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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No. 4
to
SCHEDULE 13E-3
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act of 1934)
SUMMIT FAMILY RESTAURANTS INC.
(Name of the Issuer)
----------------------------------
CKE RESTAURANTS, INC.
SUMMIT MERGER, INC.
SUMMIT FAMILY RESTAURANTS INC.
(Name of Person(s) Filing Statement)
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COMMON STOCK, PAR VALUE $0.10 PER SHARE
(Title of Class of Securities)
866056 10 4
(CUSIP Number of Class of Securities)
<TABLE>
<S> <C>
ROBERT A. WILSON, ESQ. CHARLOTTE L. MILLER, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL SENIOR VICE PRESIDENT AND GENERAL
CKE RESTAURANTS, INC. COUNSEL
1200 NORTH HARBOR BOULEVARD SUMMIT FAMILY RESTAURANTS INC.
ANAHEIM, CALIFORNIA 92801 440 LAWNDALE DRIVE
SALT LAKE CITY, UTAH 84115-2917
</TABLE>
(Name, Address and Telephone Number of Persons Authorized to Receive
Notices and Communications on Behalf of Persons Filing Statement)
COPIES TO:
<TABLE>
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C. CRAIG CARLSON, ESQ. RICHARD G. BROWN, ESQ.
J. MICHAEL VAUGHN, ESQ. BRIAN G. LLOYD, ESQ.
STRADLING, YOCCA, CARLSON & RAUTH KIMBALL, PARR, WADDOUPS, BROWN & GEE
660 NEWPORT CENTER DRIVE, SUITE 1600 185 SOUTH STATE STREET, SUITE 1300
NEWPORT BEACH, CALIFORNIA 92660 SALT LAKE CITY, UTAH 84147
</TABLE>
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This Statement is filed in connection with:
a. [ ] The filing of solicitation materials or an information
statement subject to Regulation 14A, Regulation 14C or Rule
13e-3(c) under the Securities Exchange Act of 1934.
b. [X] The filing of a registration statement under the Securities Act
of 1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information
statement referred to in checking box (a) are preliminary copies: / /
CALCULATION OF FILING FEE
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TRANSACTION VALUATION AMOUNT OF FILING FEE
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$28,114,885.50* $5,622.98*
</TABLE>
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* For purposes of calculating the filing fee only. The filing fee was
calculated, pursuant to Section 13(e)(3) of the Securities Exchange Act of
1934, as amended, and Rule 0-11(b)(2) thereunder, on the basis of up to
5,767,156 shares of Common Stock, par value $0.10 per share (the "Common
Stock") of Summit Family Restaurants Inc. (the number of shares proposed to be
acquired in the transaction that is the subject of this Statement), multiplied
by $4.875, the average of the high and low reported prices of the Common Stock
on the Nasdaq National Market on June 3, 1996. The fee paid herewith
represents 1/50 of 1% of the proposed Transaction Valuation.
/X/ Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number or the form or
schedule and the date of its filing.
<TABLE>
<S> <C>
Amount Previously Paid: $6,810.92
Form or Registration No.: Schedule 14A
Filing Party: Summit Family Restaurants Inc.
Date Filed: February 6, 1996
</TABLE>
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<PAGE> 2
INTRODUCTION
This Amendment No. 4 to joint Transaction Statement on Schedule 13E-3 (the
"Statement") is filed by Summit Family Restaurants Inc., a Delaware corporation
("Summit" or the "Company"), the issuer of the class of equity securities that
is the subject of a Rule 13E-3 transaction, CKE Restaurants, Inc., a Delaware
corporation ("CKE"), and Summit Merger, Inc., a Delaware corporation and
wholly-owned subsidiary of CKE ("Merger Sub"), and relates to the proposed
approval and adoption of an Agreement and Plan of Merger, dated as of November
30, 1995 (as amended, the "Merger Agreement"), among the Company, CKE and Merger
Sub. Upon the terms and subject to the conditions of the Merger Agreement,
Merger Sub will be merged with and into Summit (the "Merger"). If the Merger is
consummated, holders of outstanding shares of Common Stock of the Company, par
value $0.10 per share (the "Summit Common Stock"), other than CKE and
stockholders of the Company who perfect statutory dissenters' rights, will be
entitled to receive $2.63 in cash and a number of shares of Common Stock of CKE,
par value $0.01 per share (the "CKE Common Stock") equal to a fraction, the
numerator of which is $2.64 and the denominator of which will be an amount
determined on the basis of an average of the closing sales prices of CKE Common
Stock on the New York Stock Exchange for the 20 consecutive trading days ending
five days prior to the date of the Special Meeting. A copy of the Merger
Agreement, and all amendments thereto, is filed by the Company as Appendix A to
the Proxy Statement/Prospectus filed as Exhibit 99.8 to this Statement. As a
result of the Merger, the Company, as the surviving corporation, will become a
privately held corporation and a wholly-owned subsidiary of CKE.
ITEM 16. ADDITIONAL INFORMATION
Item 16 of the Statement is amended to add the following information:
On or about June 24, 1996, the Opposition Group commenced its solicitation
of proxies objecting to the Merger. On June 25, 1996, the Company responded to
the Opposition Group's proxy solicitation materials by a letter addressed and
mailed to the Company's stockholders (which letter is incorporated herein by
reference).
On June 26, 1996, the Company's Board of Directors received a second
fairness opinion from Houlihan, Lokey, Howard & Zukin, Inc. ("Houlihan Lokey")
to the effect that the consideration to be received by the Company's public
stockholders in connection with the Merger is fair to them from a financial
point of view as of June 26, 1996 (the "Houlihan Lokey Fairness Opinion"). The
Houlihan Lokey Fairness Opinion was furnished to the holders of record of the
Company's Common Stock as of the Record Date with a Proxy Statement/Prospectus
Supplement, dated July 2, 1996, which is incorporated by reference herein.
On June 26, 1996, Stella Bella Corporation USA ("Stella Bella") issued a
press release describing a purported offer to purchase the JB's Restaurant units
of the Company. On June 28, 196, the Company issued a press release indicating
that the Company's Board of Directors had reviewed the purported offer from
Stella Bella and determined not to take any further action with respect thereto.
The form of press release, as issued by the Company on June 28, 1996, is
incorporated herein by reference.
2
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17. MATERIAL TO BE FILED AS EXHIBITS.
Item 17 is hereby amended to add the following exhibits:
<TABLE>
<S> <C> <C>
99.12 Letter, dated June 25, 1996, from the Company's Board of Directors to
the Company's stockholders responding to the Proxy Statements
disseminated by the Opposition Group.
99.13 Proxy Statement/Prospectus Supplement, dated July 2, 1996.
99.14 Opinion of Houlihan, Lokey, Howard & Zukin, Inc. ("Houlihan Lokey"),
dated June 26, 1996.
99.15 Report of Houlihan Lokey delivered to the Board of Directors of the
Company on June 26, 1996.
99.16 Press Release, in the form issued by the Company on June 28, 1996.
</TABLE>
3
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Statement is true, complete and correct.
Dated: July 3, 1996 CKE RESTAURANTS, INC.
By: /s/ ROBERT A. WILSON
-----------------------------------
Robert A. Wilson,
Vice President and General Counsel
4
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Statement is true, complete and correct.
Dated: July 3, 1996 SUMMIT MERGER, INC.
By: /s/ ROBERT A. WILSON
-----------------------------------
Robert A. Wilson,
Vice President and General Counsel
5
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this Statement is true, complete and correct.
Dated: July 3, 1996 SUMMIT FAMILY RESTAURANTS INC.
By: /s/ CHARLOTTE L. MILLER
------------------------------------
Charlotte L. Miller
Senior Vice President
and General Counsel
6
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EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. DESCRIPTION PAGE
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<C> <S> <C>
*99.1 Opinion of Piper Jaffray Inc., dated November 30, 1995. --
*99.2 Report of Piper Jaffray Inc. delivered to the Special Committee on --
November 30, 1995.
*99.3 Opinion of Piper Jaffray Inc., dated January 24, 1996. --
*99.4 Report of Piper Jaffray Inc. delivered to the Special Committee on --
January 24, 1996.
*99.5 Opinion of Piper Jaffray Inc., dated March 26, 1996. --
*99.6 Report of Piper Jaffray delivered to the Special Committee on March 26, --
1996.
*99.7 Opinion of Piper Jaffray Inc., dated June 5, 1996.
*99.8 Agreement and Plan of Merger dated as of November 30, 1995, as amended, --
among the Company, CKE and Merger Sub (attached as Appendix A to the
Proxy Statement/Prospectus).
*99.9 Copies of Letter to Stockholders, Notice of Special Meeting and Proxy
Statement/Prospectus for Special Meeting of the Stockholders of the
Company to be held on July 12, 1996.
*99.10 Forms of Proxy.
*99.11 Text of Section 162 of the General Corporation Law of the State of --
Delaware (attached as Appendix C to the Proxy Statement/Prospectus).
99.12 Letter, dated June 25, 1996, from the Company's Board of Directors to
the Company's stockholders responding to the Proxy Statements
disseminated by the Opposition Group.
99.13 Proxy Statement/Prospectus Supplement, dated July 2, 1996.
99.14 Opinion of Houlihan, Lokey, Howard & Zukin, Inc. ("Houlihan Lokey"),
dated June 26, 1996.
99.15 Report of Houlihan Lokey delivered to the Board of Directors of the
Company on June 26, 1996.
99.16 Press Release, in the form issued by the Company on June 28, 1996.
</TABLE>
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* Previously filed
7
<PAGE> 1
EXHIBIT 99.12
[SUMMIT FAMILY RESTAURANTS INC. LETTERHEAD]
YOUR BOARD OF DIRECTORS OPPOSES THE EFFORTS OF THE
OPPOSITION GROUP TO ABANDON THE MERGER WITH CKE RESTAURANTS INC.
AND TO OBTAIN CONTROL OVER SUMMIT FOR NO CONSIDERATION
TO THE SUMMIT STOCKHOLDERS
June 25, 1996
Dear Summit Stockholder:
You may have recently received two proxy statements from a group of
dissident stockholders led by First Global Securities, Inc. This so-called
"Opposition Group" requests that you vote against the proposed merger of Summit
Family Restaurants Inc. with CKE Restaurants, Inc. at the Special Meeting Of
Stockholders scheduled to occur on July 12, 1996. It also purports to seek
your vote to remove the current directors of Summit and to elect its slate of
directors.
IT IS APPARENT THAT THE OPPOSITION GROUP'S ULTIMATE GOAL IS TO GAIN
CONTROL OVER THE BOARD OF DIRECTORS AND MANAGEMENT OF SUMMIT WITHOUT PAYING ANY
CONSIDERATION TO SUMMIT STOCKHOLDERS .
WE URGE YOU TO SIGN, DATE AND RETURN THE ENCLOSED WHITE PROXY CARD
TODAY! SINCE TIME IS VERY IMPORTANT, IMMEDIATE ACTION ON YOUR PART IS
CRITICAL.
REJECTING THE MERGER WITH CKE JEOPARDIZES A CERTAIN PAYMENT TO SUMMIT
STOCKHOLDERS
The Opposition Group, only one member of which owns a substantial
number of shares of Summit Common Stock, asks all Summit stockholders to forego
a substantial forthcoming payment in order to further the Opposition Group's
goal to obtain control of Summit. In the merger, which is scheduled to occur
on or about July 12, 1996, each outstanding share of Summit Common Stock (other
than dissenting shares, if any, and shares owned by CKE or its subsidiaries,
which will be canceled) will be converted into the right to receive $2.63 in
cash and a number of shares of CKE Common Stock equal to a fraction, the
numerator of which is $2.64 and the denominator of which will be an amount
determined on the basis of an average of the closing sales prices of CKE Common
Stock on the New York Stock Exchange for the 20 consecutive trading days ending
on July 5, 1996. Using the first 12 trading days ended June 24, 1996, the
total consideration in the Summit/CKE merger would be $2.63 in cash plus 0.1043
shares of CKE stock. This represents a total consideration of $5.38 based on
the closing stock price of CKE Common Stock of $26.375 as of the close of
business on June 24, 1996. The amount you will actually receive in the merger
will vary depending on the price of CKE Common Stock. The payment of cash and
the issuance of the CKE Common Stock would occur as soon as practicable after
the merger.
In order to induce you to vote against the Merger, the Opposition
Group claims that it would, at an unspecified time, pay a cash dividend of $2
per share out of proceeds of asset sales they claim will be made after the
Opposition Group gains control of Summit. Such a dividend would require the
Opposition Group to gain control of Summit, locate assets that could be sold,
find purchasers for such assets, negotiate and complete the sale of such
assets, and then pay all liabilities before being able to pay stockholders any
dividend.
<PAGE> 2
WHAT IS WRONG WITH THE OPPOSITION GROUP'S "PLAN"?
o In the view of your Board of Directors, the Opposition Group's "plan" could
require months - if not years - to accomplish and, as the Opposition Group
itself states, "there is no assurance that any proposal or combination of
proposals contained [in the Opposition Group proxy statements] will result
in a successful outcome for [Summit] shareholders."
o The Opposition Group purports to seek the removal of all Summit directors at
the Special Meeting on July 12, 1996, but such action is not permitted
under Summit's Certificate of Incorporation, Bylaws or Delaware law.
o Even if the Opposition Group could gain control of Summit, the Opposition
Proxy presupposes that the current Summit assets are easily saleable for
cash on terms highly favorable to Summit - a dubious assumption based upon
Summit's exhaustive search for potential buyers.
o The proposal by the Opposition Group could be inefficient to Summit
stockholders from a tax standpoint, since any taxable gains resulting from
the sale of assets would be recognized first by Summit, and then the
dividends would be taxable to the Summit stockholders.
o The Opposition Group's claim that it would make a $2 per share dividend is
wishful thinking. Your Board of Directors believes that the Opposition
Group has made this claim without determining the true value of Summit's
assets, considering the funds needed to provide for the liabilities of
Summit, assessing the potential for further cash flow deterioration and
factoring in the rights of Summit's preferred stockholder.
If the Opposition Group were acting in the best interests of Summit
stockholders and had in fact identified potential buyers willing to purchase
Summit's assets for more than the consideration offered in the merger, WHY HAVE
THEY NOT IDENTIFIED SUCH BUYERS TO THE SUMMIT BOARD OF DIRECTORS, SO THE BOARD
COULD EVALUATE SUCH OPPORTUNITIES AGAINST THE MERGER OR OFFER A HIGHER
CONSIDERATION TO YOU, THE STOCKHOLDER? Further, if the CKE offer is inadequate
as they state, why has the Opposition Group not made a higher offer to all
stockholders. Summit negotiated a provision to allow it to terminate the
Merger Agreement in certain circumstances if a better offer were to
materialize. INSTEAD OF IDENTIFYING THE POTENTIAL BUYERS TO THE BOARD OF
DIRECTORS OR TO SUMMIT STOCKHOLDERS OR EVEN DESCRIBING THE TERMS ON WHICH SUCH
PURCHASES WOULD BE MADE, THE OPPOSITION GROUP ASKS THAT SUMMIT STOCKHOLDERS
FOREGO THE MERGER CONSIDERATION AND TURN SUMMIT OVER TO THE OPPOSITION GROUP
WITHOUT ANY PAYMENTS TO THE STOCKHOLDERS.
THE OPPOSITION GROUP WANTS TO GAIN CONTROL OF SUMMIT WITHOUT PAYING ANYTHING TO
YOU
The Opposition Group has had plenty of time to propose a plan to
acquire Summit. The Board of Directors has publicized its search for a merger
or acquisition partner since July 24, 1995. In fact, in the summer and fall of
1995, First Global expressed interest in providing financing or in
participating in some way in a purchase. As a result, Summit management
provided information about Summit to First Global following First Global's
execution of a confidentiality agreement by Nobel Trenham, founder, Co-Chairman
of the Board and Chief Investment Officer of First Global Securities.
Interestingly, this information was returned by First Global, purportedly
unread, after First Global advised Summit management that First Global was not
interested in pursuing a transaction with Summit.
THE FACT IS, THE OPPOSITION GROUP HAS NO FUNDS OR FINANCING AVAILABLE
FOR USE IN CONJUNCTION WITH THIS TRANSACTION AND NOTHING TO OFFER STOCKHOLDERS
OTHER THAN VAGUE CLAIMS REGARDING THE POSSIBILITY OF FUTURE DIVIDENDS AND
CHANGES IN DIRECTION. Instead, they want you to vote against the Merger and
turn control of Summit over to the Opposition Group for no consideration
whatsoever. The Summit Board of Directors believes that this gamble is not in
your best interest.
<PAGE> 3
THE OPPOSITION GROUP CANNOT "REMOVE" SUMMIT'S DIRECTORS
The Opposition Group's plan is premised upon taking control of Summit
by "removing" Summit's directors at the Special Meeting on July 12, 1996.
Under the Delaware General Corporation Law and under the Certificate of
Incorporation and Bylaws of Summit, the Opposition Group may not bring to a
vote any proposal to remove Summit's directors or elect a new slate of
directors at the Special Meeting. Accordingly, any attempt to bring these
matters before the Special Meeting will necessarily be deemed out of order and
not appropriate for stockholder action and therefore Summit recommends that you
do not return the red proxy card, even to vote against the Opposition Group.
THE BUSINESS PLAN PROPOSED BY THE OPPOSITION GROUP IS SPECULATIVE AND PROBABLY
NOT FINANCEABLE
The Opposition Group states that, if it gains control of Summit, it
will "create a new direction for Summit focused on themed restaurants and
entertainment creating an 'eatertainment' focus." The Opposition Group says
that its first themed project will be the "Wave Cafe." According to the
Opposition Group, the Wave Cafe will consist of "a surfable wave ridden by
employee instructors" and a retail store featuring surf, volleyball,
snowboarding and related merchandise. The Wave Cafe concept has never been
tried. In the view of the Board of Directors, such a plan is highly
speculative and not in your best interest. Summit believes that there have
been attempts, albeit unsuccessful, to raise capital for this venture for at
least the past year and that the company sponsoring the "Wave Cafe" concept has
been unable to obtain financial support to move its concept forward. THE BOARD
OF DIRECTORS BELIEVES THAT THE OPPOSITION PROXY IS AN EFFORT TO TAKE THE MONEY
OF SUMMIT'S STOCKHOLDERS AND INVEST IT IN A HIGHLY SPECULATIVE, UNTESTED
RESTAURANT VENTURE. THE BOARD OF DIRECTORS BELIEVES THAT THIS APPROACH IS AN
IRRESPONSIBLE ATTEMPT TO ALLOW FIRST GLOBAL TO SPECULATE WITH THE MONEY OF
SUMMIT'S STOCKHOLDERS.
THE OPPOSITION GROUP'S ATTACKS ON CKE STOCK ARE UNFOUNDED
Even though it is unwilling to offer any consideration of its own, the
Opposition Group wants you to believe that the CKE Common Stock is overvalued.
Whether CKE's stock is overvalued is certainly a matter of opinion. On June
12, 1996, CKE reported that net income for the first quarter ended May 20, 1996
nearly tripled to $5.3 million, or $0.28 per share, compared with net income of
$1.9 million, or $0.11 per share for the prior year period. CKE also reported
that revenues for the 16 week period ended May 20, 1996 increased $15.3
million, or 11 percent, to $152.9 million as compared with the prior year 16
week period.
SUMMIT MANAGEMENT IS SOUND AND HIGHLY QUALIFIED - THE OPPOSITION GROUP'S
ATTACKS ARE INACCURATE
First Global is also inaccurate in portraying Summit as a company with
no management. The company continues to have two vice presidents overseeing
the JB's Restaurants and Galaxy Diners, a senior vice president overseeing the
HomeTown Buffets, and two senior vice presidents and a vice president
overseeing the support functions. Additionally, Clark D. Jones is currently
serving as interim President and Chief Executive Officer. Mr. Jones is
familiar with Summit and the restaurant industry, having served as president of
the company for 10 years previously and as interim president in 1993. The home
office of Summit employs approximately thirty individuals who provide support
to the operation of the company.
<PAGE> 4
Please show your support by signing, dating and mailing the enclosed
WHITE PROXY CARD, and disregarding any Red Proxy Card sent to you by the
Opposition Group. Only the latest dated proxy will count. Regardless of how
many shares you own, your vote is very important, and I encourage you to
exercise your right to vote. PLEASE VOTE ONLY THE WHITE PROXY CARD. Do not
sign or return any Red proxy card sent to you by the Opposition Group.
In the meantime, if you are contacted by the Opposition Group and wish
to voice your concerns to Summit, or have any questions, please call our proxy
solicitor, Corporate Investor Communications, Inc., at (800) 346-7885, or
collect at (201) 896-1900 or call me, Clark Jones, at (801) 463-5500.
Very truly yours,
THE BOARD OF DIRECTORS OF
SUMMIT FAMILY RESTAURANTS INC.
By: /s/ CLARK D. JONES
----------------------------
Clark D. Jones
Chairman of the Board
===============================================================================
IMPORTANT
Whether or not you have previously signed a proxy card from the
Opposition Group, please sign, date and mail management's WHITE PROXY CARD
in the enclosed postage paid envelope. (If you wish to add your comments
and suggestions about the issues discussed in this letter, please note
them on the proxy card.)
Please DO NOT execute or return any Red card sent to you by the
Opposition Group.
If you own your shares in the name of a brokerage firm, your broker
cannot vote such shares unless he receives your specific instructions.
If you have any questions about voting your shares or want further
assistance or information, please do not hesitate to call our proxy
solicitor:
CORPORATE INVESTOR COMMUNICATIONS, INC.
AT (800) 346-7885 OR COLLECT AT (201) 896-1900.
===============================================================================
<PAGE> 5
[SUMMIT FAMILY RESTAURANTS INC. LETTERHEAD]
SHOULD YOU TRUST THE OPPOSITION GROUP?
LOOK AT HOW OTHER INVESTORS HAVE FARED WITH FIRST GLOBAL SECURITIES AND THE
TRENHAMS
You may be interested to know how other investors have fared in
investments directed by Susan Trenham and her husband, Noble Trenham, founder,
Co-Chairman of the Board and Chief Investment Officer of First Global
Securities. They have a well established track record of improper conduct and
misleading and taking advantage of investors. The cases outlined below give
you a sample of their conduct, and, we believe, put their trustworthiness
seriously into question.
o CLAIM OF FRAUD
--------------
In November 1994, a group of investors filed an action for fraud,
negligent misrepresentation, breach of contract and breach of fiduciary
duty against Noble Trenham and Susan Trenham, among others. The complaint
alleges that the investors agreed to invest their money with the Trenhams
by purchasing limited partnership interests in a real estate-related
partnership of which Noble Trenham would be the general partner. According
to the complaint, Susan Trenham co-hosted meetings with Noble where Noble
would fail to disclose material facts about the actual condition of the
property. In the complaint, the investors claimed that they were lulled
into making investments they believed to be sound, conservative and
prudently managed, while the Trenhams (who allegedly were insolvent at such
time) were using investors' funds to pay personal debts and personal
litigation expenses completely unrelated to the partnership. There are
also allegations in the complaint that the Trenhams were using the
partnership's real property for collateral for loans that were used to pay
personal expenses of the Trenhams unrelated to the partnership's business.
Noble Trenham settled the case for $100,000 together with an agreement to
pay the investors 10% of his gross income until June 1, 2001 from
investment banking ventures (not to exceed $50,000). (Dashjiam v. Trenham,
Case No. BC117223)
o CLAIM OF VIOLATIONS OF SECURITIES LAWS
--------------------------------------
On July 23, 1987, the United States Securities and Exchange Commission
filed an action against Noble Trenham and his former firm alleging
violations of (i) Section 13(d) and Rules 13d-1 and 13d-2 of the Securities
Exchange Act of 1934 by failing to properly and timely file Schedules 13D
disclosing their intentions to change or influence the control of at least
eight public companies while beneficially owning at least five percent of
the outstanding shares of such companies, (ii) the Investment Advisers Act
of 1940 by making false and misleading statements regarding the aggregate
concentrations of shares accumulated by Noble Trenham and his firm in their
clients' accounts and failing to disclose to their clients the adverse
consequences of such concentrations, (iii) the Investment Advisers Act by
failing to disclose conflicts of interest between his firm and its clients,
and (iv) the Investment Advisers Act by transacting unlawful agency cross-
trades.
Noble Trenham and his firm consented to final judgments permanently
enjoining and restraining them from further violations of the foregoing
provisions of the securities laws. (Securities and Exchange Commission v.
First Wilshire Management Inc., Frederick Astman and Noble Trenham, U.S.
District Court for the District of Columbia, Civil Action No. 87-2037)
<PAGE> 6
o CLAIM OF BREACH OF FIDUCIARY DUTY
In April 1985, shareholders of Olson Farms filed a lawsuit against
Noble Trenham and his firm (as well as numerous other defendants) for
breach of fiduciary duty by using fraudulent schemes and conspiring to
dilute plaintiffs as controlling shareholders of Olson Farms by funding a
company to take control of Olson Farms at a deflated price and then
conspiring to obtain an opinion that such deflated price was fair. Noble
Trenham and his firm were accused of receiving a finders fee of between
$50,000 and $65,000 for bringing together a transaction whereby a company
of which Noble Trenham's firm was a shareholder would purchase 500,000
shares of Olson Farms common stock at a deflated price, the sale of which
would reduce plaintiff's ownership interest from 42.9% to 30%, in order to
raid the assets of Olson Farms to pay off the debts of such company's
parent company. The complaint further alleges that the parent company was
in severe financial trouble, had a negative net worth, was in violation of
bank loan covenants and had loan payments due the following year in excess
of $50,000,000. The case was ultimately dismissed. (Olson, C. Dean, et
as v. Buffington, Jack W., et al, Case No. C544668)
o CLAIM OF VIOLATION OF THE ANTI-RACKETEERING LAWS
------------------------------------------------
In March 1985, a client filed a lawsuit against Noble Trenham and his
firm (and other defendants) alleging violations of federal and state
securities laws, antiracketeering laws, fraud, breach of fiduciary duty and
breach of contract arising from Noble Trenham's and his co-worker's
mismanagement of the client's funds. According to the complaint, Noble
Trenham was one of the two individuals who personally provided the
investment advisory services to the client. One of the other defendants
(the clearing broker for securities transactions directed by Noble
Trenham's firm) entered into a settlement agreement for $260,000 with the
plaintiff. (See Morgan, Olmstead, Kennedy & Gardner Incorporated v.
Trenham, Noble, et al, Case No. C717414.)
We think that when you compare the proposed merger with CKE
Restaurants, Inc. against the Opposition Group proposal, you will agree with
the Summit Board of Directors that the merger is in your best interests.
==============================================================================
PLEASE SIGN, DATE AND RETURN THE ENCLOSED WHITE PROXY CARD TODAY! SINCE
TIME IS VERY IMPORTANT, IMMEDIATE ACTION ON YOUR PART IS CRITICAL.
==============================================================================
<PAGE> 1
EXHIBIT 99.13
[SUMMIT FAMILY RESTAURANTS INC. LETTERHEAD]
July 2, 1996
Dear Summit Stockholder:
You may have recently received two proxy statements from a group of
dissident stockholders led by First Global Securities, Inc. Hopefully, you
have also received, in addition to our Proxy Statement/Prospectus dated June
10, 1996, a letter from your Board of Directors dated June 25, 1996 responding
to the assertions made by this "Opposition Group." It remains the view of your
Board of Directors that the Opposition Group's ultimate goal is to gain control
over the Board of Directors and management of Summit without paying any
consideration to Summit stockholders. Accordingly, we continue to urge you to
approve the proposed merger with CKE Restaurants Inc. and to disregard the
proxies sent to you by the Opposition Group.
This merger transaction will, in contrast to their "Plan," result in
payment to Summit stockholders of $2.63 in cash and a number of shares of CKE
common stock equal to a fraction, the numerator of which is $2.64 and the
denominator of which will be an amount determined on the basis of an average of
the closing sales prices of CKE Common Stock on the New York Stock Exchange for
the 20 consecutive trading days ending five days prior to the date of the
Special Meeting. Based on the first 17 of the 20 trading days (through July 1,
1996), holders of each share of Summit common stock will receive .1045 shares
of CKE common stock, which had a market value of $2.69 based on the closing
stock price of CKE Common Stock on July 1, 1996, resulting in total per share
consideration of $5.32 as of such date.
Since our last letter to you, we have received a second opinion from
an investment banking firm to the effect that this merger consideration is fair
to the common stockholders of Summit from a financial point of view. The
attached Supplement contains further information on that fairness opinion and
other matters and deserves your careful attention.
THE BOARD OF DIRECTORS OF SUMMIT HAS APPROVED THE MERGER AGREEMENT AND
UNANIMOUSLY RECOMMENDS THAT HOLDERS OF SUMMIT COMMON STOCK AND SUMMIT PREFERRED
STOCK VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
Stockholders are urged to sign and date the enclosed WHITE PROXY CARD and
return it in the enclosed prepaid envelope as soon as possible. A stockholder
who has given a proxy may revoke it at any time prior to exercise.
Stockholders are further urged NOT to sign or return any red proxy cards or, if
you have done so, to revoke that proxy by signing, dating and returning the
enclosed WHITE PROXY CARD immediately. Your vote is important. Failure to
return your proxy card will have the same effect as a vote against the Merger.
If you have any questions, please contact our proxy solicitor,
Corporate Investor Communications, Inc., at (800) 346-7885 or collect at (201)
896-1900, or call me, Clark Jones, at (801) 463-5500.
Very truly yours,
/s/ CLARK D. JONES
--------------------------
Clark D. Jones
Chairman of the Board
YOUR VOTE IS IMPORTANT. PLEASE SIGN, DATE AND RETURN YOUR PROXY CARD.
<PAGE> 2
SUMMIT FAMILY RESTAURANTS INC.
SUPPLEMENT TO PROXY STATEMENT
---------------------
CKE RESTAURANTS, INC.
SUPPLEMENT TO PROSPECTUS
This Supplement to the Proxy Statement/Prospectus (the "Supplement")
is being furnished to the stockholders of Summit Family Restaurants Inc., a
Delaware corporation ("Summit"), in connection with the solicitation of proxies
by the Board of Directors of Summit for use at the special meeting (the
"Special Meeting") of stockholders of Summit to be held on Friday, July 12,
1996, at 10:00 a.m., local time, at the Howard Johnson Hotel, 122 West South
Temple, Salt Lake City, Utah, or at any adjournments or postponements thereof.
The Special Meeting has been called to consider and vote upon a proposal to
approve and adopt the Agreement and Plan of Merger and Reorganization, dated as
of November 30, 1996, as amended (as so amended, the "Merger Agreement"),
between Summit and CKE Restaurants, Inc., a Delaware corporation ("CKE"), which
provides for the merger of Summit Merger, Inc., a newly-formed, wholly owned
subsidiary of CKE, with and into Summit (the "Merger").
THE BOARD OF DIRECTORS OF SUMMIT HAS APPROVED THE MERGER AGREEMENT AND
UNANIMOUSLY RECOMMENDS THAT HOLDERS OF SUMMIT COMMON STOCK AND SUMMIT PREFERRED
STOCK VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
Stockholders are urged to sign and date the enclosed WHITE PROXY CARD and
return it in the enclosed prepaid envelope as soon as possible. A stockholder
who has given a proxy may revoke it at any time prior to exercise.
Stockholders are further urged NOT to sign or return any red proxy cards or, if
you have done so, to revoke that proxy by signing, dating and returning the
enclosed WHITE PROXY CARD immediately.
The information set forth herein amends and supplements the Proxy
Statement/Prospectus dated June 10, 1996 (the "Proxy Statement") which has been
previously mailed to all stockholders of record of Summit as of the close of
business on May 20, 1996, the record date for the Special Meeting. The
information contained in this Supplement should be read carefully in
conjunction with the Proxy Statement. Capitalized terms not defined herein
have the meanings set forth in the Proxy Statement.
For additional copies of the Proxy Statement or assistance in
returning proxies, Summit stockholders may call Summit's proxy solicitation
firm, Corporate Investor Communications, Inc., at (800) 346-7885 or collect at
(201) 896-1900. Summit stockholders may submit or revoke proxies by telecopier
at (201) 804-8693.
SEE RISK FACTORS BEGINNING ON PAGE 16 OF THE PROXY STATEMENT FOR
CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY SUMMIT STOCKHOLDERS.
NEITHER THIS TRANSACTION NOR THE SECURITIES OFFERED IN CONNECTION
HEREWITH HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION. THE COMMISSION HAS NOT PASSED UPON THE FAIRNESS OR MERITS OF THIS
TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN
THIS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THE DATE OF THIS SUPPLEMENT IS JULY 2, 1996
<PAGE> 3
GENERAL
On June 12, 1996, Summit mailed its Proxy Statement to all
stockholders of record of Summit as of the close of business on May 20, 1996,
the record date for the Special Meeting. The Proxy Statement relates to the
Special Meeting called to consider and vote upon a proposal to approve and
adopt the Merger Agreement and the Merger. As more fully set forth therein,
the Proxy Statement advised stockholders that, among other things, the Board of
Directors of Summit had unanimously determined that the transactions
contemplated by the Merger Agreement are fair to and in the best interests of
Summit and its stockholders and that the Board of Directors recommended that
all Summit stockholders vote for its approval.
ADDITIONAL INFORMATION
In the supplement to the June Letter entitled "Should You Trust the
Opposition Group?", Summit stated that Susan Trenham and Noble Trenham "have a
well established track record of improper conduct and misleading and taking
advantage of investors." However, only one of the described lawsuits (Dashjiam
v. Trenham) involved allegations against Susan Trenham, and the description of
that lawsuit did not state that the claims against Susan Trenham were dismissed
by the plaintiffs. Also, please be aware that allegations made in a complaint
are not proof that the matters alleged actually occurred.
SPECIAL FACTORS
The following information supplements the information under the
caption "Special Factors -- Background" in the Proxy Statement:
Subsequent to the mailing by Summit of its Proxy Statement to its
stockholders, a group of dissident stockholders led by First Global Securities,
Inc. (the "Opposition Group") filed revised materials with the Commission which
it mailed to some or all of Summit's stockholders on or about June 24, 1996.
The Opposition Group requested that stockholders vote against the Merger and
also purported to seek stockholder votes to remove the current directors of
Summit and elect the Opposition Group's slate of directors. On June 25, 1996,
the Board of Directors of Summit mailed a letter (the "June Letter") to all
stockholders responding to the assertions made by the Opposition Group in its
materials.
The Board of Directors stated in the June Letter its belief that the
Opposition Group's ultimate goal is to gain control over the Board of Directors
and management of Summit without paying any consideration to Summit
stockholders. In particular, the June Letter responded to claims by the
Opposition Group that it would, at an unspecified time in the future, pay a
cash dividend of $2 per share out of proceeds of asset sales they claim will be
made after the Opposition Group were to gain control of Summit. The June
Letter pointed out that support of the Opposition Group would jeopardize the
Merger with CKE and its payment to Summit stockholders of $2.63 in cash and a
number of shares of CKE common stock equal to a fraction, the numerator of
which is $2.64 and the denominator of which will be an amount determined on the
basis of an average of the closing sales prices of CKE Common Stock on the New
York Stock Exchange for the 20 consecutive trading days ending five days prior
to the date of the Special Meeting. Based on the first 17 of the 20 trading
days (through July 1, 1996), holders of each share of Summit common stock will
receive .1045 shares of CKE common stock, which had a market value of $2.69
based on the closing stock price of CKE Common Stock on June 28, 1996,
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resulting in total per share consideration of $5.32 as of such date. In
advising stockholders of its views as to what is wrong with the Opposition
Group's "Plan," the June Letter also stated that:
o In the view of your Board of Directors, the Opposition Group's
"plan" could require months--if not years--to accomplish and, as the
Opposition Group itself states, "there is no assurance that any proposal
or combination of proposals contained [in the Opposition Group proxy
statements] will result in a successful outcome for [Summit]
shareholders."
o The Opposition Group purports to seek the removal of all
Summit directors at the Special Meeting on July 12, 1996, but such action
is not permitted under Summit's Certificate of Incorporation, Bylaws or
Delaware law. Summit will receive an opinion of its Delaware counsel to
the foregoing effect.
o Even if the Opposition Group could gain control of Summit, the
opposition proxy presupposes that the current Summit assets are easily
saleable for cash on terms highly favorable to Summit--a dubious
assumption based upon Summit's exhaustive search for potential buyers.
o The proposal by the Opposition Group could be inefficient to
Summit stockholders from a tax standpoint, since any taxable gains
resulting from the sale of assets would be recognized first by Summit, and
then the dividends would be taxable to Summit stockholders.
o The Opposition Group's claim that it would make a $2 per share
dividend is, in the opinion of the Board, wishful thinking. Your Board of
Directors believes that the Opposition Group has made this claim without
determining the true value of Summit's assets, considering the funds
needed to provide for the liabilities of Summit, assessing the potential
for further cash flow deterioration and factoring in the rights of
Summit's preferred stockholder.
ADDITIONAL ACTIONS OF THE BOARD OF DIRECTORS
As more fully set forth in the Proxy Statement, Piper Jaffray has
delivered to the Summit Board of Directors its written opinions, dated March
26, 1996 and June 5, 1996, that, based upon and subject to various
considerations set forth in such opinions, the consideration to be received by
Summit stockholders in the Merger is fair from a financial point of view. See
"Special Factors -- Opinions of Financial Advisor to Summit." Among the
allegations made by the Opposition Group was that, in their words, there was "a
lack of an unaffiliated representative for Summit shareholders and possible
conflicts on the part of Piper Jaffray, Inc. in rendering its opinion." The
Opposition Group made these and other assertions when that group made its
initial filing of proxy materials with the Commission on May 29, 1996. At a
Board of Directors meeting held on June 5, 1996, the Board discussed the
matters raised in the Opposition Group's Commission filing. The Board viewed
the allegations of the Opposition Group as being without merit and resolved
that a responsive letter to that effect from the Board be prepared so that it
could be mailed as soon as the Opposition Group's materials were released by
the Commission.
The Board was, however, particularly troubled by any suggestion by the
Opposition Group that the Board and its financial advisor had not acted
independently and in the best interests of the stockholders. The Board had
reached its unanimous view that the transactions contemplated by the Merger
Agreement with CKE are in the best interests of Summit and its stockholders
after engaging in an extensive publicized search for a merger or acquisition
partner since July 1995. This process resulted
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<PAGE> 5
in no alternative which the Board of Directors viewed as superior to the CKE
Merger. The Board has at all times viewed the processes undertaken by it and
its advisors as appropriate and designed to best protect the interests of the
stockholders. Nonetheless, the Board felt that any suggestion, from whatever
source, that its process was unfair required a forceful and compelling
response.
Accordingly, at the June 5, 1996 meeting, the Board authorized two
responses to the Opposition Group. First, as noted above, it authorized
preparation of the June Letter in order to respond immediately to the
assertions made by the Opposition Group. Second, the Board authorized the
retention of an independent investment banking firm to render a second opinion
regarding the fairness, from a financial point of view, of the consideration to
be received by Summit stockholders in the Merger. To remove any suggestion
that such opinion was not entirely impartial, the Board directed that the firm
retained have no preexisting ties with Summit or CKE and that such firm be
retained for a flat fee, not contingent on either the conclusion reached in the
opinion or the approval or disapproval of the Merger by the stockholders. On
June 11, 1996, Summit retained the investment banking firm of Houlihan, Lokey,
Howard & Zukin ("Houlihan Lokey") to render such an opinion.
At a meeting of the Board of Directors held on June 27, 1996, Houlihan
Lokey presented its findings to the Board. After that presentation and the
response by representatives of Houlihan Lokey to questions of the Board,
Houlihan Lokey delivered its written opinion to the Board to the effect that
the consideration to be received by the public stockholders of Summit in
connection with the Merger is fair to them from a financial point of view.
Such opinion is described more fully under the caption "--Opinion of Houlihan
Lokey" and a copy thereof is attached to this Supplement as Appendix A.
Stockholders are urged to review such materials carefully.
Based on its receipt of the Houlihan Lokey opinion, which was
consistent with the conclusions previously reached by the Board and Piper
Jaffray, the Board unanimously reconfirmed its finding that the transactions
contemplated by the Merger Agreement are in the best interests of Summit and
its stockholders and its recommendation that all Summit stockholders vote for
its approval.
The Board also discussed the June 26, 1996 press release of Stella
Bella which purported to offer 5,700,000 shares of Stella Bella common stock in
exchange for Summit's JB's unit. On June 26, 1996, the last reported sales
price of Stella Bella common stock as reported on the Nasdaq Bulletin Board was
$0.545 per share. This press release followed unsolicited telephone calls
placed by Mr. Zubkis of Stella Bella to Mr. Habermann, Mr. Clark and Ms. Miller
during the previous week in which Mr. Zubkis stated a continued desire to
arrange a transaction with Summit. The purported "offer" did not constitute an
"Acquisition Transaction" under Section 9.1(d)(iii) of the Merger Agreement
because, in the view of Summit's Board of Directors, it was not a firm offer
and was not financially superior to the Merger with CKE. As a result, Summit
was prohibited from taking any further action in respect thereof so long as the
Merger Agreement remained effective.
At the June 27, 1996 meeting, the Board also considered the fact that
the Opposition Group was purporting to solicit proxies to the election of a
slate of directors at the Special Meeting notwithstanding Summit's
determination that no such matter would be acted upon at the Special Meeting by
operation of Summit's Certificate of Incorporation, Bylaws and applicable
Delaware law. Summit will receive an opinion of Delaware counsel addressing
this matter. In the face of these activities, the Board desired to remove any
confusion as to the time and place of a stockholders meeting to consider
director nominees. Accordingly, the Board determined that, in the event the
Merger is not approved at the Special Meeting,
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<PAGE> 6
the Board will, promptly thereafter, notice an annual meeting of stockholders
on September 27, 1996 to act on, among other things, the election of directors.
On June 27, 1996, Summit filed a complaint against Hometown Buffet,
Inc., together with a motion seeking a temporary restraining order to prevent
the Multiple Unit Agreement with Hometown Buffet, Inc. from expiring on June
30, 1996. The court granted a temporary restraining order maintaining the
exclusivity under the Multiple Unit Agreement in order to allow Summit's
subsidiary to pursue its rights thereunder. The Multiple Unit Agreement
provides exclusive franchise and development rights throughout a territory that
includes Colorado, Arizona, New Mexico, Utah, Idaho, Montana, Wyoming and
Nevada. Any development by Summit of units within the territory is subject to
approval by HomeTown Buffet, Inc.
RECOMMENDATION OF SUMMIT'S BOARD OF DIRECTORS; FAIRNESS OF THE MERGER
The last paragraph on page 32 of the Proxy Statement is deleted and
replaced with the following:
o The Board of Directors considered the fact that, in addition
to the opinion of Piper Jaffray, it also received the opinion
of Houlihan Lokey to the effect that the consideration to be
received by the public stockholders of Summit in connection
with the Merger is fair to them from a financial point of view
and that the fee payable to Houlihan Lokey was not contingent
on either the conclusions reached in such opinion or the
approval or disapproval of the Merger by the stockholders.
In view of the wide variety of factors considered in connection with
its evaluation of the Merger, the Special Committee and the Board did not find
it practicable to, and did not, quantify or otherwise assign relative weights
to the individual factors considered in reaching its determinations. Of
primary importance, however, was CKE's willingness to acquire Summit, as an
entity, in a single transaction resulting in a non-contingent payment to all
stockholders, its ability to finance and consummate the transaction and the
absence of any other proposal having similar characteristics. Also of
significance to the Special Committee and the Board were the opinions of Piper
Jaffray and Houlihan Lokey to the effect that the transaction is fair to the
holders of Summit Common Stock. Finally, the willingness of the prior holder
of the outstanding Summit Preferred Stock to sell the Summit Preferred Stock to
CKE at a cash price below its liquidation preference of $5.50 per share and
approximately equivalent to the Merger Consideration was deemed important to
the Special Committee and the Board in making their recommendation to the
holders of Common Stock.
FAIRNESS OPINION OF HOULIHAN LOKEY
The following information is added immediately before the caption
"--Opinion of Financial Advisor to Summit."
Houlihan Lokey was engaged by Summit to render an opinion to the Board
of Directors of Summit as to the fairness, from a financial point of view, to
the stockholders of Summit, other than CKE (the "Public Stockholders"), of the
consideration to be received by them in the Merger (the "Opinion"). The full
text of the opinion, which contains a detailed description of the assumptions
and qualifications
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<PAGE> 7
made, matters considered and limitations on the review and opinion, is set
forth in Appendix A to this Supplement and should be read in its entirety. The
Opinion is dated June 26, 1996, and does not take into account any matters that
have occurred after that date. The Opinion is necessarily based on business,
economic, market and other conditions as they existed and could be evaluated by
Houlihan Lokey as of the date of the Opinion. The Opinion does not constitute
a recommendation to the Public Stockholders as to how to vote or otherwise act
in connection with the Merger. Certain of the material assumptions,
qualifications and limitations to the Opinion are set forth below. The summary
set forth below does not purport to be a complete description of the analyses
used by Houlihan Lokey in rendering the Opinion. Arriving at a fairness
opinion is a complex analytical process not necessarily susceptible to partial
analysis or amenable to summary description.
Experience of Houlihan Lokey. Houlihan Lokey is engaged in the
investment banking business, providing a broad range of investment banking and
other financial services to clients located throughout the United States. The
business activities of Houlihan Lokey include: financial opinions, investment
banking, financial restructuring and fixed income asset management. Houlihan
Lokey was retained to render an opinion in part because of its experience in
valuation and financial analysis and in the restaurant industry. Houlihan
Lokey advised the Board of Directors of Summit that it had no prior business
relationship with either Summit or CKE. The Opinion does not address the
Company's underlying business decision to effect the Merger. Houlihan Lokey
was not requested to, and did not, solicit third party indications of interest
in acquiring all or part of Summit. Furthermore, at Summit's request, Houlihan
Lokey did not negotiate the Merger or advise Summit with respect to
alternatives to the Merger.
Summary of Materials Considered. In connection with its analysis,
Houlihan Lokey (i) reviewed Summit's annual reports to stockholders and on Form
10-K for the five fiscal years ended September 25, 1995 and quarterly reports
on Form 10-Q for the quarters ended December 18, 1995 and March 11, 1996; (ii)
reviewed the Proxy Statement; (iii) reviewed, as contained in the Proxy
Statement/Prospectus, the Merger Agreement; (iv) met with certain members of
the senior management of Summit to discuss the operations, financial condition
and future prospects of Summit, and spoke with a representative of Summit's
financial advisor; (v) met with certain members of the senior management of CKE
to discuss the operations, financial condition and future prospects of CKE;
(vi) visited certain facilities and business offices of Summit and CKE; (vii)
reviewed forecasts and projections on a consolidated basis prepared by Summit's
management with respect to Summit for the years ending 1996 through 2000, as
contained under the caption "Certain Projections of Summit" in the Special
Factors section of the Proxy Statement; (viii) reviewed CKE's annual reports
to stockholders and on Form 10-K for the three fiscal years ended January 29,
1996; (ix) reviewed the historical market prices and trading volume for
Summit's and CKE's publicly traded securities; (x) reviewed certain other
publicly available financial data for certain companies that Houlihan Lokey
deems comparable to Summit, and publicly available prices and premiums paid in
other transactions that it considered similar to the Merger; (xi) reviewed the
Opposition Proxy Group's Proxy Statement 1--Opposition to Merger and Proxy
Statement 2--For Resignation or Removal of Directors and For Election of New
Directors both dated June 20, 1996; and (xii) conducted such other studies,
analyses and inquiries as Houlihan Lokey deemed appropriate.
General. In arriving at the Opinion, Houlihan Lokey conducted various
analyses supporting a valuation of Summit and then compared that valuation to
the consideration being received by the Public Stockholders in the Merger.
Houlihan Lokey did not attribute any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. In the analyses,
Houlihan Lokey made numerous assumptions with respect to
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Summit, industry performance, general business and economic, market and
financial conditions and other matters. Additionally, analyses relating to the
value of businesses or securities are not appraisals. Accordingly, such
analyses and estimates are inherently subject to substantial uncertainty. The
values expressed or implied by the Opinion may or may not bear a relationship
to the present or future value of the Company, CKE or the shares of either of
them.
In the analysis of Summit, Houlihan Lokey took into account the
income- and cash-generating capability of Summit. In Houlihan Lokey's view, an
investor contemplating an investment in companies with income- and
cash-generating capability similar to Summit would typically evaluate the risks
and returns of its investment on a going-concern basis. Accordingly, the value
of Summit was analyzed primarily on the basis of a market multiple analysis and
a discounted cash flow analysis.
Acquisition Premium. An acquisition or control premium is defined as
the additional consideration that an investor would pay over a marketable
minority equity value in order to own a controlling interest in the equity of a
company. Owners of minority interests, by themselves, generally do not have
the powers or the prestige that comes with control. Consequently, a
controlling interest is generally considered to be worth more per share than a
minority interest and is usually expressed as a percentage of the marketable
minority price. In the case of the Market Multiple Analysis and Discounted
Cash Flow Analysis outlined below, the equity values determined by Houlihan
Lokey were on a marketable minority equity value, which were then multiplied by
the acquisition premium determined by Houlihan Lokey to be appropriate.
In the experience of Houlihan Lokey, the magnitude of a control
premium will often depend on several factors related to the particular company,
including the degree of financial leverage in the company, the overall quality
and depth of management, and the nature and magnitude of business opportunities
not currently being exploited by incumbent management (e.g., potential
streamlining, consolidation of operations, and cash flow improvements).
Houlihan Lokey measured the difference in value between controlling
interests in companies and minority interests by reviewing recent public tender
offers where the investor successfully acquired a control position. The market
price of the stock prior to the tender offer is compared to the higher price at
which the transaction closed, resulting in the premium paid for the control
position. Houlihan Lokey concluded that control premiums ranged from no
control premium to a high of approximately 242%, with a mean of 31.8% and a
median of 38.6%. However, Houlihan Lokey concluded that most of these
transactions involved "strategic buyers" who pay higher premiums for particular
businesses that offer benefits to the acquiror in the form of "synergies."
Houlihan Lokey believed that the fair market value of a company, which is an
important element in reaching a fairness opinion, should not take into account
the particular parties to a comparable transaction, such as strategic buyers.
Accordingly, Houlihan Lokey determined that the choice of an appropriate
control premium for Summit should consider only what a financial investor would
pay, and ignore any benefits that might accrue to an investor purely as a
result of operational synergies unique to a particular investor.
Following a review of the operating and financial characteristics of
the companies surveyed and selection of the most comparable transactions,
Houlihan Lokey determined the appropriate premium for Summit based on Summit's
weaker financial performance among other factors. Based upon Houlihan Lokey's
analysis of these data and consideration of relevant qualitative factors,
Houlihan Lokey concluded that an appropriate control premium for Summit's
equity was 20% (the "Acquisition Premium"). This
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compares with an effective control premium in the range of 34% to 78% being
paid by CKE if Summit is valued on the market value approach as described below
and an effective control premium in the range of 181% to 193% being paid by CKE
if Summit is valued on the discounted cash flow basis as described below.
Market Multiple Analysis. The fundamental concept underlying the
market multiple analysis is that an investor should earn a fair and reasonable
return on the investment at the concluded value. Market multiples applied to
various earnings or revenues levels should reflect all risks of ownership and
the associated risks of realizing income generated by the company.
Houlihan Lokey conducted a market multiple analysis by first comparing
certain financial and operational factors of Summit to two groups of
comparable publicly traded companies. The first group of comparable companies
consisted of those that operate family style, casual dining restaurants, other
than the "cafeteria/buffet" segment and the second group consisted of those in
the cafeteria/buffet segment. The first group ("Group One") consisted of Bob
Evans Farms, Cracker Barrel, Flagstar, Ground Round Restaurant, Perkins Family
Restaurants and Ryan's Family Steak Houses. The second group ("Group Two")
consisted of Piccadilly Cafeterias, Buffets, Inc., Hometown Buffet Inc. and
Luby's Cafeterias. Among other factors, Houlihan Lokey considered Summit's
loss of exclusivity for its HomeTown Buffet franchise territory if another
HomeTown Buffet restaurant is not opened by June 30, 1996 and another five
HomeTown Buffet restaurants are not opened by December 31, 1996, the financial
performance of JB's Restaurants, and Summit's inability to access capital to
finance HomeTown Buffet expansion, Galaxy Diner expansion or remodel existing
restaurant locations. Houlihan Lokey determined that the comparable companies
in Group One and Group Two had a ratio of the median stock price to
latest-twelve month revenues of 0.88x and 0.99x, respectively, and that the
appropriate multiple for Summit is 0.2x. Houlihan Lokey also determined that
the comparable companies in Group One and Group Two had a ratio of the median
stock price to next fiscal year earnings before interest, taxes, depreciation
and amortization ("EBDIT") of 6.5x and 5.9x, respectively, and that the
appropriate multiple for Summit is 5.0x. Houlihan Lokey also determined that
the comparable companies in Group One and Group Two had a median stock price to
net book value of 2.1x and 2.3x, respectively, and that the appropriate
multiple for Summit is .5x. Summit's other income and cash flow were either
negative or nominal in the latest twelve months and next fiscal year periods
which makes a comparison of other multiples not meaningful.
Based upon its market approach analysis, Houlihan Lokey concluded the
fair market value range of equity for Summit was determined by Houlihan Lokey
to be $17,200,000 to $22,800,000 (approximately $2.99 to $3.96 per share,
compared to the total consideration of $5.32 per share being paid by CKE in the
Merger based on the assumptions described above), after deduction for interest
bearing debt of $11,197,000 (as appropriate), the addition of the Acquisition
Premium and the addition of the value of the HomeTown Buffet, Inc. common stock
of $1,649,000 (net of taxes).
Discounted Cash Flow Analysis. Houlihan Lokey's discounted cash flow
analysis estimated the value of Summit on the present worth of the projected
net debt-free cash flows generated by the business and available (although not
necessarily paid) to debt and equity holders. Net debt-free cash flow is
defined as cash flow before interest expense less capital expenditures and
working capital requirements. Houlihan Lokey relied on, without independent
investigation, Summit's consolidated projections for the period from 1996 to
2000, as contained in the Proxy Statement, to conduct its analysis.
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The present values of the projected net debt-free cash flows provided
by management were determined by Houlihan Lokey using risk-adjusted discount
rates ranging from 17.0% to 18.0% based on the calculated weighted average cost
of capital ("WACC") and the risks associated with the Company's business. The
WACC was developed based on a weighted average of the estimated costs of
borrowing for Summit and the required rate of return on equity of the selected
comparable public companies identified above.
In valuing Summit using the discounted cash flow analysis, a provision
was made for the value of the business at the end of the forecast period, or
terminal value, by the use of a Gordon Growth model. A Gordon Growth analysis
values future cash flow streams through a mathematical expression for the
present value of a cash flow stream growing at a constant rate and discounted
at a constant rate. The discount rate employed in determining the terminal
value was the same as that employed in present valuing the interim projected
net debt-free cash flows. An annual growth rate of 3% to 4% was considered
appropriate by Houlihan Lokey based on discussions with management and
consideration of industry factors.
Based upon the discounted cash flow analysis, Houlihan Lokey concluded
that the fair market value range of equity for Summit to be $10,400,000 to
$10,900,000 (approximately $1.81 to $1.89 per share, compared to the total
consideration of $5.32 per share being paid by CKE in the Merger based on the
assumptions described above), after deduction for interest bearing debt of
$11,197,000 (as appropriate), the addition of the Acquisition Premium and the
addition of the value of the HomeTown Buffet, Inc. common stock of $1,649,000
(net of taxes).
Conclusions. Based on the foregoing, Houlihan Lokey rendered the
Opinion to Summit's Board of Directors that, based upon its analysis and
assumptions, and as of the date of the Opinion, the consideration to be
received by the Public Stockholders in the Merger is fair, from a financial
point of view.
Assumptions. In rendering the Opinion, Houlihan Lokey relied on and
assumed, without independent verification, that the data, material and other
information (including, but not limited to, financial forecasts and projections
and the information set forth in the Proxy Statement) provided to it were
reasonably prepared and reflect the best currently available estimates of the
future financial results and condition of Summit, and that there has been no
material change in the assets, financial condition, business or prospects of
Summit since the date of the most recent financial statements made available to
Houlihan Lokey. Houlihan Lokey does not assume responsibility for the accuracy
and completeness of such information including, but not limited to, any
information contained in this Proxy Statement. Under its engagement letter,
Houlihan Lokey was not obligated to conduct any independent study or
investigation as to the accuracy or completeness of such information.
Fees and Terms of Engagement. Summit has paid Houlihan Lokey $75,000
in fees for rendering the Opinion. No portion of the fee was contingent upon
consummation of the Merger or the conclusions reached in the opinion. Summit
has agreed to indemnify Houlihan Lokey against certain liabilities incurred and
to reimburse Houlihan Lokey for its reasonable out-of-pocket expenses.
9
<PAGE> 11
SHOULD YOU TRUST THE OPPOSITION GROUP?
In a press release dated June 26, 1996, First Global Securities
states: "Noble Trenham has not been a participant in the effort of the
Opposition Group."
Summit asks you to make up your own mind in light of the following:
o In August 1995, Noble Trenham on behalf of First
Global Securities requested information from Summit management
concerning a proposed management-led buyout. In order to provide the
information, Summit requested a confidentiality agreement. The
confidentiality agreement that was returned to Summit was signed
"Noble B. Trenham."
o On August 29, 1995, First Global Securities, in a
letter signed by Noble B. Trenham, returned the confidential
information to Summit. The letter stated: "I have decided today that
it is not in the interests of First Global's clients or our own
interest for me to read or document and I have not done so."
o In a letter from First Global Securities to Lyons
Restaurants dated March 29, 1996, Noble Trenham stated that "Just five
of my institutional clients and friends own or control 41.3% of a
public company in the restaurant business, Summit Family Restaurants
. . . "
o Noble Trenham proposed to Lyons Restaurants that it
"engage First Global as its investment banker." In the letter, Mr.
Trenham proposed that:
We will assess your profitable operations; design a strategy
for you to take control of Summit in exchange for new Summit
stock; you win the $42MM in cash and control a public company
after the current shareholders vote you in.
o In the same letter, Noble Trenham stated that: "My
objective is to serve my clients by executing a plan with a new
profitable operator." In closing, he stated:
We need a profitable private operator. This is a splendid
opportunity for an expansion minded CEO. Where could you
receive such a cash source and seasoned set of stockholders? I
hope I have made myself clear? Are YOU that special person
into whose hands we can entrust our company?
o Two weeks later, on April 15, 1996, First Global
Securities, in a letter signed by Noble Trenham, wrote to Summit
asking for copies of its bylaws and articles of incorporation.
Summit believes that these documented actions demonstrate that Noble
Trenham has, directly or indirectly, organized and directed multiple aspects of
the effort by First Global Securities to form the Opposition Group and to
oppose the proposed Merger. As a result, Summit believes that Noble Trenham
10
<PAGE> 12
is a participant with the Opposition Group and that his background, including
the information included in the June Letter, is highly relevant to the decision
that Summit stockholders must make.
11
<PAGE> 13
IMPORTANT
Whether or not you have previously signed a proxy card from the
Opposition Group, please sign, date and mail management's WHITE PROXY CARD in
the enclosed postage-paid envelope. Summit stockholders may submit or revoke
proxies by telecopier at (201) 804-8693. (If you wish to add to your comments
and suggestions about the issues discussed in this letter, please note them on
the proxy card.)
Please DO NOT execute or return any Red card sent to you by the
Opposition Group.
If you own your shares in the name of a brokerage firm, your broker
cannot vote such shares unless he receives your specific instructions.
If you have questions about voting your shares or want further
assistance or information, please do not hesitate to call our proxy solicitor:
CORPORATE INVESTOR COMMUNICATIONS, INC.
AT (800) 346-7885 OR COLLECT AT (201) 896-1900
<PAGE> 1
EXHIBIT 99.14
[HOULIHAN LOKEY HOWARD & ZUKIN LETTERHEAD]
June 26, 1996
To The Board of Directors
Summit Family Restaurants Inc.
We understand that Summit Family Restaurants Inc. (the "Company") has entered
into an Agreement and Plan of Merger and Reorganization, dated as of November
30, 1995 and amended as of January 24, 1996, April 2, 1996 and June 5, 1996 (as
so amended, the "Merger Agreement"), with CKE Restaurants, Inc., ("CKE) and
Summit Merger, Inc. The Merger Agreement provides for the merger of Summit
Merger, Inc., a newly formed, wholly owned subsidiary of CKE, with and into the
Company (the "Merger"). As a result of the Merger, the Company will become a
wholly owned subsidiary of CKE. Upon consummation of the Merger each
outstanding share of the Company's common stock will be converted into the
right to receive (the "Consideration"): (i) $2.63 in cash; and (ii) a number of
CKE common shares equal to the greater of (a) 0.09103 or (b) a fraction, the
numerator of which is $2.64 and the denominator will be an amount determined on
the basis of an average of the closing sales prices of CKE common stock on the
New York Stock Exchange for the 20 consecutive trading days ending five days
prior to the date of the Special Meeting of the Company's stockholders. Based
upon the recent average CKE price, the range of the consideration for each
share of the Company's common stock, including both cash and the CKE common
shares as described above, is approximately $5.09 to $5.44. The Merger, the
exchange of the Company's common stock for the Consideration, and other
related transactions described in the Company's Proxy Statement/Prospectus
dated June 10, 1996 are referred to collectively herein as the "Transaction."
The Company's Board of Directors has requested that Houlihan Lokey render an
opinion as to the fairness, from a financial point of view, to the stockholders
of the Company, other than CKE, (the "Public Stockholders") of the
Consideration to be received by them in connection with the Transaction.
You have requested our opinion (the "Opinion") as to the matters set forth
below. The Opinion does not address the Company's underlying business decision
to effect the Transaction. We have not been requested to, and did not, solicit
third party indications of interest in acquiring all or any part of the
Company. Furthermore, at your request, we have not negotiated the Transaction
or advised you with respect to alternatives to it.
<PAGE> 2
To The Board of Directors
Summit Family Restaurants Inc.
June 26, 1996
-2-
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed the Company's annual reports to shareholders and on
Form 10-K for the five fiscal years ended September 25, 1995 and
quarterly reports on Form 10-Q for the quarters ended December
18, 1995 and March 11, 1996, which the Company's management has
identified as being the most current financial statements
publicly available;
2. reviewed the Summit Proxy Statement/Prospectus, dated June 10,
1996 (the "Proxy");
3. reviewed, as contained in the Proxy Statement/Prospectus, the
Agreement and Plan of Merger and Reorganization, dated as of
November 30, 1995, and amended as of January 24, 1996, April 2,
1996 and June 5, 1996;
4. met with certain members of the senior management of the Company
to discuss the operations, financial condition and future
prospects of the Company, and spoke with a representative of the
Company's investment banker;
5. met with certain members of the senior management of CKE to
discuss the operations, financial condition and future prospects
of CKE;
6. visited certain facilities and business offices of the Company
and CKE;
7. reviewed forecasts and projections on a consolidated basis
prepared by the Company's management with respect to the Company
for the years ending 1996 through 2000, as contained under the
caption "Certain Projections of Summit" in the Special Factors
section of the June 10, 1996 Proxy Statement/Prospectus and
related supporting data;
8. reviewed CKE's annual reports to shareholders and on Form 10-K
for the three fiscal years ended January 29, 1996;
9. reviewed the historical market prices and trading volume for the
Company's and CKE's publicly traded securities;
10. reviewed certain other publicly available financial data for
certain companies that we deem comparable to the Company, and
publicly available prices and premiums paid in other
transactions that we considered similar to the Transaction;
<PAGE> 3
To The Board of Directors
Summit Family Restaurants Inc.
June 26, 1996
-3-
11. reviewed the Opposition Proxy Group's Proxy Statement 1 -
Opposition to Merger and Proxy Statement 2 - for Resignation or
Removal of Directors and For Election of New Directors both
dated June 20, 1996; and
12. conducted such other studies, analyses and inquiries as we have
deemed appropriate.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably
prepared and reflect the best currently available estimates of the future
financial results and condition of the Company, and that there has been no
material change in the assets, financial condition, business or prospects of
the Company since the date of the most recent financial statements made
available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. We have not made any physical inspection or
independent appraisal of any of the properties or assets of the Company. Our
opinion is necessarily based on business, economic, market and other conditions
as they exist and can be evaluated by us at the date of this letter.
Based upon the foregoing, and in reliance thereon, it is our opinion that the
consideration to be received by the Public Stockholders of the Company in
connection with the Transaction is fair to them from a financial point of view
as of the date of this letter.
HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
[SIG]
<PAGE> 1
Exhibit 99.15
Summit Family Restaurants Inc.
- -------------------------------------------------------------------------------
BOARD OF DIRECTORS PRESENTATION
I. Scope
II. Transaction Overview
III. Due Diligence
IV. Valuation Approaches
V. Market Approach
VI. Discounted Cash Flow Analysis
VII. Transaction Multiples
APPENDIX
- -------------------------------------------------------------------------------
Houlihan Lokey Howard & Zukin
<PAGE> 2
- -------------------------------------------------------------------------------
SCOPE
- -------------------------------------------------------------------------------
<PAGE> 3
Summit Family Restaurants Inc.
- -------------------------------------------------------------------------------
I. SCOPE
We understand that the Company's Board of Directors has requested that Houlihan
Lokey render an opinion as to the fairness, from a financial point of view, to
the public stockholders of the Company of the consideration to be received by
them in connection with the Transaction. The Opinion shall not address the
Company's underlying business decision to effect the Transaction. We have not
been engaged to initiate any discussions with third parties with respect to a
possible acquisition of the Company.
- -------------------------------------------------------------------------------
Houlihan Lokey Howard & Zukin 1
<PAGE> 4
- -------------------------------------------------------------------------------
TRANSACTION OVERVIEW
- -------------------------------------------------------------------------------
<PAGE> 5
Summit Family Restaurants Inc.
- -------------------------------------------------------------------------------
II. TRANSACTION OVERVIEW
Summit has entered into an Agreement and Plan of Merger and Reorganization,
dated as of November 30, 1995, (as amended, the "Merger Agreement") with CKE
Restaurants, Inc., ("CKE"). The Merger Agreement provides for the merger of
Summit Merger, Inc., a newly formed, wholly owned subsidiary of CKE, with and
into the Company, (the "Merger"). As a result of the Merger, the Company will
become a wholly owned subsidiary of CKE. Upon consummation of the Merger each
outstanding share of the Company's common stock will be converted into the right
to receive, (the "Consideration"):(i) $2.63 in cash; and (ii) a number of CKE
common shares equal to the greater of (a) 0.09103 or (b) a fraction, the
numerator of which is $2.64 and the denominator will be an amount determined on
the basis of an average of the closing sales prices of CKE common stock on the
New York Stock Exchange for the 20 consecutive trading days ending five days
prior to the date of the Special Meeting of the Company's shareholders. Based
upon the recent average CKE price, the range of the consideration for each share
of the Company's common stock, including both cash and the CKE common shares as
described above, is approximately $5.09 to $5.44.
The range as stated in the proxy statement/prospectus filed 6/10/96 is $5.09 -
$5.44 per Summit share; this implies a market value of equity in the range of
$29,280,052 to $31,294,231.
- -------------------------------------------------------------------------------
Houlihan Lokey Howard & Zukin 2
<PAGE> 6
- -------------------------------------------------------------------------------
DUE DILIGENCE
- -------------------------------------------------------------------------------
<PAGE> 7
Summit Family Restaurants Inc.
- -------------------------------------------------------------------------------
III. DUE DILIGENCE
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed the Company's annual reports to shareholders and on
Form 10-K for the five fiscal years ended September 25, 1995
and quarterly reports on Form 10-Q for the quarters ended
December 18, 1995 and March 11, 1996, which the Company's
management has identified as being the most current financial
statements publicly available;
2. reviewed the Summit Proxy Statement/Prospectus, dated June 10,
1996 (the "Proxy");
3. reviewed, as contained in the Proxy Statement/Prospectus, the
Agreement and Plan of Merger and Reorganization, dated as of
November 30, 1995, and amended as of January 24, 1996, April
2, 1996 and June 5, 1996;
4. met with certain members of the senior management of the
Company to discuss the operations, financial condition and
future prospects of the Company, and spoke with a
representative of the Company's investment banker;
5. met with certain members of the senior management of CKE to
discuss the operations, financial condition and future
prospects of CKE;
6. visited certain facilities and business offices of the Company
and CKE;
7. reviewed forecasts and projections on a consolidated basis
prepared by the Company's management with respect to the
Company for the years ending 1996 through 2000, as contained
under the caption "Certain Projections of Summit" in the
Special Factors section of the June 10, 1996 Proxy
Statement/Prospectus and related supporting data;
8. reviewed CKE's annual reports to shareholders and on Form 10-K
for the three fiscal years ended January 29, 1996;
- -------------------------------------------------------------------------------
Houlihan Lokey Howard & Zukin 3
<PAGE> 8
Summit Family Restaurants Inc.
- -------------------------------------------------------------------------------
9. reviewed the historical market prices and trading volume for
the Company's and CKE's publicly traded securities;
10. reviewed certain other publicly available financial data for
certain companies that we deem comparable to the Company, and
publicly available prices and premiums paid in other
transactions that we considered similar to the Transaction;
11. reviewed the Opposition Proxy Group's Proxy Statement 1 -
Opposition to Merger and Proxy Statement 2 - For Resignation
or Removal of Directors and For Election of New Directors both
dated June 20, 1996; and
12. conducted such other studies, analyses and inquiries as we
have deemed appropriate.
- -------------------------------------------------------------------------------
Houlihan Lokey Howard & Zukin 4
<PAGE> 9
Summit Family Restaurants Inc.
- -------------------------------------------------------------------------------
VALUATION APPROACHES
- -------------------------------------------------------------------------------
Houlihan Lokey Howard & Zukin
<PAGE> 10
Summit Family Restaurants Inc.
- -------------------------------------------------------------------------------
IV. VALUATION APPROACHES
- Market Approach (Revenue, Book Value, Earnings Before
Interest, Taxes, and Depreciation)
- Discounted Cash Flow Analysis
- Transaction Multiples
- -------------------------------------------------------------------------------
Houlihan Lokey Howard & Zukin 5
<PAGE> 11
Summit Family Restaurants Inc.
- -------------------------------------------------------------------------------
Summit Family Restaurants Inc.
Fairness Opinion
As of June 26, 1996
- -------------------------------------------------------------------------------
($ In 000s, exept per share numbers)
EQUITY RESULTS SUMMARY:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Concluded Valuation Range based on HLHZ analysis
Low High
<S> <C> <C>
Market Approach and
Discounted Cash Flow Analysis (rounded) 8,800 21,200
Plus: HomeTown stock (1) 1,649 1,649
Total Aggregate equity value (rounded) 10,400 22,800
1) Based on $13.875 per share x 130,000 shares (net of taxes at 10% based on
discussions with management)
-----------------------------------------------------------------------
CKE consideration offered: $29,280 to $31,294
</TABLE>
6
- -------------------------------------------------------------------------------
Houlihan Lokey Howard & Zukin
<PAGE> 12
- -------------------------------------------------------------------------------
MARKET APPROACH
- -------------------------------------------------------------------------------
<PAGE> 13
Summit Family Restaurants Inc.
- -------------------------------------------------------------------------------
V. MARKET APPROACH
- Reviewed and analyzed quantitative and qualitative risk
factors for Summit Family Restaurants Inc.
- Reviewed and analyzed quantitative and qualitative risk
factors for public company comparables (see Appendix)
- Compared and contrasted quantitative and qualitative risk
factors and selected multiples based on these risk factors
SUMMARY
- Summit is a much greater investment risk than the public
companies
- Therefore, discount to the public company multiples were
applied to capture these risks
CONCLUSION
$15,579,000 to $21,162,000
- -------------------------------------------------------------------------------
Houlihan Lokey Howard & Zukin 7
<PAGE> 14
Summit Family Restaurants Inc.
SUMMIT FAMILY RESTAURANTS INC. -
SELECTION OF MARKET MULTIPLES
- -------------------------------------------------------------------------------
- Declining sales
- Poor historical performance
- Weakness in brand and franchise system
- Almost certain loss of exlusive territority - HomeTown Buffet
- Access to capital is limited; limits remodels, advertising, and
expansion Cash flow is primarily the result of sales of HomeTown
Buffet stock
- Many "Big Restaurant Players" already have a presence in Summit's
markets which limits the number and type of acquiror candidates
- Significant staff reductions
- Significant potential liabilities related to cost of closing
"problem" restaurants
- Negative working capital
+ Western region is generally perceived as high growth area
+ Staff terminations have reduced overhead
8
- -------------------------------------------------------------------------------
Houlihan Lokey Howard & Zukin
<PAGE> 15
Summit Family Restaurants Inc.
SUMMIT FAMILY RESTAURANTS INC. -
MARKET MULTIPLES
- --------------------------------------------------------------------------------
($000S)
<TABLE>
<CAPTION>
Market Acquisition Control
Approach Rep. Level Multiple TIC Debt Equity Premium Equity
- --------------------------------------------------------------------------------------------------
At 3/11/96
<S> <C> <C> <C> <C> <C> <C> <C>
NEXT FISCAL YEAR (97)
EBDITA* 5,079 5.00 25,395 (11,197) 14,198 1.20 17,038
LATEST TWELVE MONTHS
Revenue 120,897 0.20 24,179 (11,197) 12,982 1.20 15,579
Book Value** 35,270 0.50 1.20 21,162
</TABLE>
* Earnings before depreciation/amortization, interest and taxes
** Less: book value of HomeTown shares @ $1,430 as of 3/11/96.
9
- -------------------------------------------------------------------------------
Houlihan Lokey Howard & Zukin
<PAGE> 16
- -------------------------------------------------------------------------------
DISCOUNTED CASH FLOW ANALYSIS
- -------------------------------------------------------------------------------
<PAGE> 17
Summit Family Restaurants Inc.
- -------------------------------------------------------------------------------
VI. DISCOUNTED CASH FLOW ANALYSIS
- Used management projections (as contained in the June 10, 1996
Proxy)
- Selected appropriate risk adjusted discount rate
- Selected appropriate terminal multiples and growth rates
CONCLUSIONS
<TABLE>
<S> <C>
Range of Total Interested Capital: $18,550,150 to $18,920,304
Less: Interest Bearing Debt: 11,197,000
--------------------------
Range of Equity Value: $8,823,780 to $9,267,965
</TABLE>
- -------------------------------------------------------------------------------
Houlihan Lokey Howard & Zukin 10
<PAGE> 18
Summit Family Restaurants Inc.
DISCOUNTED CASH FLOW ANALYSIS - SUMMIT FAMILY RESTAURANTS INC.
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues 120,311,303 120,350,837 122,816,850 125,334,443 127,904,718
Growth NA 0.0% 2.0% 2.0% 2.1%
Earnings (EBIT) (1,821,102) (1,277,111) (1,166,338) (687,893) 199,728
Less: Income Taxes @ 40% 0 0 0 0 79,891
-----------------------------------------------------------------------
Debt Free Earnings (1,821,102) (1,277,111) (1,166,338) (687,893) 119,837
Add: Depreciation/Amortiztion 6,926,449 6,355,429 6,572,229 6,669,029 6,765,829
Less: Changes in Working Capital 1,400,059 (734,730) (734,731) (734,729) (734,731)
Less: Capital Expenditures 1,473,000 2,084,000 2,084,000 2,084,000 2,084,000
-----------------------------------------------------------------------
Net Debt Free Cash Flow 2,232,288 3,729,048 4,056,622 4,631,865 5,536,397
Selected discount range: 17.0% to 18.0%
Selected terminal growth range: 3.0% to 4.0%
Concluded range of TIC value *: $ 18,550,150 $ 18,920,304
Less: Debt $(11,197,000) $(11,197,000)
Concluded Equity Range $ 7,353,150 $ 7,723,304
Concluded Conrol Value Equity Range $ 8,823,780 $ 9,267,965
</TABLE>
* TIC: Total Invested Capital (Interest bearing debt plus market value of
equity)
- -------------------------------------------------------------------------------
Houlihan Lokey Howard & Zukin 11
<PAGE> 19
Summit Family Restaurants Inc.
- -------------------------------------------------------------------------------
TRANSACTION MULTIPLES
- -------------------------------------------------------------------------------
Houlihan Lokey Howard & Zukin
<PAGE> 20
Summit Family Restaurants Inc.
- -------------------------------------------------------------------------------
VII. TRANSACTION MULTIPLES
- Looked at 20 acquisitions of publicly-traded companies in the
restaurant industry.
- Transactions from January 1994 to the present were considered.
CONCLUSIONS
Based on our analysis of the financial and operational characteristics of Summit
Family Restaurants Inc., no transactions occurred that were identical to the
proposed Summit Family Restaurants Inc. transaction.
- -------------------------------------------------------------------------------
Houlihan Lokey Howard & Zukin 12
<PAGE> 21
Summit Family Restaurants Inc.
- -------------------------------------------------------------------------------
RECENT RESTAURANT INDUSTRY MERGER AND ACQUISITION ACTIVITY SINCE 1994
- -------------------------------------------------------------------------------
($ in Millions)
<TABLE>
<CAPTION>
Implied Target LTM
Date Enterprise --------------------- EBITDA/
Announced Target Acquiror Value Sales EBIT EBITDA Sales
- --------- ------ -------- ---------- ----- ---- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
06/05/96 HomeTown Buffet Inc. Buffet's Inc. 227.9 152.4 11.4 21.3 14%
05/03/96 Houlihan's Restaurants Group Zapata Corp. 168.9 258.9 15.3 30.3 12%
04/19/96 Bayport Restaurant Group Landry's 63.8 59.5 2.4 3.9 7%
01/01/96 Franchise Groups (Proforma) Outback Steakhouse Inc 146.8 141.6 - 26.2 19%
01/01/96 Franchise Groups Outback Steakhouse Inc 146.8 112.9 9.6 13.4 12%
11/02/95 Brinker Int'l-Gradys American Quality Dining Inc 74.4 100.9 3.2 4.6 5%
10/10/95 Champps Entertainment DAKA International 70.0 16.3 NA NA
09/18/95 Del Frisco's Double Eagle Lone Star Steakhouse & Saloon 23.0 10.1 3.7 3.8 38%
08/15/95 DF&R Restaurants Inc Apple South 194.1 84.3 9.5 14.0 17%
07/20/95 Let Us Entertain You (Units) Brinker International 67.0 35.0 NA NA
05/01/95 Marcus Corp-Applebee's Apple South 48.0 35.5 2.3 4.1 11%
04/21/95 Denwest Restaurant Corp American Family Restaurants 52.0 67.8 7.4 10.0 15%
03/21/95 TUG Inc-Restaurants(8) Apple South 17.0 11.9 1.5 1.8 15%
02/01/95 Dave and Buster's Inc Shareholders 94.6 49.4 4.0 8.0 16%
11/10/94 Tia's Inc Morrison Restaurants Inc 23.0 12.1 - - -
10/24/94 Grayling Corp Quality Dining Inc 19.9 18.1 2.3 3.0 17%
10/14/94 Innovative Restaurant Concepts Applebee's International Inc 63.7 51.9 3.9 6.2 12%
07/14/94 Southern Hospitality Corp DavCo Restaurants Inc 18.4 32.4 3.1 4.5 14%
07/05/94 Marco's Mexican Restaurants Billy Blues Food Corp 24.9 22.0 0.3 1.0 5%
01/24/94 On The Border Cafes Inc Brinker International Inc 34.4 30.6 (2.6) (1.1) NMF
</TABLE>
<TABLE>
<CAPTION>
Implied Multiples
Date -----------------------
Announced Target Acquiror Sales EBIT EBITDA
- --------- ------ -------- ----- ---- ------
<S> <C> <C> <C> <C> <C>
06/05/96 HomeTown Buffet Inc. Buffet's Inc. 1.50 20.0 10.7
05/03/96 Houlihan's Restaurants Group Zapata Corp. 0.65 11.0 5.6
04/19/96 Bayport Restaurant Group Landry's 1.07 26.8 16.5
01/01/96 Franchise Groups (Proforma) Outback Steakhouse Inc 1.04 NA 5.6
01/01/96 Franchise Groups Outback Steakhouse Inc 1.30 15.3 11.0
11/02/95 Brinker Int'l-Gradys American Quality Dining Inc 0.74 23.2 16.3
10/10/95 Champps Entertainment DAKA International NA NA NA
09/18/95 Del Frisco's Double Eagle Lone Star Steakhouse & Saloon 2.28 6.1 6.0
08/15/95 DF&R Restaurants Inc Apple South 2.30 20.4 13.9
07/20/95 Let Us Entertain You (Units) Brinker International NA NA NA
05/01/95 Marcus Corp-Applebee's Apple South 1.35 21.3 11.9
04/21/95 Denwest Restaurant Corp American Family Restaurants 0.77 7.0 5.2
03/21/95 TUG Inc-Restaurants(8) Apple South 1.43 11.7 9.3
02/01/95 Dave and Buster's Inc Shareholders 1.91 23.5 11.9
11/10/94 Tia's Inc Morrison Restaurants Inc 1.90 NA NA
10/24/94 Grayling Corp Quality Dining Inc 1.10 8.7 6.6
10/14/94 Innovative Restaurant Concepts Applebee's International Inc 1.23 16.3 10.3
07/14/94 Southern Hospitality Corp DavCo Restaurants Inc 0.57 5.9 4.1
07/05/94 Marco's Mexican Restaurants Billy Blues Food Corp 1.13 83.0 24.9
01/24/94 On The Border Cafes Inc Brinker International Inc 1.13 -13.2 -31.3
- ---------------------------------------------------------------------------------------------------------
Median 1.13 11.38 7.96
Mean 1.17 14.35 6.91
- ---------------------------------------------------------------------------------------------------------
</TABLE>
13
- -------------------------------------------------------------------------------
Houlihan Lokey Howard & Zukin
<PAGE> 22
- -------------------------------------------------------------------------------
APPENDIX
- -------------------------------------------------------------------------------
<PAGE> 23
Summit Family Restaurants Inc.
- -------------------------------------------------------------------------------
PUBLIC COMPANY COMPARATIVE FINANCIAL ANALYSIS
<TABLE>
<CAPTION>
BOB CRACKER GROUND PERKINS RYAN'S
STATISTICS & RATIOS EVANS BARREL FLAGSTAR ROUND IHOP FAMILY FAMILY
- ------------------- ------ ------- -------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Updated Through Apr-96 Apr-96 Mar-96 Mar-96 Mar-96 Mar-96 Mar-96
Fiscal Year Ended Apr-95 Jul-95 Dec-95 Sep-95 Dec-95 Dec-95 Dec-95
SIZE ($ MILLIONS)
- -----------------
Revenues $797.3 $ 882.3 $ 2,485.4 $220.8 $171.4 $248.8 $528.4
Total Assets $531.8 $ 618.0 $ 1,451.7 $135.0 $262.4 $159.5 $449.2
Net Worth (Common, Tangible) $404.9 $ 527.2 $(1,184.2) $ 53.1 $ 98.3 $ 34.9 $302.1
Earnings Before Interest & Taxes $ 76.7 $ 110.8 $ 141.8 $ (9.8) $ 38.3 $ 16.6 $ 56.7
Earnings Before Depr, Interest, Tax & Amort $ 97.6 $ 140.0 $ 278.2 $ 4.0 $ 45.5 $ 31.5 $ 79.8
Adjusted Net Income $ 47.2 $ 68.6 $ (121.2) $(11.2) $ 17.4 $ 10.9 $ 34.4
Cash Flow $ 68.1 $ 97.9 $ 15.2 $ 2.6 $ 24.6 $ 25.8 $ 57.4
Total Interest--Bearing Debt $ 54.7 $ 24.7 $ 2,028.8 $ 53.7 $105.8 $ 70.1 $ 85.9
Market Value Of Equity $636.8 $1,558.4 $ 147.1 $ 37.8 $267.6 $126.1 $465.9
Total Invested Capital (No Control Premium) $691.4 $1,583.1 $ 2,176.1 $ 91.5 $373.4 $196.2 $551.8
LIQUIDITY RATIOS
- ----------------
Quick Ratio 0.3 0.6 0.6 0.2 0.9 0.4 0.1
Current Ratio 0.5 1.4 0.6 0.2 0.9 0.5 0.1
Working Capital Turnover -14.4 32.7 -17.7 -10.0 -81.9 -17.7 -4.3
FINANCIAL LEVERAGE RATIOS
- -------------------------
Total Liabilities To
Net Worth 0.3 0.2 -2.2 1.5 1.5 2.8 0.5
Total Interest Bearing Debt
To Net Worth 0.1 0.0 -1.7 1.0 1.1 2.0 0.3
Interest Coverage 470.8 522.5 1.2 0.8 4.8 6.3 40.3
Interest Expense To
Total Interest--Bearing Debt 0.6% 1.2% 11.2% 9.0% 17.7% 7.8% 2.6%
Total Interest--Bearing Debt
To FMV Of Net Worth 0.1 0.0 13.8 1.4 0.4 0.6 0.2
ACTIVITY RATIOS
- ---------------
Inventory Turnover 34.8 6.3 46.4 97.2 160.3 54.2 125.9
Asset Turnover 1.6 1.5 1.7 1.6 0.7 1.6 1.3
Average A/R Collection
Period (In Days) 6.6 1.0 4.0 2.3 40.6 11.2 1.1
</TABLE>
A-1
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Houlihan Lokey Howard & Zukin
<PAGE> 24
Summit Family Restaurants Inc.
- -------------------------------------------------------------------------------
PUBLIC COMPANY COMPARATIVE FINANCIAL ANALYSIS
<TABLE>
<CAPTION>
BOB CRACKER GROUND PERKINS RYAN'S
STATISTICS & RATIOS EVANS BARREL FLAGSTAR ROUND IHOP FAMILY FAMILY
- ------------------- ------ ------- -------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Updated Through Apr-96 Apr-96 Mar-96 Mar-96 Mar-96 Mar-96 Mar-96
Fiscal Year Ended Apr-95 Jul-95 Dec-95 Sep-95 Dec-95 Dec-95 Dec-95
<S> <C> <C> <C> <C> <C> <C> <C>
PROFITABILITY RATIOS
- --------------------
Gross Profit Margin
Latest 12 Months 22.2% 65.7% 6.3% 2.8% 22.3% 15.5% 14.0%
Fiscal Year End 24.1% 66.2% 6.4% 6.5% 22.1% 15.6% 14.9%
Five-Year Average 23.5% 54.1% 6.3% 10.8% 19.1% 16.8% 15.5%
Adjusted Net Income To:
Sales
Latest 12 Months 5.9% 7.8% -4.9% -5.1% 10.2% 4.4% 6.5%
Fiscal Year End 7.0% 8.4% -4.5% -2.1% 10.1% 4.4% 6.4%
Five-Year Average 6.9% 8.5% -6.4% 1.1% 8.6% 6.2% 7.2%
Average Net Worth
Latest 12 Months 12.2% 13.9% NA -19.0% 19.7% 29.7% 11.9%
Fiscal Year End 14.9% 14.3% NA -7.6% 19.6% 29.1% 11.6%
Five-Year Average 14.4% 13.3% NA 4.3% 19.1% 35.6% 12.0%
EBIT To:
Sales
Latest 12 Months 9.6% 12.6% 5.7% -4.4% 22.3% 6.7% 10.7%
Fiscal Year End 11.3% 13.5% 5.9% -0.4% 22.1% 6.7% 10.6%
Five-Year Average 11.0% 14.1% 5.1% 4.0% 19.1% 7.9% 11.5%
Average Total Assets
Latest 12 Months 15.5% 19.1% 9.5% -6.9% 16.4% 10.6% 13.5%
Fiscal Year End 19.3% 18.7% 9.8% -0.6% 16.0% 10.6% 13.5%
Five-Year Average 18.6% 17.0% 7.2% 6.0% 14.4% 12.2% 14.0%
EBDIT To Sales
Latest 12 Months 12.2% 15.9% 11.2% 1.8% 26.5% 12.7% 15.1%
Fiscal Year End 14.8% 16.9% 11.3% 6.1% 26.3% 12.6% 15.0%
Five-Year Average 14.3% 17.3% 11.1% 9.5% 23.4% 13.4% 16.1%
Return On Average
Invested Capital
Latest 12 Months 10.8% 13.4% 1.2% -7.2% 14.9% 11.0% 9.7%
Fiscal Year End 14.2% 13.6% 2.5% -1.4% 12.7% 13.6% 9.7%
Five-Year Average 14.0% 12.4% -5.3% 4.7% 12.0% 18.1% 10.0%
Adjusted Tax Rate
Latest 12 Months 38.3% 37.9% NA NA 39.5% 5.9% 37.2%
Fiscal Year End 38.4% 37.3% -25.2% NA 39.5% 5.9% 37.2%
Five-Year Average 37.5% 37.3% -99.9% 38.5% 40.4% 1.5% 37.1%
</TABLE>
A-2
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Houlihan Lokey Howard & Zukin
<PAGE> 25
Summit Family Restaurants Inc.
- -------------------------------------------------------------------------------
PUBLIC COMPANY COMPARATIVE FINANCIAL ANALYSIS
<TABLE>
<CAPTION>
BOB CRACKER GROUND PERKINS RYAN'S
STATISTICS & RATIOS EVANS BARREL FLAGSTAR ROUND IHOP FAMILY FAMILY
- ------------------- ------ ------- -------- ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Updated Through Apr-96 Apr-96 Mar-96 Mar-96 Mar-96 Mar-96 Mar-96
Fiscal Year Ended Apr-95 Jul-95 Dec-95 Sep-95 Dec-95 Dec-95 Dec-95
<S> <C> <C> <C> <C> <C> <C> <C>
GROWTH STATISTICS
- -----------------
Annual Revenue Growth 5.6% 18.6% -7.1% -8.5% 14.0% 9.1% 14.9%
Four-Year Compound Annual
Revenue Growth 11.2% 27.1% -8.2% 9.2% 11.8% 8.0% 14.6%
Annual EBIT Growth -10.9% 8.2% -33.1% -208.7% 18.8% 1.8% 15.0%
Four-Year Compound Annual
EBIT Growth 12.7% 28.1% -9.3% NA 25.6% -1.4% 10.1%
Annual EBDIT Growth -7.6% 10.1% -20.4% -83.3% 17.7% 9.1% 13.6%
Four-Year Compound Annual
EBDIT Growth 12.3% 28.4% -10.5% -5.4% 22.0% 3.0% 11.5%
Annual Net Income Growth -10.9% 7.2% -197.4% -479.3% 15.4% -11.0% 12.3%
Four-Year Compound Annual
Net Income Growth 12.3% 30.4% -14.5% NA 33.9% -7.8% 9.2%
DEPRECIATION & CAPITAL SPENDING MEASURES
- ----------------------------------------
Depreciation To:
Adjusted Net Income
Latest 12 Months 44.1% 42.6% -112.5% -123.5% 41.3% 136.5% 67.1%
Fiscal Year End 49.8% 40.1% -120.7% -316.4% 41.6% 133.1% 67.6%
Five-Year Average 49.3% 37.5% -95.7% 497.0% 50.1% 88.9% 64.2%
EBIT
Latest 12 Months 27.1% 26.4% 96.2% -140.4% 18.8% 89.6% 40.6%
Fiscal Year End 30.7% 25.0% 92.8% NMF 19.0% 87.4% 41.0%
Five-Year Average 30.8% 22.7% 120.2% 137.3% 22.5% 70.5% 39.9%
Capital Expenditures
Latest 12 Months 32.2% 23.7% 133.6% 394.6% 15.4% 58.9% 29.8%
Fiscal Year End 28.1% 21.9% 113.4% 155.0% 16.5% 49.8% 31.4%
Five-Year Average 36.6% 19.1% 153.4% 80.8% 20.7% 54.4% 30.0%
Capital Expenditures To Sales
Latest 12 Months 8.1% 14.0% 4.1% 1.6% 27.2% 10.2% 14.7%
Fiscal Year End 12.4% 15.5% 4.8% 4.2% 25.6% 11.8% 13.9%
Five-Year Average 9.2% 16.8% 4.0% 6.8% 20.7% 10.2% 15.3%
</TABLE>
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Houlihan Lokey Howard & Zukin
<PAGE> 26
Summit Family Restaurants Inc.
- -------------------------------------------------------------------------------
TOTAL INVESTED CAPITAL / REVENUE RATIOS OF
COMPARATIVE PUBLIC COMPANIES
<TABLE>
<CAPTION>
LATEST FISCAL
AVAILABLE YEAR
TIC TO REVENUE 12 MONTHS END
- -------------- --------- ------
<S> <C> <C>
Bob Evans Farms 0.87 0.90
Cracker Barrel Old Ctry Stor 1.79 2.02
Flagstar Cos Inc 0.88 0.85
Ground Round Restaurant 0.41 0.40
Ihop Corp 2.18 2.27
Perkins Family Rests -Lp 0.79 0.80
Ryan's Family Stk Houses Inc 1.04 1.07
Range: Low 0.41 0.40
High 2.18 2.27
Median: 0.88 0.90
Mean: 1.14 1.19
</TABLE>
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Houlihan Lokey Howard & Zukin
<PAGE> 27
Summit Family Restaurants Inc.
- -------------------------------------------------------------------------------
TOTAL INVESTED CAPITAL / EBDIT RATIOS OF
COMPARATIVE PUBLIC COMPANIES
<TABLE>
<CAPTION>
NEXT LATEST FISCAL
FISCAL AVAILABLE YEAR
TIC TO EBDIT YEAR 12 MONTHS END
- ------------ ------ --------- ------
<S> <C> <C> <C>
Bob Evans Farms 6.5 7.1 6.1
Cracker Barrel Old Ctry Stor 9.1 11.3 11.9
Flagstar Cos Inc 7.8 7.8 7.5
Ground Round Restaurant NA 23.1 6.5
Ihop Corp 6.6 8.2 8.6
Perkins Family Rests -Lp 4.3 6.2 6.4
Ryan's Family Stk Houses Inc 5.7 6.9 7.2
Range: Low 4.3 6.2 6.1
High 9.1 23.1 11.9
Median: 6.5 7.8 7.2
Mean: 6.6 10.1 7.7
</TABLE>
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Houlihan Lokey Howard & Zukin
<PAGE> 28
Summit Family Restaurants Inc.
- -------------------------------------------------------------------------------
PRICE TO NET BOOK VALUE OF
COMPARATIVE PUBLIC COMPANIES
<TABLE>
<CAPTION>
LATEST
BOOK
MEAN PRICE TO NET BOOK VALUE VALUE
- ---------------------------- ------
<S> <C>
Bob Evans Farms 1.6
Cracker Barrel Old Ctry Stor 3.0
Flagstar Cos Inc -0.1
Ground Round Restaurant 0.7
Ihop Corp 2.7
Perkins Family Rests -Lp 3.6
Ryan's Family Stk Houses Inc 1.5
Range: Low 0.7
High 3.6
Median: 2.1
Mean: 2.2
</TABLE>
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Houlihan Lokey Howard & Zukin
<PAGE> 29
SUMMIT FAMILY RESTAURANTS INC.
- -------------------------------------------------------------------------------
PUBLIC COMPANY COMPARATIVE FINANCIAL ANALYSIS
<TABLE>
<CAPTION>
PUBLIC COMPANIES
------------------------------------------
PICCADILLY HOMETOWN
STATISTICS & RATIOS CAFETERIAS BUFFETS BUFFET LUBYS
- ------------------- ------------------------------------------
Updated Through Mar-96 Mar-96 Mar-96 Feb-96
Fiscal Year Ended Jun-95 Dec-95 Dec-95 Aug-95
<S> <C> <C> <C> <C>
SIZE ($ MILLIONS)
- -----------------
Revenues $298.6 $523.8 $175.5 $434.2
Total Assets $160.0 $255.9 $145.9 $313.7
Net Worth (Common, Tangible) $ 80.0 $166.6 $ 72.2 $207.5
Earnings Before Interest & Taxes $ 14.6 $ 41.4 $ 13.0 $ 62.4
Earnings Before Depr, Interest, Tax & Amort $ 27.7 $ 66.5 $ 23.0 $ 79.4
Adjusted Net Income $ 6.7 $ 25.6 $ 6.9 $ 37.6
Cash Flow $ 19.8 $ 50.8 $ 17.0 $ 54.6
Total Interest-Bearing Debt $ 39.0 $ 14.0 $ 52.7 $ 53.0
Market Value Of Equity $106.8 $389.4 $160.7 $586.6
Total Invested Capital (No Control Premium) $145.8 $403.4 $213.3 $639.6
LIQUIDITY RATIOS
- ----------------
Quick Ratio 0.1 0.5 1.5 0.2
Current Ratio 0.4 0.5 1.6 0.3
Working Capital Turnover -13.4 -18.7 13.3 -18.4
FINANCIAL LEVERAGE RATIOS
- -------------------------
Total Liabilities To Net Worth 1.0 0.5 1.0 0.5
Total Interest Bearing Debt To Net Worth 0.5 0.1 0.7 0.3
Interest Coverage 7.4 665.5 17.9 31.5
Interest Expense To Total Interest-Bearing Debt 8.6% 0.8% 4.1% 4.9%
Total Interest-Bearing Debt To FMV Of Net Worth 0.4 0.0 0.3 0.1
ACTIVITY RATIOS
- ---------------
Inventory Turnover 26.5 160.5 148.1 63.8
Asset Turnover 1.8 2.3 1.5 1.4
Average A/R Collection Period (In Days) 0.7 2.9 6.5 0.3
</TABLE>
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HOULIHAN LOKEY HOWARD & ZUKIN
<PAGE> 30
Summit Family Restaurants Inc.
- -------------------------------------------------------------------------------
PUBLIC COMPANY COMPARATIVE FINANCIAL ANALYSIS
<TABLE>
<CAPTION>
PUBLIC COMPANIES
------------------------------------------
PICCADILLY HOMETOWN
STATISTICS & RATIOS CAFETERIAS BUFFETS BUFFET LUBYS
- ------------------- ------------------------------------------
Updated Through Mar-96 Mar-96 Mar-96 Feb-96
Fiscal Year Ended Jun-95 Dec-95 Dec-95 Aug-95
<S> <C> <C> <C> <C>
PROFITABILITY RATIOS
- --------------------
Gross Profit Margin
Latest 12 Months 9.4% 13.0% 14.0% 48.0%
Fiscal Year End 9.3% 13.7% 14.2% 48.1%
Five-Year Average 9.6% 15.8% 31.3% 47.7%
Adjusted Net Income To:
Sales
Latest 12 Months 2.2% 4.9% 3.9% 8.7%
Fiscal Year End 1.9% 5.3% 4.3% 8.8%
Five-Year Average 2.0% 5.6% 3.3% 9.5%
Average Net Worth
Latest 12 Months 8.5% 16.9% 10.0% 19.0%
Fiscal Year End 7.0% 17.7% 9.5% 18.2%
Five-Year Average 7.7% 18.2% 5.1% 16.5%
EBIT To:
Sales
Latest 12 Months 4.9% 7.9% 7.4% 14.4%
Fiscal Year End 4.3% 8.5% 7.8% 14.5%
Five-Year Average 5.0% 9.3% 5.6% 15.0%
Average Total Assets
Latest 12 Months 8.9% 17.8% 11.3% 20.6%
Fiscal Year End 7.7% 18.7% 10.4% 20.2%
Five-Year Average 8.8% 19.4% 5.3% 19.3%
EBDIT To Sales
Latest 12 Months 9.3% 12.7% 13.1% 18.3%
Fiscal Year End 8.8% 13.4% 14.4% 18.4%
Five-Year Average 8.6% 14.0% 10.5% 19.1%
Return On Average Invested Capital
Latest 12 Months 7.3% 15.3% 8.0% 15.7%
Fiscal Year End 6.4% 16.6% 7.6% 15.9%
Five-Year Average 7.0% 17.0% 5.3% 15.5%
Adjusted Tax Rate
Latest 12 Months 38.4% 38.0% 38.9% 37.2%
Fiscal Year End 39.2% 38.0% 38.2% 37.2%
Five-Year Average 44.4% 39.1% 35.4% 36.3%
</TABLE>
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Houlihan Lokey Howard & Zukin
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Summit Family Restaurants Inc.
- -------------------------------------------------------------------------------
PUBLIC COMPANY COMPARATIVE FINANCIAL ANALYSIS
<TABLE>
<CAPTION>
PUBLIC COMPANIES
------------------------------------------
PICCADILLY HOMETOWN
STATISTICS & RATIOS CAFETERIAS BUFFETS BUFFET LUBYS
- ------------------- ------------------------------------------
Updated Through Mar-96 Mar-96 Mar-96 Feb-96
Fiscal Year Ended Jun-95 Dec-95 Dec-95 Aug-95
<S> <C> <C> <C> <C>
GROWTH STATISTICS
Annual Revenue Growth 5.7% 19.2% 80.5% 7.3%
Four-Year Compound Annual Revenue Growth -1.3% 27.0% NMF 6.3%
Annual EBIT Growth 16.4% 9.3% 91.1% 0.7%
Four-Year Compound Annual EBIT Growth -9.3% 23.8% NMF 5.4%
Annual EBDIT Growth 9.6% 12.5% 80.3% 1.7%
Four-Year Compound Annual EBDIT Growth -6.5% 26.1% NMF 5.6%
Annual Net Income Growth 19.6% 9.9% 60.5% -0.6%
Four-Year Compound Annual Net Income Growth -11.5% 24.7% NMF 3.4%
DEPRECIATION & CAPITAL SPENDING MEASURES
Depreciation To:
Adjusted Net Income
Latest 12 Months 196.4% 98.5% 145.0% 45.1%
Fiscal Year End 241.8% 93.9% 152.9% 44.4%
Five-Year Average 218.0% 83.9% 185.8% 42.8%
EBIT
Latest 12 Months 89.8% 60.9% 77.1% 27.2%
Fiscal Year End 104.5% 58.1% 84.3% 27.1%
Five-Year Average 89.7% 51.0% 109.6% 27.0%
Capital Expenditures
Latest 12 Months 161.4% 38.4% 25.2% 40.3%
Fiscal Year End 47.8% 38.4% 25.2% 44.1%
Five-Year Average 67.3% 29.3% 16.2% 49.3%
Capital Expenditures To Sales
Latest 12 Months 2.7% 12.5% 22.7% 9.7%
Fiscal Year End 9.4% 12.9% 26.1% 8.9%
Five-Year Average 6.6% 16.2% 37.9% 8.2%
</TABLE>
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Summit Family Restaurants Inc.
- -------------------------------------------------------------------------------
PRICE TO NET BOOK VALUE OF
COMPARATIVE PUBLIC COMPANIES
<TABLE>
<CAPTION>
LATEST
BOOK
MEAN PRICE TO NET BOOK VALUE VALUE
- ---------------------------- ------
<S> <C>
Picadilly Cafeterias Inc 1.3
Buffets Inc 2.3
HomeTown Buffet Inc 2.2
Lubys Inc 2.8
Range: Low 1.3
High 2.8
Median: 2.3
Mean: 2.2
</TABLE>
A-10
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Houlihan Lokey Howard & Zukin
<PAGE> 33
Summit Family Restaurants Inc.
- -------------------------------------------------------------------------------
TOTAL INVESTED CAPITAL / EBDIT RATIOS OF
COMPARATIVE PUBLIC COMPANIES
<TABLE>
<CAPTION>
NEXT LATEST FISCAL
FISCAL AVAILABLE YEAR
TIC TO EBDIT YEAR 12 MONTHS END
- ------------ ------ --------- ------
<S> <C> <C> <C>
Picadilly Cafeterias Inc 3.4 5.3 5.8
Buffets Inc 4.8 6.1 5.9
HomeTown Buffet Inc 7.5 9.3 9.7
Lubys Inc 6.9 8.1 8.3
Range: Low 3.4 5.3 5.8
High 7.5 9.3 9.7
Median: 5.9 7.1 7.1
Mean: 5.7 7.2 7.4
</TABLE>
A-11
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Summit Family Restaurants Inc.
- -------------------------------------------------------------------------------
TOTAL INVESTED CAPITAL / REVENUE RATIOS OF
Comparative Public Companies
<TABLE>
<CAPTION>
LATEST FISCAL
AVAILABLE YEAR
TIC TO REVENUE 12 MONTHS END
- -------------- --------- ------
<S> <C> <C>
Picadilly Cafeterias Inc 0.49 0.51
Buffets Inc 0.77 0.79
HomeTown Buffet Inc 1.22 1.40
Lubys Inc 1.47 1.53
Range: Low 0.49 0.51
High 1.47 1.53
Median: 0.99 1.10
Mean: 0.99 1.06
</TABLE>
A-12
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Houlihan Lokey Howard & Zukin
<PAGE> 1
EXHIBIT 99.16
[SUMMIT LOGO] 440 LAWNDALE DRIVE
SALT LAKE CITY, UTAH 84115-2917
801-463-5500
NEWS RELEASE
FOR IMMEDIATE RELEASE: Monday, July 1, 1996
CONTACT: David E. Pertl
Senior Vice President, CFO
Summit Family Restaurants Inc.
(801) 463-5500
SUMMIT FAMILY RESTAURANTS RESPONDS TO PURPORTED OFFER OF STELLA BELLA
SALT LAKE CITY, UTAH -- Summit Family Restaurants Inc. (NASDAQ: SMFR) announced
today that its Board of Directors has reviewed a press release issued by Stella
Bella Corporation on June 26, 1996 which referred to an offer to exchange 5.7
million shares of the Common Stock of Stella Bella for Summit's JB's Restaurant
assets. Based upon quotations of the market prices of Stella Bella Common Stock
and other information available Stella Bella's purported offer has a value to
Summit of no more than $3.1 million. The Board of Directors determined that the
value represented by such an offer is not financially superior to the
consideration provided under the Company's current agreement with CKE
Restaurants, Inc. and that, under its agreement with CKE, Summit is precluded
from any further consideration of the offer.
As previously reported, the Company has scheduled a Special Meeting of
Stockholders to vote upon the proposed merger with CKE Restaurants, Inc. The
Special Meeting will be held at 10:00 a.m. on Friday, July 12, 1996, in Salt
Lake City, Utah. Stockholders of record as of the close of business on May 20,
1996 are entitled to receive notice of, and to vote at, the Special Meeting.
Summit Family Restaurants Inc. has restaurant operations in nine western states
including 77 Company-operated and 24 franchised JB's Restaurants, 6 Galaxy Diner
restaurants and 16 Home Town Buffet restaurants.
# # #
