the merits of the Merger or otherwise. It is
Sanders' position that its duties in connection with its fairness opinion are
solely to the Independent Committee, and that it has no legal responsibility to
any other persons, including stockholders of the Company, under the laws of the
State of Texas, the governing law of the engagement letter. Sanders would
likely assert the substance of this disclaimer as a defense to claims, if any,
that might be brought against it by stockholders of the Company with respect to
its fairness opinion.
Pursuant to the terms and conditions of the engagement letter with Sanders
dated July 5, 2000, the Company agreed to pay Sanders (i) a non-refundable
retainer of $50,000 upon execution of the engagement letter and (ii) an
additional $50,000 payable upon submission of Sanders' opinion. In addition to
any fees for professional services, Sanders will also be reimbursed by the
Company for expenses incurred in connection with Sanders' representation of the
Independent Committee. The Company has also agreed to indemnify Sanders against
specified liabilities, including liabilities under the federal securities laws,
related to, arising out of or in connection with the engagement of Sanders by
the Independent Committee.
Page - 47
<PAGE>
George K. Baum & Company
Baum delivered its opinion on August 10, 2000 to the Independent Committee
and on August 11, 2000 to the Board to the effect that, as of August 11, 2000,
the Merger Consideration was fair from a financial point of view to the
Company's stockholders. Baum's opinion is directed only to the fairness from a
financial point of view of the Merger Consideration to be received by the
Company's stockholders in the Merger and does not constitute a recommendation to
any stockholder as to whether such stockholder should vote in favor of the
Merger. Baum conducted valuation analyses of the Common Stock and evaluated the
Merger Consideration, but was not asked to and did not recommend a specific per
share price to be issued pursuant to the Merger. Baum's opinion does not
address the likely tax consequences of the Merger to any Company stockholder. In
addition, Baum was not asked to consider, and its opinion does not address, the
relative merits of the proposed Merger as compared to any alternative business
strategies that might exist for the Company or the effect of any other
transactions in which the Company might engage. Baum did not make an
independent evaluation or appraisal of the assets and liabilities of the Company
or any of its subsidiaries or affiliates and has not been provided with any such
evaluation or appraisal. On October 5, 2000, at the request of the Company,
Baum deleted the section of the fairness opinion that sought to limit the
ability of stockholders to rely on the opinion under state law. The full text of
Baum's written opinion, which sets forth, among other things, assumptions made,
procedures followed, matters considered, and limits of review undertaken in
connection with the opinion, is included as Appendix III and is incorporated by
reference. All stockholders are urged to and should read this opinion in its
entirety.
In conducting its analysis and delivering its opinion, Baum considered such
financial and other factors as it deemed appropriate and feasible under the
circumstances, including the following items which it considered material to its
opinion: (i) the terms and conditions describing or otherwise directly relating
to the Merger Consideration set forth in the Merger Agreement; (ii) the
historical and current financial position and results of operations of the
Company; (iii) the Certain Projections, the five-year analysis contained in a
memorandum prepared by Mr. Korman at the request of Sanders and such other
analysis (which analysis consisted of a capital expenditure analysis for the
Company that was necessary, in Baum's opinion, to augment the Certain
Projections and allow Baum to complete its analysis of the Certain Projections)
prepared by management assuming the Company's continuing status as a publicly
held company and assuming no openings of additional units by the Company; (iv)
certain financial and securities data of certain other companies, the securities
of which are publicly traded and that Baum believed to be generally comparable
to the Company; (v) prices and premiums paid in certain other acquisitions and
transactions that Baum believed to be relevant; (vi) historical and current
price and trading activity for the Common Stock; and (vii) the orderly
liquidation analysis prepared by management assuming the Company engaged in an
orderly liquidation. Baum also held discussions with members of the Company's
senior management regarding the past and current business operations, financial
condition and future prospects of the Company. In addition, Baum took into
account its assessment of general economic, market and financial conditions and
its experience in other transactions as well as its experience in securities
valuation and its knowledge of the hospitality and restaurant industry
generally.
Baum's opinion is necessarily based upon general economic, market,
financial and other conditions as they existed on the date thereof and the
information made available to Baum through such date. For purposes of its
opinion, Baum relied upon and assumed the accuracy and completeness of the
financial and other information made available to it and did not assume
responsibility for independent verification of such information. Baum also
relied on representations
Page - 48
<PAGE>
of the Company's management that they were not aware of any information or fact
that would make the information provided to Baum incomplete or misleading. No
limitations were imposed by the Independent Committee or the Company on the
scope of Baum's investigation or the procedures to be followed in rendering its
opinion. The opinion was based upon the information available to Baum and the
facts and circumstances as they existed and which were subject to evaluation on
the date of the opinion. Events occurring after such date could materially
affect the assumptions used in preparing the opinion and Baum has no duty or
obligation to update or amend its opinion or otherwise advise the Independent
Committee, the Board or any other party or person of the occurrence of any such
events.
In preparing its report to the Independent Committee, Baum performed a
variety of financial and comparative analyses and considered a variety of
factors, including (i) comparable company analysis; (ii) discounted cash flow
analysis; (iii) merger and acquisition premium analysis; (iv) going private
premium analysis; and (v) stock trading analysis. In arriving at its opinion,
Baum did not attribute any particular weight to any analysis or factor it
considered, but rather made qualitative judgments as to the significance and
relevance of each analysis and factor. Accordingly, Baum believes that its
analyses must be considered as a whole and that selecting portions of its
opinion and the factors considered by it, without considering all analyses and
factors, could create a misleading or incomplete view of the processes
underlying such analyses and its opinion. With respect to the comparable company
analysis summarized below, no company utilized as a comparison is identical to
the Company and such analysis necessarily involves complex considerations and
judgments concerning the differences in financial and operating characteristics
of the companies and other factors that could affect the acquisition or public
trading values of the companies concerned. The analyses performed by Baum are
not necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
The following is a summary of the report presented by Baum to the
Independent Committee on August 10, 2000 and the Board on August 11, 2000:
Comparable Company Analysis. Baum analyzed selected financial, operating
and stock market data of the Company and eight comparable small hotel,
restaurant and hospitality companies deemed by Baum to be reasonably comparable
to the Company in terms of products and services offered, markets served and
prospects: Cucos, Inc.; California Beach Restaurants; International Leisure
Hosts; Meritage Hospitality Group; Silver Diner, Inc.; Austin's Steaks & Saloon,
Inc.; Grill Concepts, Inc.; and Buckhead America Corporation (the "Comparable
Companies").
No company utilized in the comparable company analysis is identical to the
Company. Accordingly, an analysis of the results of the foregoing necessarily
involves complex considerations and judgments concerning the differences in
financial and operating characteristics and other factors that could affect the
public trading value of the Company and other publicly traded companies that
Baum deemed comparable to the Company. Mathematical analysis is not in itself a
meaningful method of using comparable transaction data.
Page - 49
<PAGE>
Baum examined certain publicly available financial and market trading data
of the Comparable Companies including firm value (equity value plus total net
debt) as a multiple of the latest-twelve-month ("LTM") revenues, equity to book
values, EBITDA, EBIT and to price earnings ratios ("P/Es") based on estimated
and projected earnings per share ("EPS") for the calendar years ending 2000 and
2001. For purposes of computing pricing multiples for the Company under the
Merger, the value of the Company was assumed to be $2.25 per share.
This analysis resulted in (i) a range of multiples of firm value to LTM
revenues of 0.2x to 1.3x with a mean of 0.7x and a median of 0.6x for the
Comparable Companies, compared to 0.3x for the Company under the Merger, (ii) a
range of multiples of equity value to book value of 0.5x to 2.1x with a mean of
1.0x and a median of 0.7x, with two of the Comparable Companies returning not
meaningful results, compared to 0.6x for the Company under the Merger, (iii) a
range of multiples of firm value to LTM EBITDA of 4.5x to 10.2x with a mean of
7.2x and a median of 7.3x, with one of the Comparable Companies returning a not
meaningful result, compared to a not meaningful result for the Company, due to
the Company's negative LTM EBITDA, under the Merger, (iv) a range of firm value
to LTM EBIT of 8.1x to 67.8x with a mean of 22.5x and a median of 13.8x, with
two of the Comparable Companies returning not meaningful results, compared to a
not meaningful result for the Company, due to the Company's negative LTM EBIT,
under the Merger, (v) a range of multiples of LTM P/Es of 9.5x to 117.8x with a
mean of 63.6x and a median of 63.6x, with six of the Comparable Companies
reporting not meaningful results, compared to a not meaningful result for the
Company under the Merger. Although not significant in this analysis, EPS
estimates from First Call were not available for either the Company or any of
the Comparable Companies because, according to First Call, either (i) no
securities analysts follow the Company or the Comparable Companies and therefore
no EPS estimates are available or (ii) if securities analysts follow the Company
or the Comparable Companies, no securities analyst responded to First Call
within the stated period after First Call requested an update on EPS estimates
for the Company or the Comparable Companies.
Discounted Cash Flow Analysis. Baum performed a DCF Analysis of the
unlevered free cash flows of the Company's actual results for the nine months
ended June 2000, the projected results for the fourth quarter of fiscal year
2000 (ending September 30, 2000) and the next fiscal five years financial
performance estimates, as set forth in five-year analysis provided by the
Company at the request of Baum, which were provided to Baum both in writing and
through discussions with management. For the purposes of this analysis, Baum
applied a cost of equity capital discount rate ranging from 23.12% to 28.12%.
Baum calculated terminal values by applying an EBITDA multiple ranging from 3.5x
to 5.0x to the projected EBITDA of the Company in fiscal year 2005. From these
assumptions, Baum calculated per share equity values for the Company ranging
from $2.04 to $2.34.
Page - 50
<PAGE>
Mergers and Acquisitions Premium Analysis. Baum analyzed the premiums
paid for mergers and acquisitions of publicly traded companies that occurred
within the two years ended July 26, 2000, and had targets with yearly sales less
than or equal to $50,000,000. Baum analyzed these merger and acquisition
premiums in two groups. Group One included all mergers and acquisitions fitting
the above time frame and sales criteria, which included 113 transactions. The
transactions in Group One had mean and median premiums paid over the targets'
closing stock prices four weeks before the announcement date and one day before
the announcement date equal to 51.0% and 41.0%, and 40.0% and 32.2%,
respectively. Transactions in Group Two also fit the above time frame and sales
criteria, but were further screened to include only those merger and
acquisitions that occurred within select hotel, restaurant and hospitality
standard classification (SIC) codes that Baum felt most reasonably compared to
the Company's business. Baum found 21 acquisitions that met the set of criteria
for Group Two. Transactions in Group Two had mean and median premiums paid over
the targets' closing stock prices four weeks before the announcement date and
one day before the announcement date equal to 51.0% and 20.0%, and 47.0% and
12.0%, respectively. This compares to the $2.25 per share under the Merger
representing a premium over the July 26, 2000 closing price of 157.1% for the
four weeks prior to announcement and 125.0% for the one day prior to
announcement.
Going Private Premium Analysis. Baum performed an analysis of 30 going
private transactions involving companies in a variety of industries, with yearly
sales less than or equal to $50,000,000, and having occurred in the two years
prior to July 26, 2000. The mean and median premiums paid over the targets'
stock prices four weeks before the announcement date and one day before the
announcement date were 35.9% and 33.3%, and 28.5% and 28.0%, respectively. This
compares to the $2.25 per share under the Merger representing a premium over the
July 26, 2000 price of 157.1% for the four weeks prior to announcement and
125.0% for the one day prior to announcement.
No merger and acquisition or other transaction utilized in the comparable
transaction analysis is identical to the Merger. Accordingly, an analysis of
the results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the Company and other factors that could affect the transaction value of the
companies to which they are being compared. Mathematical analysis is not in
itself a meaningful method of using comparable transaction data.
Stock Trading Analysis. Baum's analysis of the Common Stock performance
consisted of a historical analysis of the relative trading prices of the
Company, the Russell 3000 Index, and a customized index of the Comparable
Companies. Baum believed that the Comparable Companies were comparable to the
Company in terms of products and services offered, markets served and prospects.
During the two year period ending July 26, 2000, (the day prior to the Public
Announcement Date), the Company underperformed both the Russell 3000 Index and
the customized comparable company index by 61.1% and 26.5%, respectively.
Page - 51
<PAGE>
Baum's analysis also considered the high and low closing prices for the
Common Stock over the one-year and two-year periods ended July 26, 2000. On
both August 6 and 9, 1999, the Common Stock reached a one-year high closing
price of $1.38 and on December 31, 1999, reached a one-year low closing price of
$0.63. On both July 29 and August 11, 1998, the Common Stock reached a two-year
high closing price of $2.13 and on December 31, 1999, reached a two-year low
closing price of $0.63. The low of $0.63 is 27.8% and the high of $2.13 is
94.4% of the $2.25 under the Merger. The premium of the $2.25 under the Merger
is 260.0% from the low of $0.63 and 5.9% from the high of $2.13.
Baum also analyzed the volume of shares traded at various prices. For the
Common Stock, the volume-weighted average price ("VAP") was analyzed for the two
years, one year, one quarter, and the one-month periods all ending July 26,
2000, the day before the Public Announcement Date. This ending date was chosen
to exclude shares traded after the announcement of a potential transaction with
the Management Group. For the Company, the VAP for the two years ending July
26, 2000 was $1.33. The VAP for the one-year period, one-quarter period and
one-month period was $0.89, $0.94 and $0.95, respectively, as compared to $2.25
under the Merger.
Orderly Liquidation Analysis. The Company supplied Baum with an orderly
liquidation analysis that analyzed the projected amount of distributions to the
Company's stockholders in the event the Company were to engage in an orderly
liquidation of the Company's assets. Pursuant to such liquidation analysis, the
first projected distribution to the Company's stockholders of $2.11 per share
would be made on September 30, 2001, with a distribution of $0.16 per share on
September 30, 2002 and four annual distributions of $0.05 per share through
September 30, 2006. The present value of the total distributions of $2.47 per
share, when discounted by 10% and 25%, would be $2.18 and $1.87, respectively.
See - "Reports, Analyses and Other Information Considered by the Independent
Committee and the Board of Directors."
Pursuant to the terms of an engagement letter dated July 11, 2000, the
Company agreed to pay Baum for rendering a fairness opinion to the Independent
Committee in connection with the Merger a fee as follows: (i) $35,000 upon
execution of the engagement letter, (ii) $25,000 upon delivery of the opinion by
Baum, and (iii) $40,000 upon the mailing of this proxy statement to the
stockholders. The fees paid to Baum were not contingent upon the consummation
of the Merger and were to be paid regardless of the substance of the opinion of
Baum. In addition, the Company has agreed to reimburse Baum for its reasonable
out-of-pocket expenses, including the fees and disbursements of its legal
counsel, and to indemnify Baum and certain related persons against certain
liabilities relating to or arising out of its engagement, including certain
liabilities under the federal securities laws. In the ordinary course of its
business, Baum has traded, and may in the future trade, securities of the
Company for its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
Baum has no knowledge of engaging in any trading in the Common Stock during the
past twelve months.
Baum was engaged by the Independent Committee to render its opinion as to
the fairness from a financial point of view of the consideration to be received
by the stockholders in the Merger in connection with the Independent Committee's
and the Board's discharge of their fiduciary obligations.
Page - 52
<PAGE>
Certain Projections
The Company does not as a matter of course make public forecasts as to
future operations, but the Company does prepare certain projections each year in
connection with the preparation of its annual business plan. Management
prepared the following projections in August 2000 specifically for use in this
proxy statement ("Certain Projections").
Due to the nature of the hotel, restaurant and nightclub industries,
projections are not normally predicated on significant events such as the
receipt or loss of a large contract or customer, or the introduction of new
products or services. Historically these operations perform fairly
consistently, with relatively minor increases or decreases from year to year. A
slight exception to this pattern, as related to the Company, is the effect that
weather and the number of special events has on the Cat's Meow nightclub
operations during certain times of the year.
While presented with numerical specificity, the projections are based upon
numerous estimates and assumptions that are inherently subject to significant
business, economic, industry and competitive uncertainties and contingencies,
all of which are difficult to predict and many of which are beyond the Company's
control. Because there can be no assurance that the Company will complete any
acquisitions or dispositions, other than the sale of the Cabo units in Houston,
Texas, the projections do not reflect these type of transactions. In addition,
although the Company is presently developing several new food and beverage
concepts, due to the highly speculative nature of developing new concepts and
the associated inherent risks, it would be premature and not meaningful to
include the cost of developing and opening new units as well as including the
related estimated operating results in the projections. Likewise, it would not
be accurate to project beyond fiscal year 2001 since it is likely that the
impact of developing and opening new concept units would have to be considered.
Due to these factors, the Company prepared projections for its fiscal years 2000
and 2001. There can be no assurance that the projected results will be realized
or that the actual results will not be significantly higher or lower than those
predicted. Projections cannot be considered a reliable predictor of future
operating results, and this information should not be relied upon as such.
Additionally, the financial projections do not reflect revised prospects for the
Company, changes in general business and economic conditions, or any other
transaction or event that has occurred or may occur and that was not anticipated
at the time such information was prepared.
Page - 53
<PAGE>
The projections do not include cash expenditures related to the Vestal
Superfund Site. As of September 30, 2000, the estimated remaining cost of the
clean up of the contaminated soil is $2,523,000 and is recorded as an accrued
liability on the Company's balance sheet. This amount was expensed as part of a
$3,000,000 estimated cost for the clean up in June 1997 and therefore will not
be shown as a current charge in the projections. In addition, the Company will
have at September 30, 2000, approximately $950,000 in extraordinary planned
capital expenditures for its fiscal year 2001, including an estimated $650,000
related to the reconcepting of the Company's Cabo unit located in downtown Fort
Worth, Texas and $300,000 related to the completion of the convention and group
sales facilities presently being remodeled for the Company's Stockyards Hotel.
The Company will exercise its option to purchase these facilities, which are
currently being leased to the Company, during fiscal year 2001 for $567,000,
provided the facilities meet certain expectations.
The projections set forth below were not prepared by the Company with a
view to public disclosure or compliance with published guidelines of the SEC or
the American Institute of Certified Public Accountants regarding prospective
financial information, nor was the information prepared with the assistance of
or reviewed, compiled or examined by, independent accountants. The projections
reflect numerous assumptions, all made by management of the Company, with
respect to industry performance, general business, economic, market and
financial conditions and other matters, all of which are difficult to predict
and many of which are beyond the Company's control. Accordingly, there can be no
assurance that the assumptions made in preparing the projections set forth below
will prove accurate, and actual results may be materially greater or less than
those contained in the projections set forth below. The inclusion of the
projections in this proxy statement should not be regarded as an indication that
the Company or any of its financial advisors or other representatives, or their
respective officers and directors, consider such information to be an accurate
prediction of future events or necessarily achievable. In light of the
uncertainties inherent in forward looking information of any kind, we caution
undue reliance on such information. We do not intend to update, revise or
correct such projections if they become inaccurate (even in the short term).
The projections for FYE 2000 were based upon actual results for the nine
months ended June 30, 2000 and therefore include a projection for only the
fourth quarter. The fourth quarter projection was based upon the current year
results (through June 30, 2000), along with the previously prepared budgeted
fourth quarter projections and did not include any significant increases or
decreases in operating results. In order to make the FYE 2000 projections
consistent with those for FYE 2001 it was assumed that the two Cabo units in
Houston, Texas were sold for $3,500,000 in cash and that the cash was invested
at 5% for the entire FYE 2000. The Company completed the sale of these two Cabo
units in September 2000. The FYE 2000 projections include an estimated $700,000
in costs and expenses that would likely be incurred by the Company if the Merger
were not consummated.
The projections for FYE 2001 were based upon FYE 2000 amounts, as adjusted,
and do not include any costs and expenses that would likely be incurred by the
Company if the Merger were not consummated. However, these projections include
increased revenues for a remodeled Cabo Fort Worth, which is expected to be
completed by December 31, 2000.
Page - 54
<PAGE>
Year ended September 30
---------------------------------------
2000/(1)/ 2001/(2)/
---------- ----------
(in thousands)
Net Revenues $ 13,548 $ 14,048
EBITDA/(3)/ $ 1,124 $ 1,587
_______________
(1) Fiscal year end ("FYE") 2000 is based upon actual results of the nine-month
period ending June 30, 2000, plus projected results for the remaining three
months. It includes an estimated $700,000 in costs and expenses that would
likely be incurred by the Company if the Merger were not consummated. It
does not include the potential break-up fee of $500,000 or the change of
control payments of $2,190,000 which may result from the termination of
certain employment agreements with the Company. It is assumed that in
August 2000 the sale of the Cabo units in Houston has been completed for
$3,500,000 in cash and that the proceeds are invested at 5%.
(2) FYE 2001 includes the operations of the River Ranch facility, a convention
and group sales facility operated by the Stockyards Hotel. Capital
expenditures for this project will be approximately $300,000 over FYE's
2000 and 2001. FYE 2001 also includes the operations of a reconcepted Cabo-
Fort Worth. The Company will spend approximately $650,000 over FYE's 2000
and 2001 on this project. The first phase is expected to be completed by
December 31, 2000 and therefore the projections include the estimated
results of the first phase for nine months.
(3) The above projections do not include approximately $200,000 in annual
recurring capital expenditures and the estimated $2,000,000 the Company
expects to spend in September 2000 and fiscal year 2001 related to its
Vestal Superfund Site.
Conflicts of Interests
In considering the recommendations of the Board, the Company's stockholders
should be aware that certain members of the Company's management and the Board
have interests in the Merger beyond the interests of the Public Stockholders
that may create potential conflicts of interest. These conflicts are discussed
below.
Mr. McLean is the Chairman, Chief Executive Officer and President of the
Company and a member of the Management Group. Messrs. Rogers and Hodges are also
directors of the Company and members of the Management Group. Due to their
conflicts of interest, Messrs. McLean, Rogers and Hodges did not participate on
the Independent Committee and excused themselves from the portion of the Board
meeting held to review and discuss (i) the fairness opinions with the Financial
Advisors, (ii) the report of the Independent Committee, and (iii) the Merger
Agreement. This allowed the remaining members of the Board to vote on the Merger
Agreement without the presence of Messrs. McLean, Rogers and Hodges.
As of the Record Date, Mr. McLean and the other members of the Management
Group beneficially owned 1,141,914 shares of Common Stock (representing
approximately 25.95% of the Common Stock then outstanding). Mr. McLean and the
other members of the Management Group
Page - 55
<PAGE>
will receive the same consideration for their shares of Common Stock and options
to purchase Common Stock as the other stockholders and option holders.
The members of the Management Group beneficially own, in the aggregate,
100% of Hospitality, which owns all of the outstanding units of American, the
Surviving Company in the Merger, and the other subsidiaries formed to accomplish
the Merger. Accordingly, the members of the Management Group have a direct
economic interest in the Merger. See "- Future Plans of the Company."
The Management Group members' percentage interest in the net book value and
net earnings of the Company and the corresponding dollar amounts for such
percentage interests for the nine-month period ended June 30, 2000 are as set
forth in the following table:
Dollar Amounts at June 30, 2000
-------------------------------
Percentage Interest Net Book Value Net Earnings
------------------- ---------------- -------------
Mr. McLean 16.13% $2,235,000 $81,000
Mr. Korman 3.33% $ 461,000 $17,000
Mr. Milan 1.85% $ 256,000 $ 9,000
Mr. Kearney 1.58% $ 219,000 $ 8,000
Mr. Rogers 3.12% $ 432,000 $16,000
Mr. Hodges 1.46% $ 202,000 $ 7,000
Following the closing of the Merger Agreement, Hospitality will not have any net
book value due to the funded debt incurred nor will it have any net earnings
history. It is expected that the members of the Management Group will own the
following percentages of Hospitality:
Mr. McLean 60.0%
Mr. Korman 15.0%
Mr. Milan 10.0%
Mr. Kearney 10.0%
Mr. Rodgers 2.5%
Mr. Hodges 2.5%
Page - 56
<PAGE>
Members of the Management Group will receive the following amounts as a result
of their current ownership of shares of the Company:
Mr. McLean $1,549,352
Mr. Korman $ 302,692
Mr. Milan $ 166,500
Mr. Kearney $ 141,750
Mr. Rodgers $ 278,512
Mr. Hodges $ 130,500
In making its determination with respect to the Merger in accordance with
their fiduciary duties to the Company's stockholders, the Independent Committee
and the Board considered the actual and potential conflicts of interest of the
members of the Management Group and certain of the Board's members, along with
the other matters described under "- Determination of Fairness of the Merger by
the Independent Committee and the Board of Directors."
Future Plans of the Company
It is expected that, following the Merger, the business and operations of
the Company will be continued by Hospitality, substantially as they are
currently being conducted, including continuing to consider new food and
beverage concepts. However, the members of the Management Group and the
management of Hospitality will continue to evaluate the Company's business and
operations after the consummation of the Merger and may make such changes as are
deemed appropriate. The Company's executive and corporate headquarters is
expected to remain at its current location in Fort Worth, Texas.
Except as otherwise indicated in this proxy statement, the members of the
Management Group do not have any present plans or proposals subsequent to the
Merger involving Hospitality that relate to or would result in an extraordinary
corporate transaction, such as a merger, reorganization or liquidation,
acquisition or sale or transfer of a material amount of assets of the Company.
See "- Estimated Fees and Expenses; Sources of Funds."
The Merger Agreement provides that the sole officer and director of
American and Hospitality immediately before the Effective Time shall become,
from and after the Effective Time, the sole officer and director of the
Surviving Company. The sole officer and director of American and Hospitality
currently is Mr. McLean, who shall continue as the sole officer and director of
the Surviving Company and of Hospitality until his successors have been duly
elected or appointed and qualified or until his earlier death, resignation or
removal in accordance with the limited liability company agreements of the
Surviving Company and Hospitality.
Page - 57
<PAGE>
Rights of Dissenting Stockholders
If the Merger Agreement is approved by the required vote of the Company's
stockholders and is not abandoned or terminated, stockholders of the Company who
did not vote in favor of the Merger may, by complying with Section 262 of the
DGCL, be entitled to appraisal rights as described therein. If a stockholder of
the Company has a beneficial interest in shares of Common Stock that are held of
record in the name of another person, such as a broker or nominee, and such
stockholder desires to perfect whatever appraisal rights such beneficial
stockholder may have, such beneficial stockholder must act promptly to cause the
holder of record timely and properly to follow the steps summarized below. A
VOTE IN FAVOR OF THE MERGER BY A STOCKHOLDER OF THE COMPANY WILL RESULT IN A
WAIVER OF THE STOCKHOLDER'S APPRAISAL RIGHTS.
The Company is a Delaware corporation. Section 262 of the DGCL provides
appraisal rights (sometimes referred to as "dissenters' rights") under certain
circumstances to stockholders of a Delaware corporation that is involved in a
merger.
Record holders of Common Stock that follow the appropriate procedures are
entitled to appraisal rights under Section 262 in connection with the Merger.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING
TO APPRAISAL RIGHTS UNDER THE DELAWARE GENERAL CORPORATION LAW AND IS QUALIFIED
IN ITS ENTIRETY BY THE FULL TEXT OF SECTION 262, WHICH IS REPRINTED IN ITS
ENTIRETY AS APPENDIX IV TO THIS PROXY STATEMENT. ALL REFERENCES IN SECTION 262
TO A "STOCKHOLDER" AND IN THIS DISCUSSION TO A "RECORD HOLDER" ARE TO THE
HOLDERS OF RECORD OF COMMON STOCK IMMEDIATELY BEFORE THE EFFECTIVE TIME OF THE
MERGER AS TO WHICH APPRAISAL RIGHTS ARE ASSERTED.
Under the DGCL, record holders of Common Stock that follow the procedures
set forth in Section 262 and that have neither voted in favor of the approval
and adoption of the Merger Agreement, nor consented thereto in writing, will be
entitled to have their shares of Common Stock appraised by the Delaware Court of
Chancery and to receive payment of the "fair value" of such shares, exclusive of
any element of value arising from the accomplishment or expectation of the
Merger, together with a fair rate of interest, as determined by the Delaware
Court of Chancery.
Under Section 262, where a merger agreement is to be submitted for approval
and adoption at a meeting of stockholders, as in the case of the Special
Meeting, not less than 20 days prior to the meeting, the Company must notify
each of its stockholders as of the Record Date, who are entitled to appraisal
rights that such appraisal rights are available and include in each such notice
a copy of Section 262. THIS PROXY STATEMENT CONSTITUTES SUCH NOTICE TO THE
STOCKHOLDERS OF THE COMPANY. Any stockholder who wishes to exercise appraisal
rights or wishes to preserve such holder's right to do so should review the
following discussion and Appendix IV carefully because failure to timely and
properly comply with the procedures specified in Section 262 will result in the
loss of appraisal rights under the DGCL.
Page - 58
<PAGE>
A stockholder wishing to exercise appraisal rights must deliver to the
Company, before the vote on the approval and adoption of the Merger Agreement at
the Special Meeting, a written demand for appraisal of the stockholder's Common
Stock, which must reasonably inform the Company of the identity of the holder of
record as well as the intention of the holder to demand an appraisal of the fair
value of the shares held. In addition, a stockholder wishing to exercise
appraisal rights or wishing to preserve the stockholder's right to do so must
hold of record such shares on the date the written demand for appraisal is made,
must continue to hold such shares through the Effective Time of the Merger and
must either vote against or abstain from voting for the approval and adoption of
the Merger Agreement and consummation of the Merger.
Only a record holder of Common Stock is entitled to assert appraisal rights
for the Common Stock, registered in such holder's name. A demand for appraisal
should be executed by or on behalf of the holder of record, fully and correctly,
as such holder's name appears on such holder's stock certificates, and must
state that such holder intends thereby to demand appraisal of such holder's
shares of Common Stock. A PROXY OR VOTE AGAINST THE APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT WILL NOT CONSTITUTE A DEMAND FOR APPRAISAL.
If the shares of Common Stock are owned of record in a fiduciary capacity,
such as by a trustee, guardian or custodian, execution of the demand should be
made in that capacity, and, if the shares of Common Stock are owned of record by
more than one person, as in a joint tenancy, or tenancy in common, the demand
should be executed by or on behalf of all joint owners. An authorized agent,
including one or more joint owners, may execute a demand for appraisal on behalf
of all joint owners. An authorized agent, including one or more joint owners,
may execute a demand for appraisal on behalf of a holder of record; however the
agent must identify the record owner or owners and expressly disclose the fact
that, in executing the demand, the agent is agent for such owner or owners. A
record holder, such as a broker who holds Common Stock as nominee for several
beneficial owners, may exercise appraisal rights with respect to the shares of
Common Stock held for one or more beneficial owners while not exercising such
rights with respect to the shares of Common Stock held for other beneficial
owners. In such case, however, the written demand should set forth the number
of shares of Common Stock, as to which appraisal is sought. If no number of
shares of Common Stock is expressly mentioned, the demand will be presumed to
cover all Common Stock held in the name of the record holder. Holders of Common
Stock who hold their shares in brokerage accounts or other nominee forms and who
wish to exercise appraisal rights are urged to consult with their brokers to
determine the appropriate procedures for the making of a demand for appraisal by
such nominee.
All written demands for appraisal of Common Stock should be mailed or
delivered to the Company at 226 Bailey Avenue, Suite 101, Fort Worth, Texas
76107, Attention: Corporate Secretary, so as to be received before the vote on
the approval and adoption of the Merger Agreement at the Special Meeting.
Within 10 days after the Effective Time of the Merger, the Surviving
Company must send a notice as of the effective date of the Merger to each person
that satisfied the appropriate provisions of Section 262. Within 120 days after
the Effective Time of the Merger, but not thereafter, the Surviving Company, or
any stockholder entitled to appraisal rights under Section 262 and who has
complied with the foregoing procedures, may file a petition in the Delaware
Court of Chancery
Page - 59
<PAGE>
demanding a determination of the fair value of such shares. The Company is not
under any obligation, and has no present intention, to file a petition with
respect to the appraisal of the fair value of the Common Stock. Accordingly, it
is the obligation of the stockholder to initiate all necessary action to perfect
their appraisal rights within the time prescribed in Section 262.
Within 120 days after the Effective Time of the Merger, any record holder
of the Company Common Stock that has complied with the requirements for exercise
of appraisal rights will be entitled to request in writing a statement from the
Surviving Company setting forth the aggregate number of shares of Common Stock
not voted in favor of the Merger with respect to which demands for appraisal
have been received and the aggregate number of holders of such shares. The
statement must be mailed within 10 days after the written request has been
received by the Surviving Company, or within 10 days after expiration of the
period for delivery of demands for appraisal, whichever is later.
If a holder of Common Stock timely files a petition for appraisal and
serves a copy of such petition upon the Surviving Company, the Surviving Company
will then be obligated, within 20 days, to file with the Delaware Register in
Chancery a duly verified list containing the names and addresses of all
stockholders who have demanded an appraisal of their shares and with whom
agreements as to the value of their shares have not been reached. After notice
to such stockholders as required by the Delaware Court of Chancery, the Delaware
Court of Chancery is empowered to conduct a hearing on such petition to
determine those stockholders that have complied with Section 262 and that have
become entitled to appraisal rights. The Delaware Court of Chancery may require
the holders of shares of Common Stock that demanded payment for their shares to
submit their stock certificates to the Delaware Register in Chancery for
notation of the pendency of the appraisal proceeding. If any stockholder fails
to comply with such direction, the Delaware Court of Chancery may dismiss the
proceedings as to such stockholder.
After determining the holders of Common Stock entitled to appraisal, the
Delaware Court of Chancery will appraise the fair value of their shares of
Common Stock, exclusive of any element of value arising from the accomplishment
or expectation of the Merger, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. Stockholders
considering seeking appraisal should be aware that the fair value of their
Common Stock as determined under Section 262 could be more than, the same as or
less than the value of the Merger Consideration, and that investment banking
opinions as to fairness from a financial point of view are not opinions as to
fair value under Section 262. The Delaware Supreme Court has stated that "proof
of value by any techniques or methods that are generally considered acceptable
in the financial community and otherwise admissible in court" should be
considered in the appraisal proceedings. More specifically, the Delaware
Supreme Court has stated that: "Fair value, in an appraisal context, measures
'that which has been taken from the stockholder, viz., his proportionate
interest in a going concern.' In the appraisal process the corporation is
valued 'as an entity,' not merely as a collection of assets or by the sum of the
market price of each share of its stock. Moreover, the corporation must be
viewed as an on-going enterprise, occupying a particular market position in the
light of future prospects." In addition, Delaware courts have decided that the
statutory appraisal remedy, depending on factual circumstances, may or may not
be a stockholder's exclusive remedy. The Delaware Court of Chancery will also
determine the amount of interest, if any, to be paid upon the amounts to be
received by persons whose shares of Common Stock have been appraised. The costs
of the action
Page - 60
<PAGE>
may be determined by the Delaware Court of Chancery and taxed upon the parties
as the Delaware Court of Chancery deems equitable. The Delaware Court of
Chancery may also order that all or a portion of the expenses incurred by any
Public Stockholder in connection with an appraisal, including without limitation
reasonable attorneys' fees and the fees and expenses of experts utilized in the
appraisal proceeding, be charged PRO RATA against the value of all of the shares
of Common Stock entitled to appraisal.
Any stockholder that has duly demanded an appraisal in compliance with
Section 262 will not, from and after the Effective Time of the Merger, be
entitled to vote the stockholder's shares of Common Stock, subject to such
demand for any purpose or be entitled to the payment of dividends of other
distributions on those shares.
If any stockholder that demands appraisal of shares of Common Stock under
Section 262 fails to perfect, or effectively withdraws or loses the right to
appraisal, as provided in the DGCL, the Common Stock of the stockholder will be
converted into the Merger Consideration in accordance with the Merger Agreement
(without interest), as more fully described under "The Merger Agreement -
Conversion of Securities in the Merger; Treatment of Derivatives." A
stockholder will fail to perfect, or will effectively lose, the right to
appraisal if no petition for appraisal is filed within 120 days after the
Effective Time of the Merger. A stockholder may withdraw a demand for appraisal
by delivering to the Company a written withdrawal of the demand for appraisal
and acceptance of the Merger. Any such attempt to withdraw made more than 60
days after the Effective Time of the Merger will, however, require the written
approval of the Surviving Company. Further, once a petition for appraisal is
filed, the appraisal proceeding may not be dismissed as to any stockholder
absent court approval.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 FOR PERFECTING
APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS, IN WHICH EVENT THE
HOLDER OF COMMON STOCK WILL BE ENTITLED TO RECEIVE ONLY THE CONSIDERATION SET
FORTH IN THE MERGER AGREEMENT FOR EACH SHARE OF COMMON STOCK ISSUED AND
OUTSTANDING IMMEDIATELY BEFORE THE EFFECTIVE TIME OF THE MERGER OWNED BY THE
STOCKHOLDER.
The foregoing is a summary of certain of the provisions of Section 262 and
is qualified in its entirety by reference to the full text of such Section 262,
a copy of which is attached as Appendix IV to this proxy statement.
Estimated Fees and Expenses; Sources of Funds
Estimated fees and expenses incurred or to be incurred by the Company in
connection with the Merger Agreement and the transactions contemplated thereby
are approximately as follows:
<TABLE>
<S> <C>
Payment of Merger Consideration/(1)/..................................... $ 9,984,199
Financial advisory fees, financing commitment fees and expenses/(2)/..... 434,500
Legal fees and expenses/(3)/............................................. 331,000
</TABLE>
Page - 61
<PAGE>
Accounting and appraisal fees and expenses.......... 47,000
SEC filing fees..................................... 1,997
Printing and mailing expenses....................... 35,000
Proxy solicitation fees and expenses................ 10,000
Paying Agent fees and expenses...................... 10,000
Independent Committee fees and expenses............. 145,000
Miscellaneous expenses.............................. 304
-----------
TOTAL..................................... $10,999,000
-------
(1) Includes payment for all outstanding shares of Common Stock and options.
(2) Includes the fees and estimated expenses of the Financial Advisors. See "-
Opinions of Independent Committee's Financial Advisors."
(3) Includes the estimated fees and expenses of legal counsel for the
Independent Committee, for the Company, for the members of the Management
Group, and for the Financial Advisors.
The total financing for the Merger Agreement and related costs and expenses
will be approximately $10,999,000, of which approximately $9,984,199 will be
required to pay the Merger Consideration of $2.25 per share to the stockholders
and the excess, if any, of the Merger Consideration over the exercise price per
share under each outstanding option. It is estimated that approximately
$1,014,500 will be needed to pay all related fees, costs and expenses. The
financing will be obtained from borrowings and cash available from the Company.
The borrowings will become available immediately after the Effective Time upon
satisfaction of the conditions in the loan documents. None of the borrowings
will become effective or available if the Merger is not consummated for any
reason. The terms of and the documentation for the intended borrowings have not
yet been finalized and are still being negotiated. Accordingly, the description
below of such borrowings is preliminary and not necessarily complete. In any
event, the final documentation for the borrowings might contain terms and
conditions that are more or less restrictive than currently being contemplated.
It is anticipated that the borrowings will consist of two loans. A
mortgage will be placed on the Stockyards Hotel property. This loan will be
secured by a perfected first priority lien on the real estate used in the
operation of the Stockyards Hotel and will contain terms and conditions
ordinarily and customarily contained in real estate mortgage loans. The second
borrowing will consist of a fixed rate term loan secured by a perfected first
priority lien in all real and personal property of Cat's Meow, LLC. This
borrowing contains a credit enhancement feature which will require the Surviving
Company to pay amounts in excess of the normal monthly payment of principal and
interest in order to offset possible future losses in the lenders loan pool.
Members of the Management Group expect to satisfy the repayment obligations of
those borrowings with the Surviving Company's cash flow from operations.
Page - 62
<PAGE>
Expenses
Except with regard to the expense payments described under the caption "The
Merger Agreement - Termination," the Merger Agreement requires the Company to
bear all reasonable third party costs and expenses of Hospitality incurred in
connection with the closing of the Merger and related transactions, including,
without limitation, the negotiation, preparation and execution of the Merger
Agreement and related agreements, and the preparation of all SEC and Amex
filings and amendments thereto. If the Company terminates the Merger Agreement
as a result of Hospitality breaching any of its representations or warranties or
its failure to perform, or the breach of, a material covenant or agreement under
the Merger Agreement, Hospitality will promptly reimburse the Company for such
costs and expenses that Hospitality incurred and the Company paid.
THE MERGER AGREEMENT
The following discussion is a summary of the material provisions of the
Merger Agreement. This summary and all other discussions of the terms and
conditions of the Merger and the Merger Agreement included elsewhere in this
proxy statement are qualified in their entirety by reference to the Merger
Agreement, a copy of which is attached as Appendix I to this proxy statement and
incorporated by reference herein. Capitalized terms used but not defined herein
have the meanings ascribed to such terms in the Merger Agreement.
The Merger
On the terms and subject to the conditions of the Merger Agreement, at the
Effective Time, the Company will be merged with and into American in accordance
with the applicable provisions of the DGCL, and the separate existence of the
Company will thereupon cease. American will be the surviving company. The
Merger will have the effects specified in the DGCL, the Delaware Limited
Liability Company Act ("DLLCA") and the Merger Agreement.
Effective Time
As soon as practicable after all of the conditions (excluding conditions
that by their terms cannot be satisfied until the date of the Merger) set forth
in the Merger Agreement are satisfied or waived or at such other time or date as
the parties may agree, Hospitality and the Company will cause a certificate of
merger to be filed with the Secretary of State of the State of Delaware as
provided in the DGCL and the DLLCA (the "Effective Time"). Upon completion of
such filing and the issuance of a certificate of merger by the Secretary of
State of the State of Delaware, the Merger will become effective in accordance
with the DGCL and the DLLCA.
Certificate of Formation and Limited Liability Company Agreement of the
Surviving Company
The Merger Agreement provides that the certificate of formation and limited
liability company agreement of American, as in effect immediately before the
Effective Time, shall become, from and after the Effective Time, the certificate
of formation and limited liability company agreement of the Surviving Company
until amended in accordance with its terms and the DLLCA,
Page - 63
<PAGE>
except that the limited liability company agreement shall be amended to reflect
a change of the name of the Surviving Corporation to BFX Hospitality Group, LLC
(as amended, the "LLC Agreement").
Directors and Officers of the Surviving Company
The Merger Agreement provides that the sole officer and director of
American immediately prior to the Effective Time shall become, from and after
the Effective Time, the sole officer and director of the Surviving Company. Mr.
McLean will continue as the sole officer and director, as the case may be, of
the Surviving Company until his successors have been duly elected or appointed
and qualified or until his earlier death, resignation or removal in accordance
with the LLC Agreement.
Conversion of Securities in the Merger; Treatment of Derivatives
The Merger Agreement provides that, at the Effective Time, (i) each share
of Common Stock, including the associated right to buy Common Stock under the
Company's Rights Agreement (collectively, the "Company Common Shares") issued
and outstanding immediately prior to the Effective Time, other than the Non-
Merger Consideration Shares (as defined below) will, by virtue of the Merger and
without any action on the part of the holders thereof, be converted solely and
exclusively into the right to receive the Merger Consideration; (ii) all Company
Common Shares to be converted into the right to receive the Merger Consideration
pursuant to clause (i) will, by virtue of the Merger and without any action on
the part of the holders thereof, cease to be outstanding, be canceled and
retired and cease to exist, and each holder of Company Common Shares will
thereafter cease to have any rights with respect to such Company Common Shares,
except the right to receive the Merger Consideration for each of the Company
Common Shares, upon the surrender of such holder's certificate(s) in accordance
with the terms of the Merger Agreement, without any interest thereon, as
provided in the Merger Agreement, or the rights under Section 262 of the DGCL;
(iii) each Company Common Share issued and outstanding that is owned by the
Company as treasury stock or any of the Company's Subsidiaries (as defined
below) immediately prior to the Effective Time (together with the Company Common
Shares held by Dissenting Stockholders, the "Non-Merger Consideration Shares")
will, by virtue of the Merger and without any action on the part of the holder
thereof, cease to be outstanding, be canceled and retired and cease to exist
without payment of any Merger Consideration therefor; (iv) each unit of capital
stock of American issued and outstanding immediately prior to the Merger shall
remain outstanding and shall constitute all of the issued and outstanding units
of capital stock of the Surviving Corporation and be owned by Hospitality. The
word "Subsidiary" means, with respect to any person, any affiliate controlled by
such person directly, or indirectly through one or more intermediaries, and
shall include, without limitation, any corporation, partnership, joint venture,
limited liability company, trust, estate or other organization, or entity, of
which (or in which) 50% or more of: (i) the issued and outstanding shares of
capital stock having ordinary voting power to elect a majority of the board of
directors or others performing similar functions with respect thereto of such
corporation or other organization (irrespective of whether at the time shares of
capital stock or other interests of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency); (ii) the interest in the capital or profits of such partnership,
joint venture, limited liability company or other organization or entity; or
(iii) the beneficial interest in such trust or estate;
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is at the time, directly or indirectly, owned or controlled by such person, by
such person and one or more of its other subsidiaries or by one or more of such
person's other subsidiaries.
The Board will take all action to vest and make exercisable as of the
Effective Time all outstanding options, whether vested or not, and the Company
shall give written notice to the holder of each option of the acceleration and
exercisability of the options as of the Effective Time in accordance with the
relevant plan. Each option holder shall be paid by Hospitality at the Effective
Time the Option Consideration.
Payment for and Surrender of Company Common Shares
From time to time as needed by the Paying Agent (as defined below),
Hospitality or the Surviving Company will deposit, or cause to be deposited,
with First Union National Bank or such bank or trust company designated by
Hospitality (the "Paying Agent"), for the benefit of the holders of Company
Common Shares funds necessary to make the payments contemplated by the Merger
Agreement (being hereinafter referred to as the "Payment Fund"). The Paying
Agent will, pursuant to instructions from the Surviving Company, deliver the
Merger Consideration out of the Payment Fund, and, except as described herein,
the Payment Fund will not be used for any other purpose. The Surviving Company
will act as paying agent with respect to the Option Consideration described in
the preceding paragraph.
Promptly after the Effective Time, the Surviving Company will cause to be
mailed to each holder of record (other than the Company, any of the Company's
Subsidiaries or any Dissenting Stockholders) of a certificate or certificates
that immediately prior to the Effective Time represented outstanding Company
Common Shares (the "Certificates") (i) a form of letter of transmittal (which
will specify that delivery will be effected, and risk of loss and title to the
Certificates will pass, only upon proper delivery of the Certificates to the
Paying Agent) and (ii) instructions for use in effecting the surrender of the
Certificates for payment therefor. Upon surrender of the Certificates for
cancellation to the Paying Agent, together with such letter of transmittal duly
executed and any other required documents, the holder of such Certificates will
be entitled to receive for each of the Company Common Shares represented by such
Certificates the Merger Consideration, and the Certificates so surrendered will
promptly be canceled. Until so surrendered, Certificates will represent solely
the right to receive the Merger Consideration. No interest will be paid or
accrued on the cash payable upon the surrender of the Certificates.
If any Merger Consideration is to be paid to a person whose name is a name
other than that in which the surrendered Certificate in exchange therefor is
registered, it will be a condition of payment that the Certificate so
surrendered be properly endorsed or otherwise in proper form for transfer and
that the person requesting such payment pay any transfer or other taxes required
by reason of the payment of such Merger Consideration to a person other than
that of the registered holder of the surrendered Certificate, or establish to
the satisfaction of the Surviving Corporation that such tax has been paid or is
not applicable. In the event that any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed, the Paying Agent will
issue in exchange for such lost, stolen or destroyed Certificate the Merger
Consideration deliverable in respect thereof as determined in accordance with
the Merger Agreement, provided that the person to whom the Merger
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Consideration is paid shall, as a condition precedent to the payment thereof if
required by the Surviving Company, give the Surviving Company a bond in such
reasonable amount as it may direct as indemnity against any claim that may be
made against the Surviving Company with respect to the Certificate claimed to
have been lost, stolen or destroyed.
Any portion of the Payment Fund that remains unclaimed by the former
stockholders following the sixth (6/th/) month after the Effective Time may be
delivered to the Surviving Company, and any former stockholders of the Company
will thereafter look only to the Surviving Company and only as general creditors
thereof for payment of their claim for the Merger Consideration for the Company
Common Shares.
Neither Hospitality, the Surviving Company nor the Paying Agent shall be
liable to any holder of Company Common Shares for such shares (or dividends or
distributions with respect thereto) or cash from the Payment Fund (or from the
Surviving Company after the Payment Fund has terminated) delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
Immediately prior to the time as any amounts remaining unclaimed by holders of
any such shares would otherwise escheat to or become property of any
governmental or regulatory authority, domestic or foreign ("Governmental
Entity"), such amounts shall, to the extent permitted by applicable law, become
the property of the Surviving Company free and clear of any claims or interest
of any person previously entitled thereto.
Closing of Stock Transfer Records
At the Effective Time, the stock transfer books of the Company will be
closed, and there shall be no further registration of transfers of shares of
Company Common Stock thereafter on the records of the Company.
Representations and Warranties
The Merger Agreement contains various representations and warranties of the
parties. These include representations and warranties by the Company with
respect to corporate existence, good standing, corporate authority,
authorization, validity and effect of the Merger Agreement, capitalization,
subsidiaries, conflicts, required filings and consents, finders' fees and
brokerage commissions, SEC filings, financial statements, compliance with laws,
permits, contracts, taxes and tax returns, environmental matters, intellectual
property, title to property, labor matters, information supplied, takeover
statutes, stockholder rights plan, disclosure, undisclosed liabilities and
absence of certain changes or events. Hospitality has also made certain
representations and warranties on behalf of itself, with respect to corporate
existence, good standing, corporate authority, authorization, validity and
effect of the Merger Agreement, conflicts, required filings and consents,
finders' fees and brokerage commissions, information supplied and no knowledge
of misrepresentations.
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Acquisition Proposals
Under the Merger Agreement, the Company has agreed to cease and cause to be
terminated any existing activities, discussions or negotiations with any parties
conducted theretofore with respect to any Acquisition Proposal (as defined
below). The Company has agreed that, prior to the Effective Time, neither it nor
any of its Subsidiaries will, nor will it or any of its Subsidiaries permit
their respective officers, directors, employees, agents and representatives
(including, without limitation, any investment banker, attorney or accountant
retained by it or any of its subsidiaries) to initiate, solicit, participate in
or encourage, directly or indirectly, any Acquisition Proposal or, except as set
forth below, engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal. An "Acquisition Proposal" means, other than
the transactions among the Company and Hospitality contemplated by the Merger
Agreement or that Hospitality consents to in writing in advance, any of the
following involving the Company or any of its Subsidiaries: (i) the acquisition
of the Company by merger or otherwise by any person (which includes a "Person"
as such term is defined in Section 13(d)(3) of the Exchange Act) other than
Hospitality (a "Third Party"); (ii) the acquisition by a Third Party of any
material portion of the assets of the Company and its Subsidiaries taken as a
whole; (iii) the acquisition by a Third Party of fifteen percent (15%) or more
of the outstanding Common Stock or the issuance by the Company of capital stock
containing terms which are inconsistent with the consummation of the
transactions contemplated by the Merger Agreement; (iv) the adoption by the
Company of a plan of liquidation or the declaration or payment of an
extraordinary dividend; (v) the repurchase by the Company or any of its
Subsidiaries of more than fifteen percent (15%) of the outstanding shares; or
(vi) the acquisition by the Company or any of its Subsidiaries by merger, joint
venture or otherwise of any person, or any purchase of stock or assets or
acquisition of any direct or indirect ownership interest or investment in any
business such that, after such acquisition, the Company and its Subsidiaries'
interest or investment in such business's annual revenues, net income or assets
is greater than or equal to fifteen percent (15%) of the annual revenues, net
income or assets of the Company. Notwithstanding the foregoing, in the event
the Company receives an unsolicited written proposal or unsolicited written
offer (in either case subject to due diligence) with respect to an Acquisition
Proposal, the Independent Committee or the Board shall be entitled to review
and participate in negotiations concerning such proposal and furnish
confidential information and data concerning the Company and its subsidiaries to
the offeror if the Independent Committee or the Board reasonably believes, after
consultation with its legal counsel, that there is a substantial risk that a
failure to do so would violate its fiduciary duties to the stockholders of the
Company and there is a reasonable prospect that the offeror would submit a
Superior Proposal. The Company shall notify Hospitality immediately of any such
unsolicited Acquisition Proposal, or any inquiry or contact with any person with
respect thereto. In addition, in the event (i) the Company enters into
negotiations with respect to an unsolicited Acquisition Proposal or (ii) the
Board (upon recommendation of the Independent Committee) shall withdraw its
approval of the Merger Agreement and the transactions contemplated thereby or
its recommendation to the stockholders of the Company to approve the same, then
the Company shall immediately deliver an additional notice of such events to
Hospitality. Nothing in the Merger Agreement will (x) permit the Company to
terminate the Merger Agreement except as provided therein, (y) permit the
Company to enter into any agreement to consummate an Acquisition Proposal for as
long as the Merger Agreement remains in effect (it being agreed that for as long
as the Merger Agreement remains in effect, the Company
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will not enter into any agreement with any person that provides for, or in any
way facilitates, an Acquisition Proposal except as otherwise permitted in the
Merger Agreement), or (z) affect any other obligation of the Company under the
Merger Agreement.
Interim Operations of the Company
Pursuant to the Merger Agreement, the Company has agreed that, prior to the
Effective Time, except as contemplated by any other provision of the Merger
Agreement, unless Hospitality has previously consented in writing thereto, the
Company: (i) will, and will cause each of its Subsidiaries to, conduct its
operations in the ordinary and normal course, consistent with past practice;
(ii) will use its reasonable best efforts, and will cause each of its
Subsidiaries to use its reasonable best efforts, to preserve intact their
business organizations, keep available the services of their respective officers
and employees, and maintain satisfactory relationships with those persons having
business relationships with them; (iii) will promptly notify Hospitality of (a)
the occurrence of any event or change in circumstances as a result of which any
representation or warranty of the Company contained in the Merger Agreement
would be untrue or incorrect in any material respect if such representation or
warranty were made immediately following the occurrence of such event or change
in circumstance (b) any notice of, or other communication relating to, a default
or event which, with notice or lapse of time or both, would become a default
under any material contract of the Company; (c) receipt of any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by the
Merger Agreement; (d) receipt of any material notice or other communication from
any Governmental Authority (including, but not limited to, the SEC, the Amex or
any other securities exchange) in connection with the transactions contemplated
by this Agreement; (e) the occurrence of an event which would have a material
adverse effect on the Company; (f) the occurrence of any event that would
constitute a breach by the Company of any provision in the Merger Agreement or
related documents; and (g) the commencement or threat of any litigation
involving or affecting the Company or any of its Subsidiaries or any affiliate,
or any of their respective properties or assets, or, to its knowledge, any
employee, agent, director or officer of the Company or any of its Subsidiaries,
in his or her capacity as such or as a fiduciary under a benefit plan of the
Company, which, if pending on the date hereof, would have been required to have
been disclosed in or pursuant to the Merger Agreement or which relates to the
consummation of the Merger or any material development in connection with
litigation disclosed by the Company in or pursuant to the Merger Agreement or
the Company's securities filings.
Certain Filings and Other Actions
The Company and Hospitality have agreed, subject to the terms and
conditions provided in the Merger Agreement, that they will (i) use all
reasonable efforts to cooperate with one another in (a) determining which
filings are required to be made prior to the Effective Time with, and which
consents, approvals, permits or authorizations are required to be obtained prior
to the Effective Time from Governmental Entities, in connection with the
execution and delivery of the Merger Agreement and the consummation of the
transactions contemplated thereby and (b) timely making all such filings and
timely seeking all such consents, approvals, permits or authorizations,
including this proxy statement and information required by Schedule 13E-3 and
Schedule 14A; and (ii) use all reasonable efforts to take, or cause to be taken,
all other action and do, or cause to be done, all other
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things necessary, proper or appropriate to consummate and make effective the
transactions contemplated by the Merger Agreement. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purpose of the Merger Agreement, the proper officers and directors of the
parties will take all such necessary action.
Access to Information
The Company has agreed that, from the date of the Merger Agreement to the
Effective Time, it will, and will cause its Subsidiaries to, (i) allow all
financial advisors, lenders, attorneys, accountants and other representatives of
Hospitality reasonable access at all reasonable times, full access to all
offices and other facilities, to all personnel and to all contracts, agreements,
commitments, books and records pertaining to the business and affairs, of the
Company and its Subsidiaries, as the case may be, (ii) furnish to Hospitality
such financial and operating data and other information as such persons may
reasonably request, (iii) keep Hospitality fully appraised and informed of all
material developments with respect to the assets, business activities, financial
condition, earnings and prospects of the Company and its Subsidiaries; and (iv)
promptly deliver to Hospitality true and correct copies of any report,
statement, application or schedule (including exhibits thereto) filed or
received by the Company with the SEC or the Amex subsequent to the date of the
Merger Agreement.
Insurance; Indemnity
The Merger Agreement provides that, from and after the Effective Time, the
Surviving Company will indemnify, defend and hold harmless and shall advance
expenses as incurred under certain circumstances, to the fullest extent that the
Company would be required under its presently existing Certificate of
Incorporation and presently existing Bylaws and applicable law, each person who
is now or was prior to the date of the Merger Agreement an officer or director
of the Company or any of its Subsidiaries (individually, an "Indemnified Party"
and collectively, the "Indemnified Parties"), against all losses, claims,
damages, liabilities, costs or expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement in connection with any claim, action, suit,
proceeding or investigation arising out of or pertaining to acts or omissions,
or alleged acts or omissions, by them in their capacities as such occurring at
or prior to the Effective Time. In the event of any such claim, action, suit,
proceeding or investigation (an "Action"), any Indemnified Party wishing to
claim indemnification will promptly notify Hospitality in writing thereof
(provided that failure to so notify Hospitality will not affect the obligations
of Hospitality to provide indemnification except to the extent that Hospitality
shall have been prejudiced as a result of such failure). With respect to any
Action for which indemnification is requested, the Surviving Company or
Hospitality will be entitled to assume the defense thereof. Hospitality will
not be liable to the Indemnified Party for any legal or other expenses
subsequently incurred by the Indemnified Party in connection with the defense
thereof, other than as provided below. The Indemnified Party will have the
right to employ counsel in any Action, but the fees and expenses of such counsel
incurred after notice from Hospitality or the Surviving Company of its
assumption of the defense thereof will be at the expense of the Indemnified
Party, unless (i) there are any material conflicts of interest between the
Indemnified Party and Hospitality or the Surviving Company in the conduct of the
defense of an Action, or (ii) Hospitality or the Surviving Company shall not in
fact have employed counsel to assume the defense of an Action, in each of which
cases the reasonable fees and expenses
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of counsel selected by the Indemnified Party will be at the expense of
Hospitality or the Surviving Company. Notwithstanding the foregoing, Hospitality
will not be liable for any settlement effected without its prior written
consent, and Hospitality will not be obligated pursuant to the Merger Agreement
to pay the fees and disbursements of more than one counsel (including local
counsel) for all Indemnified Parties in any single Action.
For a period of six years after the Effective Time and to the extent
available, Hospitality or the Surviving Company will maintain officers' and
directors' liability insurance covering the Indemnified Parties who are
currently covered, in their capacities as officers and directors, by the
Company's existing officers' and directors' liability insurance policies on
terms that are no less favorable to the Indemnified Parties than such existing
insurance.
Financing
Upon the terms and subject to the conditions of the Merger Agreement,
Hospitality and American are required to use all reasonable commercial efforts
to take, or cause to be taken, all action, and to do or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary, as
promptly as practicable, proper or advisable to secure financing commitments to
fund the Merger Consideration.
Conditions
Conditions to Each Party's Obligation To Effect the Merger. Under the
Merger Agreement, the respective obligations of each party to effect the Merger
are subject to the fulfillment of the following conditions: (i) the Merger
Agreement and the transactions contemplated thereby, shall have been approved in
the manner required by applicable law by the holders of the issued and
outstanding shares of capital stock of the Company; (ii) there shall not be any
order or injunction of a court of competent jurisdiction that prohibits or
prevents the consummation of the transactions contemplated by the Merger
Agreement or the other transactions contemplated thereby; (iii) all consents,
authorizations, orders and approvals of (or filings or registrations with) any
Governmental Entity required in connection with the execution, delivery and
performance of the Merger Agreement shall have been obtained or made, except
where the failure to have obtained or made any such consent, authorization,
order, approval, filing or registration would not have a material adverse effect
on the business, financial condition or results of operations of the Surviving
Company following the Effective Time; and (iv) the fairness opinions rendered by
the Financial Advisors shall not have been withdrawn at or prior to the
Effective Time.
Conditions to Obligation of the Company To Effect the Merger. Under the
Merger Agreement, the obligation of the Company to effect the Merger is subject
to the fulfillment of the following additional conditions: (i) the
representations and warranties of Hospitality contained in the Merger Agreement
shall have been true and correct in all material respects or as modified for
materiality as of the date of the Merger Agreement; (ii) Hospitality shall have
performed or complied with all agreements and covenants contained in the Merger
Agreement required to be performed or complied with by it on or prior to the
Effective Time; and (iii) Hospitality shall have delivered to the Company a
certificate, dated the Effective Time, signed by the President of Hospitality,
certifying as to the fulfillment of the conditions specified in clauses (i) and
(ii) above.
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Conditions to Obligation of Hospitality to Effect the Merger. Under the
Merger Agreement, the obligations of Hospitality to effect the Merger are
subject to the fulfillment of the following additional conditions: (i) the
representations and warranties of the Company contained in the Merger Agreement
shall have been true and correct in all material respects or as modified for
materiality as of the date of the Merger Agreement; (ii) the Company shall have
performed or complied with all agreements and conditions contained in the Merger
Agreement required to be performed or complied with by it on or prior to the
Effective Time; (iii) from the date of the Merger Agreement through the
Effective Time, there shall not have been any condition, event or occurrence
that, individually or in the aggregate, has resulted in a material adverse
affect on the Company; (iv) the Company shall have obtained all material
consents, waivers, approvals, authorizations or orders and made all filings
required in connection with the authorization, execution and delivery of the
Merger Agreement by the Company and the consummation by it of the transactions
contemplated thereby, and all applicable notice periods shall have expired; (v)
the aggregate number of Company Common Shares owned by those Company
stockholders, if any, other than members of the Management Group, who shall have
exercised, or given notice of their intent to exercise, the rights of Dissenting
Stockholders under the DGCL shall not exceed five percent of the total number of
outstanding Company Common Shares; (vi) there shall not be instituted, pending
or threatened any action, investigation or proceeding by any Governmental
Authority which is reasonably likely to be determined adversely to Hospitality
or American as relating to the expected benefits of the Merger; (vii) the
consummation of certain transactions including (a) the sale of all of the assets
of Cat's Meow, Inc., Lucile's Stateside Bistro-Texas, Inc., and Stockyards
Hotel, Inc., to certain subsidiaries of Hospitality, (b) the sale of all of the
membership interests of Cabo - Fort Worth #1, L.L.C. to Hospitality, (c) the
sale of all of the intellectual property assets of American Food Classics, Inc.,
to Hospitality, (d) the sale of all of the Company's intellectual property
assets to Hospitality, (e) the exercise of the renewal option of the lease of
the Company's Vestal, New York plant site, which terminates on February 28,
2001, for an additional five years and (f) the extension of the lease for the
premises used by Cat's Meow, Inc., which terminates on September 30, 2009;
(viii) the Company shall have delivered to Hospitality and American a
certificate, dated the Closing Date, signed by the President of the Company,
certifying as to the fulfillment of the conditions specified above, certificates
of good standing and certified resolutions of the Board and the stockholders of
the Company approving the Merger Agreement and related documents; (ix)
Hospitality shall have received financing on terms reasonably acceptable to it,
with which to consummate the Merger; and (x) the Company and its subsidiaries
shall be in compliance in all material respects with all applicable
environmental laws, other than as disclosed in the Company's securities filings.
Termination
Termination by Mutual Consent. The Merger Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time, whether
before or after approval of the matters presented in connection with the Merger
by the stockholders of the Company or the owners of Hospitality, by the mutual
written consent of Hospitality and the Company.
Termination by Either the Company or Hospitality. The Merger Agreement may
be terminated and the Merger may be abandoned at any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the stockholders of the Company or by the owners of
Hospitality, by either the Company or Hospitality if (i) any court of
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competent jurisdiction or other Governmental Authority shall have issued any
order, decree or ruling, or taken any other action permanently restraining,
enjoining or otherwise prohibiting the consummation of the Merger and such
order, decree or ruling shall have become final and nonappealable; (ii) any
required approval of the stockholders of the Company shall not have been
obtained by reason of the failure to obtain the required vote at a duly held
meeting of stockholders or at any adjournments or postponements of that meeting;
or (iii) if the Merger shall not have been consummated on or before March 31,
2001; however, the right to terminate the Merger Agreement if the Merger is not
consummated by that date is not available to a party to the Merger Agreement
whose failure to fulfill its obligations under the Merger Agreement was the
cause of or resulted in the failure of the Merger to occur on or before that
date.
Termination by the Company. The Merger Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after the approval of the matters presented in connection with the Merger by
the stockholders of the Company or by the owners of Hospitality, by the Company
if (i) there has been any breach of the Merger Agreement on the part of
Hospitality of any of its representations or warranties contained in the Merger
Agreement as modified by materiality limitations or any material breaches of any
representations or warranties that are not modified by materiality limitations;
(ii) Hospitality shall have breached or failed to perform any of its material
covenants or agreements contained in the Merger Agreement and such breach or
failure to perform has not been cured within 20 business days after written
notice of the breach or failure to perform from the Company; or (iii) if the
Company receives an Acquisition Proposal in writing from any person or group (a)
that the Board determines in its good faith judgment is more favorable to the
Company's stockholders than the Merger and (b) as a result of which, the
Company's Board reasonably believes, after consultation with its legal counsel,
that there is a substantial risk that a failure to terminate the Merger
Agreement would violate its fiduciary duties to the stockholders of the Company.
Termination by Hospitality. The Merger Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after the approval of the matters presented in connection with the Merger by
the stockholders of the Company or by the owners of Hospitality, by Hospitality
if (i) there has been any breach of the Merger Agreement on the part of the
Company of any of its representations or warranties contained therein as
modified by materiality limitations or any material breaches of any
representations or warranties that are not modified by materiality limitations;
(ii) the Company shall have breached or failed to perform any of its material
covenants or agreements contained in the Merger Agreement and such breach or
failure to perform has not been cured within 20 business days after written
notice thereof from Hospitality; or (iii) the Board shall have breached
provisions in the Merger Agreement relating to the solicitation of takeover
proposals, or the Independent Committee or the Board, without the consent of
Hospitality, shall have withdrawn or materially modified, in any manner that is
adverse to Hospitality, its recommendation or approval of the Merger or the
Merger Agreement as a result of receiving a Superior Proposal or shall have
recommended or approved any Third Party Acquisition.
Effect of Termination and Abandonment. In the event of termination of the
Merger Agreement by either the Company or Hospitality pursuant to the terms
described above, the Merger Agreement shall become void, and there shall be no
liability or obligation on the part of Hospitality
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or the Company or their respective affiliates, officers, directors or
stockholders, except (i) with respect to certain obligations of the parties to
the Merger Agreement, including those with respect to expenses, confidentiality,
termination fees and rights, and the procedures upon termination, and (ii) to
the extent that such termination results from the willful breach by a party to
the Merger Agreement of any of its representations or warranties, or any of the
covenants and agreements contained in the Merger Agreement. If the Merger
Agreement is terminated by Hospitality as a result of the Company soliciting any
Third Party takeover proposal or the Independent Committee or the Board
withdrawing or materially modifying in a manner adverse to Hospitality its
approval or recommendation of the Merger due to the receipt of a Superior
Proposal or shall have recommended or approved an Acquisition Proposal, and such
termination was not due to any act by, or omission of, Hospitality or any member
of the Management Group (not including the act of termination), then the Company
shall pay to Hospitality a sum equal to $500,000 as a termination fee and a
"Change of Control" shall be deemed to have occurred with respect to certain
employment agreements between the Company and some of the members of the
Management Group in effect on August 11, 2000; the Company estimates that the
costs to the Company associated with the occurrence of such a "Change in
Control" would be $2,190,000 if those members of the Management Group elect to
terminate their employment with the Company.
Amendment
The Merger Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties to the Merger Agreement. The parties to
the Merger Agreement may agree to any amendment or supplement to the Merger
Agreement or a waiver of any provision of the Merger Agreement, either before or
after the approval of the Company's stockholders (and without seeking further
stockholder approval).
Material U.S. Federal Income Tax Consequences of the Merger
The following section summarizes the material United States federal income
tax consequences of the Merger to stockholders of the Company other than the
members of the Management Group. It is based upon laws, regulations (whether
final, temporary, or proposed), rulings and judicial decisions now in effect,
all of which are subject to change, possibly with retroactive effect. It does
not address all aspects of federal income taxation that may be relevant to a
particular stockholder in light of that stockholder's personal circumstances,
nor does it address federal income tax consequences to types of taxpayers
subject to special treatment under the federal income tax laws (e.g., life
insurance companies, tax exempt organizations, foreign taxpayers, securities
dealers and persons who have entered into hedging transactions with respect to
the Common Stock or who hold the Common Stock as part of a conversion
transaction or straddle), nor does it address any aspect of state, local,
foreign, federal estate and gift or other tax laws. It is assumed that the
shares of Common Stock are held as capital assets by a United States person
(i.e., a citizen or resident of the United States or a domestic corporation).
The Company has not requested, and does not anticipate requesting, any ruling
from the Internal Revenue Service with respect to the Merger.
The receipt of cash for Common Stock pursuant to the Merger will be a
taxable transaction to the stockholders of the Company for federal income tax
purposes under the Code and also may
Page - 73
<PAGE>
be a taxable transaction under applicable state, local, foreign and other tax
laws. The Merger will be treated for federal income tax purposes as a redemption
by the Company of its outstanding capital stock. Any Public Stockholder that is
not related to a member of the Management Group or to a purchaser of shares of
Common Stock in a way that would result in constructive ownership of such other
person's stock under applicable provisions of the Code will be treated as having
sold such stockholder's Common Stock for the cash received by such stockholder
in the Merger. In general, for federal income tax purposes, a stockholder will
recognize gain (or loss) equal to the amount by which the cash received in
exchange for the Common Stock exceeds (or is exceeded by) the tax basis for such
Common Stock. Assuming that the Common Stock is held as a capital asset, such
gain or loss will be capital gain or loss. In the case of individuals and other
noncorporate taxpayers, such gain will be subject to a maximum federal income
tax rate of 20% for Common Stock held for more than one year. The same maximum
rate applies for purposes of the alternative minimum tax.
Cash payments to stockholders pursuant to the Merger may be subject to
backup withholding tax at a rate of 31% on the gross amount of the Merger
Consideration unless the stockholder has complied with certain reporting and/or
certification procedures. The letter of transmittal, which will be sent to the
former stockholders of the Company following the Effective Time if the Merger is
consummated, will include a substitute Form W-9 on which stockholders can
provide the information required to avoid backup withholding. Any amount
withheld from a stockholder under the backup withholding rules will be allowed
as a credit against such stockholder's federal income tax liability and may
entitle the stockholder to a refund, provided that the required information is
timely furnished to the Internal Revenue Service. Stockholders should consult
their tax advisors regarding the application of information reporting and backup
withholding in their particular circumstances and the availability of an
exemption therefrom if the stockholders cannot or do not make the certifications
required by the substitute Form W-9.
Exercise of stock options by option holders, several of whom are members of
the Management Group, will result in compensation income for the difference
between the fair market value of the stock on the date of exercise and the
option price. The income tax basis of the option holder in the shares acquired
through the exercise of stock options will be the fair market value on the date
of exercise.
Tax consequences of the cash merger will be the same for the option holders
as for other stockholders. Gain or loss will be recognized for the difference
between $2.25 per share realized in the transaction and the basis of each share.
Such gain will be short-term or long-term capital gain depending on the holding
period of the shares of Common Stock.
The cash merger of Hospitality with the Company is a taxable purchase of
assets for federal income tax purposes. Hospitality will have an income tax
basis in the assets purchased equal to the total purchase price. Such purchase
price will be the sum of the debt incurred to finance the transaction and the
liabilities of the Company and its subsidiaries that are assumed in the Merger.
EACH STOCKHOLDER IS URGED TO CONSULT SUCH STOCKHOLDER'S OWN TAX ADVISOR TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH STOCKHOLDER OF THE MERGER IN
VIEW OF THE STOCKHOLDER'S OWN PARTICULAR CIRCUMSTANCES.
Page - 74
<PAGE>
Accounting Treatment of the Merger
The Merger will be accounted for as a leveraged buy-out, as that term is
used under generally accepted accounting principles, for accounting and
financial reporting purposes.
Regulatory Approvals
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), provides that certain transactions may not be consummated unless
certain information has been furnished to the Antitrust Division of the
Department of Justice and the Federal Trade Commission (the "FTC") and certain
waiting period requirements have been satisfied. Representatives of the Company
and Mr. McLean have determined that an exemption from the notification
requirements of the HSR Act applied to the Merger. Therefore, no filings are
required under the HSR Act prior to the consummation of the Merger. No other
federal or state regulatory approvals are required to be obtained, nor are any
other regulatory requirements required to be complied with, in connection with
consummation of the Merger by any party to the Merger Agreement.
Litigation
In 1987 the Company's Vestal, New York plant site was designated as an EPA
superfund site. Over the 13-year period following this designation the Company
has spent approximately $3,000,000 in consulting fees, legal fees, testing, EPA
expenses and other costs related to the Vestal Superfund Site. The Company has
contracted with Midwest Soil Remediation, Inc. and Ground/Water Treatment and
Technology, Inc. to perform the necessary work to clean the contaminated soil
and repair the water well system. The Company's liability for the cleanup is
based on the June 1998 consent decree and related record of decision entered
into by the Company and the United States Government, which obligated it to
clean up the site, repair the well system and continue ongoing operation and
maintenance of the industrial water well system until the ground water reaches a
level of purity as prescribed by the EPA (estimated by the EPA to be fifteen to
thirty years). Since June 1997, $447,000 has been spent, leaving $2,523,000
accrued as a liability on the Company's balance sheet at June 30, 2000. The
Company estimates that it will spend approximately $2,000,000 in September 2000
and fiscal year 2001.
In addition, the Company is a party to various legal actions, which are in
the aggregate immaterial, and due to the nature of the Company's business, it
could be a party in other legal or administrative proceedings arising in the
ordinary course of business. While occasional adverse settlements or
resolutions may occur and negatively impact earnings in the year of settlement,
it is the opinion of management that their ultimate resolution will not have a
materially adverse effect on the Company's financial position.
Page - 75
<PAGE>
MARKET INFORMATION
The Company's common stock is traded on Amex, under the common stock ticker
symbol "BFX." The quarterly trading range of the common stock is as follows:
Fiscal 2000 High Low
-------------------------- ----- -----
October 1 - December 31 $1.13 $0.56
January 1 - March 31 1.19 0.63
April 1 - June 30 1.19 0.75
July 1 - September 30 2.19 0.81
Fiscal 1999 High Low
-------------------------- ----- -----
October 1 - December 31 $2.00 $1.06
January 1 - March 31 1.94 1.06
April 1 - June 30 1.50 1.06
July 1 - September 30 1.50 0.75
Fiscal 1998 High Low
-------------------------- ----- -----
October 1 - December 31 $4.13 $2.25
January 1 - March 31 3.00 2.13
April 1 - June 30 2.44 1.75
July 1 - September 30 2.25 1.38
The number of stockholders of record as of July 31, 2000 was approximately
1,317 as recorded by the Company's transfer agent and registrar, Continental
Stock Transfer & Trust Company, located at 2 Broadway, New York, N.Y. 10004.
On July 26, 2000, the last day on which shares of the Common Stock traded
prior to the Public Announcement Date, the last reported closing price on Amex
was $1.00 per share of Common Stock. On ________, the most recent date on which
shares of stock traded prior to the preparation of this proxy statement, the
last reported closing price on Amex was $________ per share of Common Stock. As
of the Record Date, there were ________ holders of record of Common Stock of the
Company. The Company's stockholders are urged to obtain a current market
quotation for the Common Stock.
The Merger Consideration represents a 125% premium over the closing sales
price on July 26, 2000, the last day on which shares of the Common Stock traded
prior to the Public Announcement Date.
There are no restrictions on the Company's declaration or payment of
dividends, however no dividends have been paid on Common Stock to date and the
Company does not anticipate paying
Page - 76
<PAGE>
any cash dividends in the foreseeable future. The Company intends to retain
earnings for use in its business expansion.
SECURITY OWNERSHIP
The following table sets forth information as of August 14, 2000, regarding
the beneficial ownership (as defined by the SEC) of Common Stock by (i) each
person known by the Company to own beneficially more than 5% of the outstanding
Common Stock; (ii) each director of the Company; (iii) the Company's Chief
Executive Officer and each of the four most highly compensated executive
officers of the Company other than the Chief Executive Officer whose cash
compensation exceeded $100,000 during the last fiscal year; and (iv) all current
directors and executive officers of the Company as a group. Except as otherwise
noted, each named beneficial owner has sole voting and investment power with
respect to the shares owned. The address of each named beneficial holder is:
226 Bailey Avenue, Suite 101, Fort Worth, Texas 76107-1220.
<TABLE>
<CAPTION>
Name Amount and Nature of Percent of
of Beneficial Owner Beneficial Ownership /(2)/ Class
------------------------------- -------------------------- ---------------
<S> <C> <C>
Robert H. McLean /(1)/ 688,601 /(3)/ 16.13%
H. T. Hunnewell 143,151 3.61%
Robert Korman /(1)/ 134,530 /(4)/ 3.33%
Walter D. Rogers, Jr. /(1)/ 123,783 /(5)/ 3.12%
Bruno V. D'Agostino 65,000 1.64%
Frank J. Milan /(1)/ 74,000 /(6)/ 1.85%
Hampton Hodges /(1)/ 58,000 1.46%
Terry Kearney /(1)/ 63,000 /(7)/ 1.58%
Russell J. Sarno 32,614 0.82%
John M. Edgar 45,040 1.13%
All current Directors and 1,427,719 32.44% /(8)/
Officers as a group (10 in
Number)
</TABLE>
--------------
(1) Members of the Management Group.
(2) Shares are deemed to be "beneficially owned" by a person if such person,
directly or indirectly, has or shares (i) the voting power thereof,
including the power to vote or to direct the voting of such shares, or (ii)
the investment power with respect thereto, including the power to dispose
or direct the disposition of such shares. In addition, a person is deemed
to beneficially own any shares as to
Page - 77
<PAGE>
which such person has the right to acquire beneficial ownership within 60
days. The number of shares shown represents sole voting and investment
power except as otherwise indicated in these footnotes.
(3) This figure includes (i) 4,831 shares owned by the Company's Employee Stock
Ownership Plan which are voted by Mr. McLean pursuant to such plan, (ii)
22,100 shares owned by a limited partnership that Mr. McLean controls,
(iii) 20,000 shares owned by a limited partnership of which Mr. McLean is a
limited partner and an officer of the general partner but does not have an
ownership interest in the general partner, and (iv) 1,100 shares owned by
Mr. McLean's spouse. Mr. McLean disclaims beneficial ownership of the
21,100 shares described in clauses (iii) and (iv) above.
(4) This figure includes 2,354 shares which are owned by the Employee Stock
Ownership Plan and are voted by Mr. Korman pursuant to the plan.
(5) This figure includes 2,125 shares which are owned by the Employee Stock
Ownership Plan and are voted by Mr. Rogers pursuant to the plan.
(6) This figure does not include 46,000 shares of Common Stock issuable to
Mr. Milan pursuant to employee incentive stock options that are not
currently exercisable.
(7) This figure does not include 37,000 shares of Common Stock issuable to
Mr. Kearney pursuant to employee incentive stock options that are not
currently exercisable.
(8) This percentage is calculated by rounding all percentages to the nearest
one-hundredth of a percent.
While there is no written or oral agreement or other arrangement between
any of the above-named individuals or companies and the Company regarding the
manner in which the shares of Common Stock owned by each will be voted on any
issue or policy affecting the Company, the individual members of the Management
Group have indicated to the Company that they will vote for the approval and
adoption of the Merger Agreement and consummation of the Merger.
PURCHASES OF COMMON STOCK BY AND OTHER
TRANSACTIONS WITH CERTAIN PERSONS
Neither the Company, the members of the Management Group other than Messrs.
McLean, Korman, Kearney and Milan, any affiliate thereof nor, to the Company's
knowledge, any of the executive officers or directors of the Company have
purchased any shares of Common Stock within 60 days of the date of this proxy
statement. Mr. McLean purchased 300,000 shares on August 14, 2000 pursuant to
his non-qualified stock
Page - 78
<PAGE>
options at a purchase price of $1.00 per share. These shares were purchased
pursuant to the terms of the option agreement by means of a 12-month promissory
note bearing interest at 8% per annum and secured by the 300,000 shares
purchased thereby.
On September 29, 2000, Messrs. Kearney, Korman and Milan exercised their
stock options to purchase 23,000, 75,000 and 34,000 shares of Common Stock,
respectively, all at an exercise price equal to $1.50 per share, other than
50,000 shares purchased by Mr. Korman at $1.00 per share. Pursuant to the terms
of the option agreements, Messrs. Kearney, Korman and Milan paid the exercise
price pursuant to their option agreements by (i) executing a 12-month promissory
note payable to the Company in the principal amount of $27,000, $37,500 and
$43,500, respectively, bearing interest at 8% per annum, and (ii) paying cash
obtained by executing a 12-month promissory note payable to Texas Bank in the
principal amount of $7,500, $50,000 and $7,500, respectively, bearing interest
at a floating rate currently equal to 10.5% and requiring quarterly interest
payments. The promissory notes payable to the Company are secured by 18,000,
25,000 and 29,000 shares of Common Stock acquired by Messrs. Kearney, Korman and
Milan, respectively, pursuant to a stock pledge agreement with the Company.
The following table sets forth certain information concerning purchases of
Common Stock since 1998 by the Company.
<TABLE>
<CAPTION>
Number of Range of
Shares Prices Paid Average
Fiscal Year Name Purchased Per Share Price
--------------- --------- --------- ------------ -------
<S> <C> <C> <C> <C>
1998/(1)/ Company 1,870,500 $1.56 - 4.13 $2.35
1999/(1)/ Company 195,162 $1.13 - 3.74 $1.95
2000 Company 50,000 $1.00 $1.00
</TABLE>
(1) Of the number of shares purchased by the Company during 1998, the Company,
as a result of the termination of the employment agreements with Mr.
Tremain and Mr. Mathot, purchased 280,000 shares of Common Stock from Mr.
Tremain for $700,000, or an average of $2.50 per share, and 260,000 shares
of Common Stock from Mr. Mathot for $656,000, or an average of $2.52 per
share. The terms of the employment agreements with Messrs. Tremain and
Mathot required the Company to make such purchases at the greater of FMV or
cost, which at the time of the purchase was for the cost of the shares.
In 1998, pursuant to the terms of note agreements, the Company acquired
from Messrs. McLean, Korman and Rogers, at the then current market price of
$4.13 per share, 187,409, 41,017, and 29,904 shares respectively, of Common
Stock in repayment of these notes. In 1999, pursuant to the terms of a
note agreement, the Company acquired 33,021 shares of Common Stock, from
Mr. Rogers, valued at book value, in repayment of the note.
TRANSACTION OF OTHER BUSINESS
The Board knows of no other matters which may be presented at the Special
Meeting, but if other matters do properly come before the Special Meeting, it is
intended that the persons named in the Proxy will vote, pursuant to their
discretionary authority, according to their best judgment in the interest of the
Company.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of the Company as of September 30,
1999 and 1998 and for the three years then ended included in the Company's
Annual Report on Form 10-K for the fiscal year ended September 30, 1999, which
is incorporated herein by reference, have been audited by PricewaterhouseCoopers
LLP, independent accountants, as stated in their report appearing therein.
It is expected that representatives of PricewaterhouseCoopers, will be
present at the Special Meeting, and will have an opportunity to respond to
appropriate questions of stockholders and to make a statement if they so desire.
Page - 79
<PAGE>
Please date, sign and return the enclosed proxy at your earliest
convenience in the enclosed envelope. No postage is required for mailing in the
United States. A prompt return of your proxy will be appreciated as it will
save the expense of further mailing.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents of the Company are incorporated by reference in
this proxy statement:
1. Annual Report on Form 10-K for the year ended September 30, 1999;
2. Quarterly Reports on Form 10-Q for the quarters ended December 31, 1999,
March 31, 2000, and June 30, 2000; and
3. Current Reports on Form 8-K dated August 16, 2000 and September 25, 2000.
All documents filed by the Company with the SEC pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act after the date of this proxy statement
and before the date of the Special Meeting are deemed to be incorporated by
reference in this proxy statement and shall be a part of this proxy statement
from the date of filing of those documents. Any statements contained in a
document incorporated by reference in this proxy statement or contained in this
proxy statement are deemed to be modified or superseded for purposes of this
proxy statement to the extent that a statement contained in this proxy statement
(or in any other subsequently filed document that is also incorporated by
reference in this proxy statement) modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed to constitute a part of
this proxy statement except as so modified or superseded.
This proxy statement incorporates documents by reference that are not
presented in this proxy statement or delivered with this proxy statement. Those
documents (other than exhibits to those documents, unless those exhibits are
specifically incorporated by reference) are available, without charge, to any
person on written or oral request to the Company at 226 Bailey Avenue, Suite
101, Fort Worth, Texas 76107 (telephone number 817/332-4761). Requested
documents will be provided by first class mail or other equally prompt means
within one business day of receipt of the request. To ensure delivery of the
documents before the Special Meeting, requests should be received by
_______________, 2000.
By Order of the Board of Directors,
/s/ Robert Korman
-----------------
Robert Korman
Secretary
Fort Worth, Texas
Dated _______________,2000
Page - 80
<PAGE>
================================================================================
AGREEMENT AND PLAN OF MERGER
By and Among
HOSPITALITY CONCEPTS, LLC,
AMERICAN HOSPITALITY, LLC
and
BFX HOSPITALITY GROUP, INC.
Dated as of
August 11, 2000
================================================================================
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I TERMS OF THE MERGER................................................................................ 1
1.1 The Merger........................................................................................ 1
1.2 Effective Time.................................................................................... 2
1.3 Merger Consideration.............................................................................. 2
1.4 Shareholders' Rights upon Merger.................................................................. 2
1.5 Dissenting Shares................................................................................. 3
1.6 Surrender and Exchange of Shares.................................................................. 3
1.7 Options and Warrants.............................................................................. 5
1.8 Certificate of Incorporation...................................................................... 5
1.9 Operating Agreement............................................................................... 5
1.10 Other Effects of Merger.......................................................................... 5
1.11 Additional Actions............................................................................... 5
ARTICLE II REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS OF TARGET....................................... 6
2.1 Organization and Good Standing.................................................................... 6
2.2 Capitalization.................................................................................... 6
2.3 Subsidiaries...................................................................................... 7
2.4 Authorization; Binding Agreement.................................................................. 7
2.5 Governmental Approvals............................................................................ 8
2.6 No Violations..................................................................................... 8
2.7 Securities Filings and Litigation................................................................. 9
2.8 Target Financial Statements....................................................................... 10
2.9 Absence of Certain Changes or Events.............................................................. 10
2.10 Compliance with Laws............................................................................. 10
2.11 Permits.......................................................................................... 10
2.12 Finders and Investment Bankers................................................................... 10
2.13 Contracts........................................................................................ 10
2.14 Taxes and Tax Returns............................................................................ 11
2.15 Environmental Matters............................................................................ 11
2.16 Intellectual Property............................................................................ 11
2.17 Title to and Condition of Personal Property...................................................... 12
2.18 No Adverse Actions............................................................................... 12
2.19 Labor Matters.................................................................................... 12
2.20 Information Supplied............................................................................. 13
2.21 Takeover Statutes................................................................................ 13
2.22 No Existing Discussions.......................................................................... 13
2.23 Shareholder Rights Plan.......................................................................... 13
2.24 Disclosure....................................................................................... 13
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
ARTICLE III REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS OF ACQUIROR.................................... 14
3.1 Organization and Good Standing.................................................................... 14
3.2 Authorization; Binding Agreement.................................................................. 14
3.3 Governmental Approvals............................................................................ 15
3.4 No Violations..................................................................................... 15
3.5 Finders and Investment Bankers.................................................................... 15
3.6 Information Supplied.............................................................................. 15
3.7 Knowledge of Misrepresentations................................................................... 16
ARTICLE IV ADDITIONAL COVENANTS.............................................................................. 16
4.1 Conduct of Business of Target and Target Subsidiaries............................................. 16
4.2 Notification of Certain Matters................................................................... 16
4.3 Access and Information............................................................................ 17
4.4 Shareholder Approval; Proxy Statement; Shareholder Lists.......................................... 17
4.5 Reasonable Business Efforts....................................................................... 18
4.6 Public Announcements.............................................................................. 19
4.7 Compliance........................................................................................ 19
4.8 No Solicitation of Takeover Proposal.............................................................. 19
4.9 Securities and Shareholder Materials.............................................................. 21
4.10 Resignations..................................................................................... 22
4.11 Public Announcements............................................................................. 22
4.12 Compliance....................................................................................... 22
4.13 Proxy Statement.................................................................................. 22
4.14 Indemnification and Insurance.................................................................... 22
4.15 Misrepresentations............................................................................... 24
4.16 Financing........................................................................................ 24
ARTICLE V CONDITIONS......................................................................................... 24
5.1 Conditions to Each Party's Obligations............................................................ 24
5.2 Conditions to Obligations of Target............................................................... 25
5.3 Conditions to Obligations of Acquiror............................................................. 25
ARTICLE VI TERMINATION AND ABANDONMENT....................................................................... 27
6.1 Termination....................................................................................... 27
6.2 Termination Fees and Rights....................................................................... 28
6.3 Procedure Upon Termination........................................................................ 29
ARTICLE VII MISCELLANEOUS.................................................................................... 29
7.1 Confidentiality................................................................................... 29
7.2 Amendment and Modification........................................................................ 30
7.3 Waiver of Compliance; Consents.................................................................... 30
7.4 Survival of Representations and Warranties........................................................ 30
7.5 Notices........................................................................................... 30
7.6 Binding Effect; Assignment........................................................................ 31
7.7 Expenses.......................................................................................... 31
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
7.8 Governing Law..................................................................................... 31
7.9 Counterparts...................................................................................... 31
7.10 Interpretation................................................................................... 31
7.11 Entire Agreement................................................................................. 32
7.12 Severability..................................................................................... 32
7.13 Specific Performance............................................................................. 32
7.14 Third Parties.................................................................................... 32
7.15 Schedules........................................................................................ 32
</TABLE>
iii
<PAGE>
Definition Section
------------------
Term Page
---- ----
Acquiror 1
Acquiror Ancillary Agreements 14
Acquiror Material Adverse Effect 14
Acquiror Material Contract 15
Acquiror Modified Representation 25
Acquiror Nonmodified Representation 25
Acquisition Subsidiary 1
Affiliate 31
Agreement 1
Amex 16
Associate 31
Certificate of Merger 2
Certificates 2
Change of Control 28
Claim Notice 12
Closing 2
Closing Date 2
Code 5
Consent 8
Costs 22
Delaware Code 1
Disbursing Agent 3
Dissenting Shares 3
Effective Time 2
Enforceability Exceptions 7
Environmental Laws 11
Event 10
Final Order 24
Governmental Authority 8
Indemnified Parties 22
Independent Committee 1
Intellectual Property 11
Interested Shareholders 28
Law 8
Letter of Transmittal 3
Litigation 9
Merger 1
Merger Consideration 2
Notice of Superior Proposal 20
Person 31
Proxy Statement 17
iv
<PAGE>
Resignations 21
SEC 9
Securities Act 7
Securities Exchange Act 7
Shareholder 31
Shareholders' Meeting 17
Shares 2
Subsidiary 6
Superior Proposal 21
Surviving Corporation 1
Surviving Corporation Material Adverse Eff 24
Takeover Statute 13
Target 1
Target Ancillary Agreement 7
Target Common Stock 2
Target Financial Statements 10
Target Material Adverse Effect 6
Target Material Contract 10
Target Modified Representation 25
Target Nonmodified Representation 25
Target Permits 10
Target Securities Filings 9
Target Shares 2
Target Subsidiaries 6
Tax 11
Tax Return 11
Termination Fee 28
Third Party 20
Third Party Acquisition 20
v
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
---------
into as of August 11, 2000, by and among Hospitality Concepts, LLC, a Delaware
limited liability company ("Acquiror"), American Hospitality, LLC, a Delaware
--------
limited liability company and wholly owned subsidiary of Acquiror ("Acquisition
-----------
Subsidiary"), and BFX Hospitality Group, Inc., a Delaware corporation
----------
("Target").
------
Recitals
--------
A. It is the intention of the parties that Target shall merge with and
into Acquisition Subsidiary (the "Merger"), with Acquisition Subsidiary being
------
the surviving corporation;
B. An Independent Committee (the "Independent Committee") of the Board of
---------------------
Directors of Target (composed entirely of directors who have no direct or
indirect interest in the transactions contemplated hereby) has unanimously
determined, and the Board of Directors of Target has unanimously determined,
that the Merger and the other transactions contemplated by this Agreement, are
fair to, advisable and in the best interests of Target and its stockholders, and
each of the Independent Committee and the Board of Directors of Target has
approved this Agreement and recommended its adoption by the stockholders of the
Target;
C. The Independent Committee, the Board of Directors of Target and the
Board of Directors and sole stockholder of Acquisition Subsidiary have each
approved and adopted this Agreement and have approved the transactions
contemplated hereby;
D. Target, Acquisition Subsidiary and Acquiror desire to make certain
representations, warranties and agreements in connection with, and establish
various conditions precedent to, the Merger.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements hereinafter set forth, the parties hereto
agree as follows:
ARTICLE I
TERMS OF THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions of this
----------
Agreement, the Merger shall be consummated in accordance with The Delaware
General Corporation Laws, as amended, (the "Delaware Code"). At the Effective
-------------
Time (as defined in Section 1.2, below), upon the terms and subject to the
-----------
conditions of this Agreement, Target shall be merged with and into Acquisition
Subsidiary in accordance with the Delaware Code and the separate existence of
Target shall thereupon cease, and Acquisition Subsidiary, as the surviving
corporation in the Merger (the "Surviving Corporation"), shall continue its
---------------------
corporate existence under the laws of the State of Delaware as a subsidiary of
Acquiror. Acquiror shall prepare and Target shall
<PAGE>
execute a certificate of merger (the "Certificate of Merger") in order to comply
---------------------
in all respects with the requirements of the Delaware Code and with the
provisions of this Agreement.
1.2 Effective Time. The Merger shall become effective at the time of the
--------------
filing of the Certificate of Merger with Secretary of State of the State of
Delaware in accordance with the applicable provisions of the Delaware Code or at
such later time as may be specified in the Certificate of Merger. The
Certificate of Merger shall be filed as soon as practicable after all of the
conditions set forth in this Agreement have been satisfied or waived by the
party or parties entitled to the benefit of the same. Acquiror, after
consultation with Target, shall determine the time of such filing and the place
where the closing of the Merger (the "Closing") shall occur. The time when the
-------
Merger shall become effective is herein referred to as the "Effective Time" and
--------------
the date on which the Effective Time occurs is herein referred to as the
"Closing Date."
-------------
1.3 Merger Consideration.
--------------------
(a) Subject to the provisions of this Agreement and any applicable
backup or other withholding requirements, each of the issued and outstanding
shares ("Target Shares" or "Shares") of common stock of Target ("Target Common
------------- ------ -------------
Stock") (other than shares canceled pursuant to Section 1.3(b) and Dissenting
-----
Shares (as hereinafter defined), if any) (but together with any rights or
securities issued in connection or associated therewith pursuant to Target's
Rights Agreement) as of the Effective Time shall by virtue of the Merger and
without any action on part of the holder thereof, be converted into the right to
receive, and there shall be paid as hereinafter provided, in exchange for each
of the Target Shares, $2.25 in cash (the "Merger Consideration"), payable to the
--------------------
holder thereof, without interest thereon, upon the surrender of the certificate
formerly representing such Target Share in the manner provided in Section 1.6.
-----------
(b) Each share of Target Common Stock held in the treasury of Target
or by a wholly owned subsidiary of Target shall be canceled as of the Effective
Time and no Merger Consideration shall be payable with respect thereto. From and
after the Effective Time, there shall be no further transfers on the stock
transfer books of Target of any of the Target Shares outstanding prior to the
Effective Time. If, after the Effective Time, Certificates (as hereinafter
defined) are presented to the Surviving Corporation, they shall be canceled and
exchanged for the Merger Consideration provided for in, and in accordance with
the procedures set forth in, this Agreement.
(c) Subject to the provisions of this Agreement, at the Effective
Time, the shares of Acquisition Subsidiary common stock outstanding immediately
prior to the Merger shall remain outstanding and shall constitute all of the
issued and outstanding capital stock of the Surviving Corporation and be owned
by the Acquiror.
1.4 Shareholders' Rights upon Merger. Upon consummation of the Merger,
--------------------------------
the certificates which theretofore represented Target Shares (other than
Dissenting Shares) (the "Certificates") shall cease to represent any rights with
------------
respect thereto, and, subject to applicable Law (as hereinafter defined) and
this Agreement, the Certificates shall only represent the right to receive the
Merger Consideration.
2
<PAGE>
1.5 Dissenting Shares.
-----------------
(a) Notwithstanding anything in this Agreement to the contrary,
Target Shares which are issued and outstanding immediately prior to the
Effective Time and which are held by holders of Target Common Stock who have
demanded and exercised any dissenters' rights in the manner provided under the
Delaware Code, if applicable and, as of the Effective Time, have neither
effectively withdrawn nor lost their rights to payment under the Delaware Code
(the "Dissenting Shares"), shall not be converted into or be exchangeable for
-----------------
the right to receive the Merger Consideration, unless and until such holder
shall have failed to exercise or shall have effectively withdrawn or lost such
holder's right to payment under the Delaware Code. If such holder shall have so
failed to exercise or shall have effectively withdrawn or lost such right, such
holder's Target Shares shall thereupon be deemed to have been converted into and
to have become exchangeable for, at the Effective Time, the right to receive the
Merger Consideration provided for in this Agreement, without any interest
thereon.
(b) Target shall give Acquiror (i) prompt notice of any demands for
appraisal and payment pursuant to the Delaware Code received by Target,
withdrawals of such demands, and any other instruments served pursuant to the
Delaware Code, and received by Target and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal and payment
under the Delaware Code. Target shall not, except with the prior written consent
of Acquiror or as otherwise required by applicable law, make any payment with
respect to any such demands for appraisal and payment or offer to settle or
settle any such demands.
1.6 Surrender and Exchange of Shares.
--------------------------------
(a) Prior to the Effective Time, Acquiror shall designate First Union
National Bank or such other bank or trust company as it may designate to act as
Disbursing Agent of the Merger (the "Disbursing Agent"). Acquiror or the
----------------
Surviving Corporation will deposit, or will cause to be deposited, with the
Disbursing Agent the funds necessary to make the payments contemplated herein on
a timely basis. Promptly after the Effective Time, the Surviving Corporation
shall cause to be mailed to each holder of Target Shares a form of letter of
transmittal (the "Letter of Transmittal") (which shall specify that delivery
---------------------
shall be effected, and risk of loss and title to the certificates representing
Shares shall pass, only upon delivery of such certificates to the Disbursing
Agent and shall be in such form and have such other provisions not inconsistent
with this Agreement as the Surviving Corporation may specify) and instructions
for use in effecting the surrender of the Certificates pursuant to such Letter
of Transmittal. After the Effective Time, each holder of Target Shares (other
than Dissenting Shares) shall surrender and deliver the Certificates to the
Disbursing Agent together with a duly completed and executed Letter of
Transmittal and any other required documents. Upon such surrender and delivery,
the holder shall be entitled to receive in exchange therefor the Merger
Consideration, and such Certificate shall forthwith be canceled. No interest
will be paid or accrued on the cash payable upon the surrender of the
Certificates. If payment is to be made to a person other than the person in
whose name the Certificate surrendered is registered, it shall be a condition of
payment that the Certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
payment shall pay any transfer or other taxes required by reason of the payment
to a person other than the registered holder of the Certificate surrendered
3
<PAGE>
or establish to the satisfaction of the Surviving Corporation that such tax has
been paid or is not applicable. Until surrendered in accordance with the
provisions of this Section 1.6 and exchanged, each outstanding Certificate after
-----------
the Effective Time (other than Certificates representing Dissenting Shares)
shall be deemed for all purposes only to evidence the right to receive Merger
Consideration, without any interest thereon. In the event that any Certificate
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the person claiming such Certificate to be lost, stolen or
destroyed and, if required by the Surviving Corporation, the posting by such
holder of a bond in such reasonable amount as the Surviving Corporation may
direct as indemnity against any claim that may be made against it with respect
to such Certificate, the Disbursing Agent will pay in exchange for such lost,
stolen or destroyed Certificate the Merger Consideration pursuant to this
Agreement and the Merger.
(b) At any time following the sixth 6th month after the Effective
Time, the Surviving Corporation shall be entitled to require the Disbursing
Agent to deliver to it any portion of the funds which had been made available to
the Disbursing Agent and not disbursed to holders of shares of Target Common
Stock (including, without limitation, all interest and other income received by
the Disbursing Agent in respect of all amounts of funds made available to it),
and thereafter each such holder shall be entitled to look only to the Surviving
Corporation (subject to abandoned property, escheat and other similar laws), and
only as general creditors thereof, with respect to any Merger Consideration that
may be payable upon due surrender of the Certificates held by such holder. If
any Certificates representing shares of Target Common Stock shall not have been
surrendered immediately prior to such date on which the Merger Consideration in
respect of such Certificate would otherwise escheat to or become the property of
any Governmental Entity (as hereinafter defined), any such cash, shares,
dividends or distributions payable in respect of such Certificate shall, to the
extent permitted by applicable Law, become the property of the Surviving
Corporation, free and clear of all claims or interest of any person previously
entitled thereto. Notwithstanding the foregoing, none of the Surviving
Corporation, Acquiror, Acquisition Subsidiary or the Disbursing Agent shall be
liable to any holder of a share of Target Common Stock for any Merger
Consideration delivered in respect of such share of Target Common Stock to a
public official pursuant to any abandoned property, escheat or other similar
Law.
(c) At the Effective Time, the stock transfer books of Target shall
be closed and thereafter there shall be no further registration of transfers of
shares of Target Common Stock on the records of Target. Except for Acquiror and
Acquisition Subsidiary, the holders of shares of Target Common Stock outstanding
immediately prior to the Effective Time shall cease to have any rights, from and
after the Effective Time, with respect to such shares of Target Common Stock
except as otherwise provided herein or by applicable Law, and all cash paid
pursuant to this Article I upon the surrender or exchange of Certificates shall
---------
be deemed to have been paid in full satisfaction of all rights pertaining to the
shares of Target Common Stock theretofore represented by such Certificate.
(d) Acquiror, Acquisition Subsidiary, the Surviving Corporation and
the Disbursing Agent, as the case may be, shall be entitled to deduct and
withhold from the Merger Consideration otherwise payable pursuant to this
Agreement to any holder of shares of Target Common Stock and Options (as
hereinafter defined) such amounts that Acquiror, Acquisition
4
<PAGE>
Subsidiary, the Surviving Corporation or the Disbursing Agent deem is required
to deduct and withhold with respect to the making of such payment under the
Internal Revenue Code of 1986, as amended (the "Code"), the rules and
regulations promulgated thereunder or any provision of state, local or foreign
tax Law. To the extent that amounts are so withheld by Acquiror, Acquisition
Subsidiary, the Surviving Corporation or the Disbursing Agent, such amounts
shall be treated for all purposes of this Agreement as having been paid to the
holder of the shares of Target Common Stock and Options in respect of which such
deduction and withholding was made by Acquiror, Acquisition Subsidiary, the
Surviving Corporation or the Disbursing Agent.
1.7 Options and Warrants. The Board will take all action to vest and make
--------------------
exerciseable as of the Closing all options now outstanding, whether vested or
not, and the Company shall give written notice to the holder of each option of
the acceleration and exerciseabilty of the options as of the Closing in
accordance with the relevant plan. Each option holder shall be paid by the
Acquiror at Closing the difference between $2.25 and the exercise price for such
options.
1.8 Certificate of Formation. At and after the Effective Time, the
------------------------
Certificate of Formation of the Acquisition Subsidiary shall be the Certificate
of Formation of the Surviving Corporation in effect at the Effective Time except
that Article First shall be amended to read as follows: "The name of the
corporation is BFX Hospitality Group, LLC." (subject to any subsequent
amendment).
1.9 Operating Agreement. At and after the Effective Time, the Operating
-------------------
Agreement of Acquisition Subsidiary in effect at the Effective Time shall be the
Operating Agreement of the Surviving Corporation (subject to any subsequent
amendment).
1.10 Other Effects of Merger. The directors and officers of Acquisition
-----------------------
Subsidiary at the Effective Time shall be the initial directors and officers of
the Surviving Corporation and will hold office from the Effective Time until
their respective successors are duly elected or appointed and qualify in the
manner provided in the Certificate of Incorporation and By-Laws of the Surviving
Corporation, or as otherwise provided by Law. The Merger shall have all further
effects as specified in the applicable provisions of the Delaware Code.
1.11 Additional Actions. If, at any time after the Effective Time, the
------------------
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of Acquisition Subsidiary or Target or otherwise to carry
out this Agreement, the officers and directors of the Surviving Corporation
shall be authorized to execute and deliver, in the name and on behalf of
Acquisition Subsidiary or Target, as the case may be, all such deeds, bills of
sale, assignments and assurances and to take and do, in the name and on behalf
of Acquisition Subsidiary or Target, as the case may be, all such other actions
and things as may be necessary or desirable to vest, perfect or confirm any and
all right, title and interest in, to and under such rights, properties or assets
in the Surviving Corporation or otherwise to carry out this Agreement.
5
<PAGE>
ARTICLE II
REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS OF TARGET
Target represents, warrants and/or covenants to and with Acquiror as
follows:
2.1 Organization and Good Standing. Target and each of its Subsidiaries
------------------------------
(as defined below) (the "Target Subsidiaries") is a corporation, limited
-------------------
liability company or partnership duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
and has all requisite corporate, limited liability company or partnership power
and authority to own, lease and operate its properties and to carry on its
business as now being conducted. Target and each of Target Subsidiaries is duly
qualified and in good standing to do business in each jurisdiction in which the
character of the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary, except where the
failure to be so duly qualified and in good standing would not have a Target
Material Adverse Effect (as defined below). For purposes of this Agreement,
"Target Material Adverse Effect" shall mean a material adverse effect on (i) the
------------------------------
business, assets, condition (financial or otherwise), properties, liabilities,
prospects or the results of operations of Target and Target Subsidiaries taken
as a whole, (ii) the ability of Target to perform its obligations set forth in
this Agreement and the Target Ancillary Agreements (as hereinafter defined), or
(iii) the ability to timely consummate the transactions contemplated by this
Agreement and the Target Ancillary Agreements. Target has delivered to Acquiror
a complete and accurate list of the jurisdictions of incorporation or
organization and qualification of Target and Target Subsidiaries. Target has
heretofore delivered to Acquiror accurate and complete copies of the
Certificates or Articles of Incorporation and By-Laws, or equivalent governing
instruments, as currently in effect, of Target and each of the Target
Subsidiaries. "Subsidiary" means, with respect to any person, any affiliate
----------
controlled by such person directly, or indirectly through one or more
intermediaries, and shall include, without limitation, any corporation,
partnership, joint venture, limited liability company, trust, estate or other
organization or entity, of which (or in which) 50% or more of: (i) the issued
and outstanding shares of capital stock having ordinary voting power to elect a
majority of the board of directors or others performing similar functions with
respect thereto of such corporation or other organization (irrespective of
whether at the time shares of capital stock or other interests of any other
class or classes of such corporation shall or might have voting power upon the
occurrence of any contingency); (ii) the interest in the capital or profits of
such partnership, joint venture, limited liability company or other organization
or entity; or (iii) the beneficial interest in such trust or estate; is at the
time, directly or indirectly, owned or controlled by such person, by such person
and one or more of its other subsidiaries or by one or more of such person's
other subsidiaries;
2.2 Capitalization. As of the date hereof, the authorized capital stock
--------------
of Target consists of 30,000,000 shares of Target Common Stock and 5,000,000
shares of preferred stock. As of the opening of business on the date hereof,
4,268,866 shares of Target Common Stock were issued and outstanding. No other
capital stock of Target is issued or outstanding except
6
<PAGE>
for securities issued pursuant to the Target's Rights Agreement dated as of
February 11, 1999. There are no restrictions upon the transfer of or otherwise
pertaining to the securities (including, but not limited to, the ability to pay
dividends thereon) or retained earnings of Target and the Target Subsidiaries or
the ownership thereof other than those imposed generally by the Securities Act
of 1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934,
--------------
as amended (the "Securities Exchange Act"), applicable state or foreign
-----------------------
securities Laws or applicable corporate Law.
2.3 Subsidiaries. All of the capital stock of each Target Subsidiary is
------------
owned directly or indirectly by Target free and clear of any claim, lien,
encumbrance, security interest or agreement with respect thereto. All of the
outstanding shares of capital stock in each of the Target Subsidiaries are duly
authorized, validly issued, fully paid and non-assessable and were issued free
of preemptive rights and in compliance with applicable Laws.
2.4 Authorization; Binding Agreement.
--------------------------------
(a) Target has all requisite corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the other agreements
and documents referred to herein and to be executed in connection herewith to
which Target is or will be a party or a signatory, (the "Target Ancillary
----------------
Agreements") and the consummation of the transactions contemplated hereby and
----------
thereby including, but not limited to, the Merger have been duly and validly
authorized by Target's Board of Directors and no other corporate proceedings on
the part of Target or any Target Subsidiary are necessary to authorize the
execution and delivery of this Agreement and the Target Ancillary Agreements or
to consummate the transactions contemplated hereby or thereby (other than the
adoption of this Agreement by the shareholders of Target in accordance with the
Delaware Code and the Certificate of Incorporation and By-Laws of Target). This
Agreement has been duly and validly executed and delivered by Target and
constitutes, and upon execution and delivery thereof as contemplated by this
Agreement, the Target Ancillary Agreements will constitute, the legal, valid and
binding agreements of Target, enforceable against Target in accordance with its
and their respective terms, except to the extent that enforceability thereof may
be limited by applicable bankruptcy, insolvency, reorganization or other similar
laws affecting the enforcement of creditors' rights generally and by principles
of equity regarding the availability of remedies ("Enforceability Exceptions").
-------------------------
(b) At a meeting duly called and held on August 11, 2000, the Board of
Directors of Target, after review of the recommendation of the Independent
Committee of the Board and consideration of (A) the long-term as well as the
short-term interests of Target, (B) the interests of the shareholders, long-term
as well as short-term, including the possibility that those interests may be
best served by the continued independence of Target, (C) the interests of
Target's employees, customers, creditors and suppliers, and (D) community and
societal considerations including those of any community in which any office or
other facility of Target is located, unanimously (i) determined that this
Agreement and the other transactions contemplated hereby, including the Merger,
are fair to and in the best interests of Target and the holders of Target
Shares, (ii) approved, authorized and adopted this Agreement, the Target
Ancillary Agreements, the Merger and the other transactions contemplated hereby
and thereby, and (iii)
7
<PAGE>
resolved to recommend approval and adoption of this Agreement and the Merger and
the other transactions contemplated hereby and thereby by the holders of Target
Shares.
(c) The Independent Committee and Target's Board of Directors have
received from Target's financial advisors, Sanders Morris Harris, Inc. and
George K. Baum & Co., written opinions addressed to them for inclusion in the
Proxy Statement (as hereinafter defined) to the effect that the Merger
Consideration is fair to the holders of the Target Shares from a financial point
of view. An accurate and complete copy of such opinions have been provided to
Acquiror.
(d) The affirmative vote of the holders of at least a majority of the
outstanding Target Shares is required to adopt this Agreement and the Merger and
the other transactions contemplated hereby and thereby. No other vote of the
holders of Target Common Stock or any other capital stock of Target is required
by Law or the Articles of Incorporation or By-Laws of Target or otherwise in
order for Target to consummate the Merger and the transactions contemplated
hereby and by the Target Ancillary Agreements.
2.5 Governmental Approvals. No consent, approval, waiver or authorization
----------------------
of, notice to or registration, declaration or filing with or other action by
("Consent") any nation or government, any state or other political subdivision
thereof, any person, authority or body exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government
including, without limitation, any governmental or regulatory authority, agency,
department, board, commission or instrumentality, any court, tribunal or
arbitrator and any self-regulatory organization ("Governmental Authority") on
----------------------
the part of Target or any of the Target Subsidiaries is required in connection
with any change of control of Target or any of the Target Subsidiaries,
including, without limitation, any acquisition of Target Common Stock by
Acquiror or any of its affiliates or associates, or the execution or delivery by
Target of this Agreement and the Target Ancillary Agreements or the consummation
by Target of the transactions contemplated hereby or thereby, other than (i) the
filing of the Certificate of Merger with the Secretary of the State of Delaware
in accordance with the Delaware Code, (ii) filings with the SEC, state
securities laws administrators and the American Stock Exchange, (iii) Consents
described in Section 2.5, and (iv) those Consents that, if they were not
obtained or made, do not or would not have a Target Material Adverse Effect.
2.6 No Violations. The execution and delivery of this Agreement and the
-------------
Target Ancillary Agreements, the consummation of the transactions contemplated
hereby and thereby and compliance by Target with any of the provisions hereof or
thereof and any change of control of Target or any of the Target Subsidiaries,
including, without limitation, any acquisition of Target Common Stock by
Acquiror or any of its affiliates or associates, will not (i) conflict with or
result in any breach of any provision of the Certificate and/or Articles of
Incorporation or By-Laws or other governing instruments of Target or any of the
Target Subsidiaries, (ii) result in the creation or imposition of any lien or
encumbrance of any kind upon any of the assets of Target or any Target
Subsidiary, or (iii) contravene any applicable provision of any constitution,
treaty, statute, law, code, rule, regulation, tariff, ordinance, policy, permit
or order of any Governmental Authority or other matters having the force of law
including, but not limited to, any orders, decisions, injunctions, judgments,
awards and decrees of or agreements with any court, tribunal,
8
<PAGE>
arbitrator, mediator or other Governmental Authority ("Law") currently in effect
---
to which Target or any Target Subsidiary or its or any of their respective
assets or properties are subject, except in the case of clauses (ii) and (iii),
above, for any deviations from the foregoing which do not or would not have a
Target Material Adverse Effect.
2.7 Securities Filings and Litigation. Target has made available to
---------------------------------
Acquiror true and complete copies of (i) its Annual Reports on Form 10-K, as
amended, for the years ended September 30, 1997, 1998 and 1999, as filed with
the Securities and Exchange Commission (the "SEC"), (ii) the proxy statements
---
relating to all of the meetings of shareholders (whether annual or special) of
Target and the Target Subsidiaries since January 1, 1997, as filed with the SEC,
and (iii) all other reports, statements, schedules, registration statements and
other filings or documents and amendments thereto (including, without
limitation, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
amended) filed by Target with the SEC since January 1, 1997. The reports,
statements, schedules, registration statements, and other filings and documents
set forth in or described in clauses (i) through (iii), above, and those
subsequently provided or required to be provided pursuant to this Section, are
referred to collectively herein as the "Target Securities Filings."
-------------------------
Target and the Target Subsidiaries have filed with the SEC all Target
Securities Filings required to be filed therewith on or prior to the date of
this Agreement and, as of the Closing, Target and the Target Subsidiaries shall
have filed with the SEC all Target Securities Filings required to be filed on or
prior thereto. As of their respective dates, or as of the date of the last
amendment thereof, if amended after filing, none of the Target Securities
Filings (including all schedules thereto and disclosure documents incorporated
by reference therein), contained or, as to Target Securities Filings subsequent
to the date hereof, will contain any untrue statement of a material fact or
omitted or, as to Target Securities Filings subsequent to the date hereof, will
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Each of the Target Securities Filings at the time of
filing or as of the date of the last amendment thereof, if amended after filing,
complied or, as to Target Securities Filings subsequent to the date hereof, will
comply in all material respects with the Securities Exchange Act or the
Securities Act, as applicable. There is no action, cause of action, claim,
demand, suit, proceeding, citation, summons, subpoena, inquiry or investigation
of any nature, civil, criminal, regulatory or otherwise, in law or in equity, by
or before any court, tribunal, arbitrator, mediator or other Governmental
Authority ("Litigation") pending or, to the knowledge of Target, threatened
----------
against Target, any Target Subsidiary, or any officer, director, employee or
agent thereof, in his or her capacity as such, or as a fiduciary with respect to
any Benefit Plan (as hereinafter defined) of Target, or otherwise relating, in a
manner that could have a Target Material Adverse Effect, to Target, or any
Target Subsidiary, or the securities of any of them, or any properties or rights
of Target, any of the Target Subsidiaries or any Benefit Plan. No event has
occurred as a consequence of which Target would be required to file a Current
Report on Form 8-K pursuant to the requirements of the Securities Exchange Act
as to which such a report has not been timely filed with the SEC. Any reports,
statements, schedules, registration statements and other filings and documents
and amendments thereto (including, without limitation, Reports on Form 10-K,
Quarterly Reports on Form 10-Q and Current Reports on
9
<PAGE>
Form 8-K, as amended) filed by Target with the SEC after the date hereof shall
be provided to Acquiror no later than the date of such filing.
2.8 Target Financial Statements. The audited consolidated and unaudited
---------------------------
interim financial statements of Target and the Target Subsidiaries included in
the Target Securities Filings (the "Target Financial Statements") have been
---------------------------
provided to Acquiror. Except as noted therein, the Target Financial Statements
were prepared in accordance with generally accepted accounting principles
applicable to the businesses of Target and the Target Subsidiaries consistently
applied in accordance with past accounting practices and fairly present the
financial condition and assets and liabilities and the results of operations of
Target and the Target Subsidiaries as of the dates and for the periods
indicated. Except as reflected in the Target Financial Statements, as of their
respective dates, neither Target nor any Target Subsidiary had any debts,
obligations, guaranties of obligations of others or liabilities (contingent or
otherwise) that would be required in accordance with generally accepted
accounting principles to be disclosed in the Target Financial Statements.
2.9 Absence of Certain Changes or Events. Except as set forth in the
------------------------------------
Target Securities Filings made available by Target to Acquiror prior to the date
of this Agreement or in Schedule 2.9 attached hereto, since September 30, 1999
------------
there has not been any event, occurrence, fact, condition, change, development
or effect ("Event") that has had or could reasonably be expected to have a
-----
Target Material Adverse Effect.
2.10 Compliance with Laws. The business of Target and each Target
--------------------
Subsidiary has been operated in compliance with all Laws applicable thereto
except for any instances of non-compliance which do not and would not have a
Target Material Adverse Effect.
2.11 Permits. Target and the Target Subsidiaries have all permits,
-------
certificates, licenses, approvals, tariffs and other authorizations required in
connection with the operation of their respective businesses (collectively,
"Target Permits"), (ii) neither Target nor any Target Subsidiary is in violation
--------------
of any Target Permit, and (iii) no proceedings are pending or, to the knowledge
of Target, threatened, to revoke or limit any Target Permit, except, in the case
of clause (i) or (ii) above, those the absence or violation of which do not and
would not have a Target Material Adverse Effect.
2.12 Finders and Investment Bankers. Neither Target nor any of the Target
------------------------------
Subsidiaries nor any of their officers or directors or other affiliates, while
acting for Target or any of the Target Subsidiaries, has employed any broker or
finder or incurred any liability for any brokerage fees, commissions or finders'
fees in connection with the acquisition of Target Common Stock by Acquiror or
any of its affiliates or associates, the Merger, the Target Ancillary Agreements
or the transactions contemplated hereby or thereby.
2.13 Contracts. The Target Securities Filings contain a complete and
accurate list of all material notes, bonds, mortgages, indentures, contracts,
leases, licenses, agreements, understandings, arrangements, commitments,
instruments, bids or proposals to which Target or any Target Subsidiary is a
party or is subject ("Target Material Contract"). Target Material Contracts are
------------------------
valid and binding and are in full force and effect and enforceable in accordance
10
<PAGE>
with their respective terms (assuming the other parties thereto are bound, as to
which Target has no basis to believe otherwise), subject to the Enforceability
Exceptions. Neither Target nor any Target Subsidiary is in violation or breach
of or default under any such Target Material Contract, nor to Target's knowledge
is any other party to any such Target Material Contract in violation or breach
of or default under any such Target Material Contract.
2.14 Taxes and Tax Returns. Target and each of the Target Subsidiaries has
---------------------
timely filed, or caused to be timely filed, all federal, state, local and
foreign income, gross receipts, sales, use, property, production, payroll,
franchise, withholding, employment, social security, license, excise, transfer,
gains, and other tax returns or reports required to be filed by it (any of the
foregoing being referred to herein as a "Tax Return"), and each such Tax Return
----------
is true, correct and complete, and further, Target and each of the Target
Subsidiaries has paid, collected or withheld, or caused to be paid, collected or
withheld, all taxes and governmental charges, assessments and contributions of
any nature whatsoever including, but not limited to, any related penalties,
interest and liabilities (any of the foregoing being referred to herein as a
"Tax"), required to be paid, collected or withheld, other than such Taxes for
----
which adequate reserves in the Target Financial Statements have been established
or which are being contested in good faith and have been disclosed in writing to
Acquiror prior to the date of this Agreement.
2.15 Environmental Matters. As of the date of this Agreement except as
---------------------
described in the Target Securities Filings, (i) Target and the Target
Subsidiaries are in compliance in all material respects with all applicable
Environmental Laws (as hereinafter defined), (ii) there is no civil, criminal or
administrative judgment, action, suit, demand, claim, hearing, notice of
violation, investigation, proceeding, notice or demand letter pending or, to the
knowledge of Target, threatened against Target, a Target Subsidiary or any of
their properties pursuant to Environmental Laws, and (iii) there are no past or
present Events which reasonably may be expected to prevent compliance with, or
which have given rise to or will give rise to material liability on the part of
Target or a Target Subsidiary under, Environmental Laws. As used herein the
term "Environmental Laws" shall mean Laws relating to pollution, chemical usage,
------------------
waste or emission control, the management, generation, presence or disposal of
asbestos, hazardous or toxic wastes or substances, the protection or remediation
of the environment, environmental activity, product stewardship or public health
and safety. In particular, without limiting the generality of the foregoing,
neither Target nor any of the Target Subsidiaries may be deemed an "owner or
operator" of a "facility" or "vessel" which owns, possesses, transports,
generates or disposes of a "hazardous substance" as those terms are defined in
Section 9601 of the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. (S)9601 et seq.
------
2.16 Intellectual Property. For purposes of this Agreement, "Intellectual
--------------------- ------------
Property" shall mean all U.S. and foreign patents, trademarks, service marks,
--------
trade names, trade dress, designs, logos, slogans, copyrights, franchises and
similar rights of or used by Target or a Target Subsidiary, all applications for
any of the foregoing and all permits, grants and licenses or other rights
running to or from Target or any of the Target Subsidiaries relating to any of
the foregoing and any and all goodwill associated therewith. Target or
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one of the Target Subsidiaries owns, or is licensed to use, or otherwise has,
legally enforceable rights to all of the Intellectual Property currently used or
proposed to be used in, and necessary for the conduct of the business of Target
and the Target Subsidiaries as presently or proposed to be conducted. The rights
of Target and the Target Subsidiaries in the Intellectual Property are, subject
to the rights of any licensor thereof, free and clear of any liens or other
encumbrances and restrictions and Target and the Target Subsidiaries have not
received, as of the date of this Agreement, notice of any adversely-held
Intellectual Property of any other person, or notice of any charge or claim of
any person relating to such Intellectual Property or any process or confidential
information of Target or any Target Subsidiary ("Claim Notice") and do not know
------------
of any basis for any such charge or claim.
2.17 Title to and Condition of Personal Property. Target and each of the
-------------------------------------------
Target Subsidiaries have good and marketable title to, or a valid leasehold
interest in, all material items of any personal property reflected in the Target
Financial Statements dated September 30, 1999, or currently used in the
operation of their respective businesses, and such property or leasehold
interests are free and clear of all liens, claims, charges, security interests,
options, or other title defects or encumbrances, except for liens disclosed in
the Target Securities Filings and for property disposed of in the ordinary
course since the date thereof, and such exceptions to title and liens, claims,
charges, security interests, options, title defects or encumbrances which do not
and would not have a Target Material Adverse Effect or interfere with the use
and enjoyment of such property and interests.
2.18 No Adverse Actions. There is no existing, pending or, to the
------------------
knowledge of Target, threatened termination, cancellation, limitation,
modification or change in the business relationship of Target or any of the
Target Subsidiaries, with any supplier, customer or other person except as are
immaterial individually and in the aggregate and are in the ordinary course of
business.
2.19 Labor Matters. To the knowledge of Target, there are no efforts
-------------
presently being made or threatened by or on behalf of any labor union with
respect to the unionizing of employees of Target or any Target Subsidiary. There
is no unfair labor practice complaint against Target or any Target Subsidiary
pending or, to the knowledge of Target, threatened before the National Labor
Relations Board or comparable agency; there is no labor strike, dispute,
slowdown or stoppage pending or, to the knowledge of Target, threatened against
or involving Target or any Target Subsidiary; no representation question exists
respecting the employees of Target or any Target Subsidiary; no grievance or
internal or informal complaint exists, no arbitration proceeding arising out of
or under any collective bargaining agreement is pending and no claim therefor
has been asserted; no collective bargaining agreement is currently being
negotiated by Target or any Target Subsidiary; and neither Target nor any Target
Subsidiary is experiencing any work stoppage, strike, slowdown or other labor
difficulty. There has not been any material adverse change in relations with
employees or agents of Target or any Target Subsidiary as a result of any
announcement or consummation of the transactions contemplated by this Agreement
or the Target Ancillary Agreements or any change of control of Target or the
Target Subsidiaries, including, without limitation, any acquisition of Target
Common Stock by Acquiror or any of its affiliates or associates. Target shall
promptly notify, and shall cause the Target Subsidiaries to promptly notify,
Acquiror upon knowledge by Target
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or a Target Subsidiary of the occurrence after the date hereof of any matter
referenced in this Section.
2.20 Information Supplied. The Proxy Statement (as hereinafter defined) to
--------------------
be mailed to the holders of Target Common Stock in connection with the
Shareholders' Meeting (as hereinafter defined) to be called to consider the
Merger at the date such document is first published, sent or delivered to the
holders of Target Common Stock or at any time prior to or during the pendency of
the Shareholders' Meeting, will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Proxy Statement
and any related schedules or other filings made with the SEC, as contemplated
hereby, will comply as to form and substance in all material respects with the
requirements of the Securities Exchange Act and the applicable rules and
regulations of the SEC thereunder and other applicable Laws. Notwithstanding the
foregoing, no representation or warranty is made by Target with respect to
statements made or incorporated by reference therein based on information
relating solely to Acquiror or Acquisition Subsidiary supplied by Acquiror or
Acquisition Subsidiary in writing expressly for inclusion or incorporation by
reference in the foregoing document.
2.21 Takeover Statutes. No "business combination," "fair price,"
-----------------
"moratorium," "control share acquisition" or other similar antitakeover statute
or regulation enacted under state or federal laws in the United States (each a
"Takeover Statute") applicable to Target or any of the Target Subsidiaries is
----------------
applicable to the Merger, this Agreement, the Target Ancillary Agreements or the
other transactions contemplated hereby or thereby or any change of control of
Target or the Target Subsidiaries, including, without limitation, any
acquisition of Target Common Stock by Acquiror or any of its affiliates or
associates. Target, the Independent Committee and the Board of Directors of
Target have each taken all action required to be taken by it in order to exempt
this Agreement (as it may be amended from time to time) and the transactions
contemplated hereby and thereby from, and such agreements and the transactions
contemplated hereby and thereby are exempt from, the requirements of the
provisions of Section 203 of the Delaware Corporate Law and other antitakeover
laws and regulations of any state, including without limitation the State of
Delaware.
2.22 No Existing Discussions. As of the date hereof, Target is not
-----------------------
engaged, directly or indirectly, in any negotiations or discussions with any
other party with respect to a Takeover Proposal (as hereinafter defined).
2.23 Shareholder Rights Plan. Pursuant to the Rights Agreement, a copy of
-----------------------
which has been previously delivered to Acquiror, the Merger shall not (i) cause
Acquiror or any of its respective Affiliates to be deemed to be "Acquiring
Persons" within the meaning of the Rights Agreement, (ii) constitute a
"Triggering Event" within the meaning of the Rights Agreement, (iii) cause any
Rights to become exercisable or to separate from the shares of Common Stock to
which they are attached, or (iv) trigger any other provisions of the Rights
Agreement.
2.24 Disclosure. All information and documents provided prior to the date
----------
of this Agreement, and all information and documents subsequently provided, to
Acquiror or its
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representatives or lenders by or on behalf of Target in connection with the
transactions contemplated by this Agreement are or contain, or will be or will
contain as to subsequently provided information or documents, true, accurate and
complete information in all material respects with respect to the subject matter
thereof and are, or will be as to subsequently provided information or
documents, reasonably responsive to any specific request made by or on behalf of
Acquiror or its representatives or lenders.
2.1 ARTICLE III
REPRESENTATIONS, WARRANTIES AND CERTAIN
COVENANTS OF ACQUIROR AND ACQUISITION SUBSIDIARY
Acquiror and Acquisition Subsidiary, jointly and severally, represent,
warrant and/or covenant to and with Target as follows:
3.1 Organization and Good Standing. Acquiror is a limited liability
------------------------------
company duly organized and validly existing under the laws of the State of
Delaware. Acquisition Subsidiary is a limited liability company duly organized
and validly existing under the laws of the State of Delaware. Each of Acquiror
and Acquisition Subsidiary has all requisite corporate power and authority to
own, lease and operate its properties and to carry on its businesses as now
being conducted, except where the failure to have such power and authority would
not have an Acquiror Material Adverse Effect (as hereinafter defined). Each of
Acquiror and Acquisition Subsidiary is duly qualified and in good standing to do
business in each jurisdiction in which the character of the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification necessary, except where the failure to be so duly qualified
and in good standing would not have an Acquiror Material Adverse Effect. For
purposes of this Agreement, "Acquiror Material Adverse Effect" shall mean a
--------------------------------
material adverse effect on (i) the business, assets, condition (financial or
otherwise), properties, liabilities, prospects or the results of operations of
Acquiror and its subsidiaries (including Acquisition Subsidiary) taken as a
whole, (ii) the ability of Acquiror to perform its obligations set forth in this
Agreement and the Acquiror Ancillary Agreements (as hereinafter defined), or
(iii) the ability to timely consummate the transactions contemplated by this
Agreement and the Acquiror Ancillary Agreements.
3.2 Authorization; Binding Agreement. Acquiror and Acquisition Subsidiary
have all requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the other agreements and documents referred
to herein and to be executed in connection herewith to which Acquiror or
Acquisition Subsidiary is or will be a party or a signatory (the "Acquiror
---------
Ancillary Agreements") and the consummation of the transactions contemplated
--------------------
hereby and thereby including, but not limited to, the Merger have been duly and
validly authorized by the respective Boards of Directors of Acquiror and
Acquisition Subsidiary, and the Acquiror as the sole shareholder of Acquisition
Subsidiary, as appropriate, and no other corporate proceedings on the part of
Acquiror or Acquisition Subsidiary are necessary to authorize the execution and
delivery of this Agreement and the Acquiror Ancillary Agreements or to
consummate the transactions contemplated hereby or thereby. This Agreement has
been duly and validly executed and delivered by each of Acquiror and Acquisition
Subsidiary and
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constitutes,and upon execution and delivery thereof as contemplated by this
Agreement, the Acquiror Ancillary Agreements will constitute, the legal, valid
and binding agreements of Acquiror and Acquisition Subsidiary, enforceable
against each of Acquiror and Acquisition Subsidiary in accordance with its and
their respective terms, subject to the Enforceability Exceptions.
3.3 Governmental Approvals. No Consent from or with any Governmental
----------------------
Authority on the part of Acquiror or Acquisition Subsidiary is required in
connection with the execution or delivery by Acquiror and Acquisition Subsidiary
of this Agreement and the Acquiror Ancillary Agreements or the consummation by
Acquiror and Acquisition Subsidiary of the transactions contemplated hereby or
thereby other than (i) filings with the SEC, state securities laws
administrators and the NASD and filing and recordation of appropriate merger
documents as required by the Delaware Code, and (ii) those Consents that, if
they were not obtained or made, do not or would not have an Acquiror Material
Adverse Effect.
3.4 No Violations. The execution and delivery of this Agreement and the
-------------
Acquiror Ancillary Agreements, the consummation of the transactions contemplated
hereby and thereby and compliance by Acquiror and Acquisition Subsidiary with
any of the provisions hereof or thereof will not (i) conflict with or result in
any breach of any provision of the governing instruments of Acquiror or
Acquisition Subsidiary, (ii) require any Consent under or result in a violation
or breach of, or constitute (with or without due notice or lapse of time or
both) a default (or give rise to any right of termination, cancellation or
acceleration or augment the performance required) under any of the terms,
conditions or provisions of any Acquiror Material Contract (as hereinafter
defined) or other obligation to which Acquiror or Acquisition Subsidiary is a
party or by which any of them or any of their properties or assets may be bound,
(iii) result in the creation or imposition of any lien or encumbrance of any
kind upon any of the assets of Acquiror or Acquisition Subsidiary, or (iv)
contravene any Law currently in effect to which Acquiror or Acquisition
Subsidiary or its or any of their respective assets or properties are subject,
except in the case of clauses (ii), (iii) and (iv), above, for any deviations
from the foregoing which do not or would not have an Acquiror Material Adverse
Effect. An "Acquiror Material Contract" is any material note, bond, mortgage,
--------------------------
indenture, contract, lease, license, agreement, understanding, instrument, bid
or proposal that is required to be described in or filed as an exhibit to any
reports, statements or registration statements filed, or required be filed, by
Acquiror pursuant to the Securities Act or the Securities Exchange Act.
3.5 Finders and Investment Bankers. Neither Acquiror nor any of its
------------------------------
officers or directors has employed any broker or finder or otherwise incurred
any liability for any brokerage fees, commissions or finders' fees in connection
with the transactions contemplated hereby, except fees to be incurred in
financing the transactions contemplated herein.
3.6 Information Supplied. None of the information relating solely to
--------------------
Acquiror or Acquisition Subsidiary supplied or to be supplied by Acquiror or
Acquisition Subsidiary in writing expressly for inclusion or incorporation by
reference in the Proxy Statement (as hereinafter defined) will, at the date such
document is first published, sent or delivered to holders of Target Common Stock
or, at any time during the pendency of the Shareholders' Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be
15
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stated therein or necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading.
Notwithstanding the foregoing, no representation or warranty is made by the
Acquiror or Acquisition Subsidiary with respect to statements made or
incorporated by reference therein based on information supplied by Target for
inclusion or incorporation by reference in the foregoing document.
3.7 No Knowledge of Misrepresentations. To the actual knowledge of
----------------------------------
Acquiror, as of the date of this Agreement none of the representations or
warranties made by Target in Article II hereof are untrue in any material
respect.
3.1 ARTICLE IV
ADDITIONAL COVENANTS
4.1 Conduct of Business of Target and Target Subsidiaries. Except as
-----------------------------------------------------
expressly contemplated by this Agreement, during the period from the date of
this Agreement to the Effective Time, Target shall conduct, and it shall cause
the Target Subsidiaries to conduct, its or their respective businesses in the
ordinary course and consistent with past practice, subject to the limitations
contained in this Agreement, and Target shall, and it shall cause the Target
Subsidiaries to, use its or their respective reasonable business efforts to
preserve intact its or their respective business organizations, to keep
available the services of its officers, agents and employees and to maintain
satisfactory relationships with all persons with whom any of them does business.
4.2 Notification of Certain Matters. Target shall give prompt notice to
-------------------------------
Acquiror if any of the following occur after the date of this Agreement: (i)
any notice of, or other communication relating to, a default or Event which,
with notice or lapse of time or both, would become a default under any Target
Material Contract; (ii) receipt of any notice or other communication from any
third party alleging that the Consent of such third party is or may be required
in connection with the transactions contemplated by this Agreement; (iii)
receipt of any material notice or other communication from any Governmental
Authority (including, but not limited to, the SEC, the American Stock Exchange
("Amex") or any other securities exchange) in connection with the transactions
contemplated by this Agreement; (iv) the occurrence of an Event which would have
a Target Material Adverse Effect; (v) the commencement or threat of any
Litigation involving or affecting Target or any Target Subsidiary or any
affiliate, or any of their respective properties or assets, or, to its
knowledge, any employee, agent, director or officer of Target or any Target
Subsidiary, in his or her capacity as such or as a fiduciary under a Benefit
Plan of Target, which, if pending on the date hereof, would have been required
to have been disclosed in or pursuant to this Agreement or which relates to the
consummation of the Merger or any material development in connection with any
Litigation disclosed by Target in or pursuant to this Agreement or the Target
Securities Filings; and (vi) the occurrence of any Event that would cause a
breach by Target of any provision of this Agreement or a Target Ancillary
Agreement, including such a breach that would occur if such Event had taken
place on or prior to the date of this Agreement.
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4.3 Access and Information. Between the date of this Agreement and the
----------------------
Effective Time, each of Target and the Target Subsidiaries, upon reasonable
notice, will give, and shall direct its accountants and legal counsel to give,
Acquiror, its lenders and their respective authorized representatives
(including, without limitation, financial advisors, accountants and legal
counsel) at all reasonable times full access to all offices and other
facilities, to all personnel and to all contracts, agreements, commitments,
books and records (including, but not limited to, Tax Returns) of or pertaining
to Target and the Target Subsidiaries, will permit the foregoing to make such
inspections as they may reasonably require and will cause its officers and
employees promptly to furnish Acquiror with (a) such financial and operating
data and other information with respect to the business, assets, liabilities,
obligations and operations of Target and the Target Subsidiaries as Acquiror may
from time to time reasonably request including, but not limited to, data and
information required for inclusion in any of Acquiror's registration statements
and/or other filings with the SEC, and (b) a copy of each material report,
schedule and other document filed or received by Target or any Target Subsidiary
pursuant to the requirements of applicable securities Laws, the Amex or other
securities exchange.
4.4 Shareholder Approval; Proxy Statement; Shareholder Lists.
--------------------------------------------------------
(a) As soon as practicable, Target will in accordance with
applicable Law, its Certificate of Incorporation, its By-Laws and the rules of
the Amex, take all steps necessary to duly call, give notice of, convene and
hold a meeting of its shareholders (the "Shareholders' Meeting") for the purpose
---------------------
of adopting this Agreement and the Merger and the other transactions
contemplated hereby and for such other purposes as may be necessary or desirable
in connection with effectuating the transactions contemplated hereby. Except as
otherwise contemplated in this Agreement, the Board of Directors of Target (i)
will (unless the Independent Committee or the Board of Directors of Target, as
the case may be, determines in its good faith judgment, after receiving the
advice of its outside legal counsel and/or financial advisors and otherwise in
accordance with the terms of this Agreement, that in order for the Independent
Committee or the Board of Directors of Target, as the case may be, to comply
with its fiduciary duties under applicable Law it must no longer recommend the
Merger) take all steps necessary to present and recommend to the shareholders of
Target that they adopt this Agreement and approve the transactions contemplated
hereby, and (ii) will use its reasonable best efforts to obtain any necessary
adoption and approval by Target's shareholders of this Agreement and the Merger
and the other transactions contemplated hereby, including, without limitation,
voting the Target Shares held by such Directors for such adoption and approval.
(b) Acquiror and Target will as promptly as practicable following
the execution of this Agreement jointly prepare, and Target shall file, a proxy
statement on an appropriate schedule or other form for distribution to holders
of Target Shares in advance of the Shareholders' Meeting and such other
schedules and other filings as may be necessary or appropriate (including
without limitation a Rule 13e-3 Transaction Statement on Schedule 13E-3)
(collectively, together with any amendments or supplements thereto, the "Proxy
-----
Statement") with the SEC and each will use its reasonable best efforts to
---------
respond to the comments of the SEC and to cause the Proxy Statement to be mailed
to the holders of Target Shares at the earliest practical time. Target shall
furnish all information concerning it and the holders of its capital stock as
Acquiror may reasonably request in connection with such actions. Target will
notify
17
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Acquiror promptly of the receipt of the comments of the SEC, if any, and of any
request by the SEC for amendments or supplements to the Proxy Statement or for
additional information with respect thereto, and will supply Acquiror with
copies of all correspondence between Target or its representatives, on the one
hand, and the SEC or members of its staff, on the other hand, with respect to
the Proxy Statement or the Merger or this Agreement, the Target Ancillary
Agreements or the other transactions contemplated hereby or thereby. If (A) at
any time prior to the Shareholders' Meeting, any event should occur relating to
Target or any of the Target Subsidiaries which should be set forth in an
amendment of, or a supplement to, the Proxy Statement, Target will promptly
inform Acquiror and (B) if at any time prior to the Shareholders' Meeting, any
event should occur relating to Acquiror or Acquisition Subsidiary or any of
their respective associates or affiliates, or relating to the plans of any such
persons for Target after the Effective Time that should be set forth in an
amendment of, or a supplement to, the Proxy Statement, Acquiror will promptly
inform Target, and in the case of (A) or (B) Target and Acquiror shall file and,
if required, mail such amendment or supplement to holders of Target Shares;
provided, prior to such filing or mailing, Target and Acquiror shall consult
with each other with respect to such amendment or supplement and shall
incorporate the other's comments thereon. Target will not distribute or file the
Proxy Statement, or any amendment thereof or supplement thereto, to which
Acquiror reasonably objects.
(c) Target and its counsel shall permit Acquiror and its counsel to
participate in all communications with the SEC and its staff, including any
meetings and telephone conferences, relating to the Proxy Statement, the Merger
or this Agreement or the other transactions contemplated hereby.
(d) Target shall promptly upon the request by Acquiror, or shall
cause its transfer agent to promptly, furnish Acquiror and Acquisition
Subsidiary with mailing labels containing the names and addresses of all record
holders of shares of Target Common Stock and with security position listings of
shares of Target Common Stock held in stock depositories, each as of the most
recent practicable date, together with all other available listings and computer
files containing names, addresses and security position listings of record
holders and beneficial owners of shares of Target Common Stock. Target shall
furnish Acquiror and Acquisition Subsidiary with such additional information,
including, without limitation, updated listings and computer files of the
holders of Target Common Stock, mailing labels and security position listings,
and such other assistance as Acquiror or their agents may reasonably request.
4.5 Reasonable Business Efforts. Subject to the terms and conditions
---------------------------
herein provided, Target agrees to use its reasonable commercial efforts to take,
or cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the Merger and the other transactions contemplated by this Agreement
and the Target Ancillary Agreements, including without limitation engaging a
proxy solicitor if necessary at its expense. Upon the terms and subject to the
conditions hereof, Target agrees to use its reasonable commercial efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary to satisfy the other conditions of the Closing set forth
herein.
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4.6 Public Announcements. So long as this Agreement is in effect, Target
--------------------
shall not, and shall cause its affiliates not to, without the written consent of
Acquiror, make any announcement or other disclosure relating to this Agreement,
the terms hereof, the Merger or negotiations with respect thereto, except to
their legal, accounting and financial advisers engaged in connection with the
Merger, unless otherwise required by Law or pursuant to any applicable listing
agreement with, or rules of, the Amex or other securities exchange or the SEC;
provided, that Target shall give Acquiror notice a reasonable time prior to any
such disclosure required by Law or otherwise, as referred to above, and shall
cooperate with and consult with Acquiror regarding the contents of any such
disclosure .
4.7 Compliance. In consummating the Merger and the transactions
----------
contemplated hereby and by the Target Ancillary Agreements, Target shall comply
in all material respects with the applicable provisions of the Securities
Exchange Act and the rules and regulations thereunder, and shall comply, and/or
cause the Target Subsidiaries to comply or to be in compliance, in all material
respects, with all other applicable Laws.
4.8 No Solicitation of Takeover Proposal.
-----------------------------------
(a) Neither Target, its Subsidiaries nor any of their respective
Affiliates shall, nor shall Target or its Subsidiaries or Affiliates authorize
or permit any of their respective officers, directors, employees,
representatives, legal counsel, financial advisors or other agents to, directly
or indirectly, encourage, solicit, initiate, or engage in discussions or
negotiations with or provide any non-public information to any person or group
(other than Acquiror or its Affiliates or any designees of Acquiror or its
Affiliates), or take any action designed to facilitate any inquiries or the
making of any proposal with respect to, any Third Party Acquisition; and neither
Target nor any Subsidiary shall enter into any agreement with respect to a Third
Party Acquisition; PROVIDED, HOWEVER, that nothing contained in this Section
4.8(a) shall prevent the Independent Committee or the Board of Directors of
Target from (i) taking and disclosing to Target's stockholders a position as
required by any rule promulgated under the Exchange Act with regard to any
tender or exchange offer, PROVIDED, THAT such disclosure states that no action
will be taken by the Independent Committee or the Board of Directors of the
Company or any other committee thereof, as applicable, in violation of this
Section 4.8; and (ii) if it receives a written unsolicited expression of
interest from a Person relating to the submission by such Person of a Superior
Proposal, supplying to and receiving non-public information from such Person
(subject to a customary confidentiality agreement which expressly permits Target
to fulfill its obligations set forth in the last sentence of this Section
4.8(a), in response to such unsolicited Third Party Acquisition proposal as, and
to the extent that, the Independent Committee or the Board of Directors of
Target, as applicable, determines in its good faith judgment, after consultation
with outside legal counsel, (A) such action is required in order to comply with
its fiduciary duties under applicable Law, and (B) there is a reasonable
prospect that such expression of interest will result in a Superior Proposal
from such Person, PROVIDED, THAT, after consultation with outside legal counsel,
Target may conduct such discussions and negotiations as it believes are
necessary in light of the fiduciary duties of the Independent Committee and the
Board of Directors of Target concerning such unsolicited Third Party Acquisition
proposal.
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Target shall immediately terminate any pending discussion regarding any
Third Party Acquisition (other than with Acquiror or its Affiliates or any
designees of Acquiror or its Affiliates) and shall promptly notify Acquiror of
(i) any inquiries or proposals received by, any non-public information requested
from, or any negotiations or discussions sought to be initiated or continued
with, Target or any of its Subsidiaries or Affiliates, (ii) any inquiries or
proposals known by Target to have been received by, any non-public information
known by Target to have been requested from, or any negotiation or discussions
known by Target to have been sought to be initiated or continued with, Target or
any of its Affiliates or any of the respective directors, officers, employees,
agents or representatives of the foregoing, in each case from a person (other
than Acquiror and its representatives and Affiliates) with respect to a Third
Party Acquisition, and (iii) the terms thereof, including the identity of such
third party and the general terms of any financing arrangement or commitment in
connection with such Third Party Acquisition, and Target agrees to promptly
update Acquiror on an ongoing basis of the status thereof, including furnishing
copies of any such written inquiries or offers.
(b) Except as set forth in this Section 4.8(b), neither the
Independent Committee nor the Board of Directors of Target shall withdraw or
modify its approval or recommendation of this Agreement, the Merger or the
transactions contemplated hereby or approve or recommend, or cause or allow
Target or any Subsidiary to enter into any agreement with respect to, any Third
Party Acquisition.
If the Independent Committee or the Board of Directors of Target, by
a majority disinterested vote determines in its good faith judgment after
consultation with its outside legal counsel, that it is required to do so in
order to comply with its fiduciary duties under applicable Law, the Independent
Committee or the Board of Directors of Target, as applicable, may, in the event
that it receives a Superior Proposal and in response thereto, (x) withdraw its
recommendation of the transactions contemplated hereby or (y) approve or
recommend such Superior Proposal but in each case only (i) after providing
written notice to Acquiror (a "Notice of Superior Proposal") advising Acquiror
that the Independent Committee or the Board of Directors of Target, as
applicable, has received a Superior Proposal, specifying the material terms and
conditions of such Superior Proposal and identifying the person making such
Superior Proposal, and (ii) the Independent Committee or the Board of Directors
of Target, as applicable, by a majority disinterested vote determines in its
good faith judgment (after receipt of written advice of a financial adviser of
nationally recognized reputation consistent with such determination and
consultation with outside legal counsel) that any transaction proposed by
Acquiror is not at least as favorable to Target's stockholders) as the Superior
Proposal; PROVIDED, HOWEVER, that (I) no action specified in clause (x) or (y)
above shall be taken until the sixth (6th) Business Day after receipt of a
Notice of Superior Proposal by Acquiror and (II) Target shall not be entitled to
enter into any agreement with respect to a Superior Proposal unless and until
this Agreement is terminated by its terms pursuant to Section 6.1(d) and Target
has paid all amounts due to Acquiror pursuant to Section 6.2(b).
Nothing contained in this Section 4.8(b) shall prevent the
Independent Committee or the Board of Directors of Target from (i) taking and
disclosing to Target's stockholders a position as required by Rules 14d-9 and
14e-2 promulgated under the Exchange Act with regard to any tender or exchange
offer, PROVIDED, THAT such disclosure states that no action will be
20
<PAGE>
taken by the Independent Committee or the Board of Directors of Target in
violation of this Section 4.8, or (ii) disclosing the fact that the Independent
Committee or the Board of Directors, as applicable, has received a proposal for
a Third Party Acquisition and the terms of such proposal, if the Independent
Committee or the Board of Directors of Target, as applicable, determines, after
consultation with outside legal counsel, that it is compelled to make such
disclosure in order to comply with its fiduciary duties under applicable law or
with federal securities laws.
(c) For the purposes of this Agreement, "Third Party Acquisition"
means the occurrence of any of the following events: (i) the acquisition of
Target by merger or otherwise by any person (which includes a "Person" as such
term is defined in Section 13(d)(3) of the Exchange Act) other than Acquiror (a
"Third Party"); (ii) the acquisition by a Third Party of any material portion of
the assets of Target and its Subsidiaries taken as a whole; (iii) the
acquisition by a Third Party of fifteen percent (15%) or more of the outstanding
Common Stock or the issuance by Target of capital stock containing terms which
are inconsistent with the consummation of the transactions contemplated by this
Agreement; (iv) the adoption by Target of a plan of liquidation or the
declaration or payment of an extraordinary dividend; (v) the repurchase by
Target or any of its Subsidiaries of more than fifteen percent (15%) of the
outstanding Shares; or (vi) the acquisition by Target or any of its Subsidiaries
by merger, joint venture or otherwise of any person, or any purchase of stock or
assets or acquisition of any direct or indirect ownership interest or investment
in any business such that, after such acquisition, Target and its Subsidiaries'
interest or investment in such business's annual revenues, net income or assets
is greater than or equal to fifteen percent (15%) of the annual revenues, net
income or assets of Target. For purposes of this Agreement, a "Superior
Proposal" means any bona fide written unsolicited proposal to acquire, by merger
or otherwise, directly or indirectly for consideration consisting of cash and/or
securities more than fifteen percent (15%) of the Shares then outstanding or all
or substantially all the assets of Target and its Subsidiaries, taken as a whole
(in either case, with funding that is at least as committed as the funding
commitments provided by Acquiror) and otherwise for a consideration with a value
higher than the Merger Consideration and on terms and conditions that the
Independent Committee or the Board of Directors of Target, as applicable, by a
majority disinterested vote determines in its good faith judgment (after receipt
of written advice of a financial advisor of regionally recognized reputation
consistent with such determination and consultation with outside legal counsel)
(i) is capable of being so funded, and (ii) would, if consummated provide a
higher value to Target's stockholders from a financial point of view than the
transactions contemplated hereby and by any alternative transaction proposal
made by Acquiror pursuant to Section 4.8(b) hereof; PROVIDED, HOWEVER, that such
proposal or offer shall not be deemed to be a "Superior Proposal" unless the
Independent Committee or the Board of Directors of Target as applicable,
reasonably determines that such proposal is reasonably likely to be consummated
in accordance with its terms and that the financing required to consummate the
transaction contemplated by such proposal or offer is capable of being, and is
reasonably likely to be, obtained.
4.9 Securities and Shareholder Materials. Each of Target and the Target
------------------------------------
Subsidiaries shall send to Acquiror a copy of all material public reports and
materials as and
21
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when it sends the same to its shareholders, the SEC, the Amex or any other
securities commission, exchange or market.
4.10 Resignations. Target shall cause the officers and/or directors of
------------
Target and the Target Subsidiaries as Acquiror may request to voluntarily resign
their positions as such as of the Effective Time. The instruments effecting such
resignations are herein referred to as the "Resignations."
------------
4.11 Public Announcements. So long as this Agreement is in effect,
--------------------
Acquiror shall not, and shall cause its affiliates not to, without the written
consent of Target, make any announcement or other disclosure relating to this
Agreement, the terms hereof, the Merger or negotiations with respect thereto,
except to their legal, accounting and financial advisers engaged in connection
with the Merger, unless otherwise required by Law or pursuant to any applicable
listing agreement with, or rules and regulations of, the Amex or other
securities exchange; provided, that Acquiror shall give Target notice a
reasonable time prior to any such disclosure required by Law or otherwise, as
referred to above, and shall cooperate with and consult with Target regarding
the contents of any such disclosure.
4.12 Compliance. In consummating the Merger and the transactions
----------
contemplated hereby, Acquiror shall comply in all material respects with the
applicable provisions of the Securities Exchange Act and shall comply, and/or
cause Acquisition Subsidiary to comply or to be in compliance, in all material
respects, with all other applicable Laws applicable thereto.
4.13 Proxy Statement. Acquiror shall cooperate with Target with respect to
---------------
the preparation of the Proxy Statement and the Schedule 13E-3 as set forth in
Section 4.4. and shall provide Target with such information concerning Acquiror
------------
and Acquisition Subsidiary as shall be required to be included therein.
Acquiror shall vote, or cause to be voted, in favor of the Merger and this
Agreement all shares of Target Common Stock directly or indirectly beneficially
owned by it.
4.14 Indemnification and Insurance.
-----------------------------
(a) The Certificate of Incorporation and By-Laws of the Surviving
Corporation shall contain provisions with respect to indemnification and
exculpation similar to those set forth in the Amended and Restated Certificate
of Incorporation and By-Laws of Target in effect on the date of this Agreement,
which provisions Acquiror shall not and shall cause the Surviving Corporation
not to amend, repeal or otherwise modify for a period of six (6) years from the
Effective Time in any manner that would materially and adversely affect the
rights thereunder of individuals who at the Effective Time were directors,
officers, employees or agents of Target or any Target Subsidiary, unless such
amendment, repeal or other modification is required by applicable Law.
(b) From and after the Effective Time, Acquiror agrees that it will
indemnify and hold harmless each present director and officer of Target and each
Target Subsidiary (when acting in such capacity) determined as of the Effective
Time (the "Indemnified Parties"), against any costs or expenses (including
-------------------
reasonable attorneys' fees), judgments, fines, losses,
22
<PAGE>
claims, damages or liabilities (collectively, "Costs") incurred in connection
-----
with any claim, action, suit, proceeding or investigation whether civil,
criminal, administrative or investigative, arising out of or pertaining to
matters existing or occurring at or prior to the Effective Time, whether
asserted or claimed prior to, at or after the Effective Time, to the fullest
extent that Target would have been permitted under the Delaware Code and its
Amended and Restated Certificate of Incorporation or By-Laws in effect on the
date of this Agreement to indemnify such person (and Acquiror shall also advance
expenses as incurred to the fullest extent permitted under applicable Law and
the Amended and Restated Certificate of Incorporation and the By-Laws of Target
and each Target Subsidiary, provided that the person to whom expenses are
advanced provides an undertaking to repay such advances if it is ultimately
determined that such person is not entitled to indemnification).
(c) Any Indemnified Party wishing to claim indemnification under
paragraph (b) of this Section, upon learning of any such claim, action, suit,
proceeding or investigation, shall promptly notify Acquiror thereof in writing,
but the failure to so notify shall not relieve Acquiror of any liability it may
have to such Indemnified Party if such failure does not materially prejudice
Acquiror. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), (i) Acquiror
or the Surviving Corporation shall have the right to assume the defense thereof,
and Acquiror shall not be liable to such Indemnified Parties for any legal
expenses of other counsel or any other expenses subsequently incurred by such
Indemnified Parties in connection with the defense thereof, except that if
Acquiror or the Surviving Corporation elects not to assume such defense, or if
there are any issues which raise material conflicts of interest between Acquiror
or the Surviving Corporation and the Indemnified Parties, the Indemnified
Parties may retain counsel reasonably satisfactory to Acquiror, and Acquiror or
the Surviving Corporation shall pay all reasonable fees and expenses of such
counsel for the Indemnified Parties; provided, however, that Acquiror shall be
obligated pursuant to this paragraph (c) to pay for only one firm or counsel for
all Indemnified Parties, (ii) the Indemnified Parties will cooperate in the
defense of any such matter, and (iii) Acquiror shall not be liable for any
settlement effected without its prior written consent.
(d) For a period of six (6) years after the Effective Time and to the
extent available, Acquiror or the Surviving Corporation shall maintain in effect
policies of directors' and officers' liability insurance covering those persons
who are currently covered by Target's and Target Subsidiary's directors' and
officers' liability insurance policy on terms (including the amounts of coverage
and the amounts of deductibles, if any) that are no less favorable to them in
any material respect than the terms now applicable to them under Target's
current insurance policies.
(e) If Acquiror or the Surviving Corporation or any of their
successors or assigns (i) shall consolidate with or merge into any other
corporation or entity and shall not be the continuing or surviving corporation
or entity in such consolidation or merger or (ii) shall transfer all or
substantially all of its properties and assets to any individual, corporation or
other entity, then and in each case, proper provisions shall be made so that the
successors and assigns of Acquiror or the Surviving Corporation, as the case may
be, shall assume all of the obligations set forth in this Section; provided,
that the failure to make such provisions shall not affect the validity of any
such consolidation, merger or transfer.
23
<PAGE>
(f) The provisions of this Section are intended to be for the benefit
of, and shall be enforceable by, each of the Indemnified Parties, heir heirs and
representatives.
4.15 Misrepresentations. None of Acquiror or its officers, directors,
------------------
members or managers shall take any action or omit to take any action which would
cause any of the representations and warranties of Target herein to be or become
untrue.
4.16 Financing. Acquiror and Acquisition Subsidiary will use all reasonable
---------
commercial efforts to satisfy all conditions precedent to any financing
commitments obtained by them to pay the Merger Consideration.
ARTICLE V
CONDITIONS
5.1 Conditions to Each Party's Obligations. The respective obligations of
--------------------------------------
each party to effect the Merger shall be subject to the fulfillment or waiver at
or prior to the Effective Time of the following conditions:
5.1.1 Shareholder Approval. This Agreement and the Merger and the
--------------------
other transactions contemplated hereby shall have been duly adopted at or
prior to the Effective Time by the requisite vote of the shareholders of
Target in accordance with the Articles of Incorporation and By-Laws of
Target, the Delaware Code, the Securities Exchange Act and Amex.
5.1.2 No Injunction or Action. No order, statute, rule, regulation,
-----------------------
executive order, stay, decree, judgment or injunction shall have been
enacted, entered, promulgated or enforced by any court or other
Governmental Authority, which prohibits or prevents the consummation of the
Merger or the other transactions contemplated hereby and which has not been
vacated, dismissed or withdrawn by the Effective Time. Target and Acquiror
shall use their reasonable commercial efforts to have any of the foregoing
vacated, dismissed or withdrawn by the Effective Time.
5.1.3 Opinion of Financial Advisor. The fairness opinions referenced
----------------------------
in Section 2.4(c) above shall not have been withdrawn at or prior to the
--------------
Effective Time.
5.1.4 Governmental Approvals. All Consents, other than Consents the
----------------------
failure which to be obtained or made, in the judgment of Acquiror, would
not have a material adverse effect on the business, assets, condition
(financial or otherwise), properties, liabilities, prospects or the result
of operations of the Surviving Corporation and its subsidiaries taken as a
whole ("Surviving Corporation Material Adverse Effect"), of any
---------------------------------------------
Governmental Authority required for the consummation of the Merger and the
transactions contemplated by this Agreement shall have been obtained by
Final Order (as hereinafter defined). The term "Final Order" with respect
-----------
to any Consent of a Governmental Authority shall mean an action by the
appropriate Governmental Authority as to which: (i) no request for stay by
such Governmental Authority of the action is
24
<PAGE>
pending, no such stay is in effect, and, if any deadline for filing any
such request is designated by statute or regulation, it has passed; (ii) no
petition for rehearing or reconsideration of the action is pending before
such Governmental Authority, and no appeal or comparable administrative
remedy is pending before such Governmental Authority, and the time for
filing any such petition, appeal or administrative remedy has passed; (iii)
such Governmental Authority does not have the action under reconsideration
on its own motion and the time for such reconsideration has passed; and
(iv) no appeal to a court, or request for stay by a court, of the
Governmental Authority action is pending or in effect, and if any deadline
for filing any such appeal or request is designated by statute or rule, it
has passed.
5.2 Conditions to Obligations of Target. The obligation of Target to
-----------------------------------
effect the Merger shall be subject to the fulfillment at or prior to the
Effective Time of the following additional conditions, any one or more of which
may be waived by Target:
5.2.1 Acquiror Representations and Warranties. The representations
---------------------------------------
and warranties of Acquiror contained in this Agreement that are modified
by materiality or Acquiror Material Adverse Effect ("Acquiror Modified
-----------------
Representation") shall be true and correct in all respects and those that
--------------
are not so modified ("Acquiror Nonmodified Representation") shall be true
-----------------------------------
and correct in all material respects, on the date hereof and, except for
changes not prohibited by this Agreement, as of the Effective Time as if
made at the Effective Time. Furthermore, none of the representations or
warranties of Acquiror contained in this Agreement, disregarding any
qualifications therein or in this Section 5.2.1 regarding materiality or
-------------
Acquiror Material Adverse Effect, shall be untrue or incorrect to the
extent that such untrue or incorrect representations or warranties, when
taken together as a whole, have had or would have an Acquiror Material
Adverse Effect.
5.2.2 Performance by Acquiror. Acquiror shall have performed and
-----------------------
complied with all of the covenants and agreements in all material respects
and satisfied in all material respects all of the conditions required by
this Agreement to be performed or complied with or satisfied by Acquiror
at or prior to the Effective Time.
5.2.3 Certificate. Acquiror shall have delivered to Target a
-----------
certificate executed on its behalf by its President or another authorized
officer to the effect that the conditions set forth in Subsections 5.2.1 and
-----------------
5.2.2, above, have been satisfied.
-----
5.3 Conditions to Obligations of Acquiror. The obligations of Acquiror to
-------------------------------------
effect the Merger shall be subject to the fulfillment at or prior to the
Effective Time of the following additional conditions, any one or more of which
may be waived by Acquiror:
5.3.1 Target Representations and Warranties. Assuming the accuracy of
-------------------------------------
the representations and warranties of Acquiror, the representations and
warranties of Target contained in this Agreement that are modified by
materiality or Target Material Adverse Effect ("Target Modified
---------------
Representation") shall be true and correct in all respects, and those that
--------------
are not so modified ("Target Nonmodified Representation") shall be true and
---------------------------------
correct in all material respects, on the date hereof and, except for
changes not prohibited
25
<PAGE>
by this Agreement, as of the Effective Time as if made at the Effective
Time. Furthermore, none of the representations or warranties of Target
contained in this Agreement, disregarding any qualifications therein or in
this Section 5.3.1 regarding materiality or Target Material Adverse Effect,
-------------
shall be untrue or incorrect to the extent that such untrue or incorrect
representations or warranties, when taken together as a whole, have had or
would have a Target Material Adverse Effect.
5.3.2 Performance by Target Target shall have performed and complied
---------------------
with all the covenants and agreements in all material respects and
satisfied in all material respects all the conditions required by this
Agreement to be performed or complied with or satisfied by Target at or
prior to the Effective Time.
5.3.3 No Material Adverse Change. There shall have not occurred after
--------------------------
the date hereof any Event that has or reasonably could be expected to have
a Target Material Adverse Effect.
5.3.4 No Pending Action. There shall not be instituted, pending or
-----------------
threatened any action, investigation or proceeding by any Governmental
Authority, and there shall not be instituted, pending or threatened any
action or proceeding by any other person, domestic or foreign, before any
Governmental Authority, which is reasonably likely to be determined
adversely to Acquiror or Acquisition Subsidiary, (A) challenging or seeking
to make illegal, to delay materially or otherwise, directly or indirectly,
to restrain or prohibit the consummation of the Merger, seeking to obtain
material damages or imposing any material adverse conditions in connection
therewith or otherwise, directly or indirectly relating to the transactions
contemplated by the Merger, (B) seeking to restrain, prohibit or delay the
exercise of full rights of ownership or operation by Acquiror or
Acquisition Subsidiary or their affiliates of all or any portion of the
business or assets of Target and the Target Subsidiaries, taken as a whole,
or of Acquiror or Acquisition Subsidiary or any of their affiliates, or to
compel Acquiror or Acquisition Subsidiary or any of their affiliates to
dispose of or hold separate all or any material portion of the business or
assets of Target and the Target Subsidiaries, taken as a whole, or of
Acquiror or Acquisition Subsidiary or any of their affiliates, (C) seeking
to impose or confirm material limitations on the ability of Acquiror or
Acquisition Subsidiary or any of their affiliates to exercise full rights
of the ownership of the shares of Target Common Stock, including, without
limitation, the right to vote the shares of Target Common Stock acquired or
owned by Acquiror or Acquisition Subsidiary or any of their affiliates on
all matters properly presented to the holders of Target Common Stock, (D)
seeking to require divestiture by Acquiror or Acquisition Subsidiary or any
of their affiliates of the shares of Target Common Stock, or (E) that
otherwise would reasonably be expected to have a Target Material Adverse
Effect.
5.3.5 Dissenting Shares. At the Effective Time, Dissenting Shares
-----------------
shall not exceed five percent (5%) of the Target Shares.
5.3.6 Required Consents and Transactions. All Consents set forth on
----------------------------------
Schedule 5.3.6A hereto shall have been obtained or made on terms and
----------------------
conditions
26
<PAGE>
reasonably acceptable to Acquiror and be in full force and effect. The
transactions set forth on Schedule 5.3.6B hereto must have been consummated
---------------
prior to or be consummated concurrent with the Closing contemplated hereby.
5.3.7 Certificates and Other Deliveries. Target shall have delivered,
---------------------------------
or caused to be delivered, to Acquiror (i) a certificate executed on its
behalf by its President or another duly authorized officer to the effect
that the conditions set forth herein above, have been satisfied; (ii) a
certificate of good standing or of legal existence, as applicable, from the
Secretary of State of each state or comparable authority in other
jurisdictions in which Target and the Target Subsidiaries are incorporated
stating that each is a validly existing corporation in good standing or of
legal existence, as applicable; and (iii) duly adopted resolutions of the
Board of Directors and shareholders of Target approving the execution,
delivery and performance of this Agreement, the Target Ancillary Agreements
and the instruments contemplated hereby and thereby, certified by the
Secretary or Assistant Secretary of Target.
5.3.8 Financing. Acquiror shall have obtained financing to pay the
---------
Merger Consideration on terms and conditions reasonably acceptable to
Acquiror.
5.3.9 Environmental Liability. Target shall not have incurred, or
-----------------------
received any notice of, any increase regarding any other or additional
liabilities under any Environmental Laws or under the Consent Decree to
which the Target is a party that would increase the amount Target has
accrued for environmental liabilities on its June 30, 2000 balance sheet.
ARTICLE VI
TERMINATION AND ABANDONMENT
6.1 Termination. This Agreement may be terminated at any time prior to the
-----------
Effective Time, whether before or after approval of the shareholders of Target
described herein, only:
(a) by mutual written consent of Acquiror and Target;
(b) by either Acquiror or Target if:
(i) the Merger shall not have been consummated on or prior to
March 31, 2001; provided, however, that the right to terminate this
Agreement pursuant to this Section 6.1(b)(i) shall not be available to
-----------------
any party whose failure to perform any of its obligations under this
Agreement results in the failure of the Merger to be consummated by
such time;
(ii) the approval of holders of Target Common Stock required by
Section 5.1.1 shall not have been obtained at a meeting duly convened
-------------
therefor or at any adjournment or postponement thereof;
27
<PAGE>
(iii) any court of competent jurisdiction or other Governmental
Authority shall have issued an order, decree or ruling or taken any
other action permanently enjoining, restraining or otherwise
prohibiting the consummation of the Merger and such order, decree or
ruling or other action shall have become final and nonappealable;
(c) by Acquiror, if (i) there are any breaches of any Target Modified
Representation or there are any material breaches of any Target Nonmodified
Representation, or (ii) Target shall have breached or failed to perform,
notwithstanding satisfaction or due waiver of all conditions thereto, any of its
material covenants or agreements contained herein as to which notice specifying
such breach or failure has been given to Target promptly after the discovery
thereof and Target has failed to cure or otherwise resolve the same to the
reasonable satisfaction of Acquiror within twenty (20) days after receipt of
such notice;
(d) by Acquiror if either (x) Section 4.8 shall be breached by Target
in any material respect; or (y) the Independent Committee or the Board of Target
shall have withdrawn or materially modified in a manner adverse to Acquiror its
approval or recommendation of the Merger due to the receipt of a Superior
Proposal in compliance with Section 4.8 or shall have recommended or approved a
Third Party Acquisition;
(e) by Target, if (i) there are any breaches of any Acquiror Modified
Representation or there are any material breaches of any Acquiror Nonmodified
Representation, or (ii) Acquiror shall have breached or failed to perform,
notwithstanding satisfaction or due waiver of all conditions thereto, any of its
material covenants or agreements contained herein as to which notice specifying
such breach or failure has been given to Acquiror promptly after the discovery
thereof and Acquiror has failed to cure or otherwise resolve the same to the
reasonable satisfaction of Target within twenty (20) days after receipt of such
notice.
The party desiring to terminate this Agreement pursuant to the
preceding paragraphs (b), (c), (d) or (e), shall give written notice of such
termination to the other party in accordance with Section 7.5 below.
-----------
6.2 Termination Fees and Rights.
---------------------------
(a) In the event of termination of this Agreement and the abandonment
of the Merger pursuant to this Article VI, this Agreement (other than as set
forth in this Section 6.2, Section 6.3, Section 7.1 and Section 7.7) shall
----------- ----------- ----------- -----------
become void and of no effect with no liability on the part of any party hereto
(or of any of its directors, officers, employees, agents, legal or financial
advisers or other representatives); provided, however, that no such termination
shall relieve any party hereto from any liability for breach of this Agreement.
The term "Interested Shareholders" shall mean Robert H. McLean, Robert Korman,
-----------------------
Joey Milan and Terry Kearney.
(b) In the event that this Agreement is terminated by Acquiror
pursuant to Section 6.1(d), then Target shall promptly, but in no event later
--------------
than two business days after the date of such termination, pay Acquiror a fee
equal to $500,000 (the "Termination Fee"), payable by wire transfer of same day
---------------
funds and, in addition, a "Change of Control" shall be deemed to
28
<PAGE>
have occurred with respect to any written agreements between Target and any
Interested Shareholders in effect on the date of this Agreement. Target
acknowledges that the agreements contained in this Section 6.2(b) are an
--------------
integral part of the transactions contemplated by this Agreement, and that,
without these agreements, Acquiror would not enter into this Agreement;
accordingly, if Target fails to promptly pay the amount due pursuant to this
Section 6.2(b), and in order to obtain such payment, Acquiror commences a suit
--------------
which results in a judgment against Target for the Termination Fee set forth in
this paragraph (b), Target shall also pay to Acquiror its costs and expenses
(including attorneys' fees) in connection with such suit, together with interest
on the amount of the Termination Fee at the prime rate of NationsBank, N.A. in
effect on the date such payment was required to be made.
6.3 Procedure Upon Termination. In the event of termination pursuant to
--------------------------
this Article VI, this Agreement shall terminate and the Merger shall be
abandoned without further action by Target or Acquiror, provided that the
agreements contained in Sections 6.2, 6.3, 7.1 and 7.7 hereof shall remain in
------------------------------
full force and effect. If this Agreement is terminated as provided herein, each
party shall use its reasonable best efforts to redeliver all documents, work
papers and other material (including any copies thereof) of any other party
relating to the transactions contemplated hereby, whether obtained before or
after the execution hereof, to the party furnishing the same. Nothing contained
in this Agreement shall relieve any party from any liability for any inaccuracy,
misrepresentation or breach of this Agreement prior to termination.
ARTICLE VII
MISCELLANEOUS
7.1 Confidentiality. Unless (i) otherwise expressly provided in this
---------------
Agreement, (ii) required by applicable Law or any listing agreement with, or the
rules and regulations of, any applicable securities exchange, (iii) necessary to
secure any required Consents as to which the other party has been advised, or
(iv) consented to in writing by Acquiror and Target, this Agreement and any
information or documents furnished in connection herewith shall be kept strictly
confidential by Target and the Target Subsidiaries, Acquiror and Acquisition
Subsidiary and their respective officers, directors, employees and agents. Prior
to any disclosure pursuant to the preceding sentence, the party intending to
make such disclosure shall consult with the other party regarding the nature and
extent of the disclosure. Nothing contained herein shall preclude disclosures to
the extent necessary to comply with accounting, SEC and other disclosure
obligations imposed by applicable Law. In connection with any filing with the
SEC under the Securities Exchange Act, Target or Acquiror, after consultation
with the other party, may include any information required to be included
therein with respect to the Merger. Acquiror and Target shall cooperate with the
other and provide such information and documents as may be required in
connection with any such filings. In the event the Merger is not consummated,
Acquiror and Target shall return to the other all documents furnished by the
other and will hold in absolute confidence all information obtained from the
other party except to the extent (i) such party is required to disclose such
information by Law or such disclosure is necessary or desirable in connection
with the pursuit or defense of a claim, (ii) such information was known by such
party prior to such disclosure or was thereafter developed or obtained by such
party independent of such disclosure, (iii) such party received such information
on a non-confidential basis from a
29
<PAGE>
source, other than the other party, which is not known by such party to be bound
by a confidentiality obligation with respect thereto or (iv) such information
becomes generally available to the public or is otherwise no longer
confidential. Prior to any disclosure of information pursuant to the exception
in clause (i) of the preceding sentence, the party intending to disclose the
same shall so notify the party which provided the same in order that such party
may seek a protective order or other appropriate remedy should it choose to do
so.
7.2 Amendment and Modification. To the extent permitted by applicable Law,
--------------------------
this Agreement may be amended, modified or supplemented only by a written
agreement among Target, Acquiror and Acquisition Subsidiary, whether before or
after approval of the Merger and this Agreement by the holders of Target Common
Stock and the holders of the common stock of Acquisition Subsidiary.
7.3 Waiver of Compliance; Consents. Any failure of Target on the one hand,
------------------------------
or Acquiror on the other hand, to comply with any obligation, covenant,
agreement or condition herein may be waived by Acquiror on the one hand, or
Target on the other hand, only by a written instrument signed by the party
granting such waiver, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver of compliance as set forth in this Section.
7.4 Survival of Representations and Warranties. The respective
------------------------------------------
representations and warranties of Target and Acquiror contained herein or in any
certificates or other documents delivered prior to or at the Closing shall
survive the execution and delivery of this Agreement, notwithstanding any
investigation made or information obtained by the other party, but shall
terminate at the Effective Time.
7.5 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed to have been duly given when delivered in person, by
facsimile, receipt confirmed, or on the next business day when sent by overnight
courier or on the second succeeding business day when sent by registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(i) if to Target, to:
John M. Edgar, Chair
BFX Independent Committee
3500 One Kansas City Place
Suite 3500
Kansas City, MO 64105
(ii) if to Acquiror or Acquisition Subsidiary, to:
30
<PAGE>
Hospitality Concepts, LLC
Attn: Robert H. McLean
c/o Hunter McLean
301 Commerce Street, Suite 3500
Fort Worth, Texas 76102
with copies to:
Wayne M. Whitaker
Whitaker, Chalk, Swindle & Sawyer L.L.C.
301 Commerce Street, Suite 3500
Fort Worth, Texas 76102-4186
Tel: 817/878-0530
Fax: 817/878-0501
7.6 Binding Effect; Assignment. This Agreement and all of the provisions
--------------------------
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto prior to the Effective Time without the prior written
consent of the other party hereto, except that Acquisition Subsidiary may assign
to Acquiror or any other Subsidiary of Acquiror any and all rights, interests
and obligations of Acquisition Subsidiary under this Agreement.
7.7 Expenses. Upon execution hereof, Target shall bear all reasonable
--------
third party costs and expenses of Acquiror incurred in connection with the
closing of the Merger and related transactions, including without limitation the
negotiation, preparation and execution of this Agreement, the Target Ancillary
Agreements, and the preparation of all filings and amendments thereof with the
SEC and Amex (upon proper documentation thereof). In the event Target terminates
this Agreement pursuant to Section 6.1(e) then Acquiror will promptly reimburse
Target for such costs and expenses that Acquiror has incurred and Target has
paid.
7.8 Governing Law. This Agreement shall be deemed to be made in, and in
-------------
all respects shall be interpreted, construed and governed by and in accordance
with the internal laws of, the State of Delaware (without regard for its choice
of law rules).
7.9 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.10 Interpretation. The article and section headings contained in this
--------------
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement. No rule of construction shall apply to this Agreement which
construes ambiguous language in favor of or against any party by reason of that
party's role in drafting this Agreement. As used in this Agreement, (i) the
term "person" shall mean and include an individual, a partnership, a joint
------
venture, a corporation, a limited liability company, a trust, an association, an
unincorporated organization, a
31
<PAGE>
Governmental Authority and any other entity; (ii) the terms "affiliate" and
---------
"associate" shall have the same meanings as set forth in Rule 12b-2 under the
---------
Securities Exchange Act; and (iii) the term "shareholder" of any specified
-----------
person shall mean any holder of capital stock or other equity interest in such
person.
7.11 Entire Agreement. This Agreement and the other agreements, documents
----------------
or instruments referred to herein or executed in connection herewith including,
but not limited to, the Schedules attached hereto, which Schedules are
incorporated herein by reference, embody the entire agreement and understanding
of the parties hereto in respect of the subject matter contained herein. There
are no restrictions, promises, representations, warranties, covenants, or
undertakings, other than those expressly set forth or referred to herein. This
Agreement supersedes all prior agreements and the understandings between the
parties with respect to such subject matter.
7.12 Severability. In case any provision in this Agreement or in any of
------------
the other agreements, documents or instruments referred to herein shall be held
invalid, illegal or unenforceable in any jurisdiction, such provision shall be
modified or deleted, as to the jurisdiction involved, only to the extent
necessary to render the same valid, legal and enforceable, and the validity,
legality and enforceability of the remaining provisions hereof or thereof shall
not in any way be affected or impaired thereby nor shall the validity, legality
or enforceability of such provision be affected thereby in any other
jurisdiction.
7.13 Specific Performance. The parties hereto agree that irreparable
--------------------
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. Accordingly, the parties further agree that each party shall be
entitled to an injunction or restraining order to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, this being in
addition to any other right or remedy to which such party may be entitled under
this Agreement, at law or in equity.
7.14 Third Parties. Nothing contained in this Agreement or in any
-------------
instrument or document executed by any party in connection with the transactions
contemplated hereby shall create any rights in, or be deemed to have been
executed for the benefit of, any person that is not a party hereto or thereto,
or, a successor or permitted assign of such a party.
7.15 Schedules. The Schedules in this Agreement shall be arranged in
---------
separate parts corresponding to the numbered and lettered sections, and the
disclosure in any numbered or lettered part shall be deemed to relate to and to
qualify only the particular representation or warranty set forth in the
corresponding numbered or lettered section, and not any other representation or
warranty (unless an express and specific reference to any other Schedule which
clearly identifies the particular item being referred is set forth therein).
[The remainder of this page is intentionally left blank.]
32
<PAGE>
IN WITNESS WHEREOF, Acquiror, Acquisition Subsidiary and Target have caused
this Agreement to be signed and delivered by their respective duly authorized
officers as of the date first above written.
HOSPITALITY CONCEPTS, LLC
By: /s/Robert H. McClean
--------------------
Name: Robert H. McClean
-----------------
Title: President
---------
AMERICAN HOSPITALITY, LLC
By: /s/ Robert H. McClean
---------------------
Name: Robert H. McClean
-----------------
Title: President
---------
BFX HOSPITALITY GROUP, INC.
By: /s/John M. Edgar
----------------
Name: John M. Edgar
-------------
Title: Chairman, Independent Committee
-------------------------------
33
<PAGE>
GUARANTY
--------
The undersigned, Robert McLean, hereby irrevocably and personally
guarantees the prompt payment by Acquiror (as defined above) of any and all
amounts that may become due and owing by Acquiror to Target pursuant to, and
only pursuant to, the last sentence of Section 7.7 of the foregoing Agreement
and Plan of Merger and nothing else.
Dated as of August 11, 2000 /s/ Robert H. McClean
-------------------------------
Robert H. McLean
34
<PAGE>
Schedule 5.3.6A
Consents required under the following leases:
Sundance Lease:
Sundance Square Retail Lease Agreement entered into July 24, 1997
between Sundance Square, a Texas general partnership, and Cabo Fort Worth
#1, Inc.
Lucile's Lease:
Lease originally entered into between Donegal Hills Co. and Camp
Bowie Restaurant, Inc. dated September 10, 1992
Lease for the Cat's Meow Bar:
See attached Exhibit A
35
<PAGE>
EXHIBIT A
---------
1. Lease of Commercial Property (Net) with George Lingle and Diane Lingle
Boland as Lessor and Bourbon and St. Peter Corporation as Lessee, dated
December 1, 1969;
2. Rider attached to Lease of Commercial Property 701 Bourbon Street, executed
on June 3, 1982 by Diane Lingle Boland, lessor and Ysonde K. & Kurt C.
Boland, Lessors by Gary L. Blunt, Guardian, and Bourbon and St. Peter
Corporation, Lessee;
3. Sublease of Commercial Property between Frank's Jazz Alley, Inc., a
Louisiana Corporation ("Sublessor") and 701 Bourbon Street, a Louisiana
Corporation ("Sublessee"), consented to by Diane L. Boland, Ysonde K.
Boland and Kurt C. Boland ("Lessors"), dated September 30, 1989;
4. Agreement by and from Lessors to Sublessee and from Sublessee to Lessors in
connection with the Sublease of 701 Bourbon Street, dated September 30,
1989, by and among 701 Bourbon Street, Inc., Billy Bob Barnett, Robert F.
Henley, Diane L. Boland, Kurt C. Boland and Ysonde K. Boland, Gary L.
Boland, former tutor of Kurt C. and Ysonde K. Boland, consented to Frank's
Jazz Alley, Inc., and Frank B. Waters;
5. Assignment of Sublease of Commercial Property dated April 15, 1991, between
701 Bourbon Street, Inc. a Louisiana corporation ("Assignor") and 701
Bourbon Street, Ltd., a Texas limited partnership ("Assignee");
6. Agreement of April 12, 1991, representing the consent of the Lessors (i.e.,
the Bolands) to the assignment of the Sublease from 701 Bourbon Street,
Inc. to 701 Bourbon Street, Ltd.'
7. Addendum No. One to Agreement of April 12, 1991 acknowledging the change of
name of 701, Inc. to Cat's Meow, Inc.;
8. Rider attached to Lease of Commercial Property 701 Bourbon Street, New
Orleans, Louisiana, executed on April 2, 1994, by Diane L. Boland, Ysonde
K. and Kurt C. Boland, lessors, and Entertainment Centers of America, Inc.
("ECA"), Buffton Corporation ("Buffton"), BFX-LA, Inc., a Louisiana
corporation ("BRX"), Cat's Meow, Inc., a Louisiana corporation ("Cat's")
and 701 Bourbon Street, Ltd., a Texas limited partnership (the
"Partnership"), Barnett & Taylor Management, Inc., consenting to Buffton's
acquisition of Cat's Meow and the assignment by the Partnership to Cat's
meow, Inc. of all of the assets of Cat's Meow.
36
<PAGE>
Schedule 5.3.6B
1. Cabo Restaurant Company shall sell on terms reasonably acceptable to
Acquiror all of the membership interests of Cabo-Fort Worth #1, L.L.C to
Acquiror concurrent with the Closing of the Merger;
2. Cats Meow, Inc. shall concurrent with the Closing of the Merger sell all of
its assets to Cats Meow, LLC, a wholly owned subsidiary of Acquiror, on terms
acceptable to Acquiror;
3. Lucile's Stateside Bistro-Texas, Inc. shall concurrent with the Closing of
the Merger sell all of its assets to Lucile's, LLC, a wholly owned subsidiary of
Acquiror, on terms acceptable to Acquiror;
4. Stockyards Hotel, Inc. shall concurrent with the Closing of the Merger sell
all of its assets to Stockyards Hotel, LLC, a wholly owned subsidiary of
Acquiror, on terms acceptable to Acquiror;
5. American Food Classics, Inc. shall concurrent with the Closing of the Merger
sell all of its intellectual property assets to Acquiror on terms acceptable to
Acquiror;
6. BFX Hospitality Group, Inc. shall concurrent with the Closing of the Merger
sell all of its intellectual property assets to Acquiror on terms acceptable to
Acquiror;
7. The lessee under the Lease Agreement by and between Buffton Corporation
n/k/a BFX Hospitality Group, Inc., as Landlord, and National Pipe & Plastics,
Inc., as tenant, dated January 1, 1997 and as amended March 1, 1998 has
exercised its right to extend the lease for an additional renewal term of five
years; and
8. The lease agreement for the premises utilized by Cat's Meow, Inc. shall have
been extended by lessor on terms reasonably acceptable to Acquiror.
37
<PAGE>
[LOGO OF SANDERS MORRIS HARRIS]
PERSONAL AND CONFIDENTIAL
-------------------------
August 11, 2000
Mr. John M. Edgar
Chairman of the Independent Committee of
the Board of BFX Hospitality Group, Inc.
c/o Bryan Cave
3300 One Kansas City Place
1200 Main Place
Kansas City, MO 64105-6914
Gentlemen:
You have advised Sanders Morris Harris Inc. ("SMH") that management of BFX
Hospitality Group, Inc. ("BFX" or the "Company") has proposed to acquire the
outstanding common stock of BFX at a price of $2.25 per share in a "going
private" management buyout transaction (the "Transaction").
The Transaction will be structured as a merger of the Company with and into
American Hospitality, L.L.C. ("American") pursuant to an Agreement and Plan of
Merger (the "Merger Agreement") by and between the Company, American and
Hospitality Concepts, L.L.C., which owns all the outstanding stock of American
and which is owned by members of management proposing the Transaction.
You have requested that SMH act as financial advisor to the Independent
Committee referred to above and issue an opinion ("Opinion") as to the fairness
to the public shareholders of BFX of the consideration to be received in the
proposed Transaction.
SMH, as part of its investment banking business, is frequently engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements, and valuations for estate, corporate
and other purposes.
<PAGE>
BFX Hospitality Group, Inc.
August 11, 2000
Page 2
In arriving at our Opinion, we have, among other things:
1. Reviewed a draft of the Agreement and Plan of Merger dated August 7,
2000;
2. Reviewed BFX Proxy Statement draft dated July 28, 2000;
3. Reviewed BFX Hospitality Group, Inc. Liquidation Analysis dated May
10, 2000;
4. Reviewed June 1998 Consent Decree between the United States of America
and BFX Hospitality Group, Inc.;
5. Reviewed Record of Decision with respect to the Company's Superfund
site in Vestal, New York;
6. Reviewed BFX audited financials and annual report for the year ended
September 30, 1999;
7. Reviewed BFX unaudited financial statements for the quarter ended
March 31, 2000;
8. Reviewed BFX confidential unaudited financial statements for the four-
week period ended May 28, 2000;
9. Reviewed summary projections and assumptions for each of BFX's
operating facilities for 2000 - 2005 prepared and provided by BFX
management at SMH's request;
10. Reviewed BFX summary history provided by BFX management;
11. Reviewed letter dated June 28, 2000 from Robert H. McLean to the
Independent Committee setting forth the preliminary proposal;
12. Reviewed a July 26, 2000 proposal from John Hancock Real Estate
Finance, Inc. with respect to a $2,200,000 mortgage loan on the
Stockyards Hotel;
13. Reviewed an August 1, 2000 proposal from Amresco Commercial Finance,
Inc. with respect to a $5 million loan;
14. Reviewed a July 19, 2000 memo from Robert Korman to James Pryde
regarding the Transaction;
15. Reviewed a July 21, 2000 memo from Robert Korman to Clyde Buck
regarding the book value of BFX;
<PAGE>
BFX Hospitality Group, Inc.
August 11, 2000
Page 3
16. Reviewed Cat's Meow lease agreement dated September 30, 1989;
17. Reviewed Vestal, New York Superfund site lease agreement dated January
1, 1997; and
18. Discussed various assets, liabilities and operations of BFX involved
in the Transaction.
With your permission, we have assumed and relied upon, without assuming any
responsibility for verification, the accuracy and completeness of all of the
financial and other information provided to, discussed with, or reviewed by or
for us, or publicly available, for purposes of this Opinion, and have further
relied upon the assurances of management of the Company that it is not aware of
any facts that will make such information inaccurate or misleading in any
respect material to our analysis. We have neither made nor obtained any
independent evaluations or appraisals of the assets or liabilities of the
Company, nor have we conducted a physical inspection of the properties and
facilities of the Company. We have assumed that the financial forecasts and
projection information of each individual operating business unit provided to us
by the Company have been reasonably determined on bases reflecting the best
currently available estimates and judgments of the Company's management as to
each operating business unit's future financial performance. We have further
assumed in our analyses that, in all material respects, such forecasts and
projections will be realized in the amounts and times indicated thereby. We
express no view as to such forecasts, projections or the assumptions on which
they were based. We have also assumed, and you have informed us, that the
Transaction will be accounted for on a purchase basis and the consideration to
be received by public stockholders will be taxable. We have relied as to all
legal, accounting and tax matters with respect to the Transaction on legal
counsel and accountants to the Company. We were not authorized to negotiate the
terms of the Transaction, and we have based our opinion solely upon the Merger
Agreement as negotiated by others. We were not asked to, and we did not, solicit
third party offers to acquire all or part of the Company.
For purposes of rendering our Opinion, we have assumed, in all respects material
to our analysis, that the representations and warranties of each party contained
in the Merger Agreement are true and correct, that each party will perform all
of the covenants and agreements required to be performed by it under the Merger
Agreement and that all conditions to the consummation of the Transaction will be
satisfied without waiver thereof. We have also assumed that all material
governmental, regulatory or other consents and approvals will be obtained and
that in the course of obtaining any necessary governmental, regulatory or other
consents and approvals, or any amendments, modifications or waivers to any
documents to which either the Company or American are party, as contemplated by
the Merger Agreement, no restrictions will be imposed or amendments,
modifications or waivers made that would have any material adverse effect on the
consideration to be received by the public stockholders or the time of such
receipt.
<PAGE>
BFX Hospitality Group, Inc.
August 11, 2000
Page 4
Our Opinion is limited to the fairness, from a financial point of view, of the
Transaction to the Company's public stockholders, and we express no opinion as
to the merits of the underlying decision by the Company to engage in the
Transaction. This Opinion does not constitute a recommendation to any
stockholder of the Company as to how such stockholder should vote with respect
to the Transaction. Our Opinion necessarily is based upon market, economic and
other conditions as they exist and can be evaluated on the date hereof, and we
assume no responsibility to update or revise our Opinion based upon
circumstances or events occurring after the date hereof.
We have acted as financial advisor to the Independent Committee in connection
with the Transaction and will receive a fee for our services, including for
rendering this Opinion. In addition, the Company has agreed to indemnify us for
certain liabilities arising out of our engagement. As we have previously
advised you, in the ordinary course of business, we or our affiliates may trade
in the Company's common stock for our own accounts and for the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities.
Based upon and subject to the foregoing, it is our Opinion that, as of the date
hereof, the consideration to be received in the Transaction is fair to the
public shareholders of BFX from a financial point of view.
SANDERS MORRIS HARRIS INC.
By: /s/ G. Clyde Buck
------------------------------
G. Clyde Buck
Managing Director
<PAGE>
August 11, 2000
PERSONAL & CONFIDENTIAL
-----------------------
Independent Committee of the Board of Directors of
BFX Hospitality Group, Inc.
c/o Bryan Cave, Legal Counsel for the
Independent Committee
3500 One Kansas City Place
1200 Main Street
Kansas City, Missouri 64105
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view to the holders of common stock of BFX Hospitality Group, Inc. (the
"Company"), of the consideration to be received by such stockholders pursuant to
the terms and conditions set forth in the Agreement and Plan of Merger dated as
of August 11, 2000 (the "Merger Agreement") by and among the Company, American
Hospitality, L.L.C., a Delaware limited liability company ("American"), and
Hospitality Concepts, L.L.C., a Delaware limited liability company and owner of
all the outstanding stock of American ("Hospitality"). Pursuant to the Merger
Agreement, the Company will be merged with and into American, with American
continuing as the surviving company (the "Merger"). The terms of the Merger
Agreement provide, among other things, that each share of common stock, $.05 par
value, of the Company ("Common Stock") outstanding immediately before the
effective time of the Merger, including each associated right to purchase shares
upon certain events occurring under the Company's Rights Agreement (other than
shares held by the Company or any of its subsidiaries as treasury stock and
shares held by dissenting stockholders who have validly exercised and perfected
their rights under Delaware Law) will be converted into the right to receive
$2.25 in cash (the "Merger Consideration").
George K. Baum & Company, as part of its investment banking business, is
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes.
<PAGE>
Page 2
August 11, 2000
We have been engaged by the Independent Committee of the Board of Directors
of the Company in connection with the Merger to render this opinion, and we will
receive a fee for our services. Our fee is not contingent upon the consummation
of the Merger and will be paid regardless of the substance of our opinion. In
addition, the Company has agreed (i) to reimburse us with respect to certain
reasonable out-of-pocket expenses, including without limitation fees and
disbursements of legal counsel, and (ii) to indemnify us and certain affiliates
against certain liabilities relating to, or arising out of, our engagement,
including without limitation certain liabilities under federal securities laws.
We have not in the past provided investment banking, financial advisory or other
services to the Company. However, in the ordinary course of our businesses, we
and our affiliates may trade securities of the Company for our own account or
for the accounts of customers; accordingly, we or our affiliates may at any time
hold long or short positions in such securities.
We were not requested to, nor did we, recommend a specific per share price
in connection with the Merger. We also were not requested to, did not
participate in, and did not give advice with respect to, negotiations of the
terms and conditions of the Merger. Consequently, we have assumed that such
terms are the most beneficial terms from the Company's perspective that could
under the circumstances be negotiated among the parties to the Merger, and no
opinion is expressed as to whether any alternative transaction might produce
consideration for the Company's stockholders in an amount in excess of that
contemplated in the Merger. We have not been requested to, nor do we, offer any
opinion as to any tax consequences in connection with the Merger, as to the form
of the Merger, or as to the material terms (other than with respect to the
Merger Consideration to the extent expressly specified herein) of the Merger
Agreement, the related documents, and the obligations thereunder. In rendering
this opinion, we have assumed that each of the parties to the Merger Agreement
will comply with all material covenants and agreements set forth in the Merger
Agreement and related documents, as applicable, and that the Merger will be
validly consummated in accordance with its terms.
Our opinion does not address the Company's underlying business decision to
effect the Merger, does not constitute a recommendation to any stockholder of
the Company as to how to vote in connection with the Merger, and does not
address whether such stockholder should tender or sell shares of the Company's
Common Stock in the Merger.
In connection with this opinion, we were not requested to solicit, and did
not solicit, interest from any other person or entity with respect to the
acquisition of the Company or any of its assets. We have not conducted a
physical inspection of any of the properties or assets of the Company, and we
have not prepared or obtained any independent evaluation or appraisal of any of
the assets or liabilities of the Company. In connection with this opinion, we
have, among other things:
(i) Reviewed the terms and conditions describing or otherwise
directly relating to the Merger Consideration set forth in the
Merger Agreement;
(ii) Reviewed certain publicly available business and historical
financial information relating to the Company, including without
limitation the
<PAGE>
Page 3
August 11, 2000
Company's Annual Reports, Forms 10-K, Forms 10-Q, and other
filings with the Securities and Exchange Commission
("SEC");
(iii) Reviewed current and historical market prices and trading
volumes of the Company's Common Stock;
(iv) Reviewed certain internal financial information and other data
relating to the businesses and financial prospects of the
Company, as well as estimates, financial forecasts and
analyses prepared by the management of the Company that are
not publicly available;
(v) Conducted discussions with members of the senior management of
the Company;
(vi) Reviewed publicly available financial and stock market data
with respect to certain companies in lines of business or of a
certain size that we believe to be generally comparable to the
Company;
(vii) Reviewed certain recent historical data relating to premiums
paid in mergers and acquisitions of publicly traded companies
in lines of business or of a certain size we believe to be
generally comparable to the Company;
(viii) Reviewed certain recent historical data relating to premiums
paid in going private transactions of a certain size we
believe to be generally comparable to the Merger; and
(ix) Conducted such other financial studies, analyses and
investigations, and considered such other information that we
deemed necessary or appropriate.
For purposes of our opinion, we relied upon and assumed, without
independent verification of the same, the accuracy and completeness of the
financial and other information made available to us. We have assumed, and
the management of the Company has represented, that the information
provided by the Company, including certain internal projections and
analyses, had a reasonable basis and reflected the best, currently
available estimates and judgments of the Company's management as to the
recent and likely future performance of the Company or otherwise as to the
matters covered thereby. In rendering our opinion, we express no view as to
the reasonableness of such forecasts and projections or the assumptions on
which they are based. We also have relied on the representation of the
Company's management that they were not aware of any information or fact
that would make the information provided to us incomplete or misleading.
The opinion is based upon the information available to us and the
facts and circumstances as they exist, and is subject to evaluation on the
date of this opinion. Events occurring after such date could materially
affect the assumptions used in
<PAGE>
Page 4
August 11, 2000
preparing our opinion, and we undertake no duty or obligation and have no
duty or obligation to update or amend our opinion or otherwise advise the
Independent Committee, the Board or any other party or person of the
occurrence of any such events. The description of the analyses set forth
herein does not purport to be a complete description of the analyses
underlying our opinion. The preparation of a fairness opinion is a complex
process involving subjective judgments and is not necessarily susceptible
to partial analysis or summary description. In arriving at our opinion, we
do not attribute any particular weight to any analysis or factor we
considered, but rather made qualitative judgments as to the significance
and relevance of each analysis and factor. Accordingly, our analysis must
be considered as a whole. Selecting portions of our opinion and factors
considered by us, without considering all the analysis and factors, could
create a misleading or incomplete view of the processes underlying such
analyses and our opinion. The analyses we perform are not necessarily
indicative of actual values or future results, which may be significant and
more or less favorable than suggested by such analysis. Our opinion is
necessarily based upon economic, market and other conditions as in effect
on, and the information available to us as of, the date hereof.
We do not believe that any person (including any stockholder of the
Company) other than a member of the Independent Committee or of the Board
of Directors of the Company has the legal right to rely upon our opinion
for any claim arising under state law. Should any such state law claim be
brought against us, this assertion will be raised as a defense. In the
absence of governing authority, this assertion will be resolved by the
final adjudication of each such issue by a court of competent jurisdiction.
Resolution of this matter under state law, however, will have no effect on
the rights and responsibilities of any person under the federal securities
laws or on the rights and responsibilities of the Independent Committee or
the Board of Directors of the Company.
It is understood that this opinion is for the benefit and use of the
Independent Committee of the Board of Directors of the Company in
connection with, and for purposes of, its evaluation of the Merger. This
opinion may not be disclosed, referred to, or communicated (in whole or in
part) to any third party for any purpose whatsoever except with our written
consent in each instance. This opinion may be included in its entirety in
any filing made by the Company in respect of the Merger with the SEC, so
long as this opinion is reproduced in full in such filing, and any
description of, or reference to, us or a summary of this opinion and/or the
related analysis in such filing is in a form acceptable to us and/or our
legal counsel.
<PAGE>
Page 5
August 11, 2000
Based upon and subject to the foregoing, we are of the opinion that,
as of the date hereof, the proposed Merger Consideration to be received by
the holders of the Company's Common Stock pursuant to the Merger Agreement
is fair from a financial point of view.
Very truly yours,
GEORGE K. BAUM & COMPANY
By /s/ STEVEN L. WALTER
------------------------
Steven L. Walter
Principal
PJT:rmh
<PAGE>
[GEORGE K. BAUM & COMPANY LETTERHEAD]
October 5, 2000
PERSONAL & CONFIDENTIAL
-----------------------
Independent Committee of the Board of Directors of
BFX Hospitality Group, Inc.
c/o Bryan Cave, Legal Counsel for the
Independent Committee
3500 One Kansas City Place
1200 Main Street
Kansas City, Missouri 64105
Gentlemen:
Pursuant to a comment by the Securities and Exchange Commission ("SEC") in
connection with the filing of Schedule 14A, SEC File No. 1-9822, filed on
September 22, 2000 by BFX Hospitality Group, Inc. (the "Company"), we hereby
amend the letter dated August 11, 2000 from George K. Baum & Company to the
Independent Committee of the Board of Directors of the Company (our "Opinion
Letter").
Our Opinion Letter shall be and is hereby amended by deleting the following
paragraph set forth on page 4 of our Opinion Letter:
"We do not believe that any person (including any stockholder of the
Company) other than a member of the Independent Committee or of the Board
of Directors of the Company has the legal right to rely upon our opinion
for any claim arising under state law. Should any such state law claim be
brought against us, this assertion will be raised as a defense. In the
absence of governing authority, this assertion will be resolved by the
final adjudication of each such issue by a court of competent jurisdiction.
Resolution of this matter under state law, however, will have no effect on
the rights and responsibilities of any person under the federal securities
laws or on the rights and responsibilities of the Independent Committee or
the Board of Directors of the Company."
<PAGE>
Page 2
October 5, 2000
Except as specifically set forth in this letter, our Opinion Letter is not
amended or modified in any respect whatsoever. The effective date of our
Opinion Letter remains August 11, 2000, the date our Opinion Letter was
delivered to the Independent Committee of the Board of Directors of the Company,
and this letter does not constitute an update of our Opinion Letter.
Very truly yours,
George K. Baum & Company
By /s/ STEVEN L. WALTER
-------------------------------------
Steven L. Walter
Principal
SLW:rmh
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APPENDIX IV
DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS.--(a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of the stockholder's shares of stock under
the circumstances described in subsections (b) and (c) of this section. As used
in this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to Sections 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash in
lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsections (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
such stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of such
stockholder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such stockholder's shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written demand
as herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to Section 228 or
Section 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval of
the merger or consolidation and that appraisal rights are available for any or
all shares of such class or series of stock of such constituent corporation, and
shall include in such notice a copy of this section; provided that, if the
notice is given on or after the effective date of the merger or consolidation,
such notice shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation that are
entitled to appraisal rights. Such notice may, and, if given on or after the
effective date of the merger or consolidation, shall, also notify such
stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date of
mailing of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal of
such holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the merger
or consolidation notifying each of the holders of any class or series of stock
of such constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within 10
days after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of the
transfer
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agent of the corporation that is required to give either notice that such notice
has been given shall, in the absence of fraud, be prima facie evidence of the
facts stated therein. For purposes of determining the stockholders entitled to
receive either notice, each constituent corporation may fix, in advance, a
record date that shall be not more than 10 days prior to the date the notice is
given, provided, that if the notice is given on or after the effective date of
the merger or consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day on
which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving
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or resulting corporation or by any stockholder entitled to participate in the
appraisal proceeding, the Court may, in its discretion, permit discovery or
other pretrial proceedings and may proceed to trial upon the appraisal prior to
the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
339, L. '98, eff. 7-1-98.)
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PROXY BFX HOSPITALITY GROUP, INC.
PROXY SOLICITED BY BOARD OF DIRECTORS
The undersigned appoints John M. Edgar, Bruno D'Agostino and Russell J.
Sarno, or any of them, as Proxy or Proxies of the undersigned, each with the
power to appoint his substitute, to vote, as designated below, all of the shares
of Common Stock of BFX Hospitality Group, Inc. (the "Company") which the
undersigned is entitled to vote at the special meeting of stockholders to be
held at 10:00 a.m. central standard time, on ________, 2000, in the Longhorn
Room of the Stockyards Hotel, 109 East Exchange Avenue, Fort Worth, Texas on the
matters described in the enclosed Proxy Statement dated ________, 2000. The
undersigned revokes all proxies heretofore given by the undersigned to vote at
the special meeting or any adjournment or postponement of the special meeting.
ITEM 1. To approve and adopt the Merger Agreement (as defined in the Proxy
Statement).
_________ FOR _________ AGAINST __________ ABSTAIN
ITEM 2. To adjourn or postpone the special meeting for the solicitation of
additional proxies (if necessary).
_________ FOR _________ AGAINST __________ ABSTAIN
ITEM 3. To transact such other business as may properly come before the
special meeting or any adjournment or postponement of the special
meeting.
This proxy will be voted as specified in the spaces above, or, if no
instructions are indicated, this proxy will be voted FOR the approval and
adoption of each item.
Signature(s) Dated: , 2000
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NOTE: Please sign your name exactly as it appears hereon. When signing as
attorney, executor, administrator, trustee or guardian, please give your
full title as it appears hereon. When signing as joint tenants, all
parties in the joint tenancy must sign. When a proxy is given by a
corporation, it should be signed by an authorized officer.
