<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
IL FORNAIO (AMERICA) CORPORATION
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
Common stock, $0.001 par value per share
2) Aggregate number of securities to which transaction applies:
7,404,487
1.
<PAGE> 2
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
The filing fee of $18,469 was calculated pursuant to Exchange Act
Rule 0-11(c)(1) by (a) multiplying 5,827,571 shares of common
stock of the Registrant by $14.00 per share, (b) adding thereto
$10,758,780, which is the aggregate difference between $14.00 and
the exercise prices for options to acquire 1,576,916 shares of
common stock of the Registrant and (c) multiplying that sum by
1/50th of 1%.
4) Proposed maximum aggregate value of transaction:
$92,344,774
5) Total fee paid:
$18,469
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------
3) Filing Party:
------------------------------------------------------------------
4) Date Filed:
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2.
<PAGE> 3
IL FORNAIO (AMERICA) CORPORATION
770 TAMALPAIS DRIVE, SUITE 400
CORTE MADERA, CALIFORNIA 94925
, 2001
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders of Il
Fornaio (America) Corporation ("Il Fornaio") to be held on , 2001,
at 9:00 a.m. local time at Il Fornaio's executive offices located at 770
Tamalpais Drive, Suite 400, Corte Madera, California 94925.
At the special meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger, dated as of
November 15, 2000, as amended as of January 9, 2001, between Il Fornaio and
Manhattan Acquisition Corp. ("Newco"), referred to as the merger agreement, and
the merger contemplated by the merger agreement. Under the merger agreement,
Newco, a wholly owned subsidiary of Bruckmann, Rosser, Sherrill & Co. II, L.P.
("BRS"), will be merged with and into Il Fornaio, with Il Fornaio as the
surviving corporation. Upon completion of the merger, each issued and
outstanding share of Il Fornaio common stock will be converted into the right to
receive $14.00 in cash, without interest, except that (1) 446,963 shares of Il
Fornaio common stock held by certain Il Fornaio directors and executive
officers, as well as the Italian founder of the Il Fornaio brand (the
"continuing stockholders") will continue as, or be converted into, equity
interests in Il Fornaio as the surviving corporation; (2) treasury shares and
shares of Il Fornaio common stock held by Newco immediately prior to the
effective time will be canceled without any payment; and (3) shares held by
stockholders who properly exercise appraisal rights will be subject to appraisal
in accordance with Delaware law. Immediately prior to the completion of the
merger, each outstanding option to purchase shares of Il Fornaio common stock
will become fully vested and, upon completion of the merger, will be canceled,
and each option holder will be entitled to receive a cash payment equal to the
difference between $14.00 and the exercise price of the option, multiplied by
the number of shares subject to the option. Options to acquire shares of Il
Fornaio common stock with an aggregate economic value (the difference between
$14.00 and the applicable exercise price, multiplied by the number of shares
subject to the option) of $4.2 million held by continuing stockholders will,
however, be canceled in exchange for substitute, fully vested options to acquire
preferred stock of the surviving corporation.
Following completion of the merger, Il Fornaio will continue its operations
as a privately held company. Stockholders of Il Fornaio, other than the
continuing stockholders, will no longer have an equity interest in Il Fornaio
and will not participate in any potential future earnings and growth of Il
Fornaio. BRS, the continuing stockholders and BancBoston Capital, Inc., which
has committed to provide financing for the transaction subject to certain
conditions, are expected to own 58%, 27% and 10%, respectively, of Il Fornaio's
post-merger common stock and 61%, 29% and 10%, respectively, of Il Fornaio's
post-merger preferred stock, on a fully diluted basis (including options,
warrants and shares expected to be issued as employee incentives). In addition,
it is expected that Il Fornaio management will, in general, continue as
management of Il Fornaio after the merger.
The board of directors of Il Fornaio formed a special committee, composed
of independent directors who are not officers or employees of Il Fornaio and who
have no financial interest in the proposed merger different from Il Fornaio
stockholders generally, in order to eliminate any conflict of interest in
evaluating, negotiating and recommending the merger proposal, including the
terms of the merger agreement with Newco.
The board of directors, acting on the unanimous recommendation of the
special committee, has unanimously approved the merger agreement. The entire
board of directors and the special committee believe that the terms of the
merger agreement and the proposed merger are fair to, and in the best interests
of, Il Fornaio stockholders other than the continuing stockholders. Therefore,
THE BOARD OF DIRECTORS, BASED ON THE RECOMMENDATION OF THE SPECIAL COMMITTEE,
<PAGE> 4
RECOMMENDS THAT YOU VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
AND THE MERGER. In reaching their decision, the board of directors and the
special committee considered, among other things, the written opinion of
Evercore Partners, the special committee's financial advisor, that, based upon
and subject to the considerations and limitations set forth in the opinion, as
of November 14, 2000, the $14.00 per share cash consideration to be received by
Il Fornaio stockholders in the proposed merger was fair, from a financial
viewpoint, to Il Fornaio stockholders other than the continuing stockholders.
The continuing stockholders, who hold approximately 18% of the outstanding
shares of Il Fornaio common stock (26% including shares subject to options
exercisable within 60 days of December 31, 2000), have agreed to vote in favor
of the merger agreement and the merger.
The enclosed proxy statement provides information about Il Fornaio, BRS,
Newco, the merger agreement, the proposed merger and the special meeting. In
addition, you may obtain additional information about Il Fornaio from documents
filed with the Securities and Exchange Commission. Please read the entire proxy
statement carefully, including the appendices. IN PARTICULAR, BEFORE VOTING AT
THE SPECIAL MEETING, YOU SHOULD CAREFULLY CONSIDER THE DISCUSSION IN THE SECTION
ENTITLED "SPECIAL FACTORS" OF THE PROXY STATEMENT.
Completion of the merger is subject to a number of conditions, including
obtaining the necessary financing and other required consents and approvals.
Therefore, even if the Il Fornaio stockholders approve and adopt the merger
agreement and the merger, there can be no assurance that the merger will be
completed.
YOUR VOTE IS VERY IMPORTANT. THE MERGER CANNOT BE COMPLETED UNLESS THE
HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF IL FORNAIO COMMON STOCK
ENTITLED TO VOTE ON THE PROPOSAL APPROVE AND ADOPT THE MERGER AGREEMENT AND THE
MERGER. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN AND RETURN THE ENCLOSED PROXY CARD. IF YOU COMPLETE, SIGN AND RETURN YOUR
PROXY CARD WITHOUT INDICATING HOW YOU WISH TO VOTE, YOUR PROXY WILL BE COUNTED
AS A VOTE IN FAVOR OF APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
MERGER. IF YOU FAIL TO RETURN YOUR PROXY CARD OR FAIL TO VOTE AT THE SPECIAL
MEETING, THE EFFECT WILL BE THE SAME AS A VOTE AGAINST APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT AND THE MERGER. RETURNING THE PROXY CARD DOES NOT DEPRIVE
YOU OF YOUR RIGHT TO ATTEND THE SPECIAL MEETING AND VOTE YOUR SHARES IN PERSON.
Sincerely,
Michael J. Hislop
President and Chief Executive Officer
Corte Madera, California
, 2001
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THIS TRANSACTION, PASSED UPON THE MERITS
OR FAIRNESS OF THIS TRANSACTION OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This proxy statement is dated , 2001 and is first being mailed
to stockholders of Il Fornaio on or about , 2001.
2
<PAGE> 5
IL FORNAIO (AMERICA) CORPORATION
770 TAMALPAIS DRIVE, SUITE 400
CORTE MADERA, CALIFORNIA 94925
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 2001
------------------------
Notice is hereby given that a special meeting of stockholders of Il Fornaio
(America) Corporation, a Delaware corporation ("Il Fornaio"), will be held on
, 2001 at 9:00 a.m. local time at Il Fornaio's executive offices
located at 770 Tamalpais Drive, Suite 400, Corte Madera, California 94925, for
the following purpose:
To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of November 15, 2000, as amended as
of January 9, 2001, between Il Fornaio (America) Corporation and Manhattan
Acquisition Corp. ("Newco"), referred to as the merger agreement, and the
merger contemplated by the merger agreement. Under the merger agreement,
Newco, a wholly owned subsidiary of Bruckmann, Rosser, Sherrill & Co. II,
L.P., will be merged with and into Il Fornaio, and each issued and
outstanding share of Il Fornaio common stock will be converted into the
right to receive $14.00 in cash, without interest, except that (a) 446,963
shares of Il Fornaio common stock held by certain Il Fornaio directors and
executive officers, as well as the Italian founder of the Il Fornaio brand
will continue as, or be converted into, equity interests in Il Fornaio as
the surviving corporation; (b) treasury shares and shares of Il Fornaio
common stock held by Newco immediately prior to the effective time will be
canceled without any payment; and (c) shares held by stockholders who
properly exercise appraisal rights will be subject to appraisal in
accordance with Delaware law.
Only holders of record of Il Fornaio common stock at the close of business
on , 2001, the record date, are entitled to notice of, and to vote
at, the special meeting or any adjournments or postponements thereof.
The board of directors, acting on the unanimous recommendation of a special
committee of independent directors, has unanimously approved the terms of the
merger agreement and the proposed merger. Therefore, THE BOARD OF DIRECTORS,
BASED ON THE RECOMMENDATION OF THE SPECIAL COMMITTEE, RECOMMENDS THAT YOU VOTE
FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE MERGER.
Stockholders of Il Fornaio who do not vote in favor of approval and
adoption of the merger agreement and the merger will have the right to seek
appraisal of the fair value of their shares if the merger is completed, but only
if they submit a written demand for an appraisal before the vote is taken on the
merger agreement and the merger and they comply with Delaware law as explained
in the accompanying proxy statement.
YOUR VOTE IS VERY IMPORTANT. THE MERGER CANNOT BE COMPLETED UNLESS THE
HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF IL FORNAIO COMMON STOCK
ENTITLED TO VOTE ON THE PROPOSAL APPROVE AND ADOPT THE MERGER AGREEMENT AND THE
MERGER. EVEN IF YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD TO ENSURE THAT YOUR
SHARES WILL BE REPRESENTED AT THE SPECIAL MEETING. A RETURN ENVELOPE (WHICH IS
POSTAGE PREPAID IF MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. IF
YOU DO ATTEND THE SPECIAL MEETING AND WISH TO VOTE IN PERSON, YOU MAY WITHDRAW
YOUR PROXY AND VOTE IN PERSON. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE
HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND
<PAGE> 6
YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD HOLDER A PROXY
ISSUED IN YOUR NAME.
The merger is described in the accompanying proxy statement, which you are
urged to read carefully. A copy of the merger agreement is attached as Appendix
A to the accompanying proxy statement.
By Order of the Board of Directors,
Peter P. Hausback
Secretary
Corte Madera, California
, 2001
2
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY TERM SHEET.......................................... 1
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 3
SUMMARY..................................................... 6
The Participants.......................................... 6
The Merger................................................ 7
Recommendation of the Board of Directors; Fairness of the
Merger................................................. 7
Opinion of Financial Advisor.............................. 7
Interests of Il Fornaio Directors and Officers in the
Merger................................................. 7
Merger Financing.......................................... 8
The Special Meeting....................................... 8
Appraisal Rights.......................................... 8
The Merger Agreement...................................... 9
Conditions to Completing the Merger....................... 9
Limitation on Considering Other Acquisition Proposals..... 10
Termination............................................... 11
Termination Fee and Expense Reimbursement................. 11
Effects of the Merger..................................... 12
Federal Regulatory Matters................................ 12
Material U.S. Federal Income Tax Consequences............. 12
Accounting Treatment of the Merger........................ 13
Litigation Challenging the Merger......................... 13
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
INFORMATION............................................... 14
IL FORNAIO SELECTED HISTORICAL FINANCIAL DATA............... 15
MARKETS AND MARKET PRICE.................................... 17
THE SPECIAL MEETING......................................... 18
General................................................... 18
Record Date and Voting Information........................ 18
Proxies; Revocation....................................... 19
Expenses of Proxy Solicitation............................ 19
Adjournments.............................................. 19
THE PARTICIPANTS............................................ 20
Il Fornaio (America) Corporation.......................... 20
Bruckmann, Rosser, Sherrill & Co. II, L.P................. 20
Manhattan Acquisition Corp. .............................. 20
Continuing Stockholders................................... 20
SPECIAL FACTORS............................................. 23
Background of the Merger.................................. 23
Recommendation of the Board of Directors; Fairness of the
Merger................................................. 31
Forward-Looking Information............................... 35
Opinion of Financial Advisor to the Special Committee..... 37
Purpose and Structure of the Merger....................... 43
Effects of the Merger..................................... 43
Risk That the Merger Will Not Be Completed................ 44
Interests of Il Fornaio Directors and Officers in the
Merger................................................. 45
Merger Financing.......................................... 50
Estimated Fees and Expenses of the Merger................. 53
Accounting Treatment of the Merger........................ 53
Federal Regulatory Matters................................ 53
Material U.S. Federal Income Tax Consequences............. 54
Litigation Challenging the Merger......................... 55
</TABLE>
i
<PAGE> 8
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Appraisal Rights.......................................... 55
THE MERGER AGREEMENT........................................ 59
The Merger................................................ 59
Effective Time of the Merger.............................. 59
Certificate of Incorporation, Bylaws and Directors and
Officers of Il Fornaio as the Surviving Corporation.... 59
Conversion of Common Stock................................ 59
Payment for Shares........................................ 59
Transfer of Shares........................................ 60
Treatment of Options...................................... 60
Representations and Warranties............................ 60
Conduct of Business Pending the Merger.................... 62
Obtaining Financing....................................... 62
Limitation on Considering Other Acquisition Proposals..... 63
Indemnification and Insurance............................. 64
Conditions to Completing the Merger....................... 65
Termination............................................... 66
Termination Fee and Expense Reimbursement................. 67
COMMON STOCK PURCHASE INFORMATION........................... 69
Purchases by Il Fornaio................................... 69
Purchases by Directors and Executive Officers of Il
Fornaio................................................ 69
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 70
DIRECTORS AND EXECUTIVE OFFICERS OF IL FORNAIO.............. 72
INDEPENDENT AUDITORS........................................ 73
FUTURE STOCKHOLDER PROPOSALS................................ 73
WHERE STOCKHOLDERS CAN FIND MORE INFORMATION................ 73
</TABLE>
-------------------------
<TABLE>
<S> <C>
Appendix A Agreement and Plan of Merger between Il Fornaio (America)
Corporation and Manhattan Acquisition Corp., dated as of
November 15, 2000, as amended as of January 9, 2001.
Appendix B Fairness Opinion of Evercore Partners, dated November 14,
2000.
Appendix C Section 262 of the Delaware General Corporation Law.
</TABLE>
Il Fornaio(R) and the Il Fornaio logo are registered marks of the Company.
ii
<PAGE> 9
SUMMARY TERM SHEET
This Summary Term Sheet highlights selected information contained in this
proxy statement and may not contain all of the information that is important to
you. You are urged to read this entire proxy statement carefully, including the
appendices. In this proxy statement, the terms "Il Fornaio" and "the Company"
refer to Il Fornaio (America) Corporation.
- Stockholder vote -- You are being asked to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger, dated as
of November 15, 2000, as amended as of January 9, 2001, referred to as
the merger agreement, and the merger contemplated by the merger
agreement. Under the merger agreement, Newco will be merged into Il
Fornaio, with Il Fornaio as the surviving corporation. The merger
agreement and the merger must be approved and adopted by the affirmative
vote of a majority of the outstanding shares of Il Fornaio common stock.
See "The Special Meeting" beginning on page 18.
- Payment -- In the merger, each share of Il Fornaio common stock will be
converted into the right to receive $14.00 in cash, without interest,
except for 446,963 shares held by continuing stockholders that will
continue as, or be converted into, equity interests in Il Fornaio as the
surviving corporation. Each outstanding option to purchase shares of Il
Fornaio common stock will become fully vested and, upon completion of the
merger, will be canceled, and each option holder will be entitled to
receive a cash payment equal to the difference between $14.00 and the
exercise price of the option, multiplied by the number of shares subject
to the option. Options to acquire shares of Il Fornaio common stock with
an aggregate economic value (the difference between $14.00 and the
applicable exercise price, multiplied by the number of shares subject to
the option) of $4.2 million held by continuing stockholders will,
however, be canceled in exchange for substitute, fully vested options to
acquire preferred stock of the surviving corporation. You will not own
any shares of Il Fornaio common stock or any other interest in Il Fornaio
after completion of the merger. See "The Merger Agreement" beginning on
page 59.
- Special committee -- The special committee is the committee of the Il
Fornaio board of directors formed to eliminate any conflict of interest
in evaluating, negotiating and recommending the merger proposal,
including the terms of the merger agreement and the proposed merger with
Newco. The special committee consists solely of directors who are not
officers or employees of Il Fornaio and who have no financial interest in
the proposed merger different from Il Fornaio stockholders generally. The
members of the special committee are George B. James and Lawrence F.
Levy.
- Newco -- Newco is Manhattan Acquisition Corp., a newly formed Delaware
corporation and a wholly owned subsidiary of BRS. See "The Participants"
beginning on page 20.
- BRS -- Bruckmann, Rosser, Sherrill & Co. II, L.P. is a Delaware limited
partnership principally engaged in the business of investing in
companies. See "The Participants" beginning on page 20.
- Continuing Stockholders -- Michael J. Hislop and Laurence B. Mindel, each
a director and executive officer of Il Fornaio, two other members of Il
Fornaio management, three other members of the Il Fornaio board of
directors and Carlo Veggetti, the Italian creator of the Il Fornaio
brand, have agreed to retain or convert shares of Il Fornaio common
stock, cancel options to purchase shares of Il Fornaio common stock
and/or pay cash to acquire approximately 27% of the common stock and 29%
of the preferred stock of Il Fornaio as the surviving corporation, which
percentages are calculated on a fully diluted basis that includes
options, warrants and shares expected to be issued as employee
incentives. In addition, it is expected that Il Fornaio management will,
in general, continue as management of Il Fornaio as the surviving
corporation. The opportunity to retain an equity interest in Il Fornaio
and to continue as management of Il Fornaio following completion of the
merger provide the continuing stockholders with interests in connection
with the merger that are different from, or in addition to, your
interests as an Il Fornaio stockholder. See "Special Factors -- Interests
of Il Fornaio Directors and Officers in the Merger" beginning on page 45.
1
<PAGE> 10
- Tax consequences -- Generally, the merger will be taxable for U.S.
federal income tax purposes for Il Fornaio stockholders other than the
continuing stockholders. Unless you are a continuing stockholder, you
will recognize taxable gain or loss in the amount of the difference
between $14.00 and your adjusted tax basis for each share of Il Fornaio
common stock that you own. See "Special Factors -- Material U.S. Federal
Income Tax Consequences" beginning on page 54.
- Conditions -- The merger agreement and the merger are subject to approval
by the holders of a majority of the outstanding shares of Il Fornaio
common stock, as well as other conditions, including obtaining the
necessary financing to complete the merger and obtaining required
consents and approvals. See "The Merger Agreement -- Conditions to
Completing the Merger" beginning on page 65.
- After the merger -- Upon completion of the merger, BRS, the continuing
stockholders and BancBoston Capital, Inc., referred to as BancBoston,
which has committed to provide financing for the transaction subject to
certain conditions, are expected to own 58%, 27% and 10% of Il Fornaio's
post-merger common stock and 61%, 29% and 10% of Il Fornaio's post-merger
preferred stock, on a fully diluted basis. See "Special
Factors -- Interests of Il Fornaio Directors and Officers in the Merger"
beginning on page 45.
2
<PAGE> 11
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT AM I BEING ASKED TO VOTE UPON? (see page 18)
A: You are being asked to consider and vote upon a proposal to approve and adopt
a merger agreement and the merger contemplated by the merger agreement. Under
the merger agreement, Newco will be merged with and into Il Fornaio, with Il
Fornaio as the surviving corporation. Newco is a newly formed Delaware
corporation that is wholly owned by BRS, a Delaware limited partnership. If
the merger agreement and the merger are approved and adopted and the merger
is completed, Il Fornaio will no longer be a publicly held corporation and
you will no longer own Il Fornaio common stock.
Q: WHAT WILL I RECEIVE IN THE MERGER? (see page 59)
A: Upon completion of the merger, each issued and outstanding share of Il
Fornaio common stock will be converted into the right to receive $14.00 in
cash, without interest, except that (1) 446,963 shares of Il Fornaio common
stock held by the continuing stockholders will continue as, or be converted
into, equity interests in Il Fornaio as the surviving corporation; (2)
treasury shares and shares of Il Fornaio common stock held by Newco
immediately prior to the effective time will be canceled without any payment;
and (3) shares held by stockholders who properly exercise appraisal rights
will be subject to appraisal in accordance with Delaware law. Each
outstanding option to purchase shares of Il Fornaio common stock will become
fully vested and, upon completion of the merger, will be canceled, and each
option holder will be entitled to receive a cash payment equal to the
difference between $14.00 and the exercise price of the option, multiplied by
the number of shares subject to the option. Options to acquire shares of Il
Fornaio common stock with an aggregate economic value of $4.2 million held by
continuing stockholders will, however, be canceled in exchange for equity
interests in the surviving corporation.
Q: WHY IS THE BOARD OF DIRECTORS RECOMMENDING THAT I VOTE IN FAVOR OF THE MERGER
AGREEMENT AND THE MERGER? (see page 31)
A: Based upon the unanimous recommendation of a special committee of the board
of directors, consisting solely of directors who are not officers or
employees of Il Fornaio and who have no interest in the proposed merger
different from Il Fornaio stockholders generally, the board of directors of
Il Fornaio has unanimously determined that the terms of the merger agreement
and the proposed merger are fair to, and in the best interests of, Il Fornaio
stockholders other than the continuing stockholders. The board of directors,
based on the unanimous recommendation of the special committee, unanimously
recommends that you vote for the approval and adoption of the merger
agreement and the merger.
Q: WHAT ARE THE CONSEQUENCES OF THE MERGER TO PRESENT MEMBERS OF MANAGEMENT AND
THE BOARD OF DIRECTORS? (see page 45)
A: It is expected that all members of our current management will continue as
management of Il Fornaio as the surviving corporation. Like all other Il
Fornaio stockholders, members of management and the board of directors will
be entitled to receive $14.00 per share in cash for each of their shares of
Il Fornaio common stock, other than the shares that the continuing
stockholders will continue as equity interests in Il Fornaio as the surviving
corporation. With respect to options, like all other Il Fornaio employees,
the continuing stockholders will receive an amount equal to the difference,
if any, between $14.00 per share and the per share exercise price for their
outstanding options, other than the options that will be canceled in exchange
for substitute, fully vested options to acquire preferred stock of the
surviving corporation. Upon completion of the merger, the continuing
stockholders are expected to own 27% of Il Fornaio's common stock and 29% of
Il Fornaio's preferred stock, on a fully diluted basis.
3
<PAGE> 12
Q. IS THE MERGER SUBJECT TO THE SATISFACTION OF CERTAIN CONDITIONS? (see page
65)
A: Yes. Before completion of the transactions contemplated by the merger
agreement, a number of closing conditions must be satisfied or waived. These
conditions include, among others, obtaining all financing necessary to
complete the transactions contemplated by the merger agreement and obtaining
necessary consents and approvals. If these conditions are not satisfied or
waived, the merger will not be completed even if the stockholders vote to
approve and adopt the merger agreement and the merger.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: The parties to the merger agreement are working toward completing the merger
as quickly as possible. If the merger agreement is approved and the other
conditions to the merger are satisfied or waived, the merger is expected to
be completed promptly after the special meeting.
Q: WHAT ARE THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO ME? (see
page 54)
A: The receipt of cash for shares of common stock in the merger will be a
taxable transaction for U.S. federal income tax purposes and may also be a
taxable transaction under applicable state, local, foreign or other tax laws.
Generally, you will recognize gain or loss for these purposes equal to the
difference between $14.00 per share and your tax basis for the shares of
common stock that you owned immediately before completion of the merger. For
U.S. federal income tax purposes, this gain or loss generally would be a
capital gain or loss if you held the shares of common stock as a capital
asset. Continuing stockholders should generally not recognize gain or loss,
for U.S. federal income tax purposes, in the transaction.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO
YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR
TAX ADVISOR FOR A FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER TO
YOU.
Q: WHEN AND WHERE IS THE SPECIAL MEETING?
A: The special meeting of Il Fornaio stockholders will be held at 9:00 a.m.
local time on , , 2001, at Il Fornaio's executive
offices, located at 770 Tamalpais Drive, Suite 400, Corte Madera, California
94925.
Q: WHO CAN VOTE ON THE MERGER AGREEMENT?
A: Holders of Il Fornaio common stock at the close of business on ,
2001, the record date for the special meeting, may vote in person or by proxy
on the merger agreement and the merger at the special meeting.
Q: WHAT VOTE IS REQUIRED TO APPROVE AND ADOPT THE MERGER AGREEMENT AND THE
MERGER?
A: The merger agreement and the merger must be approved and adopted by the
affirmative vote of at least a majority of the outstanding shares of Il
Fornaio common stock. The continuing stockholders, who hold approximately 18%
of the outstanding shares of Il Fornaio common stock (26% including shares
subject to options exercisable within 60 days of December 31, 2000), have
entered into a voting agreement with Newco agreeing to vote their shares for
the approval and adoption of the merger agreement and the merger.
Q: WHAT DO I NEED TO DO NOW?
A: You should read this proxy statement carefully, including its appendices, and
consider how the merger affects you. Then, mail your completed, dated and
signed proxy card in the enclosed return envelope as soon as possible so that
your shares can be voted at the special meeting of Il Fornaio stockholders.
4
<PAGE> 13
Q: WHAT HAPPENS IF I DO NOT RETURN A PROXY CARD?
A: The failure to return your proxy card will have the same effect as voting
against the merger agreement and the merger.
Q: MAY I VOTE IN PERSON?
A: Yes. You may attend the special meeting of Il Fornaio stockholders and vote
your shares in person whether or not you sign and return your proxy card. If
your shares are held of record by a broker, bank or other nominee and you
wish to vote at the meeting, you must obtain a proxy from the record holder.
Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You may change your vote at any time before your proxy card is voted at
the special meeting. You can do this in one of three ways. First, you can
send a written notice stating that you would like to revoke your proxy.
Second, you can complete and submit a new proxy card. Third, you can attend
the meeting and vote in person. Your attendance alone will not revoke your
proxy. If you have instructed a broker to vote your shares, you must follow
directions received from your broker to change those instructions.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will not be able to vote your shares without instructions from
you. You should instruct your broker to vote your shares, following the
procedures provided by your broker.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, you will receive written instructions for
exchanging your shares of Il Fornaio common stock for a cash payment of
$14.00 per share, without interest.
Q: WHAT RIGHTS DO I HAVE TO SEEK AN APPRAISAL OF MY SHARES? (see page 55)
A: If you wish, you may seek an appraisal of the fair value of your shares, but
only if you comply with all requirements of Delaware law as described on
pages 55 through 58 and in Appendix C of this proxy statement. Based on the
determination of the Delaware Court of Chancery, the appraised fair value of
your shares of Il Fornaio common stock, which will be paid to you if you seek
an appraisal, may be more than, less than or equal to the $14.00 per share to
be paid in the merger.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: The information provided above in question-and-answer format is for your
convenience only and is merely a summary of the information contained in this
proxy statement. You should carefully read this entire proxy statement,
including the attached appendices. If you would like additional copies,
without charge, of this proxy statement or if you have questions about the
merger, including the procedures for voting your shares, you should contact:
Il Fornaio (America) Corporation
Attn: Peter P. Hausback
770 Tamalpais Drive, Suite 400
Corte Madera, California 94925
Telephone: (415) 945-0500
5
<PAGE> 14
SUMMARY
This summary highlights selected information from this proxy statement and
may not contain all the information that is important to you. For a more
complete understanding of the merger, you should carefully read this entire
document and the documents that are referenced. In particular, you should read
the documents attached to this proxy statement, including the merger agreement
that is attached as Appendix A. In addition, important information about Il
Fornaio is incorporated by reference into this proxy statement. You may obtain
the information incorporated by reference into this proxy statement by following
the instructions in the section of this proxy statement entitled "Where
Stockholders Can Find More Information" on page 73. Page references are included
in parentheses at various points in this summary to direct you to a more
detailed description in this proxy statement of the topics presented.
THE PARTICIPANTS (see page 20)
Il Fornaio (America) Corporation
Il Fornaio (America) Corporation, referred to as Il Fornaio or the Company,
owns and operates 25 full-service Italian restaurants serving creatively
prepared, premium-quality Italian cuisine based on authentic regional recipes.
The Company's restaurants offer an extensive menu, featuring house-made and
imported pasta, poultry and game roasted over a wood-fired rotisserie, meat and
fresh fish from a charcoal grill, pizza from a wood-burning oven, soups, salads
and desserts. A number of Il Fornaio restaurants house a retail bakery offering
Il Fornaio's baked goods, prepared foods and a variety of Il Fornaio-brand
products. Il Fornaio was incorporated in California in June 1980 and was
reincorporated in Delaware in September 1997.
Bruckmann, Rosser, Sherrill & Co. II, L.P.
Bruckmann, Rosser, Sherrill & Co. II, L.P., referred to as BRS, is a
Delaware limited partnership principally engaged in the business of investing in
companies. BRS is an affiliate of Bruckmann, Rosser, Sherrill & Co., L.L.C., a
Delaware limited liability company and a management company based in New York
that focuses on investing the committed capital of BRS in growth companies. The
principals of BRS have completed a number of transactions in the restaurant and
food service industries. BRS was formed in Delaware in April 1999. All
information contained in this proxy statement regarding BRS, Bruckmann, Rosser,
Sherrill & Co., L.L.C. and Newco has been provided by BRS.
Manhattan Acquisition Corp.
Manhattan Acquisition Corp., referred to as Newco, is a Delaware
corporation that is wholly owned by BRS. Newco was formed by BRS solely for
purposes of completing the merger and has not participated in any activities to
date other than those incident to its formation and the transactions
contemplated by the merger agreement. Newco was incorporated in Delaware in
November 2000.
The Continuing Stockholders (see page 45)
The executive officers, certain members of the Il Fornaio board of
directors and Mr. Veggetti, referred to as the continuing stockholders, have
agreed to retain an equity interest in Il Fornaio as the surviving corporation.
Laurence B. Mindel and Michael J. Hislop, each a director and executive officer
of Il Fornaio, Dean A. Cortopassi, W. Scott Hedrick and F. Warren Hellman, each
a director of Il Fornaio, Michael Beatrice and Peter P. Hausback, each an
executive officer of Il Fornaio, and Mr. Veggetti are expected to hold in the
aggregate approximately 27% of the common stock and 29% of the preferred stock
of Il Fornaio as the surviving corporation, which percentages are calculated on
a fully diluted basis that includes options, warrants and shares expected to be
issued as employee incentives. The continuing stockholders may have interests
that are different from, or in addition to, your interests as an Il Fornaio
stockholder generally. See "Special Factors -- Interests of Il Fornaio Directors
and Officers in the Merger."
6
<PAGE> 15
THE MERGER (see page 59)
Under the merger agreement, Newco will merge with and into Il Fornaio, and
each issued and outstanding share of Il Fornaio common stock will be converted
into the right to receive $14.00 in cash, without interest, except that:
- 446,963 shares of Il Fornaio common stock held by the continuing
stockholders will continue as, or be converted into, equity interests in
Il Fornaio as the surviving corporation;
- treasury shares and shares of Il Fornaio common stock held by Newco
immediately prior to the effective time will be canceled without any
payment; and
- shares held by stockholders who properly exercise appraisal rights will
be subject to appraisal in accordance with Delaware law.
Immediately prior to the completion of the merger, each outstanding option
to purchase shares of Il Fornaio common stock will become fully vested and, upon
completion of the merger, will be canceled, and each option holder will be
entitled to receive a cash payment equal to the difference between $14.00 and
the exercise price of the option, multiplied by the number of shares subject to
the option. Options to acquire shares of Il Fornaio common stock with an
aggregate economic value of $4.2 million held by continuing stockholders will,
however, be canceled in exchange for substitute, fully vested options to acquire
preferred stock of the surviving corporation. The merger will become effective
upon the filing of a certificate of merger with the Secretary of State of the
State of Delaware. The parties anticipate that, if all conditions to the merger
have been satisfied or waived, the certificate of merger will be filed and the
merger will be completed promptly after the special meeting of Il Fornaio
stockholders. Upon completion of the merger, Il Fornaio will be the surviving
corporation and will become a majority-owned subsidiary of BRS.
RECOMMENDATION OF THE BOARD OF DIRECTORS; FAIRNESS OF THE MERGER (see page 31)
The board of directors, based on the recommendation of the special
committee, composed solely of directors who are not officers or employees of Il
Fornaio and who have no interest in the proposed merger different from Il
Fornaio stockholders generally, believes that the terms of the merger agreement
and the proposed merger are fair to, and in the best interests of, Il Fornaio
stockholders other than the continuing stockholders. The board of directors,
acting upon the unanimous recommendation of the special committee, has
unanimously approved the merger agreement. Therefore, the board of directors
unanimously recommends that you vote FOR the approval and adoption of the merger
agreement and the merger.
OPINION OF FINANCIAL ADVISOR (see page 37)
In deciding to approve the terms of the merger agreement and the merger,
one of the factors that the board of directors and the special committee
considered was the opinion of the special committee's financial advisor,
Evercore Partners, that, based upon and subject to the considerations and
limitations set forth in the opinion, as of November 14, 2000, the consideration
to be received by Il Fornaio's stockholders in the proposed merger was fair,
from a financial viewpoint, to Il Fornaio stockholders other than the continuing
stockholders. The complete Evercore opinion, including applicable limitations
and assumptions, describes the basis for the opinion and is attached as Appendix
B to this proxy statement. YOU ARE URGED TO READ THE ENTIRE OPINION LETTER
CAREFULLY.
INTERESTS OF IL FORNAIO DIRECTORS AND OFFICERS IN THE MERGER (see page 45)
When considering the recommendation of the board of directors that you vote
for approval and adoption of the merger agreement and the merger, you should be
aware that a number of Il Fornaio
7
<PAGE> 16
directors and officers have interests in the merger that are different from, or
in addition to, yours. These interests include the following:
- the continuing stockholders will retain equity interests in Il Fornaio as
the surviving corporation;
- all options for shares of Il Fornaio common stock held by the Company's
directors and officers, along with options held by other Il Fornaio
employees, will become fully vested immediately prior to the effective
time of the merger;
- it is expected that Il Fornaio management will continue as management of
Il Fornaio as the surviving corporation; and
- the merger agreement provides that indemnification and insurance
arrangements will be maintained for Il Fornaio directors and officers.
MERGER FINANCING (see page 50)
Il Fornaio and BRS estimate that the total amount of funds necessary to
consummate the merger and related transactions, and to pay related fees and
expenses, will be approximately $93.0 million. Newco expects this amount to be
funded through new credit facilities with a syndicate of banks, private
offerings of debt securities and equity financing. Equity financing is expected
to be provided by the continuing stockholders, BancBoston and BRS. BRS has
received commitments, subject to various conditions, from financial institutions
and some of their affiliates in an aggregate amount sufficient, taking into
account the amounts to be contributed as equity financing, to fund these
requirements. Receipt of third party financing is a condition to completion of
the merger.
THE SPECIAL MEETING (see page 18)
TIME, DATE AND PLACE. A special meeting of the stockholders of Il Fornaio
will be held on , 2001, at Il Fornaio's executive offices, located
at 770 Tamalpais Drive, Suite 400, Corte Madera, California 94925 at 9:00 a.m.
local time, to consider and vote upon the proposal to approve and adopt the
merger agreement and the merger.
RECORD DATE AND VOTING INFORMATION. You are entitled to vote at the special
meeting if you owned shares of Il Fornaio common stock at the close of business
on , 2001, which is the record date for the special meeting. You
will have one vote at the special meeting for each share of Il Fornaio common
stock you owned at the close of business on the record date. On the record date,
there were shares of Il Fornaio common stock entitled to be voted at
the special meeting.
REQUIRED VOTE. The approval and adoption of the merger agreement and the
merger requires the affirmative vote of the holders of a majority of the shares
of Il Fornaio common stock outstanding at the close of business on the record
date.
VOTING AGREEMENTS BY THE CONTINUING STOCKHOLDERS. The continuing
stockholders, who hold approximately 18% of the outstanding shares of Il Fornaio
common stock (26% including shares subject to options exercisable within 60 days
of December 31, 2000), have agreed to vote in favor of the merger agreement and
the merger.
APPRAISAL RIGHTS (see page 55)
Il Fornaio is a corporation organized under Delaware law. Under Delaware
law, if you do not vote in favor of the merger and instead follow the
appropriate procedures for demanding appraisal rights as described on pages 55
through 58 and in Appendix C, you will receive a cash payment for the "fair
value" of your shares of Il Fornaio common stock, as determined by the Delaware
Court of Chancery, instead of the $14.00 cash payment to be received by the Il
Fornaio stockholders in connection with the merger. The price determined by the
Delaware Court of Chancery may be more than, less than or equal to the $14.00
8
<PAGE> 17
in cash you would have received for each of your shares in the merger if you had
not exercised your appraisal rights. Generally, in order to exercise appraisal
rights, among other things:
- you must not vote for approval and adoption of the merger agreement and
the merger; and
- you must make written demand for appraisal in compliance with Delaware
law before the vote on the merger agreement and the merger.
Merely voting against the merger agreement and the merger will not preserve
your appraisal rights under Delaware law. Appendix C to this proxy statement
contains the Delaware statute relating to your appraisal rights. IF YOU WANT TO
EXERCISE YOUR APPRAISAL RIGHTS, PLEASE READ AND CAREFULLY FOLLOW THE PROCEDURES
DESCRIBED ON PAGES THROUGH AND IN APPENDIX C. FAILURE TO TAKE ALL OF THE
STEPS REQUIRED UNDER DELAWARE LAW MAY RESULT IN THE LOSS OF YOUR APPRAISAL
RIGHTS.
THE MERGER AGREEMENT (see page 59)
The merger agreement, including the conditions to the closing of the
merger, is described on pages 59 through 68 and is attached as Appendix A to
this proxy statement. You should carefully read the entire merger agreement as
it is the legal document that governs the merger.
CONDITIONS TO COMPLETING THE MERGER (see page 65)
CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The obligations of Il Fornaio
and Newco to complete the merger are subject to the satisfaction or waiver of
certain conditions, including, but not limited to, the following:
- Il Fornaio stockholders must have approved the merger agreement by the
required vote;
- there must be no law, order or injunction that prohibits consummation of
the merger; and
- the applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, referred to as the HSR Act must
have expired or terminated.
CONDITIONS TO THE OBLIGATION OF NEWCO. The obligation of Newco to complete
the merger is subject to the satisfaction or waiver of the following conditions:
- Il Fornaio's representations and warranties in the merger agreement must
have been true and correct generally as of the date of the original
merger agreement and must be true and correct as of the closing date,
except where the failure to be true and correct would not reasonably be
expected to have a material adverse effect on Il Fornaio;
- Il Fornaio must have complied in all material respects with its
agreements and obligations in the merger agreement;
- there must not have occurred any business interruption, damage,
destruction or other event that would reasonably be expected to have a
material adverse effect on Il Fornaio;
- there must be no action, proceeding or investigation pending or
threatened that relates to the merger to which a governmental entity is a
party or that would reasonably be expected to have a material adverse
effect on Il Fornaio;
- Il Fornaio must have obtained any necessary or required consents and
approvals from governmental entities or other third parties;
- Newco must have received the proceeds of the financing contemplated in
the financing commitments or financing on terms no less favorable to
Newco than the terms in the financing commitments;
9
<PAGE> 18
- immediately prior to the effective time, Il Fornaio must not be indebted
for borrowed money and must generally have available at least $4.4
million in cash and cash equivalents, as defined in the merger agreement;
- a settlement agreement and release relating to claims specified in the
merger agreement must continue to be in effect;
- neither Newco nor its lenders or representatives must have identified any
material environmental issues with respect to Il Fornaio; and
- the holders of no more than 10% of Il Fornaio's common stock may have
exercised appraisal rights.
CONDITIONS TO THE OBLIGATION OF IL FORNAIO. The obligation of Il Fornaio to
complete the merger is subject to the satisfaction or waiver of the following
conditions:
- Newco's representations and warranties in the merger agreement must have
been true and correct generally as of the date of the merger agreement
and must be true and correct as of the closing;
- Newco must have complied in all material respects with its agreements and
obligations in the merger agreement; and
- Newco or Il Fornaio as the surviving corporation must have received $40.0
million in equity financing (including Il Fornaio stock and options
exchanged by the continuing stockholders), and Newco or Il Fornaio as the
surviving corporation must have received financing on the terms set forth
in the financing commitments, on terms and conditions not materially less
advantageous to Newco as a whole or on other terms so long as the
incurrence of that debt by Newco will not render Il Fornaio as the
surviving corporation insolvent.
LIMITATION ON CONSIDERING OTHER ACQUISITION PROPOSALS (see page 63)
Il Fornaio has agreed not to solicit or enter into discussions with any
third party regarding an acquisition proposal while the merger is pending.
However, the board of directors, the special committee or the representatives of
Il Fornaio may furnish information to or enter into discussions with a third
party regarding an unsolicited written acquisition proposal if:
- the special committee determines that the proposal is, or is reasonably
likely to lead to, a superior proposal, as defined in the merger
agreement;
- the special committee determines that failure to do so would be
inconsistent with the fiduciary duties of the board of directors; and
- the third party enters into a confidentiality agreement with Il Fornaio.
In addition, neither the board of directors nor the special committee may
approve or recommend an acquisition proposal unless:
- it is a superior proposal;
- the special committee determines that failure to do so would be
inconsistent with the fiduciary duties of the board of directors;
- Il Fornaio has not solicited the proposal; and
- Il Fornaio pays a specified termination fee and expense reimbursement to
Newco simultaneously with taking this action.
10
<PAGE> 19
TERMINATION (see page 66)
Newco and Il Fornaio may agree by mutual written consent to terminate the
merger agreement at any time before the effective time. In addition, either
party may terminate the merger agreement if:
- the merger is not completed on or before May 31, 2001;
- a court or other governmental entity issues a final order prohibiting the
merger;
- the Il Fornaio stockholders do not approve and adopt the merger agreement
and the merger; or
- the other party breaches the merger agreement, which breach is not cured
after 10 days notice.
In addition, Newco may terminate the merger agreement if:
- the Il Fornaio board of directors solicits or recommends another
acquisition proposal or withdraws or amends its recommendation of the
merger agreement and the merger in a manner adverse to Newco;
- the financial advisor to the special committee withdraws or amends its
fairness opinion in a manner adverse to Newco; or
- Il Fornaio fails to include in this proxy statement its approval or
recommendation of the merger agreement and the merger, each of which is
referred to as a "Newco termination event."
Il Fornaio may terminate the merger agreement if its board of directors
approves an unsolicited superior proposal as set forth in the merger agreement.
TERMINATION FEE AND EXPENSE REIMBURSEMENT (see page 67)
The merger agreement provides that if the merger agreement is terminated,
all fees and expenses will be paid by the party incurring them, except as
described below.
Il Fornaio will reimburse Newco for its reasonable out-of-pocket fees and
expenses actually incurred in connection with the merger and the proposed
financing if:
- Il Fornaio terminates the merger agreement because its board of directors
has approved a superior proposal, as set forth in the merger agreement;
- Newco terminates the merger agreement following a Newco termination
event;
- either party terminates the merger agreement because approval of the
merger proposal by Il Fornaio stockholders is not obtained or the merger
is not completed on or before May 31, 2001, with certain exceptions; or
- either party terminates the merger agreement (other than under provisions
allowing termination because the merger is not completed on or before May
31, 2001) as a result of Il Fornaio's failure to obtain required lease
consents or Newco's failure to obtain necessary debt financing due to an
Il Fornaio material adverse change.
In addition to the expense reimbursement, Il Fornaio will pay a termination
fee of $2.7 million to Newco if:
- Il Fornaio terminates the merger agreement because its board of directors
has approved a superior proposal, as set forth in the merger agreement;
- Newco terminates the merger agreement because the Il Fornaio board of
directors solicits or recommends another acquisition proposal; or
11
<PAGE> 20
- Il Fornaio receives an acquisition proposal while the merger agreement is
in effect and consummates any acquisition proposal within 12 months
following termination of the merger agreement, provided that the
termination is attributable to:
- either party's failure to complete the merger on or before May 31,
2001, with certain exceptions;
- the failure of Il Fornaio stockholders to approve and adopt the merger
agreement and the merger;
- the withdrawal or amendment by the Il Fornaio board of directors of
its recommendation of the merger agreement and the merger in a manner
adverse to Newco;
- the withdrawal or amendment by the financial advisor to the special
committee of its fairness opinion in a manner adverse to Newco; or
- Il Fornaio's failure to include in this proxy statement its approval
or recommendation of the merger agreement and the merger.
EFFECTS OF THE MERGER (see page 43)
After the effective time of the merger, Il Fornaio stockholders, other than
the continuing stockholders, will cease to have ownership interests in Il
Fornaio or rights as Il Fornaio stockholders. As a result, if the merger is
completed, the current stockholders of Il Fornaio, other than the continuing
stockholders, will not participate in any future earnings or growth of Il
Fornaio. Upon completion of the merger, BRS, the continuing stockholders and
BancBoston are expected to own 58%, 27% and 10%, respectively, of Il Fornaio's
common stock and 61%, 29% and 10%, respectively, of Il Fornaio's preferred
stock, on a fully diluted basis. In addition, Il Fornaio will be a privately
held corporation and there will be no public market for its common stock. After
the merger, the common stock will cease to be quoted on the Nasdaq National
Market and price quotations with respect to sales of shares of Il Fornaio common
stock in the public market will no longer be available. In addition,
registration of the common stock under the Securities Exchange Act of 1934, as
amended, referred to as the Exchange Act, will be terminated.
FEDERAL REGULATORY MATTERS (see page 53)
The HSR Act and the rules and regulations promulgated thereunder require
that Il Fornaio and the ultimate parent entity of Newco file notification and
report forms with respect to the merger and related transactions with the
Antitrust Division of the U.S. Department of Justice and the U.S. Federal Trade
Commission. The parties thereafter are required to observe a waiting period
before completing the merger. In compliance with the HSR Act, the parties expect
to file the necessary forms with the Department of Justice and the Federal Trade
Commission in January 2001, and the waiting period will expire 30 days after
filing. The Department of Justice and the Federal Trade Commission, state
antitrust authorities or a private person or entity could seek to enjoin the
merger under the antitrust laws at any time before its completion or to compel
rescission or divestiture at any time subsequent to the merger.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES (see page 54)
The receipt of cash for shares of common stock in the merger will be a
taxable transaction for U.S. federal income tax purposes and may also be a
taxable transaction under applicable state, local, foreign or other tax laws.
Generally, you will recognize gain or loss for these purposes equal to the
difference between $14.00 per share and your tax basis for the shares of common
stock that you owned immediately before completion of the merger. Continuing
stockholders should generally not recognize gain or loss, for U.S. federal
income tax purposes, in the transaction. TAX MATTERS ARE VERY COMPLICATED AND
THE TAX CONSEQUENCES OF THE MERGER TO YOU WILL DEPEND ON THE FACTS OF YOUR OWN
SITUATION. YOU SHOULD CONSULT YOUR TAX ADVISOR FOR A FULL UNDERSTANDING OF THE
TAX CONSEQUENCES OF THE MERGER TO YOU.
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<PAGE> 21
ACCOUNTING TREATMENT OF THE MERGER (see page 53)
BRS expects that the merger will be accounted for as a recapitalization.
LITIGATION CHALLENGING THE MERGER (see page 55)
On or about November 16, 2000, four substantially identical civil actions
were commenced in the Court of Chancery of the State of Delaware in New Castle
County. The plaintiff in each action seeks to represent a putative class
consisting of the public stockholders of Il Fornaio. Named as defendants in each
of the complaints are Il Fornaio, members of the Il Fornaio board of directors
and BRS. The complaints allege, among other things, that the proposed merger is
unfair and that the Il Fornaio directors breached their fiduciary duties by
failing to disclose material non-public information related to the value of Il
Fornaio and by engaging in self-dealing. The complaints seek an injunction,
damages and other relief. The actions are at a preliminary stage. No response
has been filed, and no trial date has been set. The defendants believe that the
claims alleged in these actions are without merit and intend to contest them
vigorously.
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<PAGE> 22
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This proxy statement includes and incorporates by reference statements that
are not historical facts. These forward-looking statements are based on Il
Fornaio's current estimates and assumptions and, as such, involve uncertainty
and risk. Forward-looking statements include the information concerning Il
Fornaio's possible or assumed future results of operations and also include
those preceded or followed by the words "anticipates," "believes," "could,"
"estimates," "expects," "intends," "may," "should," "plans," "targets" and/or
similar expressions.
The forward-looking statements are not guarantees of future performance,
and actual results may differ materially from those contemplated by these
forward-looking statements. In addition to the factors discussed elsewhere in
this proxy statement, other factors that could cause actual results to differ
materially include changes in the cost of food and labor, the performance of any
restaurants, particularly new restaurants, potentially adverse weather
conditions, the impact of potential health and regulatory developments, the loss
of key personnel, competitive factors, potential liabilities associated with
long-term leases, changes in consumer preferences, Il Fornaio's ability to
execute its business strategy, fluctuations in inventory and general and
administrative expenses, and general economic conditions. In addition, Il
Fornaio's plans for new restaurant locations and timing of openings depend upon,
among other things, successful completion of lease negotiations, timely project
development and restaurant construction, obtaining appropriate regulatory
approvals, management of costs and recruitment of qualified operating personnel.
These and other factors are discussed in the documents that are incorporated by
reference into this proxy statement. Except to the extent required under the
federal securities laws, Il Fornaio does not intend to update or revise the
forward-looking statements to reflect circumstances arising after the date of
the preparation of the forward-looking statements.
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<PAGE> 23
IL FORNAIO SELECTED HISTORICAL FINANCIAL DATA
The Il Fornaio selected historical financial data presented below as of and
for the five fiscal years ended December 26, 1999 are derived from the audited
financial statements of Il Fornaio. Data as of and for the nine-month periods
ended September 26, 1999 and September 24, 2000 have been derived from unaudited
financial statements of Il Fornaio. Interim operating results are not
necessarily indicative of the results that may be achieved for the entire year.
The following selected historical financial data should be read in conjunction
with Il Fornaio's most recent Annual Report on Form 10-K and Quarterly Report on
Form 10-Q/A, which are incorporated by reference in this proxy statement.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------
DECEMBER 31, DECEMBER 29, DECEMBER 28,
1995 1996 1997
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue:
Restaurants....................... $43,647 $50,599 $65,525
Wholesale bakeries................ 5,181 6,016 6,284
Retail bakeries................... 5,312 4,137 311
------- ------- -------
Total revenues.................. 54,140 60,752 72,120
------- ------- -------
Cost and expenses:
Cost of sales..................... 12,772 14,792 16,993
Operating expenses................ 31,036 35,152 41,800
Depreciation and amortization..... 3,173 3,434 3,517
Preopening expenses............... 131 426 432
General and administrative........ 4,083 4,724 6,012
Provision for store closures...... 932 -- (470)
------- ------- -------
Total costs and expenses........ 52,127 58,528 68,284
------- ------- -------
Income from operations............. 2,013 2,224 3,836
Other income (expenses):
Interest income................... 157 167 400
Interest expense.................. (98) (40) (2)
------- ------- -------
Total other income (expenses),
net........................... 59 127 398
------- ------- -------
Income before income taxes and
change in accounting principle.... 2,072 2,351 4,234
Provision (benefit) for income
taxes............................. (2,432) 898 1,651
------- ------- -------
Income before change in accounting
principle......................... 4,504 1,453 2,583
Cumulative effect of change in
accounting principle (net of
taxes)............................ -- -- --
------- ------- -------
Net income......................... $ 4,504 $ 1,453 $ 2,583
======= ======= =======
BASIC EARNINGS PER SHARE:
Basic earning per share before
change in accounting
principle....................... $ 1.01 $ 0.32 $ 0.53
Cumulative effect of change in
accounting principle............ -- -- --
------- ------- -------
Basic earnings per share.......... $ 1.01 $ 0.32 $ 0.53
======= ======= =======
Basic weighted average shares
outstanding..................... 4,452 4,485 4,908
======= ======= =======
DILUTED EARNINGS PER SHARE:
Diluted earnings per share before
change in accounting
principle....................... $ 1.00 $ 0.32 $ 0.48
Cumulative effect of change in
accounting principle............ -- -- --
------- ------- -------
Diluted earnings per share........ $ 1.00 $ 0.32 $ 0.48
======= ======= =======
Diluted weighted average shares
outstanding..................... 4,499 4,570 5,433
======= ======= =======
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
--------------------------- -----------------------------
DECEMBER 27, DECEMBER 26, SEPTEMBER 26, SEPTEMBER 24,
1998 1999 1999 2000
------------ ------------ ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue:
Restaurants....................... $75,523 $ 92,266 $66,672 $82,119
Wholesale bakeries................ 7,615 8,167 5,985 7,481
Retail bakeries................... -- -- -- --
------- -------- ------- -------
Total revenues.................. 83,138 100,433 72,657 89,600
------- -------- ------- -------
Cost and expenses:
Cost of sales..................... 19,594 23,806 17,148 21,468
Operating expenses................ 47,589 58,011 41,899 52,250
Depreciation and amortization..... 4,258 5,271 3,817 4,665
Preopening expenses............... 534 1,077 499 519
General and administrative........ 6,299 7,728 5,866 6,477
Provision for store closures...... -- -- -- --
------- -------- ------- -------
Total costs and expenses........ 78,274 95,893 69,229 85,379
------- -------- ------- -------
Income from operations............. 4,864 4,540 3,428 4,221
Other income (expenses):
Interest income................... 844 464 382 239
Interest expense.................. (33) (31) (13) (71)
------- -------- ------- -------
Total other income (expenses),
net........................... 811 433 369 168
------- -------- ------- -------
Income before income taxes and
change in accounting principle.... 5,675 4,973 3,797 4,389
Provision (benefit) for income
taxes............................. 2,224 1,914 1,461 1,649
------- -------- ------- -------
Income before change in accounting
principle......................... 3,451 3,059 2,336 2,740
Cumulative effect of change in
accounting principle (net of
taxes)............................ 326 -- -- --
------- -------- ------- -------
Net income......................... $ 3,125 $ 3,059 $ 2,336 $ 2,740
======= ======== ======= =======
BASIC EARNINGS PER SHARE:
Basic earning per share before
change in accounting
principle....................... $ 0.59 $ 0.54 $ 0.41 $ 0.48
Cumulative effect of change in
accounting principle............ 0.06 -- -- --
------- -------- ------- -------
Basic earnings per share.......... $ 0.53 $ 0.54 $ 0.41 $ 0.48
======= ======== ======= =======
Basic weighted average shares
outstanding..................... 5,846 5,713 5,703 5,742
======= ======== ======= =======
DILUTED EARNINGS PER SHARE:
Diluted earnings per share before
change in accounting
principle....................... $ 0.55 $ 0.50 $ 0.38 $ 0.45
Cumulative effect of change in
accounting principle............ 0.05 -- -- --
------- -------- ------- -------
Diluted earnings per share........ $ 0.50 $ 0.50 $ 0.38 $ 0.45
======= ======== ======= =======
Diluted weighted average shares
outstanding..................... 6,298 6,097 6,127 6,026
======= ======== ======= =======
</TABLE>
15
<PAGE> 24
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 29, DECEMBER 28, DECEMBER 27, DECEMBER 26, SEPTEMBER 26,
1995 1996 1997 1998 1999 1999
------------ ------------ ------------ ------------ ------------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets............. $ 7,483 $ 6,304 $20,466 $17,224 $ 11,178 $12,861
Property and equipment,
net...................... 24,881 26,179 29,255 38,620 52,433 47,199
Non-current assets......... 26,711 28,551 31,625 40,130 53,980 48,749
Total assets............... 34,194 34,855 52,091 57,354 65,158 61,610
Current liabilities........ 6,676 6,146 9,372 10,476 14,569 12,075
Long-term debt............. 150 -- -- -- -- --
Other non-current
liabilities.............. 6,085 5,773 5,593 7,369 8,011 7,145
Stockholders' equity....... 21,283 22,936 37,126 39,509 42,578 42,390
<CAPTION>
SEPTEMBER 24,
2000
-------------
<S> <C>
BALANCE SHEET DATA:
Current assets............. $10,694
Property and equipment,
net...................... 59,442
Non-current assets......... 61,175
Total assets............... 71,869
Current liabilities........ 16,743
Long-term debt............. --
Other non-current
liabilities.............. 9,341
Stockholders' equity....... 45,785
</TABLE>
Il Fornaio's book value per share of common stock was $7.93 at September
24, 2000. No pro forma data is provided. Il Fornaio does not believe that pro
forma data is material to stockholders in evaluating the merger and the merger
agreement because the merger consideration is all cash and, if the merger is
completed, Il Fornaio stockholders other than the continuing stockholders will
no longer have any equity interest in Il Fornaio.
16
<PAGE> 25
MARKETS AND MARKET PRICE
Shares of Il Fornaio common stock are listed and principally traded on the
Nasdaq National Market System under the symbol "ILFO." The following table
shows, for the periods indicated, the reported high and low sale prices per
share on the Nasdaq National Market for Il Fornaio common stock.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDED DECEMBER 26, 1999
First Quarter............................................... $11.25 $ 6.38
Second Quarter.............................................. 15.00 8.63
Third Quarter............................................... 15.13 9.38
Fourth Quarter.............................................. 10.00 5.50
YEAR ENDED DECEMBER 31, 2000
First Quarter............................................... $10.13 $ 6.88
Second Quarter.............................................. 9.38 6.75
Third Quarter............................................... 9.94 6.25
Fourth Quarter.............................................. 13.38 8.25
YEAR ENDED DECEMBER 30, 2001
First Quarter (through January 9, 2001)..................... $13.50 $13.00
</TABLE>
On November 15, 2000, the last full trading day before the public
announcement of the merger agreement, the high and low sale prices for Il
Fornaio common stock as reported on the Nasdaq National Market were $9.44 and
$9.25 per share, respectively, and the closing sale price on that date was $9.31
per share. On , 2001, the last practicable trading day for which
information was available prior to the date of the first mailing of this proxy
statement, the closing price per share of Il Fornaio common stock as reported on
the Nasdaq National Market was $ . Stockholders should obtain a current
market quotation for Il Fornaio common stock before making any decision with
respect to the merger.
Il Fornaio has never declared or paid cash dividends on its common stock
and does not plan to pay any cash dividends in the foreseeable future. Il
Fornaio's current credit agreement limits the Company's ability to pay dividends
on its common stock. In addition, under the merger agreement, the Company has
agreed not to pay any cash dividends on its common stock before the closing of
the merger.
17
<PAGE> 26
THE SPECIAL MEETING
GENERAL
The enclosed proxy is solicited on behalf of the board of directors of Il
Fornaio for use at a special meeting of stockholders to be held on ,
2001, at 9:00 a.m. local time, or at any adjournments or postponements thereof,
for the purposes set forth in this proxy statement and in the accompanying
notice of special meeting. The special meeting will be held at Il Fornaio's
executive offices at 770 Tamalpais Drive, Suite 400, Corte Madera, California
94925. Il Fornaio intends to mail this proxy statement and accompanying proxy
card on or about , 2001 to all stockholders entitled to vote at the
special meeting.
At the special meeting, the stockholders of Il Fornaio are being asked to
consider and vote upon a proposal to approve and adopt the merger agreement and
the merger contemplated by the merger agreement. Under the merger agreement,
Newco will be merged with and into Il Fornaio and each issued and outstanding
share of Il Fornaio common stock will be converted into the right to receive
$14.00 in cash, without interest, except that:
- 446,963 shares of Il Fornaio common stock held by the continuing
stockholders will continue as, or be converted into, equity interests in
Il Fornaio as the surviving corporation;
- treasury shares and shares of Il Fornaio common stock held by Newco
immediately prior to the effective time will be canceled without any
payment therefor; and
- shares held by stockholders who properly exercise appraisal rights will
be subject to appraisal in accordance with Delaware law.
Il Fornaio does not expect a vote to be taken on any other matters at the
special meeting. However, if any other matters are properly presented at the
special meeting for consideration, the holders of the proxies will have
discretion to vote on these matters in accordance with their best judgment.
RECORD DATE AND VOTING INFORMATION
Only holders of record of common stock at the close of business on
, 2001 will be entitled to notice of and to vote at the special
meeting. At the close of business on , 2001, there were outstanding
and entitled to vote shares of Il Fornaio common stock. A list of
the Il Fornaio stockholders will be available for review at Il Fornaio's
principal executive offices during normal business hours for a period of 10 days
before the special meeting. Each holder of record of common stock on the record
date will be entitled to one vote for each share held. The presence, in person
or by proxy, of the holders of a majority of the outstanding shares of Il
Fornaio common stock entitled to vote at the special meeting is necessary to
constitute a quorum for the transaction of business at the special meeting.
All votes will be tabulated by the inspector of election appointed for the
special meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Brokers who hold shares in street name for
clients typically have the authority to vote on "routine" proposals when they
have not received instructions from beneficial owners. However, absent specific
instructions from the beneficial owner of the shares, brokers are not allowed to
exercise their voting discretion with respect to the approval and adoption of
non-routine matters, such as the merger agreement and the merger; proxies
submitted without a vote by the brokers on these matters are referred to as
"broker non-votes." Abstentions and broker non-votes are counted for purposes of
determining whether a quorum exists at the special meeting.
The affirmative vote of the holders of a majority of the outstanding shares
of Il Fornaio common stock is required to approve and adopt the merger agreement
and the merger. Accordingly, proxies that reflect abstentions and broker
non-votes, as well as proxies that are not returned, will have the same effect
as a vote AGAINST approval and adoption of the merger agreement and the merger.
The continuing stockholders have entered into a voting agreement with BRS
under which they have agreed to vote their shares in favor of approval and
adoption of the merger agreement and the merger and
18
<PAGE> 27
against any other acquisition proposal. As of December 31, 2000, the continuing
stockholders held 1,029,822 shares, representing approximately 18% of the
outstanding shares of Il Fornaio common stock (26% including shares subject to
options exercisable within 60 days). See "Special Factors -- Interests of Il
Fornaio Directors and Officers in the Merger."
PROXIES; REVOCATION
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of Il Fornaio at the Company's executive offices located at 770
Tamalpais Drive, Suite 400, Corte Madera, California 94925, a written notice of
revocation or a duly executed proxy bearing a later date, or it may be revoked
by attending the special meeting and voting in person. Attendance at the special
meeting will not, by itself, revoke a proxy. Furthermore, if a stockholder's
shares are held of record by a broker, bank or other nominee and the stockholder
wishes to vote at the meeting, the stockholder must obtain from the record
holder a proxy issued in the stockholder's name.
EXPENSES OF PROXY SOLICITATION
Il Fornaio will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of common stock beneficially owned by
others to forward to these beneficial owners. Il Fornaio may reimburse persons
representing beneficial owners of common stock for their costs of forwarding
solicitation materials to such beneficial owners. Original solicitation of
proxies by mail may be supplemented by telephone, telegram or personal
solicitation by directors, officers or other regular employees of Il Fornaio. No
additional compensation will be paid to directors, officers or other regular
employees for their services.
ADJOURNMENTS
Although it is not expected, the special meeting may be adjourned for the
purpose of soliciting additional proxies. Any adjournment of the special meeting
may be made without notice, other than by an announcement made at the special
meeting, by approval of the holders of a majority of the outstanding shares of
Il Fornaio common stock present in person or represented by proxy at the special
meeting, whether or not a quorum exists. Any proxies received by Il Fornaio will
be voted in favor of an adjournment of the special meeting if the purpose of the
adjournment is to provide additional time to solicit votes to approve and adopt
the merger agreement and the merger, unless the stockholder has voted against
such merger proposal. Thus, proxies voting against the merger proposal will not
be used to vote for adjournment of the special meeting for the purpose of
providing additional time to solicit votes to approve and adopt the merger
agreement and the merger.
Stockholders who do not vote in favor of approval and adoption of the
merger agreement and the merger, and who otherwise comply with the applicable
statutory procedures of the Delaware General Corporation Law summarized
elsewhere in this proxy statement, will be entitled to seek appraisal of the
value of their Il Fornaio common stock as set forth in Section 262 of the
Delaware General Corporation Law. See "Special Factors -- Appraisal Rights."
PLEASE DO NOT SEND IN STOCK CERTIFICATES AT THIS TIME. IN THE EVENT THE
MERGER IS COMPLETED, IL FORNAIO WILL DISTRIBUTE INSTRUCTIONS REGARDING THE
PROCEDURES FOR EXCHANGING EXISTING IL FORNAIO STOCK CERTIFICATES FOR THE $14.00
PER SHARE CASH PAYMENT.
19
<PAGE> 28
THE PARTICIPANTS
IL FORNAIO (AMERICA) CORPORATION
770 Tamalpais Drive, Suite 400
Corte Madera, California 94925
(415) 945-0500
Il Fornaio owns and operates 25 full-service Italian restaurants serving
creatively prepared, premium-quality Italian cuisine based on authentic regional
Italian recipes, including two new restaurants recently opened in Colorado. Il
Fornaio's restaurants offer an extensive menu, featuring house-made and imported
pasta, poultry and game roasted over a wood-fired rotisserie, meat and fresh
fish from a charcoal grill, pizza from a wood-burning oven, soups, salads and
desserts. A number of Il Fornaio restaurants house a retail bakery offering Il
Fornaio's baked goods, prepared foods and a variety of Il Fornaio-brand
products. In addition, Il Fornaio's bakery division operates three wholesale
bakeries that produce artisan breads, pastries and other baked goods for sale in
its own locations and to high-quality grocery stores, cafes and gourmet coffee
retailers, hotels and other fine restaurants.
If the merger agreement and the merger are approved and adopted by the Il
Fornaio stockholders at the special meeting and the merger is completed, Il
Fornaio will continue its operations following the merger as a private company.
Il Fornaio was incorporated in California in June 1980 and was reincorporated in
Delaware in September 1997.
A more detailed description of Il Fornaio's business is contained in the
Company's most recent Annual Report on Form 10-K, which is incorporated by
reference into this proxy statement. See also "Where Stockholders Can Find More
Information."
BRUCKMANN, ROSSER, SHERRILL & CO. II, L.P.
c/o Bruckmann, Rosser, Sherrill & Co., L.L.C.
126 East 56th Street
New York, New York 10022
(212) 521-3700
Bruckmann, Rosser, Sherrill & Co. II, L.P., referred to as BRS, is a
Delaware limited partnership principally engaged in the business of investing in
companies. BRS is an affiliate of Bruckmann, Rosser, Sherrill & Co., L.L.C., a
Delaware limited liability company and a management company based in New York
that focuses on investing the committed capital of BRS in growth companies. The
principals of BRS have completed a number of transactions in the restaurant and
food service industries, including the buyouts of Acapulco Restaurants Inc., Au
Bon Pain, California Pizza Kitchen, Inc., El Torito Restaurants, Inc. and
Restaurant Associates Corp. BRS was formed in Delaware in April 1999.
MANHATTAN ACQUISITION CORP.
c/o Bruckmann, Rosser, Sherrill & Co., L.L.C.
126 East 56th Street
New York, New York 10022
(212) 521-3700
Manhattan Acquisition Corp., referred to as Newco, is a Delaware
corporation that is wholly owned by BRS. Newco was formed by BRS solely for
purposes of completing the merger and has not participated in any activities to
date other than those incident to its formation and the transactions
contemplated by the merger agreement. Newco was incorporated in Delaware in
November 2000.
CONTINUING STOCKHOLDERS
The executive officers, certain members of the Il Fornaio board of
directors and Carlo Veggetti, the Italian creator of the Il Fornaio brand,
referred to as the continuing stockholders, have agreed to retain an equity
interest in Il Fornaio as the surviving corporation. As a result, the continuing
stockholders may have
20
<PAGE> 29
interests that are different from, or in addition to, the interests of Il
Fornaio stockholders generally. See "Special Factors -- Interests of Il Fornaio
Directors and Officers in the Merger." Laurence B. Mindel and Michael J. Hislop,
each a director and executive officer of Il Fornaio, Dean A. Cortopassi, W.
Scott Hedrick and F. Warren Hellman, each a director of Il Fornaio, Michael
Beatrice and Peter P. Hausback, each an executive officer of Il Fornaio, and Mr.
Veggetti will pay the same price per share as BRS and BankBoston, but will
acquire their shares primarily by exchanging Il Fornaio capital stock (or
options to acquire Il Fornaio capital stock) for securities of the surviving
corporation as well as, to a lesser extent, through the payment of cash, as
follows:
- immediately prior to the merger, the continuing stockholders will
exchange, on a one-for-one basis, a specified number of shares of Il
Fornaio common stock for shares of three newly created series of Il
Fornaio preferred stock. At the effective time of the merger, shares of
Il Fornaio preferred stock will continue as, or automatically be
converted into, shares of capital stock of the surviving corporation as
follows:
- Each share of Il Fornaio Series A 13.0% cumulative compounding
preferred stock will continue as one share of Series A 13.0%
cumulative compounding preferred stock of the surviving corporation,
referred to as Series A preferred;
- Each share of Il Fornaio Series B 13.5% cumulative compounding
preferred stock will continue as one share of Series B 13.5%
cumulative compounding preferred stock of the surviving corporation,
referred to as Series B preferred; and
- Each share of Il Fornaio Series C preferred stock will be converted
into one share of common stock of the surviving corporation.
- At the effective time, options to acquire shares of Il Fornaio common
stock with an aggregate economic value of $3.8 million held by continuing
stockholders will be canceled in exchange for substitute, fully vested
options to acquire Series A preferred and Series B preferred of the
surviving corporation, with exercise prices adjusted to preserve the
aggregate spread applicable to the options canceled.
- At the effective time, Messrs. Hislop, Beatrice and Hausback will also
purchase with cash an aggregate of 29,655 shares of common stock of the
surviving corporation, at a purchase price of $14.00 per share.
Shares of Il Fornaio common stock contributed by these individuals will be
valued at $14.00 per share, and options to purchase shares of Il Fornaio common
stock will be valued at the difference between their exercise prices per share
and $14.00. It is estimated that approximately 446,963 shares of Il Fornaio
common stock and options to purchase shares of Il Fornaio common stock with an
aggregate economic value of $4.2 million, representing a total investment of
approximately $10.4 million, will continue as, or be converted into, equity
interests in the surviving corporation.
In addition, following completion of the merger, a pool of approximately
39,683 shares of Il Fornaio common stock will be reserved pursuant to an
employee incentive program that will provide for the issuance to employees of
the surviving corporation of employee stock options and/or restricted stock. The
exercise or purchase price is expected to be $14.00 per share and shares subject
to options granted or restricted shares are expected to vest over four years. Of
the shares reserved, approximately 16,042 shares are expected to be reserved for
issuance to Mr. Hislop for aggregate consideration of $224,588, and
approximately 5,066 shares are expected to be reserved for issuance to Mr.
Beatrice for aggregate consideration of $70,924.
The continuing stockholders are expected to hold in the aggregate
approximately 27% of the common stock and 29% of the preferred stock of I1
Fornaio on a fully diluted basis following completion of the merger. The
percentage of Il Fornaio's post-merger preferred stock that the continuing
stockholders are expected to hold on a fully diluted basis may vary depending on
the number of shares of Il Fornaio common stock subject to, and the exercise
prices of, the options selected by the continuing stockholders to
21
<PAGE> 30
be canceled in exchange for substitute options to acquire preferred stock of the
surviving corporation. However, each continuing stockholder's aggregate
investment in equity of the surviving corporation (exclusive of employee
incentives) will be allocated in the same proportion as the investments of BRS
and BancBoston, as follows: 50.0% in Series A preferred and/or options to
acquire Series A preferred; 37.5% in Series B preferred and/or options to
acquire Series B preferred; and 12.5% in common stock.
22
<PAGE> 31
SPECIAL FACTORS
BACKGROUND OF THE MERGER
Following Il Fornaio's initial public offering in September 1997 through
the end of 1998, the market price of Il Fornaio common stock traded at
disappointing levels. From $16.63 per share on October 8, 1997, the price of Il
Fornaio common stock declined to $5.25 per share on October 9, 1998, a decline
of approximately 68%. Il Fornaio attributed this decline to both industry
factors as well as to factors specifically related to Il Fornaio, including the
following:
- When Il Fornaio completed the initial public offering of shares of its
common stock in September 1997, the stock market had a relatively
favorable view of the hospitality industry. Furthermore, a large number
of leading investment banking firms closely followed the hospitality
industry and published monthly research reports. By mid-1998, however,
the environment had changed dramatically due, in part, to severe
financial difficulties experienced by several highly visible, publicly
traded restaurant companies, such as Planet Hollywood and Boston Market,
as well as economic conditions, such as a tight labor market, that tended
to affect the hospitality industry disproportionately.
- By mid-1998, a new market trend had emerged, as public interest shifted
toward high-growth companies, such as Internet-related and other high
technology companies, and away from more mature, slower-growth companies,
such as those in the hospitality industry. In addition, by the end of
1998, through mergers and consolidations, fewer investment banking firms
were following the hospitality industry, thus reducing the research
available for companies like Il Fornaio.
- For the third quarter of 1998, Il Fornaio missed the "street" earnings
estimate, leading to a stock price decline.
- Il Fornaio's success outside of its core California market was mixed.
- Positive factors, such as Il Fornaio's comparable-store sales growth, did
not necessarily result in higher common stock prices.
- Il Fornaio's stock has a relatively low trading volume. Fewer than 6
million shares were outstanding as of December 15, 2000, and more than
25% of its outstanding common stock is owned by one investment firm,
while an additional 16% of its outstanding common stock is owned by
directors and management.
In the fall of 1998, following the disappointing performance of Il
Fornaio's common stock in the public markets, management concluded that the
common stock was significantly undervalued. At the same time, several restaurant
companies made informal inquiries of Il Fornaio management related to a possible
acquisition of Il Fornaio. As a result, management began to explore strategic
alternatives to increase stockholder value, including the possible sale of Il
Fornaio, a possible management-led buyout, repurchasing Il Fornaio common stock
and continuing its growth strategy as an independent, publicly held company.
On October 8, 1998, the board of directors authorized Il Fornaio to
repurchase up to 500,000 shares, representing 8.8% of the amount of common stock
then outstanding. In 1998, Il Fornaio repurchased 362,400 shares at an average
price of $5.61 and, in November 1999, Il Fornaio repurchased 137,000 shares at
an average price of $7.18.
On December 1, 1998, Laurence B. Mindel, chairman of the board of directors
of Il Fornaio, and Michael J. Hislop, president and chief executive officer of
Il Fornaio, met with Il Fornaio's legal counsel, Cooley Godward LLP, and an
outside member of the board, F. Warren Hellman, to discuss the acquisition
inquiries and to consider appropriate responses. The meeting concluded with a
decision to contact Evercore Partners, a New York investment firm, to ascertain
its interest in assisting Il Fornaio.
23
<PAGE> 32
On December 7, 1998, Messrs. Mindel, Hellman and Hislop, along with Paul F.
Kelley, Il Fornaio's then chief financial officer, met with representatives of
Evercore, at Il Fornaio's corporate office to discuss Il Fornaio's possible
retention of Evercore as its financial advisor. Following that meeting, Evercore
was invited to meet with the Il Fornaio board of directors at its meeting on
December 17, 1998.
On December 17, 1998, representatives of Evercore met with the Il Fornaio
board of directors. After a full discussion by the board of directors, the
decision was made to engage Evercore to explore strategic alternatives for Il
Fornaio. Following negotiations among representatives of Il Fornaio and
Evercore, a formal engagement letter, dated March 11, 1999, between Evercore and
Il Fornaio, was signed. The engagement letter provided that Evercore's fees for
providing financial advisory services in connection with the consummation of a
competing merger, acquisition or similar transaction would be based on a success
scale, increasing as the value of a completed transaction increased.
In January 1999, Messrs. Mindel, Hislop and Kelley met with representatives
of one of the companies that had made an informal inquiry in 1998 regarding a
possible business combination.
After conducting due diligence, in March 1999, Evercore contacted 58
prospective acquirors, including BRS, and discussed the opportunity with 44 of
them. Of these companies, 20 signed confidentiality agreements and were sent
confidential information regarding Il Fornaio. The company whose representatives
had met with Messrs. Mindel, Hislop and Kelley in January 1999 was not among
these 20 companies and did not engage in further acquisition discussions with I1
Fornaio.
During late March 1999 and the first half of April 1999, Messrs. Mindel,
Hislop and Kelley held telephonic meetings with Evercore to discuss the status
of inquiries. Evercore indicated that seven companies had furnished preliminary
indications of interest ranging from $10.50 per share to $15.00 per share. The
highest preliminary indication of interest of $15.00 per share was to be
composed entirely of stock or a combination of cash and stock. The highest
preliminary indication of interest that was composed entirely of cash stated a
price of $14.68 per share. BRS was one of the seven companies that demonstrated
a preliminary interest in acquiring Il Fornaio. At that time, BRS preliminarily
valued Il Fornaio at $10.50 to $12.00 per share.
In May 1999, the seven companies that had furnished preliminary indications
of interest in Il Fornaio attended presentations conducted by Il Fornaio
management and were granted access to confidential information of Il Fornaio. By
June 7, 1999, the date final bids were due, only one of the remaining seven
companies placed a final round bid. BRS did not place a final round bid. The
final round bid offered $14.00 per share payable in stock of the bidder, a
large, publicly held restaurant company. At Il Fornaio's June 9, 1999 board of
directors meeting, following a presentation by Evercore, the board determined
not to accept the offer, but instead to seek to increase the price per share
offered by the publicly held restaurant company, as it represented the best
price and, in the view of the board, was offered by a company with the financial
ability to complete such a transaction.
Following negotiations between executives of both companies in June 1999,
the offer was increased to $14.50 in stock of the publicly held restaurant
company. On July 7, 1999, the Il Fornaio board of directors determined to pursue
the $14.50 offer, pending negotiation and execution of a definitive agreement.
Negotiations and due diligence ensued over the subsequent 60 days. However,
in early August 1999, after the price per share of its stock fell by 15%, the
bidder's chief executive officer contacted Mr. Mindel to report that the
bidder's board had decided to end further merger discussions for various
reasons, including the decline in the bidder's stock price as well as its
concern regarding Il Fornaio's projections for new restaurants. Subsequently, Il
Fornaio disengaged Evercore as its financial advisor.
On August 18, 1999, Il Fornaio announced that it had completed its
evaluation of financial and strategic alternatives and concluded that the most
appropriate strategy at that time was to remain an independent, publicly held
company. As a result, Il Fornaio was required to reflect in its third quarter
1999 financial statements non-recurring charges incurred in connection with its
evaluation of these alternatives. Because of these and other charges, Il Fornaio
did not achieve the "street" estimate of third quarter earnings in 1999, and its
stock price declined.
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On October 4, 1999, the board of directors of Il Fornaio met to discuss
implementation of its strategy of remaining an independent public company. At
the conclusion of these discussions, management was directed to refocus its
efforts on the continued expansion of the Il Fornaio concept.
In early November 1999, Mr. Mindel was contacted by a long-time friend who
was consulting for a publicly held, national restaurant chain. Discussions
turned to the possibility of a combination between Il Fornaio and this
restaurant chain. As a result, on November 18, 1999, Mr. Mindel met with the
company's president and chief executive officer and the company's financial
advisors in Chicago. The next day, Mr. Mindel met with the restaurant chain's
chairman, a major stockholder of the restaurant chain. At the conclusion of that
meeting, the chairman suggested that the company would be interested in
acquiring Il Fornaio at $13.00 per share, consisting of $7.00 in cash and one
share of the company's stock. Mr. Mindel indicated his belief that the Il
Fornaio board would likely view the offer to be inadequate.
By letter to Mr. Mindel, dated November 23, 1999, the chairman formalized
the restaurant chain's initial offer to acquire Il Fornaio. Based on the board's
earlier direction, Mr. Mindel indicated, by letter to the chairman dated
December 1, 1999, that Il Fornaio's strategy was to remain independent. On
December 9, 1999, the board of directors authorized Il Fornaio to repurchase up
to 250,000 shares, although no repurchases were subsequently made. Following
informal discussions among board members on December 9, 1999, Mr. Mindel met
with the chairman of the restaurant chain on December 14, 1999 to further
explore the possibility of a combination between the two companies. However, the
restaurant chain's stock price had since declined by 25%, with the result that
the offer price was correspondingly lower. In January 2000, discussions
continued between the executives of the two companies and, in late January 2000,
the restaurant chain's president and chief executive officer increased the offer
price to $14.00, composed of $11.00 in cash and one-half share of the restaurant
chain's stock. The restaurant chain's stock price had, however, declined to
$4.09 per share. In early February 2000, price discussions continued between the
restaurant chain's financial advisors and Mr. Hellman. Over the subsequent three
months, representatives of both companies continued price negotiations.
In the spring of 2000, it became apparent to the Il Fornaio board of
directors that the Company's stock had not advanced beyond the price prevailing
at the time that Il Fornaio had first begun to explore strategic alternatives in
1998; the problems that had previously contributed to disappointing stock prices
persisted. Outside board members suggested to management that they explore the
opportunity to enhance stockholder value through a management-led buyout.
On April 11, 2000, Messrs. Mindel and Hislop, along with Peter P. Hausback,
Il Fornaio's chief financial officer, met at Mr. Hellman's office to discuss the
subject of a management-led leveraged recapitalization. Following that meeting,
Mr. Mindel contacted the founding partners of a San Francisco-based investment
firm. Mr. Mindel asked the principals of this S.F. investment firm to make a
presentation to senior management of Il Fornaio regarding the possibility of a
leveraged recapitalization of the Company.
On May 3, 2000, the Il Fornaio board of directors held a meeting during
which the board members discussed a variety of strategic alternatives for Il
Fornaio. At the conclusion of that discussion, the board instructed Messrs.
Mindel and Hislop to further explore the possibility of a leveraged
recapitalization. On May 30, 2000, Messrs. Mindel, Hislop and Hausback met with
the principals of the S.F. investment firm to initiate the process of a
management-led buyout. Mr. Hausback, together with a representative of the S.F.
investment firm, prepared for anticipated presentations to commercial lenders
and investment banks. Over the ensuing two months, in-person and telephonic
discussions transpired between representatives of the S.F. investment firm and
Il Fornaio senior management.
On May 22, 2000, Mr. Mindel and the chairman of the restaurant chain
discussed a potential acquisition price of $15.50, composed of $12.50 in cash
and one-half share of the restaurant chain's stock. The restaurant chain's stock
was then, however, trading at $5.19 per share. In early June 2000, the
executives of the restaurant chain advised Mr. Mindel that, because the
mezzanine financing market had collapsed, the restaurant chain could no longer
finance sufficient debt to complete a transaction with Il Fornaio; however,
discussions could be reopened if the markets recovered.
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<PAGE> 34
On August 9, 2000, Mr. Hislop, acting in his capacity as chief executive
officer of a buyout company to be formed, executed advisory engagement and
project engagement letter agreements with the S.F. investment firm to explore a
possible transaction and facilitate the negotiation process.
Subsequently, senior management of Il Fornaio asked the S.F. investment
firm to make a presentation to the Il Fornaio board. On August 10, 2000,
representatives of the S.F. investment firm met with the Il Fornaio board of
directors during its regularly scheduled meeting and presented to the board
their proposal for a leveraged recapitalization, indicating that the expected
price range would fall between $12.50 and $15.00 per share. As a result of this
presentation, the board instructed senior management to continue to explore a
leveraged recapitalization with the S.F. investment firm as the financial
sponsor.
During the weeks of August 28, 2000, September 4, 2000 and September 11,
2000, Il Fornaio senior management, together with representatives of the S.F.
investment firm, made presentations to a number of potential commercial lenders
and investment banks. Each bank presentation anticipated a price to the Il
Fornaio stockholders of $13.50 per share. A board meeting to further consider
the proposal from the S.F. investment firm was scheduled for October 3, 2000.
In the first quarter of 2000, Harold O. Rosser, a principal of BRS,
contacted Mr. Hislop to discuss the Mexican food segment of the restaurant
industry, an area well known to Mr. Hislop because of his prior management roles
at Chevy's, Inc. and El Torito Mexican Restaurants, Inc. They spoke again in the
second quarter of 2000 and attempted, without success, to schedule a meeting. In
the first week of September 2000, Mr. Rosser contacted Mr. Hislop to say that he
would be in California on September 19, 2000 and September 20, 2000 and would
like to meet with him. Mr. Hislop agreed, and Messrs. Rosser and Hislop met on
September 20, 2000 for most of the day. At the conclusion of their meeting, Mr.
Rosser expressed BRS's interest in pursuing an acquisition, with a view toward
taking Il Fornaio private. Shortly thereafter, Mr. Hislop informed one of the
S.F. investment firm's principals that BRS had expressed an interest in
acquiring Il Fornaio.
During the last 10 days of September 2000, Mr. Hausback provided financial
information to the financial team at BRS. Aware of the scheduled Il Fornaio
board meeting, on September 30, 2000, BRS sent a bid letter to Il Fornaio with
the price per share left unspecified, but including terms related to the
structure of a proposed transaction, financing, timing, access to confidential
information and exclusive dealing. On October 2, 2000, BRS amended its bid
letter to propose an acquisition of Il Fornaio at a price of $14.00 cash per
share of Il Fornaio common stock, with option holders to receive the difference
between $14.00 and the exercise prices of their options. The bid letter
indicated that, because of the quality of Il Fornaio management, BRS viewed
management's continued participation as extremely important. Therefore, a
significant portion of the equity financing for the transaction was to be
provided by senior management through the contribution of a portion of their Il
Fornaio securities. The letter contemplated that others, such as Il Fornaio
directors, would also be able to participate. Mr. Hislop indicated to BRS that
he would share this bid letter with the board during its scheduled meeting on
October 3, 2000.
Mr. Hislop advised one of the S.F. investment firm's principals that the
board would be considering BRS's proposal at the October 3, 2000 meeting, with
the expectation that the board would discuss both the new BRS proposal as well
as the proposal of the S.F. investment firm which, according to its principals,
was fully financed. However, just prior to the October 3, 2000 board meeting,
one of the principals informed Mr. Mindel that the S.F. investment firm would
not present its proposal to the board because the firm's policy was to decline
to participate in competitive bid environments. Thus, at the time the board
meeting convened on October 3, 2000, the only proposal presented for the board's
consideration was the BRS bid. Toward the end of the board meeting,
representatives of the S.F. investment firm telephoned Mr. Mindel, indicating
that they would be willing to present their proposal to the board, but only upon
I1 Fornaio's agreement to reimburse the S.F. investment firm, in the event its
proposal was not accepted, for a $250,000 commitment fee payable to its
financial lender. Given the board's understanding of the nature of the S.F.
investment firm's probable offer and the circumstances of the communication from
the S.F. investment firm, the board determined not to accept the S.F. investment
firm's offer to make a presentation.
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<PAGE> 35
In light of the price offered and the fact that no other offer was then
pending, after a full discussion, the board of directors determined that it
would accept a brief period of exclusivity to enable BRS to engage in more
extensive due diligence and to prepare and negotiate agreements. However, BRS
had proposed a 30-day exclusivity period. The board was particularly concerned
with the length of the exclusivity period due to the absence of bank commitments
related to financing of the transaction.
Following negotiations that focused particularly on the duration of
exclusivity, on October 9, 2000, the bid letter from BRS was executed on behalf
of Il Fornaio. Under the bid letter, Il Fornaio agreed to a 21-day
exclusive-negotiation period; however, if BRS did not obtain signed commitment
letters for approximately $38.0 million of senior bank debt and $15.0 million of
mezzanine debt by October 17, 2000, the exclusive negotiation period would
terminate. On October 10, 2000, following further negotiations, BRS and Il
Fornaio executed a confidentiality agreement.
On October 12, 2000, legal counsel to BRS, Dechert, distributed the first
draft of a proposed merger agreement to Il Fornaio.
Recognizing that the planned participation of senior management and
directors in a merger transaction with BRS could lead to conflicts of interest,
the Il Fornaio board of directors resolved to establish an independent special
committee to evaluate, negotiate and recommend the merger transaction. On
October 16, 2000, George B. James was appointed a director and, on that same
date, the board of directors appointed Mr. James and Lawrence F. Levy, I1
Fornaio's two independent, non-participating directors, to the special
committee. The board of directors authorized the special committee to:
- determine whether a merger, sale of assets or other sale or
change-of-control transaction was in the best interests of Il Fornaio and
its stockholders and to make a recommendation to the board concerning
such transaction;
- consider BRS's proposal;
- negotiate the terms of a merger transaction with BRS, if appropriate;
- evaluate whether to seek or commence discussions with other prospective
purchasers;
- monitor the negotiation of any transaction if the special committee
determined that it would be advisable and, if appropriate or advisable in
the opinion of the special committee, to participate in such
negotiations; and
- recommend to the board of directors whether the final terms of any
transaction were in the best interests of Il Fornaio and its stockholders
and should be approved by the board.
The special committee was also expressly authorized to retain advisors,
including legal counsel and investment bankers, at Il Fornaio's expense. The
board also determined that each of the members of the special committee should
be paid $75,000 for his services whether or not a transaction was recommended or
consummated.
The special committee evaluated several law firms and financial advisory
firms to assist the special committee in negotiating a potential merger
transaction, including advisors from Evercore and another financial advisory
firm. After consideration, the special committee determined informally to engage
Evercore to serve as financial advisor and McCutchen, Doyle, Brown & Enersen LLP
to serve as legal counsel.
On October 17, 2000, BRS submitted to Il Fornaio signed commitment letters
for up to $50.0 million of senior debt financing and up to $15.0 million of
mezzanine debt financing to be provided in an acquisition of Il Fornaio. That
same day, one of the principals of the S.F. investment firm with which
management had prior discussions advised Mr. Mindel of his position that payment
of a termination fee to the S.F. investment firm was required. Over the
subsequent three weeks, Messrs. Mindel and Hislop and Dean A. Cortopassi, an
outside board member and continuing stockholder, proceeded to negotiate the
termination fee with the principals of the S.F. investment firm.
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<PAGE> 36
On October 20, 2000, the special committee met to address a number of
organizational matters. Mr. James was selected as chairman of the special
committee. The committee formally engaged McCutchen to serve as its legal
counsel. The committee proceeded to discuss with its legal counsel the legal
issues relevant to the committee's role, including the duties of the special
committee and issues relevant to the selection of a financial advisor and the
possible terms of the financial advisor's engagement. Representatives of
Evercore then joined the meeting.
Representatives of Evercore presented its proposed engagement letter. The
special committee and its legal counsel discussed the terms of the engagement
letter with representatives of Evercore. Under the proposed engagement letter,
Evercore was to provide one or more written opinions to the special committee
with respect to the fairness, from a financial point of view, to Il Fornaio
stockholders other than the continuing stockholders. Additionally, in the event
Il Fornaio received a competing proposal for a merger, acquisition or similar
transaction, Evercore was to provide financial advisory services to the special
committee in evaluating a competing proposal. After discussion, the special
committee requested that Evercore prepare a schedule clarifying the structure of
its fees for providing a fairness opinion and for financial advisory services in
evaluating a competing proposal.
The special committee, its legal counsel and representatives of Evercore
then proceeded to discuss Il Fornaio's past efforts to enter into merger
transactions and the circumstances that led to BRS's proposal. The committee
discussed the weakened state of the financing market and the general poor stock
performance of publicly held potential strategic buyers. The committee
preliminarily discussed the first draft of the merger agreement, including a
discussion of BRS's proposed fee of $4.0 million upon termination of the merger
agreement under certain circumstances, as well as the no-solicitation
provisions. Representatives of Evercore provided data on typical termination
fees in merger transactions of approximately the same size. Based on these
discussions, the special committee decided to continue negotiating the proposed
merger with BRS.
On October 24, 2000, the special committee met again with its legal counsel
and representatives of Evercore to discuss its proposed response to the
acquisition proposal and the draft merger agreement. In particular, the special
committee reviewed the offer price and those provisions in the draft merger
agreement that would allow the board of directors to respond to, and negotiate
with, third parties that might submit unsolicited proposals and to terminate the
merger agreement in such circumstances, as well as the termination fee. Based on
this review and discussions with its legal counsel and representatives of
Evercore, the special committee agreed to seek a higher price per share from
BRS, a reduction in the termination fee (together with any reimbursable
expenses) to $3.0 million and a modification of the procedures applicable if
another acquisition proposal were submitted to Il Fornaio.
Representatives of Evercore then presented its revised engagement letter.
The special committee discussed Evercore's revised engagement letter and
requested changes.
In late October 2000, BRS requested an extension of the termination of the
exclusive negotiation period from October 30, 2000 to November 20, 2000.
On October 26, 2000, the special committee again met with its legal counsel
and representatives of Evercore. The special committee finalized the details of
its counter-proposal to BRS. The special committee also discussed whether to
grant BRS's request of an extension of the exclusive negotiation period. After
discussion, the special committee tentatively agreed to extend the exclusive
negotiation period from October 30, 2000 to November 3, 2000. Later on October
26, 2000, the special committee sent its detailed counter-proposal to BRS.
On October 27, 2000, legal counsel for the special committee and legal
counsel for BRS negotiated the terms of the counter-proposal, including the
termination fee payable under certain circumstances, the amount of BRS's
reimbursable expenses, BRS's equity commitment and the terms of the commitment
letters for senior and mezzanine debt financing.
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On or about October 28, 2000, BRS told the special committee that, based
upon its due diligence, its preliminary price of $14.00 per share was the
maximum price it would offer in a merger transaction with Il Fornaio.
On October 30, 2000, the special committee again met with its legal counsel
and representatives of Evercore to discuss the current status of the negotiation
of the merger agreement, including the per share price and Il Fornaio's
termination rights if another agreement or proposal were made. The special
committee instructed its legal counsel to continue to negotiate the terms of the
proposed merger. After discussion, the special committee agreed to partially
grant BRS's previous request to extend the exclusive negotiation period to
November 3, 2000.
On October 31, 2000, the special committee executed the engagement letter
with Evercore. The engagement letter included a sliding schedule of fees under
which the fee for rendering a financial opinion increased with an increase in
the offer price per share. In addition, the engagement later provided for a
sliding schedule of fees payable upon successful consummation of a competing
merger, acquisition or similar transaction proposal. The financial advisory fees
payable in connection with the consummation of a competing merger, acquisition
or similar transaction increased with an increase in the price per share
received by Il Fornaio stockholders.
That same day, legal counsel for BRS distributed the first drafts of the
proposed securities purchase and contribution agreement and the proposed voting
agreement to which each of the continuing stockholders would be a party. Over
the next two weeks, legal counsel for the continuing stockholders and legal
counsel to BRS engaged in negotiations regarding the continuing stockholders'
retained equity interests in Il Fornaio as the surviving corporation.
From November 1, 2000 to November 4, 2000, the special committee met daily
with its legal counsel and representatives of Evercore to discuss the progress
of negotiations with BRS. On November 1, 2000, counsel to the special committee
made significant advances in negotiating terms of the merger agreement that were
more favorable to Il Fornaio. In particular, most of the open issues regarding
the termination provisions of the agreement were tentatively resolved, including
a reduction of the termination fee to $2.7 million. In addition, the special
committee and BRS discussed revised terms of the senior debt and mezzanine debt
financing commitment letters and the scope of any remaining due diligence by BRS
and the senior and mezzanine lenders.
At the November 3, 2000 meeting between the special committee and its
advisors, representatives of Evercore described preliminary valuation
methodologies used by Evercore, including:
- an analysis of comparable companies;
- an analysis of comparable acquisitions;
- a leveraged buyout analysis; and
- a discounted cash flow analysis based on Il Fornaio management's
projection of Il Fornaio's future cash flows for fiscal years 2001, 2002
and 2003, and Evercore's projection of Il Fornaio's future cash flows for
fiscal years 2004 and 2005.
Representatives of Evercore advised the special committee that it was still
working to refine portions of the analysis and that the analysis represented
only preliminary estimates that were subject to change.
The special committee discussed Evercore's preliminary estimates and
methodology. Based on this discussion, the special committee requested that
Evercore supplement its analysis for the next special committee meeting by
preparing a supplemental discounted cash flow analysis based solely on
Evercore's projection of Il Fornaio's future cash flows for fiscal years 2001
through 2005.
On November 7, 2000, the special committee met with its advisors to discuss
the remaining open issues regarding the acquisition and other terms of the
merger. Representatives of Evercore presented an updated preliminary valuation
analysis that did not vary materially from the preliminary analysis presented on
November 3, 2000. Representatives of Evercore also presented a supplemental
discounted cash flow
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<PAGE> 38
analysis based solely on Evercore's projection of I1 Fornaio's future cash flows
for fiscal years 2001 through 2005. Evercore's supplemental cash flow analysis
indicated a valuation range for shares of I1 Fornaio common stock of $11.86 to
$15.40 per share. Representatives of Evercore noted that BRS's proposed offer of
$14.00 per share to be paid in cash fell within the preliminary fairness range
indicated by its valuation analysis. After consideration of the facts and
circumstances, Evercore's updated preliminary valuation and supplemental cash
flow analyses and its own review of the terms of the merger, the special
committee unanimously determined that the offer made by BRS in the proposed
merger agreement and the transactions contemplated thereby were fair to, and in
the best interests of, Il Fornaio stockholders other than the continuing
stockholders, and unanimously decided to recommend to the full board of
directors of Il Fornaio that it approve the merger agreement proposed by BRS and
the merger.
Immediately following the special committee's meeting on November 7, 2000,
the special committee and its advisors met by telephonic conference call with
the full board of directors of Il Fornaio and its legal counsel to discuss the
BRS proposal, the terms of the proposed merger agreement, the special
committee's findings and Evercore's updated preliminary valuation analysis.
Legal counsel to Il Fornaio also discussed with the board its fiduciary duties
and obligations in connection with approval of the merger agreement and the
merger. The board discussed the material terms of BRS's proposal and Evercore's
updated preliminary valuation analysis.
The board then proceeded to discuss the amount of the termination fee
required by the S.F. investment firm. BRS's proposed merger agreement
conditioned consummation of the transaction on the payment of a termination fee
to the S.F. investment firm not in excess of $455,000. Principals of the S.F.
investment firm had indicated to some members of the board in recent
negotiations that $455,000 would not constitute an adequate termination fee.
Accordingly, the board determined that it was necessary to continue to negotiate
and reach a settlement with the S.F. investment firm regarding the termination
fee that would be acceptable to BRS prior to proceeding with further
negotiations with BRS.
On November 9, 2000, Mr. Mindel circulated a memorandum outlining the terms
of a negotiated mutual release and settlement of claims with the S.F. investment
firm that would require the payment of approximately $611,627 to the S.F.
investment firm in consideration of a release and discharge of claims against Il
Fornaio, Messrs. Mindel and Hislop, BRS and Newco. BRS stated that it would
proceed with execution of the merger agreement if, among other conditions, the
issue related to the S.F. investment firm termination fee was settled on the
above terms. The special committee's legal counsel and BRS's legal counsel
continued to negotiate remaining unresolved issues in the merger agreement.
On November 14, 2000, the special committee met with its advisors to
discuss the remaining outstanding issues. Evercore presented its definitive
written valuation analysis, which indicated that, as of such date and based upon
and subject to the considerations and limitations set forth in the opinion,
BRS's offer of $14.00 per share to be paid in cash was fair, from a financial
point of view, to Il Fornaio stockholders other than the continuing
stockholders. The special committee again determined that the offer made by BRS
in the proposed merger agreement and the merger was fair to, and in the best
interests of, Il Fornaio stockholders other than the continuing stockholders.
Immediately following the special committee's meeting on November 14, 2000,
the special committee and its advisors met by telephonic conference call with
the full board of directors of Il Fornaio and its legal counsel. The special
committee provided an oral report on the committee's findings and recommended to
the full board of directors of Il Fornaio that it approve the merger agreement
proposed by BRS and the merger, as well as the proposed securities purchase and
contribution agreement and voting agreement. After consideration of the facts
and circumstances, Evercore's valuation analysis and fairness opinion, the
special committee's recommendation and its own review of the terms of the
merger, the board resolved to approve the proposed merger agreement, as well as
the proposed securities purchase and contribution agreement and voting
agreement, upon receipt of a signed settlement agreement with the S.F.
investment firm, and to recommend that the stockholders of Il Fornaio approve
and adopt the merger agreement and the merger.
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<PAGE> 39
On November 15, 2000, the S.F. investment firm and Il Fornaio executed the
mutual release and settlement of claims agreement on the terms discussed above.
On November 15, 2000, the merger agreement was finalized and executed, and
the continuing stockholders and BRS each executed the securities purchase and
contribution agreement and the voting agreement. On November 16, 2000, before
the opening of trading on the Nasdaq National Market, Il Fornaio issued a press
release announcing the execution of the merger agreement with BRS.
During the weeks of December 25, 2000 and January 1, 2001, legal counsel
for BRS distributed drafts of an amended merger agreement and an amended
securities purchase and contribution agreement, revised to specify the mechanism
by which the equity interests of the continuing stockholders would be continued
in the surviving corporation and the nature of those interests, as well as an
amended voting agreement. Between December 28, 2000 and January 9, 2001,
discussions regarding these proposed amended agreements continued among the
various legal counsel for continuing stockholders, Il Fornaio, the special
committee and BRS.
On January 9, 2001, the special committee met with its advisors to discuss
the proposed amended agreements. The special committee determined that the
method for continuing the equity interests of the continuing stockholders, and
the interests to be received, specified in the amended agreements were
consistent with the original agreements and were in the best interests of Il
Fornaio stockholders other than the continuing stockholders. The special
committee agreed to recommend that the Il Fornaio board of directors approve the
proposed amended agreements.
Following the special committee's meeting on January 9, 2001, the special
committee and its advisors met by telephonic conference call with the full board
of directors of Il Fornaio and its legal counsel. The special committee provided
an oral report on the committee's findings and recommended to the full board of
directors of Il Fornaio that it approve the proposed merger agreement, as
amended, the securities purchase and contribution agreement, as amended, and the
voting agreement, as amended. After consideration of the facts and
circumstances, the special committee's recommendation and its own review of the
proposed amended agreements, the board resolved to approve the proposed merger
agreement, as amended, the proposed securities purchase and contribution
agreement, as amended, and the proposed voting agreement, as amended, and to
recommend that the stockholders of Il Fornaio approve and adopt the merger
agreement, as amended, and the merger. Shortly thereafter, the amended
agreements were signed.
RECOMMENDATION OF THE BOARD OF DIRECTORS; FAIRNESS OF THE MERGER
The special committee of the board of directors has unanimously determined
that the terms of the merger agreement and the proposed merger are fair to, and
in the best interests of, Il Fornaio stockholders other than the continuing
stockholders. The special committee unanimously recommended to the board of
directors that the merger agreement and the merger be approved and adopted. The
special committee considered a number of factors, as more fully described above
under "-- Background of the Merger" and as described below under "-- Reasons for
the special committee's determination," in determining to make its
recommendation. The board of directors, acting upon the recommendation of the
special committee, unanimously determined that the terms of the merger agreement
and the proposed merger are fair to, and in the best interests of, Il Fornaio
stockholders other than the continuing stockholders. The board of directors,
based on the unanimous recommendation of the special committee, unanimously
recommends that Il Fornaio stockholders vote FOR the approval and adoption of
the merger agreement and the merger.
REASONS FOR THE SPECIAL COMMITTEE'S DETERMINATION. In recommending approval
and adoption of the merger agreement and the merger to the board of directors,
the special committee considered a number of factors that it believed supported
its recommendation, including:
- current market prices for Il Fornaio common stock, the fluctuation in
historical trading prices of Il Fornaio common stock over the last
several years and the fact that since mid-1998 Il Fornaio
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common stock had largely traded below the merger consideration of $14.00
per share, which merger consideration represented a 44.5% premium over
the closing price per share on November 9, 2000;
- the special committee's belief, after considering the Company's past
efforts to pursue strategic alternatives to the merger, that many of the
potential acquirors of the Company had determined not to pursue an
acquisition of the Company or had submitted unsatisfactory offers;
- Il Fornaio's prospects as an independent, publicly held entity, taking
into account the tension between Il Fornaio's current strategy of
controlled growth and the expectations of the public markets for rapid
growth and short-term results, as well as the potential for increased
variability in financial performance arising out of the impact of new
restaurant introductions on Il Fornaio's relatively small base of
restaurant operations;
- the limitations Il Fornaio suffered and would likely continue to suffer
as a public company, including its relatively low trading volume, limited
institutional sponsorship and diminished research attention from
analysts, all of which could adversely affect the trading market and
market value of Il Fornaio common stock;
- the efforts of Il Fornaio and Evercore, commencing in March 1999 and
continuing over the subsequent five months, to pursue strategic
alternatives for the Company, including a potential sale of the Company,
which resulted in only one offer to acquire Il Fornaio, which offer was
ultimately withdrawn prior to execution of a definitive agreement;
- the presentations of Evercore at various special committee meetings and
its definitive written valuation analysis at the November 14, 2000
meeting, including the opinion of Evercore as to the fairness, from a
financial point of view, of the merger consideration to the holders of Il
Fornaio common stock other than the continuing stockholders, including
Evercore's advice that the proposed purchase price was at the high end of
the range a financial buyer like BRS could reasonably be expected to
offer;
- the stated position of BRS, following the special committee's efforts to
negotiate a higher price, that $14.00 per share was the highest price it
was willing to pay;
- the business reputation and financial resources of BRS and BRS's track
record in structuring and completing transactions similar to the merger
and the belief that BRS had the ability to complete the merger in a
timely manner;
- the financing commitments received by BRS with respect to the
transaction;
- the special committee's knowledge of Il Fornaio's business, operations,
assets, financial condition, operating results and prospects, which the
special committee considered in light of the premium offered under the
terms of the merger agreement;
- the fact that the consideration to be received by Il Fornaio stockholders
in the merger would consist entirely of cash, eliminating any
uncertainties in valuing the merger consideration to be received by Il
Fornaio stockholders;
- the fact that the merger agreement did not preclude the board or the
special committee from considering unsolicited competing acquisition
proposals that are, or are reasonably likely to lead to, proposals
superior to the transactions contemplated by the merger agreement, as
described in "The Merger Agreement -- No Solicitation," "The Merger
Agreement -- Termination" and "The Merger Agreement -- Termination Fee
and Expense Reimbursement;"
- the special committee's belief that the merger agreement, including the
termination fee and reimbursement of out-of-pocket fees and expenses
payable to Newco if the merger agreement is terminated for any of the
reasons discussed in "The Merger Agreement -- Termination " and "The
Merger Agreement -- Termination Fee and Expense Reimbursement," should
not unduly discourage superior third-party offers and that the
termination fee is within the range of fees payable in comparable
transactions; and
32
<PAGE> 41
- the ability of stockholders who may not support the merger to obtain
"fair value" for their shares if they properly perfect and exercise their
appraisal rights under Delaware law, as discussed in "-- Appraisal
Rights."
The special committee also determined that the merger is procedurally fair
because, among other things:
- the Il Fornaio board of directors established a special committee to
consider and negotiate the merger agreement;
- the special committee, which consists solely of directors who are not
officers or employees of Il Fornaio and have no financial interest in the
proposed merger different from Il Fornaio stockholders generally, was
given exclusive authority to, among other things, evaluate, negotiate and
recommend the terms of any proposed transaction;
- members of the special committee will have no continuing interest in Il
Fornaio after completion of the merger;
- the special committee retained and received advice from its own legal
counsel and financial advisors in evaluating, negotiating and
recommending the terms of the merger agreement;
- the $14.00 per share cash consideration and the other terms and
conditions of the merger agreement resulted from arm's-length bargaining
between the special committee and its representatives, on the one hand,
and BRS and its representatives, on the other hand; and
- the affirmative vote of a majority of the outstanding Il Fornaio shares
entitled to vote on the matter is required under Delaware law to approve
and adopt the merger agreement and, under Delaware law, Il Fornaio
stockholders have the right to demand appraisal of their shares.
The special committee also considered a variety of risks and other
potentially negative factors concerning the merger. These included the
following:
- in the event of a wrongful termination or material breach of the merger
agreement, Il Fornaio's only recourse may be against Newco, a company
without assets;
- the obligation of Newco to complete the merger is conditioned upon
financing being made available to Newco, as discussed in "-- Merger
Financing," and Newco may not secure financing for a variety of reasons,
including reasons beyond the control of Il Fornaio;
- if the merger is not consummated under circumstances further discussed in
"The Merger Agreement -- Termination" and "The Merger
Agreement -- Termination Fee and Expense Reimbursement," Il Fornaio may
be required to pay to Newco specified termination fees and expenses;
- certain terms and conditions set forth in the merger agreement, required
by BRS as a prerequisite to entering into the merger agreement, prohibit
Il Fornaio and its representatives from soliciting third-party bids and
accepting, approving or recommending third-party bids except in specified
circumstances and upon payment to Newco of specified termination fees and
expenses, and these terms could have the effect of discouraging a third
party from making a bid to acquire Il Fornaio;
- the cash consideration to be received by a stockholder will generally be
taxable to the stockholder in an amount equal to the excess of $14.00
over the stockholder's tax basis in the stockholder's shares of Il
Fornaio common stock;
- as discussed in "-- Interests of Il Fornaio Directors and Officers in the
Merger," the continuing stockholders have potential conflicts of
interest, including equity interests in Il Fornaio as the surviving
corporation, continued employment and accelerated vesting of stock
options; and
33
<PAGE> 42
- following the merger, Il Fornaio stockholders, other than the continuing
stockholders, will cease to participate in any future earnings growth of
Il Fornaio or benefit from any increase in the value of the Company.
In considering the merger, the special committee considered Evercore's
"Selected Comparable Company Analysis," "Selected Comparable Transaction
Analysis" and "Leveraged Buyout Analysis" to be the most relevant measures to
determine the going-concern value of Il Fornaio. The special committee also
viewed Evercore's "Discounted Cash Flow Analysis" and "Analysis of Present Value
of Future Stock Price" as relevant but more subjective because these valuation
methods primarily reflected estimates of Il Fornaio's disposition value or stock
price in five years. The special committee did not ask Evercore to attempt to
determine the liquidation value of Il Fornaio and gave little consideration to
the book value of Il Fornaio (which was $7.96 per share at November 14, 2000)
because it believed that those measures of asset value were not relevant to the
market value of Il Fornaio's business and would be considerably less than the
merger consideration of $14.00 per Il Fornaio share. While the special committee
reviewed with Evercore its various financial analyses and reviewed with officers
of Il Fornaio its historical and projected results, the special committee did
not independently generate its own separate financial analysis of the merger.
After considering these factors, the special committee concluded that the
positive factors relating to the merger outweighed the negative factors. Because
of the variety of factors considered, the special committee did not find it
practicable to quantify or otherwise assign relative weights to, and did not
make specific assessments of, the specific factors considered in reaching its
determination. However, individual members of the special committee may have
assigned different weights to various factors. The determination of the special
committee was made after consideration of all of the factors together.
REASONS FOR THE BOARD OF DIRECTORS' DETERMINATION. The Il Fornaio board
consists of seven directors, two of whom serve on the special committee. The
remaining five directors are continuing stockholders. At the November 7, 2000
and November 14, 2000 meetings of the board, the special committee, with its
legal and financial advisers participating, reported to the other members of the
board on the course of its negotiations with BRS and its legal counsel, its
review of the merger agreement and the related financing commitments and the
factors it took into account in reaching its determination that the merger is
fair to, and in the best interests of, Il Fornaio stockholders other than the
continuing stockholders. At the January 9, 2001 meeting of the board, the
special committee, with its legal counsel participating, reported to the other
members of the board on its review of the amended merger agreement and the
factors it took into account in reaching its determination that, under the
amended agreements, the merger is fair to, and in the best interests of, Il
Fornaio stockholders other than the continuing stockholders. In view of the wide
variety of factors considered in its evaluation of the proposed merger, the
board did not find it practicable to quantify or otherwise assign relative
weights to, and did not make specific assessments of, the specific factors
considered in reaching its determination. Rather, the board based its position
on the totality of the information presented and considered. In connection with
its consideration of the determination by the special committee, as part of its
determination with respect to the merger, the board of directors adopted the
conclusion, and the analysis underlying such conclusion, of the special
committee, based upon its view as to the reasonableness of that analysis.
FAIRNESS OF THE MERGER TO DISINTERESTED STOCKHOLDERS. The board of
directors believes that the merger agreement and the proposed merger are
substantively and procedurally fair to, and in the best interests of, Il Fornaio
stockholders other than the continuing stockholders for all of the reasons set
forth above. In addition, with respect to procedural fairness, the board
established the special committee, consisting of two directors of Il Fornaio,
neither of whom is an officer or employee of Il Fornaio or has an interest in
the proposed merger different from that of Il Fornaio stockholders generally.
The merger consideration of $14.00 in cash per share was the highest price BRS
indicated it was willing to pay following arms'-length negotiations between the
special committee and representatives of BRS.
34
<PAGE> 43
In reaching these conclusions, the board considered it significant that:
- no member of the special committee has an interest in the proposed merger
different from that of Il Fornaio stockholders generally;
- the special committee retained its own financial and legal advisors who
have extensive experience with transactions similar to the merger and who
assisted the special committee in the negotiations with BRS; and
- Evercore was retained to advise the special committee as to the fairness,
from a financial point of view, of the proposal received from BRS or any
third party, and Evercore had reached the conclusion expressed in its
written opinion dated November 14, 2000 that, subject to the
considerations and limitations set forth in the opinion, the transaction
was fair, from a financial point of view, to the stockholders of Il
Fornaio other than the continuing stockholders.
The board believes that the merger agreement and the proposed merger are
substantively and procedurally fair to Il Fornaio stockholders other than the
continuing stockholders for all of the reasons and factors described above, even
though the merger agreement does not require that a majority of Il Fornaio's
disinterested stockholders vote in favor of the approval and adoption of the
merger agreement and the merger in order to complete the merger, and even though
no disinterested representative, other than the special committee and its
advisors, was retained to act solely on behalf of the disinterested
stockholders.
THE BOARD OF DIRECTORS, BASED ON THE UNANIMOUS RECOMMENDATION OF THE
SPECIAL COMMITTEE, UNANIMOUSLY RECOMMENDS THAT IL FORNAIO STOCKHOLDERS VOTE IN
FAVOR OF THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT AND THE MERGER.
FORWARD-LOOKING INFORMATION
Il Fornaio does not, as a matter of course, make public projections as to
future sales, earnings or other results. However, in connection with the
possible sale of Il Fornaio, the Company's management prepared and provided to
BRS, the special committee and Evercore the projections set forth below for the
five fiscal years ending December 26, 2004.
Il Fornaio did not prepare the projections below with a view to public
disclosure or compliance with published guidelines of the Securities and
Exchange Commission, referred to as the Commission, or the guidelines
established by the American Institute of Certified Public Accountants regarding
projections. Neither Il Fornaio's independent auditors, nor any other
independent accountants, have compiled, examined or performed any procedures
with respect to these projections, nor have they expressed any opinion or other
form of assurance with respect to these projections or their achievability, and
assume no responsibility for, and disclaim any association with, them. Neither
Il Fornaio, the Il Fornaio board of directors, the special committee nor any of
their advisors, agents or representatives assumes any responsibility for the
accuracy of any of these projections, and each believes that, because
projections of this type are based on a number of significant uncertainties and
contingencies, all of which are difficult to predict and most of which are
beyond Il Fornaio's control, there can be no assurance that any of these
projections will be realized.
The projections below are or involve forward-looking statements, assume
that the merger has occurred and are based upon a variety of assumptions,
including Il Fornaio's ability to achieve strategic goals, objectives and
targets over the applicable period. These assumptions involve judgments with
respect to future economic, competitive and regulatory conditions, financial
market conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond Il Fornaio's
control. Many important factors, in addition to those discussed elsewhere in
this proxy statement, could cause Il Fornaio's results to differ materially from
those expressed or implied by the forward-looking statements. These factors
include the Company's competitive environment, its ability to open new
restaurants on a timely basis and the performance of those restaurants, economic
and other
35
<PAGE> 44
market conditions in which it operates and matters affecting business generally,
all of which are difficult to predict and many of which are beyond Il Fornaio's
control. Accordingly, there can be no assurance that the projections are
indicative of Il Fornaio's future performance or that actual results will not
differ materially from those in the projections set forth below. See "Cautionary
Statement Regarding Forward-Looking Statements."
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------------------------
2000 2001 2002 2003 2004
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Restaurant and bakery sales......... $122,704 $132,849 $141,781 $147,188 $152,708
Profit Center Income................ $ 15,590 $ 17,327 $ 19,801 $ 20,856 $ 21,959
Operating Income.................... $ 5,423 $ 9,335 $ 11,748 $ 12,647 $ 13,590
Net Income.......................... $ 3,496 $ 5,932 $ 4,070 $ 4,881 $ 5,750
</TABLE>
In preparing the financial projections, Il Fornaio employed the following
key assumptions:
PROJECTED STORE OPENINGS. The financial projections prepared for BRS were
designed to focus primarily on projected operating results for the existing
business, with less emphasis on projecting new restaurant and bakery openings.
Accordingly, for each fiscal year, only one new restaurant was projected to
open, although Il Fornaio has in the past opened more than one new restaurant in
any fiscal year. Management of Il Fornaio did discuss with BRS the possibility
that, if appropriate sites were located, additional restaurants could be opened,
although no projections were discussed in that regard. Restaurants were
projected to open in April of each year, except that, in 2001, the restaurant
was projected to open in November. During the period, only one new wholesale
bakery was projected to open, although Il Fornaio has opened two new wholesale
bakeries in the last three fiscal years and may in the future open more new
wholesale bakeries than projected. The projected opening date for the wholesale
bakery was April 2001. As of December 15, 2000, no leases have been executed for
any of these locations other than for the locations scheduled to open in 2001.
NET SALES. Net sales projections were based on projected comparable store
sales growth, together with projected annual sales for new stores. Il Fornaio
defines comparable store sales to include a new restaurant or bakery only after
its first full month following the eighteenth month of its operation.
RESTAURANTS. The projections assumed that comparable store restaurant
sales increase at a compound annual rate of approximately 1%. New
restaurants were assumed to generate approximately $3.75 million in annual
sales for the fiscal year, except that the annual sales for the new
restaurant projected to open in November 2001 were assumed to be $4.5
million in its first year of operation. Sales for new restaurants that have
been open between 12 and 18 months were assumed to increase at an annual
rate of 3% prior to their inclusion in the comparable store sales growth
calculation.
WHOLESALE BAKERIES. Comparable store wholesale bakery sales were
assumed to increase at a compound annual rate of 3%. Sales for the new
wholesale bakery projected to open in 2001 were assumed to increase at an
average compound annual growth rate of approximately 15% per year, with
sales for 2005 projected to be $2.5 million.
EXPENSES. Expense projections were based primarily on current expense
patterns at the restaurant and bakery level. General and administrative costs
were projected to decline substantially as a result of anticipated post-merger
cost savings, such as elimination of administrative costs associated with
operations as a public company, as well as various planned reductions
anticipated to result from the implementation of cost control initiatives.
Fiscal 2001 assumed a full year of planned savings; however, general and
administrative expenses were projected to increase at a compound annual rate of
1% to 2% from 2002 to 2005.
CAPITAL EXPENDITURES. Capital expense projections assumed that each new
restaurant would require, on average, a total investment, net of assumed
landlord contributions, of approximately $2.2 million. Capital expense
projections for existing restaurants and bakeries were based primarily on recent
historical
36
<PAGE> 45
spending patterns. For fiscal 2001, capital expense projections were based on
the pro forma budgets, net of assumed landlord contributions, calculated for the
new restaurant and new wholesale bakery expected to be opened in fiscal 2001,
along with projected expenses associated with a planned expansion to the
existing Pasadena, California restaurant.
PROFIT CENTER INCOME. Profit center income, which is defined as income
before general and administrative expenses, pre-opening costs, interest and
taxes, was projected to remain relatively consistent with historical levels in
fiscal 2000 as a percentage of sales for the majority of comparable stores;
however, small increases in profit center income were projected over the period
to reflect, on a store-by-store basis, anticipated store maturation, as well as
planned improvements and initiatives.
OPERATING INCOME. Operating income, which is defined as income before
interest and taxes, was projected to increase primarily as a result of an
expected substantial reduction in general and administrative expenses, as well
as the factors taken into account in projecting profit center income.
TAXES. The combined federal and state tax rate was projected to be 38.5%,
compared to historical levels of 38.5% in 1999 and 37.5% in 2000.
OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE
The special committee retained Evercore to act as the special committee's
financial advisor and to render a fairness opinion, from a financial point of
view, in connection with the merger. On November 14, 2000, Evercore delivered
its oral opinion, which was confirmed in a written opinion letter to the special
committee that, as of that date and subject to the considerations and
limitations set forth in the written opinion, the merger consideration to be
received by the stockholders of Il Fornaio pursuant to the merger was fair, from
a financial viewpoint, to the Il Fornaio stockholders other than the continuing
stockholders. Although its opinion was addressed to the special committee,
Evercore has expressly permitted the board of directors of Il Fornaio to rely on
its opinion.
The full text of the written opinion of Evercore is set forth as Appendix B
to this proxy statement and describes the assumptions made, general procedures
followed, matters considered and limits on the review undertaken. The summary of
Evercore's opinion set forth below is qualified in its entirety by reference to
the full text of the opinion. Evercore was not asked to pass upon, and expressed
no opinion with respect to, any matter other than the fairness from a financial
point of view of the merger consideration to be received by the stockholders of
Il Fornaio, other than the continuing stockholders, pursuant to the merger.
Evercore's opinion does not address Il Fornaio's underlying business decision to
effect the merger nor does it constitute a recommendation to any Il Fornaio
stockholder as to how such holder should vote with respect to the matters
submitted to such stockholders in connection with the merger. STOCKHOLDERS OF IL
FORNAIO ARE URGED TO READ THE OPINION CAREFULLY AND IN ITS ENTIRETY.
In connection with rendering its opinion, Evercore, among other things:
- analyzed certain publicly available financial statements and other
information relating to Il Fornaio;
- analyzed certain internal financial statements and other financial and
operating data concerning Il Fornaio prepared by and furnished to
Evercore by the management of Il Fornaio;
- analyzed certain financial projections concerning Il Fornaio prepared by
and furnished to Evercore by the management of Il Fornaio (see
"-- Forward-Looking Information");
- discussed the past and current operations and financial condition and the
prospects of Il Fornaio with the management of Il Fornaio;
- reviewed the reported prices and trading activity of the common stock of
Il Fornaio;
- compared the financial performance of Il Fornaio and the prices and
trading activity of the common stock of Il Fornaio with that of certain
other comparable publicly traded companies and their securities;
37
<PAGE> 46
- reviewed the financial terms to the extent available of certain
comparable transactions;
- participated in discussions and negotiations among representatives of Il
Fornaio, BRS and their advisers;
- reviewed the merger agreement and the related agreements, exhibits and
schedules in substantially final form and assumed that the final form of
such agreements, exhibits and schedules will not vary in any respect
material to its analysis; and
- performed such other analyses and examinations and considered such other
factors as Evercore, in its sole judgment, deemed appropriate.
For purposes of its analyses and opinion, Evercore relied upon and did not
assume any responsibility for independently verifying the accuracy and
completeness of the information reviewed by Evercore or reviewed for Evercore.
With respect to the financial projections of Il Fornaio that were provided to
Evercore, Evercore assumed that they were reasonably prepared by Il Fornaio, on
bases reflecting the best currently available estimates and good faith judgments
of the future competitive, operating and regulatory environments and related
financial performance of Il Fornaio. Evercore did not make, or assume any
responsibility for making, any independent valuation or appraisal of the assets
or liabilities (contingent or otherwise) of Il Fornaio, including real estate
assets, or conducting any physical inspection of Il Fornaio's properties or
facilities, nor was it furnished with any such appraisals. Evercore's opinion
was necessarily based on economic, market and other conditions as in effect on,
and the information and form of merger agreement made available to Evercore as
of, November 14, 2000, and Evercore assumed no responsibility to update or
revise its opinion based on circumstances or events occurring after November 14,
2000. Evercore's definitive written analysis presented to the special committee
on November 14, 2000 is filed as an exhibit to the Schedule 13E-3 filed by the
Company with the Commission.
For purposes of rendering its opinion, Evercore assumed, in all respects
material to its analyses, that all conditions to the consummation of the merger
would be satisfied without being waived.
Evercore's opinion, and the presentation of Evercore to the special
committee, was only one of the many factors taken into consideration by the
special committee, in making its determination to recommend, and by the full
board of directors, in making its determination to approve, the terms of the
merger agreement and the proposed merger. See "-- Reasons for the special
committee's determination." The terms of the merger were determined through
negotiations between the special committee and BRS and were approved by the
special committee. The decision to recommend to the full board of directors the
approval of the terms of the merger agreement and the proposed merger, including
the merger consideration to be paid to the public stockholders, was solely that
of the special committee.
In connection with a presentation to the board of directors on November 14,
2000, Evercore advised the special committee and the board of directors that, in
evaluating the fairness of the consideration to be paid in connection with the
merger, Evercore had performed a variety of financial analyses with respect to
Il Fornaio. The material portions of the analyses performed by Evercore in
connection with rendering its opinion are summarized below:
PROPOSED CONSIDERATION. Based on the proposed $14.00 per share merger
consideration to be paid to the stockholders of Il Fornaio for each share of Il
Fornaio common stock and the capitalization data provided by Il Fornaio
management, Evercore calculated the implied aggregate equity value of Il Fornaio
to be approximately $92 million, and implied aggregate "enterprise value"
(equity value, plus debt, less cash) to be approximately $89 million. Based on
these implied aggregate equity and enterprise values for Il Fornaio, and on Il
Fornaio's last 12 months ("LTM") and projected EBITDA (earnings before interest,
38
<PAGE> 47
taxes, depreciation and amortization), Evercore calculated the following
valuation multiples for the proposed merger:
<TABLE>
<CAPTION>
IMPLIED MULTIPLE
----------------
<S> <C>
Enterprise Value/LTM EBITDA................................. 8.1x
Enterprise Value/2000E EBITDA............................... 7.9
Enterprise Value/2001E EBITDA............................... 5.7
Equity Value/LTM Net Income................................. 28.0x
Equity Value/2000E Net Income............................... 24.1
Equity Value/2001E Net Income............................... 17.3
</TABLE>
RECENT STOCK PRICE ANALYSIS. Evercore compared the multiples based on the
$14.00 per share merger consideration to the implied multiples based on Il
Fornaio's stock price on November 9, 2000, the most recent available trading
day, and the average share price for the 30 days ended on that date. This
analysis yielded the following results:
<TABLE>
<CAPTION>
IMPLIED MULTIPLES BASED ON:
--------------------------------------------------------------
NOVEMBER 9, 2000 AVERAGE OF SHARE PRICES
$14.00 MERGER CLOSING PRICE FOR 30 DAYS ENDING
CONSIDERATION OF $9.69 NOVEMBER 9, 2000 ($8.99)
------------- ---------------- -------------------------
<S> <C> <C> <C>
Enterprise Value/LTM EBITDA...... 8.1x 5.2x 4.7x
Enterprise Value/2000 EBITDA..... 7.9 5.1 4.6
Enterprise Value/2001 EBITDA..... 5.7 3.6 3.3
Equity Value/LTM Net Income...... 28.0x 19.4x 18.0x
Equity Value/2000E Net Income.... 24.1 16.7 15.5
Equity Value/2001E Net Income.... 17.3 12.0 11.1
</TABLE>
These analyses indicate that the implied valuation multiples above based on
the merger consideration of $14.00 per share represent a premium to the
multiples implied by Il Fornaio's recent stock price performance.
SELECTED COMPARABLE COMPANY ANALYSIS. Evercore compared financial and
operating information relating to Il Fornaio to the corresponding data from a
group of 12 publicly traded companies with operations similar to those of Il
Fornaio in order to compare the valuation implied by the merger consideration to
the valuation for public companies with similar operations. The following list
of companies was used for purposes of this analysis:
- Applebee's International, Inc.
- Brinker International, Inc.
- BUCA, Inc.
- California Pizza Kitchen, Inc.
- CBRL Group, Inc.
- Cheesecake Factory Incorporated
- Consolidated Products, Inc.
- Darden Restaurants, Inc.
- Morton's Restaurant Group, Inc.
- O'Charley's Inc.
- Outback Steakhouse, Inc.
- P.F. Chang's China Bistro, Inc.
Based on the comparable companies' share prices as of the most recent
practicable trading day, November 9, 2000, and Wall Street research analysts'
consensus estimates of earnings per share and EBITDA for these companies,
Evercore calculated valuation multiples for the comparable companies equal
39
<PAGE> 48
to the quotient of their respective valuation data, such as enterprise value and
equity value, and their associated most recently available operating data, such
as EBITDA and earnings per share.
This analysis produced the following valuation data:
<TABLE>
<CAPTION>
IL FORNAIO MULTIPLE COMPARABLE COMPANIES
BASED ON MERGER ---------------------
CONSIDERATION LOW MEDIAN HIGH
------------------- --- ------ ----
<S> <C> <C> <C> <C>
Price/
LTM E.P.S. ........................................ 28.0x 9.8x 16.7x 66.5x
2000E E.P.S. ...................................... 24.1 9.2 15.2 57.0
2001E E.P.S. ...................................... 17.3 8.1 13.2 45.7
Enterprise Value/
LTM EBITDA......................................... 8.1x 5.3x 7.2 26.9x
2000E EBITDA....................................... 7.9 4.5 6.9 24.4
2001E EBITDA....................................... 5.7 3.9 6.1 19.5
</TABLE>
These data indicate that the implied Il Fornaio multiples based on the
merger consideration of $14.00 per share are within the range of multiples for
the selected companies deemed comparable by Evercore.
SELECTED COMPARABLE TRANSACTION ANALYSIS. Evercore reviewed the implied
transaction multiples paid in certain merger and acquisition transactions that
Evercore deemed to be comparable to the merger and compared these multiples to
the multiples implied by the merger consideration of $14.00 per share. The
following selection of mergers and acquisitions of food companies was used for
purposes of this analysis:
- Carrols Corporation/Taco Cabana, Inc.
- Caxton-Iseman Capital, Inc./Buffets, Inc.
- American Securitas Capital Partners/El Pollo Loco, Inc.
- RB Capital, Inc./Rock Bottom Restaurants, Inc.
- Cracker Barrel Old Country Store, Inc./Logan's Roadhouse, Inc.
- Bain Capital, Inc./Domino's Pizza, Inc.
- Consolidated Restaurants Inc./Spaghetti Warehouse, Inc.
- Bruckmann, Rosser, Sherrill & Co. II, L.P./Au Bon Pain Co., Inc.
- Carrols Corporation/Pollo Tropical, Inc.
- N.E. Restaurant Company, Inc./Bertucci's, Inc.
- The Restaurant Company/Perkins Family Restaurants, L.P.
- DavCo Acquisition Holding Inc./DavCo Restaurants, Inc.
- Berkshire Hathaway Inc./International Dairy Queen Inc.
- Cracken Harkey Street & Co/El Chico Restaurants Inc.
- Port Royal Holdings Inc./The Krystal Company
This analysis produced the following valuation data:
<TABLE>
<CAPTION>
ENTERPRISE VALUE TO
LTM EBITDA
-------------------
<S> <C>
Il Fornaio Multiple Based on Merger Consideration........... 8.1x
Restaurant Transactions
Low....................................................... 4.7x
Median.................................................... 7.3
High...................................................... 10.5
</TABLE>
These data indicate that the implied Il Fornaio multiple based on the
merger consideration of $14.00 per share is within the range of multiples for
the selected comparable transactions.
40
<PAGE> 49
PREMIUMS PAID ANALYSIS. Evercore analyzed the premiums paid relative to
public market pre-announcement trading prices for a selected group of
transactions that Evercore deemed to be comparable to the merger and compared
these premiums to the premium implied by the merger consideration of $14.00 per
share. The following selection of transactions was used for this analysis:
- Carrols Corporation/Taco Cabana, Inc.
- Caxton-Iseman Capital, Inc./Buffets, Inc.
- RB Capital, Inc./Rock Bottom Restaurants, Inc.
- Cracker Barrel Old Country Store, Inc./Logan's Roadhouse, Inc.
- Consolidated Restaurants Inc./Spaghetti Warehouse, Inc.
- N.E. Restaurant Company, Inc./Bertucci's, Inc.
- Restaurant Company, Inc./Perkins Family Restaurants, L.P.
- DavCo Acquisition Holding Inc./DavCo Restaurants, Inc.
- Berkshire Hathaway Inc./International Dairy Queen Inc.
- Cracken Harkey Street & Co/El Chico Restaurants Inc.
- Port Royal Holdings Inc./The Krystal Company
Evercore analyzed the premium data based on the trading prices for both one
day and one month prior to the announcement of a transaction. This analysis
produced the following data:
<TABLE>
<CAPTION>
PREMIUM PAID TO
---------------------------------------
SHARE PRICE AVERAGE OF SHARE PRICES
ONE DAY FOR 30-DAY PERIOD
PRIOR TO PRIOR TO
ANNOUNCEMENT ANNOUNCEMENT
------------ -----------------------
<S> <C> <C>
Il Fornaio Based on Merger Consideration........... 44.5%(1) 55.7%(2)
Average of Selected Transactions................... 49.6% 54.5%
Median of Selected Transactions.................... 34.2% 35.0%
</TABLE>
-------------------------
(1) Premium based on closing share price as of November 9, 2000.
(2) Premium based on average of share prices for the 30-day period prior to
November 9, 2000.
The implied Il Fornaio premium percentages based on the merger
consideration of $14.00 per share are within the range of premium percentages
based on the premiums-paid data for the selected transactions.
DISCOUNTED CASH FLOW ANALYSIS. Evercore performed a discounted cash flow
analysis on Il Fornaio in which it calculated the sum of the present values of
(1) management's projection of future cash flows for Il Fornaio for 2001 through
2003 and Evercore's projection of future cash flows for Il Fornaio for 2004
through 2005 and (2) the estimated terminal value for Il Fornaio at the end of
the five-year time period.
In making these calculations, Evercore applied a range of terminal value
EBITDA multiples of 6.0x to 7.0x and a range of discount rates of 11.0% to
13.0%, based on weighted average cost-of-capital computations, and qualitative
assessments of Il Fornaio's projected results and the risks inherent therein.
This analysis yielded the following implied per share equity values for shares
of Il Fornaio common stock:
<TABLE>
<CAPTION>
TERMINAL EBITDA MULTIPLE
--------------------------
DISCOUNT RATE 6.0X 6.5X 7.0X
------------- ------ ------ ------
<S> <C> <C> <C>
11.0%.................................................... $15.05 $15.96 $16.88
13.0%.................................................... 13.96 14.80 15.63
15.0%.................................................... 12.98 13.75 14.51
</TABLE>
This analysis indicated a valuation range of Il Fornaio common stock of
$12.98 per share to $16.88 per share, as compared to the merger consideration of
$14.00 per share.
41
<PAGE> 50
LEVERAGED BUYOUT ANALYSIS. Evercore estimated the share prices that an
equity investor would be willing to pay for Il Fornaio in a leveraged buyout
based on a number of assumptions, including the capital structure for such a
transaction, the required rate of return for the investor and the terminal value
exit multiple for the Company.
Evercore assumed a range of required rates of return for the equity
investor of 20% to 30% based on Evercore's judgment of the returns expected by
equity investors in leveraged transactions. The return was calculated over a
five-year time horizon with an assumed exit valuation of 7.0x 2005 EBITDA. The
analysis yielded the following implied equity values per share:
<TABLE>
<CAPTION>
REQUIRED 5-YEAR IRR MAXIMUM OFFER PRICE
------------------- -------------------
<S> <C>
20.0%................................................... $14.02
25.0%................................................... $12.94
30.0%................................................... $12.10
</TABLE>
This analysis indicated a valuation range of Il Fornaio common stock of
$12.10 per share to $14.02 per share, as compared to the merger consideration of
$14.00 per share.
ANALYSIS OF PRESENT VALUE OF FUTURE STOCK PRICE. Evercore analyzed the
present value of Il Fornaio's future stock price based on projecting the
Company's future earnings per share, applying a projected future price/earnings
multiple based on valuation multiples for comparable companies and discounting
the estimated future stock price to the present time period based on a range of
estimates for the Company's cost of capital.
This analysis was performed using two methodologies in projecting Il
Fornaio's future earnings per share. The first methodology used Wall Street
research analysts' consensus long-term earnings growth rate to project Il
Fornaio's earnings per share to 2005. The second methodology assumed
management's projections for earnings per share until 2003, and then projected
earnings per share for 2004 and 2005 based on the Wall Street research analysts'
consensus for long term-earnings growth rate.
Evercore assumed a future price/earnings multiple of 15.0x 2005 projected
earnings per share, based on trading valuations of comparable companies. In
addition, Evercore discounted back the future stock price at different estimates
of Il Fornaio's equity cost of capital ranging from 11.0% to 15.0%. This
analysis yielded the following implied equity values per share:
<TABLE>
<CAPTION>
PRESENT VALUE OF FUTURE STOCK PRICE
----------------------------------------------------------
MANAGEMENT AND
DISCOUNT RATE CONSENSUS ANALYST ESTIMATES CONSENSUS ANALYST ESTIMATES
------------- --------------------------- ---------------------------
<S> <C> <C>
11.0%................................ $12.85 $15.00
13.0%................................ 11.75 13.72
15.0%................................ 10.76 12.56
</TABLE>
This analysis indicated a valuation range of Il Fornaio common stock of
$10.76 per share to $15.00 per share, as compared to the merger consideration of
$14.00 per share.
The foregoing summary does not purport to be a complete description of the
analysis performed by Evercore or of its presentation to the special committee.
The preparation of a fairness opinion is a complex process involving various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and, therefore, is not necessarily susceptible to partial analysis or summary
description. Selecting portions of the analysis or the summary set forth above,
without considering the analysis as a whole, could create an incomplete view of
the processes underlying the opinion of Evercore. In arriving at its fairness
determination, Evercore considered the results of all these constituent analyses
and did not attribute any particular weight to any particular factor or analysis
considered by it; rather, Evercore made its determination as to fairness on the
basis of its experience and professional judgment after considering the results
of all such analyses. No company or transaction used in any of the above
analyses as a comparison is directly comparable to
42
<PAGE> 51
Il Fornaio or the merger. Analyses based upon forecasts of future results are
not necessarily indicative of actual future results, which may be significantly
more or less favorable than suggested by such analyses. Analyses and estimates
of the values of companies do not purport to be appraisals or necessarily
reflect the prices at which companies or their securities may be sold.
Evercore is a nationally recognized investment banking firm that is
regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions. The special committee retained
Evercore based on these qualifications as well as its familiarity with Il
Fornaio. Evercore, in the ordinary course of business has provided, and in the
future may continue to provide, investment banking, financial advisory and other
related services to Il Fornaio, for which it has received or will receive fees.
Pursuant to the terms of an engagement letter with Evercore, Il Fornaio
paid Evercore a fee equal to $200,000 upon the delivery of the fairness opinion.
In addition, under the engagement letter, in the event Il Fornaio were to
receive a competing acquisition proposal, Evercore would provide financial
advisory services to the special committee in evaluating the proposal and would
receive a transaction fee based on a success scale increasing with the value of
a completed transaction. Whether or not the merger is completed, Il Fornaio is
obligated to reimburse Evercore for all of its reasonable out-of-pocket
expenses, including the reasonable fees and disbursements of its counsel,
incurred in connection with its engagement by the special committee, and to
indemnify Evercore against liabilities and expenses in connection with its
engagement. In connection with Evercore's earlier engagement by Il Fornaio, the
Company had reimbursed Evercore $84,336 for its out-of-pocket expenses.
PURPOSE AND STRUCTURE OF THE MERGER
The purpose of the merger for Il Fornaio is to allow Il Fornaio
stockholders to realize the value of their investment in the Company in cash at
a price that represents a premium to the market price of Il Fornaio common stock
before the public announcement of the merger, to permit BRS to acquire majority
ownership of Il Fornaio, to increase the percentage of Il Fornaio stock owned by
the continuing stockholders and to terminate the status of Il Fornaio as a
company with publicly traded equity. The purpose of the merger for Newco and BRS
is to enable BRS, through Newco, to make an investment in, and obtain a
controlling interest in, Il Fornaio as the surviving corporation, and to enable
Il Fornaio stockholders other than the continuing stockholders to realize a
premium on their shares of Il Fornaio common stock. BRS formed Newco for the
sole purpose of engaging in the merger.
The transaction has been structured as a cash merger in order to provide
the public stockholders of Il Fornaio with cash for all of their shares and to
provide a prompt and orderly transfer of ownership of Il Fornaio with reduced
transaction costs.
EFFECTS OF THE MERGER
After the effective time of the merger, current Il Fornaio stockholders,
other than the continuing stockholders, will cease to have ownership interests
in Il Fornaio or rights as Il Fornaio stockholders. Therefore, the current
stockholders of Il Fornaio, other than the continuing stockholders, will not
participate in any future earnings or growth of Il Fornaio and will not benefit
from any appreciation in value of Il Fornaio. Upon completion of the merger,
BRS, the continuing stockholders and BancBoston are expected to own
approximately 58%, 27% and 10%, respectively, of Il Fornaio's common stock and
61%, 29% and 10%, respectively, of Il Fornaio's preferred stock, on a fully
diluted basis. Although their equity investment in Il Fornaio involves
substantial risk resulting from the limited liquidity of the investment, the
high debt-to-equity ratio and consequent substantial fixed charges that will
apply to Il Fornaio following the merger, if Il Fornaio is able to increase
earnings and cash flow sufficient to retire its debt, BRS, the continuing
stockholders and the holders of options and warrants will be the sole
beneficiaries of the future earnings and growth of Il Fornaio, if any.
As a result of the merger, Il Fornaio will be a privately held corporation,
and there will be no public market for its common stock. After the merger, the
common stock will cease to be quoted on the Nasdaq National Market, and price
quotations with respect to sales of shares of common stock in the public
43
<PAGE> 52
market will no longer be available. In addition, registration of the common
stock under the Exchange Act will be terminated. This termination will make
certain provisions of the Exchange Act, such as the short-swing profit recovery
provisions of Section 16(b) and the requirement of furnishing a proxy or
information statement in connection with stockholders' meetings, no longer
applicable to Il Fornaio. After the effective time of the merger, Il Fornaio
will no longer be required to file periodic reports with the Commission.
At the effective time of the merger, the directors of Newco will become the
directors of Il Fornaio and the current management of Il Fornaio is expected, in
general, to remain the management of Il Fornaio as the surviving corporation. At
the effective time of the merger, Il Fornaio's certificate of incorporation
immediately before the effective time of the merger will remain the certificate
of incorporation of the surviving corporation, and the bylaws of Il Fornaio will
be amended to be the same as the bylaws of Newco as in effect immediately before
the effective time of the merger.
It is expected that, following completion of the merger, the operations of
Il Fornaio will be conducted substantially as they are currently being
conducted. Neither Il Fornaio, BRS nor any of the continuing stockholders has
any present plans or proposals that relate to or would result in an
extraordinary corporate transaction following completion of the merger that
would involve Il Fornaio's corporate structure (other than as described under
"-- Interests of Il Fornaio Directors and Officers in the Merger -- Securities
purchase and contribution agreement"), business or management, such as a merger,
reorganization, liquidation, relocation of any operations or sale or transfer of
a material amount of assets. However, Il Fornaio, BRS and the continuing
stockholders will continue to evaluate Il Fornaio's business and operations
after the merger and may develop new plans and proposals that Il Fornaio, BRS or
the continuing stockholders consider to be in the best interests of Il Fornaio
and its stockholders.
Immediately before the effective time of the merger, all outstanding Il
Fornaio stock options will become fully vested, and all Il Fornaio stock options
with an exercise price of less than $14.00 per share, other than certain options
held by the continuing stockholders, will be canceled and the option holder will
receive a cash payment equal to the difference between $14.00 per share and the
exercise price of the option, multiplied by the aggregate number of shares
subject to the option. Options to acquire shares of Il Fornaio common stock with
an aggregate economic value of $4.2 million held by continuing stockholders are
expected to be canceled in exchange for substitute, fully vested options to
acquire preferred stock of Il Fornaio as the surviving corporation. All Il
Fornaio options with exercise prices equal to or greater than $14.00 per share
will be canceled without any payment or other consideration.
Following the merger, Il Fornaio as the surviving corporation will pay to
an affiliate of BRS a yearly management fee equal to the greater of $150,000 or
1% of the earnings, before interest, taxes, depreciation and amortization, of Il
Fornaio as the surviving corporation.
RISK THAT THE MERGER WILL NOT BE COMPLETED
Completion of the merger is subject to various conditions, including, but
not limited to, the following:
- that the merger agreement and the merger will not be approved and adopted
by the holders of a majority of the outstanding shares of Il Fornaio
common stock;
- that Il Fornaio will not secure required third-party consents to the
merger;
- that Newco will not secure the financing necessary to complete the merger
on the terms and conditions set forth in the financing commitments
already obtained or upon terms and conditions no less favorable to Newco,
as further described in "-- Merger Financing;"
- that immediately prior to the effective time Il Fornaio will have
indebtedness for borrowed money, or will not have cash and cash
equivalents of a minimum specified amount;
- that the applicable waiting period under the HSR Act will not have
terminated by May 31, 2001;
44
<PAGE> 53
- that the parties will not have performed in all material respects their
obligations contained in the merger agreement at or before the effective
time of the merger;
- that the representations and warranties made by the parties in the merger
agreement will not be true and correct in all material respects
immediately before the effective time of the merger; and
- that there may be pending or threatened any action or proceeding (1) that
has had or would reasonably be expected to have a material adverse effect
on Il Fornaio or (2) related to the merger to which any governmental
entity is a party.
As a result of the various conditions to the completion of the merger,
there can be no assurance that the merger will be completed even if the
requisite stockholder approval is obtained. It is expected that, if Il Fornaio
stockholders do not approve and adopt the merger agreement and the merger or if
the merger is not completed for any other reason, the current management of Il
Fornaio, under the direction of the board of directors, will continue to manage
Il Fornaio as an ongoing business.
INTERESTS OF IL FORNAIO DIRECTORS AND OFFICERS IN THE MERGER
In considering the recommendations of the board of directors, Il Fornaio
stockholders should be aware that members of Il Fornaio management and board of
directors have interests in the transaction that are different from, or in
addition to, the interests of Il Fornaio stockholders generally. The board of
directors appointed the special committee, consisting solely of directors who
are not officers or employees of Il Fornaio and who have no financial interest
in the proposed merger different from Il Fornaio stockholders generally, to
evaluate, negotiate and recommend the merger agreement and to evaluate whether
the merger is in the best interests of Il Fornaio stockholders other than the
continuing stockholders. The special committee was aware of these differing
interests and considered them, among other matters, in evaluating and
negotiating the merger agreement and the merger and in recommending to the board
of directors that the merger agreement and the merger be approved and adopted.
The board of directors determined that each member of the special committee
would receive $75,000 for his service on the special committee, regardless of
whether any proposed transaction was entered into or is completed.
EXECUTIVE OFFICERS OF THE SURVIVING CORPORATION. Under the terms of the
merger agreement, it is expected that, in general, the current management of Il
Fornaio will remain management of Il Fornaio as the surviving corporation. The
executive officers of Il Fornaio that are expected to remain officers of Il
Fornaio following completion of the merger are Michael J. Hislop (president and
chief executive officer), Peter P. Hausback (chief financial officer, secretary
and vice president of finance) and Michael J. Beatrice (vice president of
operations).
SECURITIES PURCHASE AND CONTRIBUTION AGREEMENT. The continuing
stockholders, BRS and Newco have entered into a Securities Purchase and
Contribution Agreement, as amended as of January 9, 2001, under which the
continuing stockholders will retain or convert shares of Il Fornaio common
stock, cancel options to purchase shares of Il Fornaio common stock and/or pay
cash to acquire an aggregate of approximately 27% of the post-merger common
stock and 29% of the post-merger preferred stock of Il Fornaio, on a fully
diluted basis. The percentage of Il Fornaio's post-merger preferred stock that
the continuing stockholders are expected to hold on a fully diluted basis may
vary depending on the number of shares of Il Fornaio common stock subject to,
and the exercise prices of, the options selected by the continuing stockholders
to be canceled in exchange for substitute options to acquire preferred stock of
the surviving corporation. The opportunity to retain an equity interest in Il
Fornaio as the surviving corporation provides the continuing stockholders with
interests in connection with the merger that are different from, or in addition
to, the interests of Il Fornaio stockholders generally. The dollar amounts of
the investment in Il Fornaio equity and the percentages of Il Fornaio equity to
be beneficially owned immediately after the merger by Laurence B. Mindel and
Michael J. Hislop, each a director and executive officer of Il Fornaio, Dean A.
Cortopassi, W. Scott Hedrick and F. Warren Hellman, each a director of Il
Fornaio, Michael Beatrice and
45
<PAGE> 54
Peter P. Hausback, each an executive officer of Il Fornaio, and Carlo Veggetti,
the Italian creator of the Il Fornaio brand, is expected to be as follows:
<TABLE>
<CAPTION>
INVESTMENT % OF COMMON % OF PREFERRED
NAME AMOUNT STOCK(3) STOCK(3)
---- ----------- ----------- --------------
<S> <C> <C> <C>
Michael Beatrice(1)................. $ 396,398 0.8% 1.4%
Dean A. Cortopassi.................. 1,740,241 3.7% 4.0%
Peter P. Hausback................... 25,000 0.1% 0.1%
W. Scott Hedrick.................... 260,431 0.6% 0.7%
F. Warren Hellman................... 2,007,581 4.2% 4.6%
Michael J. Hislop(2)................ 2,900,000 6.1% 9.5%
Laurence B. Mindel.................. 2,000,000 4.2% 6.2%
Carlo Veggetti...................... 1,116,626 2.4% 2.5%
----------- ---- ----
Total............................. $10,446,277 22.1% 29.0%
=========== ==== ====
</TABLE>
-------------------------
(1) Excludes approximately 5,066 shares of common stock expected to be reserved
for issuance to Mr. Beatrice as an employee incentive, for aggregate
consideration of $70,924.
(2) Excludes approximately 16,042 shares of common stock expected to be issued
to Mr. Hislop as an employee incentive, for aggregate consideration of
$224,588.
(3) Calculated on a fully diluted basis that includes options, warrants and
shares expected to be issued as employee incentives. The percentage of Il
Fornaio's post-merger preferred stock that the continuing stockholders are
expected to hold on a fully diluted basis may vary depending on the number
of shares of Il Fornaio common stock subject to, and the exercise prices of,
the options selected by the continuing stockholders to be canceled in
exchange for substitute options to acquire preferred stock of the surviving
corporation. However, each continuing stockholder's aggregate investment in
equity of the surviving corporation (exclusive of employee incentives) will
be allocated in the same proportion as the investments of BRS and
BancBoston, as follows: 50.0% in Series A preferred and/or options to
acquire Series A preferred; 37.5% in Series B preferred and/or options to
acquire Series B preferred; and 12.5% in common stock.
The continuing stockholders will pay the same price per share as BRS and
BancBoston, but will acquire their shares primarily by exchanging Il Fornaio
capital stock (or options to acquire Il Fornaio capital stock) for securities of
the surviving corporation as well as, to a lesser extent, through the payment of
cash, as follows:
- Immediately prior to the merger, the continuing stockholders will
exchange, on a one-for-one basis, a specified number of shares of Il
Fornaio common stock for shares of three newly created series of Il
Fornaio preferred stock. At the effective time of the merger, shares of
Il Fornaio preferred stock will continue as, or automatically be
converted into, shares of capital stock of the surviving corporation as
follows:
- Each share of Il Fornaio Series A 13.0% cumulative compounding
preferred stock will continue as one share of Series A 13.0%
cumulative compounding preferred stock of the surviving corporation,
referred to as Series A preferred;
- Each share of Il Fornaio Series B 13.5% cumulative compounding
preferred stock will continue as one share of 13.5% cumulative
compounding preferred stock of the surviving corporation, referred to
as Series B preferred; and
- Each share of Il Fornaio Series C preferred stock will be converted
into one share of common stock of the surviving corporation.
- At the effective time, options to acquire shares of Il Fornaio common
stock with an aggregate economic value of $3.8 million held by the
continuing stockholders will be canceled in exchange for substitute,
fully vested options to acquire Series A preferred and Series B preferred
of the surviving corporation, with exercise prices that preserve the
aggregate spread applicable to the options canceled.
46
<PAGE> 55
- At the effective time, Messrs. Hislop, Beatrice and Hausback will also
purchase with cash an aggregate of 29,655 shares of common stock of the
surviving corporation, at a purchase price of $14.00 per share.
Shares of Il Fornaio common stock contributed by these individuals will be
valued at $14.00 per share, and options to purchase shares of Il Fornaio common
stock will be valued at the difference between their exercise prices per share
and $14.00, multiplied by the number of shares subject to the option. It is
estimated that approximately 446,963 shares of Il Fornaio common stock and
options to purchase shares of Il Fornaio common stock with an aggregate economic
value of $4.2 million, representing a total investment of approximately $10.4
million, will continue as, or be converted into, equity interests in the
surviving corporation. The remaining approximately 582,859 shares of Il Fornaio
common stock held by Mr. Mindel and options to purchase shares of Il Fornaio
common stock with an aggregate economic value of $3.9 million held by the
continuing stockholders will be converted into the right to receive merger
consideration, as described below under "-- Common Stock" and "Treatment of
Stock Options." As a result of the structure of the transaction, the continuing
stockholders are not expected to recognize gain or loss for U.S. federal income
tax purposes on their retention of equity interests in the merger.
The preferred stock of Il Fornaio as the surviving corporation will have
the following terms:
- The Series A preferred will rank senior to all other classes and series
of stock of the surviving corporation with regard to payment of dividends
and distributions upon liquidation of the surviving corporation.
- The Series B preferred will rank junior in priority to the Series A
preferred, but senior to all other classes and series of the surviving
corporation with regard to payment of dividends and distributions upon
liquidation of the surviving corporation.
- Holders of the Series A preferred and the Series B preferred will be
entitled to receive a cash dividend per share of 13.0% and 13.5%,
respectively, of the applicable liquidation preference, payable annually.
Dividends will not be payable in cash unless and until declared by the
board but, if not declared, dividends will continue to accumulate.
- The liquidation preference of the Series A preferred and the Series B
preferred will be equal to $14.00 per share plus accumulated but unpaid
dividends with respect to that series. In the event of a liquidation of
the surviving corporation, holders of the preferred stock will be
entitled to receive an amount in cash equal to the liquidation preference
per share plus accrued but unpaid dividends, but will not participate in
any further distribution. Generally, most sales of assets, mergers or
other business combinations will be treated as liquidations if Il Fornaio
is not the surviving entity.
- The preferred stock will not be redeemable except with the consent of the
holder, and holders of the preferred stock will not have any rights to
convert their shares into, or exchange their shares for, shares of any
other class or series of capital stock.
- The holders of the preferred stock will have no voting rights except (1)
as required by applicable law and (2) to approve certain changes to the
surviving corporation's certificate of incorporation. Specifically, the
vote of the holders of a majority of the outstanding shares of Series A
preferred will be required (a) to authorize, issue or increase the
authorized number of shares of any class or series of capital stock with
rights senior to the Series A preferred as to payment of dividends or
distributions upon liquidation or (b) to amend any provisions of the
surviving corporation's certificate of incorporation that adversely
affect the relative rights and preferences of the Series A preferred.
However, the unanimous vote of all holders of Series A preferred will be
required to change the dividend or liquidation preference applicable to
the Series A preferred. Similarly, the vote of the holders of a majority
of the outstanding shares of Series B preferred will be required (y) to
authorize, issue or increase the authorized number of shares of any class
or series of capital stock with rights senior to the Series B preferred
as to payment of dividends or distribution upon liquidation or (z) to
amend any provisions of the surviving corporation's certificate of
incorporation that adversely affect the relative rights and preferences
of the Series B preferred. However, the
47
<PAGE> 56
unanimous vote of all holders of Series B preferred will be required to
change the dividend or liquidation preference applicable to the Series B
preferred.
The options to acquire preferred stock of the surviving corporation will
accrue rights to payment equal to the applicable dividend rate for the series of
preferred stock subject to the option on the applicable liquidation preference
less the exercise price. The accrual is to be paid on the exercise of the option
in the form of either cash or a reduction in the exercise price of the option.
The accrual payment will not, however, exceed the amount previously paid in cash
on the underlying preferred stock.
BRS and BankBoston will also be acquiring shares of Series A preferred,
Series B preferred and common stock of the surviving corporation, at a purchase
price of $14.00 per share.
EMPLOYEE EQUITY INCENTIVES. In addition, following completion of the
merger, a pool of approximately 39,683 shares of Il Fornaio common stock will be
reserved pursuant to an employee incentive program that provides for the
issuance to employees of the surviving corporation of employee stock options
and/or restricted stock. The exercise or purchase price is expected to be $14.00
per share and shares subject to options granted or restricted shares are
expected to vest over four years. Of the shares reserved, approximately 16,042
shares are expected to be reserved for issuance to Mr. Hislop for aggregate
consideration of $224,588, and approximately 5,066 shares are expected to be
reserved for issuance to Mr. Beatrice for aggregate consideration of $70,924.
COMMON STOCK. As of the record date, Il Fornaio's directors and executive
officers held an aggregate of shares of Il Fornaio common stock,
excluding options. Except for 582,859 shares of Il Fornaio common stock held by
Mr. Mindel, all of these shares of Il Fornaio common stock will continue as, or
be converted into, equity interests of Il Fornaio as the surviving corporation.
Of the shares of Il Fornaio common stock held by Mr. Mindel, 582,859 shares will
be converted into the right to receive $14.00 per share in cash at the effective
time of the merger. Mr. Mindel is expected to receive $8.2 million in respect of
these shares of Il Fornaio common stock upon completion of the merger.
TREATMENT OF STOCK OPTIONS. As of the record date, Il Fornaio directors and
executive officers held options to purchase an aggregate of
shares of common stock, all of which will become fully vested immediately prior
to the effective time of the merger. Options with an exercise price equal to or
greater than $14.00 per share will be canceled at the effective time of the
merger without any payment or other consideration. All other options, except for
the options held by continuing stockholders that will be canceled in exchange
for substitute, fully vested options to acquire preferred stock of Il Fornaio as
the surviving corporation, will be canceled, and each option holder will be
entitled to receive a cash payment equal to the difference between $14.00 and
the exercise price of the applicable option, multiplied by the number of shares
subject to the option. The aggregate amount to be paid to Il Fornaio directors
and executive officers for their outstanding stock options not canceled in
exchange for equity interests in the surviving corporation will be approximately
$3.9 million, before taxes and other withholding. All of the options to acquire
Il Fornaio common stock held by Messrs. Cortopassi, Hedrick, Hellman and Mindel
will be canceled in exchange for substitute options to acquire preferred stock
of the surviving corporation. The following table sets forth the cash amounts,
before taxes and any withholding, that the other executive officers and
directors will receive in respect of their stock options upon completion of the
merger, excluding options that will be canceled in exchange for substitute
options to acquire preferred stock of the surviving corporation.
<TABLE>
<CAPTION>
PAYMENT UPON
COMPLETION
NAME OF THE MERGER
---- -------------
<S> <C>
Michael Beatrice............................................ $ 445,948
Peter P. Hausback........................................... 190,651
Michael J. Hislop........................................... 3,245,244
----------
Total..................................................... $3,881,843
==========
</TABLE>
48
<PAGE> 57
VOTING AGREEMENT. In connection with the merger agreement, the continuing
stockholders, who hold approximately 18% of the outstanding shares of Il Fornaio
common stock (26% including shares subject to options exercisable within 60 days
of December 31, 2000), have entered into a voting agreement with Newco, dated as
of November 15, 2000, as amended as of January 9, 2001. Under the terms of the
voting agreement, the continuing stockholders have agreed, among other things:
- to vote their shares in favor of the merger and adoption of the merger
agreement, and in favor of any other matter necessary for consummation of
the transactions contemplated by the merger agreement;
- to vote against any other acquisition proposal, such as a merger,
consolidation or other business combination involving the Company or any
sale of a material amount of its assets;
- to grant an irrevocable proxy to Newco to vote their shares of Il Fornaio
common stock in favor of the merger and adoption of the merger agreement;
- not to transfer, pledge or otherwise dispose of, or contract to transfer,
pledge or otherwise dispose of, any of their shares of Il Fornaio common
stock, or options to purchase such shares, or interest therein, other
than pursuant to the merger agreement; and
- to refrain from directly or indirectly soliciting, initiating or
encouraging any third-party acquisition inquiries.
The voting agreement will terminate upon the earlier of:
- the consent of the parties;
- immediately following the effective time of the merger;
- upon termination of the merger agreement (but subject to a 90-day
continuation in the event the merger agreement is terminated following a
failure of the Il Fornaio stockholders to approve and adopt the merger
agreement); and
- unless otherwise determined by BRS, on May 31, 2001.
SECURITIES HOLDERS AND REGISTRATION RIGHTS AGREEMENTS. The continuing
stockholders and BRS have agreed to enter into securities holders and
registration rights agreements immediately prior to the closing of the merger or
at such other date as determined by Newco, which agreements are expected to
include the following terms:
- restrictions on the ability of the parties to freely transfer their
shares of the capital stock of Il Fornaio as the surviving corporation;
- a right of first refusal over the shares held by Michael Beatrice, Peter
P. Hausback, Michael J. Hislop and Laurence B. Mindel, referred to as the
"employee stockholders," in favor of Il Fornaio in the event any of these
employee stockholders seeks to transfer any of their shares to a third
party;
- vesting restrictions on shares or options (other than the continuing
shares and options held by the continuing stockholders) to purchase
shares that are granted to any of the employee stockholders, including a
purchase option in favor of Il Fornaio, as the surviving corporation,
triggered by termination of the employee stockholder's employment;
- a prohibition, subject to limited exceptions, on sales by BRS of shares
of Il Fornaio common stock without first offering other stockholders the
opportunity to sell their shares on a pro rata basis and on equal terms;
- the right of holders of at least 50% of Il Fornaio common stock that
approve a sale of the Company to compel the other stockholders to consent
to the sale;
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<PAGE> 58
- the agreement by the parties to the securities holders agreement to vote
their shares to maintain a board of directors of Il Fornaio having a
majority of directors designated by BRS; and
- the right of BRS to require Il Fornaio to register its shares under the
Securities Act of 1933, as amended, referred to as the Securities Act,
and "piggyback" registration rights of BRS and the continuing
stockholders in the event of a public offering of shares of Il Fornaio
registered under the Securities Act.
INDEMNIFICATION OF DIRECTORS AND OFFICERS; DIRECTORS' AND OFFICERS'
INSURANCE. The merger agreement provides that Newco will indemnify and hold
harmless each current and former director and officer of Il Fornaio for a period
of six years for acts and omissions occurring before or as of the effective time
of the merger to the extent provided in the current certificate of
incorporation, bylaws or indemnification agreements of Il Fornaio. The merger
agreement further provides that, for a period of six years after the effective
time of the merger, Newco will maintain, if commercially available, Il Fornaio's
current directors' and officers' liability insurance and indemnification policy
with respect to events occurring before or as of the effective time of the
merger and covering all current directors and officers of the Company; however,
in the event that the cost of this insurance exceeds 200% of the current annual
premium, Newco must use reasonable efforts to obtain substantially similar
insurance for an amount equal to 200% of the annual premium. See "The Merger
Agreement -- Indemnification and Insurance."
EMPLOYMENT AGREEMENT. Il Fornaio currently has an employment agreement with
Michael J. Hislop, president and chief executive officer of the Company, which
agreement will continue to be in effect following completion of the merger. The
agreement provides for an indefinite term at a base salary of not less than
$300,000 per year plus the eligibility to receive a bonus of up to 35% of his
base salary, as determined by the board of directors. Mr. Hislop's current
salary, as established by the board, is $405,000 per year. Mr. Hislop's
employment may be terminated by Il Fornaio or Mr. Hislop at any time, with or
without notice. However, if Mr. Hislop is terminated by the Company other than
for disability or cause, or in the event he voluntarily terminates his
employment within 30 days of a change of control of the Company, he will be
entitled to receive cash severance of one year's salary and the continuation of
health and medical insurance benefits for a one-year period. The merger would
constitute a change of control as defined under the employment agreement.
MERGER FINANCING
Il Fornaio and BRS estimate that the total amount of funds necessary to
consummate the merger and related transactions and to pay related fees and
expenses, is approximately $93.0 million. These funds are currently expected to
come from the following sources:
- an equity investment in Il Fornaio by Newco, the continuing stockholders
and, subject to certain conditions, BancBoston, of approximately $40.0
million, as more fully described below under "-- Equity contribution";
- borrowings by Il Fornaio from Fleet National Bank, N.A., referred to as
Fleet, in an aggregate amount of up to approximately $38.0 million under
a senior secured credit facility, as more fully described below under
"-- Senior secured credit facility";
- the issuance by Il Fornaio of approximately $15.0 million in senior
subordinated notes to BancBoston as more fully described below under
"-- Mezzanine financing"; and
- approximately $3.0 million of existing cash balances.
No alternative financing arrangements or alternative financing plans have
been made in the event that these financing commitments do not materialize as
anticipated. However, under the merger agreement, Newco has agreed that, if any
of the financing commitments is terminated or the funds are otherwise not
available, Newco will use commercially reasonable efforts to obtain an
alternative source of financing on terms no less favorable than those set forth
in the financing commitments.
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The documentation governing the senior secured credit facility and the
mezzanine financing has not yet been finalized and, accordingly, remains subject
to change.
EQUITY CONTRIBUTION. It is expected that approximately $40.0 million of
equity financing will be required to complete the merger. The equity portion of
the merger financing will be provided by (1) a cash investment by BRS of up to
approximately $26.8 million from currently available funds and (2) the
investment of approximately $10.7 million of equity by the continuing
stockholders. To the extent that the existing or additional continuing
stockholders provide more equity financing, BRS will provide less equity
financing. In addition, BRS may seek other institutional or qualified individual
investors to provide equity financing and, to the extent these other investors
provide equity financing, BRS will provide less equity financing. For example,
BancBoston, which has issued a commitment letter to provide mezzanine financing
as described in "-- Mezzanine financing" below, is expected to purchase common
stock and preferred stock of Il Fornaio valued at $2.0 million, on the same
terms, of the same class, series or type and in the same proportion as BRS.
BRS's obligation to provide the equity financing is conditioned upon
completion of the merger and funding of the financing contemplated by the merger
agreement.
SENIOR SECURED CREDIT FACILITY. The financing commitment letter for the
senior debt from Fleet provides for a senior credit facility in an aggregate
amount of up to $50.0 million, including a term loan of $35.0 million and a
revolving credit facility of up to $15.0 million (including a letter of credit
sublimit of $5.0 million for standby letters of credit). It is currently
expected that Il Fornaio will draw approximately $3.1 million under the
revolving credit facility at closing. The senior credit facility documentation
will contain customary representations and warranties by Il Fornaio. The
commitment to provide the senior credit facility is subject to the satisfaction
of customary conditions and covenants, including the accuracy in all material
respects of Il Fornaio's representations and warranties. The following is a
summary of certain of the material conditions to be satisfied in order for Fleet
to fund the amounts contemplated by the commitment letter:
- the absence of any material misstatements in, or omissions from, the
materials that have been or are being furnished to Fleet for its review
in connection with the merger;
- the completion of the equity contributions described under "-- Equity
contribution" above and the completion of mezzanine financing in the form
of $15.0 million in subordinated debt from a party acceptable to Fleet,
in each case on terms and conditions acceptable to Fleet;
- the receipt of the documentation in connection with the merger and the
related transactions in form and substance satisfactory to Fleet and the
receipt of evidence satisfactory to Fleet that the merger has been
completed in all material respects in accordance with the terms of the
transaction documents;
- the satisfaction of Fleet in all respects with its confirmatory legal due
diligence investigation of Il Fornaio;
- the absence of any material adverse change in the assets, business or
financial condition of Il Fornaio or in the ability of Il Fornaio to
perform its obligations under the terms of the senior credit facility;
- the absence of any material adverse change in governmental regulation or
policy affecting Fleet or Il Fornaio;
- the absence of any material changes or disruptions in the syndication,
financial or capital markets that could materially impair the syndication
of the senior credit facility;
- the satisfaction of Fleet with the capitalization of Newco and Il
Fornaio; and
- the execution by Fleet and Newco of mutually satisfactory final
documentation containing customary terms and conditions.
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<PAGE> 60
Fleet and its affiliate involved in syndicating the senior credit facility
are entitled to change the structure, terms, pricing, term and/or amounts of any
portion of the senior credit facility if Fleet or its affiliate determine that
the change is advisable in order to ensure a successful syndication of the
senior credit facility or an optimal credit structure for the senior credit
facility.
Borrowings under the senior credit facility will be secured by a perfected
first priority security interest in all of the capital stock of Newco and Il
Fornaio as the surviving corporation and in all assets of Newco and Il Fornaio
as the surviving corporation, including but not limited to accounts and notes
receivable, inventory, equipment, owned real property, licenses, stock of
subsidiaries and intangible assets (including patents, trademarks, copyrights,
etc.), subject to exceptions to be agreed upon.
The principal of the term loan will be payable in 24 quarterly
installments, commencing June 30, 2001, and the term loan will mature on the
sixth anniversary of the closing of the senior credit facility.
Advances under the revolving credit facility may be borrowed, repaid and
reborrowed and letters of credit may be issued thereunder until maturity on the
sixth anniversary of the closing of the senior credit facility.
Interest on the term loan and the revolving credit facility will be
calculated as a function of either (1) the prime rate announced by Fleet from
time to time or the Federal Funds Rate plus 0.5%, whichever is higher, or (2)
the interbank eurodollar rate, plus, initially, 2.25%, in the case of the Fleet
prime rate or the Federal Funds Rate calculation, or 3.75%, in the case of the
interbank eurodollar rate. The interest rate is subject to reduction based on
the leverage of the surviving corporation at various times.
The commitment to provide the senior credit facility will expire on April
13, 2001 unless that expiration date is extended in accordance with the terms of
the commitment letter.
MEZZANINE FINANCING. The financing commitment letter for the mezzanine
financing from BancBoston provides for $15.0 million in mezzanine indebtedness
in the form of senior subordinated notes to be issued by Il Fornaio. The
mezzanine debt documentation will contain customary representations and
warranties by Il Fornaio. The commitment to provide the mezzanine debt is
subject to the satisfaction of customary conditions and covenants, including the
accuracy in all material respects of Il Fornaio's representations and
warranties. The following is a summary of certain of the material conditions to
be satisfied in order for BancBoston to fund the amounts contemplated by the
commitment letter:
- the satisfactory review by BancBoston of the confirmatory legal and
accounting due diligence to be conducted on behalf of BRS and of any
additional outstanding due diligence to be conducted by BRS;
- the consummation of the merger no later than April 30, 2001, on terms and
conditions satisfactory to BancBoston;
- the availability of at least $38.0 million of equity financing from BRS
and the continuing stockholders, and not more than $50.0 million of
senior credit facilities, in each case on terms and conditions
satisfactory to BancBoston;
- the absence of any material environmental problems involving Il Fornaio's
assets, of any material adverse change in Il Fornaio's business or
financial condition and of any material litigation relating to Il
Fornaio, the proposed financing or the merger;
- the execution of a stockholders' agreement by and among BancBoston and
the stockholders of Il Fornaio as the surviving corporation on terms
satisfactory to BancBoston;
- the compliance by Il Fornaio with all legal and regulatory requirements
applicable to the merger and the proposed financing; and
- the execution by BancBoston and Newco of mutually satisfactory final
documentation containing customary terms and conditions and the receipt
by BancBoston of satisfactory evidence of corporate approvals by all
parties to the merger and the proposed financing.
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The mezzanine debt will be senior subordinated obligations of Il Fornaio
and will be subordinated only to the senior credit facility and only on terms
satisfactory to BancBoston.
The mezzanine debt will mature on the seventh anniversary of the closing of
the mezzanine debt. For the first five years after the closing of the mezzanine
debt, interest will be payable at a per annum rate of 13%, payable quarterly in
arrears in cash and, thereafter, interest will be payable at a per annum rate
equal to the greater of (1) either the prime rate announced by Fleet from time
to time or the Federal Funds Rate plus 0.5%, whichever is higher, plus, in
either case, 5% and (2) 13%, payable, in either case, quarterly in arrears in
cash. Any prepayments on the principal of the mezzanine debt will be subject to
a prepayment penalty of 5% of the amount prepaid in the first year following the
closing of the mezzanine debt, 4% of the amount prepaid in the second year
following the closing of the mezzanine debt and 3% of the amount prepaid in the
third year following the closing of the mezzanine debt. After the fourth year
following the closing of the mezzanine debt, the mezzanine debt can be prepaid
in whole or in part without penalty.
Holders of the mezzanine debt will receive warrants exercisable to purchase
an aggregate of up to a 6% equity interest in Il Fornaio on a fully diluted
basis. These warrants will expire on the tenth anniversary of the closing of the
mezzanine financing and will be exercisable at a nominal per share price.
ESTIMATED FEES AND EXPENSES OF THE MERGER
Whether or not the merger is completed, in general, all fees and expenses
incurred in connection with the merger will be paid by the party incurring those
fees and expenses. Under certain circumstances described in "The Merger
Agreement -- Termination Fee and Expense Reimbursement," Il Fornaio will
reimburse Newco for its reasonable out-of-pocket expenses incurred in connection
with the merger and proposed financing. Fees and expenses of the merger are
estimated at this time to be as follows:
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT
----------- -------
<S> <C>
Filing fees (Commission and HSR)............................ $63,469
Debt financing fees and expenses............................ *
Legal, accounting and financial advisors' fees and
expenses.................................................. *
Accounting fees and expenses................................ *
Printing and mailing costs.................................. *
Miscellaneous expenses...................................... *
-------
Total..................................................... $ *
=======
</TABLE>
-------------------------
* To be added by amendment of this proxy statement.
These expenses will not reduce the merger consideration to be received by
Il Fornaio stockholders.
ACCOUNTING TREATMENT OF THE MERGER
It is BRS's intent that the merger be treated as a recapitalization for
accounting purposes. A recapitalization is a transaction structured to transfer
the controlling interest of an operating entity to a new investor, with some
owners also retaining an ownership interest. A recapitalization does not effect
any change in the accounting basis of the assets or liabilities presented in the
stand-alone financial statements of the operating entity, and the consideration
paid for the shares is accounted for as a reduction in equity.
FEDERAL REGULATORY MATTERS
The HSR Act and the rules and regulations promulgated thereunder require
that Il Fornaio and the ultimate parent entity of Newco file notification and
report forms with respect to the merger and related transactions with the
Antitrust Division of the U.S. Department of Justice and the U.S. Federal Trade
Commission. The parties thereafter are required to observe a waiting period
before completing the merger. In compliance with the HSR Act, the parties expect
to file the necessary forms with the Department of
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Justice and the Federal Trade Commission in January 2001, and the waiting period
will expire 30 days after filing. The Department of Justice and the Federal
Trade Commission, state antitrust authorities or a private person or entity
could seek to enjoin the merger under the antitrust laws at any time before its
completion or to compel rescission or divestiture at any time subsequent to the
merger.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material U.S. federal income tax
consequences of the merger to holders of Il Fornaio common stock (including
holders exercising appraisal rights). This summary is based on laws,
regulations, rulings and decisions now in effect, all of which are subject to
change, possibly with retroactive effect. This summary does not address all of
the U.S. federal income tax consequences that may be applicable to holders who
are subject to special treatment under U.S. federal income tax law (including,
for example, banks and other financial institutions, insurance companies,
tax-exempt investors, S corporations, holders who are properly classified as
"partnerships" under the Internal Revenue Code of 1986, as amended (referred to
as the Internal Revenue Code), dealers in securities, non-U.S. persons, holders
who hold their common stock as part of a hedge, straddle or conversion
transaction, holders who acquired common stock through the exercise of employee
stock options or other compensation arrangements, holders whose shares of common
stock are qualified small business stock for purposes of Section 1202 of the
Internal Revenue Code, holders who are otherwise subject to the alternative
minimum tax provisions of the Internal Revenue Code or holders who do not hold
their shares of common stock as "capital assets" within the meaning of Section
1221 of the Internal Revenue Code). In addition, this summary does not address
the tax consequences of the merger under applicable state, local or foreign
laws. HOLDERS OF IL FORNAIO COMMON STOCK SHOULD CONSULT THEIR INDIVIDUAL TAX
ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING
THE APPLICATION OF ANY STATE, LOCAL OR FOREIGN TAX LAWS.
The receipt of cash by holders of Il Fornaio common stock in the merger or
upon exercise of appraisal rights will be a taxable transaction for U.S. federal
income tax purposes. A holder of Il Fornaio common stock generally will
recognize gain or loss in an amount equal to the difference between the merger
consideration received by the holder and the holder's adjusted tax basis in the
Il Fornaio common stock. That gain or loss generally will be capital gain or
loss if the Il Fornaio common stock is held as a capital asset at the effective
time of the merger. Any capital gain or loss generally will be long-term capital
gain or loss if the Il Fornaio common stock has been held by the holder for more
than one year. If the Il Fornaio common stock has been held by the holder for
less than one year, any gain or loss will generally be taxed as a short-term
capital gain or loss. Currently, long-term capital gain for non-corporate
taxpayers is taxable at a maximum federal tax rate of 20%. The deductibility of
capital losses is subject to limitations.
The timing of recognition of gain or loss, if any, by Il Fornaio
stockholders that exercise appraisal rights may be delayed in accordance with
the installment sales rules of Internal Revenue Code Section 453. It is intended
that the exchange of Il Fornaio common stock for Series A, Series B and/or
Series C preferred pursuant to the securities purchase and contribution
agreement, and the conversion of Series C preferred into Il Fornaio common stock
pursuant to the merger agreement, will each constitute a recapitalization within
the meaning of Section 368(a)(1)(E) of the Internal Revenue Code. Subject to the
assumptions and limitations discussed above, and assuming that the exchange of
Il Fornaio common stock for Series A, B and/or C preferred (pursuant to the
securities purchase and contribution agreement) and the conversion of Series C
preferred into Il Fornaio common stock (pursuant to the merger agreement) each
qualify as a Section 368(a)(1)(E) recapitalization, the continuing stockholders
should generally not recognize gain or loss, for U.S. federal income tax
purposes, in the transaction. The aggregate tax basis of the shares of preferred
stock (and common stock, in the case of Series C preferred converted into common
stock in the merger) received by the continuing stockholders in the transaction
should equal the aggregate tax basis of the shares of common stock (and Series C
preferred in the case of Series C preferred converted into common stock in the
merger) surrendered therefor. Additionally, the holding
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period of the shares of preferred stock (and common stock, in the case of Series
C preferred converted into common stock in the merger) received by the
continuing stockholders in the transaction should include the holding period of
the shares of common stock (and Series C preferred in the case of Series C
preferred converted into common stock in the merger) surrendered therefor. Even
if they hold their shares of Il Fornaio stock as capital assets, the continuing
stockholders may nonetheless realize ordinary income upon disposition of the
shares of Il Fornaio preferred stock received pursuant to the securities
purchase and contribution agreement, irrespective of any gain or loss on such
shares, if such shares are "306 stock" within the meaning of Internal Revenue
Code Section 306. The amount of ordinary income realized upon the disposition of
such 306 stock would generally be equal to the stock's ratable share of the
amount which would have been a dividend at the time of the exchange of Il
Fornaio common stock for Il Fornaio preferred stock pursuant to the securities
purchase and contribution agreement if Il Fornaio had distributed cash in an
amount equal to the fair market value of such stock at that time.
LITIGATION CHALLENGING THE MERGER
On or about November 16, 2000, four substantially identical civil actions
were commenced in the Court of Chancery of the State of Delaware in New Castle
County. The plaintiff in each action seeks to represent a putative class
consisting of the public stockholders of Il Fornaio. Named as defendants in each
of the complaints are Il Fornaio, members of the Il Fornaio board of directors
and BRS. The complaints allege, among other things, that the proposed merger is
unfair and that the Il Fornaio directors breached their fiduciary duties by
failing to disclose material non-public information related to the value of Il
Fornaio and by engaging in self-dealing. The complaints seek an injunction,
damages and other relief. The actions are at a preliminary stage. No response
has been filed, and no trial date has been set. The defendants believe that the
claims alleged in these actions are without merit and intend to contest them
vigorously. There can be no assurance, however, as to the outcome of these
lawsuits.
APPRAISAL RIGHTS
Under Section 262 of the Delaware General Corporation Law, referred to as
the "DGCL," any holder of common stock who does not wish to accept $14.00 per
share in cash for the holder's shares of common stock may exercise appraisal
rights under the DGCL and elect to have the fair value of the holder's shares of
common stock on the date of the merger (exclusive of any element of value
arising from the accomplishment or expectation of the merger) judicially
determined and paid to the holder in cash, together with a fair rate of
interest, if any, provided that the holder complies with the provisions of
Section 262 of the DGCL.
The following discussion is not a complete statement of the law pertaining
to appraisal rights under the DGCL, and is qualified in its entirety by the full
text of Section 262, which is provided in its entirety as Appendix C to this
proxy statement. All references in Section 262 and in this summary to a
"stockholder" are to the record holder of the shares of common stock as to which
appraisal rights are asserted. A PERSON HAVING A BENEFICIAL INTEREST IN SHARES
OF COMMON STOCK HELD OF RECORD IN THE NAME OF ANOTHER PERSON, SUCH AS A BROKER
OR NOMINEE, MUST ACT PROMPTLY TO CAUSE THE RECORD HOLDER TO FOLLOW THE STEPS
SUMMARIZED BELOW PROPERLY AND IN A TIMELY MANNER TO PERFECT APPRAISAL RIGHTS.
Under Section 262, where a proposed merger is to be submitted for approval
and adoption at a meeting of stockholders, as in the case of the special
meeting, the corporation, not less than 20 days before the meeting, must notify
each of its stockholders entitled to appraisal rights that appraisal rights are
available and include in that notice a copy of Section 262. This proxy statement
constitutes that notice to the holders of common stock, and the applicable
statutory provisions of the DGCL are attached to this proxy statement as
Appendix C. Any stockholder who wishes to exercise appraisal rights or who
wishes to preserve that right should review carefully the following discussion
and Appendix C to this proxy statement. Moreover, because of the complexity of
the procedures for exercising the right to seek appraisal of the common stock,
Il Fornaio believes that stockholders who consider exercising such appraisal
rights
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should seek the advice of counsel, which counsel or other appraisal services
will not be paid for by Il Fornaio. FAILURE TO COMPLY WITH THE PROCEDURES
SPECIFIED IN SECTION 262 TIMELY AND PROPERLY WILL RESULT IN THE LOSS OF
APPRAISAL RIGHTS.
FILING WRITTEN OBJECTION. Any holder of common stock wishing to exercise
the right to demand appraisal under Section 262 of the DGCL must satisfy each of
the following conditions:
- as more fully described below, the holder must deliver to Il Fornaio a
written demand for appraisal of the holder's shares before the vote on
the merger agreement and the merger at the special meeting, which demand
must reasonably inform Il Fornaio of the identity of the holder and that
the holder intends to demand the appraisal of the holder's shares;
- the holder must not vote the holder's shares of common stock in favor of
the merger agreement and the merger at the special meeting nor consent
thereto in writing pursuant to Section 228 of the DGCL; and, as a result,
a stockholder who submits a proxy and wishes to exercise appraisal rights
must vote against the merger agreement and the merger or abstain from
voting on the merger agreement and the merger, because a proxy which does
not contain voting instructions will, unless, revoked, be voted in favor
of the merger agreement and the merger; and
- the holder must continuously hold the shares from the date of making the
demand through the effective time of the merger; a stockholder who is the
record holder of shares of common stock on the date the written demand
for appraisal is made, but who thereafter transfers those shares before
the effective time of the merger, will lose any right to appraisal in
respect of those shares.
The written demand for appraisal must be in addition to and separate from
any proxy or vote. Neither voting (in person or by proxy) against, abstaining
from voting or failing to vote on the proposed merger agreement and the merger
will constitute a written demand for appraisal within the meaning of Section
262.
Only a holder of record of shares of common stock issued and outstanding
immediately before the effective time of the merger is entitled to assert
appraisal rights for the shares of common stock registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the
stockholder of record, fully and correctly, as the stockholder's name appears on
the applicable stock certificates, should specify the stockholder's name and
mailing address, the number of shares of common stock owned and that the
stockholder intends to demand appraisal of the stockholder's common stock. If
the shares are owned of record in a fiduciary capacity, such as by a trustee,
guardian or custodian, execution of the demand should be made in that capacity.
If the shares are owned of record by more than one person, as in a joint tenancy
or tenancy in common, the demand should be executed by or on behalf of all
owners. An authorized agent, including one or more joint owners, may execute a
demand for appraisal on behalf of a stockholder; however, the agent must
identify the record owner or owners and expressly disclose the fact that, in
executing the demand, the agent is acting as agent for such owner or owners. A
record holder such as a broker who holds shares as nominee for several
beneficial owners may exercise appraisal rights with respect to the shares held
for one or more other beneficial owners while not exercising appraisal rights
with respect to the shares held for one or more beneficial owners; in such case,
the written demand should set forth the number of shares as to which appraisal
is sought, and where no number of shares is expressly mentioned, the demand will
be presumed to cover all shares held in the name of the record owner.
STOCKHOLDERS WHO HOLD THEIR SHARES IN BROKERAGE ACCOUNTS OR OTHER NOMINEE FORMS
AND WHO WISH TO EXERCISE APPRAISAL RIGHTS ARE URGED TO CONSULT WITH THEIR
BROKERS TO DETERMINE APPROPRIATE PROCEDURES FOR THE MAKING OF A DEMAND FOR
APPRAISAL BY THE NOMINEE.
Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the effective time of the merger, be entitled to
vote the shares subject to that demand for any purpose or be entitled to the
payment of dividends or other distributions on those shares (except dividends or
other distributions payable to holders of record of shares as of a record date
before the effective time of the merger).
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Any stockholder may withdraw its demand for appraisal and accept $14.00 per
share by delivering to Il Fornaio a written withdrawal of the stockholder's
demand for appraisal. However, any such attempt to withdraw made more than 60
days after the effective date of the merger will require written approval of the
surviving corporation. No appraisal proceeding in the Delaware Court of Chancery
will be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just. If the
surviving corporation does not approve a stockholder's request to withdraw a
demand for appraisal when that approval is required, or if the Delaware Court of
Chancery does not approve the dismissal of an appraisal proceeding, the
stockholder will be entitled to receive only the appraised value determined in
any such appraisal proceeding, which value could be more than, the same as or
less than $14.00 per share.
A stockholder who elects to exercise appraisal rights under Section 262
should mail or deliver a written demand to Il Fornaio (America) Corporation, 770
Tamalpais Drive, Suite 400, Corte Madera, California 94925, Attn.: Peter P.
Hausback, Secretary.
NOTICE BY IL FORNAIO. Within 10 days after the effective time of the
merger, the surviving corporation must send a notice as to the effectiveness of
the merger to each former stockholder of Il Fornaio who (1) has made a written
demand for appraisal in accordance with Section 262 and (2) has not voted to
approve and adopt, nor consented to, the merger agreement and the merger.
Under the merger agreement, Il Fornaio has agreed to give Newco prompt
notice of any demands for appraisal received by Il Fornaio. Newco has the right
to participate in all negotiations and proceedings with respect to demands for
appraisal under the DGCL. Il Fornaio will not, except with the prior written
consent of Newco, make any payment with respect to any demands for appraisal, or
offer to settle, or settle, any such demands.
Within 120 days after the effective time of the merger, any former
stockholder of Il Fornaio who has complied with the provisions of Section 262 to
that point in time will be entitled to receive from the surviving corporation,
upon written request, a statement setting forth the aggregate number of shares
not voted in favor of the merger agreement and the merger and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. The surviving corporation must mail that statement to
the stockholder within 10 days of receipt of the request or within 10 days after
expiration of the period for delivery of demands for appraisals under Section
262, whichever is later.
FILING A PETITION FOR APPRAISAL. Within 120 days after the effective date
of the merger, either the surviving corporation or any stockholder who has
complied with the requirements of Section 262 may file a petition in the
Delaware Court of Chancery demanding a determination of the value of the shares
of common stock held by all such stockholders. Il Fornaio is under no
obligation, and has no present intent, to file a petition for appraisal, and
stockholders seeking to exercise appraisal rights should not assume that the
surviving corporation will file such a petition or that it will initiate any
negotiations with respect to the fair value of the shares. Accordingly,
stockholders who desire to have their shares appraised should initiate any
petitions necessary for the perfection of their appraisal rights within the time
and the manner prescribed in Section 262. Inasmuch as Il Fornaio has no
obligation to file such a petition, the failure of a stockholder to do so within
the time specified could nullify the stockholder's previous written demand for
appraisal.
A stockholder timely filing a petition for appraisal with the Delaware
Court of Chancery must deliver a copy to the surviving corporation, which will
then be obligated within 20 days to provide the Register in Chancery with a duly
verified list containing the names and addresses of all stockholders who have
demanded payment for their shares and with whom agreements as to the value of
their shares have not been reached by the surviving corporation. After notice to
those stockholders, the Delaware Court of Chancery may conduct a hearing on the
petition to determine which stockholders have become entitled to appraisal
rights. The Delaware Court of Chancery may require stockholders who have
demanded an appraisal of their shares and who hold stock represented by
certificates to submit their certificates to the Register in Chancery for
notation thereon of the pendency of the appraisal proceedings. If any
stockholder
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fails to comply with the requirement, the Delaware Court of Chancery may dismiss
the proceedings as to that stockholder.
DETERMINATION OF FAIR VALUE. After determining the stockholders entitled to
an appraisal, the Delaware Court of Chancery will appraise the shares,
determining their fair value exclusive of any element of value arising from the
accomplishment or expectation of the merger, together with a fair rate of
interest, if any, to be paid upon the amount determined to be the fair value.
STOCKHOLDERS CONSIDERING SEEKING APPRAISAL SHOULD BE AWARE THAT THE FAIR
VALUE OF THEIR SHARES AS DETERMINED UNDER SECTION 262 COULD BE MORE THAN, THE
SAME AS OR LESS THAN THE $14.00 PER SHARE THEY WOULD RECEIVE UNDER THE MERGER
AGREEMENT IF THEY DID NOT SEEK APPRAISAL OF THEIR SHARES. STOCKHOLDERS SHOULD
ALSO BE AWARE THAT INVESTMENT BANKING OPINIONS ARE NOT OPINIONS AS TO FAIR VALUE
UNDER SECTION 262.
In determining fair value and, if applicable, a fair rate of interest, the
Delaware Court of Chancery is to take into account all relevant factors. In
Weinberger v. UOP, Inc., the Delaware Supreme Court discussed the factors that
could be considered in determining fair value in an appraisal proceeding,
stating that "proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered and that "fair price obviously requires
consideration of all relevant factors involving the value of a company." The
Delaware Supreme Court stated that, in making this determination of fair value,
the court must consider "market value, asset value, dividends, earnings
prospects, the nature of the enterprise and any other facts which were known or
which could be ascertained as of the date of the merger and which throw any
light on future prospects of the merged corporation." Furthermore, the court may
consider "elements of future value, including the nature of the enterprise,
which are known or susceptible of proof as of the date of the merger and not the
product of speculation."
The costs of the action may be determined by the Delaware Court of Chancery
and taxed upon the parties as the Delaware Court of Chancery deems equitable.
Upon application of a dissenting stockholder, the Delaware Court of Chancery may
also order that all or a portion of the expenses incurred by any stockholder in
connection with the appraisal proceeding, including, without limitation,
reasonable attorneys' fees and the fees and expenses of experts, be charged pro
rata against the value of all of the shares entitled to appraisal.
ANY STOCKHOLDER WISHING TO EXERCISE APPRAISAL RIGHTS IS URGED TO CONSULT
LEGAL COUNSEL BEFORE ATTEMPTING TO EXERCISE APPRAISAL RIGHTS. FAILURE TO COMPLY
STRICTLY WITH ALL OF THE PROCEDURES SET FORTH IN SECTION 262 OF THE DGCL MAY
RESULT IN THE LOSS OF A STOCKHOLDER'S STATUTORY APPRAISAL RIGHTS.
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THE MERGER AGREEMENT
The following is a summary of the material provisions of the Agreement and
Plan of Merger, dated as of November 15, 2000, as amended as of January 9, 2001,
between Il Fornaio and Newco. This summary is qualified in its entirety by
reference to the full text of the merger agreement, a copy of which is attached
to this proxy statement as Appendix A and incorporated herein by reference.
Stockholders are urged to read the entire merger agreement.
THE MERGER
The merger agreement provides that, at the effective time of the merger,
Newco, a wholly owned subsidiary of BRS, will merge with and into Il Fornaio.
Upon completion of the merger, Newco will cease to exist and Il Fornaio will
continue as the surviving corporation.
EFFECTIVE TIME OF THE MERGER
The merger will become effective upon the filing of a certificate of merger
with the Secretary of State of the State of Delaware, which time is referred to
as the effective time. Il Fornaio and Newco have agreed to file the certificate
of merger as soon as practicable after the satisfaction or waiver of the
conditions to closing of the merger set forth in the merger agreement.
CERTIFICATE OF INCORPORATION, BYLAWS AND DIRECTORS AND OFFICERS OF IL FORNAIO AS
THE SURVIVING CORPORATION
When the merger is completed:
- the certificate of incorporation of Il Fornaio as in effect immediately
prior to the effective time will be the certificate of incorporation of
Il Fornaio as the surviving corporation;
- the bylaws of Newco in effect immediately prior to the effective time
will be the bylaws of Il Fornaio as the surviving corporation;
- the directors of Newco immediately prior to the effective time will
become the directors of Il Fornaio as the surviving corporation; and
- the officers of Il Fornaio immediately prior to the effective will remain
the officers of Il Fornaio as the surviving corporation.
CONVERSION OF COMMON STOCK
At the effective time, each share of Il Fornaio common stock outstanding
immediately before the effective time will automatically be converted into and
represent the right to receive $14.00 in cash, without interest, referred to as
the merger consideration, except for:
- 446,963 shares held by the continuing stockholders that will continue as,
or be converted into, equity interests in Il Fornaio as the surviving
corporation;
- treasury shares and shares of Il Fornaio common stock held by Newco
immediately prior to the effective time that will be canceled without any
payment therefor; and
- shares held by stockholders seeking appraisal rights in accordance with
Delaware law.
At the effective time, each share of capital stock of Newco outstanding
immediately before the effective time will be converted into and exchanged for
one fully paid and non-assessable share of the same class and series of capital
stock of Il Fornaio as the surviving corporation.
PAYMENT FOR SHARES
At the effective time, Il Fornaio as the surviving corporation will deposit
with the paying agent appointed by Newco sufficient funds to pay the merger
consideration. Promptly after the effective time, Il Fornaio will cause to be
mailed to each holder of record of shares of Il Fornaio common stock
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immediately prior to the effective time a form of letter of transmittal and
instructions to effect the surrender of their share certificate(s) in exchange
for payment of the merger consideration.
The holder will be entitled to receive $14.00 per share only upon surrender
to the paying agent of a share certificate, together with such letter of
transmittal, duly completed in accordance with the instructions thereto. If
payment of the merger consideration is to be made to a person whose name is
other than that of the person in whose name the share certificate is registered,
it will be a condition of payment that (1) the share certificate so surrendered
be properly endorsed, with signature guaranteed, or otherwise in proper form for
transfer and (2) the person requesting such exchange pay any transfer and/or
other taxes that may be required to the satisfaction of Il Fornaio as the
surviving corporation. No interest will be paid or accrued upon the surrender of
the share certificates for the benefit of holders of the share certificates on
any merger consideration.
Six months following the effective time, Il Fornaio as the surviving
corporation will be entitled to require the paying agent to deliver to it any
funds, including any interest received with respect thereto, which have been
deposited with the paying agent and which have not been disbursed to holders of
share certificates. Thereafter, holders of certificates representing shares
outstanding before the effective time will be entitled to look only to the
surviving corporation, as general creditors of the surviving corporation, for
payment of any claims for merger consideration to which they may be entitled.
Neither the surviving corporation nor the paying agent will be liable to any
person in respect of any merger consideration delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
TRANSFER OF SHARES
After the effective time, there will be no further transfer on the records
of Il Fornaio as the surviving corporation or its transfer agent of certificates
representing shares of Il Fornaio common stock and any such certificates
presented to the surviving corporation for transfer, other than shares held by
stockholders seeking appraisal rights, will be canceled. From and after the
effective time, the holders of share certificates will cease to have any rights
with respect to these shares except as otherwise provided for in the merger
agreement or by applicable law. All merger consideration paid upon the surrender
for exchange of those share certificates in accordance with the terms of the
merger agreement will be deemed to have been issued and paid in full
satisfaction of all rights pertaining to the share certificates.
TREATMENT OF OPTIONS
Immediately prior to the effective time, each outstanding stock option to
purchase shares of Il Fornaio common stock will become fully vested. Options
with an exercise price equal to or greater than $14.00 per share will be
canceled at the effective time of the merger without any payment or other
consideration. All other options, other than certain options held by the
continuing stockholders, will be canceled and each option holder will be
entitled to receive a cash payment equal to the difference between $14.00 and
the exercise price of the applicable option, multiplied by the number of shares
subject to the option. Options to acquire shares of Il Fornaio common stock with
an aggregate economic value of $4.2 held by continuing stockholders are expected
to be canceled in exchange for substitute, fully vested options to acquire
preferred stock of Il Fornaio as the surviving corporation.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains various representations and warranties made
by Il Fornaio to Newco, subject to identified exceptions, including
representations and warranties relating to:
- the due organization, valid existence, good standing and requisite
corporate power and authority of Il Fornaio;
- the capitalization of Il Fornaio;
- the authorization, execution, delivery and enforceability of the merger
agreement;
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- the absence of certain changes in Il Fornaio's business, capitalization
or accounting practices since December 26, 1999;
- the completeness and accuracy in all material respects of filings made by
Il Fornaio with the Commission;
- the compliance in all material respects of the proxy statement with the
Exchange Act and the regulations thereunder and the accuracy in all
material respects of the information supplied by Il Fornaio for inclusion
in the proxy statement;
- the absence of any conflicts between the merger agreement and Il
Fornaio's certificate of incorporation, bylaws, material agreements,
judgments and applicable laws;
- required consents or approvals;
- the absence of certain brokerage fees, commissions and certain amounts
paid in settlement;
- the absence of any material claim, suit, action or against Il Fornaio;
- the absence of material changes since December 26, 1999 in Il Fornaio's
benefit plans;
- certain matters relating to benefit plans and the Employee Retirement
Income Security Act of 1974, as amended;
- compliance with laws related to tax matters;
- compliance with applicable laws and the adequacy and valid issuance of Il
Fornaio's liquor licenses;
- compliance with laws related to environmental matters;
- the inapplicability of any state takeover statute;
- the validity, binding nature and absence of material defaults with
respect to contracts of Il Fornaio;
- the absence of labor disputes and other labor matters;
- a listing of, and the validity, binding nature and absence of material
defaults with respect to, all real property leased by Il Fornaio;
- the absence of any undisclosed liabilities or obligations;
- the receipt of a fairness opinion from Evercore;
- the right to use, and absence of infringement of, intellectual property
of Il Fornaio;
- the effectiveness of insurance policies; and
- the absence of affiliate transactions.
The merger agreement also contains various representations and warranties
by Newco to Il Fornaio, subject to identified exceptions, including
representations and warranties relating to:
- the due organization, valid existence, good standing and requisite
corporate power and authority of Newco;
- the authorization, execution, delivery and enforceability of the merger
agreement;
- the accuracy of the information supplied by Newco for inclusion in the
proxy statement;
- the absence of any conflicts between the merger agreement and Newco's
certificate of incorporation, bylaws, agreements, judgments and
applicable laws;
- required consents or approvals;
- the effectiveness of the financing commitments obtained by Newco for the
merger; and
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- the absence of ownership of Il Fornaio common stock by Newco for purposes
of Section 203 of the DGCL.
None of the representations and warranties in the merger agreement will
survive after the completion of the merger.
CONDUCT OF BUSINESS PENDING THE MERGER
Il Fornaio is subject to restrictions on its conduct and operations until
the merger is completed. In the merger agreement, Il Fornaio has agreed that,
prior to the effective time, it will operate its business only in the usual and
ordinary course consistent with past practices; use its reasonable best efforts
to maintain its business organization, retain its key employees and maintain its
business relationships; maintain its properties and assets, supplies and
inventories; and use its reasonable best efforts to keep in full force and
effect its insurance and bonds. Il Fornaio has also agreed, with limited
exceptions, that it will not do any of the following, except as expressly
contemplated by the merger agreement or otherwise consented to in writing by
Newco:
- adopt or amend employee benefit plans or bonuses or increase
compensation;
- declare, set aside or pay any dividends or make any other distributions;
- redeem or repurchase any outstanding shares of Il Fornaio capital stock
or other equity interests;
- split, combine or reclassify any shares of Il Fornaio capital stock;
- sell, issue, grant or authorize any shares of Il Fornaio capital stock;
- acquire or agree to acquire any business or any assets of any other
person;
- sell or dispose of or grant any lien with respect to any of Il Fornaio's
material properties or assets;
- amend its certificate of incorporation or bylaws;
- effect any change in any accounting methods;
- incur any additional indebtedness, except pursuant to its outstanding
credit line, or make any loans;
- enter into or amend certain material contracts;
- pay, settle or otherwise satisfy any claims, liabilities or obligations
outside the ordinary course of business;
- make any tax election except in a manner consistent with past practice;
- make any capital expenditures for the period from October 1, 2000 until
the effective time, except as provided in the merger agreement;
- make any lease payments except in the ordinary course of business;
- form any subsidiary or acquire any ownership interest in any entity; or
- agree to take any of the foregoing actions or any action that would cause
any conditions to consummation of the merger to be unsatisfied.
OBTAINING FINANCING
Newco has agreed that, so long as Il Fornaio is in material compliance with
its obligations under the merger agreement, it will use its commercially
reasonable efforts to satisfy the requirements of the financing commitments and
obtain the financing on the terms set forth in the financing commitments. If any
of the financing commitments is terminated or the funds are otherwise not
available, Newco will use commercially reasonable efforts to obtain an
alternative source of financing on terms no less favorable than those set forth
in the financing commitments.
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LIMITATION ON CONSIDERING OTHER ACQUISITION PROPOSALS
Il Fornaio has agreed that, except as described below, until the effective
time or the termination of the merger agreement, neither it, nor any of its
officers, directors, employees, representatives, agents or affiliates will:
- initiate, solicit or knowingly encourage, or act with the intention of
facilitating, any inquiries or the making or submission of an acquisition
proposal, as discussed below;
- enter into, maintain or continue discussions or negotiate with any person
or group in furtherance of such inquiries or obtain or induce any person
or group to make or submit an acquisition proposal;
- agree to or endorse any acquisition proposal;
- assist or participate in, facilitate or encourage, any effort or attempt
by any other person or group to do or seek any of the foregoing; or
- authorize or permit any of its officers, directors or employees or any of
its affiliates or any investment banker, financial advisor, attorney,
accountant or other representative or agent retained by it to take any
such action.
Under the merger agreement, an acquisition proposal is defined as follows:
- any merger, consolidation, share exchange, recapitalization, liquidation,
dissolution, business combination or other similar transaction;
- any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 15% or more of the assets of Il Fornaio or of any business
that contributed or represented 15% or more of the net sales, the net
income or the assets of Il Fornaio;
- any tender offer or exchange offer that, if consummated, would result in
any person or group beneficially owning more than 15% of the outstanding
shares of any class of equity securities of Il Fornaio or the filing of a
registration statement under the Securities Act in connection therewith;
- any acquisition of 15% or more of the outstanding shares of capital stock
of Il Fornaio or the filing of a registration statement under the
Securities Act in connection with such acquisition or any other
acquisition or disposition the consummation of which would prevent or
materially diminish the benefits to Newco of the merger; or
- any public announcement by Il Fornaio or any third party of a proposal,
plan or intention to do any of the foregoing or any agreement to engage
in any of the foregoing.
The board of directors of Il Fornaio, the special committee or Il Fornaio
representatives may furnish information to or enter into discussions or
negotiations with any person or group that makes an unsolicited written, bona
fide acquisition proposal if:
- the special committee determines in good faith, by a majority vote after
consultation with its financial advisor and independent legal counsel,
that such proposal is, or is reasonably likely to lead to, any superior
proposal, as discussed below;
- the special committee determines in good faith by a majority vote, after
consultation with its outside legal counsel, that failure to take such
action would be inconsistent with the fiduciary duties of the board of
directors; and
- such person or group, prior to the disclosure of any non-public
information, enters into a confidentiality agreement with Il Fornaio on
terms set forth in the merger agreement.
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Under the merger agreement, a superior proposal is defined as any proposal
that is made by a third party to acquire at least 51% of the shares of Il
Fornaio common stock then outstanding or all or substantially all of the assets
of Il Fornaio, which the special committee determines in good faith:
- is more favorable to the stockholders of Il Fornaio other than the
continuing stockholders from a financial point of view than the
transactions contemplated by the merger agreement (including after any
adjustments proposed by Newco in response to the acquisition proposal);
- is not subject to any material contingency, other than contingencies that
the other party has reasonably demonstrated its ability to overcome or
address; and
- is reasonably likely to be consummated and is in the best interests of
the stockholders of Il Fornaio other than the continuing stockholders.
Except as expressly permitted by the merger agreement, neither the board of
directors of Il Fornaio nor the special committee will (1) approve or recommend
an acquisition proposal or (2) cause Il Fornaio to approve an acquisition
proposal and/or enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement related to any acquisition
proposal, except if:
- the acquisition proposal is a superior proposal;
- the special committee determines in good faith by a majority vote, after
consultation with its outside legal counsel, that failure to do so would
be inconsistent with the fiduciary duties of the board of directors;
- Il Fornaio is not in breach of its no-solicitation covenant in the merger
agreement; and
- in the case of clause (2) above, Il Fornaio pays a termination fee and
expense reimbursement to Newco or its designee as described in the merger
agreement and Il Fornaio complies with its obligations under the
termination provisions of the merger agreement.
If Il Fornaio receives an acquisition proposal or any inquiry or request
for information that could lead to or relate to an acquisition proposal, then Il
Fornaio must promptly inform Newco of the identity of the person making the
acquisition proposal, inquiry or request and of the material terms of the
proposal. Il Fornaio must keep Newco fully informed of the status and details of
any acquisition proposal, inquiry or request.
Subject to compliance with the merger agreement, Il Fornaio or the board of
directors of Il Fornaio or the special committee may make any disclosure or
statement to Il Fornaio stockholders if it determines in good faith that failure
to do so would be inconsistent with the fiduciary duties of the board of
directors.
Il Fornaio may terminate the merger agreement if it receives and accepts a
superior proposal from a third party, as discussed in "-- Termination."
INDEMNIFICATION AND INSURANCE
The merger agreement provides that Newco will indemnify and hold harmless
each current and former director and officer of Il Fornaio for a period of six
years for acts and omissions occurring before or as of the effective time of the
merger to the extent provided in the current certificate of incorporation,
bylaws or indemnification agreements of Il Fornaio. The merger agreement further
provides that for a period of six years after the effective time of the merger,
Newco will maintain, if commercially available, Il Fornaio's current directors'
and officers' liability insurance and indemnification policy with respect to
events occurring before or as of the effective time of the merger and covering
all current directors and officers of the Company; however, in the event that
the cost of this insurance exceeds 200% of the current annual premium, Newco
must use reasonable efforts to obtain substantially similar insurance for an
amount equal to 200% of the annual premium.
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CONDITIONS TO COMPLETING THE MERGER
CONDITIONS TO EACH PARTY'S OBLIGATION. The obligations of Il Fornaio and
Newco to complete the merger are subject to the satisfaction or waiver of
certain conditions, including the following:
- holders of at least a majority of Il Fornaio's outstanding common stock
must have approved the merger agreement;
- no statute, rule, regulation, executive order, decree or injunction of
any court or governmental entity may prohibit consummation of the merger;
and
- the applicable waiting period under the HSR Act must have expired or
terminated.
CONDITIONS TO NEWCO'S OBLIGATION. The obligation of Newco to complete the
merger is subject to the satisfaction or waiver of the following conditions:
- Il Fornaio's representations and warranties in the merger agreement must
have been true and correct in all respects, generally, as of the date of
the original merger agreement and must be true and correct as of the
closing date as if made on the closing date, except for changes
specifically contemplated by the merger agreement and disregarding any
inaccuracies as of the closing date that, considered individually or
collectively, would not reasonably be expected to have a material adverse
effect, as discussed below, on Il Fornaio, and provided that if a
representation and warranty has a specific date, it need only be true as
of that date;
- Il Fornaio must have performed and complied in all material respects with
the agreements and obligations required to be complied with by it under
the merger agreement at or prior to the effective time;
- there must not have occurred any business interruption, damage,
destruction or other event that would reasonably be expected to have a
material adverse effect on Il Fornaio;
- there must be no pending or threatened action, proceeding or
investigation that relates to the merger to which a governmental entity
is a party or that has had or would reasonably be expected to have a
material adverse effect on Il Fornaio;
- Il Fornaio must have obtained any necessary or required governmental or
other third-party consents necessary to maintain its liquor licenses and
leases following completion of the merger, and Il Fornaio must have
obtained any other necessary or required third-party consents required in
connection with the merger, except for such other consents that, if not
obtained, would not reasonably be expected to have a material adverse
effect on Il Fornaio;
- Newco must have received the proceeds of the financing contemplated in
the financing commitments or on terms no less favorable to Newco;
- construction of specified Il Fornaio restaurants or bakeries that were
under construction at the time of the merger agreement must have been
completed and opened for business (both of which have now opened);
- immediately prior to the effective time, Il Fornaio must not have any
indebtedness for borrowed money and must have at least $4.4 million in
available cash and cash equivalents, as adjusted, as described in the
merger agreement;
- the release by the S.F. investment firm of Il Fornaio, Newco, the
surviving corporation and their respective officers, directors and agents
from all liabilities, claims and obligations must be in full force and
effect;
- neither Newco nor its lenders or representatives shall have identified
any actual or potential material environmental issues; and
- holders of no more than 10% of Il Fornaio's common stock may have
asserted appraisal rights.
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Under the merger agreement, a material adverse effect on Il Fornaio is
defined as (1) any adverse change or effect or prospective adverse change or
effect in the financial condition, assets, liabilities, business, properties or
results of operations of Il Fornaio, which change or effect is material with any
other changes or effects, to Il Fornaio or (2) any event, matter, condition or
effect that materially impairs Il Fornaio's ability to perform its obligations
under the merger agreement on a timely basis or to consummate the merger, with
the following exceptions:
- any effect or change reflecting general business or economic conditions
or affecting the restaurant industry generally; and
- any Il Fornaio employee resignations as a result of Newco's failing to
offer employment to these employees on terms comparable to the terms on
which these employees are employed by Il Fornaio on the date of the
merger agreement.
CONDITIONS TO IL FORNAIO'S OBLIGATION. The obligation of Il Fornaio to
complete the merger is subject to the satisfaction or waiver of the following
conditions:
- Newco's representations and warranties in the merger agreement must have
been true and correct in all material respects, generally, as of the date
of the merger agreement and must be true and correct in all material
respects as of the closing date as if made on the closing date, provided
that if a representation and warranty has a specific date, it need only
be true as of that date;
- Newco must have performed and complied in all material respects with the
agreements and obligations required to be performed and complied with by
it under the merger agreement at or prior to the effective time; and
- Newco or Il Fornaio as the surviving corporation must have received $40.0
million in equity financing (including Il Fornaio stock and options
exchanged by the continuing stockholders), and Newco or Il Fornaio as the
surviving corporation must have received financing on the terms set forth
in the financing commitments, on terms and conditions not materially less
advantageous to Newco as a whole or on other terms so long as the
incurrence of that debt by Newco will not render Il Fornaio as the
surviving corporation insolvent.
TERMINATION
Newco and Il Fornaio may agree by mutual written consent to terminate the
merger agreement at any time before the effective time. In addition, either
company may terminate the merger agreement if:
- the merger is not completed on or before May 31, 2001, unless the failure
to consummate the merger is attributable to a failure on the part of the
party seeking to terminate the merger agreement to perform any
obligation;
- a court or other governmental entity issues a final order prohibiting the
merger, except if the party seeking to terminate the merger agreement has
failed to exercise its reasonable efforts to consummate the merger;
- the Il Fornaio stockholders do not approve and adopt the merger agreement
and the merger; or
- the other party breaches or fails to materially perform any of its
representations, warranties or covenants as set forth in the merger
agreement and does not cure the breach or failure in the 10-day period
following notice of such breach or failure from the terminating party.
Newco may terminate the merger agreement if any of the following occurs,
which are each referred to as a Newco termination event:
- Il Fornaio's board of directors or any board committee breaches its
agreement not to initiate, solicit, knowingly encourage or act to
facilitate any acquisition proposals, or to engage in discussions or
negotiations with respect to acquisition proposals other than as
permitted under the merger agreement;
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- the Il Fornaio board of directors or any board committee recommends to
the Company's stockholders approval of an acquisition proposal other than
the merger;
- the Il Fornaio board of directors or any board committee withdraws or
amends its recommendation of the merger agreement and the merger in a
manner adverse to Newco:
- the financial advisor to the special committee withdraws or amends its
fairness opinion in a manner adverse to Newco; or
- Il Fornaio fails to include in this proxy statement its approval or
recommendation of the merger agreement and the merger.
Il Fornaio may also terminate the merger agreement, by action of the
special committee, in the event, referred to as the Il Fornaio termination
event, that prior to the special meeting of the stockholders, Il Fornaio
receives an acquisition proposal that was not received in violation of the
merger agreement and does not materially breach any confidentiality or
standstill agreement executed by the third party with respect to the Company,
and the special committee:
- determines that the acquisition proposal is a superior proposal;
- determines in good faith by a majority vote, after consultation with its
outside legal counsel, that failure to approve the agreement would be
inconsistent with the fiduciary duties of the board of directors;
- has received a written opinion from its financial advisor that the
acquisition proposal is fair from a financial point of view to Il Fornaio
stockholders other than the continuing stockholders;
- provides Newco with written notification of its intent to terminate the
merger agreement, which notification identifies the acquisition proposal
and includes the form of the proposed agreement for the alternative
acquisition proposal; and
- no earlier than two business days later, provides Newco with written
notification of its actual termination of the merger agreement and
delivers the termination fee and expenses as described in "-- Termination
Fee and Expense Reimbursement" along with Il Fornaio's written
acknowledgment that it irrevocably waives any right to contest such
payment.
Subject to limited exceptions, including the survival of any obligations to
pay the termination fee and expenses, if the merger agreement is terminated,
then it will be of no further force or effect. Except as otherwise provided,
there will be no liability on the part of Newco or Il Fornaio or their
respective representatives, and all obligations of the parties will cease.
However, no party will be relieved from its obligations with respect to any
material breach of the merger agreement.
TERMINATION FEE AND EXPENSE REIMBURSEMENT
If the merger agreement is terminated, all fees and expenses will be paid
by the party incurring them, except as described below.
EXPENSE REIMBURSEMENT. Il Fornaio will reimburse Newco or its designee for
its reasonable out-of-pocket fees and expenses actually incurred in connection
with the merger and the proposed financing (as described in the merger
agreement) if:
- Il Fornaio terminates the merger agreement in connection with the Il
Fornaio termination event;
- Newco terminates the merger agreement following a Newco termination
event;
- either Il Fornaio or Newco terminates the merger agreement because Il
Fornaio stockholder approval is not obtained or the merger is not
completed on or before May 31, 2001, unless the failure to timely
complete the merger relates to a failure to obtain necessary debt
financing, which failure is not attributable to specified issues related
to Il Fornaio, including a material adverse change in Il Fornaio's
business, financial condition or prospect; or
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<PAGE> 76
- either Il Fornaio or Newco terminates the merger agreement (other than
under provisions allowing termination because the merger is not completed
on or before May 31, 2001) as a result of Il Fornaio's failure to obtain
consents as required under its leases or Newco's failure to obtain
necessary debt financing due to a material adverse change in Il Fornaio's
business, financial condition or prospects.
Il Fornaio must pay Newco's expenses prior to or simultaneously with its
termination of the merger agreement as set forth in the merger agreement or
within five business days of Newco's terminating the merger agreement.
TERMINATION FEE. In addition to the expense reimbursement, Il Fornaio will
pay a termination fee of $2.7 million to Newco or its designee if:
- Il Fornaio terminates the merger agreement in connection with the Il
Fornaio termination event, which payment is due upon termination;
- Newco terminates the merger agreement because the Il Fornaio board of
directors or any board committee breaches its agreement not to initiate,
solicit, knowingly encourage or act to facilitate any acquisition
proposals or to engage in discussions or negotiations with respect to
acquisition proposals, other than as permitted under the merger
agreement, which payment is due within five business days of such
termination;
- Newco terminates the merger agreement because the Il Fornaio board of
directors or any board committee recommends to the Company's stockholders
approval of an acquisition proposal, which payment is due within five
business days of such termination; or
- Il Fornaio receives an acquisition proposal while the merger agreement is
in effect and within 12 months following termination of the merger
agreement consummates any acquisition proposal, which payment is due
within five business days of such consummation, provided that such
termination occurs as follows:
- by either party upon failure to complete the merger on or before May
31, 2001, unless the failure to timely complete the merger relates to
either a material adverse change in the Company's business, financial
condition or prospects or a failure to obtain necessary debt financing,
which failure is not attributable to specified issues related to Il
Fornaio, including a material adverse change in Il Fornaio's business,
financial condition or prospects;
- by either party after the Il Fornaio stockholders do not approve and
adopt the merger agreement and the merger;
- by Newco after Il Fornaio's board of directors or any board committee
withdraws or amends its recommendation of the merger agreement and the
merger in a manner adverse to Newco;
- by Newco after the financial advisor to the special committee withdraws
or amends its fairness opinion in a manner adverse to Newco; or
- by Newco after Il Fornaio fails to include in this proxy statement its
approval or recommendation of the merger agreement and the merger.
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<PAGE> 77
COMMON STOCK PURCHASE INFORMATION
PURCHASES BY IL FORNAIO
The table below sets forth information, by fiscal quarters, regarding
purchases by Il Fornaio of its common stock since September 29, 1998, including
the number of shares purchased, the range of prices paid and the average
purchase price:
<TABLE>
<CAPTION>
AVERAGE
NO. OF PURCHASE
PERIOD SHARES PRICE RANGE PRICE
------ ------- ------------- --------
<S> <C> <C> <C>
Fourth Quarter 1998....................................... 362,400 $5.30 - $6.11 $5.61
First Quarter 1999........................................ -- -- --
Second Quarter 1999....................................... -- -- --
Third Quarter 1999........................................ -- -- --
Fourth Quarter 1999....................................... 137,000 $7.18 $7.18
First Quarter 2000........................................ -- -- --
Second Quarter 2000....................................... -- -- --
Third Quarter 2000........................................ -- -- --
Fourth Quarter 2000....................................... -- -- --
First Quarter 2001 (through January 9, 2001).............. -- -- --
</TABLE>
PURCHASES BY DIRECTORS AND EXECUTIVE OFFICERS OF IL FORNAIO
None of Il Fornaio, its directors or executive officers or Newco has
engaged in any transaction with respect to Il Fornaio common stock within 60
days of the date of this proxy statement.
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<PAGE> 78
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Il Fornaio common stock as of December 31, 2000 by (1) all those
known by Il Fornaio to be beneficial owners of more than 5% of its common stock;
(2) each director; (3) each executive officer; and (4) all executive officers
and directors of Il Fornaio as a group. Unless otherwise indicated, the address
for each of the stockholders listed below is c/o Il Fornaio (America)
Corporation, 770 Tamalpais Drive, Suite 400, Corte Madera, California 94925.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
NUMBER PERCENT
BENEFICIAL OWNER OF SHARES OF TOTAL(1)(2)
---------------- ---------- --------------
<S> <C> <C>
Eastbourne Capital Management, LLC(3)....................... 1,391,600 23.9%
1101 Fifth Avenue, Suite 1600
San Rafael, CA 94901
Laurence B. Mindel(4)....................................... 733,886 12.5
Michael J. Hislop(5)........................................ 534,073 8.4
Peter P. Hausback(5)(6)..................................... 13,579 *
Michael J. Beatrice(5)...................................... 67,190 1.1
Paul J. Kelley(6)........................................... 76,332 1.3
Dean A. Cortopassi(7)....................................... 125,294 2.2
W. Scott Hedrick(5)......................................... 17,879 *
F. Warren Hellman(8)........................................ 143,854 2.5
George B. James............................................. 0 0
Lawrence F. Levy(5)......................................... 5,310 *
All executive officers and directors as a group (9
persons)(9)............................................... 1,641,065 25.2%
</TABLE>
-------------------------
* Less than one percent.
(1) This table is based on information supplied by officers, directors and
principal stockholders of Il Fornaio and on any Schedules 13D or 13G filed
with the Commission. On that basis, Il Fornaio believes that each of the
stockholders named in this table has sole voting and investment power with
respect to the shares indicated as beneficially owned except (a) for shares
indicated as beneficially owned by any of the continuing stockholders, which
are subject to a voting agreement with Newco pursuant to which Newco has
been granted an irrevocable proxy to vote the shares in favor of the merger
and adoption of the merger agreement and (b) as otherwise indicated in the
footnotes to this table and subject to community property laws where
applicable.
(2) Applicable percentages are based on 5,827,571 shares outstanding on December
31, 2000, adjusted as required by rules promulgated by the Commission.
(3) Based on Schedule 13D/A filed with the Commission on February 8, 2000.
Includes 597,748 shares held by Black Bear Fund I, L.P. and 601,000 shares
held by Black Bear Offshore Fund Limited, both of which are advised by
Eastbourne Capital Management, L.L.C.
(4) Includes 7,195 shares held by the Mindel Family Trust, 9,157 shares held by
a Trust created for the benefit of Laurence B. Mindel and his family, and
663,184 shares held by The Mindel Living Trust, of which Mr. Mindel is a
trustee. Also includes 54,350 shares issuable upon the exercise of stock
options that are exercisable within 60 days of December 31, 2000. Excludes
an aggregate of 195,944 shares held in trusts for five children of Mr.
Mindel, as to which Mr. Mindel is not a trustee and disclaims beneficial
ownership.
(5) Includes shares subject to options exercisable within 60 days of December
31, 2000 as follows: 534,073 for Mr. Hislop, 13,579 for Mr. Hausback, 67,190
for Mr. Beatrice, 3,000 for Mr. Hedrick and 3,000 for Mr. Levy.
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<PAGE> 79
(6) Mr. Kelley resigned as Vice President, Finance, Chief Financial Officer and
Secretary in December 1999 and Mr. Hausback was elected Vice President,
Finance, Chief Financial Officer and Secretary.
(7) Includes 57,794 shares held of record by Stanislaus Food Products Company, a
California corporation. Mr. Cortopassi is Chief Executive Officer and a
principal stockholder of Stanislaus Food Products Company. Includes 60,000
shares held of record by Capecchio Foundation. Mr. Cortopassi is President
and a member of the board of directors of Capecchio Foundation. Also
includes 7,500 shares issuable upon the exercise of stock options that are
exercisable within 60 days of December 31, 2000.
(8) Includes 125,802 shares held of record by FWH Associates, a California
limited partnership. Mr. Hellman is a general partner of FWH Associates.
Also includes 2,052 shares held of record by Marco H. Hellman Trust "B." Mr.
Hellman is a trustee of the Marco H. Hellman Trust "B." Also includes 6,000
shares issuable upon the exercise of stock options that are exercisable
within 60 days of December 31, 2000.
(9) Includes information contained in the notes above, as applicable. Does not
include shares held by Mr. Kelley, a former executive officer.
71
<PAGE> 80
DIRECTORS AND EXECUTIVE OFFICERS OF IL FORNAIO
LAURENCE B. MINDEL, 63, joined Il Fornaio as Chairman of the Board,
President and Chief Executive Officer in January 1987. Mr. Mindel currently
serves as Chairman of the Board, having resigned as President in 1995 and as
Chief Executive Officer in 1998. From 1964 to 1970, Mr. Mindel was President and
Chief Executive Officer of Caswell Coffee Company in San Francisco. In 1970, Mr.
Mindel co-founded Spectrum Foods, where he served as Chairman of the Board,
President and Chief Executive Officer. Under Mr. Mindel's direction, Spectrum
created 14 restaurants in Northern and Southern California, including Chianti,
MacArthur Park, Harry's Bar and American Grill, Prego and Guaymas. In 1984, Saga
Corporation acquired Spectrum Foods and, from that time until he joined Il
Fornaio, Mr. Mindel served as President of the Saga Restaurant Group, which
included Stuart Anderson's Black Angus, Velvet Turtle, Spoons, Hotel Food
Services and the newly acquired Spectrum Foods restaurants. In 1985, Mr. Mindel
became the first person of non-Italian descent and the first American to be
awarded the Caterina di Medici medal. Awarded by the Italian government, the
medal recognizes persons who have excelled in preserving the Italian heritage
outside of Italy. Michael Mindel, the son of Laurence B. Mindel, is Vice
President of Marketing of Il Fornaio.
MICHAEL J. HISLOP, 45, joined Il Fornaio as President and Chief Operating
Officer in July 1995 and was promoted to Chief Executive Officer and President
in 1998. From April 1991 to May 1995, Mr. Hislop served as Chairman and Chief
Executive Officer of Chevy's Mexican Restaurants which, under his direction,
grew from 17 locations to 63 locations nationwide. From 1982 to 1991, Mr. Hislop
was employed by El Torito Mexican Restaurants, Inc., serving first as Regional
Operator, then as Executive Vice President of Operations and, for the last three
years, as Chief Operating Officer. From 1979 to 1982, Mr. Hislop was employed by
T.G.I. Fridays Restaurants, Inc. as a Regional Manager.
PETER P. HAUSBACK, 40, was appointed Chief Financial Officer and Secretary
on December 1, 1999. Mr. Hausback is also Vice President of Finance and has held
that position since May 1999. From April 1998 to May 1999, Mr. Hausback was the
Vice President of Planning and Analysis and, from February 1992 to April 1998,
he was Controller. Prior to joining Il Fornaio, Mr. Hausback was employed at
Price Waterhouse.
MICHAEL J. BEATRICE, 46, joined Il Fornaio as Vice President, Operations,
in April 1996 and was promoted to Chief Operating Officer in 1998. From 1994 to
1996, Mr. Beatrice was Vice President, Operations, for an area developer of
Boston Chicken, a restaurant company. From 1991 to 1994, he owned and operated
an upscale, full-service Italian restaurant north of Boston. From 1983 to 1991,
he served in a variety of positions with El Torito Mexican Restaurant, Inc.,
most recently as Regional Vice President.
DEAN A. CORTOPASSI, 63, has been a director of Il Fornaio since April 1996.
Mr. Cortopassi founded and has served as Chief Executive Officer of San Tomo
Group, a holding company which owns and operates a number of food processing and
marketing companies, including Stanislaus Food Products, Gilroy Canning Company,
Sierra Quality Canners and MGI Holdings, Inc.
W. SCOTT HEDRICK, 55, has been a director of Il Fornaio since 1987. Mr.
Hedrick co-founded InterWest Partners, a venture capital management firm, in
1979 and has been a general partner of that firm since that time. From 1974 to
1979, Mr. Hedrick was a partner of American-Euro Interfund, a venture capital
corporation. From 1970 to 1974, he was an Assistant Vice President with Small
Business Enterprise Company, a venture capital subsidiary of Bank of America NT
& SA. Mr. Hedrick is also a director of Office Depot, Inc. and Golden State
Vintners.
F. WARREN HELLMAN, 66, has been a director of Il Fornaio since 1983. From
1984 to 1997, Mr. Hellman was a general partner of Hellman & Friedman, an
investment firm, and, since January 1998, he has been Chairman of Hellman &
Friedman LLC, an investment firm. He has also been a partner of Matrix Partners,
a venture capital firm, since 1982 and a general partner of FWH Associates, a
limited partnership, since 1985. From 1962 to 1977, Mr. Hellman was a partner of
Lehman Brothers in New York, where he served at various times as head of
Lehman's Investment Banking Division, President and Director of Lehman Brothers,
Inc., Chairman of Lehman Brothers, Inc. and Chairman of Lehman
72
<PAGE> 81
Corporation, a closed-end investment company. From October 1981 to March 1984,
Mr. Hellman also served as a Managing Director of Lehman Brothers Kuhn Loeb. Mr.
Hellman is also a director of Levi Strauss & Co. and WPP Group, plc.
GEORGE B. JAMES, 63, has been a director of Il Fornaio since October 2000.
Mr. James was Senior Vice President and Chief Financial Officer of Levi Strauss
& Co., an apparel company, from 1985 until his retirement in 1998. Prior to his
employment at Levi Strauss, Mr. James was employed at Crown Zellerbach, where he
was Executive Vice President and Group President from 1984 to 1985 and Executive
Vice President and Chief Financial Officer from 1982 to 1983. Mr. James was
Senior Vice President and Chief Financial Officer from 1972 to 1982 of Arcata
Corporation. Mr. James is a Chairman of the board of directors of Crown Vantage,
Inc. and Sharper Image, Inc.
LAWRENCE F. LEVY, 56, has been a director of Il Fornaio since December
1998. Since 1978, Mr. Levy has served as the Chairman and Chief Executive
Officer of Levy Restaurants, a food service company, which he founded in 1978.
The Chicago-based company currently operates 50 food service locations
throughout 18 North American markets. Prior to founding Levy Restaurants, Mr.
Levy served as President of Hawthorn Realty Group, a commercial real estate
group. Mr. Levy is also a director of Chicago Title Corporation and Burrell
Communications.
INDEPENDENT AUDITORS
Il Fornaio's financial statements as of December 26, 1999 and December 27,
1998, and for each of the years in the three-year period ended December 26,
1999, incorporated by reference in this proxy statement, have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report
incorporated herein by reference from the Company's Annual Report on Form 10-K
for the year ended December 26, 1999. Representatives of Deloitte & Touche LLP
are expected to be available at the special meeting to respond to appropriate
questions of stockholders and to make a statement if they desire to do so.
FUTURE STOCKHOLDER PROPOSALS
If the merger is completed, there will be no public participation in any
future meetings of stockholders of Il Fornaio. However, if the merger is not
completed, Il Fornaio stockholders will continue to be entitled to attend and
participate in Il Fornaio stockholders' meetings. If the merger is not
completed, Il Fornaio will inform its stockholders, by press release or other
means determined reasonable by Il Fornaio, of the date by which stockholder
proposals must be received by the Company for inclusion in the proxy materials
relating to the annual meeting, which proposals must comply with the rules and
regulations of the Commission then in effect.
WHERE STOCKHOLDERS CAN FIND MORE INFORMATION
Il Fornaio files annual, quarterly and special reports, proxy statements
and other information with the Commission. In addition, because the merger is a
"going private" transaction, Il Fornaio has filed a Rule 13e-3 Transaction
Statement on Schedule 13E-3 with respect to the merger. The Schedule 13E-3, the
exhibits to the Schedule 13E-3 and such reports, proxy statements and other
information contain additional information about Il Fornaio. Exhibits (d)(1)
through (d)(3) of the Schedule 13E-3 will be made available for inspection and
copying at Il Fornaio's executive offices during regular business hours by any
Il Fornaio stockholder or a representative of a stockholder as so designated in
writing.
Il Fornaio stockholders may read and copy the Schedule 13E-3 and any
reports, statements or other information filed by Il Fornaio at the Commission's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the following Regional Offices of the Commission: 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York,
New York 10048. Please call the Commission at 1-800-SEC-0330 for further
information on the operation of
73
<PAGE> 82
the public reference rooms. Il Fornaio's filings with the Commission are also
available to the public from commercial document retrieval services and at the
website maintained by the Commission located at: "http://www.sec.gov."
This proxy statement is being furnished to stockholders together with a
copy of Il Fornaio's Annual Report on Form 10-K for the years ended December 26,
1999 and its Quarterly Report on Form 10-Q for the quarter ended September 24,
2000.
The Commission allows Il Fornaio to "incorporate by reference" information
into this proxy statement. This means that Il Fornaio can disclose important
information by referring to another document filed separately with the
Commission. The information incorporated by reference is considered to be part
of this proxy statement. This proxy statement and the information that Il
Fornaio files later with the Commission may update and supersede the information
incorporated by reference. Similarly, the information that Il Fornaio later
files with the Commission may update and supersede the information in this proxy
statement. Il Fornaio incorporates by reference each document it files under
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
proxy statement and before the special meeting. Il Fornaio also incorporates by
reference into this proxy statement the following documents filed by it with the
Commission under the Exchange Act:
- Il Fornaio's Annual Report on Form 10-K for the year ended December 26,
1999;
- Il Fornaio's Quarterly Report on Form 10-Q for the quarter ended March
26, 2000;
- Il Fornaio's Quarterly Report on Form 10-Q for the quarter ended June 25,
2000;
- Il Fornaio's Quarterly Report on Form 10-Q/A for the quarter ended
September 24, 2000;
- Il Fornaio's Current Report on Form 8-K, filed on November 16, 2000; and
- Il Fornaio's Current Report on Form 8-K, filed on December 4, 2000.
Il Fornaio undertakes to provide without charge to each person to whom a
copy of this proxy statement has been delivered, upon request, by first class
mail or other equally prompt means, within one business day of receipt of such
request, a copy of any or all of the documents incorporated by reference herein,
other than the exhibits to such documents, unless such exhibits are specifically
incorporated by reference into the information that this proxy statement
incorporates. Requests for copies should be directed to Il Fornaio (America)
Corporation, 770 Tamalpais Drive, Suite 400, Corte Madera, California 94925,
Attention: Peter P. Hausback, Secretary (telephone number: (415) 945-0500).
Document requests from Il Fornaio should be made by , 2001 in
order to receive them before the special meeting.
The proxy statement does not constitute an offer to sell, or a solicitation
of an offer to buy, any securities, or the solicitation of a proxy, in any
jurisdiction to or from any person to whom it is not lawful to make any offer or
solicitation in such jurisdiction. The delivery of this proxy statement should
not create an implication that there has been no change in the affairs of Il
Fornaio since the date of this proxy statement or that the information herein is
correct as of any later date.
Stockholders should not rely on information other than that contained or
incorporated by reference in this proxy statement. Il Fornaio has not authorized
anyone to provide information that is different from that contained in this
proxy statement. This proxy statement is dated , 2001. No assumption
should be made that the information contained in this proxy statement is
accurate as of any date other than such date, and the mailing of this proxy
statement will not create any implication to the contrary.
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<PAGE> 83
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
IL FORNAIO (AMERICA) CORPORATION
AND
MANHATTAN ACQUISITION CORP.
DATED AS OF NOVEMBER 15, 2000
AS AMENDED AS OF JANUARY 9, 2001
<PAGE> 84
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I THE MERGER............................................................ 2
Section 1.1. The Merger.................................................. 2
Section 1.2. Effective Time.............................................. 2
Section 1.3. Effect of the Merger........................................ 2
Section 1.4. Certificate of Incorporation; Bylaws........................ 2
Section 1.5. Directors and Officers...................................... 2
Section 1.6. Conversion of Securities.................................... 3
Section 1.7. Adjustments to Prevent Dilution............................. 3
Section 1.8. Dissenting Shares........................................... 4
Section 1.9. Surrender of Shares......................................... 4
Section 1.10. No Further Transfer or Ownership Rights..................... 5
Section 1.11. Treatment of Options........................................ 5
Section 1.12. Closing..................................................... 6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................ 6
Section 2.1. Organization and Qualification.............................. 6
Section 2.2. Capitalization.............................................. 7
Section 2.3. Authority Relative to this Agreement........................ 8
Section 2.4. Absence of Certain Changes.................................. 8
Section 2.5. Reports..................................................... 9
Section 2.6. Proxy Statement............................................. 9
Section 2.7. Consents and Approvals; No Violation........................ 10
Section 2.8. Brokerage Fees and Commissions.............................. 10
Section 2.9. Litigation.................................................. 11
Section 2.10. Absence of Changes in Benefit Plans......................... 11
Section 2.11. ERISA Compliance............................................ 11
Section 2.12. Taxes....................................................... 13
Section 2.13. Compliance with Applicable Laws............................. 14
Section 2.14. Environmental............................................... 14
Section 2.15. State Takeover Statutes..................................... 16
Section 2.16. Contracts................................................... 16
Section 2.17. Labor Matters............................................... 17
Section 2.18. Property.................................................... 17
Section 2.19. Undisclosed Liabilities..................................... 17
Section 2.20. Opinion of Financial Advisors............................... 18
Section 2.21. Intellectual Property....................................... 18
Section 2.22. Insurance................................................... 19
Section 2.23. Affiliate Transactions...................................... 19
ARTICLE III REPRESENTATIONS AND WARRANTIES OF NEWCO............................. 19
Section 3.1. Organization and Qualification.............................. 19
Section 3.2. Authority Relative to this Agreement........................ 19
Section 3.3. Proxy Statement............................................. 19
Section 3.4. Consents and Approvals; No Violation........................ 19
Section 3.5. Financing Commitments....................................... 20
Section 3.6. Ownership of Company Stock.................................. 20
</TABLE>
<PAGE> 85
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE IV CONDUCT OF BUSINESS PENDING THE MERGER............................... 20
Section 4.1. Conduct of Business of the Company Pending the Merger....... 20
Section 4.2. Prohibited Actions by the Company........................... 21
ARTICLE V COVENANTS AND ADDITIONAL AGREEMENTS................................... 23
Section 5.1. No Solicitation............................................. 23
Section 5.2. Access to Information....................................... 24
Section 5.3. Confidentiality Agreement................................... 25
Section 5.4. Reasonable Efforts.......................................... 25
Section 5.5. Indemnification of Directors and Officers................... 26
Section 5.6. Event Notices and Other Actions............................. 26
Section 5.7. Third Party Standstill Agreements........................... 27
Section 5.8. Employee Stock Options; Employee Plans and Benefits and
Employment Contracts........................................ 27
Section 5.9. Meeting of the Company's Stockholders....................... 28
Section 5.10. Proxy Statement............................................. 28
Section 5.11. Public Announcements........................................ 29
Section 5.12. Stockholder Litigation...................................... 29
Section 5.13. FIRPTA...................................................... 29
Section 5.14. Alternative Financing; Disclosure........................... 29
Section 5.15. HSR Act..................................................... 30
ARTICLE VI CONDITIONS TO CONSUMMATION OF THE MERGER............................. 30
Section 6.1. Conditions to Each Party's Obligation to Effect the
Merger...................................................... 30
Section 6.2. Conditions to Obligations of Newco to Effect the Merger..... 30
Section 6.3. Conditions to the Obligations of the Company................ 32
ARTICLE VII TERMINATION; AMENDMENT; WAIVER...................................... 32
Section 7.1. Termination................................................. 32
Section 7.2. Effect of Termination....................................... 34
Section 7.3. Fees and Expenses........................................... 34
Section 7.4. Amendment................................................... 35
Section 7.5. Extension; Waiver........................................... 35
ARTICLE VIII MISCELLANEOUS...................................................... 35
Section 8.1. Non-Survival of Representations and Warranties.............. 35
Section 8.2. Enforcement of the Agreement................................ 35
Section 8.3. Severability................................................ 36
Section 8.4. Notices..................................................... 36
Section 8.5. Failure or Indulgence Not Waiver; Remedies Cumulative....... 37
Section 8.6. Governing Law............................................... 37
Section 8.7. Descriptive Headings........................................ 37
Section 8.8. Parties in Interest......................................... 37
Section 8.9. Counterparts................................................ 37
Section 8.10. Certain Definitions......................................... 37
Section 8.11. Interpretation.............................................. 38
Section 8.12. Entire Agreement; Assignment................................ 38
Section 8.13. Disclaimers................................................. 39
</TABLE>
<PAGE> 86
DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
1988 Option Plan............................................ 8
1991 Option Plan............................................ 7
1992 Directors Plan......................................... 7
1997 Directors Plan......................................... 7
1997 Incentive Plan......................................... 7
1997 Purchase Plan.......................................... 10
Acquisition Agreement....................................... 32
Acquisition Proposal........................................ 33
affiliate................................................... 51
Agreement................................................... 1
Alternative Transaction..................................... 46
beneficial owner............................................ 52
Benefit Plans............................................... 16
business day................................................ 52
Bylaws...................................................... 3
Cash and Cash Equivalents................................... 43
Cash Merger Consideration................................... 4
Cash Payments............................................... 8
Certificate of Incorporation................................ 3
Certificate of Merger....................................... 2
Certificates................................................ 6
Closing..................................................... 8
Closing Date................................................ 8
Code........................................................ 16
Company..................................................... 1
Company Common Stock........................................ 4
Company Disclosure Schedule................................. 8
Company Preferred Stock..................................... 9
Company Restaurant.......................................... 20
Company SEC Documents....................................... 12
Company Stock Option Plans.................................. 8
Company Stockholder Approval................................ 11
Confidentiality Agreement................................... 34
Contract.................................................... 22
control..................................................... 52
D&O Insurance............................................... 36
DGCL........................................................ 1
Dissenting Shares........................................... 5
Dissenting Stockholder...................................... 5
Effective Time.............................................. 3
Environmental Claim......................................... 22
Environmental Laws.......................................... 20
Environmental Liabilities................................... 22
Environmental Permit........................................ 20
ERISA....................................................... 15
ERISA Affiliate............................................. 16
Exchange Act................................................ 11
Expense Reimbursement....................................... 48
Filed Company SEC Documents................................. 11
Financing Commitments....................................... 28
Governmental Entity......................................... 14
group....................................................... 52
</TABLE>
<PAGE> 87
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Hazardous Materials......................................... 21
HSR Act..................................................... 14
IFAC........................................................ 14
Intellectual Property....................................... 25
IRS......................................................... 16
JH&C Group.................................................. 14
JH&Co....................................................... 14
Leases...................................................... 24
Licenses.................................................... 14
Liens....................................................... 13
Liquor Licenses............................................. 20
Management.................................................. 20
Material Adverse Effect..................................... 52
Material Business........................................... 34
Merger...................................................... 1
Merger Consideration........................................ 5
Newco....................................................... 1
Option...................................................... 7
Paying Agent................................................ 6
Pension Plan................................................ 16
Permits..................................................... 19
Permitted Liens............................................. 24
person...................................................... 52
Proxy Statement............................................. 13
Releases.................................................... 21
Rollover Group.............................................. 1
SARs........................................................ 10
Schedule 13E-3.............................................. 13
SEC......................................................... 12
Securities Act.............................................. 11
Securities Purchase and Voting Agreement.................... 1
Series A Company Preferred Stock............................ 3
Series A Surviving Corporation Preferred Stock.............. 4
Series B Company Preferred Stock............................ 3
Series B Surviving Corporation Preferred Stock.............. 4
Series C Company Preferred Stock............................ 3
Settlement Agreement........................................ 14
Settlement Fee.............................................. 14
Special Committee........................................... 2
Special Committee Financial Advisor......................... 2
Stockholder Meeting......................................... 39
Subsidiary.................................................. 9
Superior Proposal........................................... 33
Surviving Corporation....................................... 2
Surviving Corporation Common Stock.......................... 5
Tax Returns................................................. 19
Taxes....................................................... 19
Termination Fee............................................. 47
TRAC Agreement.............................................. 19
Transactions................................................ 11
Voting Agreement............................................ 1, 2
Voting Company Debt......................................... 10
WARN........................................................ 17
</TABLE>
<PAGE> 88
AGREEMENT AND PLAN OF MERGER
THIS IS AN AGREEMENT AND PLAN OF MERGER, dated as of November 15, 2000, as
amended as of January 9, 2001 (as so amended, this "Agreement") between
Manhattan Acquisition Corp., a Delaware corporation ("Newco"), and Il Fornaio
(America) Corporation, a Delaware corporation (the "Company").
BACKGROUND
A. The Boards of Directors of the Company and Newco have each determined
that it is in the best interests of their respective stockholders for Newco to
be merged with and into the Company in accordance with the applicable provisions
of the Delaware General Corporation Law (the "DGCL") and upon the terms and
subject to the conditions set forth in this Agreement (the "Merger"). The
parties to this Agreement entered into the original Agreement and Plan of Merger
dated as of November 15, 2000 (the "Original Agreement"), and desire to add
certain additional terms and provisions applying to the Merger.
B. Pursuant to a Securities Purchase and Contribution Agreement, dated as
of November 15, 2000, among the beneficial and record stockholders of the
Company set forth on Exhibit A to the Original Agreement and Newco (the
"Original Securities Purchase Agreement"), and subject to the terms and
conditions thereof, (i) the stockholders comprising the Rollover Group described
therein have agreed to receive or retain securities of the Surviving Corporation
(as defined in Section 1.1) upon consummation of the Merger and (ii) Bruckmann,
Rosser, Sherrill & Co. II, L.P. has agreed to purchase securities of Newco for
cash immediately prior to the consummation of the Merger. The parties to the
Original Securities Purchase Agreement, contemporaneously with the execution of
this Agreement, are amending the Original Securities Purchase Agreement (as so
amended, the "Securities Purchase Agreement") to add another individual to the
Rollover Group described therein (as so augmented and reflected in Exhibit A to
this Agreement, the "Rollover Group") and agree more specifically on the manner
in which the transactions contemplated thereby are to be carried out. It is
understood and agreed that Newco will have the right to further amend Exhibit A
to this Agreement by written notice delivered to the Company after the date
hereof to add additional stockholders of the Company or holders of options to
purchase shares of the Company's capital stock to such Exhibit, whereupon such
stockholders or optionholders will be deemed to be members of the Rollover Group
for all purposes hereof.
C. Newco has obtained the Financing Commitments referred to in Section 3.5
of this Agreement.
D. Pursuant to a Voting Agreement, dated as of November 15, 2000, among the
Rollover Group and Newco (the "Original Voting Agreement"), the then-current
members of the Rollover Group have agreed, among other things, to vote any
shares of capital stock or other securities of the Company entitled to vote in
respect of the Merger in favor of the Merger. The parties to the Original Voting
Agreement, contemporaneously with the execution of this Agreement, are amending
the Original Voting Agreement (as so amended, the "Voting Agreement"), to add
additional parties subject to such agreement.
E. The approval of the Board of Directors of the Company referred to above
is based upon the unanimous recommendation of a special committee (the "Special
Committee") of the Board of Directors of the Company comprised solely of
directors of the Company who are not employees of the Company and are not
affiliated with any stockholder which is party to the Securities Purchase
Agreement or the Voting Agreement, which Special Committee has approved this
Agreement (and, solely for purposes of Section 203 of the DGCL, the Voting
Agreement and the Securities Purchase Agreement) and has determined, after
consultation with its independent financial advisor (the "Special Committee
Financial Advisor"), that the consideration to be paid for each share of Company
Common Stock in the Merger is fair to the holders of such shares and to
recommend that the holders of shares of Company Common Stock approve the Merger
and adopt this Agreement.
<PAGE> 89
F. It is Newco's intent that the transactions contemplated hereby be
recorded as a recapitalization for financial reporting purposes.
TERMS
THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, and
intending to be legally bound hereby, Newco and the Company hereby agree as
follows:
ARTICLE I
THE MERGER
SECTION 1.1. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, at the Effective Time (as defined in Section 1.2),
Newco shall be merged with and into the Company and the separate corporate
existence of Newco shall thereupon cease. The Company shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation") and continue its existence under the laws of the State of
Delaware.
SECTION 1.2. Effective Time. As promptly as practicable after the
satisfaction or waiver in accordance with this Agreement of the conditions set
forth in Article VI of this Agreement, the parties hereto shall cause the Merger
to be consummated by filing a Certificate of Merger (the "Certificate of
Merger") with the Secretary of State of the State of Delaware in such form as is
required by, and executed in accordance with, the applicable provisions of the
DGCL. The Certificate of Merger will provide that the Merger will become
effective immediately upon the filing of the Certificate of Merger with such
Secretary of State in accordance with the DGCL. The time when the Merger becomes
effective is hereinafter referred to as the "Effective Time."
SECTION 1.3. Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided by the DGCL. Without limiting the foregoing, all the
property, rights, privileges, powers and franchises of the Company and Newco
shall be vested in the Surviving Corporation, and all debts, liabilities and
duties of the Company and Newco shall become the debts, liabilities and duties
of the Surviving Corporation.
SECTION 1.4. Certificate of Incorporation; Bylaws.
(a) The certificate of incorporation of the Company as in effect
immediately prior to the Effective Time shall be the certificate of
incorporation of the Surviving Corporation (the "Certificate of Incorporation"),
until duly amended as provided therein or by applicable law, except that the
Certificate of Incorporation may, at Newco's option, be amended after the
Effective Time as determined by Newco in its discretion. The Company will, not
less than one business day prior to the Effective Time, file a certificate of
designations with the Delaware Secretary of State pursuant to the second
paragraph of Article IV of its certificate of incorporation to create three
series of preferred stock, par value $.001 per share, of the Company, having the
rights, designations and preferences set forth in Schedule VI of the Securities
Purchase Agreement and, immediately prior to the Effective Time, will issue such
shares to members of the Rollover Group in such amounts, for such consideration
and on such other terms as are set forth in the Securities Purchase Agreement.
The three series of preferred stock of the Company to be so created are referred
to herein as "Series A Company Preferred Stock," "Series B Company Preferred
Stock" and "Series C Company Preferred Stock," respectively.
(b) The bylaws of Newco in effect at the Effective Time shall be the bylaws
of the Surviving Corporation (the "Bylaws"), until thereafter amended as
provided therein or by applicable law.
SECTION 1.5. Directors and Officers.
(a) The directors of Newco at the Effective Time shall, from and after the
Effective Time, be the directors of the Surviving Corporation until their
successors have been duly elected or appointed and
<PAGE> 90
qualified or until their earlier death, resignation or removal in accordance
with the Certificate of Incorporation and the Bylaws.
(b) The officers of the Company at the Effective Time shall, from and after
the Effective Time, be the officers of the Surviving Corporation until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the Certificate of
Incorporation and the Bylaws.
SECTION 1.6. Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of Newco, the Company or the
holders of any of the following securities:
(a) Each share of common stock of the Company, par value $.001 per
share ("Company Common Stock"), issued and outstanding immediately before
the Effective Time (other than (i) Dissenting Shares (as defined in Section
1.8(a)) and (ii) shares of Company Common Stock cancelled pursuant to
Section 1.6(c)) shall be converted into and represent the right to receive
$14.00 in cash (the "Cash Merger Consideration"), without interest, upon
surrender of the certificate formerly representing such share in the manner
provided in Section 1.9, less any required withholding taxes.
(b) Each share of capital stock of Newco, par value $.001 per share,
issued and outstanding immediately before the Effective Time shall be
converted into and exchanged for one fully paid and non-assessable share of
the same class and series of capital stock of the Surviving Corporation,
par value $.001 per share. From and after the Effective Time, each
outstanding certificate theretofore representing shares of capital stock of
Newco shall be deemed for all purposes to evidence ownership and to
represent the same number of shares of the same class and series of capital
stock of the Surviving Corporation.
(c) Each share of Company Common Stock held in the treasury of the
Company or held by any subsidiary of the Company, and each share of Company
Common Stock held by Newco immediately before the Effective Time, shall be
cancelled and cease to exist, and no payment shall be made with respect
thereto.
(d) Each share of Series A Company Preferred Stock issued and
outstanding immediately before the Effective Time (other than (i)
Dissenting Shares and (ii) shares of Series A Company Preferred Stock
cancelled pursuant to Section 1.6(c)) shall not be affected by the Merger
and shall remain outstanding as one share of Series A Cumulative
Compounding Preferred Stock, par value $.001 per share ("Series A Surviving
Corporation Preferred Stock"), of the Surviving Corporation.
(e) Each share of Series B Company Preferred Stock issued and
outstanding immediately before the Effective Time (other than (i)
Dissenting Shares and (ii) shares of Series B Company Preferred Stock
cancelled pursuant to Section 1.6(c)) shall not be affected by the Merger
and shall remain outstanding as one share of Series B Cumulative
Compounding Preferred Stock, par value $.001 per share ("Series B Surviving
Corporation Preferred Stock"), of the Surviving Corporation.
(f) Each share of Series C Company Preferred Stock issued and
outstanding immediately before the Effective Time (other than (i)
Dissenting Shares and (ii) shares of Series C Company Preferred Stock
cancelled pursuant to Section 1.6(c)) shall be converted into and represent
the right to receive one share of Common Stock, par value $.001 per share
("Surviving Corporation Common Stock"), of the Surviving Corporation.
(g) The Cash Merger Consideration and the shares of Series A Surviving
Corporation Preferred Stock, Series B Surviving Corporation Preferred Stock
and Surviving Corporation Common Stock to be delivered as merger
consideration under paragraphs (d), (e) and (f) above, are collectively
referred to herein as the "Merger Consideration."
SECTION 1.7. Adjustments to Prevent Dilution. In the event that the Company
changes the number of shares of capital stock of the Company or securities
convertible or exchangeable into or exercisable for shares of capital stock of
the Company issued and outstanding prior to the Effective Time as a result of a
<PAGE> 91
reclassification, stock split (including a reverse split), stock dividend or
distribution, recapitalization, merger, subdivision, issuer tender or exchange
offer, or other similar transaction, but not in respect of the amendment to the
Company's certificate of incorporation expressly contemplated by Section 1.4(a),
the Merger Consideration shall be equitably adjusted.
SECTION 1.8. Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary, at the
Effective Time, any issued and outstanding shares of Company Common Stock,
Series A Company Preferred Stock, Series B Company Preferred Stock or Series C
Company Preferred Stock ("Dissenting Shares") held by a Dissenting Stockholder
(as defined below) shall not be converted into the Merger Consideration but
shall be converted into or represent the right to receive only such
consideration as may be determined to be due to such Dissenting Stockholder
pursuant to Section 262 and the other applicable provisions of the DGCL;
provided, however, that each share of Company Common Stock, Series A Company
Preferred Stock, Series B Company Preferred Stock and Series C Company Preferred
Stock outstanding immediately prior to the Effective Time and held by a
Dissenting Stockholder who, after the Effective Time, loses or fails to perfect
his or her right of appraisal, pursuant to the DGCL, shall be deemed to be
converted as of the Effective Time into the right to receive the Merger
Consideration, without any interest thereon. As used in this Agreement, the term
"Dissenting Stockholder" means any record holder or beneficial owner of shares
of Company Common Stock, Series A Company Preferred Stock, Series B Company
Preferred Stock or Series C Company Preferred Stock who complies with all
provisions of the DGCL concerning the right of holders of such stock to dissent
from the Merger and obtain fair value for their shares.
(b) The Company shall give Newco (i) prompt notice of any demands for
appraisal pursuant to the applicable provisions of the DGCL received by the
Company, withdrawals of such demands, and any other instruments served pursuant
to the DGCL and received by the Company and (ii) the opportunity to participate
in all negotiations and proceedings with respect to demands for appraisal under
the DGCL. The Company shall not, except with the prior written consent of Newco,
make any payment with respect to any such demands for appraisal or offer to
settle or settle any such demands.
SECTION 1.9. Surrender of Shares.
(a) Prior to the mailing of the Proxy Statement (as defined in Section
2.6), Newco shall appoint a bank or trust company which is reasonably
satisfactory to the Company to act as paying agent (the "Paying Agent") for the
payment of the Cash Merger Consideration. At the Effective Time, the Surviving
Corporation shall deposit with the Paying Agent for the benefit of former
holders of shares of Company Common Stock sufficient funds to make payments of
the Cash Merger Consideration on all shares of Company Common Stock to be
converted into cash under Section 1.6(a). Such funds shall be invested by the
Paying Agent in prime money market obligations selected by the Surviving
Corporation. Any net profit resulting from, or interest or income produced by,
such investments shall be payable to the Surviving Corporation or as it directs.
(b) Promptly after the Effective Time, the Surviving Corporation shall
cause to be mailed to each record holder, as of the Effective Time, of an
outstanding certificate or certificates which immediately prior to the Effective
Time represented shares of Company Common Stock (the "Certificates "), a form of
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon proper delivery
of the Certificates to the Paying Agent) and instructions for use in effecting
the surrender of the Certificates for payment of the Cash Merger Consideration
therefor. Upon surrender to the Paying Agent of a Certificate, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, and such other documents as may be required
pursuant to such instructions, the holder of such Certificate shall be entitled
to receive in exchange therefor the aggregate amount of Cash Merger
Consideration into which the number of shares of Company Common Stock previously
represented by such Certificate or Certificates surrendered shall have been
converted pursuant to this Agreement. If any Cash Merger Consideration is to be
remitted to a person whose name is other than that in which the Certificate
surrendered for exchange is registered, it shall be a condition of such exchange
that the Certificate so surrendered shall be properly endorsed, with
<PAGE> 92
signature guaranteed, or otherwise in proper form for transfer, and that the
person requesting such exchange shall have paid any transfer and/or other taxes
required by reason of the remittance of Cash Merger Consideration to a person
whose name is other than that of the registered holder of the Certificate
surrendered, or the person requesting such exchange shall have established to
the satisfaction of the Surviving Corporation that such tax either has been paid
or is not applicable. No interest shall be paid or accrued, upon the surrender
of the Certificates, for the benefit of holders of the Certificates on any Cash
Merger Consideration.
(c) At any time following the date six months after the Effective Time, the
Surviving Corporation shall be entitled to require the Paying Agent to deliver
to it any funds (including any interest received with respect thereto) which
shall have been deposited with the Paying Agent and which shall have not been
disbursed to holders of Certificates, and thereafter such holders shall be
entitled to look only to the Surviving Corporation (subject to abandoned
property, escheat or other similar laws) and only as general creditors thereof
for payment of their claim for Cash Merger Consideration to which such holders
may be entitled.
(d) Notwithstanding the provisions of Section 1.9(c), neither the Surviving
Corporation nor the Paying Agent shall be liable to any person in respect of any
Cash Merger Consideration delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(e) The Surviving Corporation shall be entitled to deduct and withhold from
the consideration otherwise payable pursuant to this Agreement to any former
holder of shares of Company Common Stock such amounts as the Surviving
Corporation (or any affiliate thereof) is required to deduct and withhold with
respect to the making of such payment under the Code (as defined in Section
2.11), or any provision of any applicable state, local or foreign law, rule or
regulation. To the extent that amounts are so withheld by the Surviving
Corporation and paid by the Surviving Corporation to the applicable taxing
authority, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the former holder of shares of Company Common
Stock in respect of which such deduction and withholding was made by the
Surviving Corporation.
SECTION 1.10. No Further Transfer or Ownership Rights. After the Effective
Time, there shall be no further transfer on the records of the Company (or the
Surviving Corporation) or its transfer agent of Certificates representing shares
of Company Common Stock (or Series C Company Preferred Stock), and if such
Certificates (or any certificates representing shares of Series C Company
Preferred Stock) are presented to the Company (or the Surviving Corporation) for
transfer, they shall be cancelled. From and after the Effective Time, the
holders of certificates evidencing ownership of shares of capital stock of the
Company outstanding immediately prior to the Effective Time shall cease to have
any rights with respect to such shares of capital stock except as otherwise
provided for herein or by applicable law. All Merger Consideration paid upon the
surrender for exchange of certificates representing shares of capital stock of
the Company in accordance with the terms of this Article I shall be deemed to
have been issued (and paid) in full satisfaction of all rights pertaining to the
shares of capital stock of the Company exchanged for Merger Consideration
theretofore represented by such certificates.
SECTION 1.11. Treatment of Options. Prior to the Effective Time, the Board
of Directors of the Company (and/or, if appropriate, the Special Committee)
shall adopt appropriate resolutions and take all other actions necessary to
provide that each outstanding stock option (each, an "Option") heretofore
granted under the Company's 1997 Equity Incentive Plan, as amended (the "1997
Incentive Plan"), the Company's 1997 Non-Employee Directors' Stock Option Plan,
as amended (the "1997 Directors Plan"), the Company's 1992 Non-Employees
Directors' Stock Option Plan, as amended (the "1992 Directors Plan"), and each
of the Company's 1991 Incentive Stock Option Plan, as amended (the "1991 Option
Plan"), and the Company's 1988 Stock Option Plan, as amended (the "1988 Option
Plan") (collectively, the "Company Stock Option Plans"), whether or not then
vested or exercisable, shall, at the Effective Time, be cancelled, and each
holder thereof shall be entitled to receive a payment in cash as provided in
Section 5.8 hereof, if any (subject to any applicable withholding taxes, the
"Cash Payment"), it being understood that a portion of the Options held by
members of the Rollover Group will be cancelled in
<PAGE> 93
exchange for substitute options to purchase shares of capital stock of the
Surviving Corporation, as contemplated by the Securities Purchase Agreement. As
provided herein, unless otherwise determined by Newco, the Company Stock Option
Plans (and any feature of any other Benefit Plan (as defined in Section 2.11) or
other plan, program or arrangement providing for the issuance or grant of any
other interest in respect of the capital stock of the Company) shall terminate
as of the Effective Time. The Company shall take all steps necessary to ensure
that, after the date of the Original Agreement, the Company will not issue any
Options or other options, warrants, rights or agreements which would entitle any
person to acquire any capital stock of the Company or, except as otherwise
provided in this Section 1.11 or in Section 5.8 (or in connection with the
Securities Purchase Agreement), to receive any payment in respect thereof and,
except as otherwise provided above, to cause such Options to be cancelled or
cause the holders of the Options to agree to such cancellation thereof as
provided herein.
SECTION 1.12. Closing. Immediately prior to the Effective Time, a closing
for the transactions contemplated hereby (the "Closing") will be held at the
offices of Dechert, 30 Rockefeller Plaza, New York, NY 10112, unless another
place is agreed in writing by Newco and the Company. All actions taken at the
Closing shall be deemed to have been taken simultaneously at the time the last
of any such actions is taken or completed. The date such Closing occurs is
referred to herein as the "Closing Date."
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Newco that the statements contained
in this Article II were true and correct as of the date of the Original
Agreement (or, in the case of Section 2.6, will be true at the respective dates
stated therein), with references to "this Agreement" referring to the Original
Agreement and "the date hereof" and "the date of this Agreement" referring to
the date of the Original Agreement, it being understood such representations and
warranties must be read in conjunction with, and are subject to the exceptions
set forth in, the disclosure schedule delivered by the Company to Newco on or
before the date of the Original Agreement (the "Company Disclosure Schedule").
The Company Disclosure Schedule shall be arranged in Sections corresponding to
the numbered and lettered Sections contained in this Article II, and the
disclosures in any Section, including appropriate cross references, shall
qualify only the corresponding Section in this Article II; provided, however,
that disclosure of a matter in one Section of the Company Disclosure Schedule
shall be deemed incorporated into any other Section of the Company Disclosure
Schedule where the relevance of the incorporation is reasonably apparent from
the disclosure of the matter then appearing in the Section where it is
disclosed. In addition, the Company represents and warrants to Newco that the
statements contained in Sections 2.1, 2.3, 2.7 and 2.15 are true and correct as
of the date of this Agreement, with references to "this Agreement" referring to
this Agreement. Subject to the foregoing, the Company hereby represents and
warrants to Newco as follows:
SECTION 2.1. Organization and Qualification.
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the requisite
corporate power and authority necessary to enable it to own, lease and operate
its properties and assets and to carry on its business as it is now being
conducted. The Company is duly qualified as a foreign corporation, and is in
good standing, in each state where the character of the properties owned or
leased by it or the nature of its activities makes such qualification or
licensing necessary, and possesses all governmental franchises and Permits (as
defined in Section 2.13), except where the failure to be so qualified or in good
standing or to possess such franchises and Permits has not had and would not
reasonably be expected to have a Material Adverse Effect (as defined in Section
8.10) on the Company.
(b) The Company has no Subsidiaries. As used in this Agreement, the term
"Subsidiary" shall mean, with respect to any party, any corporation or other
organization, whether incorporated or unincorporated, of which (i) such party or
any other Subsidiary of such party is a general partner (excluding partnerships,
the general partnership interests of which held by such party or any Subsidiary
of
<PAGE> 94
such party do not have the majority of the voting interest in such partnership)
or (ii) at least a majority of the securities or other interests having by their
terms ordinary voting power to elect a majority of the Board of Directors or
others performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such party or by
any one or more of its Subsidiaries, or by such party and one or more of its
Subsidiaries. Except as set forth on Section 2.1(b) of the Company Disclosure
Schedule, the Company does not own, directly or indirectly, any capital stock or
other ownership interest in any corporation, partnership, limited liability
company, joint venture or other entity.
(c) The Company has delivered to Newco complete and correct copies of its
certificate of incorporation and bylaws, in each case as amended to the date of
the Original Agreement.
SECTION 2.2. Capitalization.
(a) The authorized capital stock of the Company consists of 20,000,000
shares of Company Common Stock and 5,000,000 shares of preferred stock, par
value $.001 per share ("Company Preferred Stock"). As of the date hereof,
5,811,551 shares of Company Common Stock are issued and outstanding, and no
shares of Company Preferred Stock are issued and outstanding. As of the date
hereof, 190,486 shares of Company Common Stock are reserved for future issuance
under the 1997 Employee Stock Purchase Plan (the "1997 Purchase Plan"). As of
the date hereof, Options to purchase 1,541,634 shares of Company Common Stock
are issued and outstanding under the 1997 Incentive Plan, Options to purchase
34,500 shares of Company Common Stock are issued and outstanding under the 1997
Directors Plan and Options to purchase 16,000 shares of Company Common Stock are
issued and outstanding under the 1992 Directors Plan. Except for the Options
referred to in the preceding sentence, no Options are issued or outstanding. All
of the issued and outstanding shares of Company Common Stock have been duly
authorized and validly issued and are fully paid and nonassessable and are not
subject to preemptive rights. The shares of Company Common Stock referred to
above that are reserved for issuance, consisting of the shares reserved under
the 1997 Purchase Plan, and the 1,592,134 shares of Company Common Stock
reserved for issuance for outstanding Options, have not been issued and will not
be issued prior to the Effective Time, and no commitment has been or will be
made for their issuance, other than (in the case of both preceding clauses)
pursuant to the exercise of the Options described above that are issued and
outstanding under the Company Stock Option Plans as of the date of this
Agreement. At the Effective Time, except as otherwise provided in Section 1.11
hereof, each Option shall be cancelled, and the holder thereof shall not be
entitled to receive any consideration therefor other than the cash payments, if
any, provided by Section 1.11 and Section 5.8 of this Agreement (or, in the case
of the Rollover Group, the consideration received under the Securities Purchase
Agreement). Section 2.2(a) of the Company Disclosure Schedule sets forth the
exercise prices and number of shares of Company Common Stock in respect of
outstanding Options under the Company Stock Option Plans. There are no bonds,
debentures, notes or other indebtedness of the Company having the right to vote
(or convertible into, or exchangeable for, securities having the right to vote)
on any matters on which stockholders of the Company may vote ("Voting Company
Debt"). Except as set forth above in this Section 2.2(a), there are no
outstanding securities, options, warrants, calls, rights, convertible or
exchangeable securities, "phantom" stock rights, stock appreciation rights
("SARs"), stock-based performance units, commitments, agreements, arrangements
or undertakings of any kind (including any stockholder rights plan) to which the
Company is a party or by which the Company is bound obligating the Company to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other voting securities of the Company or obligating
the Company to issue, grant, extend or enter into any such security, option,
warrant, call, right, unit, commitment, agreement, arrangement or undertaking.
Except as set forth in Section 2.2 of the Company Disclosure Schedule, there are
not any outstanding contractual obligations of the Company to repurchase, redeem
or otherwise acquire, or providing preemptive or registration rights with
respect to, any shares of, or any outstanding options, warrants or rights of any
kind to acquire any shares of, or any outstanding securities that are
convertible into or exchangeable for any shares of, capital stock of the
Company. The Company does not have outstanding any loans to any person in
respect of the purchase of securities issued by the Company.
<PAGE> 95
(b) There are no voting trusts, proxies, registration rights agreements, or
other agreements, commitments or understandings of any character to which the
Company is bound with respect to the voting of any shares of capital stock of
the Company or with respect to the registration of the offering, sale or
delivery of any shares of capital stock of the Company under the Securities Act
of 1933, as amended (the "Securities Act").
SECTION 2.3. Authority Relative to this Agreement.
(a) The Company has all requisite corporate power and authority to execute
and deliver this Agreement and each instrument required hereby to be executed
and delivered by the Company prior to or at the Effective Time, to perform its
obligations hereunder and thereunder, and to consummate the transactions
contemplated hereby (the "Transactions") (subject to the Company Stockholder
Approval (as defined below) with respect to the Merger). The execution and
delivery of this Agreement and each instrument required hereby to be executed
and delivered by the Company prior to or at the Effective Time and the
performance of its obligations hereunder and thereunder and the consummation by
the Company of the Transactions have been duly and validly authorized by all
necessary corporate action on the part of the Company (including the unanimous
approval of the Special Committee), and no other corporate proceedings on the
part of the Company are necessary to authorize this Agreement or to consummate
the Transactions (other than the Company Stockholder Approval and the filing of
appropriate merger documents as required by the DGCL). This Agreement has been
duly and validly executed and delivered by the Company, and, assuming this
Agreement constitutes a valid and binding obligation of Newco, this Agreement
constitutes a valid and binding agreement of the Company, enforceable against
the Company in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
(b) Based in part on the representation set forth in Section 3.6, the only
vote of holders of any class or series of capital stock of the Company necessary
under applicable law or stock exchange (or similar self regulatory organization)
regulations to adopt or approve this Agreement and the Merger is the adoption
and approval of this Agreement and the Merger by the holders of a majority of
the outstanding shares of Company Common Stock at the Stockholder Meeting (as
defined in Section 5.9) entitled to vote on the Merger, voting together as a
single class, with each share of Company Common Stock entitled to one vote per
share (the "Company Stockholder Approval"). No vote of the holders of any
capital stock or other securities of the Company is necessary to consummate any
of the Transactions other than as set forth in the preceding sentence.
(c) Consummation of the Transactions (including the transactions
contemplated by Sections 1.11 and 5.8 hereof) does not conflict with or violate
the provisions of any Company Stock Option Plan or any option agreement
evidencing the grant of any Options.
SECTION 2.4. Absence of Certain Changes. Except as disclosed in the
Company's filings and reports under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") filed and publicly available prior to the date of
this Agreement (the "Filed Company SEC Documents") or as set forth in Section
2.4 of the Company Disclosure Schedule, since December 26, 1999, the Company has
conducted its business only in the ordinary course, and during such period there
has not been any event, change, effect or development that has had or would
reasonably be expected to have a Material Adverse Effect on the Company. Except
as disclosed in the Filed Company SEC Documents or as set forth in Section 2.4
of the Company Disclosure Schedule, since December 26, 1999 there has not been
(a) any declaration, setting aside or payment of any dividend or other
distribution in respect of the capital stock of the Company or any redemption or
other acquisition by the Company of any capital stock of the Company; (b) any
entry into any agreement, commitment or transaction by the Company which is
material to the Company, except agreements, commitments or transactions in the
ordinary course of business, consistent with prior practice; (c) any split,
combination or reclassification of the Company's capital stock or of any other
equity interests in the Company, or any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock or of any other equity
<PAGE> 96
interests in the Company; (d)(i) any granting by the Company to any officer or
director of the Company of any increase in compensation, except in the ordinary
course of business consistent with prior practice or as was required under
employment agreements in effect as of the date of the most recent audited
financial statements included in the Filed Company SEC Documents, (ii) any
granting by the Company to any such officer or director of any increase in
severance or termination pay, except as was required under employment, severance
or termination agreements in effect as of the date of the most recent audited
financial statements included in the Filed Company SEC Documents or (iii) any
entry by the Company into any employment, severance or termination agreement
with any such officer or director; (e) any damage, destruction or loss, whether
or not covered by insurance, that has had or would reasonably be expected to
have a Material Adverse Effect on the Company; or (f) any change in accounting
methods, principles or practices by the Company materially affecting the
consolidated assets, liabilities, results of operations or business of the
Company, except insofar as may have been required by a change in generally
accepted accounting principles.
SECTION 2.5. Reports.
(a) Since September 24, 1997, the Company has timely filed all required
forms, reports and documents with the Securities and Exchange Commission (the
"SEC") required to be filed by it pursuant to the federal securities laws and
the rules and regulations of the SEC thereunder (collectively, the "Company SEC
Documents"), all of which have complied as of their respective filing dates in
all material respects with all applicable requirements of the Securities Act and
the Exchange Act, and the rules and regulations promulgated thereunder. None of
such forms, reports or documents at the time filed contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(b) The financial statements of the Company included in the Company SEC
Documents (including the notes thereto) comply as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles (except, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto)
and fairly present in accordance with generally accepted accounting principles
the financial position of the Company as of the dates thereof and the results of
its operations and cash flows for the periods then ended (subject, in the case
of any unaudited interim financial statements, to the absence of footnote
disclosure and normal year-end adjustments).
SECTION 2.6. Proxy Statement. At the time the Proxy Statement is mailed,
the Proxy Statement (as defined below) will comply as to form in all material
respects with the Exchange Act and the regulations thereunder, except that no
representation is being made by the Company with respect to information supplied
in writing by or on behalf of Newco specifically for inclusion in the Proxy
Statement. None of the information supplied by the Company specifically for
inclusion in the Proxy Statement shall, at the time the Proxy Statement is
mailed, at the time of the Stockholder Meeting or at the Effective Time, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the Company is not making any representation
or warranty as to any of the information relating to and supplied in writing by
or on behalf of Newco specifically for inclusion in the Proxy Statement. The
letter to stockholders, notice of meeting, proxy statement and form of proxy, or
the information statement, as the case may be, to be distributed to stockholders
of the Company in connection with the Merger, and the Schedule 14A and the
Schedule 13E-3 filing required under the rules and regulations of the SEC in
connection with the Transactions (the "Schedule 13E-3") and any other schedule
required to be filed with the SEC in connection therewith, together with any
amendments or supplements thereto, are collectively referred to herein as the
"Proxy Statement."
<PAGE> 97
SECTION 2.7. Consents and Approvals; No Violation. Subject to obtaining the
Company Stockholder Approval and the taking of the actions described in the
immediately succeeding sentence, the execution, delivery and performance of this
Agreement do not, and the consummation of the Transactions (including the
changes in ownership of the shares of Company Common Stock or the composition of
the Board of Directors of the Company) and compliance with the provisions of
this Agreement will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of modification, termination, cancellation or acceleration of any
obligation or loss of a material benefit under, or result in the creation of any
pledges, claims, equities, options, liens, charges, call rights, rights of first
refusal, "tag" or "drag" along rights, encumbrances and security interests of
any kind or nature whatsoever (collectively, "Liens") upon any of the material
properties or assets of the Company under, or result in the termination or
modification (including in the amount, nature or timing of lease payments) of,
or require that any consent be obtained or any notice be given with respect to
(a) the Certificate of Incorporation or Bylaws of the Company, as currently in
effect, (b) any loan or credit agreement, note, bond, mortgage, indenture,
lease, license or other agreement, instrument, Contract or Permit applicable to
the Company or any of its properties or assets, (c) any judgment, order, writ,
injunction, decree, law, statute, ordinance, rule or regulation applicable to
the Company or any of its properties or assets, (d) any license, sublicense,
consent or other agreement (whether written or otherwise) pertaining to
Intellectual Property (as defined in Section 2.21) used by the Company in the
conduct of its business, and by which the Company licenses or otherwise
authorizes a third party to use any Intellectual Property (the "Licenses"),
other than, in the case of clauses (b), (c) or (d), any such conflicts,
violations, defaults, modifications, rights, Liens, losses of a material
benefit, consents or notices that have not had and would not reasonably be
expected to have a Material Adverse Effect on the Company. No consent, approval,
order or authorization of, or registration, declaration or filing with, any
Federal, state or, to the Company's knowledge, local government or any court,
administrative or regulatory agency or commission or other governmental
authority or agency, domestic or foreign (a "Governmental Entity"), is required
by the Company in connection with the execution and delivery of this Agreement
by the Company or the consummation by the Company of the Transactions, except
for (i) the filing of a premerger notification and report form by the Company
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), (ii) the filing with the SEC of (x) the Schedule 13E-3 and (y) the
Proxy Statement relating to the approval by the Company's stockholders of this
Agreement, (iii) the filing of the Certificate of Merger pursuant to the DGCL
and (iv) such other consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made has not had
and would not reasonably be expected to have a Material Adverse Effect on the
Company.
SECTION 2.8. Brokerage Fees and Commissions.
(a) Neither the Company nor any of its officers or directors has employed
any investment banker, business consultant, financial advisor, broker or finder
in connection with the Transactions, except for the Special Committee Financial
Advisor, or obligated the Company to pay any investment banking, business
consultancy, financial advisory, brokerage or finders' fees or commissions in
connection with the Transactions, except for fees payable to the Special
Committee Financial Advisor. The amount of such fees payable to the Special
Committee Financial Advisor and the terms related thereto have been previously
and accurately disclosed in writing to Newco and a correct and complete copy of
the engagement letter between the Special Committee Financial Advisor and the
Company with respect to the Transactions has been provided by the Company to
Newco.
(b) The Company and certain members of the Rollover Group named therein
have entered into a Mutual Release and Settlement of Claims, dated as of
November 15, 2000, with Jesse Hansen & Co., a California corporation ("JH&Co."),
William Jesse and John C. Hansen (collectively, the "JH&C Group"), Il Fornaio
Acquisition Corp., a Delaware corporation ("IFAC"), and Newco (the "Settlement
Agreement"), a true and complete copy of which has been delivered to Newco,
whereby, among other things, the Company and the members of the Rollover Group
named therein will pay to JH&C an amount not to exceed $611,627 (the "Settlement
Fee") and JH&C will release the Company, IFAC, the members of the Rollover Group
named therein and Newco, and their respective parents, subsidiaries and
affiliates
<PAGE> 98
and all of such parties' directors, officers, agents and other related person
from all liabilities, claims and obligations under each of (i) the Advisory
Engagement Letter, dated as of August 8, 2000, between JH&Co and IFAC and (ii)
the Project Engagement Letter, dated as of August 9, 2000, between JH&Co. and
IFAC. There is no obligation or liability of the Company to JH&C except the
obligation to pay the Settlement Fee, nor has the Company paid any other amount
or consideration to JH&C prior to the date hereof, nor will the Company pay any
amount or consideration to JH&C after the date hereof other than the Settlement
Fee.
SECTION 2.9. Litigation. Except as specifically disclosed in the Filed
Company SEC Documents and as set forth in Section 2.9 of the Company Disclosure
Schedule, there is no claim, suit, action or proceeding (including arbitration
proceedings) pending or, to the knowledge of the Company, threatened against the
Company that has had or would reasonably be expected to have a Material Adverse
Effect on the Company, nor is there any judgment, decree, injunction, rule or
order of any Governmental Entity or arbitrator outstanding against the Company
which has had or would reasonably be expected to have a Material Adverse Effect
on the Company.
SECTION 2.10. Absence of Changes in Benefit Plans. Except as disclosed in
the Filed Company SEC Documents or as required by applicable law, since December
26, 1999, there has not been any adoption or amendment in any material respect
by the Company of any bonus, pension, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock option, phantom
stock, retirement, vacation, severance, disability, death benefit,
hospitalization, medical or other plan, arrangement or understanding (whether or
not legally binding) providing benefits to any current or former employee,
officer or director of the Company or for which the Company is liable. Except as
disclosed in the Filed Company SEC Documents or Section 2.10 of the Company
Disclosure Schedule, there exist no employment, consulting, severance,
termination or indemnification agreements, arrangements or understandings
between the Company and any current or former officer or director or employee of
the Company.
SECTION 2.11. ERISA Compliance.
(a) Section 2.11(a) of the Company Disclosure Schedule sets forth a
complete list of all "employee benefit plans" (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") including
employment contracts, bonus, pension, profit sharing, deferred compensation,
incentive compensation, excess benefit, stock, stock option, severance,
termination pay, change in control or other employee benefit plans, programs or
arrangements, including those providing medical, dental, vision, disability,
life insurance and vacation benefits (other than those required to be maintained
by law), whether written or unwritten, qualified or unqualified, funded or
unfunded, foreign or domestic currently maintained, or contributed to, or
required to be maintained or contributed to, by the Company or any other person
or entity that, together with the Company, is treated as a single employer under
Section 414 of the Internal Revenue Code of 1986, as amended (the "Code") (each
an "ERISA Affiliate") for the benefit of any current or former employees,
officers or directors of the Company or with respect to which the Company has
any liability (collectively, the "Benefit Plans"). As applicable with respect to
each Benefit Plan, the Company has delivered to Newco, true and complete copies
of (i) each Benefit Plan, including all amendments thereto, and in the case of
an unwritten Benefit Plan, a written description thereof, (ii) all trust
documents, investment management contracts, custodial agreements and insurance
contracts relating thereto, (iii) the current summary plan description and each
summary of material modifications thereto, (iv) the three most recent annual
reports (Form 5500 and all schedules thereto) filed with the Internal Revenue
Service ("IRS"), (v) the most recent IRS determination letter and each currently
pending application to the IRS for a determination letter, (vi) the three most
recent summary annual reports, financial statements and trustee reports, and
(vii) all records, notices and filing concerning IRS or Department of Labor
audits or investigations, "prohibited transactions" within the meaning of
Section 406 of ERISA or Section 4975 of the Code and "reportable events" within
the meaning of Section 4043 of ERISA.
<PAGE> 99
(b) No event has occurred and, to the knowledge of the Company, there
exists no condition or set of circumstances in connection with which the Company
or any ERISA Affiliate is or would reasonably be expected to be subject to any
liability under the terms of any Benefit Plan, under ERISA, or, with respect to
any Benefit Plan, under the Code or any other applicable law, rule or
regulation, domestic or foreign, other than any condition or set of
circumstances that has not had and would not reasonably be expected to have a
Material Adverse Effect on the Company. Neither the Company nor any ERISA
Affiliate has incurred or would reasonably be expected to incur any liability in
respect of any employee benefit plan maintained by an ERISA Affiliate but not
included within the term "Benefit Plan" or by any person other than the Company
or any ERISA Affiliate, which liability has had or would reasonably be expected
to have a Material Adverse Effect on the Company.
(c) Neither the Company nor any ERISA Affiliate has, at any time since
January 1, 1994 (i) maintained or contributed to any employee pension benefit
plan subject to Title IV of ERISA or Code sec. 412 or (ii) been required to
contribute to, or incurred any withdrawal liability within the meaning of ERISA
sec. 4201 to, any multiemployer plan as defined in ERISA sec. 3(37).
(d) To the knowledge of the Company, the Benefit Plans which are "employee
pension benefit plans" within the meaning of Section 3(2) of ERISA and which are
intended to meet the qualification requirements of Section 401(a) of the Code
(each a "Pension Plan") now meet, and at all times since their inception have
met the requirements for such qualification, and the related trusts are now, and
at all times since their inception have been, exempt from taxation under Section
501(a) of the Code. All Pension Plans have received determination letters from
the IRS to the effect that such Pension Plans are qualified and the related
trusts are exempt from federal income taxes and no determination letter with
respect to any Pension Plan has been revoked nor, to the knowledge of the
Company, is there any reason for such revocation, nor, to the knowledge of the
Company, has any Pension Plan been amended, or failed to be amended, since the
date of its most recent determination letter in any respect which would
adversely affect its qualification.
(e) Except as set forth on Section 2.11(e) of the Company Disclosure
Schedule, the execution and delivery of this Agreement do not, and the
consummation of the Transactions will not (i) require the Company or any ERISA
Affiliate to pay greater compensation or make a larger contribution to, or pay
greater benefits or accelerate payment or vesting of a benefit under, any
Benefit Plan or any other program, agreement, policy or arrangement or (ii)
create or give rise to any additional vested rights or service credits under any
Benefit Plan or any other program, agreement, policy or arrangement.
(f) Except as set forth in Section 2.11(f) of the Company Disclosure
Schedule, neither the Company nor any ERISA Affiliate is a party to or is bound
by any severance agreement, program or policy.
(g) Except as set forth in Section 2.11(g) of the Company Disclosure
Schedule, no Benefit Plan provides benefits, including without limitation, death
or medical benefits, beyond termination of employment or retirement other than
(i) coverage mandated by law or (ii) death or retirement benefits under a
Benefit Plan qualified under Section 401(a) of the Code. Neither the Company nor
any ERISA Affiliate is contractually obligated to provide any person with life,
medical, dental or disability benefits for any period of time beyond retirement
or termination of employment, other than as required by the provisions of
Sections 601 through 608 of ERISA and Section 4980B of the Code.
(h) With respect to any Benefit Plan that is an employee welfare benefit
plan (as defined in Section 3(1) of ERISA), (i) no such Benefit Plan is funded
through a "welfare benefit fund", as such term is defined in Section 419(e) of
the Code, (ii) to the knowledge of the Company, each such Benefit Plan that is a
"group health plan", as such term is defined in Section 5000(b)(l) of the Code,
complies in all material respects with the applicable requirements of Sections
601 through 608 of ERISA and Section 4980B(f) of the Code, and (iii) each such
Benefit Plan (including any such Plan covering retirees or other former
employees) may be amended or terminated as to future benefit accruals without
material liability to the Company or any ERISA Affiliate on or at any time after
the Effective Time.
<PAGE> 100
(i) There are no material pension, welfare, bonus, stock purchase, stock
ownership, stock option, deferred compensation, incentive, severance,
termination or other compensation plan or arrangement, or other material
employee fringe benefit plan presently maintained by, or contributed to by the
Company, or any ERISA Affiliate for the benefit of any employee of the Company,
including any such plan required to be maintained or contributed to by the law
of the relevant jurisdiction, maintained outside the jurisdiction of the United
States.
(j) The Company has not incurred any material liability under, and has
complied in all material respects with, the Worker Adjustment Retraining
Notification Act and the regulations promulgated thereunder ("WARN") and does
not reasonably expect to incur any such liability as a result of actions taken
or not taken prior to the Effective Time. The Company has not given, and has not
been required to give, any notice under WARN within 90 days prior to the date
hereof.
(k) There is no contract, agreement, Benefit Plan or other arrangement
covering any employee or former employee of the Company that could give rise to
the payment of any amount that would not be deductible under Section 280G of the
Code.
SECTION 2.12. Taxes.
(a) All federal income Tax Returns and all other material Tax Returns (as
defined herein) that are required to be filed by or with respect to the Company
have been timely filed, and reflect bona fide Tax reporting positions. All Taxes
that are shown therein as due have been paid in full, and there are no positions
taken on such Tax Returns with respect to any material issue that could result
in the Company being subject to penalties under Section 6662 of the Code. The
most recent financial statements contained in the Filed Company SEC Documents
reflect a reserve for all Taxes of the Company for all taxable periods and
portions thereof through the date of such financial statements which is adequate
under generally accepted accounting principles applied consistently with the
accounting principles used to prepare the financial statements contained in the
Filed Company SEC Documents, and to the Company's knowledge, nothing has
occurred since the date of the financial statements that would cause the reserve
to be inadequate under generally accepted accounting principles applied
consistently with the financial statements included in the Company SEC Reports.
(b) Except as set forth in Section 2.12(b) of the Company Disclosure
Schedule, no material Tax Return of the Company is under audit or examination by
any taxing authority, and no written notice of such an audit or examination has
been received by the Company.
(c) Except as set forth in Section 2.12(c) of the Company Disclosure
Schedule, there is not in force any extension of time with respect to the due
date for the filing of any Tax Return or any waiver or agreement for any
extension of time for the assessment or payment of any Tax due with respect to
the period covered by any Tax Return.
(d) Except as set forth in Section 2.12(d) of the Company Disclosure
Schedule, there is no material issue raised or claim against the Company for any
Taxes, and no assessments, deficiency or adjustment has been asserted or
proposed with respect to any Tax Return and no material issues relating to Taxes
were raised in writing by a taxing authority in a completed audit or examination
that, in each case, would reasonably be expected to result in an assessment,
deficiency, or adjustment for a later taxable period.
(e) Except as set forth in Section 2.12(e) of the Company Disclosure
Schedule, since January 1, 1994, the Company has not been a member of an
affiliated group filing a consolidated federal income Tax Return.
(f) There are no material Liens for Taxes on the assets of the Company
other than the Lien of property taxes not delinquent.
(g) Except as set forth in Section 2.12(g) of the Company Disclosure
Schedule, the Company is not bound by any tax sharing, tax indemnity or similar
agreement with respect to Taxes.
<PAGE> 101
(h) The Company is in substantial compliance with the Tip Reporting
Alternative Commitment Agreement (the "TRAC Agreement") executed by the Company
and the Internal Revenue Service in 1996. The TRAC Agreement governs the
reporting, withholding, payment of employment Taxes and filing of Tax Returns
with respect to tips received by the Company's employees.
(i) No record owner of shares of Company Common Stock is, to the Company's
knowledge, a non-resident alien individual or foreign corporation (within the
meaning of Section 897(a)(i) of the Code) that has held more than 5% of the
Company Common Stock at any time during the five-year period ending on the date
of the Original Agreement.
As used herein, "Tax Returns" shall mean all returns and reports of or with
respect to any Tax which are required to be filed by or with respect to the
Company, and "Taxes" shall mean (i) all taxes, charges, imposts, tariffs, fees,
levies or other similar assessments or liabilities of any kind whatsoever,
including income taxes, ad valorem taxes, excise taxes, withholding taxes, stamp
taxes or other taxes of or with respect to gross receipts, premiums, real
property, personal property, windfall profits, sales, use, transfers, licensing,
employment, payroll and franchises imposed by or under any statute, law, rule or
regulation, and such terms shall include any interest, fines, penalties,
assessments or additions to tax resulting from, attributable to or incurred in
connection with any such tax or any contest or dispute thereof; (ii) liability
of the Company or any fiduciary for the payment of any amounts of the type
described in clause (i) as a result of being a member of an affiliated, combined
consolidated or unitary group for any taxable period; and (iii) liability of the
Company for the payment of any amounts of the type described in clauses (i) or
(ii) as a result of any express or implied obligation to indemnify any other
person.
SECTION 2.13. Compliance with Applicable Laws.
(a) To the Company's knowledge, the Company has in effect all licenses,
franchises, permits and other governmental authorizations (including
Environmental Permits) ("Permits") necessary to conduct its business and the
Company is not in violation of any such license, franchise, permit or other
governmental authorization, or any statute, law, ordinance, rule or regulation
applicable to it or any of its properties, except, in each case, where the
failure to have any such license, franchise, permit or other governmental
authorization, or the existence of any such violation, has not had and could not
reasonably be expected to have a Material Adverse Effect.
(b) Section 2.13(b) of the Company Disclosure Schedule contains a list of
all liquor licenses, including beer and wine licenses, held by the Company in
connection with the operation of each restaurant or bakery owned or operated by
the Company (each, a "Company Restaurant"), along with the address of each such
Company Restaurant (the "Liquor Licenses"). To the extent required by applicable
law or regulation, each Company Restaurant currently in operation possesses a
liquor license. The Company has no reason to believe that it will not be able to
obtain liquor licenses for restaurants currently being brought into operation
identified in Section 2.13(b) of the Company Disclosure Schedule. Each of the
Liquor Licenses has been validly issued and is in full force and effect and is
adequate for the current conduct of the operations at the Company Restaurant for
which it is issued. The Company has not received any written notice of any
pending or threatened modification, suspension or cancellation of a Liquor
License or any proceeding related thereto. During the past three years, there
have been no such proceedings relating to any of the Liquor Licenses. With
regard to the Liquor Licenses, there are no (i) pending disciplinary actions or
(ii) past disciplinary actions that would reasonably be expected to have any
adverse impact on current operations or the nature or level of discipline
imposed on account of future violations of the laws related to sales and service
of alcoholic beverages.
SECTION 2.14. Environmental.
(a) For purposes of this Agreement, the term "Environmental Permit" means
any permit, license, approval or other authorization issued under any
Environmental Law (as defined below);
(b) To the Company's knowledge, each of the Company and its properties,
assets, businesses, and operations has all Environmental Permits, and each of
the Company and its properties, assets, businesses and operations is, and has
been, and each of the Company's former subsidiaries, if any, while subsidiaries
<PAGE> 102
of the Company and their respective properties, assets, businesses and
operations, was, in compliance with all applicable Environmental Laws (as
defined below) and Environmental Permits, except for such Environmental Permits
the failure of which to have or the violation of which has not had or would not
be reasonably expected to have a Material Adverse Effect. The term
"Environmental Laws" means any federal, state, local or foreign statute, code,
ordinance, rule, regulation, policy, guideline, permit, consent, approval,
license, judgment, order, writ, decree, injunction or other authorization,
including the requirement to register underground storage tanks, relating to:
(i) Releases (as defined below) of Hazardous Material (as defined below) into
the environment or any structure, including into ambient air, soil, sediments,
land surface or subsurface, buildings or facilities, surface water, groundwater,
publicly-owned treatment works, septic systems or land; or (ii) the generation,
treatment, storage, recycling, disposal, use, handling, manufacturing,
transportation, distribution in commerce, or shipment (collectively,
"Management") of Hazardous Material; including the following statutes, their
implementing regulations and any state corollaries: the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801 et seq., the Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901 et seq., the Comprehensive
Environmental Response, Compensation and Liability Act, as amended by the
Superfund Amendments and Reauthorization Act, 42 U.S.C. Section 9601 et seq.,
the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., the Clean
Water Act, 33 U.S.C. Section 1251 et seq. and the Clean Air Act, 42 U.S.C.
Section 7401 et seq.
(c) To the Company's knowledge, (i) during the period of ownership or
operation by the Company of any of its current or previously-owned or operated
properties, there have been no Releases (as defined below) of Hazardous Material
in, on, under, from or affecting such properties, any surrounding site or any
off-site location; and (ii) prior to the period of ownership or operation by the
Company of any of its current or previously-owned or operated properties there
were no Releases of Hazardous Material in, on, under or affecting any such
property, any surrounding site or any off-site location, in each case in
violation of Environmental Laws or Environmental Permits or which has created a
condition which imposes liability or responsibility on the Company, except in
each case for such violations, liabilities or responsibilities which have been
resolved or which have not had or could not reasonably be expected to have a
Material Adverse Effect on the Company. "Hazardous Materials" means (i)
hazardous materials, pollutants or contaminants, medical, hazardous or
infectious wastes, hazardous waste constituents, hazardous chemicals, hazardous
or toxic pollutants, and hazardous or toxic substances as those terms are
defined in or regulated by any Environmental Law, (ii) petroleum, including
crude oil and any fractions thereof, (iii) natural gas, synthetic gas and any
mixtures thereof, (iv) radioactive materials including source byproduct or
special nuclear materials, (v) pesticides and (vi) asbestos or
asbestos-containing materials, but does not include materials normal in nature
and amount for the Company's business, provided such materials are used in their
intended fashion and in material compliance with Environmental Laws. "Releases"
means spills, leaks, discharges, disposal, pumping, pouring, emissions,
injection, emptying, leaching, dumping or allowing to escape.
(d) No Environmental Claims or Environmental Liabilities (as such terms are
defined below) are being asserted against the Company nor is the Company aware
of any acts, omissions, facts, or circumstances which would so subject it,
arising from or based upon any act, omission, event, condition or circumstance
occurring or existing on or prior to the date hereof or for which the Company is
responsible, including any such Environmental Claims or Environmental
Liabilities arising from or based upon the ownership or operation of assets,
businesses or properties of the Company or its predecessors, and (ii) the
Company has not received any notice of any violation of any Environmental Law or
Environmental Permit or any Environmental Claim in connection with its assets,
properties, businesses or operations, or, in each case, those of its
predecessors, except in each case such Environmental Liabilities, Environmental
Claims or violations which have not had or could not reasonably be expected to
have a Material Adverse Effect on the Company. Without regard to the potential
for a Material Adverse Effect on the Company, the Company has provided to Newco
and has disclosed on Section 2.14(d) of the Company Disclosure Schedule all
material environmental assessment reports prepared by, on behalf of or, to the
extent in the Company's possession or contract, relating to the Company since
January 1, 1994 (or earlier for any such matter which is unresolved) regarding
the environmental condition of the Company's properties or the
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environmental compliance of the Company or any subsidiary. The term
"Environmental Claim" means any third party (including governmental agencies,
regulatory agencies, employees or other private parties) action, lawsuit, claim,
investigation proceeding (including claims or proceedings under the Occupational
Safety and Health Act or similar laws relating to safety of employees) which
seeks to impose liability for (i) noise; (ii) pollution or contamination of the
air, surface water, ground water, land or structure; (iii) Hazardous Materials
Management; (iv) exposure to Hazardous Material; (v) the safety or health of
employees; or (vi) any violation of any Environmental Law or Environmental
Permit. An "Environmental Claim" includes, but is not limited, to, a common law
action, as well as a proceeding to issue, modify or terminate an Environmental
Permit of the Company, or to adopt or amend a regulation to the extent that such
a proceeding attempts to redress violations of such an Environmental Permit as
alleged by a federal, state or local executive, legislative, judicial,
regulatory or administrative agency, board or authority. The term "Environmental
Liabilities" includes all costs arising from any Environmental Claim or
violation or alleged violation or circumstance or condition which would give
rise to a violation or liability under any Environmental Permit or Environmental
Law under any theory of recovery, at law or in equity, and whether based on
negligence, strict liability or otherwise, including but not limited to:
remedial, removal, response, abatement, investigative, monitoring, personal
injury and damage to property, and any other related costs, expenses, losses,
damages, investigatory remediation or monitoring costs, penalties, fines,
liabilities and obligations, including reasonable attorney's fees and court
costs.
SECTION 2.15. State Takeover Statutes. The Special Committee and the Board
of Directors of the Company have approved the Merger and this Agreement (and,
solely for purposes of Section 203 of the DGCL, the Securities Purchase
Agreement and the Voting Agreement), and, based in part on the representation
set forth in Section 3.6, such approval is sufficient to render inapplicable to
the Merger, this Agreement, the Securities Purchase Agreement, the Voting
Agreement and the other Transactions the provisions of Section 203 of the DGCL
to the extent, if any, such provisions are applicable to the Merger, this
Agreement, the Securities Purchase Agreement, the Voting Agreement and the other
Transactions. No other "fair price," "moratorium," "control share acquisition,"
"business combination," or other state takeover statute or similar statute or
regulation applies or purports to apply to the Company, Newco, affiliates of
Newco, the Merger, the Securities Purchase Agreement, the Voting Agreement, this
Agreement, or any of the other Transactions.
SECTION 2.16. Contracts. Section 2.16 to the Company Disclosure Schedule
lists, under the relevant heading, all contracts, agreements, arrangements,
guarantees, licenses, leases and executory commitments (each a "Contract"),
other than Benefit Plans, agreements disclosed on Section 2.10 to the Company
Disclosure Schedule, Leases disclosed on Schedule 2.18(b) of the Company
Disclosure Schedule and any Contracts heretofore filed as an exhibit to any
Filed Company SEC Document, that exist as of the date hereof to which the
Company is a party or by which it is bound and which fall within any of the
following categories: (a) Contracts not entered into in the ordinary course of
the Company's businesses other than those that are not or would not reasonably
be expected to be material to the business of the Company, (b) joint venture,
partnership or franchising agreements, (c) Contracts containing covenants
purporting to limit the freedom of the Company to compete in any line of
business in any geographic area or to hire any individual or group of
individuals, (d) Contracts which after the consummation of any of the
Transactions would have the effect of limiting the freedom of the Surviving
Corporation or any of its affiliates to compete in any line of business in any
geographic area or to hire any individual or group of individuals, (e) Contracts
relating to any outstanding commitment for capital expenditures in excess of
$250,000, (f) indentures, mortgages, promissory notes, loan agreements or
guarantees of borrowed money, letters of credit or other agreements or
instruments of the Company evidencing indebtedness for borrowed money or
providing for the creation of any charge, security interest, encumbrance or Lien
upon any of the assets of the Company, (g) Licenses, (h) Contracts with respect
to which a change in the ownership (whether directly or indirectly) of the
shares of Company Common Stock or the composition of the Board of Directors of
the Company or any of the other Transactions may result in a violation of or
default under, or give rise to a right of termination, modification,
cancellation or acceleration of any obligation or loss of benefits under, such
Contract or (i) any other agreement of a type required to be filed under Item
601(b)(10) of Regulation S-K promulgated by the SEC. All Contracts to which the
Company is a
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party or by which it is bound are valid and binding obligations of the Company
and, to the knowledge of the Company, the valid and binding obligation of each
other party thereto except such Contracts the invalidity or non-binding nature
of which has not had and would not reasonably be expected to have a Material
Adverse Effect on the Company. Neither the Company nor, to the knowledge of the
Company, any other party thereto is in violation of or in default in respect of,
nor has there occurred an event or condition which with the passage of time or
giving of notice (or both) would constitute a default by the Company (or to its
knowledge a default by any other party thereto) under or permit the termination
of, any such Contract except such violations or defaults under or terminations
which have not had and would not reasonably be expected to have a Material
Adverse Effect on the Company. The Company has, prior to the date hereof,
delivered true, complete and correct copies of the Contracts to Newco.
SECTION 2.17. Labor Matters. Except to the extent set forth in Section 2.17
of the Company Disclosure Schedule, (a) no employee of the Company is
represented by any union or other labor organization; (b) there is no labor
strike, material dispute, material slowdown, representation campaign or work
stoppage pending or, to the knowledge of the Company, threatened against or
affecting the Company; and (c) the Company has not experienced any material work
stoppage or other labor unrest since December 26, 1999.
SECTION 2.18. Property.
(a) Section 2.18(a) of the Disclosure Schedule sets forth a list of all
real property owned in fee by the Company. The Company has good and valid title
to all such real property, free and clear of all Liens known to the Company
except (i) Liens for taxes, assessments and other governmental charges that are
not delinquent or that are being contested in good faith and in respect of which
adequate reserves have been established, (ii) mechanics', materialmen's,
carriers', workmen's, warehousemen's, repairmen's landlord's or other similar
Liens securing obligations that are not due and payable or that are being
contested in good faith and in respect of which adequate reserves have been
established, (iii) imperfections of title and Liens that do not and would not
reasonably be expected to detract materially from the value or materially
interfere with the present use of the properties subject thereto or affected
thereby, and (iv) in the case of any real property subject to a title commitment
described in Section 2.18(a) of the Company Disclosure Schedule, imperfections
of title and Liens that are shown on such title commitment or are otherwise of
record (collectively, "Permitted Liens").
(b) Section 2.18(b)(i) of the Company Disclosure Schedule sets forth a
correct and complete list of all real property leased by the Company, as lessor
or lessee (or under which the Company otherwise has any liability), as of the
date hereof, and the name of the lessor, the date of the lease (the "Leases")
pertaining thereto and each amendment to the Lease. All such Leases are valid
and binding in accordance with their respective terms and the Company is not in
default in any material respect under any Lease. Except as set forth in Section
2.18(b)(ii) of the Company Disclosure Schedule, the execution and delivery of
this Agreement by the Company and the consummation of the Transactions,
including the Merger, does not and will not result in a breach or violation of,
or constitute a default or an event that, with the passage of time or the giving
of notice, or both, would constitute a default, give rise to a right of
termination, modification (including as to the amount, timing or nature of lease
payments), cancellation or acceleration or require the consent or approval of
any party (other than the Company) under any Lease. Section 2.18(b)(i) of the
Company Disclosure Schedule also sets forth a list of all restaurants or
bakeries owned or operated by the Company, together with the addresses of such
restaurants or bakeries. The Company has duly given the notice required under
the Commercial Lease between the Company and Runhil Investment Co., as landlord,
for the premises located at 115 N.W. 22nd Street in Portland, Oregon to renew
this Lease for a five year renewal term, and the term of this Lease will expire
December 31, 2005. The Company has, prior to the date hereof, delivered true,
complete and correct copies of the Leases to Newco.
SECTION 2.19. Undisclosed Liabilities. Except as and to the extent
specifically disclosed in the Filed Company SEC Documents or accrued on the June
25, 2000 balance sheet included in the Filed Company SEC Documents, or as set
forth in Section 2.19 of the Company Disclosure Schedule, and except for
<PAGE> 105
liabilities incurred in the ordinary course of business and otherwise not in
contravention of this Agreement which are not material, to the Company's
knowledge, the Company does not have any liabilities or obligations of any
nature (whether absolute, contingent or otherwise, and whether or not required
to be reflected or reserved against in a balance sheet of the Company prepared
in accordance with United States generally accepted accounting principles) that
have had or would reasonably be expected to have a Material Adverse Effect on
the Company.
SECTION 2.20. Opinion of Financial Advisors. The Company and the Special
Committee have received the opinion of the Special Committee Financial Advisor,
dated November 14, 2000, to the effect that, as of such date, the consideration
to be received in the Merger by the Company's stockholders is fair to the
Company's stockholders from a financial point of view. The Company has delivered
a signed copy of such opinion to Newco (it being understood that Newco will not
be a third party beneficiary of such opinion), and such opinion has not been
amended, modified or revoked in a manner adverse to Newco. The Company has been
authorized by the Special Committee Financial Advisor to permit the inclusion of
such fairness opinion (and, subject to prior review and consent by such Special
Committee Financial Advisor, a reference thereto) in the Schedule 13E-3 and the
Proxy Statement.
SECTION 2.21. Intellectual Property. Except to the extent the inaccuracy of
any of the following has not had and would not reasonably be expected to have a
Material Adverse Effect on the Company:
(a) To the knowledge of the Company, the Company owns and/or is
licensed to use (in each case, free and clear of any Liens, claims, or
similar encumbrances), and has the right to bring actions for the
infringement, dilution, misappropriation or other violation of, all patents
and patent applications, trademarks, service marks, trade names, and
registrations and applications for registration of industrial designs,
copyrights, mask works, trademarks, service marks, trade names, trade
dress, and all domain names, technology, inventions, know-how, trade
secrets, processes and all agreements and other rights with respect to
intellectual property and computer programs (collectively, "Intellectual
Property") material to the conduct of Company's business as currently
conducted;
(b) All of the patents, industrial design registrations, trademark and
service mark registrations (including the U.S. trademark registration for
"Il Fornaio"), copyright registrations and domain name registrations, and
all applications for such registrations, owned by and/or exclusively
licensed (including where exclusively licensed within a discrete territory)
to the Company (A) to the knowledge of the Company, are valid and in full
force, (B) are held of record in the name of the Company or are licensed
exclusively to the Company in the discrete territory indicated, if
applicable, and (C) are not, to the knowledge of the Company, the subject
of any cancellation or reexamination proceeding or any other proceeding
challenging their extent or validity. To the knowledge of the Company, all
necessary registration, maintenance and renewal fees in connection with
such patents and registrations have been paid and all necessary documents
and certificates in connection with such patents and registrations have
been filed with the relevant patent, copyright, trademark or other
authorities in the United States or foreign jurisdictions, as the case may
be, for the purposes of maintaining such patents and registrations;
(c) To the knowledge of the Company, the use of such Intellectual
Property by the Company does not infringe on the rights of any party;
(d) To the knowledge of Company, no person is infringing on any right
of the Company with respect to such Intellectual Property;
(e) The Company is not, and the consummation of the Transactions will
not cause them to be, in breach or violation of any agreement relating to
the use of any of its Intellectual Property, and the Company has not
received any notification, written or oral, from any third party that there
is any such violation, breach, or inability to perform under any such
agreement and is not aware of any basis therefor; and
(f) Other than the Licenses, there are no agreements, written or oral,
which limit or otherwise relate to any rights by the Company to use any of
its Intellectual Property.
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SECTION 2.22. Insurance. The Company maintains policies of fire and
casualty, liability and other forms of insurance in such amounts, with such
deductibles and against such risks and losses as are set forth in Section 2.22
of the Company Disclosure Schedule. As of the date of the Original Agreement,
except as set forth in Section 2.22 of the Company's Disclosure Schedule, all
such policies are in full force and effect, all premiums due and payable thereon
have been paid, and no notice of cancellation or termination has been received
with respect to any such policy.
SECTION 2.23. Affiliate Transactions. Except as disclosed in the Filed
Company SEC Documents or in Section 2.23 of the Company Disclosure Schedule,
there are no transactions, agreements, arrangements or understandings (or series
thereof), written or oral, between the Company and any of its directors or
officers (including, in the case of natural persons, any of such persons'
relatives or affiliates) currently existing or effected or entered into since
January 1, 1997 involving amounts in excess of $60,000.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF NEWCO
Newco represents and warrants to the Company as follows:
SECTION 3.1. Organization and Qualification. Newco is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power and authority to carry on its
business as it is now being conducted. Newco is duly qualified as a foreign
corporation or licensed to do business, and is in good standing, in each state
where the character of its properties owned or leased or the nature of its
activities makes such qualification or licensing necessary, except where the
failure to be so qualified or licensed and in good standing would not reasonably
be expected to prevent or materially delay the consummation of the Merger or the
other Transactions.
SECTION 3.2. Authority Relative to this Agreement. Newco has all requisite
corporate power and authority to execute and deliver this Agreement and each
instrument required hereby to be executed and delivered by Newco prior to or at
the Effective Time, to perform its obligations hereunder and thereunder, and to
consummate the Transactions. The execution and delivery by Newco of this
Agreement and each instrument required hereby to be exercised and delivered by
Newco prior to or at the Effective Time and the performance of its obligations
hereunder and thereunder, and the consummation by Newco of the Transactions have
been duly and validly authorized by the Board of Directors of Newco, and no
other corporate proceedings on the part of Newco are necessary to authorize this
Agreement or to consummate the Transactions, other than filing of appropriate
merger documents as required by the DGCL. This Agreement has been duly and
validly executed and delivered by Newco, and, assuming this Agreement
constitutes a valid and binding obligation of the Company, this Agreement
constitutes a valid and binding agreement of each of Newco, enforceable against
Newco in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
SECTION 3.3. Proxy Statement. None of the information supplied in writing
by Newco specifically for inclusion in the Proxy Statement, if required, shall,
at the time the Proxy Statement is mailed, at the time of the Stockholder
Meeting or at the Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however, that Newco is not
making any representation or warranty as to any of the information relating to
and supplied by or on behalf of the Company specifically for inclusion in the
Proxy Statement. If, at any time prior to the Effective Time, any event relating
to Newco is discovered by Newco that should be set forth in a supplement to the
Proxy Statement, Newco will promptly inform the Company.
SECTION 3.4. Consents and Approvals; No Violation. Subject to the taking
of the actions described in the immediately succeeding sentence, the execution
and delivery of this Agreement do not, and the consummation of the Transactions
will not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
modification, termination,
<PAGE> 107
cancellation or acceleration of any obligation or to loss of a material benefit
under, or result in the creation of any Lien upon any of the material properties
or assets of Newco under (a) the certificate of incorporation or bylaws of
Newco, (b) any loan or credit agreement, note, bond, indenture, lease or other
agreement, instrument or Permit applicable to Newco or its properties or assets,
(c) any judgment, order, writ, injunction, decree, law, statute, ordinance, rule
or regulation applicable to Newco or its properties or assets, other than, in
the case of clause (b) and (c), any such conflicts, violations, defaults, rights
or Liens that could not reasonably be expected to (x) impair in any material
respect the ability of Newco to perform its obligation under this Agreement or
(y) prevent or materially delay the consummation of any of the Transactions. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity or any other person is required by Newco in
connection with the execution and delivery of this Agreement or the consummation
by Newco of any of the Transactions, except (i) in connection with the HSR Act,
(ii) pursuant to the Exchange Act, (iii) the filing of the Certificate of Merger
pursuant to the DGCL, (iv) where the failure to obtain any such consent,
approval, authorization or permit, or to make any such filing or notification,
would not reasonably be expected to prevent or materially delay consummation of
the Merger or would not otherwise prevent Newco from performing its obligations
under this Agreement or where the requirement to obtain such consent, approval,
authorization or permit, or to make such filing or notification arises from the
regulatory status of the Company, including in respect of the Liquor Licenses.
SECTION 3.5. Financing Commitments. As of the date of the Original
Agreement, Newco has delivered to the Company true and complete copies of
commitments (the "Financing Commitments") of Fleet National Bank and BancBoston
Capital, Inc. which, subject to the terms and conditions contained therein,
would provide sufficient debt financing to enable Newco to consummate the
Transactions. Newco has also delivered to the Company a true and complete copy
of the Securities Purchase Agreement, which subject to the terms and conditions
contained therein, would provide sufficient equity financing to enable Newco to
consummate the Transactions. As of the date of the Original Agreement, the
Financing Commitments are in full force and effect and Newco has no reason to
believe that the conditions included in the Financing Commitments will not be
satisfied before the Effective Time. The Securities Purchase Agreement is in
full force and effect, and Newco has no reason to believe that the conditions
included in the Securities Purchase Agreement will not be satisfied before the
Effective Time.
SECTION 3.6. Ownership of Company Stock. Newco has delivered to the
Company a true and complete copy of the final form of the Voting Agreement. As
of the date of the Original Agreement (and immediately prior to execution of the
Original Securities Purchase Agreement and the Original Voting Agreement),
neither Newco nor any "affiliate" or "associate" of Newco "owned" any voting
stock of the Company, as such quoted terms are defined in Section 203 of the
DGCL. As of the parties' entry into this Agreement, no person is a party to the
Securities Purchase Agreement or the Voting Agreement other than Newco ,
Bruckmann, Rosser, Sherrill & Co. II, L.P. and the persons listed on Exhibit A,
as such Exhibit A reads on the date hereof.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.1. Conduct of Business of the Company Pending the Merger. The
Company hereby covenants and agrees that, from the date of the Original
Agreement until the Effective Time, unless otherwise expressly contemplated by
this Agreement or consented to in writing by Newco (which consent will not
unreasonably be withheld or delayed), it shall:
(a) operate its business in the usual and ordinary course consistent
with past practices;
(b) use its reasonable best efforts to preserve intact its business
organization, maintain its rights and franchises, retain the services of
its respective key employees and maintain its relationships with its
respective customers and suppliers and others having business dealings with
it to the end that its goodwill and ongoing business shall be unimpaired at
the Effective Time;
<PAGE> 108
(c) maintain and keep its properties and assets in as good repair and
condition as at present, ordinary wear and tear excepted, and maintain
supplies and inventories in quantities consistent with its customary
business practice; and
(d) use its reasonable best efforts to keep in full force and effect
insurance and bonds comparable in amount and scope of coverage to that
currently maintained.
SECTION 4.2. Prohibited Actions by the Company. Without limiting the
generality of Section 4.1, the Company covenants and agrees that, except as
expressly contemplated by this Agreement or otherwise consented to in writing by
Newco (which consent will not unreasonably be withheld or delayed), from the
date of the Original Agreement until the Effective Time, it shall not do any of
the following:
(a) (i) increase the compensation (or benefits) payable to or to
become payable to any director or employee, except for increases in salary
or wages of employees in the ordinary course of business and consistent
with past practice; (ii) grant any severance or termination pay to, or
enter into or amend in any material respect any employment or severance
agreement with, any employee; (iii) establish, adopt, enter into or amend
any collective bargaining agreement or Benefit Plan of the Company or any
ERISA Affiliate; or (iv) take any action to accelerate any rights or
benefits, or make any determinations not in the ordinary course of business
consistent with past practice, under any Benefit Plan of the Company or any
ERISA Affiliate; provided, however, that the Company may amend the Company
Stock Option Plans or take other action to accelerate the vesting of any
unvested Options that were issued and outstanding on the date of the
Original Agreement and disclosed in Section 2.3 of the Company Disclosure
Schedule; and may otherwise amend the Company Stock Option Plans (and
option agreements entered into thereunder) to effectuate the purposes of
Section 1.11 hereof;
(b) declare, set aside or pay any dividend on, or make any other
distribution in respect of (whether in cash, stock or property),
outstanding shares of capital stock;
(c) redeem, purchase or otherwise acquire, or offer or propose to
redeem, purchase or otherwise acquire, any outstanding shares of capital
stock of, or other equity interests in, or any securities that are
convertible into or exchangeable for any shares of capital stock of, or
other equity interests in, or any outstanding options, warrants or rights
of any kind to acquire any shares of capital stock of, or other equity
interests in, the Company (other than any purchase, forfeiture or
retirement of shares of Company Common Stock or the Options occurring
pursuant to the terms (as in effect on the date of the Original Agreement)
of any existing Benefit Plan of the Company);
(d) except as provided in Sections 1.4 and 1.6 hereof, effect any
reorganization or recapitalization; or split, combine or reclassify any of
the capital stock of, or other equity interests in, the Company or issue or
authorize or propose the issuance of any other securities in respect of, in
lieu of or in substitution for, shares of such capital stock or such equity
interests;
(e) except as provided in Sections 1.4 and 1.6 hereof, offer, sell,
issue or grant, or authorize or propose the offering, sale, issuance or
grant of, any shares of capital stock of, or other equity interests in, any
securities convertible into or exchangeable for (or accelerate any right to
convert or exchange securities for) any shares of capital stock of, or
other equity interest in, or any options, warrants or rights of any kind to
acquire any shares of capital stock of, or other equity interests in, or
any Voting Company Debt or other voting securities of, the Company, or any
"phantom" stock, "phantom" stock rights, SARs or stock-based performance
units (or increase the number of shares reserved for issuance under the
Company Option Plans), other than issuance of shares of Company Common
Stock upon the exercise of the Options issued and outstanding as of the
date of the Original Agreement and disclosed in Section 2.3 of the Company
Disclosure Statement in accordance with the terms thereof (as in effect on
the date of the Original Agreement);
(f) acquire or agree to acquire, by merging or consolidating with, by
purchasing an equity interest in or a portion of the assets of, or in any
other manner, any business or any corporation, partnership, association or
other business organization or division thereof or otherwise acquire any
<PAGE> 109
assets of any other person (other than the purchase of inventories and
supplies from suppliers or vendors in the ordinary course of business and
consistent with past practice);
(g) sell, lease, exchange or otherwise dispose of, or grant any Lien
with respect to, any of the properties or assets of the Company that are
material to the business of the Company, except for dispositions of excess
or obsolete assets and sales in the ordinary course of business and
consistent with past practice;
(h) except as contemplated by Section 1.4, propose or adopt any
amendments to its Certificate of Incorporation or Bylaws or other
organizational documents;
(i) effect any change in any accounting methods, principles or
practices in effect as of December 26, 1999 affecting the reported
consolidated assets, liabilities or results of operations of the Company,
except as may be required by a change in generally accepted accounting
principles;
(j) (i) incur any indebtedness for borrowed money other than pursuant
to the Revolving Line of Credit Note & Loan Agreement, dated as of March
31, 1998, between the Company and Wells Fargo Bank, N.A., issue or sell any
debt securities or warrants or other rights to acquire any debt securities
of the Company, guarantee any such indebtedness or debt securities of
another person, enter into any capital lease, enter into any "keep well" or
other agreement to maintain any financial statement condition of another
person or enter into any arrangement having the economic effect of any of
the foregoing, or grant to any person or create any Lien outside the
ordinary course of business, or (ii) make any loans, advances or capital
contributions to, or investments in, any other person;
(k) enter into or amend any Contract of a type described in Section
2.16 (except for Licenses which are not material to the Company or its
business and except for Contracts entered into or amended in the ordinary
course of business) or enter into or amend a lease for real property (it
being understood the Company enters into new leases in the ordinary course
of business);
(l) pay, discharge, settle or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge, settlement or satisfaction,
in the ordinary course of business consistent with past practice or in
accordance with their terms, of liabilities reflected or reserved against
in the most recent consolidated financial statements (or the notes thereto)
of the Company included in the Filed Company SEC Documents or incurred
since the date of such financial statements in the ordinary course of
business consistent with past practice;
(m) make any Tax election except in a manner consistent with past
practice, change any method of accounting for Tax purposes, or settle or
compromise any material Tax liability;
(n) make or agree to make any capital expenditures for the period from
October 1, 2000 until the Effective Time in excess of the amount of capital
expenditures for such period reflected in the capital budget attached as
Section 4.2(n) of the Company Disclosure Schedule (except for capital
expenditures which exceed such budgeted amount by less than $250,000);
(o) make any payment to any landlord under a Lease, except for
payments of rent in the ordinary course of business and except for payments
not to exceed the amount, and for the purpose, set forth in Section 4.2(o)
of the Company Disclosure Schedule in the aggregate;
(p) form, create or organize any Subsidiary, or purchase or acquire
any capital stock or other ownership interest in any corporation,
partnership, limited liability company, joint venture or other entity; or
(q) agree in writing or otherwise to take any of the foregoing actions
or any action which would cause any condition set forth in Article VI to be
unsatisfied.
<PAGE> 110
ARTICLE V
COVENANTS AND ADDITIONAL AGREEMENTS
SECTION 5.1. No Solicitation.
(a) From and after the date of the Original Agreement until the Effective
Time or the termination of this Agreement in accordance with Section 7.1,
neither the Company, nor any of its respective officers, directors, employees,
representatives, agents or affiliates (including any investment banker, attorney
or accountant retained by the Company or the Special Committee but excluding any
affiliate of the Company that is not controlled by the Company (other than
directors of the Company)) will directly or indirectly initiate, solicit or
knowingly encourage (including by way of furnishing non-public information or
assistance), or take any other action with the intention of facilitating, any
inquiries or the making or submission of any Acquisition Proposal (as defined
below), or enter into or maintain or continue discussions or negotiate with any
person or group in furtherance of such inquiries or to obtain or induce any
person or group to make or submit an Acquisition Proposal, or agree to or
endorse any Acquisition Proposal, or assist or participate in, facilitate or
encourage, any effort or attempt by any other person or group to do or seek any
of the foregoing, or authorize or permit any of its officers, directors or
employees or any of its affiliates or any investment banker, financial advisor,
attorney, accountant or other representative or agent retained by it to take any
such action; provided, however, that nothing contained in this Agreement shall
prohibit the Board of Directors of the Company or the Special Committee or the
Representatives from furnishing information to or entering into discussions or
negotiations with any person or group that makes an unsolicited written, bona
fide Acquisition Proposal, if, and only to the extent that (i) the Special
Committee determines in good faith by a majority vote, after consultation with
the Special Committee Financial Advisor (or other nationally reputable financial
advisor) and with independent legal counsel that such proposal is, or is
reasonably likely to lead to, a Superior Proposal (provided that the Special
Committee or its advisors shall be permitted to contact such third party and its
advisors solely for the purpose of clarifying the proposal and any material
contingencies and the likelihood of consummation), (ii) the Special Committee
determines in good faith by a majority vote after consultation with its outside
legal counsel that the failure to negotiate, or otherwise engage in discussions,
with such third party would be inconsistent with the Board's fiduciary duties
under applicable law, and (iii) such person or group, prior to the disclosure of
any non-public information, enters into a confidentiality agreement with the
Company that is not, in any material respect, less restrictive as to such person
or group than the Confidentiality Agreement (as defined in Section 5.3) in terms
of confidentiality and standstill restrictions and which does not contain
exclusivity provisions which would prevent the Company from complying with its
obligations hereunder. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in this Section 5.1 by any officer,
director, employee or affiliate of the Company (except an affiliate who is not
controlled by the Company (other than a director)) or any investment banker,
attorney, accountant or other advisor, agent or representative of the Company or
the Special Committee, whether or not such person is purporting to act on behalf
of the Company or its directors or otherwise, shall be deemed to be a breach of
this Section 5.1 by the Company.
(b) Except as expressly permitted by this Section 5.1, neither the Board of
Directors of the Company nor the Special Committee (or any other committee
thereof) shall (i) approve or recommend, or propose to approve or recommend, any
Acquisition Proposal, or (ii) cause the Company to accept such Acquisition
Proposal and/or enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement (each, an "Acquisition
Agreement") related to any Acquisition Proposal; provided, however, that the
Board of Directors of the Company (acting on the recommendation of the Special
Committee) may take such actions if, and only to the extent that (A) such
Acquisition Proposal is a Superior Proposal, (B) the Special Committee
determines in good faith by a majority vote, after consultation with its outside
legal counsel, that the failure to do so would be inconsistent with the
fiduciary duty of the Board of Directors of the Company under applicable law,
(C) the Company is not in breach of this Section 5.1 and (D) in the case of
clause (ii) above, (I) the Company shall, prior to or simultaneously with the
taking of such action, have paid or pay to Newco or its designee the Termination
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Fee and Expense Reimbursement referred to in Section 7.3, and (II) the Company
shall have complied with its obligations under Section 7.1(h).
(c) In addition to the obligations of the Company set forth in Sections (a)
and (b) above, the Company shall promptly (and in any event, within 24 hours)
advise Newco orally and in writing of any request for information or the
submission or receipt of any Acquisition Proposal, or any inquiry with respect
to or which could lead to any Acquisition Proposal, the material terms and
conditions of such request, Acquisition Proposal or inquiry, and the identity of
the person making any such request, Acquisition Proposal or inquiry and its
response or responses thereto. The Company will keep Newco fully informed of the
status and material terms (including amendments or proposed amendments) of any
such request, Acquisition Proposal or inquiry. The Company will immediately
cease and cause to be terminated any activities, discussions or negotiations
existing on the date of the Original Agreement with any parties conducted
heretofore with respect to any of the foregoing, provided that this sentence
will not make the provisions of Sections 5.1(a) or (b) inapplicable to a
subsequent proposal by any such party.
(d) As used herein, "Acquisition Proposal" means an inquiry, offer or
proposal regarding any of the following (other than the Transactions
contemplated by this Agreement) involving the Company: (i) any merger,
consolidation, share exchange, recapitalization, liquidation, dissolution,
business combination or other similar transaction; (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of 15% or more of the
assets of the Company or of any Material Business (as defined below) in a single
transaction or series of related transactions; (iii) any tender offer (including
a self tender offer) or exchange offer that, if consummated, would result in any
person or group beneficially owning more than 15% of the outstanding shares of
any class of equity securities of the Company (or in the case of a person or
group which beneficially owns more than 15% of the outstanding shares of any
class of equity securities of the Company as of the date of the Original
Agreement, would result in such person or group increasing the percentage or
number of shares of such class beneficially owned by such person or group) or
the filing of a registration statement under the Securities Act in connection
therewith; (iv) any acquisition of 15% or more of the outstanding shares of
capital stock of the Company or the filing of a registration statement under the
Securities Act in connection therewith or any other acquisition or disposition
the consummation of which would prevent or materially diminish the benefits to
Newco of the Merger; or (v) any public announcement by the Company or any third
party of a proposal, plan or intention to do any of the foregoing or any
agreement to engage in any of the foregoing. "Superior Proposal" means any
proposal made by a third party to acquire, directly or indirectly, including
pursuant to a tender offer, exchange offer, merger, consolidation, share
exchange, business combination, recapitalization, liquidation, dissolution or
other similar transaction, not less than 51% of the shares of Company Common
Stock then outstanding or all or substantially all of the assets of the Company
which the Special Committee determines in good faith (A) is more favorable to
the stockholders of the Company (other than the Rollover Group) from a financial
point of view than the transactions contemplated by this Agreement (including
any adjustment to the terms and conditions proposed in writing by Newco in
response to such Acquisition Proposal), (B) is not subject to any material
contingency, to which the other party thereto has not reasonably demonstrated in
its written offer its ability to overcome or address, including the receipt of
government consents or approvals (including any such approval required under the
HSR Act), and (C) is reasonably likely to be consummated and is in the best
interests of the stockholders of the Company. "Material Business" means any
business (or the assets needed to carry out such business) that contributed or
represented 15% or more of the net sales, the net income or the assets
(including equity securities) of the Company.
(e) Subject to compliance with Section 5.1(b), the Company or the Board of
Directors of the Company or the Special Committee may make any disclosure or
statement to the Company's stockholders if it determines in good faith after
consultation with independent legal counsel as to legal matters that the failure
to take such action would be inconsistent with the fiduciary duty of the Board
of Directors under applicable law or is required by applicable law.
SECTION 5.2. Access to Information. Between the date of the Original
Agreement and the Effective Time, the Company shall (a) afford to Newco and its
officers, directors, employees, accountants, consultants, legal counsel, agents
and other representatives full access during normal business hours and at
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all other reasonable times to the officers, employees, agents, properties,
offices and other facilities of the Company and to their books and records
(including all Tax Returns and all books and records related to Taxes and such
returns), (b) permit Newco to make such inspections as it may require (and the
Company shall cooperate with Newco in any inspections, including environmental
due diligence), and (c) furnish promptly to Newco and its representatives a copy
of each report, schedule, registration statement and other document filed by it
during such period pursuant to the requirements of federal or state securities
laws and such other information concerning the business, properties, contracts,
records and personnel of the Company (including financial, operating and other
data and information) in the possession of the Company or the Company's counsel,
accountants or other consultants or agents as may be reasonably requested, from
time to time, by or on behalf of Newco. All access, inspections and furnishing
pursuant to this Section 5.2 shall (i) be on reasonable notice to the Company,
(ii) be scheduled and otherwise managed so as not to unreasonably disrupt the
Company's operations, (iii) without prior authorization of the Company (such
authorization not to be unreasonably withheld) not involve direct contact with
non-officer employees, suppliers or non-retail customers and (iv) not extend to
any matter otherwise protected by the attorney-client privilege, unless, in the
case of this clause (iv), Newco agrees that such information is to be provided
in confidence in anticipation of litigation and is subject to the
attorney-client privilege.
SECTION 5.3. Confidentiality Agreement. The parties agree that the
provisions of the Confidentiality Agreement, dated October 10, 2000 (the
"Confidentiality Agreement"), between an affiliate of Newco and the Company
shall remain binding and in full force and effect in accordance with its terms.
The parties shall comply with, and shall cause their respective representatives
to comply with, all of their respective obligations under the Confidentiality
Agreement until the Merger, at which time the Confidentiality Agreement shall
terminate and be of no further force and effect.
SECTION 5.4. Reasonable Efforts.
(a) Subject to the terms and conditions herein (including Section 5.1),
each of the parties hereto agrees to use its reasonable efforts to take, or
cause to be taken, all appropriate action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective as soon as reasonably practicable the Merger and
the other Transactions and, in the case of Newco, the debt and equity financing
required to consummate the Merger. In case at any time after the Effective Time
any further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers and directors of each party to this Agreement
shall take all such necessary action. Such reasonable efforts shall include
reasonable efforts to obtain all necessary consents, approvals or waivers from
third parties (including any required consents of holders of securities of the
Company) and Governmental Entities necessary to the consummation of the
Transactions.
(b) The Company shall give and make all required notices and reports to the
appropriate persons with respect to the Permits (including the Liquor Licenses)
and Environmental Permits that may be necessary for the ownership, operation and
use of the assets of Surviving Corporation after the Effective Time. Subject to
the other terms of this Agreement, each of the Company and Newco shall cooperate
and use their respective reasonable efforts to make all filings, to obtain all
actions or nonactions, waivers, and orders of Governmental Entities necessary to
consummate the Transactions and to take all reasonable steps as may be necessary
to obtain an approval or waiver from, or to avoid an action or proceeding by,
any Governmental Entity. Each of the parties hereto will furnish to the other
parties such necessary information and reasonable assistance as such other
parties may reasonably request in connection with the foregoing.
(c) Without limiting the foregoing, the Company shall prior to the
Effective Time cooperate with Newco in any manner reasonably requested by Newco
in connection with obtaining the regulatory approvals as may be required by any
Governmental Entities to maintain in effect following the Effective Time all
Liquor Licenses and other Permits necessary to maintain continuity of service of
alcoholic beverages, as well as the continuity of the same forms of business
operations conducted at, in or upon each property owned or leased by the Company
as of the date of the Original Agreement. The Company agrees
<PAGE> 113
to use reasonable efforts to obtain any such approvals required in respect of
the Liquor Licenses and other Permits in an expeditious manner.
(d) The Company and its Board of Directors shall (i) take all action within
its power to make any state takeover statute or similar statute, rule or
regulation inapplicable to the Merger, this Agreement, the Securities Purchase
Agreement, the Voting Agreement or any of the other Transactions and (ii) if any
state takeover statute or similar statute, rule or regulation becomes applicable
to the Merger, this Agreement, the Securities Purchase Agreement, the Voting
Agreement or any of the other Transactions, take all action within its power to
ensure that the Merger and such other Transactions may be consummated as
promptly as practicable on the terms contemplated by this Agreement and
otherwise to minimize the effect of such statute or regulation on the Merger and
such other Transactions.
SECTION 5.5. Indemnification of Directors and Officers.
(a) Newco agrees that all rights to indemnification for acts or omissions
occurring prior to or upon the Effective Time existing as of the date of the
Original Agreement in favor of the current or former directors or officers of
the Company as provided in the certificate of incorporation or bylaws or
indemnification agreements of the Company shall survive the Merger and shall
continue in full force and effect in accordance with their terms for a period of
six years from the Effective Time, it being understood that during such six year
period, the Surviving Corporation may make modifications or amendments to its
Certificate of Incorporation or Bylaws so long as the rights of such current and
former directors or officers under such documents are not adversely affected
with respect to matters existing or occurring prior to or upon the Effective
Time. Newco shall cause to be maintained, if commercially available, for a
period of six years from the Effective Time the Company's current directors' and
officers' insurance and indemnification policy (the "D&O Insurance") (provided
that Newco may substitute therefor, at its election, policies or financial
guarantees with the same carriers or other obligors of substantially equal or
better financial standing as insure Newco's directors and officers of at least
the same coverage and amounts containing terms and conditions which are
substantially similar to the existing D&O Insurance or which are the same as
those applicable to Newco's directors or officers) to the extent that such
insurance policies provide coverage for events occurring prior to or upon the
Effective Time for all persons who are directors and officers of the Company on
the date of the Original Agreement, so long as the annual premium to be paid by
the Company after the date of the Original Agreement for such D&O Insurance
during such six-year period would not exceed 200% of the current annual premium.
If, during such six-year period, such insurance coverage cannot be obtained at
all or can only be obtained for an amount in excess of 200% of the current
annual premium therefor, Newco shall use reasonable efforts to cause to be
obtained for an amount equal to 200% of the current annual premium therefor, on
terms and conditions substantially similar to the existing D&O Insurance.
(b) If any claim or claims shall, subsequent to the Effective Time and
within six years thereafter, be made in writing against any present or former
director or officer of the Company based on or arising out of the services of
such person prior to or upon the Effective Time in the capacity of such person
as a director or officer of the Company (and such director or officer shall have
given Newco written notice of such claim or claims within such six year period),
the provisions of paragraph (a) of this Section 5.5 respecting the rights to
indemnify the current or former directors or officers under the Certificate of
Incorporation and Bylaws of the Company shall continue in effect until the final
disposition of all such claims.
(c) Notwithstanding anything to the contrary in this Section 5.5, but
subject to the terms of the Company's existing indemnification agreements (in
the form filed with the Company SEC Documents), neither Newco nor the Surviving
Corporation shall be liable for any settlement effected without its written
consent, which shall not be unreasonably withheld.
SECTION 5.6. Event Notices and Other Actions.
(a) From and after the date of the Original Agreement until the Effective
Time, the Company shall promptly notify Newco of (i) the occurrence or
nonoccurrence of any event, the occurrence or nonoccurrence of which has
resulted in, or would reasonably be expected to result in, any condition to the
Merger set forth in Article VI not being satisfied, (ii) the Company's failure
to comply with any covenant
<PAGE> 114
or agreement to be complied with by it pursuant to this Agreement which has
resulted in, or would reasonably be expected to result in, any condition to the
Merger set forth in Article VI not being satisfied and (iii) any representation
or warranty made by the Company contained in this Agreement that is qualified as
to materiality becoming untrue or inaccurate in any respect or any such
representation or warranty that is not so qualified as to materiality becoming
untrue or inaccurate in any material respect. The Company's delivery of any
notice pursuant to this Section 5.6(a) shall not cure any breach of any
representation or warranty of the Company contained in this Agreement or
otherwise limit or affect the remedies available hereunder to Newco.
(b) The Company shall not take any action or nonaction that will, or that
would reasonably be expected to, cause any condition to the Merger set forth in
Section 6.2(a) not to be satisfied.
(c) From and after the date of the Original Agreement until the Effective
Time, Newco shall promptly notify the Company of (i) the occurrence or
nonoccurrence of any event, the occurrence or nonoccurrence of which has
resulted in, or would reasonably be expected to result in, any condition to the
Merger set forth in Article VI not being satisfied, (ii) Newco's failure to
comply with any covenant or agreement to be complied with by it pursuant to this
Agreement which has resulted in, or would reasonably be expected to result in,
any condition to the Merger set forth in Article VI not being satisfied and
(iii) any representation or warranty made by Newco contained in this agreement
that is qualified as to materiality becoming untrue or inaccurate in any respect
or any such representation or warranty that is not so qualified as to
materiality becoming untrue or inaccurate in any material respect. Newco's
delivery of any notice pursuant to this Section 5.6(c) shall not cure any breach
of any representation or warranty of Newco contained in this Agreement or
otherwise limit or affect the remedies available hereunder to the Company.
(d) Newco shall not take any action or nonaction that will, or that would
reasonably be expected to cause any condition to the Merger set forth in Section
6.3(a) not to be satisfied.
(e) No rights of a party hereunder shall be limited, and no party shall be
deemed to have waived any rights, by reason of any investigation or audit
conducted before or after the date hereof by any party or the knowledge of any
breach of a representation, warranty or covenant by the other party. Each of
Newco, on the one hand, and the Company, on the other, shall have the right to
rely fully on the representations, warranties and covenants of the other party.
SECTION 5.7. Third Party Standstill Agreements. During the period from the
date of the Original Agreement through the Effective Time, the Company shall not
terminate, amend, modify or take any action to waive any provision of any
confidentiality or standstill or similar agreement to which the Company is a
party (other than any involving Newco). Subject to the foregoing, during such
period, the Company agrees to enforce to the fullest extent permitted under
applicable law, the provisions of any such agreements, including obtaining
injunctions to prevent any breaches of such agreements and to enforce
specifically the terms and provisions thereof in any court or other tribunal
having jurisdiction. Notwithstanding the foregoing, nothing in this Section 5.7
is intended to prevent the Company from exercising its rights under Section 5.1
in accordance with the provisions of such Section.
SECTION 5.8. Employee Stock Options; Employee Plans and Benefits and
Employment Contracts.
(a) Company Stock Option Plans. Simultaneously with the execution of the
Original Agreement, the Board of Directors of the Company (or, if appropriate,
the Special Committee or any committee administering the Company Stock Option
Plans) shall adopt such resolutions or take such other actions as are required
to effect the transactions contemplated by Section 1.11 in respect of all
outstanding Options, and thereafter the Board of Directors of the Company (or
any such committee) shall adopt any such additional resolutions and take such
additional actions as are required in furtherance of the foregoing.
(b) Payments in Respect of Options and Award Units. Each Option cancelled
pursuant to Section 1.11 (other than Options cancelled in exchange for
substitute options to purchase shares of capital stock of the Surviving
Corporation by members of the Rollover Group under the Securities Purchase
Agreement) shall, upon cancellation, be converted into the right to receive an
amount in cash equal to the
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product of (i) the number of shares of Company Common Stock subject to such
Option, whether or not then exercisable, and (ii) the excess, if any, of the
Cash Merger Consideration over the exercise price per share subject or related
to such Option.
(c) Time of Payment. The cash amount described in paragraph (b) of this
Section 5.8 shall be paid as promptly as is practicable after the Effective
Time.
(d) Withholding. All amounts payable pursuant to Section 1.11 and Section
5.8(b) and (c) shall be subject to any required withholding of taxes and shall
be paid without interest. Payment shall, at Newco's request, be withheld in
respect of any Option until Newco has received reasonable documentation that
such payment is in full satisfaction of all rights under such Option.
(e) Termination of Equity-Based Compensation. No Options will be issued
under the Company Option Plans after the date of the Original Agreement, and,
effective as of November 1, 2000, any offering of shares of Company Common Stock
pursuant to the Company's 1997 Employee Stock Purchase Plan has been terminated
(and the Company's Board of Directors have taken the necessary action to cause
such termination). Unless otherwise determined by Newco, any provision in any
other Benefit Plan providing for the potential issuance, transfer or grant of
any capital stock of the Company or any interest, or release of restrictions, in
respect of any capital stock of the Company shall be terminated as of the
Effective Time. The Company shall ensure that, following the date of the
Original Agreement, unless otherwise determined by Newco (and except as
contemplated by the Securities Purchase Agreement), no holder of an Option,
restricted stock or derivative security or any participant in the Company Stock
Option Plans or other Benefit Plan shall have any right thereunder to acquire
any capital stock of the Company or the Surviving Corporation, other than shares
of Company Common Stock issued or issuable upon exercise of Options that were
issued and outstanding on the date of the Original Agreement. No participant in
the Company Stock Option Plans shall be entitled to receive any other payment or
benefit thereunder except as provided in Section 1.11 and this Section 5.8 (or
pursuant to the Securities Purchase Agreement).
(f) No Right to Employment. Nothing contained in this Agreement shall
confer upon any employee of the Company or any ERISA Affiliate any right with
respect to employment by Newco, the Surviving Corporation or any of Newco's
affiliates, nor shall anything herein interfere with any or create any
additional right of Newco, the Surviving Corporation or any of Newco's
affiliates to terminate the employment of any such employee at any time, with or
without cause, or restrict Newco, the Surviving Corporation or any of Newco's
affiliates in the exercise of their independent business judgment in modifying
any other terms and conditions of the employment of any such employee.
SECTION 5.9. Meeting of the Company's Stockholders.
The Company shall promptly after execution of this Agreement take all
action necessary in accordance with the DGCL and its Certificate of
Incorporation and Bylaws to convene a stockholder meeting to consider and vote
on the Merger and this Agreement (the "Stockholder Meeting"). At the Stockholder
Meeting, all of the shares of Company Common Stock then owned by Newco or any
other affiliate of Newco shall be voted to approve the Merger and this
Agreement. Subject to Section 5.1, the Board of Directors of the Company (and
the Special Committee) shall recommend that the Company's stockholders vote to
approve the Merger and this Agreement if such vote is sought, shall use its
reasonable efforts to solicit from stockholders of the Company proxies in favor
of the Merger and shall take all other action in its judgment necessary and
appropriate to secure the vote of stockholders required by the DGCL to effect
the Merger.
SECTION 5.10. Proxy Statement.
(a) The Company and Newco shall furnish to each other all information
concerning such person or such person's business that is required for the Proxy
Statement. The Company shall, as soon as practicable after the date hereof,
prepare and file (after providing Newco with a reasonable opportunity to review
and comment thereon) the Proxy Statement (including the Schedule 13E-3) with the
SEC and shall use its reasonable efforts to respond to any comments of the SEC
(after providing Newco with a reasonable opportunity to review and comment
thereon) and to cause the Proxy Statement to be mailed to the
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Company's stockholders as promptly as practicable after responding to all such
comments to the satisfaction of the staff of the SEC; provided, however, that in
no event shall the Company file the preliminary Proxy Statement with the SEC any
later than January 31, 2001 (unless Newco shall have failed to cooperate with
the preparation thereof as contemplated by this Section 5.10). The Company shall
notify Newco promptly of the receipt of any comments from the SEC and of any
request by the SEC for amendments or supplements to the Proxy Statement or for
additional information and shall supply Newco with copies of all correspondence
between the Company or any of its representatives, on the one hand, and the SEC,
on the other hand, with respect to the Proxy Statement or the Transactions. The
Company will cause the Proxy Statement to comply in all material respects with
the applicable provisions of the Exchange Act and the rules and regulations
thereunder applicable to the Proxy Statement and the solicitation of proxies for
the Stockholder Meeting (including any requirement to amend or supplement the
Proxy Statement). Newco shall cooperate with the Company in the preparation of
the Proxy Statement, and without limiting the generality of the foregoing, the
Company and Newco shall promptly furnish to the other such information relating
to it and its affiliates and the Transactions and such further and supplemental
information as may be reasonably requested by the other party and shall promptly
notify the other party of any change in such information. If at any time prior
to the Stockholder Meeting there shall occur any event that should be set forth
in an amendment or supplement to the Proxy Statement, the Company shall promptly
prepare and mail to its stockholders such an amendment or supplement; provided,
however, that no such amendment or supplement to the Proxy Statement will be
made by the Company without providing Newco the reasonable opportunity to review
and comment thereon and without the approval of Newco, which approval shall not
be unreasonably withheld. To the extent practicable, the Company and its counsel
shall (and the Company shall cause the Special Committee and its counsel to)
permit Newco and its counsel to participate in all communications with the SEC
and its staff, including all meetings and telephone conferences, relating to the
Proxy Statement, this Agreement or the Transactions; provided, however, that in
the event that such participation by Newco is not practicable, the Company (or
the Special Committee) shall promptly inform Newco of the content of all such
communications and the participants involved therein.
(b) Subject to the provisions of Section 5.1, the Company agrees to include
in the Proxy Statement the recommendation of the Company's Board of Directors
and the Special Committee. The Proxy Statement shall contain a copy of the
opinion of the Special Committee Financial Advisor.
SECTION 5.11. Public Announcements. Newco and the Company shall to the
fullest extent practicable consult with each other before issuing any press
release or otherwise making any public statement with respect to this Agreement,
the Merger and the other Transactions and shall not issue any such press release
or make any such public statement prior to such consultation, except as may be
required by law.
SECTION 5.12. Stockholder Litigation. The Company shall give Newco the
opportunity to participate in the defense or settlement of any stockholder
litigation against the Company and its directors relating to any of the
Transactions until the Effective Time pursuant to this Agreement; provided,
however, that no such settlement shall be agreed to without Newco's consent,
which consent shall not be unreasonably withheld.
SECTION 5.13. FIRPTA. The Company shall deliver to Newco prior to the
execution of this Agreement a certified statement, prepared in accordance with
Sections 897 and 1445 of the Code, that the shares of Company Common Stock are
not "United States real property interests" within the meaning of Section 897 of
the Code.
SECTION 5.14. Alternative Financing; Disclosure.
(a) So long as the Company is in material compliance with its obligations
under this Agreement, Newco shall use commercially reasonable efforts to satisfy
the requirements of the Financing Commitments and the Securities Purchase
Agreement and to obtain the funding contemplated by and on the terms contained
in the Financing Commitments and the Securities Purchase Agreement, or, in the
case of the Financing Commitments, if any of the Financing Commitments is
terminated or such funds
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shall not otherwise be available, use commercially reasonable efforts to obtain
an alternative source of financing, in each case, on financial and other terms
no less favorable to Newco than those set forth in the respective Financing
Commitments.
(b) Following the date of the Original Agreement, any amendment,
termination or cancellation of any Financing Commitment or any modification of
any Financing Commitment or any information which becomes known to Newco which
makes it substantially unlikely to obtain the financing on the terms set forth
in the Financing Commitments, shall be promptly disclosed to the Company and the
Special Committee of the Board of Directors. Newco shall keep the Company and
the Special Committee of the Board of Directors reasonably apprised of any
discussions or communications with each person providing debt financing which
relates to the matters referred to in the preceding sentence. Newco shall make
available to each person providing debt financing under the Financing
Commitments or such alternative financing true and complete copies of the
Company Disclosure Statement and any supplement thereto delivered by the Company
pursuant to Section 5.6(a), and shall promptly advise each such person (or any
agent on their behalf) of any information of which it becomes aware which would
reasonably be expected to constitute a Material Adverse Effect.
SECTION 5.15. HSR Act. The Company and Newco will file all Notification and
Report Forms and related material that it may be required to file with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the HSR Act, will exercise reasonable efforts to
obtain an early termination of the applicable waiting period, and will make any
further filings pursuant thereto that may be necessary or advisable.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 6.1. Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger are
subject to the satisfaction or waiver, where permissible, prior to the Effective
Time, of the following conditions:
(a) this Agreement shall have been approved by the affirmative vote of
the stockholders of the Company by the requisite vote in accordance with
the DGCL, the rules of the Nasdaq National Market and any applicable
provisions of the Company's certificate of incorporation or bylaws;
(b) no statute, rule, regulation, executive order, decree or
injunction shall have been enacted, entered, promulgated, or enforced by
any court or Governmental Entity which is in effect and has the effect of
prohibiting the consummation of the Merger; and
(c) the waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act, if any, shall have expired or
been terminated.
SECTION 6.2. Conditions to Obligations of Newco to Effect the Merger. The
obligations of Newco to effect the Merger shall be subject to the fulfillment at
or before the Effective Time of the following conditions, any one or more of
which may be waived by Newco, in its sole discretion:
(a) The representations and warranties of the Company contained in
this Agreement shall be true and correct in all respects (i) as of the date
of the Original Agreement, (ii) in the case of Sections 2.1, 2.3 and 2.7,
as of the date of this Agreement and (iii) except for changes specifically
contemplated by the provisions of this Agreement (other than Section
5.6(a)), immediately before the Effective Time with the same effect as if
such representation and warranties had been made immediately before the
Effective Time (except for representations and warranties made as to
specified dates, which shall be true and correct as of such dates), except
to the extent that any and all inaccuracies in any representations and
warranties (other than those set forth in Sections 2.1 - 2.3 and 2.8(b),
which must be true and correct at the Effective Time) that were true and
correct on the date of the Original Agreement (or in the case of Sections
2.1, 2.3 and 2.7, as of the date of this Agreement) but were inaccurate
immediately before the Effective Time have not had and would not
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reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company (provided that, for purposes of this
clause (ii), any representation or warranty set forth in Article II that is
qualified by materiality or references to "Material Adverse Effect" or
similar qualifications shall be read solely for purposes of this Section
6.2(a)(ii) as if such qualifications were not present); the Company shall
have performed and complied in all material respects with the agreements
and obligations contained in this Agreement required to be performed and
complied with by it at or immediately before the Effective Time; and Newco
shall have received a certificate signed by an executive officer of the
Company to the effects set forth in this Section 6.2(a);
(b) The Company shall not have, since the date of the Original
Agreement, suffered any business interruption, damage to or destruction of
its properties that has had or would reasonably be expected to have a
Material Adverse Effect, nor shall any other incident, occurrence or event
have occurred since the date of the Original Agreement that has had or
would reasonably be expected to have a Material Adverse Effect;
(c) There shall not be pending or threatened any suit, action,
proceeding or investigation: (i) relating to the Merger to which a
Governmental Entity is a party or (ii) which has had or would reasonably be
expected to have a Material Adverse Effect on the Company;
(d) The Company shall have received (and furnished to Newco evidence
thereof reasonably satisfactory to Newco) (i) any necessary or required
approvals and consents from all third parties or Governmental Entities
necessary or required to maintain the Leases and the Liquor Licenses in
effect following the Merger on the same terms as in effect on the date of
the Original Agreement, and such approvals and consents shall not have
expired or been withdrawn; and (ii) any necessary or required approvals and
consents from all third parties and Governmental Entities other than those
referred to in clause (i) necessary or required to complete the
Transactions and to maintain the Contracts and the Permits in effect
following the Merger on the same terms as in effect on the date of the
Original Agreement, other than (in the case of this clause (ii) only) any
such approvals and consents the absence of which does not and would not
reasonably be expected to have a Material Adverse Effect on the Company or
the Surviving Corporation, and such approvals and consents (subject to such
exception) shall not have expired or been withdrawn;
(e) Newco shall have received the proceeds of the financing
contemplated in the Financing Commitments on the terms and conditions set
forth in the Financing Commitments or upon terms and conditions that are no
less favorable to Newco;
(f) Construction of the Company's restaurants or bakeries referred to
in Section 6.2(f) of the Company Disclosure Schedule shall have been
completed; and such restaurants or bakeries shall have opened for business;
(g) Immediately prior to the Effective Time, the Company (i) shall not
have any indebtedness for borrowed money (including any capital leases and
any indebtedness incurred by guaranty, suretyship or similar arrangement)
and (ii) shall have at least $4,400,000 in available Cash and Cash
Equivalents. As used above, "Cash and Cash Equivalents" means, as of the
date of determination, the amount of the Company's cash and cash
equivalents as of such date (determined in accordance with generally
accepted accounting principles applied consistently with the financial
statements contained in the Company SEC Reports), plus (x) the amount of
tenant improvement allowances to be paid to the Company under the Leases
within 90 days after such date (but only up to a maximum of $2,500,000 in
the aggregate), plus (y) the reasonable out-of-pocket expenses of the
Company incurred in connection with the negotiation and consummation of the
Merger and the other Transactions (other than the Settlement Fee) that
have, prior to such date, been paid in cash by the Company, plus (z) the
amount of the Settlement Fee (but only up to a maximum of $250,000), less
(aa) the amount of capital expenditures, pre-opening expenses, cost of
supplies and other start-up costs associated with the Company Restaurants
referred to in Section 6.2(f) of the Company Disclosure Schedule that have
not theretofore been fully paid in cash;
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(h) The Company, the members of the Rollover Group named therein and
JH&C shall have entered into the Settlement Agreement and JH&C shall have
released the Company, Newco, the Surviving Corporation and their respective
officers, directors and agents from all liabilities, claims and obligations
(and such release shall be in full force and effect);
(i) Notwithstanding any matters disclosed by the Company in connection
with the representations and warranties set forth in Article II or
elsewhere in this Agreement, neither Newco nor its lenders, agents or
representatives shall have identified any facts, conditions or
circumstances which have resulted in or would reasonably be likely to
result in any material Environmental Claim, Environmental Liability or any
other material environmental conditions or violations;
(j) The Dissenting Shares shall not include more than 10% of the
issued and outstanding shares of Company Common Stock.
SECTION 6.3. Conditions to the Obligations of the Company. The obligations
of the Company to effect the Merger shall be subject to the fulfillment at or
before the Effective Time of the following conditions, any one or more of which
may be waived by the Company, in its sole discretion:
(a) the representations and warranties of Newco contained in this
Agreement shall be true and correct in all material respects (i) as of the
date of the Original Agreement or this Agreement, as the case may be with
respect to any particular representation and warranty, and (ii) except for
changes specifically contemplated by the provisions of this Agreement
(other than Section 5.6(c)), immediately before the Effective Time with the
same effect as if such representations and warranties had been made
immediately before the Effective Time (except for representations and
warranties made as to specified dates, which shall be true and correct as
of such dates); Newco shall have performed and complied in all material
respects with the agreements and obligations contained in this Agreement
required to be performed and complied with by it at or immediately before
the Effective Time; and the Company shall have received a certificate
signed by an executive officer of Newco to the effects set forth in this
Section 6.3(a).
(b) Newco or the Surviving Corporation shall have received $40 million
in equity financing, composed of either cash equity financing and/or the
exchange of shares of Company Common Stock pursuant to Section 1.4(a)
and/or the cancellation in exchange for substitute options, or cancellation
and reinvestment of cancellation proceeds from options, to purchase Company
Common Stock from the Rollover Group pursuant to the Securities Purchase
Agreement; and (i) Newco or the Surviving Corporation shall have received
the proceeds of the debt financing contemplated by the Financing
Commitments on the terms and conditions set forth in the Financing
Commitments or (ii) Newco or the Surviving Corporation shall have received
the proceeds of debt financing sufficient to permit Newco to consummate the
Merger on other terms not materially less advantageous to Newco as a whole
or (iii) Newco or the Surviving Corporation shall have received the
proceeds of debt financing sufficient to permit Newco to consummate the
Merger on other terms so long as the incurrence of such debt by Newco will
not render the Surviving Corporation insolvent.
ARTICLE VII
TERMINATION; AMENDMENT; WAIVER
SECTION 7.1. Termination. This Agreement may be terminated and the Merger
and the other Transactions may be abandoned at any time prior to the Effective
Time, by written notice by the terminating party to the other party, whether
before or after approval of the matters presented in connection with the Merger
to the stockholders of the Company:
(a) by the mutual written consent of the Board of Directors of Newco
and the Company;
(b) by either Newco or the Company by action of its Board of Directors
if the Merger shall not have been consummated by May 31, 2001 (provided the
right to terminate this Agreement under this Section 7.1(b) shall not be
available to a party whose failure to fulfill any obligation under this
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Agreement has been the cause of or resulted in the failure of the Merger to
occur on or before such date);
(c) by either Newco or the Company by action of its Board of Directors
if a court of competent jurisdiction or other Governmental Entity shall
have issued a nonappealable final order, decree or ruling or taken any
other action, in each case having the effect of permanently restraining,
enjoining, or otherwise prohibiting the Merger, except if the party relying
on such order, decree, or ruling or other action has not complied with its
obligations under Section 5.4 of this Agreement;
(d) by either Newco or the Company by action of its Board of
Directors, if at the Stockholders Meeting (including any adjournment or
postponement thereof), the requisite vote of the stockholders of the
Company in favor of the Merger and this Agreement shall have not been
obtained;
(e) by Newco by action of its Board of Directors, (i) if (A) the Board
of Directors of the Company (or any committee thereof, including the
Special Committee) shall have taken any action prohibited by Section 5.1;
or (B) the Board of Directors of the Company (or any committee thereof,
including the Special Committee) shall have recommended to the stockholders
of the Company an Acquisition Proposal; or (ii) (A) if the Board of
Directors of the Company (or any committee thereof, including the Special
Committee) shall have withdrawn, revoked, amended or modified its approval
or recommendation of the Merger and this Agreement in a manner adverse to
Newco, (B) if the Special Committee Financial Advisor shall have withdrawn,
revoked, amended or modified its opinion referred to in Section 2.20 in a
manner adverse to Newco or (C) the Company shall fail to include in the
Proxy Statement its approval or recommendation of the Merger and this
Agreement;
(f) by Newco, if the Company shall have breached or failed to perform
in any material respect any of its representations, warranties or covenants
required to be performed by it under this Agreement, and such breach or
failure to perform has continued unremedied for ten business days following
notice of such breach to Company by the Newco;
(g) by the Company, if Newco shall have breached or failed to perform
in any material respect any of its representations, warranties or covenants
required to be performed by it under this Agreement, and such breach or
failure to perform has continued unremedied for ten business days following
notice of such breach to Newco by the Company; and
(h) by the Company at any time prior to the Stockholder Meeting, by
action of the Special Committee, if the Company shall have received after
the date of the Original Agreement an Acquisition Proposal for an
Alternative Transaction from a third party that was not initiated,
solicited or encouraged by the Company in violation of this Agreement and
that does not materially violate or breach any confidentiality or
standstill agreement executed by such party with respect to the Company and
(i) the Special Committee determines in good faith by a majority vote after
consultation with its financial and legal advisors that such Acquisition
Proposal is a Superior Proposal, (ii) the Special Committee determines in
good faith by a majority vote after consultation with its outside legal
counsel that the failure to approve such agreement would be inconsistent
with the fiduciary duties of the Board of Directors under applicable law,
(iii) the Special Committee has received a written opinion, a copy of which
has been delivered to Newco, from the Special Committee Financial Advisor
that the Acquisition Proposal is fair from a financial point of view to the
stockholders of the Company (other than any stockholders participating in
the buying group in such transaction); provided, however, that any such
termination shall not be effective unless: (I) the Special Committee has
provided Newco with written notice that it intends to terminate this
Agreement pursuant to this Section 7.1(h), identifying the Alternative
Transaction (and the parties thereto) then determined to be more favorable
and delivering to Newco a copy of the written agreement for such
Alternative Transaction in the form to be entered into (it being understood
that if such form changes prior to termination of this Agreement, the
Special Committee will notify Newco thereof pursuant to Section 5.1(c), but
the two business day advance notice requirement referred to in the
following clause (II) will not apply to such subsequent notices), and (II)
at least two full business days after the Special Committed has provided
the initial notice required by clause (I) above, the Special
<PAGE> 121
Committee delivers to Newco a written notice of termination of this
Agreement pursuant to this Section 7.1(h); and (iv) upon delivery of the
termination notice referred to in clause (II) above, the Company has
delivered to Newco a check or wire transfer of same day funds in the amount
of the Expense Reimbursement (as defined in Section 7.3(e)) and the
Termination Fee (as defined in Section 7.3(b)) and written acknowledgement
from the Company that the Company has irrevocably waived any right to
contest or object to such payment. As used herein, "Alternative
Transaction" means any of the transactions set forth in clauses (i) - (v)
or otherwise contemplated in the definition of Acquisition Proposal set
forth in Section 5.1(d).
SECTION 7.2. Effect of Termination. In the event of termination of this
Agreement as provided in Section 7.1, this Agreement, except for the provisions
of Sections 5.3, 7.2, 7.3, and 8.6, shall immediately become void and there
shall be no liability or obligation on the part of Newco or the Company or their
respective officers, directors, stockholders or affiliates, except as set forth
in Section 7.3 below or except to the extent that a party to this Agreement has
breached in any material respect any representation, warranty or covenant
contained in this Agreement; provided, however, that the provisions of Sections
5.3, 7.2, 7.3 and 8.6 of this Agreement shall remain in full force and effect
and survive any termination of this Agreement.
SECTION 7.3. Fees and Expenses.
(a) Except as set forth in this Section 7.3, all fees and expenses incurred
in connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such expenses, whether or not the Merger is
consummated.
(b) In the event of a termination of this Agreement by the Company pursuant
to Section 7.1(h), the Company shall pay to Newco (i) the Expense Reimbursement
(as defined in Section 7.3(e) below), and (ii) an amount equal to $2,700,000
(the "Termination Fee"), in each case in accordance with Section 7.1(h).
(c) In the event of termination of this Agreement pursuant to Section
7.1(e)(i) hereof, then the Company shall pay to Newco (i) the Expense
Reimbursement and (ii) the Termination Fee, in each case within five business
days after such termination (by check or wire transfer of same day funds).
(d) In the event of termination of this Agreement pursuant to Section
7.1(b), Section 7.1(d) or Section 7.1(e)(ii) hereof, the Company shall pay to
Newco the Expense Reimbursement prior to or simultaneously with such termination
(or, if such termination is by Newco, within five business days of such
termination) (in either case, by check or wire transfer of same day funds), and
if (i) the Company receives an Acquisition Proposal from any person or group
prior to such termination of this Agreement and (ii) within 12 months after such
termination an Acquisition Proposal (whether or not involving such person or
group) is consummated, then the Company shall pay to Newco, in addition to the
Expense Reimbursement, the Termination Fee within five business days after
consummation of such transaction (by check or wire transfer of same day funds);
provided, however, that (i) if such termination occurs under Section 7.1(b) as a
result of a material adverse change in the Company's business, financial
condition or prospects, the Company will have no such obligation to pay such
Termination Fee to Newco; provided, further, that if termination occurs under
Section 7.1(b) due to the failure to obtain the debt financing referred to in
Section 6.2(e) and the reasons for the failure to obtain such financing do not
include (i) a material adverse change in the Company's business, financial
condition or prospects or (ii) the Company's failure to satisfy the conditions
set forth in Section 6.2(a) or Section 6.2(i), the Company will have no
obligation to pay Newco either of the Expense Reimbursement or the Termination
Fee.
(e) In the event this Agreement is terminated other than under Section
7.1(b) as a result of the failure to obtain any required consents or waivers in
respect of the Leases under Section 6.2(d) or as a result of the failure to
obtain the debt financing described in Section 6.2(e) and the reason for the
failure to obtain such financing is a material adverse change in the Company's
business, financial condition or prospects the Company shall reimburse Newco for
the Expense Reimbursement. As used herein, "Expense
<PAGE> 122
Reimbursement" means all reasonable out-of-pocket fees and expenses actually
incurred by Newco (and its agents and representatives) or on its behalf in
connection with the Merger and the proposed financing thereof (including travel
expenses of such parties, HSR Act filing fees, fees and expenses of accountants,
appraisers, engineers, consultants and other persons engaged to perform due
diligence, syndication, due diligence and other expenses of prospective
financing sources of Newco and reasonable attorneys' fees and expenses of
counsel for Newco and reasonable attorneys' fees and expenses of counsel for
prospective financing sources of Newco, but excluding any equity fundraising or
structuring fees, fees (but not expenses) payable to stockholders or prospective
stockholders of Newco (or their affiliates), expenses payable to stockholders or
potential stockholders of Newco (other than Bruckmann, Rosser, Sherrill & Co.
II, L.P., BancBoston Capital and their respective affiliates), or any
commitment, transaction or similar fees payable to financing sources of Newco.
The Company shall pay the Expense Reimbursement required under this paragraph
(e) to Newco (i) prior to the time that this Agreement is terminated, if this
Agreement is terminated by the Company or (ii) within five business days after
the termination of this Agreement, if this Agreement is terminated by Newco (in
either case, by check or wire transfer of same day funds).
(f) The Company acknowledges that the Termination Fee and Expense
Reimbursement provided for in this Article VII are an integral part of the
transactions contemplated by this Agreement and not a penalty, and that, without
the Termination Fee and Expense Reimbursement provided for above, Newco would
not enter into this Agreement. Further, nothing in this Section 7.3 shall be
deemed to limit any liability of any party hereto for any breach in any material
respect of any representations, warranties or covenants contained in this
Agreement that occurs prior to termination of this Agreement.
SECTION 7.4. Amendment. To the extent permitted by applicable law, this
Agreement may be amended by action taken by Newco and the Board of Directors of
the Company at any time before or after approval of this Agreement by the
stockholders of the Company (except that Newco may unilaterally amend Exhibit A
hereto as set forth in the Background section hereof), but, after any such
stockholder approval, no amendment shall be made that by law requires the
further approval of such stockholders without the approval of such stockholders.
Except in the case of an amendment to Exhibit A hereto, which may be amended by
a writing signed by Newco and delivered to the Company, this Agreement may not
be amended except by an instrument in writing signed on behalf of all the
parties.
SECTION 7.5. Extension; Waiver. At any time prior to the Effective Time, a
party may (a) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties of the other parties contained herein or in any
documents, certificate or writing delivered pursuant hereto and (c) waive
compliance with any of the agreements or conditions of the other parties hereto
contained herein; provided that after the approval of the Merger by the
stockholders of the Company, no extensions or waivers shall be made that by law
require further approval by such stockholders without the approval of such
stockholders. Any agreement on the part of any party to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. Non-Survival of Representations and Warranties. None of the
representations and warranties made in this Agreement shall survive after the
Effective Time. This Section 8.1 shall not limit any covenant or agreement of
the parties hereto which by its terms contemplates performance after the
Effective Time.
SECTION 8.2. Enforcement of the Agreement. The Company agrees that
irreparable damage would occur to Newco in the event that any of the provisions
of this Agreement were not performed by the Company in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that Newco
shall be entitled to an injunction or injunctions to prevent breaches of this
Agreement and to
<PAGE> 123
enforce specifically the terms and provisions hereof in any federal or state
court located in the State of New York (as to which the parties agree to submit
jurisdiction of the purposes of such action), this being in addition to any
other remedy to which they are entitled at law or in equity including those set
forth in Section 7.3 of this Agreement. The Company further agrees to waive any
requirement for the securing or posting of any bond in connection with obtaining
any such injunction or other equitable relief.
SECTION 8.3. Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic and legal substance of
the Transactions is not affected in any manner materially adverse to any party.
Upon such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that transactions
contemplated hereby are fulfilled to the extent possible. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provisions of this Agreement, which
shall remain in full force and effect.
SECTION 8.4. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given upon receipt if
delivered personally, mailed by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties at the following addresses
or sent by electronic transmission to the fax number specified below (or at such
other address or fax number of a party as shall be specified by like notice):
if to Newco:
c/o Bruckmann, Rosser, Sherrill & Co., Inc.
126 East 56th Street
New York, NY 10022
Attention: Mr. Harold O. Rosser
Fax: (212) 521-3799
with a copy to:
Dechert
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Attention: Carmen J. Romano, Esquire
David S. Denious, Esquire
Fax: 215-994-2222
if to the Company:
Il Fornaio (America) Corporation
770 Tamalpais Drive, Suite 400
Corte Madera, CA 94925
Attention: Mr. Michael J. Hislop
Mr. Lawrence Levy
Mr. George James
Fax: (415) 924-3880
(312) 280-2739
(415) 392-7896
<PAGE> 124
with a copy to:
Cooley Godward LLP
20th Floor, One Maritime Plaza
San Francisco, CA 94111
Attention: Cydney S. Posner, Esquire
Fax: 415-951-3699
and a copy to:
McCutchen, Doyle, Brown & Enersen, LLP
3150 Porter Drive
Palo Alto, CA 94304
Attention: Bartley C. Deamer, Esquire
Fax: 650-849-4800
Notice given by fax shall be deemed received on the day the sender receives
fax confirmation that such notice was received at the fax number of the
addressee. Notice given by mail as set out above shall be deemed received three
days after the date the same is postmarked.
SECTION 8.5. Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right.
SECTION 8.6. Governing Law. Except to the extent the provisions of the DGCL
mandatorily apply hereto, this Agreement shall be governed by and construed in
accordance with the substantive laws of the State of New York regardless of the
laws that might otherwise govern under principles of conflicts of laws
applicable thereto.
SECTION 8.7. Descriptive Headings. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 8.8. Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
SECTION 8.9. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 8.10. Certain Definitions. For purposes of this Agreement, the
following terms shall have the meanings ascribed to them below:
(a) "affiliate" of a person shall mean (i) a person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, the first-mentioned person and (ii) an
"associate" of such person, as that term is defined in Rule 12b-2
promulgated under the Exchange Act as in effect on the date of the Original
Agreement.
(b) "beneficial owner" (including the term "beneficially own" or
correlative terms) shall have the meaning ascribed to such term under Rule
13d-3(a) under the Exchange Act.
(c) "business day" shall have the meaning ascribed to such term under
Rule 14d-1 of the Exchange Act.
(d) "control" (including the terms "controlling," "controlled by" and
"under common control with" or correlative terms) shall mean the
possession, directly or indirectly or as trustee or executor, of the power
to direct or cause the direction of the management and policies of a
person, whether
<PAGE> 125
through ownership of voting securities or as trustee or executor, by
contract or credit arrangement, or otherwise.
(e) "group" shall have the meaning ascribed to such term under Rule
13d-3(a) under the Exchange Act.
(f) "Material Adverse Effect" shall mean (i) any adverse change or
effect or prospective adverse change or effect in the financial condition,
assets, liabilities, business, properties or results of operations of a
specified person, which change or effect is material with any other such
changes or effects, to the specified person, or (ii) any event, matter,
condition or effect which materially impairs the ability of a specified
person to perform on a timely basis its obligations under this Agreement or
the consummation of the Transactions; provided, however, that no effect or
change reflecting general business or economic conditions or affecting the
restaurant industry generally shall constitute a Material Adverse Effect
and any resignation of employees of the Company as a result of Newco
failing to offer terms of employment to such employees on terms comparable
to the terms on which such employees are employed by the Company on the
date of the Original Agreement shall not constitute a Material Adverse
Effect on the Company.
(g) "person" shall mean a natural person, company, corporation,
partnership, association, trust or any unincorporated organization.
Section 8.11. Interpretation.
(a) The words "hereof," "herein" and "herewith" and words of similar import
shall, unless otherwise stated, be construed to refer to this Agreement as a
whole and not to any particular provision of this Agreement, and article,
section, paragraph, exhibit and schedule references are to the articles,
sections, paragraphs, exhibits and schedules of this Agreement unless otherwise
specified. Whenever the words "include," "includes" or "including" are used in
this Agreement they shall be deemed to be followed by the words "without
limitation." All terms defined in this Agreement shall have the defined meanings
contained herein when used in any certificate or other document made or
delivered pursuant hereto unless otherwise defined therein. The definitions
contained in this Agreement are applicable to the singular as well as the plural
forms of such terms and to the masculine as well as to the feminine and neuter
genders of such term. Any agreement, instrument, statute or rule defined or
referred to herein or in any agreement or instrument that is referred to herein
means such agreement, instrument, statute or rule as from time to time amended,
modified or supplemented, including (in the case of agreements and instruments)
by waiver or consent and (in the case of statutes and rules) by succession of
comparable successor statutes and rules and all attachments thereto and
instruments incorporated therein. References to a person are also to its
permitted successors and assigns.
(b) The parties have participated jointly in the negotiation and drafting
of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
(c) References in this Agreement to "the Company's knowledge" or "the
knowledge of the Company" or similar terms mean the actual knowledge of any of
the following persons: Laurence B. Mindel, Michael J. Hislop, Michael Beatrice,
Peter J. Hausback, Craig Michel, Marilyn McNulty, or Michael Mindel.
Section 8.12. Entire Agreement; Assignment. This Agreement (including the
Company Disclosure Schedule), the Securities Purchase Agreement, the Voting
Agreement and, to the extent contemplated in Section 5.3, the Confidentiality
Agreement, (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all other prior agreements and
understandings, both written and oral, among the parties or any of them with
respect to the subject matter hereof, including the Original Agreement, the
Original Securities Purchase Agreement and the Original Voting Agreement,
provided that nothing in this Agreement shall operate as a waiver of any breach
of the Original Agreement and (b) shall not be assigned by operation of law or
otherwise, provided that Newco may assign any of its
<PAGE> 126
rights and obligations to any direct or indirect wholly owned subsidiary of
Newco or as collateral security to any lender providing financing to Newco in
connection with the Transactions, but no such assignment shall relieve Newco of
its obligations hereunder. Any attempted assignment in violation of this Section
8.12 shall be void. Subject to the preceding sentences, this Agreement will be
binding upon, inure to the benefit of, and be enforceable by, the parties and
their respective successors and assigns.
SECTION 8.13. Disclaimers. There are no representations or warranties,
express or implied by any party with reference to the transactions contemplated
hereby, other than the representations and warranties expressly stated herein.
Newco acknowledges and agrees that (i) any financial projections and forecasts
delivered to it or an affiliated or associated company are inherently uncertain,
(ii) it is familiar with such uncertainties, (iii) it has accepted full
responsibility for evaluating such financial projections and the associated
uncertainties and (iv) it shall have no claim against the Company or any
officer, director or shareholder with respect thereto.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, on the day and
year first above written.
IL FORNAIO (AMERICA) CORPORATION
By: /s/ MICHAEL J. HISLOP
------------------------------------
Name: Michael J. Hislop
Title: CEO
MANHATTAN ACQUISITION CORP.
By: /s/ HAROLD O. ROSSER
------------------------------------
Name: Harold O. Rosser, II
Title: President
<PAGE> 127
EXHIBIT A
ROLLOVER GROUP
Laurence B. Mindel
Michael J. Hislop
Michael Beatrice
Peter P. Hausback
F. Warren Hellman
Dean A. Cortopassi
W. Scott Hedrick
Carlo Vegetti
<PAGE> 128
APPENDIX B
November 14, 2000
Special Committee of the Board of Directors
Il Fornaio (America) Corporation
712 Montgomery Street
San Francisco, CA 94111
Members of the Special Committee of the Board of Directors:
You have informed us that Il Fornaio (America) Corporation ("Il Fornaio" or
the "Company") intends to enter into an Agreement and Plan of Merger dated as of
November 14, 2000 (the "Merger Agreement") with an affiliate of Bruckmann,
Rosser, Sherrill & Co., L.P. ("BRS" or the "Investor"), pursuant to which, among
other things, an affiliate of the Investor will be merged with and into the
Company (the "Merger") and each outstanding share of Common Stock, par value
$0.001 per share, of the Company (other than the shares rolled over by selected
shareholders as prescribed in the Contribution Agreement to be entered into
between such shareholders and the Investor) (the shares not being rolled over
are referred to as the "Shares") will be converted into the right to receive
$14.00 per share payable in cash (the "Merger Consideration"). Selected Il
Fornaio shareholders will also enter into a Voting Agreement contemporaneous
with the execution of the Merger Agreement. The Merger Agreement, the Voting
Agreement and the Contribution Agreement are collectively referred to herein as
the "Agreements" and the transactions contemplated thereby are referred to
herein as the "Transaction".
You have asked us whether, in our opinion, the Merger Consideration to be
paid pursuant to the Merger is fair, from a financial point of view as of the
date hereof, to the holders of the Shares (the "Recipient Shareholders").
In connection with rendering our opinion, we have, among other things:
(i) Analyzed certain publicly available financial statements and other
information relating to Il Fornaio;
(ii) Analyzed certain internal financial statements and other
financial and operating data concerning Il Fornaio prepared by and
furnished to us by the management of Il Fornaio;
(iii) Analyzed certain financial projections concerning Il Fornaio
prepared by and furnished to us by the management of Il Fornaio;
(iv) Discussed the past and current operations and financial condition
and the prospects of Il Fornaio with the management of Il Fornaio;
(v) Reviewed the reported prices and trading activity of the Common
Stock of Il Fornaio;
(vi) Compared the financial performance of Il Fornaio and the prices
and trading activity of the Common Stock of Il Fornaio with that of certain
other comparable publicly-traded companies and their securities;
(vii) Reviewed the financial terms to the extent available of certain
comparable transactions;
(viii) Participated in discussions and negotiations among
representatives of Il Fornaio, BRS, and their advisers;
(ix) Reviewed the Agreements, and the related exhibits and schedules
in substantially final form and have assumed that the final form of such
Agreements, exhibits and schedules will not vary in any respect material to
our analysis; and
(x) Performed such other analyses and examinations and considered such
other factors as we have in our sole judgment deemed appropriate.
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November 14, 2000
Page 2
For purposes of our analysis and opinion, we have not assumed any
responsibility for independently verifying the accuracy and completeness of the
information reviewed by us or reviewed for us. With respect to the financial
projections of Il Fornaio which were furnished to us, we have assumed that such
financial projections have been reasonably prepared by Il Fornaio, on bases
reflecting the best currently available estimates and good faith judgments of
the future competitive, operating and regulatory environments and related
financial performance of Il Fornaio. We have not made nor assumed any
responsibility for making any independent valuation or appraisal of the assets
or liabilities of Il Fornaio, including real estate assets, nor have we been
furnished with any such appraisals. Our opinion is necessarily based on
economic, market and other conditions as in effect on, and the information and
Agreements made available to us as of the date hereof. Our opinion does not
address Il Fornaio's underlying business decision to effect the Transaction nor
constitute a recommendation to any Il Fornaio shareholder as to how such holder
should vote with respect to the matters to be submitted to such shareholders in
connection with the Transaction.
In connection with the Transaction, we have not been authorized by the
Special Committee of the Board of Directors to solicit, nor have we solicited,
third party indications of interest for the acquisition of all or any part of
the Company. Additionally, we have not been asked to pass upon, and express no
opinion with respect to, any matter other than the fairness from a financial
point of view of the Merger Consideration to be received by the Recipient
Shareholders pursuant to the Merger.
We have acted as financial advisor to the Special Committee of the Board of
Directors of Il Fornaio in connection with the Merger and will receive a fee for
our services upon the rendering of this opinion. In the past, Evercore Group
Inc. and its affiliates have provided financial advisory services to Il Fornaio.
It is understood that this letter is for the information and benefit of the
Special Committee of the Board of Directors of Il Fornaio and may not be quoted
or referred to or relied upon or used for any other purpose without our prior
written consent, provided that we hereby consent to the inclusion of the text of
this opinion and to a reference to or description of this opinion in any
document delivered to the shareholders of Il Fornaio in connection with the
Transaction. This opinion is not intended to confer any rights or remedies upon
any employee, creditor or shareholder of Il Fornaio or any other party.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof, the Merger Consideration to be received by the Recipient
Shareholders pursuant to the Merger is fair, from a financial point of view, to
the Recipient Shareholders.
Very truly yours,
Evercore Group Inc.
By: /s/ DAVID G. OFFENSEND
------------------------------------
David G. Offensend
Vice Chairman
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APPENDIX C
DELAWARE CODE
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER, CONSOLIDATION OR CONVERSION
SEC. 262 APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to sec. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to sec. 251 (other than a merger effected pursuant to
sec. 251(g) of this title), sec. 252, sec. 254, sec. 257, sec. 258, sec. 263 or
sec. 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of sec. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
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d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under sec. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to sec. 228
or sec. 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
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need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation
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or by any stockholder entitled to participate in the appraisal proceeding, the
Court may, in its discretion, permit discovery or other pretrial proceedings and
may proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted such stockholder's certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that such stockholder is not entitled
to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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IL FORNAIO (AMERICA) CORPORATION
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON ___________, 2001
The undersigned hereby appoints Laurence B. Mindel and Peter P. Hausback,
and each of them, as attorneys and proxies of the undersigned, with full power
of substitution, to vote all of the shares of stock of Il Fornaio (America)
Corporation that the undersigned may be entitled to vote at the Special Meeting
of Stockholders of Il Fornaio (America) Corporation to be held on ____________,
_____________, 2001, at 9:00 a.m., local time, at the executive offices of
Il Fornaio (America) Corporation located at 770 Tamalpais Drive, Suite 400,
Corte Madera, California 94925, and at any and all postponements, continuations
and adjournments thereof, with all powers that the undersigned would possess if
personally present, upon and in respect of the following matters and in
accordance with the following instructions, with discretionary authority as to
any and all other matters that may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
THE PROPOSAL AS MORE SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC
INSTRUCTIONS ARE INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE> 135
[X] Please mark votes as in this example.
MANAGEMENT RECOMMENDS A VOTE FOR THE PROPOSAL
To approve and adopt the Agreement and Plan of Merger, dated as of November 15,
2000, as amended as of January 9, 2001, between Il Fornaio (America) Corporation
and Manhattan Acquisition Corp., and the merger contemplated thereby, pursuant
to which Manhattan Acquisition Corp. will be merged with and into Il Fornaio,
with Il Fornaio as the surviving corporation.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY WILL BE CONSIDERED A VOTE FOR THE APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND THE MERGER, UNLESS THE CONTRARY IS INDICATED IN THE APPROPRIATE
PLACE.
Please sign exactly as your name appears hereon. If the stock is registered in
the names of two or more persons, each should sign. Executors, administrators,
trustees, guardians and attorneys-in-fact should add their titles. If signer is
a corporation, please give full corporate name and have a duly authorized
officer sign, stating title. If signer is a partnership, please sign in
partnership name by authorized person.
PLEASE VOTE, DATE, SIGN AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE, WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
Signature:___________________________________ Date:________________________
Signature:___________________________________ Date:________________________
