<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 12, 1996.
FILE NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
BUFFETS, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MINNESOTA 5812 41-1462294
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Identification Number) Classification
organization) Code Number)
</TABLE>
10260 VIKING DRIVE
EDEN PRAIRIE, MINNESOTA 55344
(612) 942-9760
(address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
ROE H. HATLEN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
BUFFETS, INC.
10260 VIKING DRIVE
EDEN PRAIRIE, MINNESOTA 55344
(612) 942-9760
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
DOUGLAS P. LONG JOHN J. HALLE
Faegre & Benson LLP Stoel Rives LLP
2200 Norwest Center 900 S.W. Fifth Avenue
90 South Seventh Street Suite 2300
Minneapolis, Minnesota 55402-3901 Portland, Oregon 97204-1268
(612) 336-3288 (503) 224-3380
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: UPON THE
EFFECTIVE TIME OF THE MERGER (THE "MERGER") OF A SUBSIDIARY OF THE REGISTRANT
WITH AND INTO HOMETOWN BUFFET, INC., A DELAWARE CORPORATION ("HOMETOWN"),
PURSUANT TO THE AGREEMENT AND PLAN OF MERGER DESCRIBED IN THE ENCLOSED JOINT
PROXY STATEMENT/PROSPECTUS.
--------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF BE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED (2) SHARE PRICE (3) FEE (3)
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share,
including rights to purchase Preferred
Shares (1)................................. 13,864,500 N/A $172,565,625 $27,563(4)
</TABLE>
(1) Rights to Purchase Preferred Shares are initially attached to and trade with
the Common Stock. Value attributable to such rights, if any, is reflected in
the market price for the Common Stock.
(2) Based upon an estimate of the maximum number of shares of Common Stock of
the Registrant, par value $.01 per share, issuable in the Merger to holders
of shares of common stock of HomeTown.
(3) In accordance with Rule 457(f)(1), the registration fee has been calculated
based upon the market value of the estimated maximum number of shares of
HomeTown common stock to be exchanged pursuant to the Merger (11,850,000
shares), at a price of $14.5625 per share, the average of the high and low
sale prices of HomeTown common stock reported on the Nasdaq National Market
on August 5, 1996.
(4) $31,943 previously paid in connection with filing of preliminary proxy
materials on July 2, 1996.
--------------------------
THE REGISTRATION HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
BUFFETS, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K, SHOWING THE LOCATION IN THE
JOINT PROXY STATEMENT/PROSPECTUS OF THE INFORMATION REQUIRED BY PART I OF FORM
S-4
<TABLE>
<CAPTION>
FORM S-4 LOCATION IN
ITEM NUMBER AND CAPTION JOINT PROXY STATEMENT/PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus...................... Forepart of Registration Statement; Outside Front
Cover Page of Joint Proxy Statement/ Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front Cover Page of Joint Proxy
Statement/Prospectus; Available Information;
Incorporation of Certain Documents by Reference;
Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information................................... Summary; Market Price Information; Risk Factors
4. Terms of the Transaction............................. Outside Front Cover Page of Joint Proxy
Statement/Prospectus; Summary; Background of the
Merger; Recommendations of the Boards of Directors
and Reasons for the Merger; Opinions of Piper
Jaffray Inc.; Opinions of Montgomery Securities; The
Merger; Description of Buffets Capital Stock;
Comparative Rights under Minnesota and Delaware Law
5. Pro Forma Financial Information...................... Summary; Unaudited Pro Forma Condensed Combining
Financial Statements
6. Material Contacts with the Company Being Acquired.... Background of the Merger; The Merger
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters....... Not Applicable
8. Interests of Named Experts and Counsel............... Summary; Opinions of Piper Jaffray Inc.; Opinions of
Montgomery Securities; Legal Matters; Experts
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information With Respect to S-3 Registrants.......... Available Information; Incorporation of Certain
Documents by Reference; Summary; Recent Results;
Business of Buffets; Management of Buffets
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM S-4 LOCATION IN
ITEM NUMBER AND CAPTION JOINT PROXY STATEMENT/PROSPECTUS
- ---------------------------------------------------------------- -----------------------------------------------------
<C> <S> <C>
11. Incorporation of Certain Information by Reference.... Available Information; Incorporation of Certain
Documents by Reference
12. Information With Respect to S-2 or S-3 Registrants... Not Applicable
13. Incorporation of Certain Information by Reference.... Not Applicable
14. Information With Respect to Registrants Other Than
S-2 or S-3 Registrants.............................. Not Applicable
C. INFORMATION ABOUT HOMETOWN
15. Information With Respect to S-3 Companies............ Available Information; Incorporation of Certain
Documents by Reference; Summary; Recent Results;
Business of HomeTown
16. Information With Respect to S-2 or S-3 Companies..... Not Applicable
17. Information With Respect to Companies Other than S-2
or S-3 Companies.................................... Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations
are to be Solicited................................. Outside Front Cover Page of Joint Proxy
Statement/Prospectus; Available Information;
Incorporation of Certain Documents by Reference;
Summary; General Information; The Merger; Management
of Buffets
19. Information if Proxies, Consents or Authorizations
are not to be Solicited or in an Exchange Offer..... Not Applicable
</TABLE>
<PAGE>
BUFFETS, INC.
10260 VIKING DRIVE
EDEN PRAIRIE, MINNESOTA 55344
August 16, 1996
Dear Buffets Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders to be
held at 9:00 a.m., local time, on September 19, 1996, at the Old Country Buffet
restaurant, 4808 Highway 101, Minnetonka, Minnesota 55345.
At the Special Meeting, you will be asked to consider and vote upon a
proposal (the "Merger Proposal"), which includes the issuance of shares of
Buffets, Inc. ("Buffets") Common Stock to the stockholders of HomeTown Buffet,
Inc. ("HomeTown") in accordance with the terms of an Agreement and Plan of
Merger, dated June 3, 1996 (the "Merger Agreement") by and among Buffets,
HomeTown and Country Delaware, Inc., a newly-formed, wholly-owned subsidiary of
Buffets ("Sub"). Under the terms of the Merger Agreement, Sub will merge into
HomeTown, HomeTown will become a wholly-owned subsidiary of Buffets, and each
outstanding share of HomeTown Common Stock will be converted into and exchanged
for 1.17 shares of Buffets Common Stock.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER PROPOSAL AND
RECOMMENDS THAT YOU VOTE FOR ITS APPROVAL.
A summary of the basic terms and conditions of the proposed merger, a
description of the businesses of Buffets and HomeTown, certain financial and
other information relating to Buffets and HomeTown and the merger, and a copy of
the Merger Agreement are set forth in the accompanying Joint Proxy
Statement/Prospectus. In view of the importance of the proposed merger, please
read carefully the enclosed materials.
The affirmative vote of the holders of a majority of the outstanding shares
of Buffets Common Stock present in person or by proxy at the Special Meeting is
required for approval of the Merger Proposal. The vote of each shareholder is
important. Accordingly, we urge you to complete, sign, date and return the
enclosed proxy immediately whether or not you plan to attend the meeting. You
may, of course, attend the meeting and vote in person even if you have returned
a proxy.
Very truly yours,
ROE H. HATLEN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
<PAGE>
BUFFETS, INC.
10260 VIKING DRIVE
EDEN PRAIRIE, MINNESOTA 55344
August 16, 1996
------------------------
NOTICE OF SPECIAL MEETING
TO BE HELD ON SEPTEMBER 19, 1996
------------------------
A Special Meeting of Shareholders of Buffets, Inc. ("Buffets") will be held
on September 19, 1996, at 9:00 a.m., local time, at Buffets' Old Country Buffet
restaurant, 4808 Highway 101, Minnetonka, Minnesota 55345, for the following
purposes:
1. To consider and vote upon a proposal to approve the issuance of shares
of Buffets Common Stock in accordance with the terms of an Agreement and
Plan of Merger, dated June 3, 1996 (the "Merger Agreement"), by and among
Buffets, Country Delaware, Inc., a Delaware corporation and wholly-owned
subsidiary of Buffets ("Sub"), and HomeTown Buffet, Inc., a Delaware
corporation ("HomeTown"), pursuant to which, among other things, Sub will
be merged with and into HomeTown (the "Merger") and, as a result,
HomeTown will become a wholly-owned subsidiary of Buffets, and the
outstanding shares of the Common Stock, $.01 par value per share, of
HomeTown will be converted into 1.17 shares of Common Stock, $.01 par
value per share, of Buffets, all as more fully set forth in the
accompanying Joint Proxy Statement/Prospectus and in the Merger
Agreement, a copy of which is attached thereto as Exhibit A; and
2. To transact such other business as may properly come before the Special
Meeting or any adjournment thereof.
Holders of record of Buffets Common Stock at the close of business on August
16, 1996 are the only shareholders entitled to vote at the Special Meeting and
any adjournment thereof.
All shareholders are cordially invited to attend the Special Meeting. Even
if you plan to be present, the Board of Directors requests that you promptly
complete, sign, date and mail the enclosed proxy. If you attend the meeting, you
may, if you wish, withdraw your proxy and vote in person.
H. THOMAS MITCHELL
SECRETARY
YOUR VOTE IS IMPORTANT
YOU ARE URGED TO SIGN, DATE AND PROMPTLY RETURN YOUR PROXY IN THE ENCLOSED
ENVELOPE WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE SPECIAL MEETING.
<PAGE>
HOMETOWN BUFFET, INC.
9171 TOWNE CENTRE DRIVE, SUITE 575
SAN DIEGO, CALIFORNIA 92122
Dear HomeTown Buffet Stockholder:
You are cordially invited to attend a special meeting of the stockholders of
HomeTown Buffet, Inc. ("HomeTown") to be held at 9:30 a.m. local time, on
September 19, 1996, at the offices of Stoel Rives LLP, 900 S.W. Fifth Avenue,
26th Floor, Portland, Oregon 97204 (the "HomeTown Special Meeting").
At the HomeTown Special Meeting, you will be asked to consider and vote on a
proposal to approve an Agreement and Plan of Merger (the "Merger Agreement"),
dated June 3, 1996, among HomeTown, Buffets, Inc. ("Buffets") and Country
Delaware, Inc., a wholly-owned subsidiary of Buffets ("Sub"), pursuant to which
Sub will be merged with and into HomeTown, HomeTown will become a wholly-owned
subsidiary of Buffets, and the stockholders of HomeTown will become shareholders
of Buffets (the "Merger").
Your approval is required for the approval of the Merger Agreement and the
consequent Merger.
HOMETOWN'S BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF HOMETOWN AND ITS
STOCKHOLDERS. AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT AND THE MERGER.
Details of the proposed transaction and other important information
concerning HomeTown and Buffets are more fully described in the accompanying
Joint Proxy Statement/Prospectus. Please give this material your careful
attention.
Whether or not you plan to attend the HomeTown Special Meeting, please
complete, sign and date the accompanying proxy card and return it in the
enclosed prepaid envelope. You may revoke your proxy in the manner described in
the accompanying Joint Proxy Statement/Prospectus at any time before it has been
voted at the HomeTown Special Meeting. If you attend the HomeTown Special
Meeting, you may vote in person even if you have previously returned your proxy
card. Your prompt cooperation will be greatly appreciated.
Very truly yours,
C. Dennis Scott Kerry A. Kramp
CHAIRMAN AND CHIEF PRESIDENT AND CHIEF
EXECUTIVE OFFICER OPERATING OFFICER
August 16, 1996
San Diego, California
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE URGED TO SIGN AND
PROMPTLY MAIL THE ENCLOSED PROXY IN THE RETURN ENVELOPE SO THAT YOUR STOCK MAY
BE REPRESENTED AT THE MEETING.
<PAGE>
HOMETOWN BUFFET, INC.
9171 TOWNE CENTRE DRIVE, SUITE 575
SAN DIEGO, CALIFORNIA 92122
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 19, 1996
------------------------
TO: THE STOCKHOLDERS OF HOMETOWN BUFFET, INC.
A special meeting of the stockholders of HomeTown Buffet, Inc., a Delaware
corporation ("HomeTown"), will be held at 9:30 a.m. local time, on September 19,
1996, at the offices of Stoel Rives LLP, 900 S.W. Fifth Avenue, 26th Floor,
Portland, Oregon 97204 (the "HomeTown Special Meeting"), for the following
purposes:
1. To approve and adopt the Agreement and Plan of Merger (the "Merger
Agreement"), dated June 3, 1996, among HomeTown, Buffets, Inc.
("Buffets") and Country Delaware, Inc., a wholly-owned subsidiary of
Buffets ("Sub"), and the merger contemplated thereby pursuant to which
Sub will be merged with and into HomeTown, HomeTown will become a wholly-
owned subsidiary of Buffets, and the stockholders of HomeTown will become
shareholders of Buffets (the "Merger"). By virtue of the Merger, each
outstanding share of common stock of HomeTown ("HomeTown Common Stock")
will be converted into the right to receive 1.17 shares of common stock
of Buffets. A copy of the Merger Agreement is attached as Exhibit A to
the Joint Proxy Statement/Prospectus accompanying this Notice.
2. To transact such other business as may properly come before the HomeTown
Special Meeting or any postponements or adjournments thereof.
The Board of Directors has fixed the close of business on August 16, 1996 as
the record date for the determination of the holders of HomeTown Common Stock
entitled to notice of, and to vote at, the HomeTown Special Meeting.
Accordingly, only stockholders of record at the close of business on such date
are entitled to notice of and to vote at the HomeTown Special Meeting and any
adjournment or postponement thereof. The affirmative vote of the holders of a
majority of the outstanding shares of HomeTown Common Stock is necessary for
approval and adoption of the Merger Agreement and the Merger.
Details of the proposed transactions and other important information
concerning HomeTown and Buffets are more fully described in the accompanying
Joint Proxy Statement/Prospectus. Please give this material your careful
attention.
You may revoke your proxy in the manner described in the accompanying Joint
Proxy Statement/ Prospectus at any time before it has been voted at the HomeTown
Special Meeting. Any stockholder attending the HomeTown Special Meeting may vote
in person even if he or she has returned a proxy.
By Order of the Board of Directors
Neal L. Wichard,
VICE CHAIRMAN AND SECRETARY
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO SIGN, DATE
AND MAIL PROMPTLY THE ENCLOSED PROXY WHICH IS BEING SOLICITED ON BEHALF OF THE
HOMETOWN BOARD OF DIRECTORS. A RETURN ENVELOPE WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES IS ENCLOSED FOR THAT PURPOSE.
<PAGE>
JOINT PROXY STATEMENT/PROSPECTUS
------------------------
PROXY STATEMENT OF BUFFETS, INC. AND
HOMETOWN BUFFET, INC.
SPECIAL MEETINGS OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 19, 1996
------------------------
PROSPECTUS OF BUFFETS, INC.
SHARES OF COMMON STOCK
------------------------
This Joint Proxy Statement/Prospectus is being furnished to holders of
Common Stock, $.01 par value per share (the "Buffets Common Stock"), of Buffets,
Inc., a Minnesota corporation ("Buffets"), in connection with the solicitation
of proxies by the Board of Directors of Buffets (the "Buffets Board") for use at
the Special Meeting of Buffets Shareholders to be held at Buffets' Old Country
Buffet restaurant, 4808 Highway 101, Minnetonka, Minnesota 55345, on September
19, 1996, beginning at 9:00 a.m., local time, and at any and all adjournments or
postponements thereof (the "Buffets Special Meeting").
This Joint Proxy Statement/Prospectus is also being furnished to holders of
Common Stock, $.01 par value per share (the "HomeTown Common Stock"), of
HomeTown Buffet, Inc., a Delaware corporation ("HomeTown"), in connection with
the solicitation of proxies by the Board of Directors of HomeTown (the "HomeTown
Board") for use at the Special Meeting of Stockholders of HomeTown to be held at
the offices of Stoel Rives LLP, 900 S.W. Fifth Avenue, 26th Floor, Portland,
Oregon 97204, on September 19, 1996, beginning at 9:30 a.m., local time, and at
any and all adjournments or postponements thereof (the "HomeTown Special
Meeting").
This Joint Proxy Statement/Prospectus relates, among other things, to the
proposed merger (the "Merger") of Country Delaware, Inc., a newly-formed,
wholly-owned subsidiary of Buffets ("Sub"), with and into HomeTown pursuant to
an Agreement and Plan of Merger, dated June 3, 1996 (the "Merger Agreement"), by
and among Buffets, HomeTown and Sub. Upon consummation of the Merger, the
separate corporate existence of Sub will cease and HomeTown will be a
wholly-owned subsidiary of Buffets. In the Merger, each outstanding share of
HomeTown Common Stock will be converted into the right to receive 1.17 shares of
Buffets Common Stock.
This Joint Proxy Statement/Prospectus also constitutes the Prospectus of
Buffets with respect to shares of Buffets Common Stock to be issued in
connection with the Merger (the "Merger Shares"). Buffets Common Stock is quoted
on the Nasdaq National Market under the symbol BOCB. On August 15, 1996, the
last reported sale price for Buffets Common Stock was $ per share.
All information contained in this Joint Proxy Statement/Prospectus with
respect to Buffets and Sub has been provided by Buffets, and all information
with respect to HomeTown has been provided by HomeTown.
FOR CERTAIN FACTORS WHICH SHOULD BE CONSIDERED IN EVALUATING THE MERGER, SEE
"RISK FACTORS" BEGINNING ON PAGE 18.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to shareholders of Buffets and stockholders of HomeTown
on or about August 19, 1996. A shareholder who has given a proxy may revoke it
at any time prior to its exercise. See "The Buffets Special Meeting" and "The
HomeTown Special Meeting".
------------------------
THE SECURITIES TO BE ISSUED PURSUANT TO THE MERGER HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Joint Proxy Statement/Prospectus is August 16, 1996
<PAGE>
AVAILABLE INFORMATION
Buffets and HomeTown are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facility of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the SEC's Regional Offices located at Seven
World Trade Center, Suite 1300, New York, New York 10048, and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be
obtained by mail from the public reference section of the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. Buffets Common Stock and HomeTown Common Stock are listed on the Nasdaq
National Market and such reports, proxy statements and other information
concerning Buffets and HomeTown may be inspected and copied at the offices of
the National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
This Joint Proxy Statement/Prospectus constitutes a part of a Registration
Statement on Form S-4 (herein, together with all amendments and exhibits,
referred to as the "Registration Statement") filed by Buffets with the SEC under
the Securities Act of 1933, as amended (the "Securities Act"). This Joint Proxy
Statement/Prospectus omits certain of the information contained in the
Registration Statement, and reference is hereby made to the Registration
Statement for further information with respect to Buffets and the Buffets
securities offered hereby. Any statements contained herein concerning the
provisions of any document are not necessarily complete, and, in each instance,
reference is made to the copy of the document filed as an exhibit to the
Registration Statement or otherwise filed with the SEC. Each such statement is
qualified in its entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. BUFFETS WILL PROVIDE
WITHOUT CHARGE TO EACH PERSON TO WHOM A COPY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS IS DELIVERED, UPON THE WRITTEN OR ORAL REQUEST OF ANY SUCH
PERSON, A COPY OF ANY OR ALL OF SUCH DOCUMENTS RELATING TO BUFFETS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
THEREIN BY REFERENCE), AND SUCH REQUESTS SHOULD BE DIRECTED TO BUFFETS, INC.,
10260 VIKING DRIVE, EDEN PRAIRIE, MINNESOTA 55344, ATTN: SECRETARY, TELEPHONE:
(612) 942-9760. HOMETOWN WILL PROVIDE WITHOUT CHARGE TO EACH PERSON TO WHOM A
COPY OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, UPON THE WRITTEN OR
ORAL REQUEST OF ANY SUCH PERSON, A COPY OF ANY OR ALL OF SUCH DOCUMENTS RELATING
TO HOMETOWN (OTHER THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED THEREIN BY REFERENCE), AND SUCH REQUESTS SHOULD BE
DIRECTED TO HOMETOWN BUFFET, INC., 9171 TOWNE CENTRE DRIVE, SUITE 575, SAN
DIEGO, CALIFORNIA 92122, ATTN: SECRETARY, TELEPHONE: (619) 546-9096. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE BUFFETS SPECIAL MEETING AND
THE HOMETOWN SPECIAL MEETING, ANY REQUEST SHOULD BE MADE BY SEPTEMBER 11, 1996.
The following documents filed with the SEC by Buffets (File No. 0-14370)
pursuant to the Exchange Act are incorporated herein by reference:
(i) Buffets' Annual Report on Form 10-K for the fiscal year ended
January 3, 1996 (which incorporates by reference certain portions of
Buffets' 1995 Annual Report to Shareholders, including financial statements
and accompanying information, and certain portions of Buffets' definitive
proxy statement for Buffets' 1996 Annual Meeting of Shareholders) (the
"Buffets 10-K"), Quarterly Report on Form 10-Q for the quarter ended April
24, 1996 (the "Buffets 10-Q") and Current Reports on Form 8-K dated June 3,
1996 and August 8, 1996; and
2
<PAGE>
(ii) The description of Buffets Common Stock contained in the Buffets
Registration Statement on Form 8-A dated March 27, 1986 and Amendment No. 1
thereto dated May 11, 1992, and Buffets Registration Statement on Form 8-A
dated October 30, 1995 which contains a description of the Related Rights to
Purchase Preferred Shares.
The following documents filed with the SEC by HomeTown (File No. 0-22402)
pursuant to the Exchange Act are incorporated herein by reference:
(i) HomeTown's Annual Report on Form 10-K for the fiscal year ended
January 3, 1996 (which incorporates by reference certain portions of
HomeTown's definitive proxy statement for HomeTown's 1996 Annual Meeting of
Stockholders) (the "HomeTown 10-K"), Quarterly Report on Form 10-Q for the
quarter ended April 24, 1996, Amendment No. 1 thereto on Form 10-Q/A filed
on June 19, 1996 and Amendment No. 2 thereto on Form 10-Q/A filed on July 3,
1996 (the "HomeTown 10-Q") and Current Report on Form 8-K dated August 8,
1996; and
(ii) The description of HomeTown Common Stock contained in the HomeTown
Registration Statement on Form 8-A dated September 14, 1993.
All documents filed by Buffets or HomeTown pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Joint Proxy
Statement/Prospectus and prior to the Buffets Special Meeting or the HomeTown
Special Meeting shall be deemed to be incorporated by reference into this Joint
Proxy Statement/Prospectus and to be made a part hereof from the date of the
filing of such documents. Any statement contained in a document incorporated
herein by reference shall be deemed to be modified or superseded for the
purposes hereof to the extent that a statement contained herein (or in any
subsequently filed document which also is incorporated herein by reference)
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed to constitute a part hereof except as so modified
or superseded.
------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY BUFFETS OR HOMETOWN OR ANY
OTHER PERSON. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS JOINT PROXY
STATEMENT/PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF BUFFETS
OR HOMETOWN SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED OR
INCORPORATED HEREIN BY REFERENCE IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION..................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 2
SUMMARY................................................................... 7
General................................................................. 7
The Parties to the Merger............................................... 7
The Special Meetings.................................................... 7
Required Vote........................................................... 9
Recommendations of the Boards of Directors.............................. 9
Fairness Opinions With Respect to the Merger............................ 9
The Merger.............................................................. 9
Risk Factors............................................................ 11
No Dissenters' Rights in the Merger..................................... 11
Certain Federal Income Tax Consequences................................. 12
Comparative Rights of HomeTown Stockholders Before and After the
Merger................................................................. 12
Market Price and Dividend Data.......................................... 12
Selected Historical Consolidated Financial Data......................... 12
Buffets Selected Historical Financial Data.............................. 14
Hometown Selected Historical Financial Data............................. 15
Selected Pro Forma Condensed Combined Consolidated Financial Data....... 16
Comparative Historical and Pro Forma Per Share Data..................... 17
RISK FACTORS.............................................................. 18
RECENT DEVELOPMENTS....................................................... 19
GENERAL INFORMATION....................................................... 20
The Buffets Special Meeting............................................. 20
The HomeTown Special Meeting............................................ 21
BACKGROUND OF THE MERGER.................................................. 22
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS AND REASONS FOR THE MERGER..... 24
General................................................................. 24
Buffets................................................................. 24
HomeTown................................................................ 25
OPINIONS OF PIPER JAFFRAY INC............................................. 26
OPINIONS OF MONTGOMERY SECURITIES......................................... 30
Valuation of HomeTown................................................... 31
Valuation of Buffets.................................................... 33
THE MERGER................................................................ 35
General................................................................. 35
Effective Time and Effect of the Merger................................. 35
Exchange of Shares...................................................... 35
Conditions to Consummation of the Merger................................ 36
Representations, Warranties and Covenants............................... 38
Indemnification......................................................... 39
Employee Benefit Plans and Stock Options................................ 39
Termination of the Merger Agreement..................................... 39
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Fees and Expenses; Termination Fees..................................... 40
Amendment of the Merger Agreement; Waiver of Conditions................. 40
Interests of Certain Persons in the Merger.............................. 40
Federal Income Tax Consequences......................................... 41
Accounting Treatment of the Merger...................................... 42
Business and Management After the Merger................................ 43
Debt Assumption......................................................... 43
Resale of Shares by HomeTown Affiliates................................. 44
NO DISSENTERS' RIGHTS..................................................... 44
Buffets Shareholders.................................................... 44
HomeTown Stockholders................................................... 44
UNAUDITED PRO FORMA CONDENSED COMBINING CONSOLIDATED FINANCIAL
STATEMENTS............................................................... 45
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS..... 52
BUSINESS OF BUFFETS....................................................... 52
General................................................................. 52
Scatter System Format................................................... 53
Small Batch Preparation................................................. 53
All-Inclusive Price..................................................... 53
Restaurant Operations and Controls...................................... 53
Franchising and Joint Ventures.......................................... 54
Competition............................................................. 55
Advertising and Promotion............................................... 55
Regulation.............................................................. 55
Trademarks.............................................................. 55
Employees............................................................... 56
Restaurant Development.................................................. 56
Legal Proceedings....................................................... 57
BUSINESS OF HOMETOWN...................................................... 57
General................................................................. 57
Operating Strategy...................................................... 58
Unit Economics.......................................................... 58
Expansion............................................................... 59
Concept and Menu........................................................ 59
Restaurant Layout and Design............................................ 60
Site Selection and Construction......................................... 61
Restaurant Operations and Management.................................... 61
Joint Venture Corporations.............................................. 62
Franchise Operations.................................................... 63
Marketing and Promotion................................................. 64
Restaurant Industry and Competition..................................... 64
Government Regulation................................................... 65
Trademarks.............................................................. 65
Employees............................................................... 66
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
Legal Proceedings....................................................... 66
MANAGEMENT OF BUFFETS..................................................... 67
General................................................................. 67
New Directors and Officers.............................................. 67
DESCRIPTION OF BUFFETS CAPITAL STOCK...................................... 68
General................................................................. 68
Common Stock............................................................ 68
Preferred Stock......................................................... 68
Share Rights Plan....................................................... 69
Anti-Takeover Provisions in Articles of Incorporation................... 70
Transfer Agent.......................................................... 70
MARKET PRICE INFORMATION.................................................. 71
COMPARATIVE RIGHTS OF BUFFETS SHAREHOLDERS AND HOMETOWN STOCKHOLDERS...... 71
Call of Shareholders' Meeting........................................... 72
Shareholder Action Without a Meeting.................................... 72
Amendments to Articles of Incorporation and Bylaws...................... 72
Dissenters' Rights...................................................... 72
Dividends; Stock Repurchases............................................ 73
Corporate Takeover Legislation.......................................... 73
Interested Shareholder Transactions..................................... 74
Authorized Stock; Authority of Board of Directors to Issue Preferred
Stock.................................................................. 75
Share Rights Plan....................................................... 75
Limitation of Personal Liability of Directors........................... 75
Indemnification of Directors, Officers and Employees.................... 76
Removal of Directors.................................................... 76
LEGAL MATTERS............................................................. 76
EXPERTS................................................................... 76
SHAREHOLDER PROPOSALS..................................................... 76
Buffets Proposals....................................................... 76
HomeTown Proposals...................................................... 77
INDEPENDENT ACCOUNTANTS................................................... 77
EXHIBIT A -- AGREEMENT AND PLAN OF MERGER................................. A-1
EXHIBIT B -- OPINION OF PIPER JAFFRAY..................................... B-1
EXHIBIT C -- OPINION OF MONTGOMERY SECURITIES............................. C-1
</TABLE>
6
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS JOINT PROXY STATEMENT/PROSPECTUS. CERTAIN CAPITALIZED TERMS USED IN THIS
SUMMARY ARE DEFINED ELSEWHERE IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
REFERENCE IS MADE TO, AND THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, THE MORE
DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, THE EXHIBITS HERETO AND THE DOCUMENTS INCORPORATED HEREIN
BY REFERENCE. A COPY OF THE MERGER AGREEMENT IS ATTACHED AS EXHIBIT A TO THIS
JOINT PROXY STATEMENT/PROSPECTUS AND REFERENCE IS MADE THERETO FOR A COMPLETE
DESCRIPTION OF THE TERMS OF THE MERGER. ALL INFORMATION CONCERNING BUFFETS
INCLUDED OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS
HAS BEEN FURNISHED BY BUFFETS AND ALL INFORMATION CONCERNING HOMETOWN INCLUDED
OR INCORPORATED HEREIN BY REFERENCE HAS BEEN FURNISHED BY HOMETOWN. EACH
SHAREHOLDER SHOULD READ CAREFULLY THIS JOINT PROXY STATEMENT/PROSPECTUS AND THE
EXHIBITS HERETO IN THEIR ENTIRETY.
THIS JOINT PROXY STATEMENT/PROSPECTUS CONTAINS A NUMBER OF FORWARD-LOOKING
STATEMENTS WHICH REFLECT THE CURRENT VIEWS OF BUFFETS AND/OR HOMETOWN WITH
RESPECT TO FUTURE EVENTS THAT WILL HAVE AN EFFECT ON THEIR FUTURE PERFORMANCE,
INCLUDING SUCH STATEMENTS REGARDING FUTURE RESTAURANT DEVELOPMENT. THESE
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES,
INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE HEREIN OR IN THE
DOCUMENTS INCORPORATED HEREIN BY REFERENCE, THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM HISTORICAL RESULTS OR THOSE CURRENTLY ANTICIPATED.
SHAREHOLDERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING
STATEMENTS.
GENERAL
This Joint Proxy Statement/Prospectus relates to the proposed Merger of Sub
with and into HomeTown pursuant to the Merger Agreement, whereby HomeTown will
become a wholly-owned subsidiary of Buffets. See "The Merger".
THE PARTIES TO THE MERGER
BUFFETS. Buffets is engaged in the development and operation of a chain of
high quality buffet restaurants operating principally under the name Old Country
Buffet-Registered Trademark-. As of July 31, 1996, Buffets operated 256
restaurants in 31 states and there were six franchisee-operated restaurants. The
principal executive offices of Buffets are located at 10260 Viking Drive, Eden
Prairie, Minnesota 55344 and its telephone number is (612) 942-9760. See
"Business of Buffets".
HOMETOWN. HomeTown operates and franchises high quality scatter bar buffet
restaurants under the name "HomeTown Buffet". As of July 31, 1996, HomeTown
operated 78 company-owned restaurants in 12 states and there were 19
franchisee-operated restaurants in eight states. HomeTown also owns and operates
two Roadhouse Grill steakhouse restaurants. The principal executive offices of
HomeTown are located at 9171 Towne Centre Drive, Suite 575, San Diego,
California 92122 and its telephone number is (619) 546-9096. See "Business of
HomeTown".
SUB. Sub was formed in June, 1996 as a wholly-owned subsidiary of Buffets
to serve as a vehicle to effect the Merger. Sub's address and telephone number
are the same as Buffets'.
THE SPECIAL MEETINGS
TIME, DATE AND PLACE. The Buffets Special Meeting will be held on September
19, 1996, at Buffets' Old Country Buffet restaurant, 4808 Highway 101,
Minnetonka, Minnesota 55345, at 9:00 a.m., local time.
The HomeTown Special Meeting will be held on September 19, 1996, at the
offices of Stoel Rives LLP, 900 S.W. Fifth Avenue, 26th Floor, Portland, Oregon
97204, at 9:30 a.m., local time.
RECORD DATE, QUORUM AND SHARES ENTITLED TO VOTE. Only holders of record of
shares of Buffets Common Stock at the close of business on August 16, 1996 are
entitled to vote at the Buffets Special
7
<PAGE>
Meeting and any and all adjournments thereof. As of August 16, 1996, there were
outstanding [31,337,434] shares of Buffets Common Stock which are entitled to
vote at the Buffets Special Meeting. Each share of Buffets Common Stock is
entitled to one vote at the Buffets Special Meeting.
Only holders of record of shares of HomeTown Common Stock at the close of
business on August 16, 1996 are entitled to vote at the HomeTown Special
Meeting. At the close of business on August 16, 1996, there were outstanding
[11,659,389] shares of HomeTown Common Stock which are entitled to vote at the
HomeTown Special Meeting. Each share of HomeTown Common Stock is entitled to one
vote at the HomeTown Special Meeting.
The presence either in person or by properly executed proxy of the holders
of a majority of the outstanding shares of Buffets Common Stock and of the
outstanding shares of HomeTown Common Stock entitled to vote, respectively, at
the Buffets Special Meeting and the HomeTown Special Meeting is necessary to
constitute a quorum at each such special meeting.
If a quorum is not present at either special meeting, the shareholders
present, by vote of a majority of the votes cast by shareholders entitled to
vote thereon, may adjourn the meeting, and at any such adjourned meeting at
which a quorum is present any business may be transacted which might have been
transacted at the meeting as originally held and proxies will be voted thereat
as directed.
PROXIES AND REVOCATION OF PROXIES. The enclosed Buffets proxy card permits
each shareholder to specify that shares be voted "FOR" or "AGAINST" (or
"ABSTAIN" from) approval of the Merger Proposal. The enclosed HomeTown proxy
card permits each stockholder to specify that shares be voted "FOR" or "AGAINST"
(or "ABSTAIN" from) approval and adoption of the Merger Agreement and the
Merger. If properly executed and returned, such proxies will be voted in
accordance with the choice specified. Where a signed proxy card is returned, but
no choice is specified, the shares will be voted FOR approval of the Merger
Proposal or approval and adoption of the Merger Agreement and the Merger, as
appropriate.
A proxy relating to the Buffets Special Meeting or HomeTown Special Meeting
may be revoked by the shareholder at any time before it is exercised; however,
mere attendance at a special meeting will not itself have the effect of revoking
the proxy. Buffets shareholders may revoke a proxy before being voted by filing
written notice of revocation or filing a subsequently dated proxy with Buffets.
A HomeTown stockholder may revoke a proxy by filing with the Secretary of
HomeTown an instrument of revocation or duly executed proxy bearing a later
date. A HomeTown stockholder may also revoke a proxy by affirmatively electing
to vote in person while attending the HomeTown Special Meeting.
PURPOSE OF SPECIAL MEETINGS. At the Buffets Special Meeting, shareholders
of Buffets will be asked to consider and vote on a proposal to approve the
Merger Proposal and such other matters as may be properly brought before such
special meeting. At the HomeTown Special Meeting, stockholders of HomeTown will
be asked to consider and vote on a proposal to approve and adopt the Merger
Agreement and the Merger and such other matters as may be properly brought
before such special meeting.
CERTAIN VOTING INFORMATION. As of August 16, 1996, Buffets directors and
executive officers, as a group, beneficially owned 2,820,597 shares (or
approximately 9.0%) of the outstanding Buffets Common Stock entitled to vote at
the Buffets Special Meeting. All directors and executive officers of Buffets
have indicated that they will vote all outstanding shares of Buffets Common
Stock beneficially owned by them for approval of the Merger Proposal.
As of August 16, 1996, HomeTown directors and executive officers, as a
group, beneficially owned 2,397,052 shares (or approximately 20.6%) of the
outstanding HomeTown Common Stock entitled to vote at the HomeTown Special
Meeting. All directors and executive officers of HomeTown have indicated that
they will vote all outstanding shares of HomeTown Common Stock beneficially
owned by them for approval and adoption of the Merger Agreement and the Merger.
8
<PAGE>
OTHER MATTERS. Representatives of the independent auditors of Buffets and
HomeTown are expected to be present at the Buffets and HomeTown Special
Meetings, respectively. See "Independent Accountants".
REQUIRED VOTE
BUFFETS. The affirmative vote of the holders of a majority of the
outstanding shares of Buffets Common Stock present in person or by proxy at the
Buffets Special Meeting is required to approve the Merger Proposal. Each share
of Buffets Common Stock is entitled to one vote at the Buffets Special Meeting.
See "General Information -- The Buffets Special Meeting".
HOMETOWN. The affirmative vote of the holders of a majority of the
outstanding shares of HomeTown Common Stock is required to approve the Merger
Agreement and the Merger. Each share of HomeTown Common Stock is entitled to one
vote at the HomeTown Special Meeting. See "General Information -- The HomeTown
Special Meeting".
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
The Buffets Board has approved the Merger Agreement and the issuance of the
Buffets Common Stock pursuant thereto and unanimously recommends that the
Buffets shareholders vote "FOR" the Merger Proposal. The HomeTown Board has
approved the Merger and the Merger Agreement and unanimously recommends that the
HomeTown stockholders vote "FOR" the Merger and Merger Agreement. See
"Background of the Merger" and "Recommendations of the Boards of Directors and
Reasons for the Merger". In considering the recommendation of the Board of
Directors of HomeTown with respect to the Merger, HomeTown stockholders should
be aware that certain directors and officers of HomeTown have interests in the
Merger different from the interests of other HomeTown stockholders. See "The
Merger -- Interests of Certain Persons in the Merger".
FAIRNESS OPINIONS WITH RESPECT TO THE MERGER
BUFFETS. The Board of Directors of Buffets has received opinions of Piper
Jaffray Inc. ("Piper Jaffray"), Buffets' financial advisor in connection with
the Merger, that, as of the date of the Merger Agreement and as of the date of
this Joint Proxy Statement/Prospectus, the Conversion Number is fair to the
shareholders of Buffets from a financial point of view. A copy of such opinion
dated as of the date of this Joint Proxy Statement/Prospectus is attached as
Exhibit B to this Joint Proxy Statement/ Prospectus and should be read in its
entirety for information with respect to the assumptions made, and matters
considered, by Piper Jaffray in rendering such opinion. For a discussion of
certain relationships of Piper Jaffray with Buffets, see "Opinions of Piper
Jaffray Inc."
HOMETOWN. The Board of Directors of HomeTown has received opinions of
Montgomery Securities, HomeTown's financial advisor in connection with the
Merger, that, as of the date of the Merger Agreement and as of the date of this
Joint Proxy Statement/Prospectus, the consideration to be received by holders of
shares of HomeTown Common Stock pursuant to the Merger is fair to such
stockholders from a financial point of view. A copy of such opinion dated as of
the date of this Joint Proxy Statement/Prospectus is attached as Exhibit C to
this Joint Proxy Statement/Prospectus. For a discussion of certain relationships
of Montgomery Securities with HomeTown and Buffets, see "Opinions of Montgomery
Securities".
THE MERGER
GENERAL. At the Effective Time, Sub will be merged with and into HomeTown,
and Buffets will thereby acquire all of the issued and outstanding shares of
HomeTown. Sub will cease to exist as a separate corporation and HomeTown will be
the surviving corporation in the Merger (the "Surviving Corporation"). The
Certificate of Incorporation (the "HomeTown Certificate of Incorporation") and
the Bylaws of HomeTown (the "HomeTown Bylaws") as in effect at the Effective
Time will be the Certificate of Incorporation and the Bylaws of the Surviving
Corporation, except that the HomeTown Certificate of Incorporation shall be
amended to decrease its authorized shares of Common Stock to 1,000 shares.
9
<PAGE>
CONVERSION OF SHARES. At the Effective Time of the Merger, each outstanding
share of HomeTown Common Stock will be converted into 1.17 shares of Buffets
Common Stock (the "Conversion Number"). The shareholders of Buffets will
continue to hold their shares of capital stock of Buffets without any change in
number, designation, terms or rights. For a summary of various differences
between the rights of HomeTown stockholders and the rights of holders of Buffets
Common Stock, see "Comparative Rights of Buffets Shareholders and HomeTown
Stockholders".
EFFECTIVE TIME OF THE MERGER. Subject to the terms and conditions of the
Merger Agreement, the Merger is expected to become effective as soon as
practicable after the Buffets and HomeTown Special Meetings. See "The Merger --
Effective Time and Effect of the Merger".
CONDITIONS TO THE MERGER. The obligations of Buffets and HomeTown to effect
the Merger are subject to certain conditions, including, among other things,
that certain regulatory approvals shall have been obtained and that the Merger
Proposal shall have been approved by the holders of Buffets Common Stock and
that the Merger and Merger Agreement shall have been approved by the holders of
HomeTown Common Stock. The parties' obligation to consummate the Merger also is
conditioned upon the delivery of a letter from Deloitte & Touche LLP, Buffets'
independent auditors, as to the appropriateness of pooling-of-interests
accounting for the Merger under Accounting Principles Board Opinion No. 16, and
a letter from KPMG Peat Marwick LLP, HomeTown's independent auditors, stating
that they are not aware of any conditions that would preclude HomeTown from
being pooled with Buffets. See "The Merger -- Conditions to Consummation of the
Merger" for a discussion of conditions to the Merger. Other than the required
shareholder approvals, substantially all of the conditions to the obligation of
Buffets or HomeTown to consummate the Merger may be waived or modified by the
party that is, or whose shareholders are, entitled to the benefits thereof.
STOCK OPTIONS. Pursuant to the Merger Agreement, each outstanding option to
acquire shares of HomeTown Common Stock will be converted into an option to
acquire Buffets Common Stock based on the Conversion Number, and the exercise
price of such option will be correspondingly adjusted. See "The Merger --
Employee Benefit Plans and Stock Options".
OBLIGATIONS UNDER HOMETOWN'S 7% CONVERTIBLE SUBORDINATED NOTES. At or prior
to the Effective Time, Buffets will guaranty and/or assume certain obligations
of HomeTown under the outstanding 7% Convertible Subordinated Notes due 2002 of
HomeTown in the aggregate principal amount of $41.5 million (the "Notes"),
including the obligation to deliver shares of Buffets Common Stock upon
conversion of the Notes at the rate of one share of Buffets Common Stock for
each approximately $11.66 principal amount of the Notes so converted. See "The
Merger -- Debt Assumption".
AMENDMENT, TERMINATION AND WAIVER. The Merger Agreement may be amended at
any time, provided that after the Merger Agreement has been approved and adopted
by the shareholders, it may be amended only as permitted by applicable law.
Under certain conditions, the Merger Agreement may be terminated prior to the
Effective Time, whether prior to or after approval by the Buffets or HomeTown
shareholders. The conditions under which the Merger Agreement may be terminated
include termination by mutual consent of Buffets and HomeTown, termination by
either party if the Merger has not been consummated on or before December 31,
1996, termination by either party upon the failure of either Buffets or HomeTown
to receive the requisite shareholder approval at the Buffets Special Meeting or
the HomeTown Special Meeting, or adjournments thereof, termination by either
party if there has been a material breach of any representation, warranty,
covenant or agreement on the part of the other party that has not been cured
within the prescribed cure period, or termination by either party if a final
unappealable order to prevent the Merger is entered. The Merger may also be
terminated by either Buffets or HomeTown if the recommendation of the Merger by
the Board of Directors of the other party is withdrawn or modified in a manner
adverse to such party or if the Board of Directors of the other party recommends
certain other transactions to its shareholders. See "The Merger -- Conditions to
Consummation of the Merger", "The Merger -- Amendment of the Merger Agreement;
Waiver of Conditions" and "The Merger -- Termination of the Merger Agreement".
10
<PAGE>
EXPENSES. If the Merger Agreement is terminated, the Merger Agreement
provides, in certain specified circumstances, for the payment by one party to
the other of $1.5 million. See "The Merger -- Fees and Expenses; Termination
Fees".
SOLICITATION OF THIRD-PARTY OFFERS. In the Merger Agreement, each of
Buffets and HomeTown has agreed not to solicit, initiate or intentionally
encourage proposals or offers, or take certain other actions, relating to any
merger, consolidation, share exchange, purchase or other acquisition of all or
(other than in the ordinary course of business) any substantial portion of the
assets or any substantial equity interest in such party or any subsidiary of
such party or any business combination with such party or any subsidiary of such
party but is permitted to supply information to third parties and cooperate or
assist or engage in discussions or negotiations with third parties relating to
such merger and acquisition transaction, or modify or withdraw its
recommendation of the Merger, if the appropriate Board of Directors determines
(after consultation with legal counsel) that such action is necessary in order
for such Board to act in accordance with its fiduciary obligations under
applicable law. See "The Merger -- Representations, Warranties and Covenants".
REGULATORY APPROVALS. Consummation of the Merger is subject to certain
regulating matters, including expiration or early termination of the relevant
waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as
amended (the "HSR Act"). A request for early termination of such waiting period
was granted effective June 28, 1996.
SURRENDER OF SHARE CERTIFICATES. After the Effective Time, each stockholder
of HomeTown will be entitled to receive, upon surrender of certificates
previously representing shares of HomeTown Common Stock, certificates
representing the number of full shares of Buffets Common Stock to which such
stockholder is entitled pursuant to the Merger Agreement. No fractional shares
of Buffets Common Stock will be issued, and holders of HomeTown Common Stock
will be entitled to receive an amount in cash equal to the value of any such
fraction of a share based upon the Average Price of Buffets Common Stock.
STOCKHOLDERS OF HOMETOWN SHOULD NOT SURRENDER THEIR STOCK CERTIFICATES UNTIL
THEY RECEIVE TRANSMITTAL MATERIALS, WHICH WILL BE MAILED FOLLOWING THE EFFECTIVE
TIME. See "The Merger -- Exchange of Shares".
ACCOUNTING TREATMENT. The Merger will be accounted for as a
pooling-of-interests for accounting and financial reporting purposes. See "The
Merger -- Accounting Treatment of the Merger".
MANAGEMENT AFTER THE MERGER. After the Effective Time, the Buffets Board
will increase from five to seven members, and C. Dennis Scott and Dr. Christian
F. Horn, who are directors and significant stockholders of HomeTown (and, in the
case of Mr. Scott, an officer), will become directors of Buffets. The HomeTown
Board will be composed of Mr. Scott and Roe H. Hatlen, Chairman and Chief
Executive Officer of Buffets. The executive officers of Buffets after the
Effective Time will be as follows: Mr. Hatlen, Chairman and Chief Executive
Officer; Mr. Scott, Vice Chairman and Chief Operating Officer; Kerry A. Kramp,
President; Rick H. White, Executive Vice President of Operations; Clark C.
Grant, Executive Vice President of Finance and Administration and Treasurer;
Jean C. Rostollan, Executive Vice President of Purchasing; Thomas F. Hubbard,
Executive Vice President of Real Estate and Development; and Neal L. Wichard,
Senior Vice President of Real Estate. See "The Merger -- Business and Management
After the Merger" and "Management of Buffets -- New Directors and Officers".
RISK FACTORS
Ownership of Buffets Common Stock and the business to be conducted by
Buffets after the Merger involve certain risks, including but not limited to
risks associated with combining the two companies. See "Risk Factors".
NO DISSENTERS' RIGHTS IN THE MERGER
Buffets shareholders and HomeTown stockholders will NOT be entitled to
demand appraisal of, or to receive any appraisal payment for, their shares. See
"No Dissenters' Rights".
11
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The HomeTown Board has received the opinion of its counsel, Stoel Rives LLP,
to the effect that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code. The Buffets Board also has received the
opinion of its counsel, Faegre & Benson LLP, to the effect that the Merger will
constitute a reorganization within the meaning of Section 368(a) of the Code.
See "The Merger -- Federal Income Tax Consequences".
COMPARATIVE RIGHTS OF HOMETOWN STOCKHOLDERS BEFORE AND AFTER THE MERGER
The rights of the stockholders of HomeTown are currently governed by
Delaware law and by HomeTown's Certificate of Incorporation and Bylaws. At the
Effective Time, HomeTown stockholders will become shareholders of Buffets, a
Minnesota corporation, and their rights as Buffets shareholders will be governed
by Minnesota law and by Buffets' Articles of Incorporation and Bylaws. There are
various differences between the rights of HomeTown stockholders and the rights
of Buffets shareholders. See "Description of Buffets Capital Stock" and
"Comparative Rights of Buffets Shareholders and HomeTown Stockholders".
MARKET PRICE AND DIVIDEND DATA
The shares of Buffets Common Stock and the shares of HomeTown Common Stock
are each listed on the Nasdaq National Market. The following table sets forth
for the periods indicated the high and low sale prices of Buffets Common Stock
and HomeTown Common Stock, as reported in published financial sources:
<TABLE>
<CAPTION>
BUFFETS HOMETOWN COMMON
COMMON STOCK STOCK
-------------------- --------------------
CALENDAR YEAR HIGH LOW HIGH LOW
- ---------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
1994.................................... $ 27.50 $ 7.88 $ 19.50 $ 8.25
1995.................................... 15.50 9.12 15.25 7.75
1996
First Quarter......................... 14.25 11.88 12.50 9.63
Second Quarter........................ 14.13 11.38 14.88 12.63
Third Quarter (through August 15).....
</TABLE>
On June 3, 1996, the last trading day prior to the public announcement of
the Merger, the closing sale prices per share of Buffets Common Stock and
HomeTown Common Stock as reported on the Nasdaq National Market were $12.50 and
$15.125, respectively. On August 15, 1996, the last trading day for which
closing sale prices were available at the time of the printing of this Joint
Proxy Statement/Prospectus, the closing sale prices per share of Buffets Common
Stock and HomeTown Common Stock as reported on the Nasdaq National Market were
$ and $ , respectively. Neither Buffets nor HomeTown has paid cash
dividends on shares of its capital stock. See "Market Price Information".
Listing on the Nasdaq National Market of the shares of Buffets Common Stock
issuable in connection with the Merger is a condition to consummation of the
Merger.
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables set forth selected historical consolidated financial
data of Buffets and HomeTown for the sixteen week periods ended April 24, 1996
and April 19, 1995, for each of the years (52-53 weeks) in the five-year period
ended January 3, 1996 and as of April 24, 1996, January 3, 1996, December 28,
1994, December 29, 1993, December 30, 1992 and January 1, 1992. The selected
historical consolidated financial data as of and for each of the five years in
the period ended January 3, 1996 shown below have been derived from the
consolidated financial statements of Buffets and HomeTown. The selected
historical consolidated financial data for Buffets for the sixteen week periods
ended April 24, 1996 and April 19, 1995 have been derived from Buffets unaudited
consolidated financial statements and reflect all adjustments and accruals,
consisting only of normal, recurring adjustments and accruals which are, in the
opinion of Buffets management, necessary for a fair
12
<PAGE>
presentation of the results for the interim periods presented. The selected
historical consolidated financial data for HomeTown for the sixteen week periods
ended April 24, 1996 and April 19, 1995 have been derived from HomeTown's
unaudited consolidated financial statements and, in the opinion of HomeTown
management, include all adjustments and accruals, consisting only of normal
recurring adjustments and accruals, considered necessary for a fair presentation
of the interim periods presented. These historical data are not necessarily
indicative of results to be expected after the Merger is consummated and should
be read in conjunction with the information set forth under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Buffets and HomeTown 10-Ks and 10-Qs and the separate
consolidated financial statements and the notes thereto of Buffets and HomeTown
incorporated herein by reference. See also "Recent Results."
13
<PAGE>
BUFFETS SELECTED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED
YEAR (52-53 WEEKS) ENDED
-------------------- ------------------------------------------------------------------
APRIL 24, APRIL 19, JANUARY 3, DECEMBER 28, DECEMBER 29, DECEMBER 30, JANUARY 1,
1996 1995 1996 (1) 1994 1993 1992 1992
--------- --------- ----------- ------------ ------------ ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Earnings Data:
Restaurant sales................... $ 155,935 $ 142,090 $ 509,928 $ 409,744 $ 334,896 $ 247,474 $ 196,212
Restaurant profits................. 17,022 19,130 70,114 65,362 58,427 43,074 31,794
Earnings before income taxes....... 8,950 10,982 43,282 36,851 33,780 25,200 18,387
Net earnings....................... 5,549 6,809 26,832 22,476 20,300 15,220 11,107
Net earnings per share............. $ 0.18 $ 0.22 $ 0.86 $ 0.71 $ 0.66 $ 0.51 $ 0.38
Weighted average common and common
equivalent shares outstanding..... 31,556 31,156 31,312 31,576 30,776 29,694 29,252
</TABLE>
<TABLE>
<CAPTION>
APRIL 24, JANUARY 3, DECEMBER 28, DECEMBER 29, DECEMBER 30, JANUARY 1,
1996 1996 1994 1993 1992 1992
--------- ----------- ------------ ------------ ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Property/equipment (net)........ $ 223,231 $ 220,627 $ 183,100 $ 130,771 $ 94,414 $ 66,423
Total assets.................... 254,684 255,907 208,526 159,788 112,667 79,952
Long-term debt.................. 10,000 14,000 7,000 -- 12,000 5,000
Total stockholders' equity...... 177,783 171,928 141,522 115,911 69,136 50,896
</TABLE>
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED
YEAR (52-53 WEEKS) ENDED
------------------------ --------------------------------------------------------
APRIL 24, APRIL 19, JANUARY 3, DECEMBER 28, DECEMBER 29, DECEMBER 30,
1996 1995 1996 (1) 1994 1993 1992
----------- ----------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Restaurant Data:
Restaurants open (end of period):
Company-owned..................... 250 225 243 208 174 134
Franchised........................ 6 6 6 6 6 6
----------- ----------- ----------- ------------- ------------- -------------
Total........................... 256 231 249 214 180 140
Average weekly sales of Company-
owned restaurants open during
period............................. $ 39,391 $ 40,812 $ 42,223 $ 42,615 $ 42,695 $ 40,925
<CAPTION>
JANUARY 1,
1992
-----------
<S> <C>
Restaurant Data:
Restaurants open (end of period):
Company-owned..................... 108
Franchised........................ 6
-----------
Total........................... 114
Average weekly sales of Company-
owned restaurants open during
period............................. $ 39,420
</TABLE>
- ------------------------------
(1) The fiscal year consisted of 53 weeks.
14
<PAGE>
HOMETOWN SELECTED HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED
YEAR (52-53 WEEKS) ENDED
------------------------ --------------------------------------------------------
APRIL 24, APRIL 19, JANUARY 3, DECEMBER 28, DECEMBER 29, DECEMBER 30,
1996 1995 1996 (1) 1994 (1) 1993 (1) 1992 (1)
----------- ----------- ----------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenues:
Net restaurant sales.............. $ 61,403 $ 38,334 $ 151,517 $ 74,715 $ 34,684 $ 13,749
Franchise income, net............. 344 281 882 906 420 170
----------- ----------- ----------- ------------- ------------- -------------
Total revenues.................. 61,747 38,615 152,399 75,621 35,104 13,919
Income (loss) before taxes and
minority interest.................. 2,925 2,218 10,611 5,398 2,309 (851)
Net income (loss)................... 1,755 1,397 6,561 3,644 1,939 (851)
Net income (loss) applicable to
common shareholders................ 1,755 1,397 6,561 3,644 1,078 (1,899)
Net income (loss) per share......... $ 0.15 $ 0.12 $ 0.55 $ 0.31 $ 0.21 $ (0.66)
Weighted average common and common
equivalent shares.................. 12,051 11,935 11,959 11,722 5,225 2,885
<CAPTION>
JANUARY 1,
1992 (1)
-----------
<S> <C>
Statement of Income Data:
Revenues:
Net restaurant sales.............. $ 6,512
Franchise income, net............. --
-----------
Total revenues.................. 6,512
Income (loss) before taxes and
minority interest.................. (1,175)
Net income (loss)................... (1,175)
Net income (loss) applicable to
common shareholders................ (1,464)
Net income (loss) per share......... $ (0.57)
Weighted average common and common
equivalent shares.................. 2,556
</TABLE>
<TABLE>
<CAPTION>
APRIL 24, JANUARY 3, DECEMBER 28, DECEMBER 29, DECEMBER 30, JANUARY 1,
1996 1996 (1) 1994 (1) 1993 (1) 1992 (1) 1992 (1)
--------- ----------- ------------- ------------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Property/equipment (net)........ $ 112,353 $ 107,946 $ 65,426 $ 21,183 $ 9,277 $ 4,353
Total assets.................... 145,506 145,857 83,600 51,343 15,324 8,342
Long-term debt and obligations
under capital leases, including
current portion................ 50,154 50,655 789 997 1,081 1,074
Redeemable preferred stock...... -- -- -- -- 10,835 4,875
Total stockholders' equity
(deficit)...................... 74,030 72,218 65,546 43,986 (668) 1,222
</TABLE>
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED
YEAR (52-53 WEEKS) ENDED
------------------------ --------------------------------------------------------
APRIL 24, APRIL 19, JANUARY 3, DECEMBER 28, DECEMBER 29, DECEMBER 30,
1996 1995 1996 (1) 1994 (1) 1993 (1) 1992 (1)
----------- ----------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Restaurant Data:
Restaurants open (end of period):
Company-owned..................... 76 49 70 43 17 7
Franchised........................ 19 17 19 17 9 4
----------- ----------- ----------- ------------- ------------- -------------
Total........................... 95 66 89 60 26 11
Average weekly sales of Company-
owned restaurants open during
period............................. $ 53,018 $ 53,639 $ 53,789 $ 57,641 $ 56,985 $ 44,225
<CAPTION>
JANUARY 1,
1992 (1)
-----------
<S> <C>
Restaurant Data:
Restaurants open (end of period):
Company-owned..................... 5
Franchised........................ --
-----------
Total........................... 5
Average weekly sales of Company-
owned restaurants open during
period............................. $ 33,691
</TABLE>
- ------------------------------
(1) HomeTown's fiscal year ends on the Wednesday nearest December 31 and is
comprised of 52 or 53 weeks. Fiscal years in 1995, 1994, 1993, 1992 and
1991 were comprised of 53, 52, 52, 52 and 52 weeks, respectively, and ended
on January 3, 1996, December 28, 1994, December 29, 1993, December 30, 1992
and January 1, 1992, respectively. For convenience HomeTown has indicated
in its consolidated financial statements and notes to its consolidated
financial statements that its fiscal year ends on December 31.
15
<PAGE>
SELECTED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL DATA
The selected pro forma condensed combined consolidated financial information
presented below provides financial information giving effect to the Merger on a
pooling-of-interests basis for the periods presented. The financial information
of HomeTown has been adjusted to conform HomeTown's presentation format to that
of Buffets. The pro forma information is provided for informational purposes
only and is not necessarily indicative of actual results that would have been
achieved had the Merger been consummated at the beginning of the periods
presented or of future results. The pro forma information is derived from the
Unaudited Pro Forma Condensed Combining Financial Statements appearing elsewhere
herein and should be read in conjunction with, and is qualified in its entirety
by reference to, such information.
<TABLE>
<CAPTION>
SIXTEEN YEAR (52-53 WEEKS) ENDED
WEEKS ENDED ---------------------------------------
APRIL 24, JANUARY 3, DECEMBER 28, DECEMBER 29,
1996 1996 (1) 1994 1993
------------- ----------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Pro Forma Combined
Statement of Earnings Data:
Restaurant sales...................................... $ 217,338 $ 661,445 $ 484,459 $ 369,580
Restaurant profits.................................... 25,244 93,599 76,746 63,538
Earnings before income taxes.......................... 11,875 53,893 42,249 36,088
Net earnings.......................................... 7,304 33,393 26,120 22,239
Net earnings applicable to common shareholders........ 7,304 33,393 26,120 21,378
Net earnings per share................................ $ 0.16 $ 0.74 $ 0.58 $ 0.58
Weighted average common and common equivalent shares
outstanding.......................................... 45,656 45,304 45,291 36,889
</TABLE>
<TABLE>
<CAPTION>
APRIL 24, 1996
--------------
(IN THOUSANDS)
<S> <C>
Pro Forma Combined
Balance Sheet Data:
Property/equipment (net)........................................................................ $ 335,584
Total assets.................................................................................... 399,637
Long-term debt.................................................................................. 58,092
Total stockholders' equity...................................................................... 248,213
</TABLE>
- ------------------------
(1) The fiscal year consisted of 53 weeks.
16
<PAGE>
COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA
The following table summarizes certain selected financial information on a
historical basis, a pro forma basis and a pro forma equivalent per share basis
and is derived from, should be read in conjunction with and is qualified in its
entirety by reference to, the Unaudited Pro Forma Condensed Combining Financial
Statements included elsewhere in this Joint Proxy Statement/Prospectus and the
historical financial statements of Buffets and HomeTown which are included
elsewhere in this Joint Proxy Statement/Prospectus or incorporated in this Joint
Proxy Statement/Prospectus by reference. The information presented in this table
is for informational purposes only and is not necessarily indicative of actual
results that would have been achieved had the Merger been consummated at the
beginning of the periods presented or of future results.
<TABLE>
<CAPTION>
HOMETOWN
HISTORICAL BUFFETS EQUIVALENT
---------------------- PRO FORMA PRO FORMA
BUFFETS HOMETOWN COMBINED (1) COMBINED (1)(2)
--------- ----------- ------------- -----------------
<S> <C> <C> <C> <C>
Income per share from continuing operations:
Sixteen weeks ended April 24, 1996........................ $ 0.18 $ 0.15 $ 0.16 $ 0.19
Sixteen weeks ended April 19, 1995........................ 0.22 0.12 0.18 0.21
Fifty-three weeks ended January 3, 1996................... 0.86 0.55 0.74 0.87
Fifty-two weeks ended December 28, 1994................... 0.71 0.31 0.58 0.68
Fifty-two weeks ended December 29, 1993................... 0.66 0.21 0.58 0.68
Book value per share at (3):
April 24, 1996............................................ $ 5.68 $ 6.38 $ 5.53 $ 6.47
January 3, 1996........................................... 5.50 6.24 5.37 6.28
</TABLE>
- ------------------------
(1) Buffets and HomeTown anticipate that the combined company will incur
Merger-related expenses totaling approximately $3.6 million. Such expenses
include only financial advisory fees, legal and accounting expenses and
other miscellaneous transaction costs; they do not include any severance
payments that may be made to HomeTown employees in connection with the
Merger (see "The Merger -- Employee Benefit Plans and Stock Options"), any
costs relating to possible restaurant conversions or closures (see "The
Merger -- Business and Management After the Merger") or any other costs that
may arise in connection with the Merger. These Merger-related expenses are
expected to be charged to the operations of Buffets and HomeTown as
incurred. The effects of these costs have not been reflected in the
historical or pro forma income per share from continuing operations data but
are reflected in the pro forma book value per share as of April 24, 1996 and
January 3, 1996.
(2) The HomeTown equivalent pro forma combined per share amounts are calculated
by multiplying the Buffets pro forma combined per share amounts by the
exchange ratio of 1.17 shares of Buffets Common Stock for each share of
HomeTown Common Stock.
(3) Historical book value per share is computed by dividing stockholders' equity
by the number of shares of Common Stock outstanding at the end of each
period. Buffets' pro forma book value per share is computed by dividing pro
forma stockholders' equity, including the effect of pro forma adjustments,
by the pro forma number of Buffets Common Stock which would have been
outstanding had the Merger been consummated as of each balance sheet date.
17
<PAGE>
RISK FACTORS
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED BY HOLDERS OF HOMETOWN
COMMON STOCK IN EVALUATING WHETHER TO APPROVE THE MERGER AGREEMENT AND THE
MERGER AND THEREBY BECOME HOLDERS OF BUFFETS COMMON STOCK AND BY HOLDERS OF
BUFFETS COMMON STOCK IN EVALUATING WHETHER TO APPROVE THE ISSUANCE OF SHARES OF
BUFFETS COMMON STOCK PURSUANT TO THE MERGER AGREEMENT. THESE FACTORS SHOULD BE
CONSIDERED IN CONJUNCTION WITH THE OTHER INFORMATION INCLUDED AND INCORPORATED
BY REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
COMBINATION OF COMPANIES. Realization of the anticipated benefits of the
Merger will depend in part upon the successful combination of the senior
management of the two companies and whether the integration of the two
companies' operations is achieved in an efficient and effective manner. The
inability to successfully combine such senior management or the loss of the
services of one or more of these key persons could have a material adverse
effect on the combined companies. The senior management of the combined
companies also must continue to attract and retain qualified management level
employees and continue to motivate employees in light of organizational changes
resulting from the Merger. In addition, the senior management of the combined
companies must continue to focus on restaurant development and implement a
development strategy that successfully takes advantage of both the "Old Country
Buffet" and "HomeTown Buffet" concepts. The integration of the two companies
will require the dedication of management resources which may distract attention
from the day-to-day operations of the combined companies. Neither management
group has experience in business combinations of this size.
REPURCHASE OF THE HOMETOWN NOTES. The outstanding HomeTown Notes provide
that holders thereof may, subject to certain conditions, require HomeTown to
repurchase the Notes, in whole or in part, after the Effective Time at a price
equal to 100% of their principal amount, plus accrued interest. In connection
with the Merger, Buffets will guaranty such repurchase obligations under the
HomeTown Notes. Buffets believes that it and HomeTown will have sufficient funds
available to satisfy any repurchase rights ultimately exercised by holders of
HomeTown Notes. However, if substantial repurchase payments are made, the funds
available to the combined companies for restaurant development and other uses
may be reduced. See "The Merger -- Debt Assumption".
STOCK PRICE VOLATILITY. Buffets Common Stock has experienced substantial
price volatility. Buffets Common Stock is quoted on the Nasdaq National Market,
which stock market has experienced and is likely to continue to experience
significant price and volume fluctuations which could adversely affect the
market price of Buffets Common Stock without regard to the operating performance
of Buffets. In addition, Buffets believes that factors such as quarterly
fluctuations in the financial results of Buffets or its competitors and general
conditions in the industry, the overall economy and the financial markets could
cause the price of Buffets Common Stock to fluctuate substantially. See "Market
Price Information". The market price of Buffets Common Stock may continue to be
subject to fluctuations unrelated or disproportionate to Buffets' operating
performance. The market price of Buffets Common Stock could also be subject to
significant fluctuations in response to variations in quarterly operating
results and other factors.
COMPETITION. The restaurant industry is expected to remain intensely
competitive with respect to price, service, location, and the type and quality
of food. It is also anticipated that growth in the industry will result in
continuing competition for available restaurant sites. The restaurant business
is often affected by changes in consumer tastes, national, regional, or local
economic conditions, demographic trends, traffic patterns, and the type, number,
and location of competing restaurants. The success of Buffets will depend in
part on the ability of its management to anticipate, identify, and respond
appropriately to changing conditions.
18
<PAGE>
RECENT DEVELOPMENTS
RESULTS FOR TWENTY-EIGHT WEEKS ENDED JULY 17, 1996
BUFFETS. For the twenty-eight weeks ended July 17, 1996, net earnings of
Buffets decreased 4.3% to $13,766,000 from $14,380,000 in the same period in
1995. Earnings per share decreased 4.3% to $.44 from $.46 in the same period of
1995. Restaurant sales for the twenty-eight week period increased 10.0% to
$287,386,000 from $261,372,000 in 1995. Average weekly sales per restaurant
decreased during the first twenty-eight weeks by 2.5% to $41,114 from $42,168
for the same period in 1995. Comparable restaurant sales were down 2.7% versus
the same period in 1995. However, the thirteen new restaurants opened in 1996
generated average weekly sales in the second quarter of $53,858. These results
are not necessarily indicative of results to be expected after the Merger is
consummated and should be read in conjunction with the other historical and pro
forma financial data included elsewhere herein and incorporated herein by
reference.
HOMETOWN. For the first twenty-eight weeks of fiscal 1996 HomeTown's
revenues totaled $112.9 million, a 54% increase from $73.4 million for the same
period of 1995. Net income for the twenty-eight week period of 1996 amounted to
$3,881,000 or $0.32 per common share compared to net income of $3,021,000 or
$0.25 per common share for the same period of 1995. For the first twenty-eight
weeks of 1996 average weekly net restaurant sales amounted to $53,802 compared
to $54,893 in the same period of 1995, a 2.0% decrease. These results are not
necessarily indicative of results to be expected after the Merger is consummated
and should be read in conjunction with the other historical and pro forma
financial data included elsewhere herein and incorporated herein by reference.
LITIGATION
On August 9, 1996, HTB Restaurants Inc. ("HTB Restaurants"), a franchisee of
HomeTown, along with its parent entities, Summit Family Restaurants Inc. and CKE
Restaurants Inc. (the "Plaintiffs"), filed suit against Buffets and HomeTown in
Federal District Court for the District of Utah, Central Division. The suit
alleges, among other things, that Buffets and HomeTown have illegally conspired
to restrict competition and to prevent the Plaintiffs from developing additional
HomeTown Buffet restaurants under the multiple unit agreement between HomeTown
and HTB Restaurants. The suit includes claims against Buffets and HomeTown for
violations of both federal and state antitrust laws, claims for unfair business
practices, and claims for tortious interference with contract and economic
relations. The suit also alleges claims against HomeTown for breach of contract
and breach of the covenant of good faith and fair dealing. Plaintiffs seek up to
$160 million in damages and to enjoin the merger between Buffets and HomeTown.
HomeTown and Buffets both intend to vigorously defend the lawsuit. See "Business
of HomeTown -- Franchise Operations."
19
<PAGE>
GENERAL INFORMATION
THE BUFFETS SPECIAL MEETING
INTRODUCTION. This Joint Proxy Statement/Prospectus is provided to the
shareholders of Buffets in connection with the Special Meeting to be held on
September 19, 1996 and any adjournments or postponements thereof. The
approximate date on which this Joint Proxy Statement/Prospectus and the enclosed
proxy card will first be sent to Buffets shareholders is August 19, 1996.
ACTION TO BE TAKEN AT THE BUFFETS SPECIAL MEETING. At the Buffets Special
Meeting, the Buffets shareholders will be asked to consider and vote upon the
issuance of shares of Buffets Common Stock in exchange for shares of HomeTown
Common Stock pursuant to the Merger Agreement and to transact such other
business as may be properly come before the Buffets Special Meeting or any
adjournments thereof. The Merger Agreement is attached as Exhibit A to this
Joint Proxy Statement/ Prospectus and is incorporated herein by reference.
VOTING AT THE BUFFETS SPECIAL MEETING. Only holders of record of Buffets
Common Stock outstanding at the close of business on August 16, 1996 (the
"Buffets Record Date") are entitled to vote at the Buffets Special Meeting and
at any adjournment thereof. As of the close of business on the Buffets Record
Date, [31,337,434] shares of Buffets Common Stock were outstanding and entitled
to vote at the Buffets Special Meeting.
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Buffets Common Stock is necessary to constitute a quorum
at the meeting. Abstentions will be counted in determining whether a quorum is
present, and are in effect negative votes. A shareholder (including a broker)
who does not give authority to a proxy holder to vote, or withholds authority to
vote, shall not be counted in determining whether a quorum is present and will
not be included in vote totals. In deciding all questions, a holder of Buffets
Common Stock is entitled to one vote, in person or by proxy, for each share held
in his or her name on the Buffets Record Date. Approval of the issuance of
shares of Buffets Common Stock pursuant to the Merger Agreement requires the
affirmative vote of a majority of the shares voted, in person or by proxy, on
such proposal.
Although Minnesota law does not require shareholder approval of the Merger
or the issuance of shares of Buffets Common Stock pursuant to the Merger,
Buffets is seeking such approval because such approval is a condition to
consummation of the Merger pursuant to the Merger Agreement and is required by
the rules and regulations of the Nasdaq National Market, on which Buffets Common
Stock is listed.
All shares of Buffets Common Stock represented by properly executed and
unrevoked proxies will be voted at the Buffets Special Meeting in accordance
with the direction on the proxies. IF NO DIRECTION IS INDICATED, THE SHARES WILL
BE VOTED FOR APPROVAL OF THE ISSUANCE OF BUFFETS COMMON STOCK IN THE MERGER AS
DESCRIBED IN THIS JOINT PROXY STATEMENT/PROSPECTUS. Buffets does not know of any
matters, other than those described in the Buffets Notice of Special Meeting,
which will come before the Buffets Special Meeting. If any other matters are
properly presented for action at the Buffets Special Meeting, the persons named
in the proxies and acting thereunder will have discretion to vote on such
matters in accordance with their best judgment.
A shareholder of Buffets who executes and returns a proxy has the power to
revoke it at any time before it is voted. A shareholder who wishes to revoke a
proxy can do so by executing a later dated proxy relating to the same shares and
by delivering it to the Secretary of Buffets prior to the vote at the Buffets
Special Meeting or by giving written notice of the revocation to the Secretary
of Buffets prior to the vote at the Buffets Special Meeting. All written notices
of revocation and other communications relating to the revocation of proxies
should be addressed as follows: Buffets, Inc., 10260 Viking Drive, Eden Prairie,
Minnesota 55344, Attention: Secretary.
20
<PAGE>
SOLICITATION OF PROXIES. The accompanying proxy is being solicited on
behalf of the Buffets Board. The expense of preparing and printing the form of
proxy and the material used in the solicitation thereof will be borne equally by
Buffets and HomeTown. In addition to the use of the mails, proxies may be
solicited by personal interview, telephone, and telegram by directors, officers,
and employees of Buffets. Arrangements have also been made with brokerage
houses, banks, and other custodians, nominees, and fiduciaries for the
forwarding of soliciting materials to the beneficial owners of the Buffets
Common Stock held of record by such person, and Buffets will reimburse them for
reasonable out-of-pocket expenses incurred by them in connection therewith.
Corporate Investor Communications, Inc. will assist in the solicitation of
proxies by Buffets for a base fee, which will not exceed $4,000, plus $3 per
shareholder contact, and will be reimbursed for out-of-pocket expenses. Buffets
will pay such fees and out-of-pocket expenses.
SUB. The Merger Agreement and the transactions contemplated thereby have
been approved and adopted by the written consents of the sole director of Sub
and of Buffets, as the sole stockholder of Sub.
THE HOMETOWN SPECIAL MEETING
INTRODUCTION. This Joint Proxy Statement/Prospectus is provided to the
stockholders of HomeTown in connection with the Special Meeting to be held on
September 19, 1996 and any adjournments or postponements thereof. The
approximate date this Joint Proxy Statement/Prospectus is first being sent to
HomeTown stockholders is August 19, 1996.
ACTION TO BE TAKEN AT THE HOMETOWN SPECIAL MEETING. At the HomeTown Special
Meeting, the HomeTown stockholders will be asked to consider and vote on a
proposal to approve the Merger Agreement and the Merger and to transact any
other business that properly comes before the meeting. The Merger Agreement is
attached as Exhibit A to this Joint Proxy Statement/Prospectus and is
incorporated herein by reference.
VOTING AT THE HOMETOWN SPECIAL MEETING. Only stockholders of record at the
close of business on August 16, 1996 (the "HomeTown Record Date") will be
entitled to vote at the HomeTown Special Meeting. As of the close of business on
the HomeTown Record Date, [11,659,389] shares of HomeTown Common Stock were
outstanding and entitled to vote at the HomeTown Special Meeting.
Any person giving a proxy in the form accompanying this Joint Proxy
Statement/Prospectus has the power to revoke it at any time before its exercise.
The proxy may be revoked by filing with the Secretary of HomeTown an instrument
of revocation or a duly executed proxy bearing a later date. The proxy may also
be revoked by affirmatively electing to vote in person while attending the
HomeTown Special Meeting. A stockholder who attends the meeting, however, need
not revoke the proxy and vote in person unless the stockholder wishes to do so.
All valid, unrevoked proxies will be voted at the HomeTown Special Meeting in
accordance with the instructions given. IF THE SIGNED PROXY IS RETURNED WITHOUT
INSTRUCTIONS, IT WILL BE VOTED FOR APPROVAL OF THE MERGER AGREEMENT AND THE
MERGER. A majority of the shares of HomeTown Common Stock entitled to vote,
present in person or represented by proxy, will constitute a quorum at the
HomeTown Special Meeting. The affirmative vote of the holders of a majority of
the shares of outstanding HomeTown Common Stock is required to approve the
Merger Agreement and the Merger. Abstentions have the same effect as "no" votes
in determining whether the proposal is approved. Broker non-votes are counted
for purposes of determining whether a quorum exists at the HomeTown Special
Meeting and have the same effect as "no" votes in determining whether the
proposal is approved. Although the Notice of Special Meeting of HomeTown
Stockholders provides for transaction of such other business as may properly
come before the meeting, the Board of Directors of HomeTown has no knowledge of
any matters to be presented at the meeting other than those referred to herein.
The accompanying proxy, however, gives discretionary authority to the proxy
holders to vote in accordance with the recommendation of management if any other
matters are presented.
21
<PAGE>
SOLICITATION OF PROXIES. A proxy in the form accompanying this Joint Proxy
Statement/Prospectus is solicited on behalf of the Board of Directors of
HomeTown. The cost of preparing and printing the proxy, the Joint Proxy
Statement/Prospectus and any other material furnished to the stockholders of
HomeTown in connection with the HomeTown Special Meeting will be borne equally
by HomeTown and Buffets. Proxies will be solicited by use of the mails, and
officers and employees of HomeTown may, without additional compensation, also
solicit proxies by telephone or personal contacts. Copies of solicitation
materials will be furnished to fiduciaries, custodians and brokerage houses for
forwarding to beneficial owners of HomeTown Common Stock held in their names and
HomeTown will, on request, reimburse such persons for their expenses in
forwarding proxies and accompanying materials and in obtaining authorization
from beneficial owners of HomeTown Common Stock to execute proxies. Corporate
Investor Communications, Inc. will assist in the solicitation of proxies by
HomeTown for a base fee, which will not exceed $4,500, plus $3 per stockholder
contact, and will be reimbursed for out-of-pocket expenses. HomeTown will pay
such fees and out-of-pocket expenses.
BACKGROUND OF THE MERGER
The terms and conditions of the Merger were determined through arm's-length
negotiations between the senior managements and Boards of Directors of Buffets
and HomeTown. In determining the form of the transaction and the form and amount
of the consideration, numerous factors were reviewed by the senior managements
and Boards of Directors of Buffets and HomeTown. See "Recommendations of the
Boards of Directors and Reasons for the Merger." The following is a brief
discussion of the contacts and negotiations that have occurred between Buffets
and HomeTown.
The parties first had discussions regarding a possible combination of the
two companies in early 1995. In March 1995, Mr. Scott, Chairman and Chief
Executive Officer of HomeTown, contacted Mr. Hatlen, Chairman and Chief
Executive Officer of Buffets, to explore a potential combination of Buffets and
HomeTown. Mr. Scott made this contact in light of the benefits he perceived from
a possible combination, including economies of scale and the advantages of a
national chain. Following this initial telephone call, Mr. Hatlen and several
other members of the Buffets Board, including Alan S. McDowell and David Michael
Winton, held various in-person and telephone discussions with Mr. Scott
regarding the feasibility and possible structure of such a combination. However,
in April 1995, following these very preliminary discussions, negotiations were
terminated due to concerns regarding the management of the combined entities.
Such discussions did not include substantive negotiations with respect to price
or other material terms.
New discussions between the parties commenced in January 1996 when, in early
January 1996, Mr. Scott telephoned Mr. Winton to express his interest in again
exploring a potential combination of the two companies. Mr. Scott opened new
discussions with Buffets because he believed his initial reasons for seeking to
do the transaction remained compelling and, in addition, he had come to believe
that a merger could bring additional management and financial strength to
HomeTown. After a discussion between Mr. Hatlen and Mr. Winton and at the
request of Mr. Hatlen, Mr. McDowell flew to San Diego on January 17, 1996 to
meet with Mr. Scott and discuss further the feasibility of such a combination
and, in particular, Mr. Scott's views on how to combine the operations and
management of the two companies. Based on feedback from this meeting, Mr. Hatlen
met with Mr. Scott on January 24, 1996 in San Diego to discuss management issues
and other combination concerns. Based on these preliminary meetings, Buffets and
HomeTown entered into a Mutual Confidentiality Agreement dated as of February 5,
1996, pursuant to which the companies received various financial and other
information from each other.
In February 1996, Mr. Hatlen reported to the Buffets Board that preliminary
discussions with HomeTown had been held and that a combination of the two
companies appeared feasible. The Buffets Board instructed senior management to
continue with negotiations.
In February 1996, the HomeTown Board was informed of the preliminary
discussions and authorized management to continue to pursue the possibility of a
combination and to commence due
22
<PAGE>
diligence reviews. On March 28, 1996, the HomeTown Board met to receive a report
of management with respect to the status of such negotiations. At the March
meeting, the HomeTown Board selected Montgomery Securities as its financial
advisor and directed management to prepare a report summarizing the business
rationale for a proposed combination. Between late March and May 1996, HomeTown
and Buffets performed due diligence investigations and engaged in further
discussions. At meetings on April 23, May 14, May 24, and May 29, 1996, the
HomeTown Board received updates from management and Montgomery Securities as to
the status of negotiations and due diligence and the probable valuations of the
two companies. At these meetings, the HomeTown Board confirmed its directive to
management to pursue negotiations.
During February and March 1996, senior management and certain directors of
both companies met several times to discuss the terms of a potential
combination, including various operating, personnel and strategic issues.
On March 29, 1996, the Buffets Board again received a report regarding the
status of negotiations and again authorized senior management to continue
preliminary discussions with HomeTown regarding a potential combination.
During the period from April 2, 1996 through April 5, 1996, representatives
of Buffets conducted an on-site due diligence review in San Diego. On April 10,
1996, representatives of HomeTown, including representatives of Montgomery
Securities, HomeTown's financial advisor, made a due diligence trip to
Minneapolis and met with Mr. Hatlen and other senior management of Buffets.
On May 14, 1996, at the annual meeting of the Buffets Board, the status of
negotiations with HomeTown was again reviewed. In addition, the Buffets Board
authorized the engagement of Piper Jaffray to act as Buffets' financial advisor
in connection with the proposed transaction.
On May 21, 1996, a meeting between representatives of the two companies took
place in Minneapolis, Minnesota. Attending such meeting on behalf of Buffets
were Messrs. Hatlen and Winton, Raymond A. Lipkin, a director of Buffets, H.
Thomas Mitchell, General Counsel of Buffets, and representatives of Piper
Jaffray. Attending on behalf of HomeTown were Mr. Scott, Neal L. Wichard, Vice
Chairman of HomeTown, Glenn E. Glasshagel, Chief Financial Officer of HomeTown,
Bradley J. Thies, General Counsel of HomeTown, and representatives of Montgomery
Securities. At this meeting, various aspects of the proposed combination were
discussed. The parties agreed upon an exchange ratio of 1.17 shares of Buffets
Common Stock for each outstanding share of HomeTown Common Stock. Based upon the
discussions held during the May 21st meeting, Buffets circulated a draft of a
proposed merger agreement to the representatives of HomeTown on May 24, 1996.
On May 28 and 29, 1996, the parties and various of their advisors, including
representatives of Piper Jaffray and Montgomery Securities, met in Minneapolis
at the offices of Faegre & Benson, counsel to Buffets, to discuss the draft
merger agreement and other terms of the proposed transaction. Negotiation of the
definitive merger agreement and other documents continued through June 3, 1996,
as did additional due diligence investigations by both parties.
On June 3, 1996, the Buffets Board met to consider the Merger. After
reviewing the findings of the management, financial and legal due diligence
investigations of HomeTown, discussing with senior management of Buffets the
benefits and risks associated with the proposed Merger, reviewing the terms of
the Merger Agreement with senior management, legal counsel, independent auditors
and Piper Jaffray, and reviewing and considering the fairness opinion of Piper
Jaffray (see "Opinions of Piper Jaffray"), the Buffets Board determined that the
Merger was fair to, and in the best interests of, Buffets and its shareholders
and unanimously voted to approve and adopt the Merger Agreement and the Merger
and to call a special meeting of the shareholders of Buffets to consider and
vote on the Merger Proposal.
On June 3, 1996, the HomeTown Board held a meeting during which: (i)
Montgomery Securities presented a financial analysis of the proposed merger at
the Conversion Number and delivered its oral opinion, subsequently confirmed in
writing as of that date and as of the date of this Joint Proxy
23
<PAGE>
Statement Prospectus, that the consideration to be received by the stockholders
of HomeTown in the Merger is fair to such stockholders, from a financial point
of view, (ii) management reviewed the rationale for the Merger and discussed its
due diligence, and (iii) legal counsel presented an analysis of the proposed
form of merger agreement and legal due diligence. In addition, the HomeTown
Board considered certain questions relating to the treatment of the proposed
merger as a pooling-of-interests for accounting purposes and discussed these
questions with HomeTown's independent auditors. Following these discussions,
and, having concluded that the Merger was in the best interests of their
stockholders, the HomeTown Board approved resolutions to enter into a definitive
merger agreement substantially in the form discussed at the meeting, subject to
satisfactory resolution of certain issues in the agreement and with such changes
thereto as management might deem necessary or convenient.
The Merger Agreement was executed by the parties on June 3, 1996. See
"Recommendations of the Boards of Directors and Reasons for the Merger".
Certain directors and officers of HomeTown have interests in the Merger
different from the interests of other HomeTown stockholders. See "The Merger --
Interests of Certain Persons in the Merger" and "Management of Buffets -- New
Directors and Officers".
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
AND REASONS FOR THE MERGER
GENERAL
HomeTown and Buffets are both engaged in the development and operation of
high quality buffet restaurants. See "Business of Buffets" and "Business of
HomeTown". C. Dennis Scott, HomeTown's Chairman and Chief Executive Officer,
co-founded Buffets in 1983 with Roe H. Hatlen, Buffets' Chairman and Chief
Executive Officer. The restaurant concept employed by the two companies is very
similar.
The Merger is viewed by both management teams as providing both short- and
long-term potential benefits to shareholders resulting from economies of scale
and other operating synergies made possible by the Merger. While management
expects the financial impact of the Merger on earnings of the combined companies
in 1996 to be dilutive, savings in food and supplies, real estate and
construction costs made possible by volume purchasing strategies, as well as
improvement in general and administrative costs, training and management as a
percentage of revenues are expected to have a positive impact on earnings of the
combined companies in subsequent years. Both Buffets and HomeTown believe the
Merger represents a good "fit" because (i) HomeTown's market strength in
California combines well with Buffets' larger presence in over 30 states,
including primarily the Eastern and Midwestern states, (ii) the management
strengths of the two companies are generally complementary, allowing the
combined companies to profit from an enhanced overall level of management
experience, and (iii) the similarity in concept and operation of the two
companies should permit a relatively smooth combination.
BUFFETS
The Buffets Board believes that the terms of the Merger are fair to, and in
the best interests of, Buffets and its shareholders. ACCORDINGLY, THE BUFFETS
BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE MERGER, INCLUDING
THE MERGER PROPOSAL, AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF BUFFETS COMMON
STOCK VOTE FOR APPROVAL OF THE MERGER PROPOSAL.
The Buffets Board believes that the Merger will create a stronger combined
company from operational, marketing and financial perspectives. The Merger will
allow Buffets to quickly increase its presence in additional geographic markets,
most notably in the State of California where, as of July 31, 1996, HomeTown
operated 45 company-owned HomeTown Buffet restaurants.
Prior to recommending action on the Merger, the Buffets Board reviewed
various materials and engaged in discussion with Buffets' management and its
advisors regarding the businesses, operations and financial condition of
HomeTown. The Buffets Board also reviewed the terms and conditions of
24
<PAGE>
the transactions contemplated by the Merger Agreement with Buffets' senior
management, legal counsel and financial advisor, Piper Jaffray. The presentation
at the June 3, 1996 meeting of the Buffets Board included a discussion of
Buffets' long-term strategic objectives and general information regarding
HomeTown's business. Buffets legal counsel discussed the terms of the Merger
Agreement and the fiduciary duties of the Buffets Board with respect to the
Merger and Buffets' independent auditors discussed the expected accounting
treatment of the Merger.
In approving the Merger, the Buffets Board considered a number of factors,
including:
(i) the skills and experience of HomeTown personnel and their ability to
further strengthen Buffets' management and restaurant operations;
(ii) the impact of potential purchasing, marketing, real estate
development and capital formation efficiencies, reduced employee turnover
and other synergies which would result from the Merger;
(iii) the expanded geographic coverage represented by the combined
companies after the Merger, including HomeTown's strong position in the
California market, and the flexibility a combination would provide for
additional expansion in terms of site selection and brand development;
(iv) the financial and operational resources of the combined companies
will afford the opportunity for continued significant unit growth and growth
in new markets;
(v) the complementary operating philosophies of Buffets and HomeTown,
with both having a strong customer focus and significant investment in
employee and management training;
(vi) the Merger is expected to be treated as a pooling-of-interests
transaction for accounting purposes, as a result of which no goodwill will
be recognized; and
(vii) the opinion of Piper Jaffray that as of such date the Conversion
Number was fair, from a financial point of view, to the shareholders of
Buffets.
In evaluating the acceptability of the proposed number of shares of Buffets
Common Stock to be issued in the Merger, the Buffets Board considered: (i) the
terms of the Merger Agreement; (ii) that the number of shares had been
negotiated at arm's-length between senior management and certain directors of
both companies and their respective advisors; and (iii) the opinion of Piper
Jaffray described below under "Opinions of Piper Jaffray Inc.," including the
various matters considered by Piper Jaffray in reaching its conclusion.
The Buffets Board did not assign any relative or specific weights to the
factors discussed above.
HOMETOWN
In deciding to approve the Merger and the Merger Agreement, the HomeTown
Board considered many factors, including but not limited to, the terms of the
Merger Agreement; management's knowledge of the respective businesses of Buffets
and HomeTown; the general financial circumstances of each respective company and
current and potential future cash flows, earnings and capital needs; and the
June 3, 1996 opinion of Montgomery Securities that the consideration to be paid
in the Merger was fair to the HomeTown stockholders from a financial point of
view as of such date. See "Opinions of Montgomery Securities" below. More
particularly, the HomeTown Board considered the following:
(i) The geographic positions of the two companies and the benefits of a
national chain. Buffets is larger than HomeTown and has historically had a
strong presence in the Eastern and Midwestern states, while HomeTown has a
strong presence in California. Buffets has been expanding into various
markets in the West and other locations where HomeTown either has
25
<PAGE>
existing stores or into which HomeTown is also expanding. Buffets' larger
size and financial strength made it an attractive merger partner. Moreover,
the HomeTown Board believes that there are potential marketing advantages
from being a nationwide chain.
(ii) The Merger is expected to provide HomeTown with needed capital.
Cash flows from operations of the combined entity are expected to provide
most of the capital needed to fund continued growth. Were HomeTown to remain
a separate entity, it would need to seek additional outside capital to fund
its current expansion plans.
(iii) The Merger is expected to provide HomeTown certain management
benefits and opportunities for cost reductions. Buffets has certain
financial and administrative expertise that may enable HomeTown to function
more efficiently. The Merger is expected to provide opportunities for
certain economies through reductions of duplicative functions, increased
purchasing power and economies of scale.
(iv) The HomeTown Board believes that beyond cost savings and
efficiencies there is a long-term potential benefit to stockholders from
improving the operations of restaurants now operated by Buffets and thereby
increasing the profitability of the combined entity. As part of the Merger,
HomeTown's Chairman and Chief Executive Officer, Mr. Scott, and President,
Mr. Kramp, will take on primary operational responsibility for the combined
companies. If they can improve the "top-line" performance of the existing
restaurants operated by Buffets, there will be potential improved value to
HomeTown stockholders.
OPINIONS OF PIPER JAFFRAY INC.
Buffets retained Piper Jaffray in connection with the delivery of an opinion
to the Buffets Board regarding the fairness, from a financial point of view, to
the shareholders of Buffets of the Conversion Number. Piper Jaffray has
delivered to the Buffets Board its written opinions respectively dated June 3,
1996 and on or about the date of this Joint Proxy Statement/Prospectus that as
of those dates the Conversion Number was fair, from a financial point of view,
to the shareholders of Buffets.
Piper Jaffray is an investment banking firm engaged, among other things, in
the valuation of businesses and their securities in connections with mergers and
acquisitions, underwriting and secondary distributions of securities, private
placements and valuations for estate, corporation and other purposes. Piper
Jaffray was selected to prepare fairness opinions based upon its experience and
expertise in transactions similar to the Merger, its reputation in the
restaurant and investment banking industries and its existing investment banking
relationship with Buffets. In the ordinary course of its business, Piper Jaffray
actively trades Buffets Common Stock for its own account and for the accounts of
its customers, and, therefore, may from time to time hold a long or short
position in such securities. Piper Jaffray also provides research coverage for
Buffets, has managed several underwritten offerings of Buffets Common Stock and
performed advisory services in connection with Buffets' adoption of its Share
Rights Plan. Buffets gave no specific instructions to Piper Jaffray in
connection with its engagement and no limitations were imposed by Buffets on
Piper Jaffray with respect to the investigations made or procedures followed in
rendering its opinions.
THE FULL TEXT OF PIPER JAFFRAY'S WRITTEN OPINION TO THE BOARD OF DIRECTORS
OF BUFFETS DATED THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS ATTACHED
HERETO AS EXHIBIT B AND IS INCORPORATED HEREIN BY REFERENCE. THE FOLLOWING
SUMMARY OF PIPER JAFFRAY'S OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE FULL TEXT OF THE OPINION. PIPER JAFFRAY'S OPINION IS DIRECTED TO THE BOARD
OF DIRECTORS OF BUFFETS AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
SHAREHOLDER OF BUFFETS OR HOMETOWN AS TO HOW SUCH SHAREHOLDER SHOULD VOTE WITH
RESPECT TO THE MERGER.
In arriving at its opinions, Piper Jaffray reviewed, analyzed and relied
upon material bearing upon the financial and operating condition and prospects
of Buffets and HomeTown and material prepared in connection with the Merger, and
considered such financial and other factors as it deemed appropriate under the
circumstances, including, among other things, the following: (i) the Merger
26
<PAGE>
Agreement; (ii) the Reports on Form 10-K for HomeTown for the three fiscal years
ended January 3, 1996; (iii) the Form 10-Q for HomeTown for the quarter ended
April 24, 1996; (iv) the Current Report on Form 8-K for HomeTown dated August 8,
1996; (v) the Reports on Form 10-K for Buffets for the three fiscal years ended
January 3, 1996; (vi) the Form 10-Q for Buffets for the quarter ended April 24,
1996; (vii) the Current Report on Form 8-K for Buffets dated August 8, 1996;
(viii) financial forecasts and related assumptions of Buffets, including
extensions and adjustments of such forecasts prepared by Piper Jaffray, which
forecasts were reviewed and approved by Buffets' management, as described below;
(ix) financial forecasts and related assumptions of HomeTown, including
extensions and adjustments of such forecasts prepared by Piper Jaffray, which
forecasts were reviewed and approved by HomeTown's management, as described
below; (x) the historical pricing and trading activity for Buffets and HomeTown
Common Stock; and (xi) such other studies, analyses and inquiries as Piper
Jaffray deemed appropriate. Piper Jaffray also held discussions with the senior
management of Buffets and HomeTown concerning their past and current business
operations, the background and rationale for the proposed Merger, the financial
condition, operating performance, balance sheet characteristics and prospects of
their respective businesses independently and the financial and operating
prospects for the combined company after consummation of the proposed Merger. In
addition, in connection with rendering its opinion dated the date of this Joint
Proxy Statement/ Prospectus, Piper Jaffray reviewed the Registration Statement
which included this Joint Proxy Statement/Prospectus.
The Piper Jaffray opinions, which were delivered for use and considered by
the Buffets Board, are directed only to the fairness, from a financial point of
view, of the Conversion Number, do not address the value of a share of Buffets
Common Stock, and do not address Buffets' underlying business decision to
participate in the Merger. The Conversion Number was determined pursuant to
negotiations between Buffets and HomeTown and not pursuant to recommendations of
Piper Jaffray. Piper Jaffray does not admit that it is an expert within the
meaning of the term "expert" as used in the Securities Act and the rules and
regulations promulgated thereunder, or that its opinions constitute a report or
valuation within the meaning of Section 11 of the Securities Act and the rules
and regulations promulgated thereunder.
As set forth in its opinions, Piper Jaffray relied upon and assumed the
accuracy and completeness of the financial and other information provided to it
or publicly available and did not attempt to independently verify the same. With
respect to financial forecasts, Piper Jaffray assumed that such forecasts were
reasonably prepared on a basis reflecting the best currently available estimates
and judgments of the respective managements of Buffets and HomeTown, that such
projections and forecasts will be realized in the amounts and in the time
periods currently estimated, and that the Merger would be accounted for as a
pooling-of-interests under generally accepted accounting principles. For
purposes of its opinions and with the agreement of management of Buffets and
HomeTown, Piper Jaffray reviewed five year financial forecasts for Buffets,
including 1996 financial forecasts furnished by Buffets' management and
financial forecasts for 1997-2000 prepared by Piper Jaffray based on assumptions
provided by Buffets' management, which forecasts were reviewed and approved by
Buffets' management (the "Buffets Forecasts") and five year financial forecasts
for HomeTown, including 1996 and 1997 financial forecasts furnished by HomeTown
management and financial forecasts for 1998-2000 prepared by Piper Jaffray based
on assumptions provided by HomeTown management, which forecasts were reviewed
and approved by HomeTown's management (the "HomeTown Forecasts"). Neither
Buffets nor HomeTown publicly discloses internal management forecasts of the
type provided to or prepared by Piper Jaffray in connection with Piper Jaffray's
review of the Merger. Such forecasts were not prepared with a view toward public
disclosure. In addition, such forecasts were based upon numerous variables and
assumptions that are inherently uncertain, including, without limitation,
factors related to general economic and competitive conditions. Accordingly,
actual results could vary significantly from those set forth in such forecasts.
Piper Jaffray has assumed no liability for such forecasts. Piper Jaffray also
assumed that there were no material changes in Buffets' or HomeTown's assets,
financial condition, results of operations, business or prospects since the
respective dates of the last financial statements made available to Piper
Jaffray.
27
<PAGE>
Piper Jaffray assumed that the Merger will be consummated in a manner that
complies in all respects with the applicable provisions of the Securities Act
and the Exchange Act and all other applicable federal and state statutes, rules
and regulations. Piper Jaffray did not perform any appraisals or valuations of
specific assets of Buffets or HomeTown and has not expressed any opinion
regarding the liquidation value of Buffets or HomeTown.
Piper Jaffray believes that its analyses must be considered as a whole and
that selecting portions of its analyses without considering all factors and
analyses would create an incomplete view of the analyses and process underlying
their opinions. Any estimates contained therein are not necessarily indicative
of actual values, which may be significantly more or less favorable than as set
forth therein. No company or transaction used as a comparison in the analyses is
identical to Buffets or HomeTown or to the Merger. Additionally, estimates of
the value of the businesses do not purport to be appraisals or necessarily
reflective of the prices at which the business actually may be sold. Because
such estimates are inherently subject to uncertainty, neither the Buffets Board,
Piper Jaffray nor any other person assumes responsibility for the accuracy of
such estimates.
Based on this information, Piper Jaffray performed a variety of financial
and comparative analyses, including those summarized below, which it discussed
with the Buffets Board on June 3, 1996. Piper Jaffray confirmed the
appropriateness of its reliance on the described analyses in connection with its
opinion dated on or about the date of this Joint Proxy Statement/Prospectus by
performing procedures to update certain of such analyses and reviewing the
assumptions on which such analyses were based and the factors considered in
connection therewith. The calculations referred to below were made in connection
with rendering the Piper Jaffray opinions.
COMPARABLE ACQUISITION ANALYSIS. Piper Jaffray analyzed selected restaurant
industry transactions deemed comparable to the Merger, including selected
restaurant industry mergers. These transactions included completed and pending
transactions since January 1, 1992 through May 31, 1996 whereby the target was
100% acquired with a minimum transaction value of $20 million. This search
yielded 19 comparable transactions (listed in acquired/acquiror format):
Brueggers Corporation/Quality Dining Inc.; Noah's Bagels/Boston Chicken; Brinker
International -- Grady's American Grill Restaurant/Quality Dining Inc.; Souper
Salad, Inc./Saunders Karp & Co.; Champps Entertainment, Inc./DAKA International;
Del Frisco's/Lone Star Steakhouse; DF&R Restaurants, Inc./Apple South, Inc.; Tim
Hortons/Wendys; Maggianos-Corner Bakery/Brinker International, Inc.; Marcus
Group/Apple South; Rio Bravo/Applebee's International; Pub Ventures/Applebee's
International; Marco's Mexican Restaurants/Billy Blues Food Corp.; On The Border
Cafes, Inc./Brinker International, Inc.; St. Louis Bread Co./Au Bon Pain Co,.
Inc.; Chevys Mexican Restaurant/Taco Bell Corp. (PepsiCo, Inc.); NRH
Corp./National Pizza Co.; Foodmaker -- Chi-Chi's/Investor Group; and California
Pizza Kitchen/ PepsiCo, Inc. Based on its analysis of the comparable
transactions, Piper Jaffray derived a mean and median multiple of company value
to latest twelve months' ("LTM") revenues of 1.7x and 1.3x, respectively
(compared to the Merger LTM revenue multiple of 1.2x), of company value to LTM
operating income before interest, taxes, depreciation and amortization
("EBITDA") of 8.7x and 7.1x, respectively (compared to the Merger LTM EBITDA
multiple of 8.7x), of company value to LTM operating income before interest and
taxes ("EBIT") of 16.1x and 16.6x, respectively (compared to the Merger LTM EBIT
multiple of 16.5x), and of equity value to LTM net income of 30.4x and 25.1x,
respectively (compared to the Merger LTM net income multiple of 26.1x).
PREMIUMS PAID ANALYSIS. Piper Jaffray reviewed information relating to
premiums paid over recent trading prices in transactions ranging in price from
$100 million to $300 million which were completed between January 1, 1995 and
May 30, 1996 and which were accounted for as pooling-of-interests transactions.
The search of mergers covered the acquisition of 100% of the stock of public
companies in all SIC codes excluding financial institutions. This search yielded
24 completed transactions which Piper Jaffray deemed to be comparable. Based on
its analysis of the selected transactions, Piper Jaffray derived a median range
from a 15.4% premium above the trading price on the day prior to announcement
(compared to (0.7)% for the Merger premium) to a 39.4% premium above the trading
price four weeks prior to the announcement (compared to 13.0% for the Merger
premium).
28
<PAGE>
DISCOUNTED CASH FLOW ANALYSIS. Piper Jaffray performed a discounted cash
flow analysis on the HomeTown Forecasts to calculate a range of theoretical
values for HomeTown based on (i) the net present value of projected free cash
flows and (ii) a terminal value which estimates the value of HomeTown in the
year 2000 by applying certain multiples of earnings before interest and taxes.
Piper Jaffray assumed, among other things, discount rates of 18% to 20%, which
Piper Jaffray deemed appropriate to the risk associated with such projected cash
flows, and terminal value multiples of EBIT of 13x to 15x. This analysis
excluded any positive impact of synergies from the Merger. The analysis
calculated an implied equity valuation range for HomeTown of $188.3 million to
$250.9 million ($15.41 to $20.54 per share), compared to $180.5 million or
$14.77 per share in the Merger).
PRO FORMA DILUTION ANALYSIS. Piper Jaffray reviewed the pro forma impact of
the HomeTown acquisition on Buffets' projected earnings per share, comparing
Buffets' pre-Merger earnings per share derived from the Buffets Forecasts to the
earnings per share following the Merger, reflecting the addition of HomeTown's
earnings from the HomeTown Forecasts and the effect of a base case amount of
synergies estimated by management at $8.0 million per year, together with the
issuance of Buffets shares in exchange for HomeTown shares. Based on this
analysis, Piper Jaffray concluded that the Merger would be dilutive to Buffets'
earnings per share in fiscal 1996 and accretive thereafter assuming no
conversion of the HomeTown Notes and approximately breakeven in 1997 and
accretive thereafter assuming full conversion of the HomeTown Notes.
COMPARABLE COMPANY ANALYSIS. Piper Jaffray analyzed information relating to
12 publicly traded high growth companies which operate in the casual dining
segment of the restaurant industry, and which have medium term growth rate
estimates of up to 30%, including: Applebee's International Inc.; Bertucci's;
Cooker Restaurant; Brinker International; Buffets; Cracker Barrel; Landry's
Seafood Restaurants; Lone Star Steakhouse, Inc.; Mortons Restaurant Group;
Ryan's Family Steak House; Uno Restaurant and Outback Steakhouse. Based on its
analysis, Piper Jaffray derived a mean and a median price/earnings ("P/E")
multiple for the latest LTM earnings per share ("LTM EPS") of 25.2x and 23.8x,
respectively, for calendar 1996 estimated earnings per share ("1996 EPS") of
20.6x and 21.0x, respectively, and for calendar 1997 estimated earnings per
share ("1997 EPS") of 17.1x and 16.3x, respectively. Piper Jaffray also derived
a mean and median multiple of price to latest LTM revenues ("Price/Revenues") of
1.8x and 1.4x, respectively, price to latest LTM EBITDA ("Price/ EBITDA") of
10.8x and 11.7x, respectively, and of price to LTM EBIT ("Price/EBIT") of 16.5x
and 15.9x, respectively. Based on the Conversion Number and HomeTown's financial
results and forecasts, HomeTown's LTM P/E, 1996 P/E, 1997 P/E, Price/Revenues,
Price/EBITDA and Price/EBIT multiples were 26.1x, 20.6x, 15.2x, 1.2x, 8.7x and
16.5x, respectively.
CONTRIBUTION ANALYSIS. Piper Jaffray reviewed Buffets' and HomeTown's
historical financial information for the twelve months ended April 1996 and the
financial projections for the years 1996 through 2000. For these periods, Piper
Jaffray analyzed the contributions to revenue, EBITDA, EBIT and net income of
Buffets and HomeTown to the combined company and compared these contribution
figures to the post-Merger ownership percentage of HomeTown's current
stockholders of 31.2% (assuming no conversion of the HomeTown Notes) of
outstanding Buffets Common Stock based on the Conversion Number. The
contribution of HomeTown to the combined company's revenue, EBITDA and EBIT
approximately equaled or exceeded the percentage of equity that HomeTown
stockholders would own in the combined company beginning with fiscal 1997 and
for net income beginning in 1999. These figures exclude any benefits from Merger
synergies.
As compensation for its services, Piper Jaffray has received from Buffets a
total fee of $400,000, of which $50,000 was paid at the time of the execution of
the engagement letter between Buffets and Piper Jaffray, $150,000 was paid upon
delivery of its opinion dated June 3, 1996, and $200,000 was paid upon delivery
of its opinion dated the date of this Joint Proxy Statement/Prospectus. Buffets
also agreed to reimburse Piper Jaffray for its reasonable out-of-pocket
expenses, including the fees and disbursements of its counsel, and to indemnify
Piper Jaffray against certain liabilities, including liabilities under the
federal securities laws.
29
<PAGE>
OPINIONS OF MONTGOMERY SECURITIES
Pursuant to an engagement letter dated April 1, 1996 (the "Engagement
Letter"), HomeTown retained Montgomery Securities to act as its financial
advisor in connection with the consideration by HomeTown of the Merger.
Montgomery Securities is a nationally recognized firm and, as part of its
investment banking activities, is regularly engaged in the valuation of
businesses and their securities in connection with merger transactions and other
types of acquisitions, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. HomeTown selected Montgomery Securities as its financial
advisor on the basis of Montgomery Securities' experience and expertise in
transactions similar to the Merger, its reputation in the restaurant and
investment communities and its existing investment banking relationship with
HomeTown.
On June 3, 1996, Montgomery Securities delivered to the Board of Directors
of HomeTown its oral opinion, subsequently confirmed in writing as of that date
and as of the date of this Joint Proxy Statement/Prospectus, that the
consideration to be received by HomeTown stockholders in the Merger is fair to
such stockholders, from a financial point of view, as of those dates. The amount
of such consideration was determined pursuant to negotiations between HomeTown
and Buffets and not pursuant to recommendations of Montgomery Securities. No
limitations were imposed by HomeTown on Montgomery Securities with respect to
the investigations made or procedures followed in rendering its opinions.
THE FULL TEXT OF MONTGOMERY SECURITIES' WRITTEN OPINION TO THE BOARD OF
DIRECTORS OF HOMETOWN DATED THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS
ATTACHED HERETO AS EXHIBIT C AND IS INCORPORATED HEREIN BY REFERENCE. THE
FOLLOWING SUMMARY OF MONTGOMERY SECURITIES' OPINION IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO THE FULL TEXT OF THE OPINION. MONTGOMERY SECURITIES' OPINION IS
DIRECTED TO THE BOARD OF DIRECTORS OF HOMETOWN AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY STOCKHOLDER OF HOMETOWN OR BUFFETS AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE MERGER. IN FURNISHING ITS OPINION,
MONTGOMERY SECURITIES DID NOT ADMIT THAT IT IS AN EXPERT WITHIN THE MEANING OF
THE TERM "EXPERT" AS USED IN THE SECURITIES ACT, OR THAT ITS OPINION CONSTITUTES
A REPORT OR VALUATION WITHIN THE MEANING OF SECTION 11 OF THE SECURITIES ACT,
AND STATEMENTS TO SUCH EFFECT ARE INCLUDED IN THE TEXT OF MONTGOMERY SECURITIES'
WRITTEN OPINION.
In connection with its opinions, Montgomery Securities, among other things:
(i) reviewed certain publicly available financial and other data with respect to
HomeTown and Buffets, including (a) the consolidated financial statements for
recent years and interim periods to April 24, 1996, with respect to HomeTown,
and January 3, 1996, with respect to Buffets, and (b) the August 6, 1996
earnings release of HomeTown and the August 7, 1996 earnings release of Buffets,
announcing their respective results for the twenty-eight week period ended July
17, 1996 and certain other relevant financial and operating data relating to
HomeTown and Buffets made available to Montgomery Securities from published
sources and from the internal records of HomeTown and Buffets; (ii) reviewed the
June 3, 1996 draft of the Merger Agreement, provided to Montgomery Securities by
HomeTown; (iii) reviewed certain publicly available information concerning the
trading of, and the trading market for, HomeTown Common Stock and Buffets Common
Stock; (iv) compared HomeTown and Buffets from a financial point of view with
certain other companies in the restaurant industry which Montgomery Securities
deemed to be relevant; (v) considered the financial terms, to the extent
publicly available, of selected recent business combinations of companies in the
restaurant industry which Montgomery Securities deemed to be comparable, in
whole or in part, to the Merger; (vi) reviewed and discussed with
representatives of the management of HomeTown and Buffets certain information of
a business and financial nature regarding HomeTown and Buffets, furnished to
Montgomery Securities by them, including financial forecasts and related
assumptions of HomeTown and Buffets, and extensions and adjustments of such
forecasts prepared by Montgomery Securities, as described below; (vii) made
inquiries regarding and discussed the Merger and the Merger Agreement and other
matters related thereto with HomeTown's counsel; and (viii) performed such other
analyses and examinations as Montgomery Securities deemed appropriate.
30
<PAGE>
In connection with its review, Montgomery Securities assumed and relied upon
the accuracy and completeness of the foregoing information and did not assume
any responsibility for independent verification of such information. With
respect to the financial forecasts provided to Montgomery Securities as
described above, Montgomery Securities assumed for purposes of its opinions that
such forecasts have been reasonably prepared on bases reflecting the best
available estimates and judgments of the respective managements of HomeTown and
Buffets at the time of preparation as to the future financial performance of
HomeTown and Buffets, and, except as described below, that they provide a
reasonable basis upon which Montgomery Securities could form its opinions. For
purposes of its opinions and with the agreement of management of HomeTown,
Montgomery Securities adjusted the financial forecasts for HomeTown and Buffets,
provided to Montgomery Securities by their respective managements, to reflect
more conservative assumptions regarding future results of operations. Neither
HomeTown nor Buffets publicly discloses internal management forecasts of the
type provided to Montgomery Securities by their respective managements in
connection with Montgomery Securities' review of the Merger. Such forecasts were
not prepared with a view toward public disclosure. In addition, such forecasts
were based upon numerous variables and assumptions that are inherently
uncertain, including, without limitation, factors related to general economic
and competitive conditions. Accordingly, actual results could vary significantly
from those set forth in such forecasts. Montgomery Securities has assumed no
liability for such forecasts. Montgomery Securities also assumed that there have
been no material changes in HomeTown's or Buffets' assets, financial condition,
results of operations, business or prospects since the respective dates of their
last financial statements made available to Montgomery Securities. Montgomery
Securities relied on advice of counsel and independent accountants to HomeTown
as to all legal and financial reporting matters with respect to HomeTown, the
Merger and the Merger Agreement. Montgomery Securities assumed that the Merger
will be consummated in a manner that complies in all respects with the
applicable provisions of the Securities Act, the Exchange Act and all other
applicable federal and state statutes, rules and regulations. In addition,
Montgomery Securities did not assume responsibility for making an independent
evaluation, appraisal or physical inspection of the assets or individual
properties of HomeTown or Buffets, nor was Montgomery Securities furnished with
any such appraisals. Finally, Montgomery Securities' oral opinion was based on
economic, monetary and market and other conditions as in effect on, and the
information made available to Montgomery Securities as of, June 3, 1996.
Montgomery Securities also assumed, with the consent of HomeTown's
management, that the Merger will be consummated in accordance with the terms
described in the Merger Agreement without any amendments thereto, and without
waiver by HomeTown or Buffets of any of the conditions to their respective
obligations thereunder.
Set forth below is a brief summary of the report presented by Montgomery
Securities to HomeTown's Board of Directors on June 3, 1996 in connection with
its oral opinion.
VALUATION OF HOMETOWN
COMPARABLE COMPANY ANALYSIS. Using public and other available information,
Montgomery Securities calculated the imputed per share value of HomeTown Common
Stock based on the multiples of last twelve months' revenues ("LTM Revenues"),
last twelve months' earnings before interest, taxes, depreciation and
amortization ("LTM EBITDA"), last twelve months' earnings before interest and
taxes ("LTM EBIT") and estimated 1996 EBITDA at which the following eleven
publicly traded restaurant companies were trading on May 31, 1996: Applebee's;
HomeTown; Bertucci's; Brinker International; Buffets; Cracker Barrel; Luby's
Cafeterias; Uno Restaurant Corp.; Cooker Restaurant Corp.; Ruby Tuesday; and
Ryan's Family Steakhouse (collectively, the "Comparable Companies"). The May 31,
1996 stock prices of the Comparable Companies reflected the following median
multiples: 1.1x LTM Revenues; 8.2x LTM EBITDA; 13.0x LTM EBIT; and 6.4x
estimated 1996 EBITDA. Montgomery Securities applied the foregoing median
multiples to the applicable statistics for HomeTown, and made applicable
adjustments to reflect HomeTown's net debt (defined as debt minus cash) at
31
<PAGE>
April 24, 1996. This analysis indicated an imputed equity value (defined as
aggregate value minus net debt) of HomeTown of between $139.1 million and $180.2
million, or between $11.99 and $15.53 per share.
COMPARABLE TRANSACTIONS ANALYSIS. Montgomery Securities reviewed the
consideration paid in the following six acquisitions of comparable restaurant
companies that have been announced since 1993 (Target/Acquiror): Brinker
International (Grady's and Spaggedies)/Quality Dining, Inc.; Souper Salad,
Inc./Saunders Karp & Co.; Innovative Restaurant Concepts/Applebee's; Pub
Ventures of New England/Applebee's; NRH Corp (Tony Roma's)/National Pizza Co.;
and Foodmaker Inc. (Chi Chi's)/ Investor Group. Montgomery Securities analyzed
the consideration paid in such transactions as a multiple of the target
companies' LTM Revenues and LTM EBITDA. Such analysis yielded mean and median
multiplies of 1.0x and 0.8x LTM Revenues and 6.6x and 6.3x LTM EBITDA.
Montgomery Securities then applied the foregoing multiples to HomeTown's LTM
Revenues and LTM EBITDA, and subtracted HomeTown's net debt as of April 24,
1996. This analysis indicated an imputed equity value of HomeTown of between
$111.1 million and $150.0 million, or between $9.57 and $12.92 per share.
No other company or transaction used in the comparable transactions analysis
as a comparison is identical to HomeTown or the Merger. Accordingly, an analysis
of the results of the foregoing is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of the companies to which HomeTown and the Merger are being
compared.
DISCOUNTED CASH FLOW ANALYSIS. Montgomery Securities applied a discounted
cash flow analysis to HomeTown's financial forecasts for 1996 and 1997, prepared
by HomeTown's management and provided to Montgomery Securities, and for 1998
through 2000, prepared by Montgomery Securities using assumptions consistent
with those underlying the HomeTown management forecasts. HomeTown did not
provide Montgomery Securities with any financial forecasts for periods beyond
1997. As described above, with HomeTown's consent Montgomery Securities adjusted
the forecasts prepared by HomeTown's management, and the extensions thereof
prepared by Montgomery Securities, to reflect more conservative assumptions
regarding future results of operations. The unadjusted forecasts are referred to
as the "HomeTown Base Case Forecasts," and the HomeTown Base Case Forecasts as
so adjusted by Montgomery Securities are referred to as the "HomeTown
Competitive Case Forecasts."
In conducting its discounted cash flow analysis, Montgomery Securities first
calculated the estimated future streams of free cash flows that HomeTown would
produce through 2000. Second, Montgomery Securities estimated HomeTown's
aggregate value at the end of 2000 by applying a multiple of 7.0x to HomeTown's
estimated EBITDA in 2000 and adding HomeTown's estimated net debt at the end of
2000. Such cash flow streams and aggregate values were discounted to present
values using discount rates ranging from 18.0% to 20.0%, chosen to reflect
different assumptions regarding HomeTown's cost of capital, and such present
values were then reduced by HomeTown's net debt as of April 24, 1996. This
analysis indicated an imputed equity value of HomeTown of between $180.0 million
and $198.7 million, or between $15.52 and $17.13 per share, based on the
HomeTown Base Case Forecasts, and of between $146.4 million and $162.4 million,
or between $12.62 and $14.00 per share, based on the HomeTown Competitive Case
Forecasts.
CONTRIBUTION ANALYSIS. Using historical financial information of Buffets
and HomeTown, 1996 financial forecasts of Buffets, provided to Montgomery
Securities by Buffets' management, 1997 financial forecasts of Buffets prepared
by Montgomery Securities based on Buffets management's 1996 forecasts, and 1996
and 1997 financial forecasts of HomeTown provided to Montgomery Securities by
HomeTown's management, Montgomery Securities reviewed the estimated contribution
of HomeTown to LTM Revenues, LTM EBIT, LTM net income, estimated 1996 and 1997
revenues, estimated 1996 and 1997 EBIT and estimated 1996 and 1997 net income of
the combined company. Montgomery Securities then compared such contributions to
the percentage of the equity of the
32
<PAGE>
combined company to be owned by HomeTown stockholders assuming consummation of
the Merger at an exchange ratio of 1.17. Such analysis indicated that the
percentage of equity that HomeTown stockholders would own in the combined
company (approximately 35.4%) would exceed the contribution of HomeTown to each
of the financial measurements described above.
EARNINGS ACCRETION ANALYSIS. Using 1997 financial forecasts of Buffets
prepared by Montgomery Securities based on Buffets management's 1996 forecasts,
and 1997 financial forecasts of HomeTown provided to Montgomery Securities by
HomeTown's management, and giving effect to various levels of cost savings that
such managements believe may be realized following the Merger, Montgomery
Securities compiled and reviewed pro forma financial information of the combined
company assuming consummation of the Merger at an exchange ratio of 1.17. Such
analysis indicated that the Merger would be accretive to earnings per share of
the combined company in 1997 assuming cost savings of $8.0 million or greater.
VALUATION OF BUFFETS
COMPARABLE COMPANY ANALYSIS. Using public and other available information,
Montgomery Securities calculated the imputed per share value of Buffets Common
Stock based on the multiples of LTM Revenues, LTM EBITDA, LTM EBIT and estimated
1996 EBITDA at which the Comparable Companies were trading on May 31, 1996. The
May 31, 1996 stock prices of the Comparable Companies reflected the following
median multiples: 1.1x LTM Revenues; 8.2x LTM EBITDA; 13.0x LTM EBIT; and 6.4x
estimated 1996 EBITDA. Montgomery Securities applied the foregoing median
multiples to the applicable statistics for Buffets, and made applicable
adjustments to reflect Buffets' net debt (defined as debt minus cash) at January
3, 1996. This analysis indicated an imputed equity value (defined as aggregate
value minus net debt) of Buffets of between $507.4 million and $597.8 million,
or between $16.19 and $19.08 per share.
DISCOUNTED CASH FLOW ANALYSIS. Montgomery Securities applied a discounted
cash flow analysis to Buffets' financial forecasts for 1996, prepared by
Buffets' management and provided to Montgomery Securities, and for 1997 through
2000, prepared by Montgomery Securities using assumptions consistent with those
underlying the Buffets' management forecasts. Buffets did not provide Montgomery
Securities with any financial forecasts for periods beyond 1996. As described
above, with HomeTown's consent Montgomery Securities adjusted the forecasts
prepared by Buffets' management, and the extensions thereof prepared by
Montgomery Securities, to reflect more conservative assumptions regarding future
results of operations. The unadjusted forecasts are referred to as the "Buffets
Base Case Forecasts," and the Buffets Base Case Forecasts as so adjusted by
Montgomery Securities are referred to as the "Buffets Competitive Case
Forecasts."
In conducting its discounted cash flow analysis, Montgomery Securities first
calculated the estimated future streams of free cash flows that Buffets would
produce through 2000. Second, Montgomery Securities estimated Buffets' aggregate
value at the end of 2000 by applying a multiple of 7.0x to Buffets' estimated
EBITDA in 2000 and adding Buffets' estimated net debt at the end of 2000. Such
cash flow streams and aggregate values were discounted to present values using
discount rates ranging from 18.0% to 20.0%, chosen to reflect different
assumptions regarding Buffets' cost of capital, and such present values were
then reduced by Buffets' net debt as of January 3, 1996. This analysis indicated
an imputed equity value of Buffets of between $404.4 million and $436.3 million,
or between $12.92 and $13.94 per share, based on the Buffets Base Case
Forecasts, and of between $394.1 million and $424.7 million, or between $12.59
and $13.57 per share, based on the Buffets Competitive Case Forecasts.
In connection with its written opinion dated as of the date of this Joint
Proxy Statement/ Prospectus, Montgomery performed procedures to reconfirm, as
necessary, certain of the analyses described above and reviewed the assumptions
on which such analyses were based and the factors considered in connection
therewith.
33
<PAGE>
While the foregoing summary describes all analyses and examinations that
Montgomery Securities deems material to its opinion, it is not a comprehensive
description of all analyses and examinations actually conducted by Montgomery
Securities. The preparation of a fairness opinion necessarily is not susceptible
to partial analysis or summary description. Montgomery Securities believes that
its analyses and the summary set forth above must be considered as a whole and
that selecting portions of its analyses and of the factors considered, without
considering all analyses and factors, would create an incomplete view of the
process underlying the analyses set forth in its presentation to HomeTown.
Accordingly, the ranges of valuations resulting from any particular analysis
described above should not be taken to be Montgomery Securities' view of the
actual value of HomeTown.
In performing its analyses, Montgomery Securities made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of HomeTown and Buffets.
The analyses performed by Montgomery Securities are not necessarily indicative
of actual values or actual future results, which may be significantly more or
less favorable than those suggested by such analyses. Such analyses were
prepared solely as part of Montgomery Securities' analysis of the fairness of
the Merger to the stockholders of HomeTown and were provided to the HomeTown
Board in connection with the delivery of Montgomery Securities' opinions. The
analyses do not purport to be appraisals or to reflect the prices at which a
company might actually be sold or the prices at which any securities may trade
at any time in the future. Montgomery Securities used in its analyses various
projections of future performance prepared by the managements of HomeTown and
Buffets. The projections are based on numerous variables and assumptions which
are inherently unpredictable and must be considered not certain of occurrence as
projected. Accordingly, actual results could vary significantly from those set
forth in such projections.
As described above, Montgomery Securities' opinions and presentation to the
HomeTown Board were among the many factors taken into consideration by the
HomeTown Board in making its determination to approve, and to recommend that
HomeTown's stockholders approve, the Merger.
Pursuant to the Engagement Letter, HomeTown engaged Montgomery Securities to
act as its financial advisor in connection with the Merger. If the Merger is
effected, the Engagement Letter provides for HomeTown to pay Montgomery
Securities a fee calculated on the basis of the exchange ratio paid in the
Merger, the value of the Buffets Common Stock issued in the Merger and the net
debt of HomeTown. The precise amount of such fee cannot be determined until the
Closing. However, based on current information, Montgomery Securities' fee would
be approximately $1.8 million. The fee is not conditioned on the outcome of
Montgomery Securities' opinion or whether or not such opinion was deemed to be
favorable for any party's purposes. HomeTown's obligation to pay Montgomery
Securities' fee is contingent upon the consummation of the Merger. The Board of
Directors of HomeTown was aware of this fee structure and took it into account
in considering Montgomery Securities' opinion and in approving the Merger
Agreement and the transactions contemplated thereby. The Engagement Letter also
calls for HomeTown to reimburse Montgomery Securities for its reasonable
out-of-pocket expenses. Pursuant to a separate letter agreement, HomeTown has
agreed to indemnify Montgomery Securities, its affiliates, and their respective
partners, directors, officers, agents, consultants, employees and controlling
persons against certain liabilities, including liabilities under the federal
securities laws.
In the ordinary course of its business, Montgomery Securities actively
trades the equity securities of HomeTown and Buffets for its own account and for
the accounts of customers and, accordingly, may at any time hold a long or short
position in such securities. Montgomery Securities also has acted as a managing
underwriter in connection with offerings of securities of HomeTown and performed
various investment banking services for HomeTown.
34
<PAGE>
THE MERGER
GENERAL
The respective Boards of Directors of Buffets and HomeTown, meeting
separately, each authorized the execution and performance of the Merger
Agreement.
THE FOLLOWING SUMMARY OF THE MATERIAL TERMS OF THE MERGER AGREEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PROVISIONS OF THE MERGER
AGREEMENT, WHICH IS ATTACHED AS EXHIBIT A TO THIS JOINT PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE.
EFFECTIVE TIME AND EFFECT OF THE MERGER
The Merger Agreement provides that, following the approval by Buffets
shareholders of the issuance of shares of Buffets Common Stock pursuant to the
Merger Agreement, and the approval of the Merger and the Merger Agreement by
HomeTown stockholders, and the satisfaction or waiver of the other conditions to
the Merger, Sub will be merged with and into HomeTown, with HomeTown continuing
as the surviving corporation, and HomeTown will then be a wholly-owned
subsidiary of Buffets.
The Merger will become effective upon the filing of a Certificate of Merger
with the Secretary of State of the State of Delaware or at such later time as
may be provided in the Certificate of Merger (the "Effective Time"). The
Effective Time is expected to occur as promptly as practicable after the
approval of the Merger Proposal by the shareholders of Buffets and the approval
of the Merger Agreement and the Merger by the stockholders of HomeTown at the
respective Special Meetings, subject to the conditions described under "The
Merger -- Conditions to Consummation of the Merger". The separate corporate
existence of Sub will terminate upon consummation of the Merger and, pursuant to
the Merger Agreement and applicable law, each issued and outstanding share of
HomeTown Common Stock will be converted automatically into 1.17 shares of
Buffets Common Stock (the "Conversion Number"). The Conversion Number shall be
appropriately adjusted to reflect any stock split, stock dividend,
recapitalization, exchange, subdivision, combination, or other similar change in
Buffets Common Stock or HomeTown Common Stock prior to the Effective Time.
EXCHANGE OF SHARES
Instructions with regard to the surrender of HomeTown Common Stock
certificates, together with a letter of transmittal to be used for this purpose,
will be mailed to HomeTown stockholders as promptly as practicable after the
Effective Time. In order to receive certificates evidencing Buffets Common
Stock, each HomeTown stockholder will be required to surrender his or her stock
certificate(s) after the Effective Time, together with a duly completed and
executed letter of transmittal, to American Stock Transfer & Trust Company,
which will act as Exchange Agent (the "Exchange Agent") in connection with the
Merger. Promptly after the Effective Time, Buffets will deposit in trust with
the Exchange Agent certificates representing the number of whole shares of
Buffets Common Stock which the holders of HomeTown Common Stock are entitled to
receive in the Merger, together with cash sufficient to pay for fractional
shares. Upon receipt of such stock certificates and letters of transmittal, the
Exchange Agent will issue stock certificates evidencing the Buffets Common Stock
to the registered holder or his or her transferee for the number of shares of
Buffets Common Stock each such person is entitled to receive as a result of the
Merger, together with cash in lieu of any fractional shares. No interest will be
paid or accrued on the amounts payable upon the surrender of HomeTown Common
Stock certificates.
HOMETOWN STOCKHOLDERS SHOULD NOT SUBMIT THEIR STOCK CERTIFICATES FOR
EXCHANGE UNTIL THE INSTRUCTIONS AND LETTER OF TRANSMITTAL ARE RECEIVED.
If any certificate for Buffets Common Stock is to be issued or any cash
payment in lieu of a fractional share is to be made to a person other than the
person in whose name the certificate for the HomeTown Common Stock surrendered
in exchange therefor is registered, it will be a condition of such issuance or
payment that the stock certificate so surrendered be properly endorsed and
otherwise in proper form for transfer, and that the person requesting such
issuance or payment (i) pay in
35
<PAGE>
advance any transfer or other taxes required by reason of the issuance of a
certificate for Buffets Common Stock or a check representing cash in lieu of a
fractional share to a person other than the registered holder of the HomeTown
Common Stock certificate surrendered, or (ii) establish to the satisfaction of
the Exchange Agent that such tax has been paid or is not applicable.
After the Effective Time, there will be no further transfers on the stock
transfer books of HomeTown of the shares of HomeTown Common Stock that were
outstanding immediately prior to the Effective Time. If a certificate
representing such shares is presented for transfer, subject to compliance with
the requisite transmittal procedures, it will be canceled and exchanged for the
applicable number of shares of Buffets Common Stock and cash in lieu of any
fractional share amount.
Each certificate representing HomeTown Common Stock immediately prior to the
Effective Time will, at the Effective Time, be deemed for all purposes to
represent only the right to receive the number of whole shares of Buffets Common
Stock (and the right to receive cash in lieu of any fractional share of Buffets
Common Stock) into which the shares of HomeTown Common Stock represented by such
certificate were converted in the Merger.
Until a certificate which formerly represented HomeTown Common Stock is
actually surrendered for exchange and received by the Exchange Agent, the holder
thereof will not be entitled to receive any dividends or other distributions
with respect to Buffets Common Stock payable to holders of record after the
Effective Time. Subject to applicable law, upon such surrender of HomeTown
Common Stock certificates such dividends or other distributions will be remitted
(without interest) to the record holder of certificates for the shares of
Buffets Common Stock issued in exchange therefor.
Any certificates for the Buffets Common Stock and cash sufficient to pay for
fractional shares delivered or made available to the Exchange Agent and not
exchanged for HomeTown Common Stock certificates within six months after the
Effective Time will be returned by the Exchange Agent to Buffets, which will
thereafter act as Exchange Agent. None of Buffets, HomeTown or the Exchange
Agent will be liable to a holder of HomeTown Common Stock for any of the Buffets
Common Stock, dividends or other distributions thereon, or cash in lieu of
fractional shares, delivered to a public official pursuant to applicable
abandoned property, escheat, or similar law.
No fractional shares of Buffets Common Stock will be issued in connection
with the Merger. All fractional shares of Buffets Common Stock to which a holder
of HomeTown Common Stock immediately prior to the Effective Time would otherwise
be entitled at the Effective Time will be aggregated. If a fractional share
results from such aggregation, the HomeTown stockholder will be entitled to
receive from Buffets an amount in cash equal to the average of the per share
closing sale prices of Buffets Common Stock on the Nasdaq National Market for
the 15 trading days immediately preceding the closing date of the Merger (the
"Average Price") multiplied by the fraction of a share of Buffets Common Stock
which the HomeTown stockholder would otherwise have received. Except for such
payment, no HomeTown stockholder will be entitled to any dividends or other
distributions or other rights of shareholders with respect to any fractional
interest.
The holders of Buffets Common Stock will continue to hold their shares
without any change in number, designation, terms or rights.
CONDITIONS TO CONSUMMATION OF THE MERGER
In addition to customary conditions, the obligations of Buffets, HomeTown
and Sub to consummate the Merger are subject to the satisfaction of certain
conditions, including (i) the approval of the Merger and the Merger Agreement by
the stockholders of HomeTown and the approval of the issuance of shares of
Buffets Common Stock pursuant to the Merger Agreement by the shareholders of
Buffets, (ii) the expiration or termination of the waiting period applicable
under the HSR Act, (iii) the receipt of all permits, consents and approvals of
securities or "Blue Sky" commissions or agencies of any jurisdiction and of
other governmental bodies or agencies that may reasonably be deemed necessary so
that the consummation of the Merger and the other transactions contemplated
hereby will comply with applicable laws, (iv) the effectiveness under the
Securities Act of the Registration Statement (of
36
<PAGE>
which this Joint Proxy Statement/Prospectus constitutes a part) and the absence
of any stop order suspending the effectiveness of the Registration Statement or
proceedings seeking a stop order, (v) the delivery to the Buffets shareholders
and the HomeTown stockholders of this Joint Proxy Statement/ Prospectus in
accordance with the requirements of the Securities Act and the Exchange Act,
(vi) no temporary restraining order, preliminary or permanent injunction, or
other order issued by any court of competent jurisdiction, or other legal or
regulatory restraint or prohibition preventing the consummation of the Merger or
limiting or restricting Buffets' conduct or operation of the business of Buffets
or HomeTown after the Merger, shall have been issued, nor shall any proceeding
brought by a domestic administrative agency or commission or other domestic
governmental entity seeking any of the foregoing be pending, nor shall there be
any action taken, or statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Merger which makes the consummation of the
Merger illegal, (vii) Buffets and HomeTown shall have received letters from
Deloitte & Touche LLP, Buffets' independent auditors, dated the date of this
Joint Proxy Statement/Prospectus and confirmed in writing at the Effective Time,
as to their concurrence with Buffets' management regarding the appropriateness
of pooling-of-interests accounting for the Merger under Accounting Principles
Board Opinion No. 16, if the Merger is consummated in accordance with the Merger
Agreement, and from KPMG Peat Marwick LLP, HomeTown's independent auditors,
dated the date of this Joint Proxy Statement/Prospectus and confirmed in writing
at the Effective Time, stating they are not aware of any conditions that would
preclude HomeTown from being pooled with Buffets, (viii) the Buffets Common
Stock to be issued in the Merger shall have been approved for quotation on the
Nasdaq National Market, (ix) the receipt by Buffets of all necessary consents
and waivers required in connection with the Merger under the Second Amended and
Restated Credit Agreement dated as of April 30, 1996 by and between First Bank
National Association and Buffets, and (x) the receipt by HomeTown of the opinion
of Stoel Rives LLP, and the receipt by Buffets of the opinion of Faegre & Benson
LLP, that the Merger will be treated as a tax-free reorganization within the
meaning of Section 368(a) of the Code.
Additional conditions to the obligations of Buffets and Sub to consummate
the Merger include (i) the accuracy in all material respects, as of the date of
the Merger Agreement, of the representations and warranties of HomeTown and the
performance, in all material respects, of all of the obligations required to be
performed by HomeTown under the Merger Agreement prior to the consummation of
the Merger, (ii) the non-occurrence of any material adverse change in the
financial condition, results of operations, prospects or business of HomeTown
and its subsidiaries, taken as a whole, since the date of the Merger Agreement,
(iii) the receipt by Buffets of all state securities or "Blue Sky" permits and
other authorizations necessary to issue shares of Buffets Common Stock pursuant
to the Merger, (iv) the receipt by Buffets of opinions of Stoel Rives LLP,
counsel to HomeTown, substantially to the effect set forth in the Merger
Agreement, (v) the receipt by the Board of Directors of Buffets from Piper
Jaffray, on the date of this Joint Proxy Statement/Prospectus, of a written
update confirming Piper Jaffray's opinion that the Conversion Number is fair
from a financial point of view to Buffets and its shareholders, (vi) the
execution of an employment agreement by and between Buffets and Kerry A. Kramp,
and (vii) the receipt by HomeTown of all necessary consents, waivers and
approvals required under HomeTown's material agreements, contracts and licenses
and all necessary consents, waivers and approvals required under at least 95% of
the total number of HomeTown's restaurant leases.
Additional conditions to HomeTown's obligation to consummate the Merger
include (i) the accuracy in all material respects, as of the date of the Merger
Agreement, of the representations and warranties of Buffets and Sub and the
performance, in all material respects, of all the obligations required to be
performed by Buffets and Sub under the Merger Agreement prior to the
consummation of the Merger, (ii) the non-occurrence of any material adverse
change in the financial condition, results of operations, prospects or business
of Buffets and its subsidiaries, taken as a whole, since the date of the Merger
Agreement, (iii) the receipt by HomeTown of an opinion of Faegre & Benson LLP,
counsel to Buffets, substantially to the effect set forth in the Merger
Agreement, (iv) the receipt by the Board of Directors of HomeTown from
Montgomery Securities, on the date of this Joint Proxy
37
<PAGE>
Statement/Prospectus, of a written update confirming Montgomery Securities'
opinion that the consideration to be received by the HomeTown stockholders in
the Merger is fair from a financial point of view to the stockholders of
HomeTown, (v) the execution of an employment agreement by and between Buffets
and Kerry A. Kramp, and (vi) the receipt by Buffets of all necessary consents,
waivers and approvals required under Buffets material agreements, contracts and
licenses and all necessary consents, waivers and approvals required under at
least 95% of the total number of Buffets' restaurant leases.
Under the terms of the Merger Agreement, Buffets and Sub have no obligation
to consummate the Merger if any condition to their obligations to consummate the
Merger are not satisfied on or prior to the closing date of the Merger and
HomeTown has no obligation to consummate the Merger if any condition to its
obligation to consummate the Merger is not satisfied on or prior to the closing
date of the Merger. Any of the conditions to the obligations of Buffets, Sub or
HomeTown to consummate the Merger may be waived or modified by the party that
is, or whose shareholders are, entitled to the benefits thereof.
Reference is made to Article VII of the Merger Agreement for a complete
statement of the conditions precedent to the obligations of the respective
parties to consummate the Merger.
REPRESENTATIONS, WARRANTIES AND COVENANTS
In the Merger Agreement, Buffets, Sub and HomeTown have made various
representations, warranties, covenants and agreements relating to, among other
things, their respective organization, capital structure, business and financial
condition, the completeness and accuracy of filings made with the SEC and the
satisfaction of certain legal requirements for the Merger. The representations
and warranties of each of the parties to the Merger Agreement will expire upon
consummation of the Merger.
The Merger Agreement provides that neither Buffets nor HomeTown will
directly or indirectly (i) solicit, initiate, or encourage any inquiries or
proposals that constitute, or could reasonably be expected to lead to, a
proposal or offer for a merger, consolidation, business combination, sale of
substantial assets, sale of shares of capital stock or similar transaction
involving Buffets or HomeTown, as the case may be (an "Acquisition Proposal"),
(ii) engage in negotiations or discussions concerning, or provide any non-public
information to any person or entity relating to, any Acquisition Proposal, or
(iii) agree to, approve, or recommend any Acquisition Proposal; provided,
however, that Buffets and HomeTown, or their respective Boards of Directors, may
furnish non-public information to, or enter into discussions or negotiations
with, any person or entity in connection with an unsolicited bona fide
Acquisition Proposal by such person or entity, or recommend an unsolicited bona
fide written Acquisition Proposal to its shareholders, but only if and to the
extent that the Board of Directors determines in good faith after consultation
with outside legal counsel that such action is necessary for it to comply with
its fiduciary duties to shareholders under applicable law and receives from such
person or entity certain confidentiality undertakings. Buffets and HomeTown have
agreed to promptly notify the other if either receives any inquiries or
proposals with respect to an Acquisition Proposal.
Under the Merger Agreement, each of Buffets and HomeTown is generally
obligated prior to the Effective Time to carry on its business in the usual,
regular, and ordinary course in substantially the same manner as previously
conducted, to pay its debts and taxes when due, to pay or perform other
obligations when due, and to preserve intact its present business organization.
Buffets and HomeTown have agreed to notify the other of changes in the normal
course of its business and to refrain from taking certain actions without the
prior written consent of the other, including, among other maters, accelerating
or amending options, transferring intellectual property rights, declaring
dividends, issuing stock (subject to certain exceptions), acquiring or merging
with third parties,
38
<PAGE>
disposing of any of its assets, increasing compensation, revaluing any of its
assets, incurring indebtedness (except pursuant to existing credit agreements)
or voluntarily prepaying outstanding indebtedness, amending its articles or
certificate of incorporation or bylaws or making any capital expenditure or
commitment (subject to certain exceptions).
INDEMNIFICATION
Buffets has agreed that, after the Effective Time, it will guaranty the
obligations of HomeTown to indemnify its present and former directors and
officers and Bradley J. Thies, General Counsel of HomeTown, to the extent of,
and in accordance with, the Bylaws of HomeTown and Delaware law and, with
respect to Mr. Thies, in accordance with the resolution of the Board of
Directors of HomeTown adopted at a meeting thereof on May 10, 1994. Subject to
the Delaware law, the parties have also agreed that HomeTown's Bylaws relating
to indemnification shall not be amended in a manner which adversely affects the
rights of any party entitled to indemnification thereunder.
EMPLOYEE BENEFIT PLANS AND STOCK OPTIONS
Following the Effective Time, all employees of HomeTown will be given credit
for their periods of service with HomeTown as if such service were with Buffets
in determining their eligibility for inclusion in, and the level of benefits
granted after the Effective Time under, Buffets' employee benefit plans.
HomeTown's employees will be eligible for grants of stock options after the
Effective Time under Buffets' 1995 Stock Incentive Plan on the same terms as
Buffets' employees. In connection with the Merger, HomeTown is permitted to
enter into severance obligations up to an aggregate amount not to exceed $1.2
million with its corporate employees. In addition, certain HomeTown corporate
employees who will, after the Effective Time, become employees of Buffets, will
be entitled to specified severance benefits. See "The Merger -- Interests of
Certain Persons in the Merger."
At July 31, 1996, a total of 1,428,325 shares of HomeTown Common Stock was
reserved for issuance upon the exercise of the HomeTown Stock Options
outstanding under the HomeTown 1991 Stock Option Plan. At the Effective Time,
each HomeTown Stock Option outstanding will be assumed by Buffets and, whether
vested or unvested, will be converted into an option to acquire shares of
Buffets Common Stock, based on the Conversion Number, and the exercise price of
each such option will be correspondingly adjusted.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time, whether before or after the approval by the Buffets
shareholders or the HomeTown stockholders, (i) by mutual written consent of
Buffets and HomeTown, (ii) by either Buffets or HomeTown if the Merger has not
been consummated by December 31, 1996, (iii) by either Buffets or HomeTown 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, having
the effect of permanently restraining, enjoining or otherwise prohibiting the
Merger, (iv) by either Buffets or HomeTown if, at the Buffets Special Meeting or
the HomeTown Special Meeting, the requisite vote of the shareholders of Buffets
in favor of the issuance of Buffets Common Stock pursuant to the Merger
Agreement or of the stockholders of HomeTown in favor of the Merger and the
Merger Agreement is not obtained, (v) by either Buffets or HomeTown if the Board
of Directors of the other withdraws or modifies its recommendation to its
shareholders to approve the Merger or fails to call and send notice of the
Buffets Special Meeting or the HomeTown Special Meeting, as the case may be, or
if the Board of Directors of the other recommends an alternative transaction (as
defined in the Merger Agreement) to its shareholders, (vi) by either Buffets or
HomeTown if a tender offer or exchange offer for 15% or more of the outstanding
Common Stock of the other is commenced and the Board of Directors recommends
that the shareholders tender their shares in such tender offer or exchange
offer, or (vii) by either Buffets or HomeTown if there has been a material
breach of any representation, warranty, covenant or agreement on the part of the
other set forth in the Merger Agreement that is not cured within a specified
time period.
39
<PAGE>
If Buffets or HomeTown terminates the Merger Agreement as provided above,
there will be no liability on the part of any party or its officers, directors
or shareholders, except as described in "Fees and Expenses; Termination Fees"
below.
FEES AND EXPENSES; TERMINATION FEES
Whether or not the Merger is consummated, all costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
will be paid by the party incurring such costs or expenses; provided, however,
that Buffets and HomeTown shall share equally all fees and expenses, other than
attorneys' fees, incurred in relation to the printing and filing of this Joint
Proxy Statement/Prospectus and the Registration Statement. In addition, HomeTown
must pay Buffets a termination fee of $1,500,000 if the Merger Agreement is
terminated (a) by Buffets because (i) the HomeTown Board has withdrawn or
modified its recommendation to the HomeTown stockholders to approve the Merger
and the Merger Agreement, or recommended an alternative transaction (as defined
in the Merger Agreement) to the HomeTown stockholders, (ii) a tender offer or
exchange offer for 15% or more of the outstanding shares of HomeTown Common
Stock is commenced and the Board of Directors of HomeTown recommends that the
HomeTown stockholders tender their shares in such tender offer or exchange
offer, (iii) HomeTown materially breached any representation, warranty, covenant
or agreement set forth in the Merger Agreement and failed to cure such breach
within the specified time period, or (b) by Buffets or HomeTown because of the
failure to obtain the requisite vote of HomeTown stockholders in favor of the
Merger Agreement at the HomeTown Special Meeting. Buffets must pay HomeTown a
termination fee of $1,500,000 if the Merger Agreement is terminated (a) by
HomeTown because (i) the Buffets Board has withdrawn or modified its
recommendation to the Buffets shareholders to approve the issuance of Buffets
Common Stock pursuant to the Merger Agreement, or recommended an alternative
transaction (as defined in the Merger Agreement) to the Buffets shareholders,
(ii) a tender offer or exchange offer for 15% or more of the outstanding shares
of Buffets Common Stock is commenced and the Board of Directors of Buffets
recommends that the Buffets shareholders tender their shares in such tender
offer or exchange offer, (iii) Buffets materially breached any representation,
warranty, covenant or agreement set forth in the Merger Agreement and failed to
cure such breach within the specified time period, or (b) by Buffets or HomeTown
because of the failure to obtain the requisite vote of Buffets shareholders in
favor of the issuance of Buffets Common Stock pursuant to the Merger Agreement.
AMENDMENT OF THE MERGER AGREEMENT; WAIVER OF CONDITIONS
The respective Boards of Directors of HomeTown, Buffets and Sub may, by
written agreement, at any time before or after the approval of the Merger and
the Merger Agreement by the HomeTown stockholders and the approval of the
issuance of shares of Buffets Common Stock pursuant to the Merger Agreement by
the Buffets shareholders, amend the Merger Agreement, provided that after such
approval by the HomeTown or Buffets shareholders no amendment or modification
may be made that would materially adversely affect the rights of the HomeTown or
Buffets shareholders without the further approval of such shareholders. Each
party to the Merger Agreement may, to the extent legally permitted, extend the
time for the performance of any of the obligations of any other party to the
Merger Agreement, waive any inaccuracies in the representations or warranties of
any other party contained in the Merger Agreement or waive compliance by any
other party with any of the agreements or conditions contained in the Merger
Agreement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the HomeTown Board with respect to the
Merger, HomeTown stockholders should be aware that certain directors and
officers of HomeTown have interests in the Merger different from the interests
of other HomeTown stockholders.
The HomeTown Bylaws provide for indemnification and advancement of expenses
to each director and officer of HomeTown. In addition, the HomeTown Board, by
resolution dated May 10, 1994, extended the benefit of such provisions to
Bradley J. Thies, General Counsel of HomeTown. Pursuant to the terms of the
Merger Agreement, Buffets has agreed to guaranty HomeTown's obligations to
40
<PAGE>
indemnify its present and former directors and officers and Mr. Thies pursuant
to the terms of the HomeTown Bylaws and, with respect to Mr. Thies, in
accordance with the above-mentioned board resolution. Subject to Delaware law,
Buffets has also agreed that HomeTown's Bylaws shall not be amended in a manner
which adversely affects the rights of any party entitled to indemnification
thereunder.
Buffets has also agreed, effective upon consummation of the Merger, to
create two additional positions on the Buffets Board and to elect C. Dennis
Scott, currently Chairman and Chief Executive Officer of HomeTown, and Dr.
Christian F. Horn, currently a director of HomeTown, to fill such vacancies. In
addition, Buffets will, as of the Effective Time, appoint Mr. Scott as Vice
Chairman of the Board and Chief Operating Officer of Buffets; Kerry A. Kramp,
currently President, Chief Operating Officer and a director of HomeTown, as
President of Buffets; Neal L. Wichard, currently Vice Chairman and Secretary of
HomeTown, as Senior Vice President of Real Estate of Buffets; Thomas F. Hubbard,
currently Vice President of Construction and Development of HomeTown, as
Executive Vice President of Real Estate and Development of Buffets; and David
Goronkin, currently Vice President of Operations of HomeTown, as Vice President
of Operations of Buffets. See "Management of Buffets -- New Directors and
Officers".
It is a condition to the Closing of the Merger that Buffets shall have
entered into an Employment Agreement with Mr. Kramp in substantially the form
attached as an exhibit to the Merger Agreement. The form of Employment Agreement
provides that Buffets will employ Mr. Kramp as President of Buffets for a period
of two years following the Merger. Mr. Kramp will be entitled to an annual
minimum base salary of $200,000 and to participate in Buffets' current bonus
program, with the opportunity, based on meeting established performance
criteria, to earn bonus compensation equal to at least 50% of base compensation.
In addition, Buffets will grant Mr. Kramp options to purchase 75,000 shares of
Buffets Common Stock under Buffets' 1995 Stock Option Plan, exercisable at fair
market value on the date of grant. If Mr. Kramp's employment is terminated
during its two-year term, other than for "cause" (as defined in the form of
Employment Agreement), he will be entitled to receive his base salary at regular
intervals for the remainder of the two-year term, or for a period of twelve
months from the date of termination, whichever is longer. The form of Employment
Agreement also includes certain non-compete and confidentiality undertakings by
Mr. Kramp.
Buffets and HomeTown have also agreed that, if within a period of 12 months
after the Effective Time, any of Messrs. Scott, Wichard, Hubbard or Goronkin is
terminated by Buffets without "cause" (as defined in the agreement between the
parties), such person shall be entitled to a severance payment from Buffets of
up to nine months of such person's base salary at HomeTown in effect immediately
prior to the Merger.
In anticipation of their relocation to Minneapolis in connection with the
proposed Merger, HomeTown has made loans to Mr. Kramp and K. Michael Schrader,
HomeTown's Vice President of Human Resources, in the principal amounts of
$86,400 and $65,000, respectively. The loans bear interest at the reference rate
of First Bank, Minneapolis, plus 1% per annum, and are secured by the respective
borrowers' options to purchase HomeTown common stock. Mr. Schrader's loan
provides for level monthly payments of principal and accrued interest over a
five-year period beginning on August 1, 1997 and continuing through August 1,
2000, with the remaining principal and interest due on that date. Mr. Kramp is
required to repay the principal amount of the loan, plus accrued interest, on
August 1, 1998. It is expected that a loan will also be made to Mr. Hubbard in
an amount and on terms substantially similar to the loan made to Mr. Kramp.
The HomeTown Board was informed of the interests described herein prior to
approving the Merger Agreement and the Merger.
On June 3, 1996, the HomeTown Board approved a one-time payment of $25,000
to each outside Board member as additional compensation in light of the added
responsibilities and time involved in dealing with the Merger.
41
<PAGE>
Except for the arrangements specifically set forth in this Joint Proxy
Statement/Prospectus and the Merger Agreement, Buffets has made no commitments
with respect to the retention of Buffets or HomeTown employees or entities after
the Merger.
FEDERAL INCOME TAX CONSEQUENCES
HomeTown has received an opinion of its counsel, Stoel Rives LLP, and
Buffets has received an opinion of its counsel, Faegre & Benson LLP, to the
effect that as of the Effective Time for federal income tax purposes the merger
of Sub with and into HomeTown, in accordance with the terms of the Merger
Agreement, will qualify as a "reorganization" within the meaning of Section
368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code"), and
that Buffets, HomeTown and Sub will each be a party to a reorganization within
the meaning of Section 368(b) of the Code. Such opinions are conditioned on the
accuracy of certain representations and covenants contained in the Merger
Agreement and certain facts and circumstances regarding the Merger.
Provided that the Merger qualifies as a "reorganization" within the meaning
of Section 368(a)(1)(A) of the Code, (i) no gain or loss will be recognized by
either HomeTown or Buffets as a result of the consummation of the Merger, (ii)
no gain or loss will be recognized by a stockholder of HomeTown upon the receipt
by such stockholder solely of shares of Buffets Common Stock (including any
fractional share interest treated as received) in exchange for such
stockholder's shares of HomeTown Common Stock in accordance with the terms of
the Merger Agreement, (iii) the aggregate tax bases of the shares of Buffets
Common Stock received by a stockholder of HomeTown (including any fractional
share interest treated as received) will be the same as the aggregate tax bases
of the shares of HomeTown Common Stock surrendered in exchange therefor
decreased by the amount of any cash received and increased by the amount of any
gain recognized, and (iv) the holding period of the shares of Buffets Common
Stock received by a HomeTown stockholder (including any fractional share
interest treated as received) in exchange for shares of HomeTown Common Stock
will include the period during which the shares of HomeTown Common Stock
surrendered in exchange therefor were held, provided the shares of HomeTown
Common Stock were held as capital assets at the Effective Time.
A HomeTown stockholder who receives cash in the Merger as a result of the
rounding off of a fractional share interest in Buffets Common Stock will be
treated as having received and then redeemed such fractional share of Buffets
Common Stock. The tax treatment of such redemption will be governed by Section
302(a) of the Code. Cash received for a fractional share by a minority
stockholder who exercises no control over the affairs of Buffets generally will
be treated as received in exchange for the fractional share of stock rather than
as a dividend. Assuming such treatment, a HomeTown stockholder would recognize
gain or loss measured by the difference between the cash received and the
portion of the stockholder's adjusted tax basis in the shares of HomeTown Common
Stock allocable to the fractional share. Any capital gain or loss recognized by
a HomeTown stockholder will be long-term capital gain or loss if the stockholder
has held such stockholder's shares of HomeTown Common Stock for longer than one
year.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY. HOMETOWN STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS FOR MORE SPECIFIC AND DEFINITIVE ADVICE AS TO THE FEDERAL INCOME TAX
CONSEQUENCES TO THEM OF THE CONVERSION OF THEIR SHARES OF HOMETOWN COMMON STOCK
PURSUANT TO THE MERGER, AS WELL AS ADVICE AS TO THE APPLICATION AND EFFECT OF
STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS AND POSSIBLE AMENDMENTS TO
SUCH LAWS.
ACCOUNTING TREATMENT OF THE MERGER
Buffets will account for the business combination of Buffets and HomeTown in
its financial statements by the pooling-of-interests method of accounting. The
obligations of Buffets and HomeTown to consummate the Merger are conditioned
upon the receipt by Buffets and HomeTown of a letter from Deloitte & Touche LLP,
Buffets' independent auditors, dated the date of this Joint Proxy
42
<PAGE>
Statement/Prospectus and confirmed in writing at the Effective Time, as to their
concurrence with Buffets' management regarding the appropriateness of
pooling-of-interests accounting for the Merger under Accounting Principles Board
Opinion No. 16, assuming the Merger is consummated in accordance with the Merger
Agreement and that no more than 10% of the Common Stock of HomeTown (including
for this purpose the Notes, provided they are deemed to represent a Common Stock
equivalent) is exchanged for cash in connection with the Merger. See "The Merger
- -- Debt Assumption". It is also a condition to consummation of the Merger that
Buffets and HomeTown receive a letter from KPMG Peat Marwick LLP, HomeTown's
independent auditors, dated the date of this Joint Proxy Statement/Prospectus
and confirmed in writing at the Effective Time, stating that they are not aware
of any conditions that would preclude HomeTown from being pooled with Buffets.
See "The Merger -- Conditions to Consummation of the Merger".
BUSINESS AND MANAGEMENT AFTER THE MERGER
Buffets intends to operate HomeTown in a manner substantially consistent
with its current operations. The headquarters of HomeTown after the Merger will
be consolidated with and moved to Buffets existing headquarters in Eden Prairie,
Minnesota. A number of HomeTown headquarters employees are not expected to be
included in such move; these employees may be entitled to certain severance
payments from HomeTown. See "The Merger -- Employee Benefit Plans and Stock
Options". Buffets and HomeTown will carefully review the operations of the
combined companies in an attempt to identify additional opportunities for
expense reduction through the use of shared resources. With respect to
restaurant development, Buffets and HomeTown are considering their various
development options after the Merger. Currently, the parties expect that
post-Merger the total number of restaurants developed in fiscal 1996 will be
approximately 53-58 restaurants in the aggregate (of which 26 had opened as of
July 31, 1996) and that the number of restaurants to be developed in fiscal 1997
will range from approximately 50 to 60 restaurants. The division of these
restaurants between Old Country Buffet and HomeTown Buffet restaurants has not
been determined. In connection with such development, Buffets may consider
restaurant conversions between the two concepts and the possible closure of
restaurants in markets that have been over-developed. Buffets would incur
additional expenses in connection with any such conversions or closures.
The executive officers of Buffets after the Merger will be as follows: Roe
H. Hatlen, Chairman and Chief Executive Officer; C. Dennis Scott, Vice Chairman
and Chief Operating Officer; Kerry A. Kramp, President; Rick H. White, Executive
Vice President of Operations; Clark C. Grant, Executive Vice President of
Finance and Administration and Treasurer; Jean C. Rostallan, Executive Vice
President of Purchasing; Thomas F. Hubbard, Executive Vice President of Real
Estate and Development; and Neal L. Wichard, Senior Vice President of Real
Estate. Additionally, Buffets will, as of the Effective Time, create two
additional positions on the Buffets Board. It is anticipated that Mr. Scott,
currently Chairman and Chief Executive Officer of HomeTown, and Dr. Horn,
currently a director of HomeTown, will be elected to fill the vacancies created
by the expansion of the Buffets Board. See "Management of Buffets -- New
Directors and Officers". It is anticipated that, as of the Effective Time, the
existing directors of HomeTown will resign and Messrs. Hatlen and Scott will be
appointed as the new directors.
DEBT ASSUMPTION
The Merger Agreement provides that Buffets will assume and/or guaranty
certain obligations under HomeTown's 7% Convertible Subordinated Notes due 2002
in the principal amount of $41.5 million (the "Notes") and that, in accordance
with the terms of the indenture relating to the Notes (the "Indenture"),
HomeTown and Buffets will execute and deliver, on or prior to the Effective
Time, a supplemental indenture or assumption agreement with respect to the Notes
in order to reflect the consummation of the transactions contemplated by the
Merger.
The Notes, which are unsecured subordinated obligations of HomeTown, mature
on December 1, 2002. Interest is payable semi-annually on June 1 and December 1
of each year. The Trustee under the Indenture or the holders of not less than
25% in aggregate principal amount of the outstanding Notes
43
<PAGE>
may accelerate the maturity of all Notes if an Event of Default (as defined in
the Indenture) occurs and is continuing. The Notes are convertible into HomeTown
Common Stock at any time prior to maturity, unless previously redeemed, at a
conversion price of $13.65 per share, subject to adjustment in certain events as
set forth in the Indenture. After the Merger, the Notes will be convertible into
shares of Buffets Common Stock at a conversion price of approximately $11.66 per
share. The Notes are redeemable, in whole or in part, at the option of HomeTown,
on not less than 15 nor more than 60 days notice, at any time on or after
December 2, 1998, at specified redemption prices (104%, 103%, 102% and 101% of
principal for the 12-month periods beginning December 2, 1998 and December 1,
1999, 2000 and 2001, respectively, and at 100% of principal at maturity), plus
accrued interest, if any, to the redemption date. If a Risk Event (as defined in
the Indenture) occurs, each holder of Notes will have the right, subject to
certain conditions and restrictions, to require HomeTown to repurchase all
outstanding Notes, in whole or in part, owned by such holder at 100% of their
principal amount plus accrued interest, if any, to the date of repurchase. The
Merger will be a Risk Event unless the closing price per share of HomeTown
Common Stock for any five trading days within the period of 10 consecutive
trading days ending immediately before the Effective Time equals or exceeds 105%
of the conversion price of the Notes ($14.33 per share) on each such trading
day.
RESALE OF SHARES BY HOMETOWN AFFILIATES
The shares of Buffets Common Stock to be received in the Merger will be
freely transferable, except for shares of Buffets Common Stock received by
persons who are deemed to be "affiliates", as that term is defined in the rules
under the Securities Act, of HomeTown immediately prior to the Effective Time
(or of Buffets after the Effective Time). Shares of Buffets Common Stock
received in the Merger by persons who are affiliates of HomeTown immediately
prior to the Effective Time but do not become affiliates of Buffets may be sold
by them only in accordance with the provisions of Rule 145 under the Securities
Act (which imposes certain limitations on the volume and manner of sales by such
affiliates), or pursuant to an effective registration statement under the
Securities Act, or in transactions exempt from registration thereunder.
NO DISSENTERS' RIGHTS
BUFFETS SHAREHOLDERS
Under Minnesota law, no holder of Buffets Common Stock will be entitled to
demand appraisal of, or to receive payment for, their shares.
HOMETOWN STOCKHOLDERS
Under Delaware law, no holder of HomeTown Common Stock will be entitled to
demand appraisal of, or to receive payment for, their shares.
44
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINING
CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed combining balance sheet combines Buffets'
consolidated balance sheet as of April 24, 1996 with HomeTown's consolidated
balance sheet as of that date, giving effect to the Merger as if it occurred on
April 24, 1996. The unaudited pro forma condensed combining statements of
earnings combine Buffets' consolidated statements of earnings for the sixteen
weeks ended April 24, 1996 and April 19, 1995 and the three years (52-53 weeks)
in the period ended January 3, 1996 with HomeTown's consolidated statements of
income for the same periods, giving effect to the Merger as if it had occurred
at the beginning of each period presented on a pooling-of-interest basis. The
historical information of Buffets has been derived from the unaudited condensed
consolidated financial statements for the sixteen weeks ended April 24, 1996 and
April 19, 1995 and the audited consolidated financial statements for each of the
three years (52-53 weeks) in the period ended January 3, 1996 which are
incorporated by reference herein and should be read in conjunction with such
financial statements and notes thereto. The historical financial information of
HomeTown has been derived from the unaudited condensed consolidated financial
statements for the sixteen weeks ended April 24, 1996 and April 19, 1995 and the
audited consolidated financial statements for each of the three years (52-53
weeks) in the period ended January 3, 1996 which are incorporated by reference
herein and should be read in conjunction with such financial statements and
notes thereto. In the opinion of the managements of Buffets and HomeTown, the
above-mentioned unaudited interim condensed consolidated financial statements of
the respective companies include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the results for
unaudited interim periods. The pro forma information is presented for
illustrative purposes only and is not necessarily indicative of the consolidated
financial position or operating results that would have occurred had the Merger
been consummated at the beginning of the periods presented, nor is it indicative
of future operating results or financial position.
45
<PAGE>
BUFFETS AND HOMETOWN
UNAUDITED PRO FORMA CONDENSED COMBINING CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
APRIL 24, 1996
--------------------------------------------------
HISTORICAL PRO FORMA
------------------------ ------------------------
BUFFETS HOMETOWN ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.................................. $ 13,286 $ 2,420 $ -- $ 15,706
Short-term investments..................................... -- 20,834 -- 20,834
Receivables................................................ 1,634 2,707 -- 4,341
Inventory.................................................. 2,839 1,162 -- 4,001
Prepaid expenses........................................... 582 1,018 -- 1,600
Other current assets....................................... 1,135 1,689 -- 2,824
Deferred income taxes...................................... 6,210 -- (553) 5,657
----------- ----------- ----------- -----------
TOTAL CURRENT ASSETS..................................... 25,686 29,830 (553) 54,963
PROPERTY AND EQUIPMENT, net.................................. 223,231 112,353 -- 335,584
OTHER ASSETS................................................. 5,767 3,323 -- 9,090
----------- ----------- ----------- -----------
TOTAL ASSETS................................................. $ 254,684 $ 145,506 $ (553) $ 399,637
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
LIABILITES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................... $ 23,004 $ 7,963 $ -- $ 30,967
Accrued liabilities........................................ 29,768 8,193 3,600 41,561
Income taxes............................................... 1,151 -- -- 1,151
Deferred income taxes...................................... -- 553 (553) --
Current maturities of long-term debt....................... -- 2,062 -- 2,062
Short-term debt............................................ -- 1,000 -- 1,000
----------- ----------- ----------- -----------
TOTAL CURRENT LIABILITIES................................ 53,923 19,771 3,047 76,741
LONG-TERM DEBT............................................... 10,000 48,092 -- 58,092
DEFERRED INCOME TAXES........................................ 12,501 1,916 -- 14,417
OTHER........................................................ 477 1,697 -- 2,174
COMMITMENTS AND CONTIGENCIES
STOCKHOLDERS' EQUITY:
Common stock............................................... 313 116 20 449
Additional paid-in capital................................. 53,034 62,122 (20) 115,136
Retained earnings.......................................... 124,436 11,792 (3,600) 132,628
----------- ----------- ----------- -----------
TOTAL STOCKHOLERS' EQUITY................................ 177,783 74,030 (3,600) 248,213
----------- ----------- ----------- -----------
$ 254,684 $ 145,506 $ (553) $ 399,637
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combining Financial
Statements.
46
<PAGE>
BUFFETS AND HOMETOWN
UNAUDITED PRO FORMA CONDENSED COMBINING CONSOLIDATED
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED APRIL 24, 1996
--------------------------------------------------
HISTORICAL PRO FORMA
------------------------ ------------------------
BUFFETS HOMETOWN ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
RESTAURANT SALES.............................................. $ 155,935 $ 61,403 $ -- $ 217,338
RESTAURANT COSTS:
Food costs.................................................. 54,573 21,974 -- 76,547
Labor costs................................................. 46,033 17,972 -- 64,005
Direct and occupancy costs.................................. 38,307 13,235 -- 51,542
----------- ----------- ----------- -----------
Total restaurant costs.................................... 138,913 53,181 -- 192,094
----------- ----------- ----------- -----------
RESTAURANT PROFITS............................................ 17,022 8,222 -- 25,244
SELLING, GENERAL AND ADMINISTATIVE EXPENSES................... 8,206 4,850 -- 13,056
----------- ----------- ----------- -----------
8,816 3,372 -- 12,188
OTHER INCOME (EXPENSE), net................................... 134 (447) (313)
----------- ----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES.................................. 8,950 2,925 -- 11,875
INCOME TAXES.................................................. 3,401 1,170 -- 4,571
----------- ----------- ----------- -----------
NET EARNINGS.................................................. $ 5,549 $ 1,755 $ -- $ 7,304
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE........... $ 0.18 $ 0.15 $ -- $ 0.16
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING.................................................. 31,556 12,051 2,049 45,656
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combining Financial
Statements.
47
<PAGE>
BUFFETS AND HOMETOWN
UNAUDITED PRO FORMA CONDENSED COMBINING CONSOLIDATED
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
SIXTEEN WEEKS ENDED APRIL 19, 1995
--------------------------------------------------
HISTORICAL PRO FORMA
------------------------ ------------------------
BUFFETS HOMETOWN ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
RESTAURANT SALES.............................................. $ 142,090 $ 38,334 $ -- $ 180,424
RESTAURANT COSTS:
Food costs.................................................. 49,832 14,029 -- 63,861
Labor costs................................................. 40,505 11,286 -- 51,791
Direct and occupancy costs.................................. 32,623 7,676 -- 40,299
----------- ----------- ----------- -----------
Total restaurant costs.................................... 122,960 32,991 -- 155,951
----------- ----------- ----------- -----------
RESTAURANT PROFITS............................................ 19,130 5,343 -- 24,473
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.................. 8,214 3,336 -- 11,550
----------- ----------- ----------- -----------
10,916 2,007 -- 12,923
OTHER INCOME (net)............................................ 66 211 277
----------- ----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES.................................. 10,982 2,218 -- 13,200
INCOME TAXES.................................................. 4,173 821 -- 4,994
----------- ----------- ----------- -----------
NET EARNINGS.................................................. $ 6,809 $ 1,397 $ -- $ 8,206
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE........... $ 0.22 $ 0.12 $ -- $ 0.18
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING.................................................. 31,156 11,935 2,029 45,120
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combining Financial
Statements.
48
<PAGE>
BUFFETS AND HOMETOWN
UNAUDITED PRO FORMA CONDENSED COMBINING CONSOLIDATED
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FIFTY-THREE WEEKS ENDED JANUARY 3, 1996
--------------------------------------------------
HISTORICAL PRO FORMA
------------------------ ------------------------
BUFFETS HOMETOWN ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
RESTAURANT SALES............................................. $ 509,928 $ 151,517 $ -- $ 661,445
RESTAURANT COSTS:
Food costs................................................. 179,758 54,512 -- 234,270
Labor costs................................................ 141,400 43,332 -- 184,732
Direct and occupancy costs................................. 118,656 30,188 -- 148,844
----------- ----------- ----------- -----------
Total restaurant costs................................... 439,814 128,032 -- 567,846
----------- ----------- ----------- -----------
RESTAURANT PROFITS........................................... 70,114 23,485 -- 93,599
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................. 27,309 12,970 -- 40,279
----------- ----------- ----------- -----------
42,805 10,515 -- 53,320
OTHER INCOME (net)........................................... 477 96 573
----------- ----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES................................. 43,282 10,611 -- 53,893
INCOME TAXES................................................. 16,450 4,050 -- 20,500
----------- ----------- ----------- -----------
NET EARNINGS................................................. $ 26,832 $ 6,561 $ -- $ 33,393
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE.......... $ 0.86 $ 0.55 $ -- $ 0.74
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING................................................. 31,312 11,959 2,033 45,304
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combining Financial
Statements.
49
<PAGE>
BUFFETS AND HOMETOWN
UNAUDITED PRO FORMA CONDENSED COMBINING CONSOLIDATED
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FIFTY-TWO WEEKS ENDED DECEMBER 28, 1994
--------------------------------------------------
HISTORICAL PRO FORMA
------------------------ ------------------------
BUFFETS HOMETOWN ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
RESTAURANT SALES.............................................. $ 409,744 $ 74,715 $ -- $ 484,459
RESTAURANT COSTS:
Food costs.................................................. 140,689 27,010 -- 167,699
Labor costs................................................. 110,165 22,001 -- 132,166
Direct and occupancy costs.................................. 93,528 14,320 -- 107,848
----------- ----------- ----------- -----------
Total restaurant costs.................................... 344,382 63,331 -- 407,713
----------- ----------- ----------- -----------
RESTAURANT PROFITS............................................ 65,362 11,384 -- 76,746
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.................. 29,362 7,721 -- 37,083
----------- ----------- ----------- -----------
36,000 3,663 -- 39,663
OTHER INCOME (net)............................................ 851 1,735 2,586
----------- ----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES.................................. 36,851 5,398 -- 42,249
INCOME TAXES.................................................. 14,375 1,754 -- 16,129
----------- ----------- ----------- -----------
NET EARNINGS.................................................. $ 22,476 $ 3,644 $ -- $ 26,120
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE........... $ 0.71 $ 0.31 $ -- $ 0.58
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING.................................................. 31,576 11,722 1,993 45,291
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combining Financial
Statements.
50
<PAGE>
BUFFETS AND HOMETOWN
UNAUDITED PRO FORMA CONDENSED COMBINING
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
FIFTY-TWO WEEKS ENDED DECEMBER 29, 1993
----------------------------------------------------
HISTORICAL PRO FORMA
------------------------ --------------------------
BUFFETS HOMETOWN ADJUSTMENTS COMBINED
----------- ----------- ------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
RESTAURANT SALES.............................................. $ 334,896 $ 34,684 $ -- $ 369,580
RESTAURANT COSTS:
Food costs.................................................. 114,927 12,721 -- 127,648
Labor costs................................................. 88,523 10,168 -- 98,691
Direct and occupancy costs.................................. 73,019 6,684 -- 79,703
----------- ----------- ----- -----------
Total restaurant costs.................................... 276,469 29,573 -- 306,042
----------- ----------- ----- -----------
RESTAURANT PROFITS............................................ 58,427 5,111 -- 63,538
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.................. 25,017 3,319 -- 28,336
----------- ----------- ----- -----------
33,410 1,792 -- 35,202
OTHER INCOME (net)............................................ 370 516 886
----------- ----------- ----- -----------
EARNINGS BEFORE INCOME TAXES.................................. 33,780 2,308 -- 36,088
INCOME TAXES.................................................. 13,480 369 -- 13,849
----------- ----------- ----- -----------
NET EARNINGS.................................................. $ 20,300 $ 1,939 $ -- $ 22,239
----------- ----------- ----- -----------
----------- ----------- ----- -----------
NET EARNINGS APPLICABLE TO COMMON SHAREHOLDERS................ $ 20,300 $ 1,078 $ -- $ 21,378
----------- ----------- ----- -----------
----------- ----------- ----- -----------
NET EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE........... $ 0.66 $ 0.21 $ -- $ 0.58
----------- ----------- ----- -----------
----------- ----------- ----- -----------
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING.................................................. 30,776 5,225 888 36,889
----------- ----------- ----- -----------
----------- ----------- ----- -----------
</TABLE>
See accompanying notes to Unaudited Pro Forma Condensed Combining Financial
Statements.
51
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINING FINANCIAL STATEMENTS
Note A: The adjustments to the unaudited pro forma condensed combining
balance sheet give effect to the assumed issuance of 13,577,737 shares of
Buffets Common Stock as if the Merger had been consummated as of April 24, 1996
and an anticipated charge for Merger-related expenses totaling approximately
$3.6 million. Such Merger-related expenses include only financial advisory fees,
legal and accounting expenses and other miscellaneous transaction costs; they do
not include any severance payments that may be made to HomeTown employees in
connection with the Merger (see "The Merger -- Employee Benefit Plans and Stock
Options"), any costs relating to possible restaurant conversions or closures
(see "The Merger -- Business and Management After the Merger") or any other
costs that may arise in connection with the Merger. The unaudited pro forma
condensed combining statements of earnings do not reflect these non-recurring
charges, which will be recorded as incurred. The pro forma combined per share
amounts in the unaudited pro forma condensed combining statements of earnings
are based upon the historical weighted average number of shares of Common Stock
and dilutive Common Stock equivalents of Buffets outstanding during each period
presented. In addition, the shares of Buffets Common Stock to be issued in
connection with the Merger, based on the equivalent weighted average shares and
the dilutive common share equivalents of HomeTown outstanding during each period
presented, are treated as outstanding during each such period.
Note B: The unaudited pro forma condensed combining financial statements do
not include adjustments to conform the accounting policies of HomeTown to those
followed by Buffets. The nature and extent of such adjustments, if any, will be
based upon further study and analysis and are not expected to be significant in
relationship to the consolidated financial statements of Buffets.
Note C: Certain financial statement balances of HomeTown have been
reclassified to conform with the Buffets financial statement presentation.
BUSINESS OF BUFFETS
GENERAL
Buffets, a Minnesota corporation, was organized in 1983. Its executive
offices are located at 10260 Viking Drive, Eden Prairie, Minnesota 55344.
References herein to Buffets are to Buffets, Inc. and its subsidiaries, OCB
Restaurant Co., OCB Realty Co., OCB Purchasing Co., OCB Property Co. and
Evergreen Buffets, Inc., unless the context indicates otherwise.
Buffets is principally engaged in the development and operation of buffet
restaurants under the name "Old Country Buffet" ("Country Buffet" in the state
of Colorado). Buffets obtained a federal trademark registration covering the
words "Old Country Buffet" in June 1985.
As of July 31, 1996, Buffets operated 256 company-owned restaurants in 31
states. In addition, six franchised Old Country Buffet restaurants are in
operation in Nebraska and Oklahoma.
Buffets' restaurants offer a wide variety of freshly prepared menu items,
including soups, salads, entrees, vegetables, non-alcoholic beverages and
desserts, presented in a self-service buffet format in which customers select
the items and portions of their choice. The restaurants' typical dinner entrees
include chicken, carved roast beef and ham, and two or three other hot entrees
such as casseroles, shrimp and fish. Chicken, fish and two or three other
entrees usually are offered at lunch. Buffets' restaurants utilize uniform
menus, recipes and ingredient specifications, except for certain variations
adopted in response to regional preferences.
Buffets' restaurants range in size from approximately 8,000 to 14,840 square
feet, seat from 260 to 390 people, and generally include areas that can be
partitioned to accommodate private meetings and group outings. The decor is
attractive and informal. To date, Buffets has located its restaurants
52
<PAGE>
primarily within or adjacent to strip or neighborhood shopping centers. Buffets
also owns 10 freestanding sites. Buffets' restaurants generally are open from
11:00 a.m. to 8:00 p.m. or 9:00 p.m. A majority of Buffets' restaurants also
serve breakfast from 8:00 a.m. to 11:30 a.m. on weekends.
SCATTER SYSTEM FORMAT
Menu items generally are presented to diners using a "scatter system" rather
than a conventional straight buffet serving line. Under the scatter system, six
to eight separate food islands or counters are used to present various courses
of each meal to diners (for example, salads on one island, desserts on another),
with diners able to proceed directly to those islands presenting the menu items
they desire at the time. The scatter system promotes easier food access and has
helped reduce the long lines that often occurred during peak hours in Buffets'
restaurants utilizing the conventional straight-line serving format. The scatter
system was introduced by Buffets in August 1989 and has been utilized in all of
its restaurants developed since March 1990. In addition, because of the success
of the scatter system, Buffets pursued a remodeling program from February 1990
through 1995 with the goal of converting substantially all of its 71
then-existing restaurants from the conventional straight-line format to the
scatter system. The last restaurant was converted in 1995.
SMALL BATCH PREPARATION
To ensure freshness, hot foods and bakery items are prepared repeatedly
throughout the day in relatively small batches. Restaurant managers closely
monitor the servicing area for the quality and availability of all items.
Buffets believes the freshness achieved through small batch preparation
contributes significantly to the high quality of its food.
ALL-INCLUSIVE PRICE
Buffets' restaurants currently charge, depending on the market area, $5.39
to $5.99 for lunch Monday through Saturday and $6.99 to $8.19 for dinner Monday
through Sunday. On Saturday and Sunday, certain restaurants serve breakfast at
prices ranging from $5.49 to $6.19. A limited number of Buffets' restaurants
serve a limited breakfast at lower prices. Reduced prices are available to
senior citizens who purchase an annual senior club card for $1.00 per year and
to children under the age of 10 or 12 depending on the market area. Children's
prices for all meals are $.40 to $.55 per year of their age from two through 10
or 12. Customers pay prior to entering the dining area and are assisted to
tables by restaurant employees. They may return for second helpings and
additional beverages and desserts without additional charge.
RESTAURANT OPERATIONS AND CONTROLS
GENERAL. In order to maintain a consistently high level of food quality and
service in all of its restaurants, Buffets has established uniform operational
standards which are implemented by the managers of each restaurant. All
restaurants are required to be operated in accordance with rigorous standards
and specifications relating to the quality of ingredients, preparation of food,
maintenance of premises and employee conduct.
MENU SELECTION AND PURCHASING. Headquarters personnel prepare and
periodically revise standard recipes and menus and a list of approved
ingredients and suppliers based upon the quality, availability, cost and
customer acceptance of various menu items. Food quality is maintained through
centralized coordination with suppliers and frequent restaurant visits by
district managers and other management personnel.
Buffets purchases its food and beverage inventories and restaurant supplies
from independent suppliers approved by headquarters personnel, who negotiate
quality specifications, delivery schedules and pricing and payment terms
(typically 28 days) directly with the suppliers. Although all supplier invoices
are paid from Buffets' headquarters, restaurant managers place orders for
inventories and supplies with, and receive shipments directly from, suppliers.
Restaurant managers approve invoices before forwarding them to Buffets'
headquarters for payment. To date, Buffets has not experienced any difficulties
in obtaining food and beverage inventories or restaurant supplies, and Buffets
does not anticipate that any material difficulties will develop in the
foreseeable future.
53
<PAGE>
RESTAURANT MANAGEMENT. Each restaurant typically employs a general manager,
a food manager, and one to three assistant managers. Each of Buffets' restaurant
general managers has primary responsibility for day-to-day operations in one of
Buffets' restaurants, including customer relations, food service, cost controls,
restaurant maintenance, personnel relations, implementation of company policies
and the restaurant's profitability. A substantial portion of each general
manager's and food manager's compensation depends directly on the restaurant's
profitability. In addition, restaurant managers receive stock options under
Buffets' current stock option program entitling them to acquire an equity
interest in Buffets. Buffets believes that its compensation policies have been
important in attracting, motivating and retaining qualified operating personnel.
Each restaurant general manager reports to a district manager, each of whom
in turn reports to a regional director (currently eight persons). Each regional
director reports to Buffets' Executive Vice President of Operations.
Buffets maintains centralized financial and accounting controls for its
restaurants. On a daily basis, restaurant managers forward customer counts,
sales, labor costs and deposit information to Buffets' headquarters. On a weekly
basis, restaurant managers forward a summarized profit and loss statement, sales
report, and supplier invoices. Payroll data is forwarded every one or two weeks,
depending on the location of the restaurant.
MANAGEMENT TRAINING. Buffets has a series of Training Programs which are
designed to provide managers with the appropriate knowledge and skills necessary
to be successful in their current position. All new managers hired from outside
Buffets are required to complete an extensive seven-week infield training
program which focuses on the basic operating skills and management functions
necessary to shift-manage an Old Country Buffet restaurant. Buffets also
emphasizes the internal development of new management. There is a three-week
intensive Management Training Program for managers promoted from hourly
positions conducted at Buffets' Training Center located in Eden Prairie,
Minnesota. These managers-in-training participate in a series of seminars
designed to develop basic management skills, food production, operational
programs and personnel management. Training and development of these new
managers, both internal promotions and external hires, continues beyond the
initial training periods. Managers continue to work with a structured, self-
paced, Management Skills Training Manual, a training program designed to further
develop their proficiency in management supervisory skills. Before a manager is
promoted this Management Skills Training Manual must be completed.
Advancement is tied both to current operational performance and training.
Before being promoted to food manager, managers must successfully complete a
two-week training program in food quality, food training and food production
conducted at Buffets' Training Center. Individuals designated for promotion to
General Manager attend a General Manager two-week training program conducted at
the Training Center. This program focuses on advanced management skills with
emphasis on team building and performance accountability. General Managers being
considered for promotion to District Manager complete a two-week training
program for new District Managers. This training is also conducted at Buffets'
Training Center and focuses on impact management, personnel development,
advanced problem solving and action plans.
FRANCHISING AND JOINT VENTURES
There currently are six franchised Old Country Buffet restaurants in
Nebraska and Oklahoma, owned by two franchisees. Buffets' franchise agreements
generally have initial terms of 15 years and require the franchisee to pay an
initial fee of $25,000 and continuing royalties equal to four percent of the
franchisee's sales. Buffets has an agreement with each franchisee whereby
Buffets has options exercisable at various times over the next several years to
repurchase the Old Country Buffet restaurants developed by such franchisee at a
predetermined formula price based principally on restaurant gross sales.
54
<PAGE>
Buffets has taken advantage of joint venture opportunities from time to
time, principally as a means of entering new geographic markets. In November
1988, Buffets established Evergreen Buffets, Inc., a majority-owned joint
venture subsidiary of Buffets, to develop and operate Old Country Buffet
restaurants in Washington and Oregon. Buffets held 90% of the outstanding
capital stock of this subsidiary and, in December 1995, Buffets purchased the
outstanding capital stock of the subsidiary held by the minority shareholder in
exchange for 92,991 shares of Buffets Common Stock, and Evergreen Buffets, Inc.
thereby became a wholly-owned subsidiary of Buffets.
Buffets at present is not actively seeking to grant additional franchises or
enter into additional joint ventures.
COMPETITION
The food service industry is highly competitive. Menu, price, service,
convenience, location and ambiance are all important competitive factors, with
the relative importance of many such factors varying among different segments of
the consuming public.
By providing a wide variety of food and beverages at reasonable prices in an
attractive and informal environment, Buffets seeks to appeal to a broad range of
value-oriented consumers. Buffets believes that its primary competitors in this
market segment are other buffet and cafeteria restaurants, and traditional
casual dining restaurants with full menus and table service. Buffets believes
that its success to date has been due to its particular approach combining
pleasant ambiance, high food quality, breadth of menu, cleanliness and
reasonable prices with satisfactory levels of service and convenience.
Sales are seasonal, with a lower percentage of annual sales occurring in
most of its current market areas during the winter months. Sales may also be
affected by unusual weather patterns or matters of public interest that compete
for customers' attention.
ADVERTISING AND PROMOTION
To date Buffets has relied primarily on customers' word-of-mouth
recommendations to promote its business. As a result, prior to 1993, annual
advertising costs never exceeded 1.1% of restaurant sales, such costs being
incurred primarily for menu cards, brochures and a limited amount of local
newspaper, radio and television advertising. Based on favorable results, Buffets
increased its rate of expenditure on advertising to 1.3% of restaurant sales in
1994, primarily for increased radio and television advertising. Buffets lowered
its advertising spending to .9% of restaurant sales in 1995 due to the decision
in the fourth quarter of 1994 to use those dollars in food and labor to better
serve the guest. Buffets expects to spend approximately 1.5% of restaurant sales
on advertising in 1996. Buffets is prepared to increase its advertising
expenditures in the future if it determines that further increases are likely to
generate sufficient additional revenues. Buffets believes its senior citizen
discount program has encouraged many senior citizens to eat at Buffets'
restaurants.
REGULATION
Buffets' restaurants must be constructed to meet federal, state and local
building and zoning requirements and must be operated in accordance with state
and local regulations relating to the preparation and serving of food. Buffets
is also subject to various federal and state labor laws which govern its
relationships with its employees, including those relating to minimum wages,
overtime and other working conditions. Environmental regulations have not had a
material effect on the operations of Buffets. Buffets to date has been
successful in obtaining all necessary permits and licenses and complying with
applicable regulations, and does not expect to encounter any material
difficulties in the future with respect to these matters.
TRADEMARKS
In June 1985, Buffets obtained a federal trademark registration covering the
words "Old Country Buffet". Buffets has subsequently obtained trademark
protection for additional marks used in its business. Generally, federal
registration of a trademark gives the registrant the exclusive use of the
55
<PAGE>
trademark in the United States in connection with the goods or services
associated with the trademark, subject to the common law rights of any other
person who began using the trademark (or a confusingly similar mark) prior to
the date of federal registration. Because of the common law rights of such a
pre-existing restaurant in certain portions of Colorado, Buffets' restaurants in
that state use the name "Country Buffet". Buffets intends to take appropriate
steps to develop and protect its marks.
EMPLOYEES
As of July 17, 1996, Buffets employed approximately 17,066 persons,
including 260 supervisory and administrative, 1,053 managerial, and 15,753
restaurant employees. Approximately 66% of Buffets' restaurant employees work
part-time. No employees of Buffets are covered by collective bargaining
agreements. Relations with employees have been satisfactory and no work
stoppages due to labor disputes have occurred.
RESTAURANT DEVELOPMENT
GENERAL. Buffets opened 38 restaurants and closed three in 1995 and expects
to open approximately 29 to 34 restaurants in 1996, of which 14 were open as of
July 31, 1996. One restaurant was closed in February 1996. Buffets intends to
pursue expansion during 1996 in both existing and new markets.
The ability of Buffets to open new restaurants depends on a number of
factors, including its ability to find suitable locations and negotiate
acceptable leases and land purchases, its ability to attract and retain a
sufficient number of qualified restaurant managers, and the availability of
capital. Buffets actively and continuously attempts to identify and negotiate
leases and land purchases for additional new locations, and expects that it will
be able to achieve its intended development schedule for 1996, though there is
no assurance that this will be the case.
GEOGRAPHIC EXPANSION STRATEGY. Buffets initially concentrated its
restaurant development in the Midwest, and then after several years expanded to
other regions of the country. Buffets currently operates in 31 states and opened
its first restaurants in West Virginia and Maine during 1995. Buffets attempts
to cluster its restaurants in geographic areas to achieve economies of scale in
costs of supervision, marketing and purchasing.
SITE SELECTION CRITERIA. The primary criteria considered by Buffets in
selecting new locations are a high level of customer traffic, convenience to
both lunch and dinner customers in demographic groups (such as families and
senior citizens) that tend to favor Buffets' restaurants, and the occupancy cost
of the proposed restaurant. Buffets has found that these criteria frequently are
satisfied by well-located strip shopping centers that benefit from cotenancy
with strong national retailers and visibility to high traffic roads. All but 59
of Buffets' current restaurants are located in such centers. Twenty-eight of the
other 59 restaurants are located in regional or other enclosed shopping malls
and 31 are located in free-standing structures. Buffets will pursue
free-standing locations only if the projected return on investment falls within
acceptable ranges. Buffets typically requires a population density of
approximately 100,000 within five miles of each new location, and currently is
concentrating its development efforts on urban areas that can accommodate a
number of Buffets' restaurants. Because an Old Country Buffet restaurant
typically draws a significant volume of customers and because of Buffets'
financial strength, Buffets often has been able to negotiate favorable lease
terms.
RESTAURANT CONSTRUCTION. In an effort to better control costs and improve
quality, Buffets is closely involved in the construction of its restaurants, and
also in the acquisition and installation of fixtures and equipment. Buffets acts
as its own general contractor, using restaurant designs prepared by Buffets' own
architectural staff. Buffets normally satisfies the equipment and other
restaurant supply needs of its new restaurants from inventory acquired directly
from manufacturers and stored at Buffets' warehouse in Eden Prairie, Minnesota.
Restaurants located in shopping centers typically open approximately 11 weeks
after construction begins, while freestanding restaurants typically open
approximately 17 weeks after construction begins. The average cost to develop an
Old Country Buffet
56
<PAGE>
restaurant located in a shopping center during fiscal 1995 was approximately
$759,000 for leasehold improvements (net of landlord contributions) and
approximately $627,000 for equipment and furnishings. Free-standing owned
restaurants developed in 1995 and the first part of 1996 entailed an average
land cost of $574,000 and average building cost of $1,413,000. It is that
expected the increased development of free-standing restaurants will increase
the average cost per unit and associated capital requirements in 1996.
LEGAL PROCEEDINGS
In Re Buffets, Inc. Securities Litigation, United States District Court for
the District of Minnesota, Master No. 3-94-1447, is a consolidation of four
separate lawsuits involving Buffets. The first lawsuit was commenced by ZSA
Asset Allocation Fund and ZSA Equity Fund on or about November 7, 1994. Three
other substantially similar actions were filed shortly thereafter by alleged
shareholders Marc Kushner, Trustee for Service Lamp Corp. Profit Sharing Plan,
Jerrine Fernandes, and John J. Nuttall. By Pretrial Order No. 1, entered in
early January 1995, the District Court ordered that the four lawsuits be
consolidated into the single pending action and that plaintiffs serve and file a
Consolidated Amended Class Action Complaint (the "Complaint"), which was served
on or about January 31, 1995. The Court ordered the dismissal of the Complaint
upon motion by the defendants, but granted plaintiffs leave to replead.
Plaintiffs filed their Second Amended, Consolidated Class Action Complaint (the
"Second Complaint") on December 11, 1995. Defendants moved to dismiss the Second
Complaint. On May 3, 1996, Magistrate Judge John Mason issued his Report and
Recommendation, recommending to the district judge that the Second Complaint be
dismissed, with leave to plaintiffs to replead within 60 days only upon payment
of all defendants' attorneys' fees to date. Plaintiffs have filed objections to
this Report and Recommendation and the matter currently is before the District
Court, Judge Michael J. Davis, for decision.
The Second Complaint is against Buffets and several of its officers and
directors. In the Second Complaint, plaintiffs seek to represent a putative
class consisting of all persons and entities (excluding defendants and certain
others) who purchased shares of the Buffets Common Stock during the period
commencing October 26, 1993 and ending October 25, 1994 (the "Class Period").
The Second Complaint alleges that the defendants made misrepresentations and
omissions of material fact during the Class Period with respect to Buffets'
operations and restaurant development activities, as a result of which the price
of the Buffets stock allegedly was artificially inflated during the Class
Period. The Second Complaint further alleges that certain defendants made sales
of Buffets Common Stock during the Class Period while in possession of material
undisclosed information about Buffets' operations and restaurant development
activities. The Second Complaint alleges that the defendants' conduct violated
the Securities Exchange Act of 1934 and seeks compensatory damages in an
unspecified amount, prejudgment interest, and an award of attorneys' fees, costs
and expenses.
See also "Recent Developments -- Litigation."
BUSINESS OF HOMETOWN
GENERAL
HomeTown operates and franchises HomeTown Buffet restaurants. As of July 31,
1996, HomeTown operated 78 HomeTown Buffet restaurants located in California,
Connecticut, Illinois, Kansas, Kentucky, New Jersey, Ohio, Oklahoma, Oregon,
Pennsylvania, Rhode Island, and Texas and three franchisees operated a total of
19 HomeTown Buffet restaurants in Arizona, California, Colorado, Kansas,
Massachusetts, New Mexico, Utah and Wyoming. HomeTown also owned and operated
two Roadhouse Grill steakhouse restaurants. HomeTown Buffet restaurants feature
traditional American food and offer lunch, dinner and Sunday breakfast at a
fixed price that entitles each guest to unlimited servings of all menu items and
beverages. Food items are served at buffet islands located in each restaurant's
food service area. This scatter bar format was developed by HomeTown's Chairman
and offers both significant operating efficiencies and a pleasant, easy-to-use
format for guests. HomeTown is engaged in an active plan of expansion and
expects to open approximately 24 restaurants in fiscal 1996, of which 10 had
been opened as of July 31, 1996.
57
<PAGE>
OPERATING STRATEGY
HomeTown's objective is to provide a dining experience in its HomeTown
Buffet restaurants that combines food quality comparable to that of many
full-service restaurants, with variety, quality and service exceeding that
associated with traditional buffet restaurants at a price that guests perceive
as an exceptional value. Each element of HomeTown's strategy is designed to
achieve high levels of guest satisfaction and to encourage repeat business. The
key elements of HomeTown's strategy with respect to its HomeTown Buffet
restaurants are as follows:
FOOD QUALITY. HomeTown uses high quality ingredients in its menu offerings,
prepares all of its menu items on the premises in small batches throughout the
day and serves each dish promptly to ensure that each item is fresh, visually
appealing and served at the proper temperature. HomeTown believes its food
preparation and delivery system enables it to more closely achieve
"made-to-order" quality than is possible in a traditional buffet or cafeteria
restaurant.
MENU SELECTION. HomeTown Buffet restaurants emphasize traditional American
"home cooking" and daily menu offerings include eight to 10 hot entrees at
dinner and six to eight hot entrees at lunch. In addition, each meal includes
soups, an extensive salad bar, assorted vegetable and potato dishes, gravies,
hot rolls and a variety of freshly baked muffins and desserts. By serving its
core menu items each day and different entrees and specials on designated days
each week, HomeTown believes it is able to provide both variety and consistency
to its guests, which in turn encourages repeat visits.
PRICE/VALUE RELATIONSHIP. HomeTown is committed to providing its guests
with an excellent price/value alternative to full-service casual dining
restaurants and traditional buffet restaurants as well as home dining. At
HomeTown Buffet restaurants, guests are allowed unlimited servings of all menu
items and beverages for a single price at lunch ($5.39 to $6.19), dinner ($6.99
to $8.29) and Sunday breakfast ($5.69 to $6.29). HomeTown offers reduced prices
to senior citizens and children age 12 and under.
"HOMETOWN" ATMOSPHERE. HomeTown strives to provide a relaxing and enjoyable
dining experience in a friendly, family-oriented, "HomeTown" atmosphere. The
comfortable ambiance is reinforced through an attractive and pleasant decor that
features Norman Rockwell posters, decorative dividers, plants and booth seating.
HomeTown also endeavors to provide a higher level of service than other
buffet-style restaurants, and its employee training programs place significant
emphasis on developing friendly and helpful restaurant personnel.
EFFICIENT FOOD SERVICE AND DELIVERY SYSTEM. HomeTown's scatter bar format,
food preparation methods and restaurant layout are all designed to efficiently
serve a large number of guests while enhancing the overall quality of the buffet
dining experience. HomeTown believes that preparing food in small batches,
serving it in several easily accessible areas and closely monitoring consumption
results in shorter customer lines, more frequent table turns, improved quality
and reduced waste, thereby increasing guest satisfaction and restaurant level
profitability.
UNIT ECONOMICS
HomeTown believes that company-owned HomeTown Buffet restaurants produce
attractive restaurant-level economics. The 42 company-owned HomeTown Buffet
restaurants open for the entire 53 weeks in 1995 generated average net sales of
approximately $2.8 million, average cash flow (operating income plus
depreciation) of $474,000 and average operating income of $336,000 during this
period. HomeTown's average cash investment for these 42 restaurants was
approximately $1.5 million, including building structures (where applicable),
building or leasehold improvements and equipment and fixtures, but excluding
land and pre-opening costs. Restaurant-level economics are affected to the
extent that HomeTown constructs free-standing units on company-owned or leased
land, rather than leasing space in existing buildings. In such cases, initial
development costs are substantially greater and occupancy costs (other than
depreciation) are substantially less than when
58
<PAGE>
HomeTown leases space in existing buildings. HomeTown cannot predict if average
unit-level economics would be altered significantly if in the future the mix of
restaurants placed in leased space in existing buildings as compared to
free-standing buildings on company-owned or leased land were to change
materially from HomeTown's current mix.
EXPANSION
As of July 31, 1996, HomeTown operated 78 HomeTown Buffet restaurants in
California, Connecticut, Illinois, Kansas, Kentucky, New Jersey, Ohio, Oklahoma,
Oregon, Pennsylvania, Rhode Island and Texas, of which 27 restaurants opened in
fiscal 1995. HomeTown intends to open approximately 24 restaurants in fiscal
1996, of which 10 were open as of July 31, 1996. HomeTown's expansion strategy
through the remainder of 1996 is to increase its presence on the West Coast,
build its presence in the Midwest and open additional units in the Northeast. As
of July 31, 1996, three franchisees operated a total of 19 HomeTown Buffet
restaurants in Arizona, California, Colorado, Kansas, Massachusetts, New Mexico,
Utah and Wyoming. HomeTown is not seeking additional franchise operators. See
"Franchise Operations."
HomeTown's ability to achieve its projected expansion plans will depend on a
variety of factors, many of which may be beyond HomeTown's control, including
HomeTown's ability to locate suitable restaurant sites; to negotiate acceptable
lease or purchase terms, to obtain required governmental approvals and construct
new restaurants in a timely manner; to attract, train and retain qualified and
experienced personnel and management; to obtain adequate funds; and to continue
to operate its restaurants profitably. Locating suitable restaurant sites at
acceptable costs and on acceptable terms has become increasingly difficult due
to an improved real estate market in HomeTown's principal areas of planned
expansion, including California. In addition, part of HomeTown's growth strategy
includes expansion in the Northeast, a geographic region where HomeTown has
limited experience locating and developing sites and operating restaurants.
Moreover, HomeTown's construction may be delayed in the Northeast due to
inclement weather conditions and somewhat longer build-out times and more
complex labor relations than HomeTown experiences in the western United States.
Due to these factors and the others set out above, there is no assurance that
HomeTown will be able to continue to effectively develop or operate additional
restaurants in this region or that it will be able to expand as planned. There
is also no assurance that additional restaurants that may be opened in the
future will be profitable or that expansion will not result in reduced sales in
existing restaurants in close proximity to new restaurants, and to the extent
this reduces cash flow available for new development and construction, it could
cause HomeTown to fail to meet its expansion plans. Overall, HomeTown's
forward-looking information concerning planned expansion should be considered in
light of these factors.
CONCEPT AND MENU
HomeTown Buffet restaurants offer fixed-price lunch, dinner and Sunday
breakfast that entitle each guest to unlimited servings of all menu items and
beverages. Prices for lunch (Monday through Saturday) range from $5.39 to $6.19
and prices for dinner (Monday through Sunday) range from $6.99 to $8.29,
depending on restaurant location. On Sunday, all restaurants serve breakfast for
prices ranging from $5.69 to $6.29. HomeTown offers reduced prices to children
age 12 and under (based on a fixed amount for each year of age) and to senior
citizens (60 cents off regular breakfast and dinner prices, and 50 cents off
regular lunch prices).
At HomeTown Buffet restaurants guests pay for the meal upon entering the
restaurant and are generally seated by restaurant personnel before proceeding to
the food service area. HomeTown Buffet restaurants incorporate scatter bar
buffets that feature eight buffet islands located throughout the restaurants'
food service areas instead of the traditional one- or two-sided, cafeteria-style
buffet lines. Guests can return for more food and beverages as often as they
wish, and because of the scatter bar format, the selection of additional food
items does not typically require a guest to wait in long food lines. HomeTown
believes that its scatter bar concept enhances the quality of the dining
experience
59
<PAGE>
and also reduces waste by eliminating the guest's need to take more of any item
than he or she may consume. Restaurant employees are assigned to dining areas at
all times to remove dirty plates and to provide some beverage refill service at
the tables.
HomeTown attempts to differentiate itself from typical buffet and cafeteria
restaurants by the quality and variety of its food offerings. The HomeTown
Buffet menu emphasizes traditional American "home cooking" and includes soups,
salads, entrees, vegetables, nonalcoholic beverages and desserts. Dinner guests
can choose from eight to 10 entrees, which always include fried and baked
chicken, fried and baked fish and carved roast beef, turkey or pork or baked
ham. Additional entrees, such as lasagna, enchiladas and barbecued ribs, are
featured on particular days of the week. At lunch guests can choose from baked
and fried chicken, baked and fried fish and two or three other entrees. In
addition to these entrees, each meal includes two freshly prepared soups,
assorted vegetable and potato dishes, freshly prepared gravies, hot rolls and an
extensive salad bar that features fresh seasonal vegetables and fruits as well
as specialty pasta, seafood, vegetable and fruit salads. With the exception of
the original Medford, Oregon restaurant, all HomeTown Buffet restaurants include
a display bakery that features freshly baked desserts and muffins. Desserts
include bread pudding, assorted cobblers, cookies and cakes, most of which are
made from scratch, as well as two flavors of soft serve frozen yogurt, two
flavors of soft serve frozen dairy desserts and various sundae toppings.
Beverages include soft drinks, milk, hot coffee and hot and iced tea, all of
which are included in the price of the meal. Each week is highlighted by Flurry
Night on Monday, which features soft serve frozen dairy treats, and Family Night
on Thursday, which features pizza and banana splits. By serving its core menu
items each day and additional entrees and specials on the designated days each
week, HomeTown believes it is able to provide both variety and consistency to
its guests, which in turn encourages repeat visits.
HomeTown uses high quality ingredients, including fresh seasonal fruits and
vegetables, in its menu offerings, and all menu items are prepared at the
individual restaurants. HomeTown's restaurants do not use food commissaries.
Menu items are prepared in small batches throughout the day and served promptly
in relatively small serving pans in order to ensure that all items are fresh,
visually appealing and served at the proper temperature. HomeTown has developed
uniform recipes of specified ingredients and instructions to ensure consistent
quality is achieved at every restaurant and meal. In addition, HomeTown
regularly tests new menu items and upgrades ingredients and cooking methods to
improve the quality and consistency of its food offerings. HomeTown believes its
food preparation and delivery system enables it to more closely achieve
"made-to-order" quality than is possible in a traditional buffet restaurant.
RESTAURANT LAYOUT AND DESIGN
HomeTown's typical restaurant format is approximately 10,000 square feet
with seating for approximately 380 guests. HomeTown Buffet restaurants range in
size from 8,200 to 15,740 square feet with seating for approximately 225 to 600
guests (except for the original Medford, Oregon restaurant, which is
approximately 5,500 square feet and has seating for approximately 190 guests).
HomeTown uses a standardized design in constructing restaurants, with
modifications made for each particular site. HomeTown is assisted by outside
architects in the design of individual restaurants. HomeTown makes its
standardized design available to its franchisees and has final right of approval
on the design of each franchised restaurant.
Each HomeTown Buffet restaurant contains a waiting area just inside the
entrance door. Typically, the restaurant food service area has eight scatter
bars that contain most of the restaurant's menu offerings, as well as a display
bakery, a beverage service area and yogurt and ice cream machines. The food
service area is designed to be easily accessible from all seats. Because the
dining area in a HomeTown Buffet restaurant is quite large, additional area
dividers and a combination of table and booth seating are used to create a more
intimate dining experience. Considerable attention is devoted to lighting and
acoustics to allow for a comfortable atmosphere even when the restaurant is at
maximum capacity. In addition to the public areas, each restaurant has a food
preparation and storage area, including a fully equipped kitchen.
60
<PAGE>
SITE SELECTION AND CONSTRUCTION
In selecting new restaurant locations, HomeTown considers target population
density, local competition, household income levels and trade area demographics,
as well as specific location characteristics, such as visibility, accessibility,
parking capacity and traffic volume. An important factor in site selection is
the convenience of the potential location to both lunch and dinner guests and
the occupancy cost of the proposed site. HomeTown also takes into account the
success of chain restaurants operating in the area. To date HomeTown has located
most of its restaurants in strip shopping malls and neighborhood shopping
centers, and management currently expects that most of the restaurants opened in
the future will be in or near malls and shopping centers.
Potential site locations are identified by company personnel, consultants
and independent real estate brokers. Executive management visits and approves or
disapproves any proposed restaurant site. Prior to fiscal 1994, HomeTown had
leased space exclusively in existing buildings for its HomeTown Buffet
restaurants. In fiscal 1994, however, HomeTown began constructing and remodeling
free-standing buildings on leased or purchased land. HomeTown expects to
continue to pursue both leased space and leased or purchased free-standing unit
development in the future.
When HomeTown has built restaurants in existing buildings, construction has
taken approximately 90 to 120 days after the required construction permits have
been obtained. Construction of free-standing restaurants is a longer process and
has ranged from 120 to 180 days. HomeTown's experience to date has been that
obtaining construction permits has generally taken from 20 to 180 days but has
taken as long as 240 days. Within these time frames, development and
construction in the eastern United States tends to take longer than other
regions. At times, HomeTown engages outside general contractors for restaurant
sites and expects to continue this practice for the foreseeable future. HomeTown
often serves as its own general contractor and expects to do so in the future
when appropriate. At the beginning of fiscal 1996, HomeTown incorporated and
organized a wholly-owned subsidiary corporation, HomeTown Development and
Construction, Inc., to manage HomeTown's construction operations.
RESTAURANT OPERATIONS AND MANAGEMENT
MANAGEMENT AND EMPLOYEES. Restaurant management is under the direction of
HomeTown's President and Chief Operating Officer who, with a corporate staff of
approximately nine people, oversees staffing, training and restaurant
operations. HomeTown also employs a Vice President of Operations for its
HomeTown Buffet restaurants, four regional directors and 19 area
representatives, each with responsibility for several restaurants in a specified
geographic area. The management staff of a typical HomeTown Buffet restaurant
consists of one General Manager, one Service Manager, one Kitchen Manager, one
Assistant Service Manager and one Assistant Kitchen Manager. Individual
restaurants typically employ between 70 and 110 non-management hourly employees
(made up of a mix of part- and full-time workers), depending on restaurant size
and traffic.
HomeTown attempts to attract and train high quality employees at all levels
of restaurant operations. Generally, restaurant management has been recruited
from outside the company and has had significant prior restaurant experience. As
HomeTown continues to grow, corporate management intends to recruit restaurant
management personnel from among its non-management employees. HomeTown has in
place strict operating standards and believes that strong standardized training
processes are an important aspect of its operations. All management employees
(including Assistant Managers), regardless of former experience, participate in
a four- to seven-week formal course of training at HomeTown's headquarters and
at one of HomeTown's training sites. Additional periodic training is provided as
required. Non-management employees are generally trained at the local restaurant
site. In fiscal 1994 HomeTown centralized all restaurant management training at
its restaurants in San Diego County, California.
The General Manager of a restaurant has responsibility for day-to-day
operation of the restaurant and acts independently to maximize restaurant
performance, subject to company-established management policies. The General
Manager makes personnel decisions and determines orders for
61
<PAGE>
produce and dairy products as well as centrally-contracted food items and other
supplies. HomeTown's management compensation program includes bonuses based on
restaurant profit performance.
PURCHASING. To better ensure uniform quality and obtain competitive prices,
HomeTown contracts centrally for most restaurant food products and other
supplies. Individual restaurants decide the amount of each item they require and
place orders several times a week. Managers also arrange for dairy and produce
supplies to be provided by local vendors that meet HomeTown's quality standards.
Corporate management closely monitors prices and other supply contract terms for
locally- and centrally-contracted items. Because of the volume of its aggregate
orders and the volume of supplies delivered to each individual restaurant,
HomeTown believes that it is able to obtain favorable prices for its supplies.
REPORTING AND FINANCIAL CONTROLS. HomeTown maintains financial and
accounting controls for each of its restaurants through use of centralized
accounting and management information systems. In addition, each restaurant is
equipped with a computerized accounting system that allows restaurant management
to efficiently manage labor, food costs and other direct operating expenses,
that provides corporate management rapid access to financial data and that
reduces the time devoted by its restaurant managers to administrative
responsibilities. Guest counts, sales, cash deposits and labor cost information
are collected daily from each restaurant. Physical inventories of all food and
beverage items are taken weekly. Each restaurant manager prepares a restaurant
level weekly profit and loss statement, and at the end of each 28-day accounting
period, operating statements are prepared for each location. The weekly and
period operating statements are reviewed at both the corporate level and
restaurant level for variances from expected results to allow for any necessary
corrective actions to be taken as quickly as possible.
HOURS OF OPERATION. HomeTown Buffet restaurants are open seven days a week,
typically from 11:00 a.m. to 8:30 p.m. on weekdays and Saturdays and from 8:00
a.m. to 8:30 p.m. on Sundays.
JOINT VENTURE CORPORATIONS
In October 1993, HomeTown formed two Joint Ventures: HTB Ventures I, Inc.
("HTB I") and HTB Ventures II, Inc. ("HTB II"). HTB II was terminated in April
1995 and HTB I was terminated in February 1996. The Joint Ventures were
initially established to provide HomeTown with a means of attracting experienced
management, in particular Gary A. Zambon and Daniel A. Burns, to help accelerate
HomeTown's expansion into the Midwest. Mr. Zambon and Mr. Burns each had
extensive experience in buffet restaurant operations. Under the respective joint
venture agreements, Mr. Zambon was president and owned 20% of the outstanding
capital stock of HTB I, and Mr. Burns was president and owned 20% of the
outstanding capital stock of HTB II. HomeTown owned the remaining 80% of each
Joint Venture. HomeTown provided the capital required to develop all restaurants
of each Joint Venture through interest-bearing loans. Under the termination
agreement for HTB II, HomeTown acquired Mr. Burns' 20% minority interest in the
Joint Venture in consideration for the forgiveness of principal and interest on
a loan in the original principal amount of $200,000 that was made to Mr. Burns
for his minority interest in HTB II. The termination agreement for HTB II also
has a noncompetition provision that extends for two years from the date that Mr.
Burns ceases to be an employee, director or officer of HomeTown. HomeTown is
sole owner of the two restaurants that were operated by HTB II. The termination
of HTB I, in February 1996, was on the same terms as the termination of HTB II,
except that in addition to forgiveness of principal and interest on the $200,000
note that financed Mr. Zambon's initial purchase of his minority interest in HTB
I, HomeTown paid Mr. Zambon $950,000 in cash as additional consideration for his
transfer of 20% of the outstanding capital stock of HTB I. Commencing February
29, 1996, HomeTown became the sole owner of the ten restaurants that had been
operated by HTB I. The termination agreement for HTB I also has a noncompetition
provision that extends for two years from the date that Mr. Zambon ceases to be
an employee, director or of officer of HomeTown.
62
<PAGE>
FRANCHISE OPERATIONS
GENERAL. In addition to operating company-owned restaurants, HomeTown
franchises others to operate HomeTown Buffet restaurants. HomeTown currently has
three franchisees: HTB Restaurants, Inc. ("HTB Restaurants"), Chi-Chi's, Inc.
("Chi-Chi's") and Carlton A. Hargrave, Inc. ("Hargrave"). HTB Restaurants is a
wholly-owned subsidiary of Summit Family Restaurants, Inc. ("Summit"), and
Summit is a wholly-owned subsidiary of CKE Restaurants, Inc. ("CKE").
HTB Restaurants was the first franchisee of HomeTown and entered into an
initial franchise agreement and multiple unit development agreement with
HomeTown in October 1991. Pursuant to the multiple unit agreement, HomeTown
enters into a franchise agreement with HTB Restaurants for each new franchise
restaurant prior to the opening of that restaurant. HomeTown has in the past
considered the acquisition of franchised restaurants and may do so in the
future.
HTB RESTAURANTS. HomeTown and HTB Restaurants are parties to a multiple
unit agreement providing for the exclusive development of up to 27 restaurants
over a period ending December 31, 1997 in Arizona, Colorado, Idaho, Montana,
Nevada, New Mexico, Utah and Wyoming. Under the multiple unit agreement, HTB
Restaurants' exclusive right to develop HomeTown Buffet restaurants in the
states specified is contingent upon HTB Restaurants meeting the development
schedule set forth in the multiple unit agreement. HTB Restaurants entered into
its initial franchise agreement with HomeTown in October 1991 and each
restaurant opened by HTB Restaurants is subject to a separate franchise
agreement. HomeTown is precluded from operating or franchising others to operate
HomeTown Buffet restaurants in those states so long as the exclusive development
rights remain in effect. HomeTown has given HTB Restaurants notice that it has
breached its obligation to develop restaurants under the multiple unit
agreement. HTB Restaurants has made a demand to arbitrate this matter. If
HomeTown prevails in the arbitration on this issue, HTB Restaurants' exclusive
development rights under the agreement will terminate. HTB Restaurants and its
parent entities, Summit and CKE, have also filed suit against HomeTown and
Buffets in Federal District Court for the District of Utah, Central Division,
alleging amongst other matters that HomeTown is in breach of the multiple unit
agreement. See "Recent Developments -- Litigation." Pursuant to the multiple
unit agreement, and in each case pursuant to a separate franchise agreement, HTB
Restaurants currently operates the 16 HomeTown Buffet restaurants in Arizona,
Colorado, New Mexico, Utah and Wyoming.
HTB Restaurants pays an initial franchise fee for each new HomeTown Buffet
restaurant opened and a percentage royalty fee based on gross sales. In addition
to amounts already paid under the multiple unit agreement, HTB Restaurants is
required to pay HomeTown periodic non-refundable area development fees to
develop HomeTown Buffet restaurants.
Under its agreements with HTB Restaurants, HomeTown would have a right of
first refusal with respect to the sale of the HomeTown Buffet restaurants
operated by HTB Restaurants and any transfer of franchise rights granted by
HomeTown to HTB Restaurants would require HomeTown's consent, which may not
unreasonably be withheld.
CHI-CHI'S. In May 1993, Chi-Chi's opened a HomeTown Buffet restaurant in
Peabody, Massachusetts. Chi-Chi's opened a second franchised unit in March 1994
in Wichita, Kansas.
HARGRAVE. Hargrave operates a single franchised restaurant in Calexico,
California, which opened in December 1993. HomeTown served as general contractor
for the restaurant and in connection with the construction loaned Hargrave
approximately $150,000. The loan was fully paid in 1994. In April 1995 HomeTown
made a loan to Hargrave in the principal amount of $100,000 and an additional
$100,000 in October 1995 under a promissory note that permits Hargrave to borrow
up to $200,000 in principal amount. The note provides for interest to be paid at
1% above the announced reference rate of US Bank of Oregon. All outstanding
principal and interest on the note was due on December 31, 1995 and the parties
have been renegotiating the repayment schedule. In addition, HomeTown agreed to
defer Hargrave's franchise royalty payments commencing April 1995.
63
<PAGE>
FRANCHISE TERMS. HomeTown's standard franchise agreement has a 15-year term
(with two five-year renewal options) and provides for a one-time payment to
HomeTown of an initial franchise fee and a continuing royalty fee at a variable
rate of between 2% and 4% of gross sales. HomeTown collects weekly sales reports
from its franchisees as well as periodic and annual financial statements.
Each franchisee is responsible for selecting the location for its
restaurant, subject to HomeTown approval. HomeTown considers such factors as
demographics, competition, traffic volume and patterns, parking, site layout,
size and other physical characteristics in approving proposed sites. In
addition, all site and building plans and specifications must be approved by
HomeTown.
Franchisees must operate their HomeTown Buffet restaurants in compliance
with HomeTown's operating and recipe manuals. Franchisees are not required to
purchase food products or other supplies through HomeTown's suppliers. Each
franchised restaurant is required to at all times have a designated Manager and
Assistant Manager who have completed HomeTown's four- to seven-week manager
training program. For the opening of a restaurant, HomeTown provides
consultation and makes its personnel generally available to a franchisee. In
addition, HomeTown sends a team of personnel to the restaurant for up to two
weeks to assist the franchisee and its managers in the opening, the initial
marketing and training effort as well as the overall operation of the
restaurant.
HomeTown may terminate a franchise agreement for a number of reasons,
including a franchisee's failure to pay royalty fees when due, failure to comply
with applicable laws, or repeated failure to comply with one or more
requirements of the franchise agreement. Many state franchise laws limit the
ability of a franchisor to terminate or refuse to renew a franchise. Generally,
a franchisee may terminate a franchise agreement only if HomeTown violates a
material and substantial provision of the agreement and fails to remedy the
violation within a specified period. HomeTown does not anticipate that the
termination of any single franchise agreement would have a materially adverse
effect on its operations. Termination by a multiple-unit franchisee of several
franchise agreements for various locations could, however, have a materially
adverse effect on HomeTown's operations.
HomeTown's franchise agreements contain provisions that prohibit franchisees
from disclosing proprietary information relating to HomeTown's restaurant
operating system. HomeTown's standard franchise agreement also contains
non-competition provisions that, for the duration of the agreement and for two
years following termination, prohibit a franchisee from directly or indirectly
competing with HomeTown or soliciting employees to leave HomeTown. There is no
assurance that these contractual provisions will effectively prevent the
appropriation by franchisees of business opportunities and proprietary
information. See "Government Regulation."
MARKETING AND PROMOTION
HomeTown believes that the quality and value of its dining experience is its
most effective marketing tool and has relied primarily on word-of-mouth
recommendations to attract new guests. Consequently, HomeTown's formal marketing
and promotional activities are limited and are concentrated around new
restaurant openings and take place largely at the store level. In December 1995,
HomeTown hired a Director of Marketing to oversee HomeTown's marketing efforts
and to develop company-wide marketing strategies. In fiscal 1994, HomeTown
strengthened its marketing efforts by assigning field marketing representatives
to its restaurants to coordinate community marketing efforts. For fiscal 1995
and 1994 marketing and promotion expense relating to HomeTown Buffet restaurants
constituted less than 1% of total revenues.
RESTAURANT INDUSTRY AND COMPETITION
The restaurant industry is highly competitive. HomeTown competes on the
basis of the quality and value of food products offered, price, service,
ambiance and overall dining experience. HomeTown's competitors include a large
and diverse group of restaurant chains and individually owned restaurants,
including chains and individually owned restaurants that utilize a buffet
format. The number of buffet restaurants with operations generally similar to
HomeTown's has grown
64
<PAGE>
considerably in the last several years and HomeTown believes competition among
buffet-style restaurants is increasing. As HomeTown and its principal
competitors expand operations in various geographic areas, competition,
including competition among buffet-style restaurants with concepts similar to
the HomeTown Buffet concept, can be expected to intensify. Such intensified
competition could increase HomeTown's operating costs or adversely affect its
revenues. A number of competitors have been in existence longer than HomeTown
and have substantially greater financial, marketing and other resources and
wider geographical diversity than HomeTown. In addition, the restaurant industry
has few non-economic barriers to entry and is affected by changes in consumer
tastes, national, regional and local economic conditions and market trends. The
performance of individual restaurants may be affected by factors such as traffic
patterns, demographic considerations and the type, number and location of
competing restaurants. HomeTown's significant investment in and long-term
commitment to each of its restaurant sites limits its ability to respond quickly
or effectively to changes in local competitive conditions or other changes that
could affect HomeTown's operations. HomeTown's continued success is dependent to
a substantial extent on its reputation for providing high quality and value and
this reputation may be affected not only by the performance of company-owned
restaurants but also by the performance of franchisee-owned restaurants over
which HomeTown has limited control.
GOVERNMENT REGULATION
HomeTown's business is subject to and affected by various federal, state and
local laws. Each restaurant must comply with state, county and municipal
licensing and regulation requirements relating to health, safety, sanitation,
building construction and fire prevention. Difficulties in obtaining or failure
to obtain required licenses or approvals could delay or prevent the development
of additional restaurants. HomeTown has not experienced significant difficulties
in obtaining such licenses and approvals to date.
HomeTown is subject to Federal Trade Commission ("FTC") regulation and
various state laws that regulate the offer and sale of franchises. The FTC
requires HomeTown to provide prospective franchisees with a franchise offering
circular containing prescribed information about HomeTown and its franchise
operations. Some states in which HomeTown has existing franchisees and a number
of states in which HomeTown might consider franchising regulate the sale of
franchises; several states require the registration of franchise offering
circulars. Beyond state registration requirements, several states regulate the
substance of the franchisor-franchisee relationship and, from time to time,
bills are introduced in Congress aimed at imposing federal registration on
franchisors. Many of the state franchise laws limit, among other things, the
duration and scope of noncompetition and termination provisions of franchise
agreements.
HomeTown's restaurants are subject to federal and state laws governing
wages, working conditions, citizenship requirements and overtime. Several
legislative proposals are currently under consideration by governmental
authorities that would, if enacted, have a material effect on HomeTown's
business. Any of these proposals, if enacted in any of the forms currently under
consideration, would materially increase HomeTown's operating costs. There is no
assurance that HomeTown would be able to pass such increased costs on to its
guests or that, if it were able to do so, it could do so in a short period of
time.
TRADEMARKS
HomeTown believes that its rights in its trademarks and service marks are
important to its marketing efforts and a valuable part of its business. The
"HOMETOWN" mark is registered for restaurant services on the Principal Register
of the U.S. Patent and Trademark Office by Hometown Pharmacy Company, Inc.,
pharmacies and restaurants located in Narrows and Parkersburg, Virginia
("Hometown Pharmacy"). HomeTown's rights to the mark "HOMETOWN" are subject to a
license agreement between HomeTown and Hometown Pharmacy dated April 29, 1991.
Under the terms of the license agreement, HomeTown obtained perpetual and
exclusive rights to all of Hometown Pharmacy's interests in the "HOMETOWN" mark
in the restaurant field, with the exception of a
65
<PAGE>
region in Virginia where Hometown Pharmacy operates. HomeTown pays Hometown
Pharmacy a nominal license fee for each company-owned or franchised restaurant
that it opens. Also, in June 1992, HomeTown entered into an agreement with
Pianess Inc. ("Pianess"), which operates a restaurant in Sacramento, California,
whereby HomeTown obtained all of Pianess' rights to the mark "HOMETOWN"
including a California state trademark registration. HomeTown has a U.S.
application pending to register "HOMETOWN BUFFET" for various food items, and
has applications pending to register "HOMETOWN BUFFET" in Canada and Japan.
HomeTown has been granted a U.S. trademark for "HTB" for restaurant services.
HomeTown also has been granted trademarks for "HOMETOWN BUFFET" in Australia,
Mexico and Germany. HomeTown is aware of the use by other persons and entities
in certain geographic areas of names and marks which are the same or similar to
HomeTown's marks. Some of these persons or entities may have prior rights to
those names or marks in their respective localities. Therefore, there is no
assurance that the "HOMETOWN" mark is available in all locations. It is
HomeTown's policy to pursue registration of its marks whenever possible and to
vigorously oppose any infringement of its marks.
EMPLOYEES
As of June 25, 1996, HomeTown employed approximately 8,000 persons, of whom
approximately 7,300 were restaurant employees, 560 were restaurant management
and supervisory personnel, and 140 were corporate personnel. Restaurant
employees include both full-time and part-time workers and all are paid on an
hourly basis. No Hometown employees are covered by collective bargaining
agreements. HomeTown believes that its relations with its employees are
generally satisfactory and no work stoppage due to labor disputes have occurred.
LEGAL PROCEEDINGS
On September 12, 1995, HomeTown was served with a complaint filed in the
Superior Court for the State of California on July 31, 1995. The complaint
asserted that plaintiffs were denied access to a pre-reserved banquet room for
which they had paid a deposit and that such denial was racially motivated and
done with fraud and malice in violation of the Unruh Act, a California
anti-discrimination statute. The complaint further alleged that HomeTown
continues to deny plaintiffs full and equal accommodations. The complaint sought
damages of up to three times actual damages but not less than $250, without
specifying any amount of actual damages, and further sought exemplary and
punitive damages in the amount of $5 million. Recently, the court granted a
motion for summary judgment filed by HomeTown on the ground that plaintiffs were
not entitled to relief as a matter of law under the Unruh Act. The court,
however, granted plaintiffs leave to amend the complaint to state claims for
breach of contract or in tort, or both. Regardless, HomeTown believes the claims
are without merit and expects to continue to defend itself vigorously.
See also "Recent Developments -- Litigation."
66
<PAGE>
MANAGEMENT OF BUFFETS
GENERAL
The current executive officers of Buffets are as follows:
<TABLE>
<CAPTION>
NAME POSITION
- ------------------------- --------------------------------------------------------------------------
<S> <C>
Roe H. Hatlen Chairman of the Board and Chief Executive Officer
Clark C. Grant Executive Vice President of Finance and Administration and Treasurer
Jean C. Rostollan Executive Vice President of Development and Purchasing and Assistant
Secretary
Rick H. White Executive Vice President of Operations
Marguerite C. Nesset Vice President of Accounting
Brent P. DeMesquita Vice President of Training and Human Resources
H. Thomas Mitchell Vice President, General Counsel and Secretary
Brad J. McNaught Vice President of Real Estate
</TABLE>
For information regarding the ages and business backgrounds of the executive
officers of Buffets, reference is made to the caption "Directors and Executive
Officers of the Registrant" in Part III of the Buffets 10-K. Similar information
regarding Buffets' directors, as well as additional information regarding
directors and executive officers, including executive compensation, securities
ownership of certain beneficial owners and management and certain relationships
and related transactions, is incorporated by reference to Items 10, 11, 12 and
13 of the Buffets 10-K (which incorporates portions of Buffets' definitive proxy
statement for Buffets' 1996 Annual Meeting of Shareholders), which is
incorporated herein by reference.
NEW DIRECTORS AND OFFICERS
Pursuant to the Merger Agreement, Buffets has agreed to increase the size of
its Board of Directors from five to seven, effective as of the Effective Time,
and intends to elect C. Dennis Scott and Dr. Christian F. Horn, who have agreed
to serve as members of the Buffets Board, to fill such positions upon
consummation of the Merger. If, prior to the Effective Time, Mr. Scott or Dr.
Horn shall be unable or unwilling to serve as a Buffets director, HomeTown
shall, by action of its Board of Directors, designate another person to serve in
such person's stead, which person shall be reasonably acceptable to Buffets.
Directors of Buffets serve until the next annual meeting of shareholders and
until a successor is elected and qualified.
Buffets has also agreed to appoint as executive officers of Buffets,
effective as of the Effective Time, Mr. Scott as Vice Chairman of the Board and
Chief Operating Officer, Kerry A. Kramp as President, Thomas F. Hubbard as
Executive Vice President of Real Estate and Development, and Neal L. Wichard as
Senior Vice President of Real Estate. In addition, David Goronkin, currently
Vice President of Operations of HomeTown, will be appointed as Vice President of
Operations of Buffets. The executive officers of Buffets serve until the next
annual meeting of the Buffets Board, or until earlier removed by the Buffets
Board.
For information regarding the ages and business backgrounds of certain of
the aforementioned persons, reference is made to the caption "Directors and
Officers of the Registrant" in Part III of the HomeTown 10-K (which incorporates
portions of HomeTown's definitive proxy statement for HomeTown's 1996 Annual
Meeting of Stockholders), which is incorporated herein by reference.
67
<PAGE>
DESCRIPTION OF BUFFETS CAPITAL STOCK
THE FOLLOWING SUMMARY OF CERTAIN PROVISIONS OF THE BUFFETS AMENDED AND
RESTATED ARTICLES OF INCORPORATION, THE BUFFETS BYLAWS AND A RIGHTS AGREEMENT,
DATED AS OF OCTOBER 4, 1995, BY AND BETWEEN BUFFETS AND AMERICAN STOCK TRANSFER
& TRUST COMPANY, AS RIGHTS AGENT (THE "BUFFETS RIGHTS AGREEMENT"), DOES NOT
PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
DOCUMENTS, COPIES OF WHICH ARE INCLUDED AS EXHIBITS TO THE REGISTRATION
STATEMENT OF WHICH THIS JOINT PROXY STATEMENT/PROSPECTUS IS A PART.
GENERAL
The authorized capital stock of Buffets consists of 60,000,000 shares of
Common Stock, par value $.01 per share ("Buffets Common Stock"), and 5,000,000
shares of Preferred Stock, par value $.01 per share ("Buffets Preferred Stock").
As of August 16, 1996, [31,337,434] shares of Buffets Common Stock were issued
and outstanding and no shares of Buffets Preferred Stock were issued or
outstanding. All issued and outstanding shares of Buffets Common Stock are, and
the shares of Buffets Common Stock to be issued in the Merger will be, fully
paid and non-assessable.
COMMON STOCK
Upon liquidation or dissolution of Buffets, the holders of Buffets Common
Stock share ratably, in proportion to the number of shares held, in the assets
available for distribution after payment of all prior claims, including all
prior claims of the holders of any Buffets Preferred Stock then outstanding.
Holders of Buffets Common Stock have no preemptive rights and are entitled
to one vote for each share held on each matter submitted to a vote of
shareholders. Cumulative voting for the election of directors is not permitted.
Subject to any prior rights of any Buffets Preferred Stock then outstanding,
holders of Buffets Common Stock are entitled to receive ratably such dividends
as may be declared by the Board of Directors of Buffets out of funds legally
available therefor. Currently, however, Buffets is restricted from declaring or
paying cash dividends to shareholders without the consent of the lender under
Buffets' unsecured revolving line of credit.
PREFERRED STOCK
The Board of Directors of Buffets has the authority, in most instances
without further shareholder action, to issue from time to time all or any part
of the authorized Buffets Preferred Stock, in one or more series. The Buffets
Board is authorized to determine the designation of and number of shares in each
series and to fix the dividend, redemption, liquidation, retirement, conversion
and voting rights, if any, of such series, and any other rights and preferences
thereof. Any shares of Buffets Preferred Stock which may be issued may have
disproportionately high voting rights or class voting rights, may be convertible
into shares of Buffets Common Stock and may rank prior to shares of Buffets
Common Stock as to payment of dividends and upon liquidation. The Buffets Board
could authorize the issuance of one or more series of the Buffets Preferred
Stock with voting rights or other rights and preferences which would impede the
success of any proposed merger, tender offer, proxy contest or other attempt to
gain control of Buffets not approved by the Buffets Board. Although the issuance
of Buffets Preferred Stock may have an adverse effect on the rights of holders
of Buffets Common Stock, the consent of the holders of Buffets Common Stock
would not be required for any such issuance of Buffets Preferred Stock.
There are currently reserved for issuance up to 600,000 shares of Series A
Junior Participating Preferred Shares of Buffets issuable under the Buffets
Rights Agreement referred to below under "Share Rights Plan".
68
<PAGE>
SHARE RIGHTS PLAN
Pursuant to the Buffets Rights Agreement, each share of Buffets Common Stock
issued by Buffets has attached one preferred share purchase right (a "Right").
Each Right entitles the registered holder to purchase from Buffets one
one-hundredth of a Series A Junior Participating Preferred Share of the par
value of $.01 per share (the "Preferred Shares") of Buffets at a price of $65
per one one-hundredth of a Preferred Share (the "Purchase Price"), subject to
adjustment.
Until the Distribution Date, the Rights will be evidenced by certificates
representing shares of Buffets Common Stock and will be transferred only with
the shares of Buffets Common Stock. The Rights will separate from the shares of
Buffets Common Stock and a Distribution Date for the Rights will occur upon the
earlier of: (i) the close of business on the fifteenth day following a public
announcement that a person or group of affiliated or associated persons has
become an "Acquiring Person" (i.e. has become, subject to certain exceptions,
the beneficial owner of 20% or more of the outstanding shares of Buffets Common
Stock) or (ii) the close of business on the fifteenth day following the
commencement or public announcement of a tender offer or exchange offer the
consummation of which would result in a person or group of affiliated or
associated persons becoming, subject to certain exceptions, the beneficial owner
of 20% or more of the outstanding shares of Buffets Common Stock (or such later
date as may be determined by the Buffets Board prior to a person or group of
affiliated or associated persons becoming an Acquiring Person). The Rights are
not exercisable until the Distribution Date. The Rights will expire on November
13, 2005, unless extended or earlier redeemed or exchanged by Buffets as
described below.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person (unless such person first becomes an Acquiring
Person pursuant to a tender offer or an exchange offer for all outstanding
shares of Buffets Common Stock at a price and on terms determined by the Buffets
Directors (prior to any change in control of the Buffets Board) to be fair to
shareholders and otherwise in the best interests of Buffets and its shareholders
and which the Buffets Directors recommends to the shareholders), proper
provision shall be made so that each holder of a Right, other than Rights that
are or were beneficially owned by the Acquiring Person (which will thereafter be
void), will thereafter have the right to receive upon exercise thereof at the
then current exercise price of the Right that number of shares of Buffets Common
Stock having a market value of two times the exercise price of the Right,
subject to certain possible adjustments.
In the event that, after the Distribution Date or within 15 days prior
thereto, Buffets is acquired in certain mergers or other business combination
transactions (other than a transaction for at least the same per-share
consideration with a person who acquired shares of Buffets Common Stock through
a tender offer or exchange offer for all outstanding shares of Buffets Common
Stock approved by the Buffets Board in accordance with the preceding paragraph
or any wholly owned subsidiary of such person) or 50% or more of the assets or
earning power of Buffets and its subsidiaries (taken as a whole) are sold after
the Distribution Date or within 15 days prior thereto, each holder of a Right
(other than Rights which have become void under the terms of the Buffets Rights
Agreement) will thereafter have the right to receive, upon exercise thereof at
the then current exercise price of the Right, that number of common shares of
the acquiring company (or, in certain cases, one of its affiliates) having a
market value of two times the exercise price of the Right.
In certain events specified in the Rights Agreement, Buffets is permitted to
temporarily suspend the exercisability of the Rights.
At any time after a person or group of affiliated or associated persons
becomes an Acquiring Person (subject to certain exceptions) and prior to the
acquisition by a person or group of affiliated or associated persons of 50% or
more of the outstanding shares of Buffets Common Stock, the Buffets Board may
(if there has been no change in control of the Buffets Board) exchange all or
part of the Rights (other than Rights which have become void under the terms of
the Buffets Rights Agreement)
69
<PAGE>
for shares of Buffets Common Stock or equivalent securities at an exchange ratio
per Right equal to the result obtained by dividing the exercise price of a Right
by the current per share market price of the shares of Buffets Common Stock,
subject to adjustment.
At any time prior to the close of business on the twentieth day after a
public announcement that a person or group of affiliated or associated persons
has become an Acquiring Person, the Buffets Board may redeem the Rights in
whole, but not in part, at a price of $.01 per Right, subject to adjustment (the
"Redemption Price"), payable in cash; provided, however, that such redemption
may occur after any person becomes an Acquiring Person only if there has not
been a change in control of the Buffets Board. The period of time during which
the Rights may be redeemed may be extended by the Buffets Board if no such
change of control has occurred or if no person has become an Acquiring Person.
The redemption of the Rights may be made effective at such time, on such basis
and with such conditions as the Buffets Board in its sole discretion may
establish.
The terms of the Rights may be amended by the Buffets Board, subject to
certain limitations after the Distribution Date, without the consent of the
holders of the Rights, including an amendment prior to the date a person or
group of affiliated or associated persons becomes an Acquiring Person to lower
the 20% threshold for exercisability of the Rights to not less than the greater
of (i) the sum of .001% and the largest percentage of the outstanding shares of
Buffets Common Stock then known by Buffets to be beneficially owned by any
person or group of affiliated or associated persons (subject to certain
exceptions) or (ii) 10%.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a shareholder of Buffets, including, without limitation, the right to vote or
to receive dividends.
ANTI-TAKEOVER PROVISIONS IN ARTICLES OF INCORPORATION
The Amended and Restated Articles of Incorporation of Buffets require the
approval of certain types of transactions involving "interested shareholders"
(essentially defined as any holder of 20% or more of the outstanding Buffets
Common Stock) by holders of 66 2/3% of the voting power generally entitled to
vote in the election of directors, unless the transaction in question has been
approved by a two-thirds vote of the "continuing directors" of Buffets. The
special voting requirements generally cover such transactions as a merger,
consolidation or statutory exchange of shares of Buffets or any subsidiary of
Buffets with an interested shareholder; a sale, lease, exchange, mortgage,
pledge or other transfer to or with an interested shareholder of any assets of
Buffets or any subsidiary equal to 25% or more of the book value of the
consolidated assets of Buffets; the issuance or transfer by Buffets or any
subsidiary to any interested shareholder of any securities of Buffets (except
pursuant to stock dividends, stock splits and similar transactions) or of any
securities of a subsidiary of Buffets (except pursuant to a pro rata
distribution to all holders of Buffets Common Stock); the adoption of any plan
or proposal for the liquidation or dissolution of Buffets proposed by or on
behalf of an interested shareholder; and a transaction that has the effect of
increasing the proportionate share of Buffets Common Stock that is beneficially
owned by any interested shareholder. These special voting requirements do not
apply to any proposed transaction that would otherwise be covered if the
consideration to be received by holders of Buffets Common Stock in the proposed
transaction meets certain conditions generally designed to ensure that the
shareholders receive a fair price for their shares. A similar 66 2/3% vote would
be required to amend, repeal or adopt any provisions inconsistent with any of
the provisions described above. These provisions could have the effect in
certain circumstances of delaying or preventing a change in control of Buffets
at some future time. See also "Comparative Rights of Buffets Shareholders and
HomeTown Stockholders -- Corporate Takeover Legislation." The statutory
provisions described therein could also have the effect in certain circumstances
of delaying or preventing a change in control of Buffets.
TRANSFER AGENT
The transfer agent for the Buffets Common Stock is American Stock Transfer &
Trust Company, New York, New York.
70
<PAGE>
MARKET PRICE INFORMATION
Both Buffets Common Stock and HomeTown Common Stock are quoted on the Nasdaq
National Market under the symbols "BOCB" and "HTBB", respectively. The table
below sets forth, for the calendar quarters indicated, the reported high and low
closing sales prices of Buffets Common Stock and HomeTown Common Stock as
reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
BUFFETS HOMETOWN COMMON
COMMON STOCK STOCK
-------------------- --------------------
HIGH LOW HIGH LOW
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1994
First Quarter......................................................... $ 27.50 $ 21.50 $ 19.50 $ 12.00
Second Quarter........................................................ 24.50 16.00 17.50 11.50
Third Quarter......................................................... 21.75 15.00 17.25 9.00
Fourth Quarter........................................................ 16.75 7.88 11.75 8.25
1995
First Quarter......................................................... 12.06 9.12 11.25 7.75
Second Quarter........................................................ 14.62 9.37 13.13 10.00
Third Quarter......................................................... 14.62 11.25 15.25 10.13
Fourth Quarter........................................................ 15.50 11.37 14.25 11.38
1996
First Quarter......................................................... 14.25 11.88 12.50 9.63
Second Quarter........................................................ 14.13 11.38 14.88 12.63
Third Quarter (through August 15, 1996)...............................
</TABLE>
On June 3, 1996, the last full trading day prior to the public announcement
of the Merger Agreement, the last reported sale price on the Nasdaq National
Market was $12.50 per share of Buffets Common Stock and $15.125 per share of
HomeTown Common Stock. On August 15, 1996, the most recent practicable date
prior to the printing of this Joint Proxy Statement/Prospectus, the last
reported sales price on the Nasdaq National Market was $ per share of Buffets
Common Stock and $ per share of HomeTown Common Stock.
Because the market price of Buffets Common Stock is subject to fluctuation,
the market value of the shares of Buffets Common Stock that holders of HomeTown
Common Stock will receive in the Merger may increase or decrease prior to the
Effective Time.
HOMETOWN STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE
BUFFETS COMMON STOCK AND THE HOMETOWN COMMON STOCK.
Neither Buffets nor HomeTown has declared or paid any cash dividends on its
Common Stock since their respective inceptions. Following the Merger, Buffets
intends to retain any future earnings for use in the expansion of its business
and does not anticipate declaring or paying cash dividends in the foreseeable
future.
COMPARATIVE RIGHTS OF BUFFETS SHAREHOLDERS AND HOMETOWN STOCKHOLDERS
Upon consummation of the Merger, the stockholders of HomeTown, a Delaware
corporation, will become shareholders of Buffets, a Minnesota corporation, and
the rights of such former HomeTown stockholders will be governed by Minnesota
law and by the Buffets Articles of Incorporation and Bylaws. The rights of the
former HomeTown stockholders under the Minnesota Business Corporation Act (the
"MBCA") and the Buffets Articles of Incorporation and Bylaws will differ in
certain respects from the rights of HomeTown stockholders under the Delaware
General Corporate Law (the "DGCL") and the HomeTown Certificate of Incorporation
and Bylaws. Certain of these differences are summarized below; however, this
summary is not exhaustive, and is qualified in its entirety by reference to the
full text of such documents.
71
<PAGE>
CALL OF SHAREHOLDERS' MEETINGS
Under the MBCA, holders of 10% or more of all the outstanding shares
entitled to vote have the right to demand a special shareholders' meeting,
except that a special meeting for the purpose of considering whether to directly
or indirectly facilitate or effect a business combination must be called by
holders of 25% or more of the outstanding shares. No similar right exists under
the DGCL or under the HomeTown Certificate of Incorporation or Bylaws.
SHAREHOLDER ACTION WITHOUT A MEETING
Pursuant to the DGCL, any action required to be taken at an annual or
special meeting of stockholders may be taken without a meeting by written
consent, setting forth the action so taken, signed by holders of outstanding
stock having not less than the minimum number of votes necessary to take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Under the MBCA, a meeting is required to take all such action unless
the unanimous written consent of the shareholders is obtained.
AMENDMENTS TO ARTICLES OF INCORPORATION AND BYLAWS
The DGCL generally requires a majority vote of all outstanding voting stock
to amend a corporation's certificate of incorporation unless the certificate of
incorporation provides for a higher requisite vote. The requisite vote in the
MBCA to amend a corporation's articles of incorporation, in the absence of
provisions in the articles of incorporation to the contrary, is generally only a
majority of the voting power of the shares that are actually present at the
shareholders' meeting and entitled to vote. Neither the Buffets Articles of
Incorporation nor the HomeTown Certificate of Incorporation provides for a vote
different to that required by the MBCA or the DGCL, respectively.
Under the DGCL, the stockholders of a corporation have the power to adopt,
amend or repeal bylaws, to the exclusion of the board of directors, unless the
certificate of incorporation also grants such power to the board of directors.
The HomeTown Certificate of Incorporation provides that the HomeTown Board of
Directors shall have the power to adopt, amend or repeal the HomeTown Bylaws to
the maximum extent permitted by the DGCL. Thus, both the HomeTown Board of
Directors and the HomeTown stockholders have the power to adopt, amend or repeal
bylaws. Under the MBCA, the board of directors of a corporation has the power to
adopt, amend or repeal bylaws, unless the articles of incorporation reserve such
power to the shareholders. The Buffets Articles of Incorporation do not reserve
such power to the Buffets shareholders. The Buffets Board of Directors may
therefore adopt, amend or repeal bylaws. However, pursuant to both the MBCA and
the Buffets Bylaws, the Buffets Board of Directors may not adopt, amend or
repeal a bylaw fixing the quorum for shareholder meetings, prescribing
procedures for removing directors or filling vacancies in the board, fixing the
classifications, qualifications or terms of office of directors, or decreasing
the number of directors. In addition, the Buffets shareholders retain the power
to adopt, amend or repeal bylaws adopted, amended or repealed by the Board of
Directors.
DISSENTERS' RIGHTS
Under the MBCA, shareholders are entitled to dissenters' rights of appraisal
in the event of (i) any amendment to the articles of incorporation materially
and adversely affecting shares of the shareholder in that it (a) alters or
abolishes preferential rights relating to the shares, (b) creates, alters or
abolishes redemption rights relating to the shares, (c) alters or abolishes
preemptive rights of the shareholder regarding acquisition of securities of the
corporation of which it owns shares, or (d) subject to certain exceptions,
excludes or limits the rights of a shareholder to vote on a matter or to
cumulate votes; (ii) any sale, lease, transfer, or other disposition of all or
substantially all of the property and assets of a corporation not made in the
usual or regular course of its business or in certain other limited
circumstances; (iii) any merger, except that the right to obtain payment does
not apply to a shareholder of the surviving corporation of a merger if the
shares of the shareholder are not entitled to be voted on the merger; (iv) any
exchange to which the corporation is a party as the
72
<PAGE>
corporation whose shares will be acquired by the acquiring corporation, if the
shares of the shareholder are entitled to vote on the exchange; or (v) any other
corporate action taken pursuant to a shareholder vote with respect to which the
articles of incorporation, bylaws or a resolution approved by the board of
directors provides that dissenting shareholders may obtain payment for their
shares.
Stockholders of a Delaware corporation are entitled to similar dissenters'
rights. Under the DGCL, however, no dissenters' rights exist for shares of stock
of a constituent corporation in a merger or consolidation that are 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 stockholders. However,
dissenters' rights will exist if the stockholders are required to receive
anything other than: (i) shares of stock of the corporation surviving or
resulting from such merger or consolidation; (ii) shares of stock of any other
corporation which at the effective date of the merger or consolidation will be
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 stockholders;
(iii) cash in lieu of fractional shares of the corporations described in the
foregoing clauses (i) and (ii); or (iv) any combination of clauses (i), (ii) or
(iii).
DIVIDENDS; STOCK REPURCHASES
Under the DGCL, a corporation may pay dividends only out of its surplus or
out of its net profits for the fiscal year in which the dividend is declared or
out of its net profits for the preceding fiscal year, subject to certain
limitations for the benefit of certain preference shares. The corporation may
also repurchase shares of its capital stock upon compliance with certain
statutory standards. Under the MBCA, a corporation may pay dividends or
repurchase shares if the corporation will be able to pay its debts in the
ordinary course of business after paying the dividend or repurchasing the
shares, regardless of whether the corporation has surplus or net profits,
subject to certain limitations for the benefit of certain preference shares.
CORPORATE TAKEOVER LEGISLATION
Both Minnesota and Delaware have enacted legislation aimed at regulating
takeovers of certain corporations and protecting shareholders of such
corporations in connection with certain business combinations. Under the MBCA,
if a Minnesota corporation having at least 50 shareholders has an interested
shareholder (a beneficial holder of at least 10% of the outstanding voting
shares or an affiliate or associate of the corporation who, within the preceding
four years, was a 10% shareholder regardless of such person's present
shareholdings), the corporation is precluded from entering into certain
specified business combinations (including mergers and sales of substantially
all assets) with, or proposed by, or on behalf of, the interested shareholder
(or affiliated or associated persons) for at least four years after the
shareholder acquired its 10% interest. The four year restriction does not apply,
however, if a committee of the board of directors consisting of all of its
disinterested directors (excluding current officers and employees of the
corporation and persons who were officers or employees of the corporation or a
related organization within the preceding five years) approves the acquisition
of the 10% interest or the business combination before the date on which the
shareholder acquires its 10% interest.
A Minnesota corporation having at least 50 shareholders is also subject to
the control share acquisition provisions of the MBCA which, subject to certain
exceptions, require the approval of the holders of a majority of all the
corporation's voting shares, including shares held by the acquiring person, and
of a majority of the corporation's voting shares held by disinterested
shareholders, before a person acquiring 20% or more of the corporation's voting
shares can vote the shares in excess of 20%. Similar shareholder approvals are
required at the 33 1/3% and majority thresholds.
The MBCA also contains "anti-greenmail" provisions which, under certain
circumstances, restrict the ability of publicly-held Minnesota corporations to
repurchase shares from a person or group holding shares constituting five
percent or more of the corporation's voting power if such person or group has
beneficially owned such shares for less than two years.
73
<PAGE>
Finally, the MBCA also contains a fair price provision, which provides that
an offeror may not acquire shares of a publicly-held Minnesota corporation
within two years following the offeror's last purchase of shares pursuant to a
takeover offer with respect to that class, unless the shareholder is afforded at
that time a reasonable opportunity to dispose of the shares to the offeror upon
terms substantially equivalent to those provided in the earlier takeover offer.
Share acquisitions covered by the fair price provision of the MBCA include those
made by purchase, exchange, merger, consolidation, partial or complete
liquidation, redemption, reverse stock split, recapitalization, reorganization,
or any other similar transaction. The MBCA's fair price provision does not
apply, however, if the acquisition is approved by a committee of the board's
disinterested directors before the purchase of any shares by the offeror
pursuant to a takeover offer. Also, for purposes of the fair price provision,
certain transactions are expressly excluded from the definition of a "takeover
offer." Such exempted transactions include (i) repurchase offers by the
corporation, unless made in response to hostile takeover bids, (ii) tender
offers which, if consummated, including the offeror's other share acquisitions
within the preceding 12 months, would not result in the acquisition of more than
two percent of a class of stock, and (iii) offers for shares of certain
regulated entities, including insurance companies, financial institutions and
public service utilities.
Although Delaware has not enacted provisions similar to the Minnesota
control share acquisition provisions or "anti-greenmail" provisions contained in
the MBCA, it has enacted provisions that limit certain business combinations of
Delaware corporations with interested stockholders. Under the DGCL, an
interested stockholder (a stockholder whose beneficial ownership in the
corporation is at least 15% of the outstanding voting securities rather than the
10% provided in the MBCA) is precluded from entering into certain business
combinations with the corporation for a period of three years (rather than the
four year restriction provided in the MBCA) following the date on which the
stockholder became an interested stockholder unless, among other exceptions,
prior to such date the board of directors (rather than the committee of
disinterested directors as provided in the MBCA) approves either the business
combination or the transaction that resulted in the stockholder becoming an
interested stockholder. Unlike the MBCA, the DGCL provides that the business
combination provisions have no effect if (i) the tender offer or other
transaction by which the stockholder became an interested stockholder results in
such stockholder beneficially owning at least 85 percent of the voting
securities of the corporation (exclusive of shares owned by directors who are
also officers and shares owned by certain employee stock option plans) or (ii)
the business combination is approved by the board of directors and two-thirds of
the shares held by stockholders other than the interested stockholder.
INTERESTED SHAREHOLDER TRANSACTIONS
In addition to the provisions of the MBCA described above, the Buffets
Articles of Incorporation require the approval of certain types of transactions
involving "interested shareholders" (essentially defined as any holder of 20% or
more of the outstanding Buffets Common Stock) by holders of 66 2/3% of the
voting power generally entitled to vote in the election of directors, unless the
transaction in question has been approved by a two-thirds vote of the
"continuing directors" of Buffets. The special voting requirements generally
cover such transactions as a merger, consolidation or statutory exchange of
shares of Buffets or any subsidiary of Buffets with an interested shareholder; a
sale, lease, exchange, mortgage, pledge or other transfer to or with an
interested shareholder of any assets of Buffets or any subsidiary of Buffets
equal to 25% or more of the book value of the consolidated assets of Buffets; a
sale, lease, exchange, mortgage, pledge or other transfer to or with Buffets or
any subsidiary of Buffets of any assets of an interested shareholder equal to
25% or more of the book value of the consolidated assets of Buffets; the
issuance or transfer by Buffets or any subsidiary to any interested shareholder
of any securities of Buffets (except pursuant to stock dividends, stock splits
and similar transactions) or of any securities of a subsidiary of Buffets
(except pursuant to a pro rata distribution to all holders of Buffets Common
Stock); the adoption of any plan or proposal for the liquidation or dissolution
of Buffets proposed by or on behalf of an interested shareholder; and a
transaction that has the effect of increasing the proportionate share of Buffets
Common Stock that is
74
<PAGE>
beneficially owned by any interested shareholder. These special voting
requirements do not apply to any proposed transaction that would otherwise be
covered if the consideration to be received by holders of Buffets Common Stock
in the proposed transaction meets certain conditions generally designed to
ensure that the shareholders receive a fair price for their shares. A similar
66 2/3% vote would be required to amend, repeal or adopt any provisions
inconsistent with any of the provisions described above. These provisions could
have the effect in certain circumstances of delaying or preventing a change in
control of Buffets at some future time. The HomeTown Certificate of
Incorporation does not contain any such "interested shareholder" provisions.
AUTHORIZED STOCK; AUTHORITY OF BOARD OF DIRECTORS TO ISSUE PREFERRED STOCK
The authorized capital stock of Buffets consists of 60,000,000 shares of
Buffets Common Stock and 5,000,000 shares of Buffets Preferred Stock. There are
currently reserved for issuance up to 600,000 shares of Series A Junior
Participating Preferred Shares of Buffets issuable under the Buffets Rights
Agreement referred to below under "Share Rights Plan". The authorized capital
stock of HomeTown consists of 20,000,000 shares of HomeTown Common Stock and
5,000,000 shares of Preferred Stock, par value $.01 per share. The MBCA and
DGCL, respectively, permit the Buffets and HomeTown Boards of Directors to issue
authorized but unissued shares of common stock without shareholder action.
In addition, the Buffets Articles of Incorporation authorize the Buffets
Board of Directors, in most instances without further shareholder action, to
issue from time to time all or any part of the Buffets Preferred Stock, in one
or more series. The Buffets Board is authorized to determine the designation of
and number of shares in each series and to fix the dividend, redemption,
liquidation, retirement, conversion and voting rights, if any, of such series,
and any other rights and preferences thereof. Any shares of Buffets Preferred
Stock which may be issued may have disproportionately high voting rights or
class voting rights, may be convertible into shares of Buffets Common Stock and
may rank prior to shares of Buffets Common Stock as to payment of dividends and
upon liquidation. The Buffets Board could authorize the issuance of one or more
series of the Buffets Preferred Stock with voting rights or other rights and
preferences which would impede the success of any proposed merger, tender offer,
proxy contest or other attempt to gain control of Buffets not approved by the
Buffets Board. Although the issuance of Buffets Preferred Stock may have an
adverse effect on the rights of holders of Buffets Common Stock, the consent of
the holders of Buffets Common Stock would not be required for any such issuance
of Buffets Preferred Stock. The HomeTown Certificate of Incorporation does not
confer upon the HomeTown Board of Directors any such right to issue preferred
stock without further shareholder action.
SHARE RIGHTS PLAN
Pursuant to the Buffets Rights Agreement, each share of Buffets Common Stock
issued by Buffets has attached one preferred share purchase Right. Each Right
entitles the registered holder to purchase from Buffets one one-hundredth of a
Series A Junior Participating Preferred Share of Buffets at a price of $65 per
one one-hundredth of a Preferred Share, subject to adjustment. The Buffets
Rights Agreement provides for the distribution of the Rights upon the occurrence
of certain events which may constitute an attempt to effect a change in control
of Buffets. The provisions of the Buffets Rights Agreement could have the effect
in certain circumstances of delaying or preventing a change in control of
Buffets at some future time. HomeTown does not have any similar rights plan. See
"Description of Buffets Capital Stock -- Share Rights Plan" for a more detailed
description of the Buffets Share Rights Plan.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS
The DGCL and MBCA both permit a corporation to eliminate a director's
personal liability for monetary damages for breach of fiduciary duty. However,
both statutes specify certain acts with respect to which a corporation may not
eliminate such liability. The principal difference between the DGCL and MBCA is
that the MBCA does not permit a corporation to eliminate a director's liability
for
75
<PAGE>
civil liabilities imposed under certain portions of Minnesota's securities laws.
The HomeTown Certificate of Incorporation and the Buffets Articles of
Incorporation each eliminate the liability of directors to the extent permitted
by the DGCL and the MBCA, respectively.
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
In general, the MBCA requires, and the DGCL permits, indemnification to
cover potential liabilities of directors, officers and employees in certain
circumstances. In the case of actions brought by or in the interests of the
corporation, the DGCL limits indemnification to such expenses as a court of law
deems proper. However, where a director, officer, employee or agent successfully
defends an action, the DGCL provides that such person is entitled to
indemnification against his or her reasonable expenses. The provisions of the
DGCL and MBCA, respectively, do not exclude any nonstatutory indemnification
rights. The Buffets Bylaws require Buffets to indemnify such persons for such
expenses and liabilities, in such manner, in such circumstances, and to such
extent, as required or permitted by law. The HomeTown Certificate of
Incorporation and Bylaws provide that HomeTown shall indemnify directors and
officers, and may indemnify employees and agents, to the fullest extent
permitted by law.
REMOVAL OF DIRECTORS
Under the MBCA, a director may be removed, with or without cause, by a
majority of the remaining directors if the director was named by the board to
fill a vacancy and the shareholders have not elected directors in the interval
between the time of appointment to fill a vacancy and the time of the removal.
The DGCL does not have a similar provision for the removal of directors by the
board. The MBCA and DGCL each provide that any or all of the directors may be
removed, with or without cause, by the shareholders.
LEGAL MATTERS
The validity of the shares of Buffets Common Stock to be issued in the
Merger will be passed upon for Buffets by Faegre & Benson LLP, Minneapolis,
Minnesota. Certain tax consequences of the Merger will be passed upon for
Buffets by Faegre & Benson LLP and for HomeTown by Stoel Rives LLP, Portland,
Oregon.
EXPERTS
The consolidated financial statements incorporated by reference in this
Joint Proxy Statement/ Prospectus from the Buffets Annual Report on Form 10-K
for the fiscal year ended January 3, 1996 have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report, which is incorporated
herein by reference and have been so incorporated in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of HomeTown Buffet, Inc. as of
December 31, 1995 and 1994, and for each of the years in the three-year period
ended December 31, 1995, have been incorporated by reference herein and in the
Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
SHAREHOLDER PROPOSALS
BUFFETS PROPOSALS
Shareholders proposals to be presented at Buffets' 1997 Annual Meeting of
Shareholders must be received by Buffets not later than December 3, 1996 if they
are to be considered for inclusion in the proxy materials for that meeting.
76
<PAGE>
HOMETOWN PROPOSALS
If the stockholders of HomeTown do not approve the Merger Agreement or if
the Merger is not consummated, HomeTown anticipates holding its next annual
meeting of stockholders in May, 1997. Stockholder proposals intended to be
presented at that meeting must be submitted by February 10, 1997 if they are to
be considered for inclusion in the proxy materials for that meeting.
INDEPENDENT ACCOUNTANTS
Representatives of Deloitte & Touche LLP and KPMG Peat Marwick LLP are
expected to be present at the Buffets Special Meeting and the HomeTown Special
Meeting, respectively, and will have the opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions.
77
<PAGE>
EXHIBIT A
-------------------
AGREEMENT AND PLAN OF MERGER
------------
AMONG
BUFFETS, INC.
AND
COUNTRY DELAWARE, INC.
AND
HOMETOWN BUFFET, INC.
-------------
DATED JUNE 3, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I THE MERGER................................................................ A-1
1.01. EFFECTIVE TIME OF THE MERGER................................................... A-1
1.02. CLOSING........................................................................ A-1
1.03. EFFECTS OF THE MERGER.......................................................... A-1
1.04. DIRECTORS AND OFFICERS OF BUFFETS AND THE CONTINUING CORPORATION............... A-2
ARTICLE II CONVERSION OF SECURITIES................................................. A-2
2.01. CONVERSION OF CAPITAL STOCK.................................................... A-2
(A) CAPITAL STOCK OF SUB......................................................... A-2
(B) CANCELLATION OF TREASURY STOCK............................................... A-2
(C) EXCHANGE RATIO FOR HOMETOWN COMMON STOCK..................................... A-2
(D) FRACTIONAL SHARES............................................................ A-3
(E) HOMETOWN STOCK OPTIONS....................................................... A-3
2.02. EXCHANGE OF CERTIFICATES....................................................... A-3
ARTICLE III REPRESENTATIONS AND WARRANTIES OF HOMETOWN.............................. A-5
3.01. ORGANIZATION OF THE COMPANY.................................................... A-5
3.02. HOMETOWN CAPITAL STRUCTURE..................................................... A-5
3.03. AUTHORITY, NO CONFLICT, REQUIRED FILINGS AND CONSENTS.......................... A-6
3.04. SEC FILINGS; FINANCIAL STATEMENTS.............................................. A-7
3.05. NO UNDISCLOSED LIABILITIES..................................................... A-7
3.06. ABSENCE OF CERTAIN CHANGES OR EVENTS........................................... A-8
3.07. TAXES.......................................................................... A-8
3.08. PROPERTIES..................................................................... A-9
3.09. INTELLECTUAL PROPERTY.......................................................... A-9
3.10. AGREEMENTS, CONTRACTS, AND COMMITMENTS......................................... A-9
3.11. LITIGATION..................................................................... A-9
3.12. ENVIRONMENTAL MATTERS.......................................................... A-10
(A) HAZARDOUS SUBSTANCES......................................................... A-10
(B) HAZARDOUS SUBSTANCES ACTIVITIES.............................................. A-10
(C) UST'S AND AST'S.............................................................. A-10
(D) LISTING...................................................................... A-10
(E) ENVIRONMENTAL REPORTS........................................................ A-10
(F) ENVIRONMENTAL CLAIMS, ETC.................................................... A-11
(G) COMPLIANCE WITH ENVIRONMENTAL LAWS........................................... A-11
3.13. EMPLOYEE BENEFIT PLANS......................................................... A-11
3.14. COMPLIANCE WITH LAWS........................................................... A-12
3.15. POOLING OF INTERESTS........................................................... A-12
3.16. INTERESTED PARTY TRANSACTIONS.................................................. A-12
3.17. NO EXISTING DISCUSSIONS........................................................ A-12
3.18. NO SECURED DEBT................................................................ A-12
3.19. OPINION OF FINANCIAL ADVISOR................................................... A-12
3.20. TAX REPRESENTATION............................................................. A-12
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUFFETS AND SUB........................ A-13
4.01. ORGANIZATION OF THE COMPANY.................................................... A-13
4.02. BUFFETS CAPITAL STRUCTURE...................................................... A-13
4.03. AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONTRACTS......................... A-14
4.04. SEC FILINGS; FINANCIAL STATEMENTS.............................................. A-15
4.05. NO UNDISCLOSED LIABILITIES..................................................... A-15
4.06. ABSENCE OF CERTAIN CHANGES OR EVENTS........................................... A-15
4.07. TAXES.......................................................................... A-16
4.08. PROPERTIES..................................................................... A-16
4.09. INTELLECTUAL PROPERTY.......................................................... A-16
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4.10. AGREEMENTS, CONTRACTS AND COMMITMENTS.......................................... A-17
4.11. LITIGATION..................................................................... A-17
4.12. ENVIRONMENTAL MATTERS.......................................................... A-17
(A) HAZARDOUS SUBSTANCES......................................................... A-17
(B) HAZARDOUS SUBSTANCES ACTIVITIES.............................................. A-17
(C) UST'S AND AST'S.............................................................. A-17
(D) LISTING...................................................................... A-18
(E) ENVIRONMENTAL REPORTS........................................................ A-18
(F) ENVIRONMENTAL CLAIMS, ETC.................................................... A-18
(G) COMPLIANCE WITH ENVIRONMENTAL LAWS........................................... A-18
4.13. EMPLOYEE BENEFIT PLANS......................................................... A-18
4.14. COMPLIANCE WITH LAWS........................................................... A-19
4.15. POOLING OF INTERESTS........................................................... A-19
4.16. INTERESTED PARTY TRANSACTIONS.................................................. A-19
4.17. OPINION OF FINANCIAL ADVISOR................................................... A-19
4.18. OWNERSHIP AND INTERIM OPERATIONS OF SUB........................................ A-19
4.19. NO EXISTING DISCUSSIONS........................................................ A-19
ARTICLE V CONDUCT OF BUSINESS....................................................... A-19
5.01. COVENANTS OF BUFFETS AND HOMETOWN.............................................. A-19
5.02. COOPERATION.................................................................... A-21
ARTICLE VI ADDITIONAL AGREEMENTS AND COVENANTS...................................... A-21
6.01. NO SOLICITATION................................................................ A-21
6.02. JOINT PROXY STATEMENT; REGISTRATION STATEMENT.................................. A-22
6.03. ACCESS TO INFORMATION.......................................................... A-23
6.04. SHAREHOLDERS MEETINGS.......................................................... A-23
6.05. LEGAL CONDITIONS TO MERGER..................................................... A-23
6.06. PAYMENT OF TAXES............................................................... A-24
6.07. PUBLIC DISCLOSURE.............................................................. A-24
6.08. TAX-FREE REORGANIZATION........................................................ A-24
6.09. POOLING ACCOUNTING............................................................. A-25
6.10. AFFILIATE AGREEMENTS........................................................... A-25
6.11. NASDAQ QUOTATION............................................................... A-25
6.12. STOCK PLANS AND OTHER OPTIONS.................................................. A-25
6.13. CONSENTS....................................................................... A-26
6.14. BROKERS OR FINDERS............................................................. A-26
6.15. EMPLOYEE BENEFITS; EMPLOYEE ISSUES............................................. A-26
6.16. REPORTS........................................................................ A-26
6.17. SUPPLEMENTAL INDENTURE......................................................... A-27
6.18. NOTIFICATION OF CERTAIN MATTERS................................................ A-27
6.19. ADDITIONAL AGREEMENTS; REASONABLE EFFORTS...................................... A-27
6.20. CONTINUING INDEMNIFICATION..................................................... A-27
ARTICLE VII CONDITIONS TO MERGER.................................................... A-27
7.01. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER..................... A-27
(A) SHAREHOLDER APPROVAL......................................................... A-27
(B) HSR ACT...................................................................... A-27
(C) APPROVALS.................................................................... A-28
(D) REGISTRATION STATEMENT....................................................... A-28
(E) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY..................................... A-28
(F) POOLING LETTER............................................................... A-28
(G) NASDAQ....................................................................... A-28
(H) DELOITTE & TOUCHE COMFORT LETTER............................................. A-28
(I) KPMG PEAT MARWICK COMFORT LETTER............................................. A-28
(J) BANK CONSENT................................................................. A-28
(K) TAX OPINIONS................................................................. A-29
</TABLE>
<PAGE>
<TABLE>
<S> <C>
7.02 ADDITIONAL CONDITIONS TO OBLIGATIONS OF BUFFETS AND SUB......................... A-29
(A) REPRESENTATIONS AND WARRANTIES............................................... A-29
(B) PERFORMANCE OF OBLIGATIONS OF HOMETOWN....................................... A-29
(C) MATERIAL ADVERSE CHANGE...................................................... A-29
(D) BLUE SKY LAWS................................................................ A-29
(E) OPINION OF HOMETOWN'S COUNSEL................................................ A-29
(F) UPDATED FAIRNESS OPINION..................................................... A-29
(G) EMPLOYMENT AGREEMENT......................................................... A-29
(H) CONSENTS..................................................................... A-29
7.03. ADDITIONAL CONDITIONS TO OBLIGATIONS OF HOMETOWN............................... A-29
(A) REPRESENTATIONS AND WARRANTIES............................................... A-29
(B) PERFORMANCE OF OBLIGATIONS OF BUFFETS AND SUB................................ A-29
(C) MATERIAL ADVERSE CHANGE...................................................... A-29
(D) OPINION OF BUFFETS' COUNSEL.................................................. A-30
(E) UPDATED FAIRNESS OPINION..................................................... A-30
(F) EMPLOYMENT AGREEMENT......................................................... A-30
(G) CONSENTS..................................................................... A-30
ARTICLE VIII TERMINATION AND AMENDMENT.............................................. A-30
8.01. TERMINATION.................................................................... A-30
8.02. EFFECT OF TERMINATION.......................................................... A-31
8.03. FEES AND EXPENSES.............................................................. A-31
8.04. AMENDMENT...................................................................... A-32
8.05. EXTENSION; WAIVER.............................................................. A-32
ARTICLE IX MISCELLANEOUS............................................................ A-32
9.01. NONSURVIVAL OF REPRESENTATIONS, WARRANTIES, AND AGREEMENTS..................... A-32
9.02. NOTICES........................................................................ A-32
9.03. INTERPRETATION................................................................. A-33
9.04. COUNTERPARTS................................................................... A-33
9.05. ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES................................. A-33
9.06. GOVERNING LAW.................................................................. A-33
9.07. ASSIGNMENT..................................................................... A-33
9.08. KNOWLEDGE...................................................................... A-33
ARTICLE X DEFINITIONS............................................................... A-33
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated June 3, 1996, is
by and among BUFFETS, INC., a Minnesota corporation ("BUFFETS"), COUNTRY
DELAWARE, INC., a Delaware corporation and a wholly owned subsidiary of Buffets
("Sub"), and HOMETOWN BUFFET, INC., a Delaware corporation ("HomeTown").
WHEREAS, the Boards of Directors of Buffets, Sub, and HomeTown deem it
advisable and in the best interest of each corporation and its respective
shareholders that Buffets and HomeTown combine in order to advance the long-term
business interests of Buffets and HomeTown;
WHEREAS, the strategic combination of Buffets and HomeTown shall be effected
by the terms of this Agreement through a transaction in which Sub will merge
with and into HomeTown, HomeTown will become a wholly owned subsidiary of
Buffets, and the stockholders of HomeTown will become shareholders of Buffets
(the "Merger");
WHEREAS, for Federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a pooling of interests;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants, and agreements set forth herein and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound, the parties hereby agree as
follows:
ARTICLE I
THE MERGER
1.01. EFFECTIVE TIME OF THE MERGER. Subject to the provisions of this
Agreement, a certificate of merger (the "Certificate of Merger"), substantially
in the form attached hereto as Exhibit 1.01, shall be duly executed and
acknowledged by the Constituent Corporations (as defined in Section 1.03), and
thereafter delivered to the Secretary of State of the State of Delaware, for
filing, as provided in the General Corporation Law of the State of Delaware (the
"Delaware Law"), as soon as practicable on or after the Closing Date (as defined
in Section 1.02). The Merger shall become effective upon the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware or at
such time thereafter as is provided in the Certificate of Merger (the "Effective
Time").
1.02. CLOSING. The closing of the Merger (the "Closing") will take place
at 9:00 a.m., Minneapolis time, on a date to be specified by Buffets and
HomeTown, which shall be no later than the second business day after
satisfaction of all the conditions set forth in Sections 7.01, 7.02(b) and
7.03(b) (provided that the other closing conditions set forth in Article VII
have been met or waived as provided in Article VII at or prior to the Closing)
(the "Closing Date"), at the offices of Faegre & Benson LLP, Minneapolis,
Minnesota, unless another date or place is agreed to in writing by Buffets and
HomeTown. 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.
1.03. EFFECTS OF THE MERGER.
(a) At the Effective Time (i) the separate existence of Sub shall cease and
Sub shall be merged with and into HomeTown (Sub and HomeTown are sometimes
referred to below as the "Constituent Corporations" and HomeTown is sometimes
referred to below as the "Continuing Corporation"), (ii) the Certificate of
Incorporation of HomeTown shall be amended so that Article III, Section A of
such Certificate of Incorporation reads in its entirety as follows: "The total
number of shares of all classes of stock which the Corporation shall have
authority to issue is 1,000, all of which shall consist
A-1
<PAGE>
of Common Stock, par value $0.01 per share," and as so amended, such Certificate
of Incorporation shall be the Certificate of Incorporation of the Continuing
Corporation, and (iii) the Bylaws of HomeTown as in effect immediately prior to
the Effective Time shall be the Bylaws of the Continuing Corporation.
(b) At and after the Effective Time, the Continuing Corporation shall
possess all the rights, privileges, powers, and franchises of a public as well
as of a private nature, and be subject to all the restrictions, disabilities,
and duties of each of the Constituent Corporations; and all and singular rights,
privileges, powers, and franchises of each of the Constituent Corporations, and
all property, real, personal, and mixed, and all debts due to either of the
Constituent Corporations on whatever account, as well as for stock subscriptions
and all other things in action or belonging to each of the Constituent
Corporations, shall be vested in the Continuing Corporation, and all property,
rights, privileges, powers, and franchises, and all and every other interest
shall be thereafter as effectually the property of the Continuing Corporation as
they were of the Constituent Corporations, and the title to any real estate
vested by deed or otherwise, in either of the Constituent Corporations, shall
not revert or be in any way impaired; but all rights of creditors and all liens
upon any property of either of the Constituent Corporations shall be preserved
unimpaired, and all debts, liabilities, and duties of the Constituent
Corporations shall thereafter attach to the Continuing Corporation, and may be
enforced against it to the same extent as if such debts and liabilities had been
incurred by it.
1.04. DIRECTORS AND OFFICERS OF BUFFETS AND THE CONTINUING CORPORATION.
(a) Buffets shall take all actions necessary to cause the full Board of
Directors of Buffets at the Effective Time to be increased to seven directors,
and to cause each of C. Dennis Scott and Dr. Christian F. Horn to be appointed
as a director of Buffets. If, prior to the Effective Time, Mr. Scott or Dr. Horn
shall be unable or unwilling to serve as an Buffets director, HomeTown shall, by
action of its Board of Directors, designate another person to serve in such
person's stead, which person shall be reasonably acceptable to Buffets. Buffets
shall take all actions necessary to cause the officers of Buffets after the
Effective Time to be as set forth on Exhibit 1.04(a) hereto.
(b) Buffets and HomeTown shall take all actions necessary to cause the
directors constituting the full Board of Directors of the Continuing Corporation
at the Effective Time to be Roe H. Hatlen and C. Dennis Scott. If prior to the
Effective Time, either of such persons shall be unable to serve, Buffets shall
designate a replacement.
(c) The officers and directors of Buffets and the Continuing Corporation as
designated in accordance with this Section shall hold their positions until
their resignation or removal or the election or appointment of their successors
in the manner provided by the respective charter documents and bylaws of Buffets
or the Continuing Corporation, as the case may be, and applicable law.
ARTICLE II
CONVERSION OF SECURITIES
2.01. CONVERSION OF CAPITAL STOCK. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of
HomeTown Common Stock or capital stock of Sub:
(a) CAPITAL STOCK OF SUB. Each issued and outstanding share of the
capital stock of Sub shall be converted into and become one fully paid and
nonassessable share of Common Stock, $0.01 par value per share, of the
Continuing Corporation.
(b) CANCELLATION OF TREASURY STOCK. All shares of HomeTown Common
Stock that are owned by HomeTown as treasury stock shall be canceled and
retired and shall cease to exist and no stock of Buffets or other
consideration shall be delivered in exchange therefor.
(c) EXCHANGE RATIO FOR HOMETOWN COMMON STOCK. Subject to Section 2.02,
each issued and outstanding share of HomeTown Common Stock (other than
shares of treasury stock) shall be
A-2
<PAGE>
converted into the right to receive 1.17 shares of Buffets Common Stock (the
"Conversion Number"). The Conversion Number shall be appropriately adjusted
to reflect any stock split, stock dividend, recapitalization, exchange,
subdivision, combination of, or other similar change (including the exercise
of any Rights under the Buffets Rights Agreement (as such terms are defined
in Section 4.02(a)) in Buffets Common Stock or HomeTown Common Stock
following the date of this Agreement. All shares of Buffets Common Stock
into which the shares of HomeTown Common Stock are converted shall be fully
paid and nonassessable and will have Rights attached thereto in accordance
with the Buffets Rights Agreement. All shares of HomeTown Common Stock, when
so converted, shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and holders of certificates
which immediately prior to the Effective Time represented shares of HomeTown
Common Stock (the "Certificates") shall cease to have any rights with
respect thereto, except the right to receive the shares of Buffets Common
Stock and any cash in lieu of fractional shares of Buffets Common Stock to
be issued or paid in consideration therefor upon the surrender of the
Certificates in accordance with Section 2.02, without interest.
(d) FRACTIONAL SHARES. No scrip or fractional shares of Buffets Common
Stock shall be issued in the Merger. All fractional shares of Buffets Common
Stock to which a holder of HomeTown Common Stock immediately prior to the
Effective Time would otherwise be entitled at the Effective Time shall be
aggregated. If a fractional share results from such aggregation, such
shareholder shall be entitled after the later of (i) the Effective Time or
(ii) the surrender of such shareholder's Certificate or Certificates, to
receive from Buffets an amount in cash in lieu of such fractional share,
based on the average of the per share closing sale prices of Buffets Common
Stock on the Nasdaq National Market for the 15 trading days immediately
preceding the Closing Date (the "Average Price"). Buffets will make
available to the "Exchange Agent" (as defined in Section 2.02) the cash
necessary for the purpose of paying for fractional shares.
(e) HOMETOWN STOCK OPTIONS. At the Effective Time, all then
outstanding options to purchase HomeTown Common Stock under HomeTown's 1991
Amended Stock Incentive Plan (the "HomeTown 1991 Option Plan") and the
HomeTown Non-Plan Options (as defined in Section 3.02) will be assumed by
Buffets in accordance with Section 6.12.
2.02. EXCHANGE OF CERTIFICATES.
(a) Buffets shall authorize American Stock Transfer Company, or such other
firm as is reasonably acceptable to HomeTown, to serve as exchange agent
hereunder (the "Exchange Agent"). Promptly after the Effective Time, Buffets
shall deposit or shall cause to be deposited in trust with the Exchange Agent
certificates representing the number of whole shares of Buffets Common Stock to
which the holders of HomeTown Common Stock are entitled pursuant to this Article
II, together with cash sufficient to pay for fractional shares then known to
Buffets (such cash amounts and certificates being hereinafter referred to as the
"Exchange Fund"). The Exchange Agent shall, pursuant to irrevocable instructions
received from Buffets, deliver the number of shares of Buffets Common Stock and
pay the amounts of cash provided for in Section 2.01 out of the Exchange Fund.
Additional amounts of cash, if any, needed from time to time by the Exchange
Agent to make payments for fractional shares shall be provided by Buffets and
shall become part of the Exchange Fund. The Exchange Fund shall not be used for
any other purpose, except as provided in this Agreement, or as otherwise agreed
to by Buffets, Sub, and HomeTown prior to the Effective Time.
(b) As soon as practicable after the Effective Time, the Exchange Agent
shall mail and otherwise make available to each record holder who, as of the
Effective Time, was a holder of a Certificate a form of letter of transmittal
and instructions for use in effecting the surrender of the Certificate for
payment therefor and conversion thereof. Delivery shall be effected, and risk of
loss and title to the Certificate shall pass, only upon proper delivery of the
Certificate to the Exchange Agent and the form of letter of transmittal shall so
reflect. Upon surrender to the Exchange Agent of a Certificate, together with
such letter of transmittal duly executed, the holder of such Certificate shall
be entitled
A-3
<PAGE>
to receive in exchange therefor (i) one or more certificates as requested by the
holder (properly issued, executed, and countersigned, as appropriate)
representing that number of whole shares of Buffets Common Stock to which such
holder of HomeTown Common Stock shall have become entitled pursuant to the
provisions of Section 2.01, and (ii) as to any fractional share, a check
representing the cash consideration to which such holder shall have become
entitled pursuant to Section 2.01(d) and the Certificate so surrendered shall
forthwith be canceled. No interest will be paid or accrued on the cash payable
upon surrender of the Certificate. Buffets shall pay any transfer or other taxes
required by reason of the issuance of a certificate representing shares of
Buffets Common Stock provided that such certificate is issued in the name of the
person in whose name the Certificate surrendered in exchange therefor is
registered; provided, however, that Buffets shall not pay any transfer or other
tax if the obligation to pay such tax under applicable law is solely that of the
stockholder or if payment of any such tax by Buffets otherwise would cause the
Merger to fail to qualify as a tax-free reorganization under the Code. If any
portion of the consideration to be received pursuant to this Article II upon
exchange of a Certificate (whether the consideration to be received is a
certificate representing shares of Buffets Common Stock or a check representing
cash for a fractional share) is to be issued or paid to a person other than the
person in whose name the Certificate surrendered in exchange therefor is
registered, it shall be a condition of such issuance and payment that the
Certificate so surrendered shall be properly endorsed or otherwise in proper
form for transfer and that the person requesting such exchange shall pay in
advance any transfer or other taxes required by reason of the issuance of a
certificate representing shares of Buffets Common Stock or a check representing
cash for a fractional share to such other person, or establish to the
satisfaction of the Exchange Agent that such tax has been paid or that no such
tax is applicable. From the Effective Time until surrender in accordance with
this Section 2.02, each Certificate (other than Certificates representing
treasury shares of HomeTown) shall be deemed, for all corporate purposes other
than the payment of dividends or other distributions, to evidence the ownership
of the number of whole shares of Buffets Common Stock into which such shares of
HomeTown Common Stock shall have been so converted. No dividends that are
otherwise payable on Buffets Common Stock will be paid to persons entitled to
receive Buffets Common Stock until such persons surrender their Certificates.
After such surrender, there shall be paid to the person in whose name the
Buffets Common Stock shall be issued any dividends on such Buffets Common Stock
that shall have a record date on or after the Effective Time and prior to such
surrender. If the payment date for any such dividend is after the date of such
surrender, such payment shall be made on such payment date. In no event shall
the persons entitled to receive such dividends be entitled to receive interest
on such dividends. All payments in respect of shares of HomeTown Common Stock
that are made in accordance with the terms hereof shall be deemed to have been
made in full satisfaction of all rights pertaining to such securities.
(c) In case of any lost, mislaid, stolen, or destroyed Certificate, the
holder thereof may be required, as a condition precedent to the delivery to such
holder of the consideration described in Section 2.01 and in accordance with
Section 167 of the Delaware Law, to deliver to Buffets a bond in such reasonable
sum as Buffets may direct as indemnity against any claim that may be made
against the Exchange Agent, Buffets, or the Continuing Corporation with respect
to the Certificate alleged to have been lost, mislaid, stolen, or destroyed.
(d) After the Effective Time, there shall be no transfers on the stock
transfer books of the Continuing Corporation of the shares of HomeTown Common
Stock that were outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Continuing Corporation for
transfer, they shall be canceled and exchanged for the consideration described
in Section 2.01. After the Effective Time, the shares of HomeTown Common Stock
shall be delisted from the Nasdaq National Market.
(e) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of HomeTown for six months after the Effective Time shall be
returned to Buffets, upon demand, and any holder of HomeTown Common Stock who
has not theretofore complied with Section 2.02(a) shall thereafter look only to
Buffets for issuance of the number of shares of Buffets Common Stock and
A-4
<PAGE>
other consideration to which such holder has become entitled pursuant to Section
2.01; provided, however, that neither the Exchange Agent nor any party hereto
shall be liable to a holder of shares of HomeTown Common Stock for any amount
required to be paid to a public official pursuant to any applicable abandoned
property, escheat, or similar law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HOMETOWN
HomeTown represents and warrants to Buffets and Sub that the statements
contained in this Article III are true and correct as of the date hereof, except
as set forth in the disclosure schedule delivered by HomeTown to Buffets on or
before the date of this Agreement (the "HomeTown Disclosure Schedule"). The
HomeTown Disclosure Schedule shall be arranged in paragraphs corresponding to
the numbered and lettered paragraphs contained in this Article III and the
disclosures in any paragraph, including appropriate cross references, shall
qualify only the corresponding paragraph in this Article III.
3.01. ORGANIZATION OF THE COMPANY. Each of HomeTown and its Subsidiaries
(as defined in Article X) is a corporation duly organized, validly existing, and
in good standing under the laws of the jurisdiction of its incorporation, has
all requisite corporate power to own, lease, and operate its property and to
carry on its business as now being conducted and as proposed to be conducted,
and is duly qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which the failure to be so qualified would
have a material adverse effect on the business, assets, financial condition,
results of operations, or prospects ("Material Adverse Effect") of HomeTown and
its Subsidiaries, taken as a whole. Except as set forth in the HomeTown SEC
Reports (as defined in Section 3.04) or Schedule 3.01 of the HomeTown Disclosure
Schedule, neither HomeTown nor any of its Subsidiaries directly or indirectly
owns any equity or similar interest in, or any interest convertible into or
exchangeable or exercisable for, any corporation, partnership, joint venture, or
other business association or entity excluding securities in any publicly traded
company held for investment by HomeTown and comprising less than one percent of
the outstanding stock of such company.
3.02. HOMETOWN CAPITAL STRUCTURE.
(a) The authorized capital stock of HomeTown consists of 20,000,000 shares
of Common Stock, $0.01 par value ("HomeTown Common Stock"), and 5,000,000 shares
of Preferred Stock, $0.01 par value ("HomeTown Preferred Stock"). On May 31,
1996, (i) 11,615,304 shares of HomeTown Common Stock were outstanding, all of
which were validly issued, fully paid, and nonassessable, and no other shares of
HomeTown Common Stock had been issued as of such date, (ii) no shares of
HomeTown Common Stock were held in the treasury of HomeTown or by any Subsidiary
of HomeTown, (iii) 1,480,820 shares of HomeTown Common Stock were reserved for
future issuance pursuant to stock options granted and outstanding under the
HomeTown 1991 Option Plan, (iv) an aggregate of 58,333 shares of HomeTown Common
Stock were reserved for future issuance pursuant to stock options granted and
outstanding to Messrs. Scott, Wichard, Pollock and Martin, all as set forth in
the HomeTown Disclosure Schedule (the "HomeTown Non-Plan Options"), and (v)
shares of HomeTown Common Stock were reserved for future issuance pursuant to
the terms of HomeTown's outstanding 7% Convertible Subordinated Notes due 2002
(the "Notes"). Since May 14, 1996, no shares of HomeTown Common Stock have been
issued except pursuant to the exercise of options granted under the HomeTown
1991 Option Plan. None of the shares of HomeTown Preferred Stock are issued and
outstanding. Except as set forth in Schedule 3.02 of the HomeTown Disclosure
Schedule, there are no obligations, contingent or otherwise, of HomeTown or any
of its Subsidiaries to repurchase, redeem, or otherwise acquire any shares of
HomeTown Common Stock or the capital stock of any Subsidiary or to provide funds
to or make any investment (in the form of a loan, capital contribution, or
otherwise) in any such Subsidiary or any other entity. Except as set forth in
Schedule 3.02 of the HomeTown Disclosure Schedule, all of the outstanding shares
of capital stock of each of
A-5
<PAGE>
HomeTown's Subsidiaries are duly authorized, validly issued, fully paid, and
nonassessable and all such shares are owned by HomeTown free and clear of all
security interests, liens, claims, pledges, agreements, limitations in
HomeTown's voting rights, charges, or other encumbrances of any nature.
(b) Except as set forth in this Section 3.02 and except for options granted
under the HomeTown 1991 Option Plan and the HomeTown Non-Plan Options, or as
reserved for future grants of options or rights under the HomeTown 1991 Option
Plan, or as reserved for future issuance upon conversion of the Notes, there are
no equity securities of any class of HomeTown or any of its Subsidiaries, or any
security exchangeable into or exercisable for such equity securities issued,
reserved for issuance, or outstanding. Except as set forth in this Section 3.02,
there are no options, warrants, equity securities, calls, rights, commitments,
or agreements of any character to which HomeTown or any of its Subsidiaries is a
party or by which it is bound obligating HomeTown or any of its Subsidiaries to
issue, deliver, or sell, or cause to be issued, delivered, or sold, additional
shares of capital stock of HomeTown or any of its Subsidiaries or obligating
HomeTown or any of its Subsidiaries to grant, extend, accelerate the vesting of,
or enter into any such option, warrant, equity security, call, right,
commitment, or agreement. HomeTown is not a party to, nor is HomeTown aware of,
any voting agreement, voting trust, proxy, or other agreements or understandings
with respect to the shares of capital stock of HomeTown or any agreement,
arrangement, or understanding providing for registration rights with respect to
any shares of capital stock of HomeTown.
(c) As of May 14, 1996, there were outstanding $41.5 million in aggregate
principal amount of Notes. As provided therein, the Notes are convertible into
HomeTown Common Stock; the conversion price of $13.65 per share set forth in
Article 13 of the indenture covering the Notes has not been adjusted in any
respect.
3.03. AUTHORITY, NO CONFLICT, REQUIRED FILINGS AND CONSENTS.
(a) HomeTown has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement have been duly authorized by all
necessary corporate action on the part of HomeTown, subject only to the approval
of this Agreement and the Merger by HomeTown's stockholders under the Delaware
Law. This Agreement has been duly executed and delivered by HomeTown and
constitutes the valid and binding obligation of HomeTown, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, or other similar laws affecting the rights of
creditors generally and except that the remedy of specific performance and
injunctive and other forms of equitable relief are subject to certain equitable
defenses and to the discretion of the court before which any proceedings
therefor may be brought.
(b) Except as set forth in the HomeTown Disclosure Schedule and subject to
approval of this Agreement and the Merger by HomeTown's stockholders, the
execution and delivery of this Agreement by HomeTown does not, and the
consummation of the transactions contemplated by this Agreement will not, (i)
conflict with, or result in any violation or breach of any provision of the
Certificate of Incorporation or Bylaws of HomeTown, (ii) result in any violation
or breach of, or constitute (with or without notice or lapse of time, or both) a
default (or give rise to right of termination, cancellation, or acceleration of
any obligation or loss of any benefit) under any of the terms, conditions, or
provisions of any note, bond, mortgage, indenture, or lease or any material
contract, or other material agreement, instrument, or obligation to which
HomeTown or any of its Subsidiaries is a party or by which any of them or any of
their properties or assets may be bound, or (iii) conflict with or violate any
permit, concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule, or regulation applicable to HomeTown or any of its Subsidiaries
or any of its or their properties or assets and which is material to the
business or operations of HomeTown.
(c) No consent, approval, order, or authorization of, or registration,
declaration, or filing with, any court, administrative agency, or commission or
other governmental authority or instrumentality ("Governmental Entity"), is
required by or with respect to HomeTown or any of its Subsidiaries in
A-6
<PAGE>
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby, except for (i) the filing of the
pre-merger notification report under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended ("HSR Act"), (ii) the filing of a
Registration Statement on Form S-4 with the Securities and Exchange Commission
("SEC") in accordance with the Securities Act of 1933, as amended (the
"Securities Act"), (iii) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware, (iv) the filing of the Joint Proxy
Statement (as defined in Section 6.02(a) below) with the SEC in accordance with
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and (v)
such consents, approvals, orders, authorizations, registrations, declarations,
and filings as may be required under the applicable federal and state securities
laws and laws of any foreign country.
3.04. SEC FILINGS; FINANCIAL STATEMENTS.
(a) HomeTown has filed and made available to Buffets all forms, reports, and
documents required to be filed by HomeTown with the SEC since January 1, 1993
(including all exhibits, notes, and schedules thereto and documents incorporated
by reference therein) (collectively, the "HomeTown SEC Reports"). The HomeTown
SEC Reports (i) at the time filed, with respect to all of the HomeTown SEC
Reports other than registration statements filed under the Securities Act, or at
the time of their respective effective dates, with respect to registration
statements filed under the Securities Act, complied as to form in all material
respects with the applicable requirements of the Securities Act or the Exchange
Act, as the case may be, and (ii) did not at the time filed or at the time of
their respective effective dates, as the case may be (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing), contain any untrue statement of a material fact or omit to state a
material fact required to be stated in such HomeTown SEC Reports or necessary in
order to make the statements in such HomeTown SEC Reports, in the light of the
circumstances under which they were made, not misleading. None of HomeTown's
Subsidiaries is required to file any forms, reports, or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes) contained in the HomeTown SEC Reports at the time filed or at
the time of their respective effective dates, as the case may be, complied as to
form in all material respects with the applicable published rules and
regulations of the SEC with respect thereto, was prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes to such
financial statements or, in the case of unaudited statements, as permitted by
Form 10-Q of the SEC) and fairly presented the consolidated financial position
of HomeTown and its Subsidiaries at the respective dates and the consolidated
results of their operations and cash flows for the periods indicated, except
that the unaudited interim financial statements were or are subject to normal
and recurring year-end adjustments. HomeTown has provided Buffets with
HomeTown's unaudited consolidated financial statements as of and for the period
ended April 24, 1996; such financial statements, including any related notes,
are attached hereto as Exhibit 3.04(b) (the "Unaudited Statements"). The
Unaudited Statements comply as to form in all material respects with the
applicable published rules and regulations of the SEC with respect to financial
statements included in a report on Form 10-Q, have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis with
the consolidated financial statements of HomeTown contained in the HomeTown SEC
Reports (except as may be included in the notes to the Unaudited Statements or
as permitted by Form 10-Q of the SEC) and fairly present the consolidated
financial position of HomeTown and its Subsidiaries at the date and the
consolidated results of their operations and cash flows for the period
indicated, except that the Unaudited Statements are subject to normal and
recurring year-end adjustments. The unaudited balance sheet of HomeTown as of
April 24, 1996 is referred to herein as the "HomeTown Balance Sheet."
3.05. NO UNDISCLOSED LIABILITIES. Except as set forth in the HomeTown
Disclosure Schedule or as otherwise disclosed in the HomeTown SEC Reports,
HomeTown and its Subsidiaries do not have any liabilities, either accrued or
contingent (whether or not required to be reflected in financial statements in
accordance with generally accepted accounting principles), and whether due or to
A-7
<PAGE>
become due, which individually or in the aggregate, would reasonably be expected
to have a Material Adverse Effect on HomeTown and its Subsidiaries, taken as a
whole, other than (i) liabilities reflected in the HomeTown Balance Sheet and
(ii) normal or recurring liabilities incurred since the date of the HomeTown
Balance Sheet, in the ordinary course of business consistent with past
practices.
3.06. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the HomeTown
Balance Sheet, HomeTown and its Subsidiaries have conducted their businesses
only in the ordinary course and in a manner consistent with past practice and,
since such date, there has not been (i) any material adverse change in the
financial condition, results of operations, prospects, or business (together, a
"Material Adverse Change") of HomeTown and its Subsidiaries, taken as a whole,
(ii) any damage, destruction, or loss (whether or not covered by insurance) with
respect to any property of HomeTown or any of its Subsidiaries having a Material
Adverse Effect on HomeTown and its Subsidiaries, taken as a whole, (iii) any
material change by HomeTown in its accounting methods, principles, or practices
to which Buffets has not previously consented in writing, (iv) any revaluation
by HomeTown or any of its assets having a Material Adverse Effect on HomeTown
and its Subsidiaries, taken as a whole, or (v) except as disclosed in the
HomeTown Disclosure Schedule, any other action or event that would have required
the consent of Buffets pursuant to Section 5.01 of this Agreement had such
action or event occurred after the date of this Agreement.
3.07. TAXES.
(a) Except as disclosed in the HomeTown Disclosure Schedule, all returns and
reports, including without limitation information and withholding returns and
reports (collectively, "Tax Returns"), of or relating to any foreign, Federal,
state, local or other income, premium, property, sales, excise and other taxes
of any nature whatsoever, including any interest, penalties and additions to tax
in respect thereof ("Tax" or "Taxes") heretofore required to be filed by
HomeTown or any of its Subsidiaries have been duly filed on a timely basis. All
such Tax Returns were complete and accurate in all material respects. Each of
HomeTown and its Subsidiaries has paid or has made adequate provision for the
payment of all Taxes.
(b) Except as disclosed in the HomeTown Disclosure Schedule, as of the date
of this Agreement there are no audits or administrative proceedings, court
proceedings or claims pending against HomeTown or any of its Subsidiaries with
respect to any Taxes, no assessment, deficiency or adjustment has been asserted
or, to the knowledge of HomeTown, proposed with respect to any Tax Return of or
with respect to HomeTown or any of its Subsidiaries and there are no liens for
Taxes upon the assets or properties of HomeTown or any of its Subsidiaries,
except liens for Taxes not yet delinquent.
(c) Except as disclosed in the HomeTown Disclosure Schedule, there are not
in force any waivers of agreements, arrangements, or understandings by or with
respect to HomeTown or any of its Subsidiaries of or for an extension of time
for the assessment or payment of any Taxes. Neither HomeTown nor any of its
Subsidiaries has received a written ruling of a taxing authority relating to
Taxes or entered into a written and legally binding agreement with a taxing
authority relating to Taxes that would have a continuing effect after the
Closing Date. Except as disclosed in the HomeTown Disclosure Schedule, neither
HomeTown nor any of its Subsidiaries is required to include in income any
adjustment pursuant to Section 481(a) of the Code by reason of a voluntary
change in accounting method initiated by HomeTown or any of its Subsidiaries,
and to the best knowledge of HomeTown the IRS has not proposed any such
adjustment or change in accounting method. For purposes of this Section 3.07,
the term "Subsidiaries" shall include former Subsidiaries of HomeTown for the
periods during which any such Subsidiaries were owned directly or indirectly by
HomeTown.
(d) To the best knowledge of HomeTown, each of HomeTown and its Subsidiaries
has withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, creditor, independent
contractor or other third party.
A-8
<PAGE>
(e) Neither HomeTown nor any of its Subsidiaries has filed a consent under
Section 341 (f) of the Code. HomeTown and its Subsidiaries are not parties to
any Tax allocation or Tax sharing arrangements.
3.08. PROPERTIES. HomeTown has provided or made available to Buffets a
true and complete list of all real property owned by HomeTown or its
Subsidiaries and real property leased by HomeTown or its Subsidiaries pursuant
to leases ("Leases") as of the date hereof, and the name of the lessor, the date
of the Lease and each amendment to the Lease, and the aggregate annual rental or
other fees payable under any such Lease. All such Leases are valid and binding
in accordance with their respective terms, and HomeTown is not in default under
any such Lease.
3.09. INTELLECTUAL PROPERTY.
(a) Subject to the HomeTown Disclosure Schedule, HomeTown owns, or is
licensed or otherwise possesses legally enforceable rights to use, all patents,
trademarks, trade names, service marks, copyrights, and any applications for
such patents, trademarks, trade names, service marks, and copyrights, or
tangible or intangible proprietary information or material that are necessary to
conduct the business of HomeTown as currently conducted (the "HomeTown
Intellectual Property Rights"). Schedule 3.09 of the HomeTown Disclosure
Schedule lists (i) all trademarks, registered copyrights, trade names, and
service marks, which HomeTown considers to be material to its business and
included in the HomeTown Intellectual Property Rights, including the
jurisdictions in which each such HomeTown Intellectual Property Rights has been
issued or registered or in which any such application for such issuance and
registration has been filed, (ii) all material licenses, sublicenses, and other
agreements to which HomeTown is a party and pursuant to which any person is
authorized to use any HomeTown Intellectual Property Rights, and (iii) all
material licenses, sublicenses, and other agreements to which HomeTown is a
party and pursuant to which HomeTown is authorized to use any third party
patents, trademarks, or copyrights, including software ("HomeTown Third Party
Intellectual Property Rights") that is material to its business.
(b) HomeTown is not, nor will it be as a result of the execution and
delivery of this Agreement, or the performance of its obligations under this
Agreement, in breach of any license, sublicense, or other agreements relating to
the HomeTown Intellectual Property Rights or HomeTown Third Party Intellectual
Property Rights.
(c) To HomeTown's knowledge, all patents, registered trademarks, service
marks, and copyrights held by HomeTown are valid and subsisting. Except as set
forth on Schedule 3.09 of the HomeTown Disclosure Schedule, HomeTown (i) has not
been sued in any suit, action, or proceeding which involves a claim of
infringement of any patents, trademarks, service marks, or copyrights, or
violation of any trade secret or other proprietary right of any third party, and
(ii) has no knowledge that the conduct of its business as presently conducted
infringes any patent, trademark, service mark, copyright, trade secret, or other
proprietary right of any third party.
3.10. AGREEMENTS, CONTRACTS, AND COMMITMENTS. HomeTown has not breached,
or received in writing any claim or threat that it has breached, any of the
terms and conditions of any agreement, contract, or commitment filed as an
exhibit to HomeTown's Report on Form 10-K for the fiscal year ended January 3,
1996 or any other agreement, contract, or commitment entered into since January
3, 1996 which, if entered into prior to such date, would have been required to
be included as an exhibit thereto ("HomeTown Material Contracts") in such a
manner as would permit any other party to cancel or terminate the same or would
permit any other party to seek material damages from HomeTown under any HomeTown
Material Contract. Each HomeTown Material Contract that has not expired or been
terminated is in full force and effect and is not subject to any material
default thereunder of which HomeTown is aware by any party obligated to HomeTown
pursuant to the HomeTown Material Contract.
3.11. LITIGATION. Except as described in the HomeTown SEC Reports or in
Schedule 3.11 of the HomeTown Disclosure Schedule, there are no claims, actions,
suits, investigations or proceedings
A-9
<PAGE>
pending of which it has notice or, to the knowledge of HomeTown, threatened
against or affecting HomeTown or any of its Subsidiaries or any of their
respective assets or properties, at law or in equity, before or by any Federal,
state, municipal or other governmental agency or authority, foreign or domestic,
or before any arbitration board or panel, wherever located, which if determined
adverse to HomeTown would, individually or in the aggregate, have a Material
Adverse Effect on HomeTown and its Subsidiaries, taken as a whole.
3.12. ENVIRONMENTAL MATTERS.
(a) HAZARDOUS SUBSTANCES. To the knowledge of HomeTown, no Hazardous
Substances have ever been buried, spilled, leaked, discharged, emitted,
generated, stored, used or released, and no Hazardous Substances are now
present, in, on, or under any restaurant premises or other non-restaurant
property that HomeTown or any of its Subsidiaries has at any time owned,
operated, occupied or leased, except for immaterial quantities stored or
used by HomeTown or such Subsidiary in the ordinary course of its business
and in accordance with all applicable Environmental Laws. "Hazardous
Substance" means any pollutant, contaminant, hazardous substance or waste,
solid waste, petroleum or any fraction thereof, or any other chemical,
substance or material listed or identified in or regulated by any
Environmental Law; "Environmental Law" means the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et seq.,
the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq.,
the Federal Water Pollution Control Act, 33 U.S.C. Sections 1251 to 1387,
the Clean Air Act, 42 U.S.C. Section 7401 et seq., and any other federal,
state, local or other governmental statute, regulation, law or ordinance
dealing with the protection of human health, natural resources and/or the
environment; and "RCRA Hazardous Waste" means a hazardous waste, as that
term is defined in and pursuant to the Resource Conservation and Recovery
Act, 42 U.S.C. Section 6901 et seq.
(b) HAZARDOUS SUBSTANCES ACTIVITIES. To the knowledge of HomeTown, no
property that HomeTown or any of its Subsidiaries has ever owned, operated,
occupied or leased has ever been used in connection with the business of
manufacturing, storing or transporting Hazardous Substances, and no RCRA
Hazardous Wastes have been treated, stored or disposed of there, except for
immaterial quantities stored or used by HomeTown or such Subsidiary in the
ordinary course of its business.
(c) UST'S AND AST'S. To the knowledge of HomeTown, there are not now
and never have been any underground or aboveground storage tanks or other
containment facilities of any kind on any restaurant premises or other
non-restaurant property that HomeTown or any of its Subsidiaries has ever
owned, occupied, operated or leased which contain or ever did contain any
Hazardous Substances.
(d) LISTING. To the knowledge of HomeTown, no restaurant premises or
other non-restaurant property that HomeTown or any of its Subsidiaries has
ever owned, operated, occupied or leased has ever been listed on the
National Priorities List, the Comprehensive Environmental Response,
Compensation and Liability Information System or any similar federal, state
or local list, schedule, log, inventory or database.
(e) ENVIRONMENTAL REPORTS. HomeTown has made available to Buffets for
inspection true and complete copies of all reports, authorizations, permits,
licenses, disclosures and other documents in its possession, custody or
control describing or relating in any way to HomeTown or any of its
Subsidiaries, or any property that HomeTown or any of its Subsidiaries has
ever owned, operated, occupied or leased, which suggest that any Hazardous
Substances may be present in, on, or under any such property in material
quantities or that HomeTown or any of its Subsidiaries may have breached any
Environmental Law.
A-10
<PAGE>
(f) ENVIRONMENTAL CLAIMS, ETC. To the knowledge of HomeTown, there are
not and there never have been any requests, notices, investigations, claims,
demands, administrative proceedings, hearings, litigation or other legal
proceedings relating in any way to HomeTown or any of its Subsidiaries, or
any property that HomeTown or any of its Subsidiaries has ever owned,
operated, occupied or leased, alleging liability under, violation of or
noncompliance with any Environmental Law or any license, permit or other
authorization issued pursuant thereto. To the knowledge of HomeTown, no such
matter is threatened or impending, nor does there exist any substantial
basis therefor.
(g) COMPLIANCE WITH ENVIRONMENTAL LAWS. HomeTown and each of its
Subsidiaries operates, and at all times has operated, its business in
accordance with all applicable Environmental Laws, and all licenses, permits
and other authorizations required pursuant to any Environmental Law and
necessary for the lawful operation of the business of HomeTown and its
Subsidiaries are in HomeTown's or the appropriate Subsidiary's possession
and are in full force and effect. To HomeTown's knowledge, there is no
threat that any such permit, license or other authorization will be
withdrawn, terminated, limited or materially changed.
3.13. EMPLOYEE BENEFIT PLANS.
(a) There are no "employee pension benefit plans," as defined in Section
3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or "multiemployer plans" as defined in Section 3(37) of ERISA,
maintained or contributed to by HomeTown or any of its Subsidiaries for the
benefit of their current or former employees. HomeTown has set forth on Schedule
3.13 of the HomeTown Disclosure Schedule all "employee benefit plans" as defined
in Section 3(3) of ERISA and all bonus, stock option, stock purchase, incentive,
deferred compensation, supplemental retirement, severance, and other similar
employee benefit plans, arrangements, and agreements, whether or not such plans,
arrangements, or agreements are "employee benefit plans", written or otherwise,
for the benefit of or relating to, any current or former employee of HomeTown or
any trade or business (whether or not incorporated) (an "ERISA Affiliate") which
is aggregated with HomeTown or any Subsidiary of HomeTown pursuant to Section
414 of the Code (together the "HomeTown Employee Plans").
(b) With respect to each HomeTown Employee Plan, HomeTown has made available
to Buffets a true and correct copy of (i) the most recent annual report (Form
5500) filed with the Internal Revenue Service ("IRS"), if applicable, (ii) the
plan document and summary plan description for each such HomeTown Employee Plan,
(iii) each trust agreement and group annuity contract, if any, relating to such
HomeTown Employee Plan, (iv) the most recent actuarial report or valuation
relating to an HomeTown Employee Plan subject to Title IV of ERISA, and (v) the
most recent IRS determination letter, where applicable.
(c) With respect to the HomeTown Employee Plans, individually and in the
aggregate, no event has occurred, and to the knowledge of HomeTown, there exists
no condition or set of circumstances in connection with which HomeTown could be
subject to any liability that is reasonably likely to have a Material Adverse
Effect on HomeTown and its Subsidiaries, taken as a whole, under ERISA, the
Code, or any other applicable law.
(d) With respect to the HomeTown Employee Plans, individually and in the
aggregate, there are no benefit obligations required to be funded for which
contributions have not been made or properly accrued and there are no unfunded
benefit obligations which have not been accounted for by reserves, or otherwise
properly footnoted in accordance with generally accepted accounting principles
on the financial statements of HomeTown.
(e) Except as set forth in Schedule 3.13 of the HomeTown Disclosure Schedule
or as disclosed in HomeTown SEC Reports filed prior to the date of this
Agreement and except as provided for in this Agreement, neither HomeTown nor any
of its Subsidiaries is party to any oral or written (i) union or collective
bargaining agreement, (ii) agreement with any officer or other key employee of
HomeTown
A-11
<PAGE>
or any of its Subsidiaries, the benefits of which are contingent, or the terms
of which are materially altered upon the occurrence of a transaction involving
HomeTown of the nature contemplated by this Agreement, (iii) agreement with any
officer of HomeTown providing any term of employment or compensation guarantee
extending for a period longer than one year from the date hereof or for the
payment of compensation in excess of $100,000 per annum, or (iv) agreement or
plan, including any stock option plan, stock appreciation right plan, restricted
stock plan, or stock purchase plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
3.14. COMPLIANCE WITH LAWS. HomeTown has complied with, is not in
violation of, and has not received any notices of violation with respect to, any
federal, state, or local statute, law, or regulation with respect to the conduct
of its business, or the ownership or operation of its business, except for
failures to comply or violations which would not have a Material Adverse Effect
on HomeTown and its Subsidiaries, taken as a whole.
3.15. POOLING OF INTERESTS. To its knowledge, neither HomeTown nor any of
its Affiliates (as defined in Section 6.10) has, through the date of this
Agreement, taken or agreed to take any action which would prevent Buffets from
accounting for the business combination to be effected by the Merger as a
pooling of interests.
3.16. INTERESTED PARTY TRANSACTIONS. Except as set forth in Schedule 3.16
of the HomeTown Disclosure Schedule or in the HomeTown SEC Reports, since the
date of HomeTown's last proxy statement to its stockholders, no event has
occurred that would be required to be reported by HomeTown as a Certain
Relationship or Related Transaction pursuant to Item 404 of Regulation S-K
promulgated by the SEC.
3.17. NO EXISTING DISCUSSIONS. HomeTown is not engaged, directly or
indirectly, in any discussions or negotiations with any other party with respect
to an Acquisition Proposal (as defined in Section 6.01).
3.18. NO SECURED DEBT. Except as set forth in the HomeTown Disclosure
Schedule, there is not now any secured debt (including capitalized leases) of
HomeTown or any of its Subsidiaries, except for (i) capitalized leases of less
than $8,655,000 in the aggregate as to HomeTown and its Subsidiaries, or (ii)
capitalized leases of HomeTown or any of its Subsidiaries that are not reflected
(and should not be reflected in accordance with generally accepted accounting
principles) on the consolidated financial statements of HomeTown, and, in either
case, the existence of which does not violate the terms of any material note,
bond, indenture, mortgage, deed of trust, lease, franchise, permit,
authorization, license, contract, instrument or other agreement or commitment to
which HomeTown or any of its Subsidiaries is a party or by which HomeTown or any
of its Subsidiaries or any of the assets or properties thereof is bound or
encumbered.
3.19. OPINION OF FINANCIAL ADVISOR. The financial advisor of HomeTown,
Montgomery Securities, Inc., has delivered to the Board of Directors of HomeTown
an opinion dated the date of this Agreement to the effect that the consideration
to be received by the HomeTown stockholders in the Merger is fair from a
financial point of view to the stockholders of HomeTown.
3.20. TAX REPRESENTATION. There is no plan or intention by the
stockholders of HomeTown who own 5 percent or more of the outstanding HomeTown
stock, and to the best knowledge of the management of HomeTown, there is no plan
or intention on the part of the remaining stockholders of HomeTown to sell,
exchange, or otherwise dispose of a number of shares of Buffets stock received
in the transaction that would reduce the HomeTown stockholders' ownership of
Buffets stock to a number of shares having a value, as of the Effective Time, of
less than 50 percent of the value of all of the formerly outstanding stock of
HomeTown as of the same date. For purposes of this representation, shares of
HomeTown exchanged for cash in lieu of fractional shares of Buffets stock will
be treated as
A-12
<PAGE>
outstanding HomeTown stock at the Effective Time. Moreover, shares of HomeTown
stock and shares of Buffets stock held by HomeTown stockholders and otherwise
sold, redeemed, or disposed of prior or subsequent to the transaction will be
considered in making this representation.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUFFETS AND SUB
Buffets and Sub jointly and severally represent and warrant to HomeTown that
the statements contained in this Article IV are true and correct as of the date
hereof, except as set forth in the disclosure schedule delivered by Buffets to
HomeTown on or before the date of this Agreement (the "Buffets Disclosure
Schedule"). The Buffets Disclosure Schedule shall be arranged in paragraphs
corresponding to the numbered and lettered paragraphs contained in this Article
IV and the disclosure in any paragraph, including appropriate cross references,
shall qualify only the corresponding paragraph in this Article IV.
4.01. ORGANIZATION OF THE COMPANY. Each of Buffets and its Subsidiaries is
a corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation, has all requisite corporate power
to own, lease, and operate its property and to carry on its business as now
being conducted and as proposed to be conducted, and is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
in which the failure to be so qualified would have a Material Adverse Effect on
Buffets and its Subsidiaries, taken as a whole. Except as set forth in the
Buffets SEC Reports (as defined in Section 4.04) or Schedule 4.01 of the Buffets
Disclosure Schedule, neither Buffets nor any of its Subsidiaries directly or
indirectly owns any equity or similar interest in, or any interest convertible
into or exchangeable or exercisable for, any corporation, partnership, joint
venture, or other business association or entity, excluding securities in any
publicly traded company held for investment by Buffets and comprising less than
one percent of the outstanding stock of such company.
4.02. BUFFETS CAPITAL STRUCTURE.
(a) The authorized capital stock of Buffets consists of 60,000,000 shares of
Common Stock, $.01 par value ("Buffets Common Stock"), and 5,000,000 shares of
Preferred Stock, $.01 par value ("Buffets Preferred Stock"). On May 22, 1996,
(i) 31,328,834 shares of Buffets Common Stock were outstanding, all of which
were validly issued, fully paid, and nonassessable, (ii) no shares of Buffets
Common Stock were held in the treasury of Buffets, (iii) an aggregate of
2,712,356 shares of Buffets Common Stock were reserved for future issuance
pursuant to stock options granted and outstanding under Buffets' 1985 Stock
Option Plan, Buffets' 1988 Stock Option Plan, and Buffets' 1995 Stock Option
Plan (collectively, the "Buffets Option Plans") and 10,000 shares of Buffets
Common Stock were reserved for future issuance pursuant to stock options granted
and outstanding to a director of Buffets (the "Director Options"), and (iv) an
aggregate of 600,000 shares of Buffets' Series A Junior Participating Preferred
Shares ("Buffets Junior Preferred Stock") were reserved for future issuance
pursuant to the Rights Agreement, dated as of October 4, 1995, between Buffets
and American Stock Transfer & Trust Company, as Rights Agent (the "Buffets
Rights Agreement"), under which each outstanding share of Buffets Common Stock
has attached to its certain rights ("Rights"), including rights under certain
circumstances to purchase one one-hundredth of a share of Buffets Junior
Preferred Stock at $65.00, at the date hereof, subject to adjustment. All shares
of Buffets Common Stock subject to issuance as specified above, upon issuance on
the terms and conditions specified in the instruments pursuant to which they are
issuable, shall be duly authorized, validly issued, fully paid, and
nonassessable, and will have Rights attached thereto in accordance with the
Buffets Rights Agreement. There are no obligations, contingent or otherwise, of
Buffets or any of its Subsidiaries to repurchase, redeem, or otherwise acquire
any shares of Buffets Common Stock or the capital stock of any Subsidiary or to
provide funds to or make any investment (in the form of a loan, capital
contribution, or otherwise) in any such Subsidiary or any other entity other
than the guarantees of bank obligations of Subsidiaries entered into in the
ordinary course of business. All of the outstanding
A-13
<PAGE>
shares of capital stock of each of Buffets' Subsidiaries is duly authorized,
validly issued, fully paid, and nonassessable and all such shares are owned by
Buffets or another Subsidiary free and clear of all security interests, liens,
claims, pledges, agreements, limitations in Buffets' voting rights, charges or
other encumbrances of any nature.
(b) Except as set forth in this Section 4.02 and except for options granted
under the Buffets Option Plans and the Director Options, or as reserved for
future grants of options under the Buffets Option Plans, or for the shares of
Buffets Junior Preferred Stock reserved for issuance under the Buffets Rights
Agreement, there are no equity securities of any class of Buffets or any of its
Subsidiaries, or any security exchangeable into or exercisable for such equity
securities, issued, reserved for issuance, or outstanding. Except as set forth
in this Section 4.02, there are no options, warrants, equity securities, calls,
rights, commitments, or agreements of any character to which Buffets or any of
its Subsidiaries is a party or by which it is bound obligating Buffets or any of
its Subsidiaries to issue, deliver, or sell, or cause to be issued, delivered,
or sold, additional shares of capital stock of Buffets or any of its
Subsidiaries or obligations of Buffets or any of its Subsidiaries to grant,
extend, accelerate the vesting of, or enter into any such option, warrant,
equity security, call, right, commitment, or agreement. Buffets is not a party
to, nor is Buffets aware of, any voting agreement, voting trust, proxy, or other
agreements or understandings relating to any shares of capital stock of Buffets
or any agreement, arrangement, or understanding providing for registration
rights with respect to any shares of capital stock of Buffets.
4.03. AUTHORITY; NO CONFLICT; REQUIRED FILINGS AND CONTRACTS.
(a) Buffets has all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement have been duly authorized by all
necessary corporate action on the part of Buffets, subject only to the approval
of the Buffets Voting Proposal (as defined in Section 6.04) by Buffets'
shareholders. This Agreement has been duly executed and delivered by Buffets and
constitutes the valid and binding obligation of Buffets, enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, or other similar laws affecting the rights of
creditors generally and except that the remedy of specific performance and
injunctive relief and other forms of equitable defenses are subject to the
discretion of the court before which any proceedings therefor may be brought.
(b) Except as set forth in the Buffets Disclosure Schedule, the execution
and delivery of this Agreement by Buffets does not, and the consummation of the
transactions contemplated by this Agreement will not, (i) conflict with, or
result in any violation or breach of any provision of the Articles of
Incorporation or Bylaws of Buffets, (ii) result in any violation or breach of,
or constitute (with or without notice or lapse of time, or both) a default (or
give rise to a right of termination, cancellation, or acceleration of any
obligation or loss of any material benefit) under any of the terms, conditions,
or provisions of any note, bond, mortgage, indenture, or lease or any material
contract or other material agreement, instrument, or obligation to which Buffets
or any of its Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound, or (iii) conflict or violate any permit,
concession, franchise, license, judgment, order, decree, statute, law,
ordinance, rule, or regulation applicable to Buffets or any of its Subsidiaries
or their properties or assets and which is material to the business or
operations of Buffets.
(c) No consent, approval, order, or authorization of, or registration,
declaration, or filing with, any Governmental Entity, is required by or with
respect to Buffets or any of its Subsidiaries in connection with the execution
and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) the filing of the pre-merger notification
report under the HSR Act, (ii) the filing of a Form S-4 Registration Statement
with the SEC in accordance with the Securities Act, (iii) the filing of the
Certificate of Merger with the Secretary of State of the State of
A-14
<PAGE>
Delaware, (iv) the filing of the Joint Proxy Statement with the SEC in
accordance with the Exchange Act, and (v) such consents, approvals, orders,
authorizations, registrations, declarations, and filings as may be required
under applicable federal and state securities laws and the laws of any foreign
country.
4.04. SEC FILINGS; FINANCIAL STATEMENTS.
(a) Buffets has filed and made available to HomeTown all forms, reports, and
documents required to be filed by Buffets with the SEC since January 1, 1993
(including all exhibits, notes, and schedules thereto and documents incorporated
by reference therein) (collectively, the "Buffets SEC Reports"). The Buffets SEC
Reports (i) at the time filed, with respect to all of the Buffets SEC Reports
other than registration statements filed under the Securities Act, or at the
time of their respective effective dates, with respect to registration
statements filed under the Securities Act, complied as to form in all material
respects with the applicable requirements of the Securities Act or the Exchange
Act, as the case may be, and (ii) did not at the time filed or at the time of
their respective effective dates, as the case may be (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing), contain any untrue statement of a material fact or omit to state a
material fact required to be stated in such Buffets SEC Reports or necessary in
order to make the statements in such Buffets SEC Reports, in the light of the
circumstances under which they were made, not misleading. None of Buffets'
Subsidiaries is required to file any forms, reports, or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each case,
any related notes) contained in the Buffets SEC Reports at the time filed
complied as to form in all material respects with the applicable published rules
and regulations of the SEC with respect thereto, was prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes to such
financial statements or, in the case of unaudited statements, as permitted by
Form 10-Q of the SEC) and fairly presented the consolidated financial position
of Buffets and its Subsidiaries at the respective dates and the consolidated
results of its operations and cash flows for the periods indicated, except that
the unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be material
in amount. The unaudited balance sheet of Buffets as of April 24, 1996 is
referred to herein as the "Buffets Balance Sheet."
4.05. NO UNDISCLOSED LIABILITIES. Except as set forth in the Buffets
Disclosure Schedule or as otherwise disclosed in the Buffets SEC Reports,
Buffets and its Subsidiaries do not have any liabilities, either accrued or
contingent (whether or not required to be reflected in financial statements in
accordance with generally accepted accounting principles), and whether due or to
become due, which individually or in the aggregate would reasonably be expected
to have a Material Adverse Effect on Buffets and its Subsidiaries, taken as a
whole, other than (i) liabilities reflected in the Buffets Balance Sheet and
(ii) normal or recurring liabilities incurred since the date of the Buffets
Balance Sheet in the ordinary course of business consistent with past practices.
Sub will have no liabilities assumed by HomeTown and will not transfer to
HomeTown any assets subject to liabilities.
4.06. ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the Buffets
Balance Sheet, Buffets and its Subsidiaries have conducted their businesses only
in the ordinary course and in a manner consistent with past practice and, since
such date, there has not been (i) any Material Adverse Change in Buffets and its
Subsidiaries, taken as a whole; (ii) any damage, destruction, or loss (whether
or not covered by insurance) with respect to any property of Buffets or any of
its Subsidiaries having a Material Adverse Effect on Buffets and its
Subsidiaries, taken as whole; (iii) any material change by Buffets in its
accounting methods, principles, or practices; (iv) any revaluation by Buffets of
any of its assets having a Material Adverse Effect on Buffets and its
Subsidiaries, taken as a whole; or (v) except as disclosed in the Buffets
Disclosure Schedule any other action or event that would have required the
consent of HomeTown pursuant to Section 5.01 of this Agreement had such action
or event occurred after the date of this Agreement.
A-15
<PAGE>
4.07. TAXES.
(a) Except as disclosed in the Buffets Disclosure Schedule, all Tax Returns,
of or relating to any Tax heretofore required to be filed by Buffets or any of
its Subsidiaries have been duly filed on a timely basis. All such Tax Returns
were complete and accurate in all material respects. Each of Buffets and its
Subsidiaries has paid or has made adequate provision for the payment of all
Taxes.
(b) Except as disclosed in the Buffets Disclosure Schedule, as of the date
of this Agreement there are no audits or administrative proceedings, court
proceedings or claims pending against Buffets or any of its Subsidiaries with
respect to any Taxes, no assessment, deficiency or adjustment has been asserted
or, to the knowledge of Buffets, proposed with respect to any Tax Return of or
with respect to Buffets or any of its Subsidiaries and there are no liens for
Taxes upon the assets or properties of Buffets or any of its Subsidiaries,
except liens for Taxes not yet delinquent.
(c) Except as disclosed in the Buffets Disclosure Schedule, there are not in
force any waivers of agreements, arrangements, or understandings by or with
respect to Buffets or any of its Subsidiaries of or for an extension of time for
the assessment or payment of any Taxes. Neither Buffets nor any of its
Subsidiaries has received a written ruling of a taxing authority relating to
Taxes or entered into a written and legally binding agreement with a taxing
authority relating to Taxes that would have a continuing effect after the
Closing Date. Except as disclosed in the Buffets Disclosure Schedule, neither
Buffets nor any of its Subsidiaries is required to include in income any
adjustment pursuant to Section 481(a) of the Code by reason of a voluntary
change in accounting method initiated by Buffets or any of its Subsidiaries, and
to the best knowledge of Buffets the IRS has not proposed any such adjustment or
change in accounting method. For purposes of this Section 4.07, the term
"Subsidiaries" shall include former Subsidiaries of Buffets for the periods
during which any such Subsidiaries were owned directly or indirectly by Buffets.
(d) To the best knowledge of Buffets, each of Buffets and its Subsidiaries
has withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, creditor, independent
contractor or other third party.
(e) Neither Buffets nor any of its Subsidiaries has filed a consent under
Section 341 (f) of the Code.
4.08. PROPERTIES. Buffets has provided or made available to HomeTown a
true and complete list of all property owned by Buffets and its Subsidiaries and
real property leased by Buffets or its Subsidiaries pursuant to Leases as of the
date hereof, the name of the lessor, the date of the Lease and each amendment to
the Lease, and the aggregate annual rental or other fee payable under any such
Lease. All such Leases are valid and binding in accordance with their respective
terms, and Buffets is not in default under any of such Leases.
4.09. INTELLECTUAL PROPERTY.
(a) Subject to the Buffets Disclosure Schedule, Buffets owns, or is licensed
or otherwise possesses legally enforceable rights to use, all patents,
trademarks, trade names, service marks, copyrights, and any applications for
such patents, trademarks, trade names, service marks and copyrights, and
tangible or intangible proprietary information or material that are necessary to
conduct the business of Buffets as currently conducted (the "Buffets
Intellectual Property Rights"). Schedule 4.09 of the Buffets Disclosure Schedule
lists (i) all trademarks, registered copyrights, trade names, and service marks
which Buffets considers to be material to its business and included in the
Buffets Intellectual Property Rights, including the jurisdictions in which each
such Buffets Intellectual Property Right has been issued or registered or in
which any such application for such issuance and registration has been filed,
(ii) all material licenses, sublicenses, and other agreements to which Buffets
is a party and pursuant to which any person is authorized to use any Buffets
Intellectual Property Rights, and (iii) all material licenses, sublicenses, and
other agreements to which Buffets is a
A-16
<PAGE>
party and pursuant to which Buffets is authorized to use any third party
patents, trademarks or copyrights, including software ("Buffets Third Party
Intellectual Property Rights") that is material to its business.
(b) Buffets is not, nor will it be as a result of the execution and delivery
of this Agreement or the performance of its obligations under this Agreement, in
breach of any license, sublicense, or other agreement relating to the Buffets
Intellectual Property Rights or Buffets Third Party Intellectual Property
Rights.
(c) To Buffets' knowledge, all patents, registered trademarks, service
marks, and copyrights held by Buffets are valid and subsisting. Except as set
forth on Schedule 4.09 of the Buffets Disclosure Schedule, Buffets (i) has not
been sued in any suit, action, or proceeding which involves a claim of
infringement of any patents, trademarks, service marks, or copyrights, or
violation of any trade secret or other proprietary right of any third party; and
(ii) has no knowledge that the conduct of its business as presently conducted
infringes any patent, trademark, service mark, copyright, trade secret, or other
proprietary right of any third party.
4.10. AGREEMENTS, CONTRACTS AND COMMITMENTS. Buffets has not breached, or
received in writing any claim or threat that it has breached, any of the terms
or conditions of any material agreement, contract, or commitment filed as an
exhibit to Buffets' Report on Form 10-K for the fiscal year ended January 3,
1996 or any other agreement, contract, or commitment entered into since January
3, 1996 which, if entered into prior to such date, would have been required to
be included as an exhibit thereto ("Buffets Material Contracts") in such a
manner as would permit any other party to cancel or terminate the same or would
permit any other party to seek material damages from Buffets under any Buffets
Material Contract. Each Buffets Material Contract that has not expired or been
terminated is in full force and effect and is not subject to any material
default thereunder of which Buffets is aware by any party obligated to Buffets
pursuant to the Buffets Material Contract.
4.11. LITIGATION. Except as described in the Buffets SEC Reports or in
Schedule 4.11 of the Buffets Disclosure Schedule, there are no claims, actions,
suits, investigations or proceedings pending of which it has notice or, to the
knowledge of Buffets, threatened against or affecting Buffets or any of its
Subsidiaries or any of their respective assets or properties, at law or in
equity, before or by any Federal, state, municipal or other governmental agency
or authority, foreign or domestic, or before any arbitration board or panel,
wherever located, which if determined adverse to Buffets would, individually or
in the aggregate, have a Material Adverse Effect on Buffets and its
Subsidiaries, taken as a whole.
4.12. ENVIRONMENTAL MATTERS.
(a) HAZARDOUS SUBSTANCES. To the knowledge of Buffets, no Hazardous
Substances have ever been buried, spilled, leaked, discharged, emitted,
generated, stored, used or released, and no Hazardous Substances are now
present, in, on, or under any restaurant premises or other non-restaurant
property that Buffets or any of its Subsidiaries has at any time owned,
operated, occupied or leased, except for immaterial quantities stored or used by
Buffets or such Subsidiary in the ordinary course of its business and in
accordance with all applicable Environmental Laws.
(b) HAZARDOUS SUBSTANCES ACTIVITIES. To the knowledge of Buffets, no
property that Buffets or any of its Subsidiaries has ever owned, operated,
occupied or leased has ever been used in connection with the business of
manufacturing, storing or transporting Hazardous Substances, and no RCRA
Hazardous Wastes have been treated, stored or disposed of there, except for
immaterial quantities stored or used by Buffets or such Subsidiary in the
ordinary course of its business.
(c) UST'S AND AST'S. To the knowledge of Buffets, there are not now and
never have been any underground or aboveground storage tanks or other
containment facilities of any kind on any restaurant premises or other
non-restaurant property that Buffets or any of its Subsidiaries has ever owned,
occupied, operated or leased which contain or ever did contain any Hazardous
Substances.
A-17
<PAGE>
(d) LISTING. To the knowledge of Buffets, no restaurant premises or other
non-restaurant property that Buffets or any of its Subsidiaries has ever owned,
operated, occupied or leased has ever been listed on the National Priorities
List, the Comprehensive Environmental Response, Compensation and Liability
Information System or any similar federal, state or local list, schedule, log,
inventory or database.
(e) ENVIRONMENTAL REPORTS. Buffets has made available to HomeTown for
inspection true and complete copies of all reports, authorizations, permits,
licenses, disclosures and other documents in its possession, custody or control
describing or relating in any way to Buffets or any of its Subsidiaries, or any
property that Buffets or any of its Subsidiaries has ever owned, operated,
occupied or leased, which suggest that any Hazardous Substances may be present
in, on, or under any such property in material quantities or that Buffets or any
of its Subsidiaries may have breached any Environmental Law.
(f) ENVIRONMENTAL CLAIMS, ETC. To the knowledge of Buffets, there are not
and there never have been any requests, notices, investigations, claims,
demands, administrative proceedings, hearings, litigation or other legal
proceedings relating in any way to Buffets or any of its Subsidiaries, or any
property that Buffets or any of its Subsidiaries has ever owned, operated,
occupied or leased, alleging liability under, violation of or noncompliance with
any Environmental Law or any license, permit or other authorization issued
pursuant thereto. To the knowledge of Buffets, no such matter is threatened or
impending, nor does there exist any substantial basis therefor.
(g) COMPLIANCE WITH ENVIRONMENTAL LAWS. Buffets and each of its
Subsidiaries operates, and at all times has operated, its business in accordance
with all applicable Environmental Laws, and all licenses, permits and other
authorizations required pursuant to any Environmental Law and necessary for the
lawful operation of the business of Buffets and its Subsidiaries are in Buffets'
or the appropriate Subsidiary's possession and are in full force and effect. To
Buffets' knowledge, there is no threat that any such permit, license or other
authorization will be withdrawn, terminated, limited or materially changed.
4.13. EMPLOYEE BENEFIT PLANS.
(a) There are no "employee pension benefit plans," as defined in Section
3(2) of ERISA, or "multiemployer plans" as defined in Section 3(37) of ERISA,
maintained or contributed to by Buffets or any of its Subsidiaries for the
benefit of their current or former employees. Buffets has set forth on Schedule
4.13 of the Buffets Disclosure Schedule all employee benefit plans (as defined
in Section 4(4) of ERISA) and all bonus, stock option, stock purchase,
incentive, deferred compensation, supplemental retirement, severance, and other
similar employee benefit plans, arrangements, and agreements, whether or not
such plans, arrangements, or agreements are "employee benefit plans", written or
otherwise, for the benefit of or relating to, any current or former employee of
Buffets or any ERISA Affiliate of Buffets, or any Subsidiary of Buffets which is
aggregated with Buffets pursuant to Section 414 of the Code (together, the
"Buffets Employee Plans").
(b) With respect to each Buffets Employee Plan, Buffets has made available
to HomeTown a true and correct copy of (i) the most recent annual report (Form
5500) filed with the IRS, (ii) the plan document and summary plan description
for each such Buffets Employee Plan, (iii) each trust agreement and group
annuity contract, if any, relating to such Buffets Employee Plan, and (iv) the
most recent actuarial report or valuation relating to an Buffets Employee Plan
subject to Title IV of ERISA, and (v) the most recent IRS determination letter,
where applicable.
(c) With respect to the Buffets Employee Plans, individually and in the
aggregate, no event has occurred, and to the knowledge of Buffets, there exists
no condition or set of circumstances in connection with which Buffets could be
subject to any liability that is reasonably likely to have a Material Adverse
Effect on Buffets and its Subsidiaries, taken as whole, under ERISA, the Code,
or any other applicable law.
A-18
<PAGE>
(d) With respect to the Buffets Employee Plans, individually and in the
aggregate, there are no benefit obligations required to be funded for which
contributions have not been made or properly accrued and there are no unfunded
benefit obligations which have not been accounted for by reserves, or otherwise
properly footnoted in accordance with generally accepted accounting principles,
on the financial statements of Buffets.
(e) Except as set forth in Schedule 4.13 of the Buffets Disclosure Schedule
or as disclosed in Buffets SEC Reports filed prior to the date of this
Agreement, and except as provided for in this Agreement, neither Buffets nor any
of its Subsidiaries is a party to any oral or written (i) union or collective
bargaining agreement, (ii) agreement with any officer or other key employee of
Buffets or any of its Subsidiaries, the benefits of which are contingent or the
terms of which are materially altered, upon the occurrence of a transaction
involving Buffets of the nature contemplated by this Agreement, (iii) agreement
with any officer or other employee of Buffets providing any term of employment
or compensation guarantee extending for a period longer than one year from the
date hereof or for the payment of compensation in excess of $150,000 per annum,
or (iv) agreement or plan, including any stock option plan, stock appreciation
right plan, restricted stock plan, or stock purchase plan, any of the benefits
of which will be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement.
4.14. COMPLIANCE WITH LAWS. Buffets has complied with, is not in violation
of, and has not received any notices of violation with respect to, any federal,
state, or local statute, law, or regulation with respect to the conduct of its
business, or the ownership or operation of its business, except for failures to
comply or violations which would not have a Material Adverse Effect on Buffets
and its Subsidiaries, taken as a whole.
4.15. POOLING OF INTERESTS. To its knowledge, neither Buffets nor any of
its Affiliates has, through the date of this Agreement, taken or agreed to take
any action which would prevent Buffets from accounting for the business
combination to be effected by the Merger as a pooling of interests.
4.16. INTERESTED PARTY TRANSACTIONS. Except as set forth in Schedule 4.16
of the Buffets Disclosure Schedule or in the Buffets SEC Reports, since the date
of Buffets' last proxy statement to its shareholders, no event has occurred that
would be required to be reported by Buffets as a Certain Relationship or Related
Transaction pursuant to Item 404 of Regulation S-K promulgated by the SEC.
4.17. OPINION OF FINANCIAL ADVISOR. The financial advisor of Buffets,
Piper Jaffray Inc., has delivered to the Board of Directors of Buffets an
opinion dated the date of this Agreement to the effect that the Conversion
Number is fair from a financial point of view to Buffets and its shareholders.
4.18. OWNERSHIP AND INTERIM OPERATIONS OF SUB. All outstanding capital
stock of Sub is owned by Buffets. Sub was formed solely for the purpose of
engaging in the transactions contemplated by this Agreement, has engaged in no
other business activities, and has conducted its operations only as contemplated
by this Agreement.
4.19. NO EXISTING DISCUSSIONS. Buffets is not engaged, directly or
indirectly, in any discussions or negotiations with any other party with respect
to an Acquisition Proposal (as defined in Section 6.01).
ARTICLE V
CONDUCT OF BUSINESS
5.01. COVENANTS OF BUFFETS AND HOMETOWN. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, Buffets and HomeTown each agrees as to itself
and its respective Subsidiaries (except to the extent that the other party shall
otherwise consent in writing), to carry on its business in the usual, regular,
and
A-19
<PAGE>
ordinary course in substantially the same manner as previously conducted, to pay
its debts and taxes when due subject to good faith disputes over such debts or
taxes, to pay or perform other obligations when due, and, to the extent
consistent with such business, to use all reasonable efforts consistent with
past practices and policies to preserve intact its present business
organization, to keep available the services of its present officers and key
employees and preserve its relationships with customers, suppliers, franchisees,
distributors, licensors, licensees, and others having business dealings with it,
to the end that its goodwill and ongoing businesses shall be unimpaired at the
Effective Time. Buffets and HomeTown shall each promptly notify the other of any
event or occurrence not in the ordinary course of business of Buffets or
HomeTown, respectively. Except as expressly contemplated by this Agreement,
subject to Section 6.01, each of Buffets and HomeTown shall not (and shall not
permit any of its respective Subsidiaries to), without the prior written consent
of the other party:
(a) Accelerate, amend, or change the period of exercisability of options
or restricted stock granted under any employee stock plan of such party or
otherwise or authorize cash payments in exchange for any options granted
under any of such plans except as required by the terms of such plans or any
related agreements or other agreements in effect as of the date of this
Agreement;
(b) Transfer or license to any person or entity or otherwise extend,
amend, or modify any rights to the HomeTown Intellectual Property Rights, in
the case of HomeTown, or the Buffets Intellectual Property Rights, in the
case of Buffets, other than in the ordinary course of business consistent
with past practices;
(c) Declare or pay any dividends on or make any other distributions
(whether in cash, stock, or property) in respect of any of its capital stock
or split, combine, or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of, or
in substitution for shares of capital stock of such party, or purchase or
otherwise acquire, directly or indirectly, any shares of its capital stock;
(d) Issue, deliver, or sell or authorize or propose the issuance,
delivery, or sale of, or purchase or propose the purchase of, any shares of
its capital stock or securities convertible into shares of its capital
stock, or subscriptions, rights, warrants, or options to acquire, or other
agreements or commitments of any character obligating it to issue, any such
shares or other convertible securities, other than the grant of options to
employees in a manner consistent with past practices and pursuant to
currently existing stock option plans, the issuance of shares upon the
exercise of options outstanding as of the date hereof, and the issuance of
shares upon conversation of the Notes;
(e) Acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial equity interest in or substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association, or other business organization or division, or
otherwise acquire or agree to acquire any assets which are material,
individually or in the aggregate, to the business of such party and its
Subsidiaries, taken as a whole;
(f) Except for ordinary course food sales, sell, lease, license, or
otherwise dispose of any of its properties or assets which are material,
individually or in the aggregate, to the business of such party and its
Subsidiaries, taken as a whole;
(g) (i) Increase or agree to increase the compensation payable or to
become payable to its officers or employees, except for increases in salary
or wages of employees other than officers of Buffets or HomeTown in
accordance with past practices, (ii) increase or agree to increase the
compensation payable or to become payable to officers of Buffets or HomeTown
or grant any additional severance or termination pay to, or enter into any
employment or severance agreements with such officers, (iii) grant any
severance or termination pay to, or enter into any employment or severance
agreement with, any employee, except in accordance with past practices, (iv)
enter into any collective bargaining agreement, (v) except for an aggregate
of $75,000 that may be paid to the outside directors of HomeTown, establish,
adopt, enter into, or amend any
A-20
<PAGE>
bonus, profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, termination,
severance, or other plan, trust, fund, policy, or arrangement for the
benefit of any directors, officers, or employees, or (vi) establish any new
executive employee position;
(h) Revalue any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable, other than
revaluations that the auditors for such entity require in accordance with
generally accepted accounting principles or in the ordinary course of
business;
(i) Incur, except pursuant to existing credit agreements, any
indebtedness for borrowed money or guarantee any such indebtedness or issue
or sell any debt securities or warrants or rights to acquire any debt
securities of such party or any of its Subsidiaries or guarantee any debt
securities of others, or voluntarily prepay any outstanding indebtedness;
(j) Amend or propose to amend its charter documents or Bylaws, except
as contemplated by this Agreement; or
(k) Make any capital expenditure or commitment for which it is not
contractually bound at the date hereof except (i) expenditures and
commitments incurred in the ordinary course in connection with restaurant
construction and development and restaurant remodeling, and (ii) other
capital expenditures and commitments not to exceed $1 million in the
aggregate, in the case of HomeTown, or $3 million, in the case of Buffets.
(l) Take, or agree in writing or otherwise to take, any of the actions
described in Sections (a) through (k) above, or any action which is
reasonably likely to make any of such party's representations or warranties
contained in this Agreement untrue or incorrect in any material respect on
the date made (to the extent so limited) or as of the Effective Time.
5.02. COOPERATION. Subject to compliance with applicable law, from the
date hereof until the Effective Time, each of Buffets and HomeTown shall confer
on a regular and frequent basis with one or more representatives of the other
party to report operational matters of materiality and the general status of
ongoing operations and shall promptly provide the other party and its counsel
with copies of all filings made by such party with any Governmental Entity in
connection with this Agreement, the Merger, and the transactions contemplated
hereby and thereby.
ARTICLE VI
ADDITIONAL AGREEMENTS AND COVENANTS
6.01. NO SOLICITATION.
(a) Neither HomeTown nor Buffets shall directly or indirectly, through any
officer, director, employee, representative, or agent thereof or of any of their
respective Subsidiaries, (i) solicit, initiate, or encourage any inquiries or
proposals that constitute, or could reasonably be expected to lead to, a
proposal or offer for a merger, consolidation, business combination, sale of
substantial assets, sale of shares of capital stock (including without
limitation by way of a tender offer), or similar transaction involving HomeTown
or any of its Subsidiaries or Buffets or any of its Subsidiaries, as the case
may be, other than the transactions contemplated by this Agreement (any of the
foregoing inquiries or proposals being referred to in this Agreement as an
"Acquisition Proposal"), (ii) engage in negotiations or discussions concerning,
or provide any non-public information to any person or entity relating to, any
Acquisition Proposal, or (iii) agree to, approve, or recommend any Acquisition
Proposal; provided, however, that nothing contained in this Agreement shall
prevent HomeTown or Buffets, or their respective Boards of Directors, from (A)
furnishing non-public information to, or entering into discussions or
negotiations with, any person or entity in connection with an unsolicited bona
fide Acquisition Proposal by such person or entity or recommending an
unsolicited bona fide written Acquisition Proposal to the shareholders, if and
only to the extent that (1) the Board of Directors determines in good faith
after consultation with outside legal counsel that such action is necessary for
A-21
<PAGE>
it to comply with its fiduciary duties to shareholders under applicable law and
(2) prior to furnishing such non-public information to, or entering into
discussions or negotiations with, such person or entity, the Board of Directors
receives from such person or entity an executed confidentiality agreement with
terms no more favorable to such party than those contained in the
Confidentiality and Nondisclosure Agreement dated February 5, 1996 between
Buffets and HomeTown (the "Confidentiality Agreement") or (B) complying with
Rule 14e-2 or Rule 14d-9 promulgated under the Exchange Act with regard to an
Acquisition Proposal.
(b) HomeTown shall notify Buffets and Buffets shall notify HomeTown
immediately (and no later than 24 hours) after receipt by HomeTown (or its
advisors) or Buffets (or its advisors), as the case may be, of any Acquisition
Proposal or any request for non-public information in connection with an
Acquisition Proposal or for access to the properties, books, or records thereof
by any person or entity that informs HomeTown or Buffets, as the case may be,
that it is considering making, or has made, an Acquisition Proposal. Such notice
by either HomeTown or Buffets shall be made orally and in writing and shall
indicate in reasonable detail the identity of the offeror and the terms and
conditions of such proposal, inquiry, or contact.
6.02. JOINT PROXY STATEMENT; REGISTRATION STATEMENT.
(a) As promptly as practical after the execution of this Agreement, Buffets
and HomeTown shall prepare and file with the SEC a joint proxy
statement/prospectus to be sent to the shareholders of Buffets and HomeTown in
connection with the meeting of Buffets' shareholders (the "Buffets Shareholders'
Meeting") and HomeTown's stockholders (the "HomeTown Stockholders' Meeting") to
consider the Merger (the "Joint Proxy Statement"), and Buffets shall prepare and
file with the SEC a registration statement on Form S-4 pursuant to which the
shares of Buffets Common Stock to be issued as a result of the Merger will be
registered with the SEC (the "Registration Statement"), in which the Joint Proxy
Statement will be included as a prospectus. Buffets and HomeTown shall use all
reasonable efforts to cause the Registration Statement to become effective as
soon after such filing as practical. The Joint Proxy Statement shall include the
recommendation of the Board of Directors of HomeTown in favor of this Agreement
and the Merger and the recommendation of the Board of Directors of Buffets in
favor of the issuance of shares of Buffets Common Stock pursuant to the Merger,
provided that the Board of Directors of either HomeTown or Buffets may withdraw
such recommendation if (i) such Board of Directors shall have determined in good
faith, after consultation with its outside legal counsel, that the withdrawal of
such recommendation is necessary for such Board of Directors to comply with its
fiduciary duties under applicable law or (ii) HomeTown has been advised by
Montgomery Securities, Inc. or Buffets has been advised by Piper Jaffray Inc.
that Montgomery Securities, Inc., in the case of HomeTown, or Piper Jaffray
Inc., in the case of Buffets, would be unable, as of the date of such advice, to
issue an opinion substantially to the effect set forth in Section 3.18 and
Section 4.17, respectively. Buffets and HomeTown shall make all other necessary
filings with respect to the Merger under the Securities Act and the Exchange Act
and the rules and regulations thereunder.
(b) HomeTown shall take such action as may be necessary to insure that (i)
the information to be supplied by HomeTown for inclusion in the Registration
Statement shall not at the time the Registration Statement is declared effective
by the SEC contain any untrue statement of a material fact or omit to state any
material fact required to be stated in the Registration Statement or necessary
in order to make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading, and (ii) the
information supplied by HomeTown for inclusion in the Joint Proxy Statement
shall not, on the date the Joint Proxy Statement is first mailed to shareholders
of HomeTown or Buffets, at the time of the HomeTown Stockholders' Meeting and
the Buffets Shareholders' Meeting, and at the Effective Time, contain any
statement which, at such time and in light of the circumstances under which it
shall be made, is false or misleading with respect to any material fact, or omit
to state any material fact necessary in order to make the statements made in the
Joint Proxy Statement not false or misleading, or omit to state any material
fact necessary to correct any statement in any earlier communication with
respect to the solicitation of proxies for the
A-22
<PAGE>
HomeTown Stockholders' Meeting or Buffets Shareholders' Meeting which has become
false or misleading. If at any time prior to the Effective Time any event
relating to HomeTown or any of its Affiliates, officers, or directors should be
discovered by HomeTown which should be set forth in an amendment to the
Registration Statement or a supplement to the Joint Proxy Statement, HomeTown
shall promptly so inform Buffets.
(c) Buffets shall take such action as may be necessary to insure that (i)
the information supplied by Buffets for inclusion in the Registration Statement
shall not at the time the Registration Statement is declared effective by the
SEC contain any untrue statement of a material fact or omit to state any
material fact required to be stated in the Registration Statement or necessary
in order to make the statements in the Registration Statement, in light of the
circumstances under which they were made, not misleading, and (ii) the
information supplied by Buffets for inclusion in the Joint Proxy Statement shall
not on the date the Joint Proxy Statement is first mailed to shareholders of
Buffets or HomeTown, at the time of the Buffets Shareholders' Meeting and
HomeTown Shareholders' Meeting, and at the Effective Time, contain any statement
which, at such time and in light of the circumstances under which it shall be
made, is false or misleading with respect to any material fact, or omit to state
any material fact necessary in order to make the statements made in the Joint
Proxy Statement not false or misleading, or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Buffets Shareholders' Meeting or HomeTown
Shareholders' Meeting which has become false or misleading. If at any time prior
to the Effective Time any event relating to Buffets or any of its Affiliates,
officers, or directors should be discovered by Buffets which should be set forth
in an amendment to the Registration Statement or a supplement to the Joint Proxy
Statement, Buffets shall promptly so inform HomeTown.
6.03. ACCESS TO INFORMATION. Upon reasonable notice and to the extent
permitted under applicable law and the provisions of agreements to which Buffets
or HomeTown, as the case may be, is a party, HomeTown and Buffets shall each
(and shall cause each of their respective Subsidiaries to) afford to the
officers, employees, accountants, counsel, and other representatives of the
other, access, during normal business hours during the period prior to the
Effective Time, to all its properties, books, contracts, commitments, and
records and, during such period, each of HomeTown and Buffets shall (and shall
cause each of their respective Subsidiaries to) furnish promptly to the other
(a) a copy of each report, schedule, registration statement, and other document
filed or received by it during such period pursuant to the requirements of
federal securities laws and (b) all other information concerning its business,
properties, and personnel as such other party may reasonably request. Unless
otherwise required by law, the parties will hold any such information which is
non-public in confidence in accordance with the Confidentiality Agreement. No
information or knowledge obtained in any investigation pursuant to this Section
6.03 shall affect or be deemed to modify a representation or warranty construed
in this Agreement or the conditions to the obligations of the parties to
consummate the Merger.
6.04. SHAREHOLDERS MEETINGS. HomeTown and Buffets each shall call a
meeting of its respective shareholders to be held as promptly as practicable for
the purpose of voting, in the case of HomeTown, upon this Agreement and the
Merger and, in the case of Buffets, upon the issuance of shares of Buffets
Common Stock pursuant to the Merger (the "Buffets Voting Proposal"). Subject to
Sections 6.01 and 6.02, HomeTown and Buffets will, through their respective
Boards of Directors, recommend to their respective shareholders approval of such
matters and will coordinate and cooperate with respect to the timing of such
meetings and shall use their best efforts to hold such meetings on the same day
and as soon as practicable after the date hereof. Subject to Section 6.02, each
party shall use all reasonable efforts to solicit from its shareholders proxies
in favor of such matters.
6.05. LEGAL CONDITIONS TO MERGER. Subject to Section 6.01, each of Buffets
and HomeTown will take all reasonable actions necessary to comply promptly with
all legal requirements which may be imposed on it with respect to the Merger
(which actions shall include, without limitation, furnishing all information
required under the HSR Act and in connection with approvals of or filings with
any other Governmental Entity) and will promptly cooperate with and furnish
information to each other
A-23
<PAGE>
in connection with any such requirements imposed upon either of them or any of
their Subsidiaries in connection with the Merger. Each of Buffets and HomeTown
will, and will cause its Subsidiaries to, take all reasonable actions necessary
to obtain (and will cooperate with each other in obtaining) any consent,
authorization, order, or approval of, or any exemption by, any Governmental
Entity or other public third party, required to be obtained or made by Buffets,
HomeTown, or any of their Subsidiaries in connection with the Merger or the
taking of any action contemplated thereby or by this Agreement.
6.06. PAYMENT OF TAXES.
(a) HomeTown shall pay prior to the Effective Time (i) all Taxes required to
be paid prior to that day, and (ii) shall withhold with respect to its employees
all federal and state income taxes, FICA, FUTA, and other Taxes required to be
withheld.
(b) Buffets shall pay prior to the Effective Time (i) all Taxes required to
be paid prior to that day, and (ii) shall withhold with respect to its employees
all federal and state income taxes, FICA, FUTA, and other Taxes required to be
withheld.
6.07. PUBLIC DISCLOSURE. Any public disclosures by Buffets or HomeTown
with respect to the Merger or this Agreement, or with respect to anything
involving or referring to the other, shall be made in accordance with the terms
of the Confidentiality Agreement.
6.08. TAX-FREE REORGANIZATION.
(a) Buffets and HomeTown shall each use its best efforts to cause the Merger
to be treated as a reorganization within the meaning of Section 368(a) of the
Code.
(b) To the extent permitted under applicable tax laws, the Merger shall be
reported as a reorganization within the meaning of Section 368(a)(1)(A) and
Section 368(a)(2)(E) of the Code in all federal, state, and local tax returns
after the Effective Time.
(c) Buffets will cause HomeTown to hold following the Merger at least 90% of
the fair market value of its net assets and at least 70% of the fair market
value of its gross assets, and at least 90% of the fair market value of Sub's
net assets and 70% of the fair market value of Sub's gross assets held
immediately prior to the Merger. For purposes of this subsection (c), amounts
paid by HomeTown or Sub to HomeTown Shareholders who receive cash or other
property, to pay reorganization expenses, and in connection with redemptions and
distributions (except for regular, normal distributions) will be treated as
assets of HomeTown or Sub, respectively, immediately prior to the Merger.
(d) Following the Merger, Buffets will cause HomeTown to continue its
historic business or use a significant portion of its business assets in a
business.
(e) Following the Merger, Buffets will cause HomeTown not to issue
additional shares of HomeTown stock to any person other than Buffets.
(f) Buffets has no present intention to reacquire, following the Merger, any
of its stock issued in the Merger.
(g) Following the Merger, Buffets will not liquidate HomeTown, merge
HomeTown with or into another corporation, sell or dispose of HomeTown stock
(except for transfers to other corporations controlled by Buffets), or cause
HomeTown to sell or dispose of any of its assets or the assets acquired from
Sub, except for dispositions in the ordinary course of business or transfers to
corporations controlled by HomeTown.
(h) Buffets, Sub, HomeTown and the stockholders of HomeTown will pay their
respective expenses, if any, incurred in connection with the Merger.
(i) No indebtedness between Buffets and HomeTown or between Sub and HomeTown
was issued, acquired or will be settled at a discount.
(j) At the Effective Time, Buffets will not own, nor will it have owned
during the past five years, any stock of HomeTown.
A-24
<PAGE>
(k) At the Effective Time, none of Buffets, HomeTown or Sub is an investment
company as defined Section 368(a)(2)(F)(iii) and (iv) of the Code.
6.09. POOLING ACCOUNTING. Buffets and HomeTown shall each use its best
efforts to cause the business combination to be effected by the Merger to be
accounted for as a pooling of interests. Each of Buffets and HomeTown shall use
its best efforts to cause its respective Affiliates (i) not to take any action
that would adversely affect the ability of Buffets to account for the business
combination to be effected by the Merger as a pooling of interests and (ii) to
sign and deliver to Buffets a customary "pooling letter" in form and substance
agreed upon by HomeTown and Buffets.
6.10. AFFILIATE AGREEMENTS. Within two weeks of the date of this
Agreement, HomeTown will provide Buffets with a list of those persons who are,
in HomeTown's reasonable judgment, "affiliates" of HomeTown within the meaning
of Rule 145 (each such person who is an "affiliate" of HomeTown within the
meaning of Rule 145 is referred to as an "Affiliate") promulgated under the
Securities Act ("Rule 145"). HomeTown shall provide Buffets such information and
documents as Buffets shall reasonably request for purposes of reviewing such
list and shall notify Buffets in writing regarding any change in the identity of
its Affiliates prior to the Closing Date. HomeTown shall use its best efforts to
deliver or cause to be delivered to Buffets by July 1, 1996 (and in any case
shall deliver to Buffets prior to the Effective Time) from each of the
Affiliates of HomeTown, an executed Affiliate Agreement, in form and substance
satisfactory to Buffets and HomeTown, by which each Affiliate of HomeTown agrees
to comply with the applicable requirements of Rule 145 ("Affiliate Agreement").
Buffets shall be entitled to place appropriate legends on the certificates
evidencing any Buffets Common Stock to be received by such Affiliates of
HomeTown pursuant to the terms of this Agreement, and to issue appropriate stop
transfer instructions to the transfer agent for the Buffets Common Stock,
consistent with the terms of the Affiliate Agreements.
6.11. NASDAQ QUOTATION. Buffets shall use its best efforts to cause the
shares of Buffets Common Stock to be issued in the Merger to be approved for
quotation on the Nasdaq National Market, subject to official notice of issuance,
prior to the Closing Date.
6.12. STOCK PLANS AND OTHER OPTIONS.
(a) At the Effective Time, each outstanding option to purchase shares of
HomeTown Common Stock (a "HomeTown Stock Option") under the HomeTown 1991 Option
Plan, whether vested or unvested, shall be deemed to constitute an option to
acquire, on the same terms and conditions as were applicable under the HomeTown
1991 Stock Option Plan, the same number of shares of Buffets Common Stock as the
holder of such HomeTown Stock Option would have been entitled to receive
pursuant to the Merger had such holder exercised such option in full immediately
prior to the Effective Time, at the price per share set forth in the HomeTown
Stock Option, divided by the Conversion Number, rounded to the nearest full
cent; provided, however, that in the case of any HomeTown Stock Option to which
Section 422 of the Code applies ("incentive stock options"), the option price,
the number of shares purchasable pursuant to such option and the terms and
conditions of exercise of such option shall be determined in order to comply
with Section 424(a) of the Code.
(b) As soon as practicable after the Effective Time, Buffets shall deliver
to the participants in the HomeTown 1991 Option Plan an appropriate notice
setting forth such participant's rights pursuant thereto and the grants made
prior to the Effective Time pursuant to the HomeTown 1991 Option Plan shall
continue in effect on the same terms and conditions (subject to the adjustments
required by this Section 6.12 after giving effect to the Merger). Buffets shall
comply with the terms of the HomeTown 1991 Option Plan to ensure, to the extent
required by, and subject to the provisions of, the HomeTown 1991 Option Plan,
that HomeTown Stock Options which qualified as incentive stock options prior to
the Effective Time continue to qualify as incentive stock options after the
Effective Time.
(c) Buffets shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Buffets Common Stock for delivery
under the HomeTown 1991 Option Plan assumed in accordance with this Section
6.12. As soon as practicable after the Effective Time, Buffets shall file a
A-25
<PAGE>
registration statement on Form S-8 (or any successor or other appropriate forms)
with respect to the shares of Buffets Common Stock subject to such options and
shall use its best efforts to maintain the effectiveness of such registration
statement for so long as such options remain outstanding. With respect to those
individuals who subsequent to the Merger will be subject to the reporting
requirements under Section 16(a) of the Exchange Act, where applicable, Buffets
shall administer the HomeTown 1991 Option Plan assumed pursuant to this Section
6.12 in a manner that complies with Rule 16b-3 promulgated under the Exchange
Act.
(d) At the Effective Time, each of the HomeTown Non-Plan Options, whether
vested or unvested, shall be deemed to constitute an option to acquire, on the
same terms and conditions as were applicable under the agreements covering the
HomeTown Non-Plan Options, the same number of shares of Buffets Common Stock as
the holder of such HomeTown Non-Plan Option would have been entitled to receive
pursuant to the Merger had such holder exercised such option in full immediately
prior to the Effective Time, at the price per share set forth in such HomeTown
Non-Plan Option, divided by the Conversion Number and rounded to the nearest
full cent. As soon as practicable after the Effective Time, Buffets shall
deliver to the holders of the HomeTown Non-Plan Options an appropriate notice
setting forth such holder's rights pursuant thereto. Buffets shall take all
corporate action necessary to reserve for issuance a sufficient number of shares
of Buffets Common Stock for delivery under the HomeTown Non-Plan Options.
6.13. CONSENTS. Each of Buffets and HomeTown shall use all reasonable
efforts to obtain all necessary consents, waivers, and approvals under any of
Buffets' or HomeTown's material agreements, contracts, licenses, or leases in
connection with the Merger.
6.14. BROKERS OR FINDERS. Each of Buffets and HomeTown represents, as to
itself, its Subsidiaries and its Affiliates, that no agent, broker, investment
banker, financial advisor, or other firm or person is or will be entitled to any
broker's or finder's fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement except Montgomery
Securities, Inc., whose fees and expenses will be paid by HomeTown in accordance
with HomeTown's agreement with such firm (a copy of which has been delivered by
HomeTown to Buffets prior to the date of this Agreement), and Piper Jaffray
Inc., whose fees and expenses will be paid by Buffets in accordance with
Buffets' agreement with such firm (a copy of which has been delivered by Buffets
prior to the date of this Agreement.)
6.15 EMPLOYEE BENEFITS; EMPLOYEE ISSUES. Following the Effective Time, all
employees of HomeTown shall be given credit for their periods of service with
HomeTown as if such service were with Buffets in determining their eligibility
for inclusion in, and the level of benefits granted after the Effective Time
under, Buffets' employee benefit plans. HomeTown's employees shall be eligible
for grants of stock options after the Effective Time under Buffets' 1995 Stock
Incentive Plan on the same terms as Buffets' employees. In connection with the
Merger, HomeTown may enter into severance obligations up to an aggregate amount
not to exceed $1.2 million with its corporate employees (such severance
obligations shall generally be in accordance with the terms of that HomeTown
Memorandum dated May 30, 1996 from Mike Shader to Kerry Kramp). In addition,
following the Effective Time, the HomeTown corporate employees identified in
that letter dated June 3, 1996 of the Chairman of Buffets to the Chairman of
HomeTown shall be entitled to the severance benefits in the amount set forth
therein and in accordance therewith. If requested by Buffets, after consultation
with HomeTown, HomeTown shall deliver to its employees and others appropriate
notices under the federal Worker Adjustment and Retraining Notification Act.
6.16 REPORTS. From and after the Effective Time and so long as necessary
in order to permit HomeTown's Affiliates to sell the Buffets shares of Common
Stock received by them as a result of the Merger pursuant to Rule 145 and, to
the extent applicable, Rule 144 under the Securities Act, Buffets will use its
best efforts to file on a timely basis all reports required to be filed by it
pursuant to Section
A-26
<PAGE>
13 or 15(d) of the Exchange Act, referred to in paragraph (c)(1) of Rule 144
under the Securities Act (or, if applicable, Buffets will use its best efforts
to make publicly available the information regarding itself referred to in
paragraph (c)(2) of Rule 144).
6.17 SUPPLEMENTAL INDENTURE. In accordance with the terms thereof, Buffets
and HomeTown will execute and deliver, on or prior to the Effective Time, a
supplemental indenture or assumption agreement with respect to the Notes in
order to reflect the consummation of the transactions contemplated hereby.
6.18 NOTIFICATION OF CERTAIN MATTERS. HomeTown will give prompt notice to
Buffets upon discovery thereof, and Buffets will give prompt notice to HomeTown
upon discovery thereof, of (a) the occurrence, or failure to occur, of any event
which occurrence or failure would be likely to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in any material
respect at any time from the date hereof to the Effective Time, and (b) any
material failure of HomeTown or Buffets, or any director, officer, employee,
agent or representative thereof, to comply with or satisfy any covenant,
condition, or agreement to be complied with or satisfied by it hereunder.
6.19 ADDITIONAL AGREEMENTS; REASONABLE EFFORTS. Subject to the terms and
conditions of this Agreement, each of the parties agrees to use all reasonable
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper, or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, subject to the appropriate vote of shareholders of Buffets and
HomeTown described in Section 6.04, including cooperating fully with the other
party. In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement or to vest
the Continuing Corporation with full title to all properties, assets, rights,
approvals, immunities, and franchises of either of the Constituent Corporations,
the proper officers and directors of each party to this Agreement shall take all
such necessary action.
6.20 CONTINUING INDEMNIFICATION. After the Closing, Buffets shall guaranty
the obligations of HomeTown to indemnify its present and former directors and
officers and Bradley J. Thies, General Counsel of HomeTown, to the extent of,
and in accordance with, the Bylaws of HomeTown as in effect on the date of this
Agreement and the Delaware Law and, with respect to Mr. Thies, in accordance
with the resolution of the Board of Directors of HomeTown adopted at a meeting
thereof on May 10, 1994 . Subject to the Delaware Law, HomeTown's Bylaws
relating to indemnification shall not be amended in a manner which adversely
affects the rights of any party entitled to indemnification thereunder. The
provisions of this Section 6.20 are intended to be for the benefit of, and shall
be enforceable by, each indemnified party.
ARTICLE VII
CONDITIONS TO MERGER
7.01. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction prior to the Closing Date of the following
conditions:
(a) SHAREHOLDER APPROVAL. This Agreement and the Merger shall have
been approved and adopted by the requisite vote of the stockholders of
HomeTown as may be required by law, by the rules of the Nasdaq National
Market, and by any applicable provisions of its certificate of incorporation
or Bylaws, and the Buffets Voting Proposal shall have been approved by the
requisite vote of the shareholders of Buffets as may be required by law, by
the rules of the Nasdaq National Market, and by any applicable provisions of
its articles of incorporation or Bylaws.
(b) HSR ACT. The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
A-27
<PAGE>
(c) APPROVALS. There shall have been obtained permits, consents and
approvals of securities or "blue sky" commissions or agencies of any
jurisdiction and of other governmental bodies or agencies that may
reasonably be deemed necessary so that the consummation of the Merger and
the other transactions contemplated hereby will be in compliance with
applicable laws.
(d) REGISTRATION STATEMENT. The Registration Statement shall have
become effective under the Securities Act and shall not be the subject of
any stop order or proceedings seeking a stop order. The Joint Proxy
Statement shall have been delivered to the shareholders of HomeTown and
Buffets in accordance with the requirements of the Securities Act and the
Exchange Act.
(e) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining
order, preliminary or permanent injunction, or other order issued by any
court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger or limiting or
restricting Buffets' conduct or operation of the business of Buffets or
HomeTown after the Merger shall have been issued, nor shall any proceeding
brought by a domestic administrative agency or commission or other domestic
Governmental Entity seeking any of the foregoing be pending; nor shall there
be any action taken, or any statute, rule, regulation, or order enacted,
entered, enforced, or deemed applicable to the Merger which makes the
consummation of the Merger illegal.
(f) POOLING LETTER. Buffets and HomeTown shall have received a letter
from Deloitte & Touche LLP dated the date of the Joint Proxy Statement and
confirmed in writing at the Effective Time and addressed to Buffets and
HomeTown, stating that the business combination to be effected by the Merger
will qualify as a pooling of interests transaction under generally accepted
accounting principles and that such qualification will not be affected by
the exercise, after the Effective Time, by any holders of Notes of any
repurchase rights they may have under Article 14 of the Indenture covering
the Notes. Buffets and HomeTown also shall have received a letter from KPMG
Peat Marwick LLP dated the date of the Joint Proxy Statement and confirmed
in writing at the Effective Time, stating that they are not aware of any
conditions that would preclude HomeTown from being pooled with Buffets.
(g) NASDAQ. The shares of Buffets Common Stock to be issued in the
Merger shall have been approved for quotation on the Nasdaq National Market.
(h) DELOITTE & TOUCHE COMFORT LETTER. On the date of the Joint Proxy
Statement and the Buffets prospectus constituting a part of the Registration
Statement, Buffets and HomeTown shall have received a letter (in form and
substance as is customary in a registered public offering) from Deloitte &
Touche, independent public accountants of Buffets, dated as of such date, in
connection with such accountants' review of certain data and information
contained in the Registration Statement and the Joint Proxy Statement.
(i) KPMG PEAT MARWICK COMFORT LETTER. On the date of the Joint Proxy
Statement and the Buffets prospectus constituting a part of the Registration
Statement, HomeTown and Buffets shall have received a letter (in form and
substance as is customary in a registered public offering) from KPMG Peat
Marwick, independent public accountants of HomeTown, dated as of such date,
in connection with such accountants' review of certain data and information
contained in the Registration Statement and the Joint Proxy Statement.
(j) BANK CONSENT. Buffets shall have received all necessary consents
and waivers from the Banks under the Second Amended and Restated Credit
Agreement dated as of April 30, 1996 required thereunder in connection with
this Merger Agreement and the transactions contemplated hereby.
A-28
<PAGE>
(k) TAX OPINIONS. HomeTown shall have received the opinion of Stoel
Rives LLP, and Buffets shall have received the opinion of Faegre & Benson
LLP, to the effect the Merger will be treated for federal income tax
purposes as a tax-free reorganization within the meaning of Section 368(a)
of the Code.
7.02 ADDITIONAL CONDITIONS TO OBLIGATIONS OF BUFFETS AND SUB. The
obligations of Buffets and Sub to effect the Merger are subject to the
satisfaction of each of the following conditions, any of which may be waived in
writing exclusively by Buffets and Sub.
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of HomeTown set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement; and Buffets shall have
received a certificate signed on behalf of HomeTown by the chief executive
officer and the chief financial officer of HomeTown to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF HOMETOWN. HomeTown shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date; and Buffets
shall have received a certificate signed on behalf of HomeTown by the chief
executive officer and the chief financial officer of HomeTown to such
effect.
(c) MATERIAL ADVERSE CHANGE. Since the date of this Agreement,
HomeTown and its Subsidiaries, taken as a whole, shall not have experienced
or suffered a Material Adverse Change.
(d) BLUE SKY LAWS. Buffets shall have received all state securities or
"Blue Sky" permits and other authorizations necessary to issue shares of
Buffets Common Stock pursuant to the Merger.
(e) OPINION OF HOMETOWN'S COUNSEL. Buffets shall have received written
opinions of counsel to HomeTown dated as of the Closing Date, substantially
to the effect set forth in Exhibit 7.02(d) hereto.
(f) UPDATED FAIRNESS OPINION. On the date of the Joint Proxy
Statement, the Buffets Board shall have received from Piper Jaffray Inc. a
written update, dated as of such date, confirming the opinion referred to in
Section 4.17.
(g) EMPLOYMENT AGREEMENT. Buffets and Kerry A. Kramp shall have
entered into an employment agreement substantially in the form of Exhibit
7.02(g) hereto.
(h) CONSENTS. HomeTown shall have obtained all necessary consents,
waivers, and approvals required under any of HomeTown's material agreements,
contracts, and licenses and shall have obtained all necessary consents,
waivers, and approvals required under at least 95% of the total number of
HomeTown's restaurant leases.
7.03. ADDITIONAL CONDITIONS TO OBLIGATIONS OF HOMETOWN. The obligation of
HomeTown to effect the Merger is subject to the satisfaction of each of the
following conditions, any of which may be waived, in writing, exclusively by
HomeTown.
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Buffets and Sub set forth in this Agreement shall be true and correct in
all material respects as of the date of this Agreement; and HomeTown shall
have received a certificate signed on behalf of Buffets by the chief
executive officer and the chief financial officer of Buffets to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF BUFFETS AND SUB. Buffets and Sub
shall have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date, and
HomeTown shall have received a certificate signed on behalf of Buffets by
the chief executive officer and the chief financial officer of Buffets to
such effect.
(c) MATERIAL ADVERSE CHANGE. Since the date of this Agreement, Buffets
and its Subsidiaries, taken as a whole, shall not have experienced or
suffered a Material Adverse Change.
A-29
<PAGE>
(d) OPINION OF BUFFETS' COUNSEL. HomeTown shall have received written
opinions of counsel to Buffets and general counsel of Buffets dated as of
the Closing Date, substantially to the effect set forth in Exhibit 7.03(d)
hereto.
(e) UPDATED FAIRNESS OPINION. On the date of the Joint Proxy
Statement, the HomeTown Board shall have received from Montgomery
Securities, Inc. a written update, dated as of such date, confirming the
opinion referred to in Section 3.18.
(f) EMPLOYMENT AGREEMENT. Buffets and Kerry A. Kramp shall have
entered into an employment agreement substantially in the form of Exhibit
7.02(g) hereto.
(g) CONSENTS. Buffets shall have obtained all necessary consents,
waivers, and appeals required under any of Buffets' material agreements,
contracts, and licenses and shall have obtained all necessary consents,
waivers, and approvals required under at least 95% of the total number of
Buffets' restaurant leases.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.01. TERMINATION. This Agreement may be terminated 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 by the shareholders of HomeTown or Buffets:
(a) by mutual written consent of Buffets and HomeTown; or
(b) by either Buffets or HomeTown if the Merger shall not have been
consummated by December 31, 1996 (provided that the right to terminate this
Agreement under this Section 8.01(b) shall not be available to a party whose
failure to fulfill any obligation under this Agreement has been the cause of
or resulted in the failure of the Merger to occur on or before such date);
or
(c) by either Buffets or HomeTown 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 6.05 of this
Agreement; or
(d) by Buffets or HomeTown, if, at the Buffets Shareholders' Meeting or
HomeTown Stockholders' Meeting (including any adjournment or postponement
thereof), the requisite vote of the shareholders of Buffets in favor of the
Buffets Voting Proposal or the stockholders of HomeTown in favor of this
Agreement and the Merger shall not have been obtained; or
(e) by Buffets, if (i) the Board of Directors of HomeTown shall have
withdrawn or modified its recommendation of this Agreement or the Merger in
a manner adverse to Buffets or shall have resolved to do any of the
foregoing; (ii) the Board of Directors of HomeTown shall have recommended to
the stockholders of HomeTown an Alternative Transaction (as defined in
Section 8.03(e)); or (iii) a tender offer or exchange offer for 15% or more
of the outstanding shares of HomeTown Common Stock is commenced (other than
by Buffets or an Affiliate of Buffets) and the Board of Directors of
HomeTown recommends that the stockholders of HomeTown tender their shares in
such tender or exchange offer; or
(f) by HomeTown, if (i) the Board of Directors of Buffets shall have
withdrawn or modified its recommendation of the Buffets Voting Proposal in a
manner adverse to HomeTown or shall have resolved to do any of the
foregoing; (ii) the Board of Directors of Buffets shall have recommended to
the shareholders of Buffets an Alternative Transaction (as defined in
Section 8.03(e)) or (iii) a tender offer or exchange offer for 15% or more
of the outstanding shares of Buffets
A-30
<PAGE>
Common Stock is commenced (other than by HomeTown or an Affiliate of
HomeTown) and the Board of Directors of Buffets recommends that the
shareholders of Buffets tender their shares in such tender or exchange
offer; or
(g) by Buffets or HomeTown, if there has been a material breach of any
representation, warranty, covenant, or agreement on the part of the other
party set forth in this Agreement, which breach shall not have been cured,
in the case of a representation or warranty, prior to the Closing or, in the
case of a covenant or agreement, within 10 business days following receipt
by the breaching party of written notice of such breach from the other
party.
8.02 EFFECT OF TERMINATION. In the event of termination of this Agreement
as provided in Section 8.01, this Agreement shall immediately become void and
there shall be no liability or obligation on the part of Buffets, HomeTown, Sub
or their respective officers, directors, shareholders, or Affiliates, except as
set forth in Section 8.03; provided that the provisions of Section 8.03 of this
Agreement shall remain in full force and effect and survive any termination of
this Agreement.
8.03 FEES AND EXPENSES.
(a) Except as set forth in this Section 8.03, 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; provided, however, that Buffets and HomeTown shall share equally
all fees and expenses, other than attorneys' fees, incurred in relation to the
printing and filing of the Joint Proxy Statement (including any related
preliminary materials) and the Registration Statement (including financial
statements and exhibits) and any amendments or supplements.
(b) HomeTown shall pay Buffets a termination fee of $1,500,000 upon the
earliest to occur of the following events:
(i) the termination of this Agreement by Buffets pursuant to Section
8.01(e);
(ii) the termination of this Agreement by Buffets pursuant to Section
8.01(g) after a breach by HomeTown of this Agreement; or
(iii) the termination of this Agreement by Buffets or HomeTown pursuant
to Section 8.01(d) as a result of the failure to receive the requisite vote
for approval of this Agreement and the Merger by the stockholders of
HomeTown at the HomeTown Stockholders' Meeting .
(c) Buffets shall pay HomeTown a termination fee of $1,500,000 upon the
earliest to occur of the following events:
(i) the termination of this Agreement by HomeTown pursuant to Section
8.01(f); or
(ii) the termination of this Agreement by HomeTown pursuant to Section
8.01(g) after a breach by Buffets of this Agreement; or
(iii) the termination of this Agreement by Buffets or HomeTown pursuant
to Section 8.01(d) as a result of the failure to receive the requisite vote
for approval of the Buffets Voting Proposal by the shareholders of Buffets
at the Buffets Shareholders' Meeting.
(d) The expenses and fees, if applicable, payable pursuant to this Article
VIII shall be paid within one business day after the event giving rise to the
obligation to pay such amount; provided that, in no event shall Buffets or
HomeTown, as the case may be, be required to pay the expenses and fees, if
applicable, to the other, if, immediately prior to the termination of this
Agreement, the party to receive the expenses and fees, if applicable, was in
material breach of its obligations under this Agreement.
(e) As used in this Agreement, "Alternative Transaction" means either (i) a
transaction pursuant to which any person (or group of persons) other than
Buffets or its Affiliates (a "Third Party") acquires more than 15% of the
outstanding shares of HomeTown Common Stock pursuant to a tender offer or
exchange offer or otherwise, (ii) a merger or other business combination
involving HomeTown
A-31
<PAGE>
pursuant to which any Third Party acquires more than 15% of the outstanding
equity securities of HomeTown or the entity surviving such merger or business
combination, (iii) any other transaction pursuant to which any Third Party
acquires control of assets (including for this purpose the outstanding equity
securities of Subsidiaries of HomeTown, and the entity surviving any merger or
business combination including any of them) of HomeTown having a fair market
value (as determined by the Board of Directors of Buffets in good faith) equal
to more than 15% of the fair market value of all the assets of HomeTown, and its
Subsidiaries, taken as a whole, immediately prior to such transaction, or (iv)
any public announcement of a proposal, plan, or intention to do any of the
foregoing or any agreement to engage in any of the foregoing.
8.04 AMENDMENT. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any time
before or after approval of the matters presented in connection with the Merger
by the shareholders of HomeTown or of Buffets, but, after any such approval, no
amendment shall be made which by law requires further approval by such
shareholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
8.05 EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, may to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement of a
party hereto to any such extension or waiver shall be valid only if set forth in
a written instrument signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
9.01. NONSURVIVAL OF REPRESENTATIONS, WARRANTIES, AND AGREEMENTS. None of
the representations, warranties, and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Effective
Time, except for the agreements contained in Sections 1.04, 2.01, 6.07, 6.08,
6.09, 6.12, 6.15, 6.16, 6.19, 6.20 and 8.03, the last sentence of Section 8.04
and Article IX, and the agreements of the Affiliates of HomeTown delivered
pursuant to Sections 6.09 and 6.10. The Confidentiality Agreement shall survive
the execution and delivery of this Agreement.
9.02 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (which is
confirmed), or mailed by registered or certified mail (return receipt requested)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) if to Buffets or Sub, to:
Buffets, Inc.
10260 Viking Drive
Eden Prairie, MN 55344
Attention: Chairman
with a required copy to (which alone shall not constitute notice):
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402-3901
Attention: Douglas P. Long
A-32
<PAGE>
(b) if to HomeTown, to:
HomeTown, Inc.
9171 Towne Centre Drive, Suite 575
San Diego, CA 92122
Attention: Chairman
with a required copy to (which alone shall not constitute notice):
Stoel Rives LLP
Standard Insurance Center
900 SW Fifth Avenue, Suite 2300
Portland, OR 87204
Attention: John J. Halle
9.03 INTERPRETATION. When a reference is made in this Agreement to
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes," or "including" are used in this Agreement they shall be deemed to be
followed by the words "without limitation." The phrase "made available" in this
Agreement shall mean that the information referred to has been made available if
requested by the party to whom such information is to be made available. The
phrases "the date of this Agreement," "the date hereof," and terms of similar
import, unless the context otherwise requires, shall be deemed to refer to the
date set forth in the first paragraph of this Agreement.
9.04 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
9.05 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES. This Agreement
(including the documents and the instruments referred to herein) (a) constitute
the entire agreement and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
and (b) except as specifically provided herein are not intended to confer upon
any person other than the parties hereto any rights or remedies hereunder.
9.06 GOVERNING LAW. This agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota without regard to any
applicable conflicts of law.
9.07 ASSIGNMENT. Neither this Agreement nor any of the rights, interests,
or obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement will be binding upon,
inure to the benefit of, and be enforceable by the parties and their respective
successors and assigns.
9.08 KNOWLEDGE. All references in this Agreement to knowledge of a
corporation shall be deemed to mean knowledge of any one or more of its
executive officers.
ARTICLE X
DEFINITIONS
As used in this Agreement, the term "Subsidiary" shall mean, with respect to
any party, 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 such party do not have a majority
of the voting interest in such partnership) or (ii) at least a majority of the
securities or other interests having
A-33
<PAGE>
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.
IN WITNESS WHEREOF, Buffets, Sub, and HomeTown have caused this Agreement to
be signed by their respective officers thereunto duly authorized as of the date
first written above.
BUFFETS, INC.
By: /s/ ROE H. HATLEN
-----------------------------------
Its: CHIEF EXECUTIVE OFFICER
COUNTRY DELAWARE, INC.
By: /s/ ROE H. HATLEN
-----------------------------------
Its: CHIEF EXECUTIVE OFFICER
HOMETOWN BUFFET, INC.
By: /s/ C. DENNIS SCOTT
-----------------------------------
Its: CHAIRMAN
A-34
<PAGE>
EXHIBIT B
August 16, 1996
Board of Directors
Buffets, Inc.
10260 Viking Drive
Eden Prairie, MN 55344
Members of the Board:
This letter relates to the issuance of shares of common stock of Buffets,
Inc. ("Buffets") in exchange for all of the outstanding shares of common stock
of Hometown Buffet, Inc. ("Hometown") pursuant to the Agreement and Plan of
Merger referred to below (the "Merger"). The aggregate consideration to be paid
by Buffets in the Merger will be based on a fixed exchange ratio of 1.17 Buffets
common shares for each Hometown share of common stock (the "Conversion Number").
You have requested our opinion as to the fairness to the shareholders of
Buffets, from a financial point of view, of the Conversion Number.
Piper Jaffray Inc. ("Piper Jaffray"), as a customary part of its investment
banking business, is engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, underwritings and secondary
distributions of securities, private placements, and valuations for estate,
corporate and other purposes. Piper Jaffray makes a market in the Common Stock
of Buffets and also provides research coverage for Buffets. We acted as the lead
manager of public equity offerings of Buffets in 1986 and 1993 and performed
advisory services in connection with Buffets' adoption of its Share Rights Plan.
For our services in connection with the Merger, including rendering this
opinion, Buffets will pay us a fee and indemnify us against certain liabilities.
In arriving at our opinion, we have undertaken such reviews, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have:
1. Reviewed the Agreement and Plan of Merger dated June 3, 1996 among
Buffets, Country Delaware, Inc. and Hometown.
2. Reviewed the Reports on Form 10-K for Hometown for the three fiscal
years ended January 3, 1996.
3. Reviewed the Form 10-Q for Hometown for the quarter ended April 24, 1996
and the Current Report on Form 8-K for HomeTown dated August 8, 1996.
4. Reviewed the Reports on Form 10-K for Buffets for the three years ended
January 3, 1996.
5. Reviewed the Form 10-Q for Buffets for the quarter ended April 24, 1996
and the Current Report on Form 8-K for Buffets dated August 8, 1996.
6. Reviewed five year financial forecasts for Buffets, including 1996
financial forecasts furnished by Buffets' management and financial
forecasts for 1997-2000 prepared by Piper Jaffray based on assumptions
provided by Buffets' management, which forecasts were reviewed and
approved by Buffets' management.
7. Reviewed five year financial forecasts for HomeTown, including 1996 and
1997 financial forecasts furnished by HomeTown management and financial
forecasts for 1998-2000 prepared by Piper Jaffray based on assumptions
provided by HomeTown management, which forecasts were reviewed and
approved by HomeTown's management (the "HomeTown Forecasts").
8. Conducted discussions with members of senior management of Hometown,
including the Chief Executive Officer, President/Chief Operating Officer,
the Chief Financial Officer, the
B-1
<PAGE>
Vice President of Operations and the Vice President of Human Resources.
Topics discussed included, but were not limited to, the background and
rationale of the proposed Merger, the financial condition, operating
performance, and the balance sheet characteristics of Hometown and the
prospects for the combined company after consummation of the proposed
Merger.
9. Conducted discussions with members of senior management of Buffets,
including the Chairman and Chief Executive Officer, Chief Financial
Officer and General Counsel. Topics discussed included, but were not
limited to, the background and rationale for the proposed Merger, the
financial condition, operating performance, balance sheet characteristics
and prospects of Buffets's business independently and the financial and
operating prospects for the combined company after consummation of the
proposed Merger.
10. Reviewed the historical prices and trading activity for Buffets and
Hometown common stock.
11. Reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions which we deemed
relevant.
12. Performed discounted cash flow analysis on the HomeTown Forecasts.
13. Considered the proforma effect of the proposed Merger on Buffets'
earnings per share for the fiscal years 1996 through 2000 with and
without synergies.
14. Compared certain financial and securities data of Hometown and Buffets
with certain financial and securities data of companies deemed similar to
Hometown and Buffets or representative of the business sector in which
both companies operate.
15. Analyzed the premiums paid in recent mergers and acquisitions involving
the sale of public companies accounted for under pooling of interests.
16. Calculated the projected contribution of Buffets and Hometown to the
combined company by revenue, income and ownership for the latest twelve
months and the five fiscal years 1996 through 2000.
17. Reviewed such other financial data, performed such other analyses and
considered such other information as we deemed necessary and appropriate
under the circumstances.
We have relied upon and assumed the accuracy and completeness of the
financial statements and other information provided by Buffets and Hometown or
otherwise made available to us and have not attempted independently to verify
such information. We have further relied upon the assurances of Buffets' and
Hometown's managements that the information provided has been prepared on a
reasonable basis and, with respect to financial planning data, reflects the best
currently available estimates and that they are not aware of any information or
facts that would make the information provided to us incomplete or misleading.
In that regard, we have assumed with your consent that any projections or
forecasts, including without limitation, any projected cost savings and
operating synergies resulting from the Merger, reflect best currently available
estimates and judgments of the respective managements of Buffets and Hometown
and that such projections and forecasts will be realized in the amounts and in
the time periods currently estimated by the managements of Buffets and Hometown.
Furthermore, we have assumed that neither Buffets nor Hometown is a party to any
pending transaction, including external financings, recapitalizations,
acquisitions or merger discussions, other than the Merger or in the ordinary
course of business.
In arriving at our opinion, we have not performed any appraisals or
valuations of specific assets of Buffets or Hometown and express no opinion
regarding the liquidation value of Buffets or Hometown. Our opinion is
necessarily based upon information available to us, facts and circumstances and
economic, market and other conditions as they exist and are subject to
evaluation on the date hereof;
B-2
<PAGE>
events occurring after the date hereof could materially affect the assumptions
used in preparing this opinion. We express no opinion herein as to the prices at
which shares of Buffets common stock may trade at any future time.
This opinion is for the benefit of the Board of Directors of Buffets and
shall not be relied upon, published or otherwise used, nor shall any public
references to Piper Jaffray be made without our written consent, except for
inclusion in the full proxy/prospectus to be sent to all shareholders of Buffets
and Hometown and in any filings or disclosures required by law. This opinion is
not intended to be and does not constitute a recommendation to any shareholder
as to how such shareholder should vote with respect to the Merger.
Based upon and subject to the foregoing and based upon such other factors as
we consider relevant, it is our opinion that the Conversion Number is fair, from
a financial point of view, to the shareholders of Buffets.
Sincerely,
B-3
<PAGE>
EXHIBIT C
August 16, 1996
Board of Directors
HomeTown Buffet, Inc.
9171 Towne Centre Drive
San Diego, CA 92122
Gentlemen:
We understand that HomeTown Buffet, Inc., a Delaware corporation ("Seller"),
Buffets, Inc., a Minnesota corporation ("Buyer"), and County Delaware, Inc., a
Delaware corporation and a wholly-owned subsidiary of Buyer ("Sub"), propose to
enter into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to
which Sub will be merged with and into Seller, which will be the surviving
entity (the "Merger"). Pursuant to the Merger, as more fully described in the
June 3, 1996 draft of the Merger Agreement provided to us by Seller and as
further described to us by management of Seller, we understand that each
outstanding share of the common stock, $0.01 par value per share ("Seller Common
Stock"), of Seller will be converted into and exchangeable for 1.17 shares of
the common stock, $0.01 par value per share ("Buyer Common Stock"), of Buyer,
subject to certain adjustments (the "Consideration"). The terms and conditions
of the Merger are set forth in more detail in the draft of the Merger Agreement.
We previously delivered to you an opinion dated June 3, 1996 which stated,
subject to the limitations and conditions contained therein, our opinion as
investment bankers that the Consideration to be received by the stockholders of
Seller pursuant to the Merger is fair to such stockholders from a financial
point of view, as of that date. You have now asked for our opinion as investment
bankers as to whether the Consideration to be received by the stockholders of
Seller pursuant to the Merger is fair to such stockholders from a financial
point of view, as of the date hereof.
In connection with our opinion, we have, among other things: (i) reviewed
certain publicly available financial and other data with respect to Seller and
Buyer, including (a) the consolidated financial statements for recent years and
interim periods to April 24, 1996, with respect to Seller and January 3, 1996
with respect to Buyer, and (b) the August 6, 1996 earnings release of Seller,
and the August 7, 1996 earnings release of Buyer, announcing their respective
results for the twenty-eight week period ended July 17, 1996, and certain other
relevant financial and operating data relating to Seller and Buyer made
available to us from published sources and from the internal records of Seller
and Buyer; (ii) reviewed the draft of the Merger Agreement; (iii) reviewed
certain publicly available information concerning the trading of, and the
trading market for, Seller Common Stock and Buyer Common Stock; (iv) compared
Seller and Buyer from a financial point of view with certain other companies in
the restaurant industry which we deemed to be relevant; (v) considered the
financial terms, to the extent publicly available, of selected recent business
combinations of companies in the restaurant industry which we deemed to be
comparable, in whole or in part, to the Merger; (vi) reviewed and discussed with
representatives of the management of Seller and Buyer certain information of a
business and financial nature regarding Seller and Buyer, furnished to us by
them, including financial forecasts and related assumptions of Seller and Buyer;
(vii) made inquiries regarding and discussed the Merger and the Merger Agreement
and other matters related thereto with Seller's counsel; and (viii) performed
such other analyses and examinations as we have deemed appropriate.
C-1
<PAGE>
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its being
accurate and complete in all material respects. With respect to the financial
forecasts for Seller and Buyer provided to us by their respective managements,
upon their advice and with your consent we have assumed for purposes of our
opinion that the forecasts have been reasonably prepared on bases reflecting the
best available estimates and judgments of their respective managements at the
time of preparation as to the future financial performance of Seller and Buyer
and that they provide a reasonable basis upon which we can form our opinion. We
have also assumed that there have been no material changes in Seller's or
Buyer's assets, financial condition, results of operations, business or
prospects since the respective dates of their last financial statements made
available to us. We have relied on advice of counsel and independent accountants
to Seller as to all legal and financial reporting matters with respect to
Seller, the Merger and the Merger Agreement. We have assumed that the Merger
will be consummated in a manner that complies in all respects with the
applicable provisions of the Securities Act of 1933, as amended (the "Securities
Act"), the Securities Exchange Act of 1934 and all other applicable federal and
state statutes, rules and regulations. In addition, we have not assumed
responsibility for making an independent evaluation, appraisal or physical
inspection of any of the assets or liabilities (contingent or otherwise) of
Seller or Buyer, nor have we been furnished with any such appraisals. You have
informed us, and we have assumed, that the Merger will be recorded as a
pooling-of-interests under generally accepted accounting principles. Finally,
our opinion is based on economic, monetary and market and other conditions as in
effect on, and the information made available to us as of, the date hereof.
Accordingly, although subsequent developments may affect this opinion, we have
not assumed any obligation to update, revise or reaffirm this opinion.
We have further assumed with your consent that the Merger will be
consummated in accordance with the terms described in the draft Merger
Agreement, without any further amendments thereto, and without waiver by Seller
of any of the conditions to its obligations thereunder.
We have acted as financial advisor to Seller in connection with the Merger
and will receive a fee for our services, including rendering this opinion, a
significant portion of which is contingent upon the consummation of the Merger.
In the ordinary course of our business, we actively trade the equity securities
of Seller and Buyer for our own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
We have also acted as an underwriter in connection with offerings of securities
of Seller and performed various investment banking services for Seller.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Consideration to be received by the stockholders of
Seller pursuant to the Merger is fair to such stockholders from a financial
point of view, as of the date hereof.
This opinion is directed to the Board of Directors of Seller in its
consideration of the Merger and is not a recommendation to any stockholder as to
how such stockholder should vote with respect to the Merger. This opinion may
not be used or referred to by Seller, or quoted or disclosed to any person in
any manner, without our prior written consent, which consent is hereby given to
the inclusion of this opinion in any proxy statement or prospectus filed with
the Securities and Exchange Commission in connection with the Merger. In
furnishing this opinion, we do not admit that we are experts within the meaning
of the term "experts" as used in the Securities Act and the rules and
regulations promulgated thereunder, nor do we admit that this opinion
constitutes a report or valuation within the meaning of Section 11 of the
Securities Act.
Very truly yours,
C-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is subject to Minnesota Statutes, Chapter 302A, the Minnesota
Business Corporation Act (the "Corporation Act"). Section 302A.521 of the
Corporation Act provides in substance that, unless prohibited by its articles of
incorporation or bylaws, a corporation must indemnify an officer or director who
is made or threatened to be made a party to a proceeding because of his or her
capacity as an officer or director, against judgments, penalties and fines and
reasonable expenses, including attorneys' fees and disbursements, incurred by
such person in connection with the proceeding, if certain criteria are met.
These criteria, all of which must be met by the person seeking indemnification,
are (a) that such person has not been indemnified by another organization for
the same judgments, penalties, fines, settlements and expenses; (b) that such
person acted in good faith; (c) that no improper personal benefit was obtained
by such person and certain statutory conflict of interest provisions have been
satisfied, if applicable; (d) that, in the case of a criminal proceeding, such
person had not reasonable cause to believe that the conduct was unlawful; and
(e) that such person acted in a manner reasonably believed by such person to
have been in the best interests of the corporation. The determination as to the
eligibility for indemnification is made by the members of the corporation's
board of directors or a committee of the board who are at the time not a party
to the proceedings under consideration, by special legal counsel, by the
shareholders who are not parties to the proceedings or by a court. Section 4.01
of the By-laws of the Company requires indemnification by the Company in such
manner, under such circumstances, and to such extent as required or permitted by
Section 302A.521 of the Corporation Act, as amended from time to time, or as
required or permitted by other provisions of law.
Article VIII of the Company's Articles of Incorporation provides that no
director shall be personally liable to the Company or its shareholders for
monetary damages for breach of fiduciary duty as director, except (i) for any
breach of the director's duty of loyalty to the Company or its shareholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for dividends, stock repurchases
and other distributions made in violation of Minnesota law or for violations of
the Minnesota securities laws, (iv) for any transaction from which the director
derived an improper personal benefit or (v) for any act or omission occurring
prior to the effective date of the provision limiting such liability in the
Company's Articles of Incorporation. This Articles does not affect the
availability of equitable remedies, such as an action to enjoin or rescind a
transaction involving a breach of fiduciary duty, although, as a practical
matter, equitable relief may not be available. This Article also does not limit
liability of the directors for violations of, or relieve them from the necessity
of complying with, the federal securities laws.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
(A) EXHIBITS
The following Exhibits are filed as part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- -------------- --------------------------------------------------------------------------------------------
<C> <C> <S>
2 -- Agreement and Plan of Merger, dated as of June 3, 1996, by and among Buffets, Inc., Country
Delaware, Inc. and HomeTown Buffet, Inc. (included in the Joint Proxy Statement/Prospectus
as Exhibit A).
4(a) -- Composite Amended and Restated Articles of Incorporation of Buffets, Inc. (incorporated by
reference to Exhibit 4.1 to the Registration Statement of Buffets, Inc. on Form S-3, File
No. 33-63694).
4(b) -- By-Laws of Buffets, Inc. (incorporated by reference to Exhibit 3(b) to the Annual Report on
Form 10-K of Buffets, Inc. for the fiscal year ended December 29, 1993, File No. 0-14370).
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- -------------- --------------------------------------------------------------------------------------------
<C> <C> <S>
4(c) -- Rights Agreement, dated as of October 24, 1995, between Buffets, Inc. and American Stock
Transfer and Trust Company (incorporated by reference to Exhibit 1 to the Current Report on
Form 8-K of Buffets, Inc. dated October 24, 1995, File No. 0-14370).
5 -- Opinion of Faegre & Benson LLP.
8(a) -- Opinion of Faegre & Benson LLP regarding certain tax matters.
8(b) -- Opinion of Stoel Rives LLP regarding certain tax matters.
23(a) -- Consent of Deloitte & Touche LLP (relating to financial statements of the Registrant).
23(b) -- Consent of KPMG Peat Marwick LLP (relating to financial statements of HomeTown Buffet,
Inc.).
23(c) -- Consent of Faegre & Benson LLP (included in Exhibit 5).
23(d) -- Consent of Stoel Rives LLP (included in Exhibit 8(b)).
23(e) -- Consent of Piper Jaffray Inc.
24 -- Powers of Attorney of directors and officers of the Registrant (included as part of
signature page).
99(a) -- Form of Proxy of Buffets, Inc.
99(b) -- Form of Proxy of HomeTown Buffet, Inc.
99(c) -- Opinion of Piper Jaffray Inc. (included in the Joint Proxy Statement/ Prospectus as Exhibit
B).
99(d) -- Opinion of Montgomery Securities (included in the Joint Proxy Statement/ Prospectus as
Exhibit C).
</TABLE>
(B) FINANCIAL STATEMENT SCHEDULES
None required.
(C) REPORTS, OPINIONS OR APPRAISALS
Information requested hereunder is furnished as Exhibits 99(c) and 99(d)
hereto and as Exhibits B and C to the Joint Proxy Statement/Prospectus.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act of 1934 (and each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in this Registration Statement shall be deemed to be a
new registration statement relating to the securities offered herein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
The undersigned Registrant undertakes that every prospectus (i) that is
filed pursuant to the immediately preceding paragraph, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and
issued in connection with an offering of securities subject to Rule 415,
II-2
<PAGE>
will be filed as a part of an amendment to this Registration Statement and will
not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer of controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of this Registration Statement through
the date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in this Registration Statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Minneapolis, State of
Minnesota, on the 12th day of August, 1996.
BUFFETS, INC.
By /S/ ROE H. HATLEN
------------------------------------------
Roe H. Hatlen
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Roe H. Hatlen and Clark C. Grant, and each of them (with full power to act
alone), such person's true and lawful attorney-in-fact and agent with full power
of substitution and resubstitution for such person and in such person's name,
place and stead, in any and all capacities, to sign on any or all amendments
(including post-effective amendments) to the Registration Statement on Form S-4
of Buffets, Inc., and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as such person might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, and each of them, or
their substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on the 12th day of August, 1996, by the
following persons in the capacities indicated:
<TABLE>
<C> <S>
/S/ ROE H. HATLEN
- ------------------------------------------- Chairman and Chief Executive Officer
Roe H. Hatlen (Principal Executive Officer)
/S/ CLARK C. GRANT Executive Vice President of Finance and
- ------------------------------------------- Administration and Treasurer
Clark C. Grant (Principal Financial Officer)
/S/ MARGUERITE C. NESSET
- ------------------------------------------- Vice President of Accounting
Marguerite C. Nesset (Principal Accounting Officer)
/S/ ALAN S. MCDOWELL
- ------------------------------------------- Director
Alan S. McDowell
- ------------------------------------------- Director
Raymond A. Lipkin
/S/ WALTER R. BARRY, JR.
- ------------------------------------------- Director
Walter R. Barry, Jr.
/S/ DAVID MICHAEL WINTON
- ------------------------------------------- Director
David Michael Winton
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTIONS
- -------------- ------------------------------------------------------------------------------------------------------
<C> <C> <S>
2 -- Agreement and Plan of Merger, dated as of June 3, 1996, by and among Buffets, Inc., Country Delaware,
Inc. and HomeTown Buffet, Inc. (included in the Joint Proxy Statement/Prospectus as Exhibit A)
4(a) -- Composite Amended and Restated Articles of Incorporation of Buffets, Inc. (incorporated by reference
to Exhibit 4.1 to the Registration Statement of Buffets, Inc. on Form S-3, File No. 33-63694).
4(b) -- By-Laws of Buffets, Inc. (incorporated by reference to Exhibit 3(b) to the Annual Report on Form 10-K
of Buffets, Inc. for the fiscal year ended December 29, 1993, File No. 0-14370).
4(c) -- Rights Agreement, dated as of October 24, 1995, between Buffets, Inc. and American Stock Transfer and
Trust Company (incorporated by reference to Exhibit 1 to the Current Report on Form 8-K of Buffets,
Inc. dated October 24, 1995, File No. 0-14370).
5 -- Opinion of Faegre & Benson LLP.
8(a) -- Opinion of Faegre & Benson LLP regarding certain tax matters.
8(b) -- Opinion of Stoel Rives LLP regarding certain tax matters.
23(a) -- Consent of Deloitte & Touche LLP (relating to financial statements of the Registrant).
23(b) -- Consent of KPMG Peat Marwick LLP (relating to financial statements of HomeTown Buffet, Inc.).
23(c) -- Consent of Faegre & Benson LLP (included in Exhibits 5 and 8(a)).
23(d) -- Consent of Stoel Rives LLP (included in Exhibit 8(b)).
23(e) -- Consent of Piper Jaffray Inc.
24 -- Powers of Attorney of directors and officers of the Registrant (included as part of signature page).
99(a) -- Form of Proxy of the Registrant.
99(b) -- Form of Proxy of HomeTown Buffet, Inc.
99(c) -- Opinion of Piper Jaffray Inc. (included in the Joint Proxy Statement/Prospectus as Exhibit B).
99(d) -- Opinion of Montgomery Securities (included in the Joint Proxy Statement/Prospectus as Exhibit C).
</TABLE>
<PAGE>
EXHIBIT 5
August 12, 1996
Buffets, Inc.
Suite 100
10260 Viking Drive
Eden Prairie, MN 55344
Ladies and Gentlemen:
In connection with the proposed registration under the Securities Act of
1933, as amended, of 13,864,500 shares of Common Stock, par value $.01 per
share, of Buffets, Inc., a Minnesota corporation (the "Company"), the estimated
maximum number of shares that may be issued by the Company in connection with a
proposed merger of Country Delaware, Inc., a Delaware corporation and wholly-
owned subsidiary of the Company, with and into Hometown Buffet, Inc., a Delaware
corporation (the "Merger"), we have examined such corporate records and other
documents, including the Registration Statement on Form S-4, dated the date
hereof (the "Registration Statement") relating to such shares and the rights to
purchase preferred stock that are attached to such shares ("Rights"), and have
reviewed such matters of law as we have deemed necessary for this opinion, and
we advise you that in our opinion:
1. The Company is a corporation duly incorporated and existing under the
laws of the State of Minnesota.
2. Subject to approval of such issuance by the shareholders of the
Company, all necessary corporate action on the part of the Company has been
taken to authorize the issuance of the shares and Rights to be issued by the
Company in connection with the Merger, and when such shares are issued pursuant
to the Merger as contemplated by the Registration Statement such shares will be
legally and validly issued and fully paid and nonassessable, with Rights
attached thereto.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the references to our firm wherever appearing therein.
Very truly yours,
FAEGRE & BENSON LLP
<PAGE>
EXHIBIT 8(a)
August 12, 1996
Buffets, Inc.
10260 Viking Drive
Eden Prairie, Minnesota 55344
Ladies and Gentlemen:
We have acted as counsel for Buffets, Inc., a Minnesota corporation
("Buffets"), and Country Delaware, Inc., a Delaware corporation newly-formed and
wholly-owned by Buffets ("Sub"), in connection with the proposed merger of Sub
with and into HomeTown Buffets, Inc., a Delaware corporation ("HomeTown"),
pursuant to an Agreement and Plan of Merger, dated June 3, 1996 (the
"Agreement"), by and among Buffets, HomeTown and Sub. This opinion is delivered
to you pursuant to Section 7.01(k) of the Agreement.
In connection with this opinion, we have reviewed the Agreement, the
registration statement on Form S-4 dated August 12, 1996, filed with the
Securities and Exchange Commission with respect to the proposed merger (the
"Registration Statement"), which registration statement includes the combined
Prospectus of Buffets and Joint Proxy Statement of Buffets and HomeTown, and
such other documents and records as we have deemed necessary or appropriate
for purposes of this opinion. Our opinion is conditioned on, among other
things, the initial and continuing accuracy of the facts, information,
covenants and representations set forth in such documents and timely and full
compliance by all parties to the Agreement with the terms thereof (without
waiver or amendment of any of the terms thereof).
In rendering our opinion, we have considered the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations
(proposed, temporary and final) promulgated thereunder, judicial decisions and
Internal Revenue Service rulings, all as of the date hereof.
Based solely upon the foregoing, we are of the opinion that under
current United States federal income tax law the proposed merger, when
consummated, will constitute a reorganization within the meaning of Section
368(a)(1)(A) of the Code by reason of Section 368(a)(2)(E) thereof and that
Buffets, HomeTown and Sub will each be a party to a reorganization within the
meaning of Section 368(b) of the Code.
<PAGE>
Buffets, Inc.
August 9, 1996
Page 2
Except as set forth above, we express no opinion to any person as to
the tax consequences, whether federal, state, local or foreign, of the proposed
merger. This opinion is expressed as of the date hereof and we disclaim any
undertaking to advise you of any subsequent changes of the facts stated or
assumed herein or any changes in applicable law after the date hereof.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to our firm wherever appearing
therein.
Very truly yours,
FAEGRE & BENSON LLP
<PAGE>
EXHIBIT 8(b)
August 12, 1996
HomeTown Buffet, Inc.
9171 Towne Centre Drive, Suite 575
San Diego, CA 92122
Ladies and Gentlemen:
We have acted as counsel for HomeTown Buffet, Inc. ("HomeTown") in
connection with the merger of Country Delaware, Inc. ("Sub") with and into
HomeTown pursuant to the Agreement and Plan of Merger dated June 3, 1996 (the
"Merger Agreement") among HomeTown, Sub and Buffets, Inc. ("Buffets"). We are
furnishing this letter to you pursuant to Section 7.01(k) of the Merger
Agreement. Except as otherwise provided, capitalized terms used in this
letter have the meanings set forth in the Merger Agreement.
We have reviewed the Merger Agreement and have examined such other
documents and records as we have deemed necessary for the purpose of this
opinion. We assume for the purpose of this opinion that the transactions
contemplated by the Merger Agreement will be consummated in accordance with
the terms of the Merger Agreement. In rendering this opinion, we expressly
rely upon, and assume the initial and continuing accuracy of, the facts and
representations set forth in the Merger Agreement and the registration
statement on Form S-4 dated August 12, 1996, filed with the Securities and
Exchange Commission with respect to the Merger (the "Registration
Statement"). We do not express an opinion as to any transactions other than
those described in the Merger Agreement or as to any transaction whatsoever
if all the transactions described in the Merger Agreement are not consummated
in accordance with the terms of the Merger Agreement.
We have made no independent investigation with regard to statements
made in the Merger Agreement or the Registration Statement. We assume those
statements to be accurate, but we express no opinion as to their accuracy or
completeness. If all of the representations and facts set forth in the Merger
Agreement and the Registration Statement are not true and accurate, both now
and at the "Effective Time," as such term is defined in Section 1.01 of the
Merger Agreement, our opinion is not applicable.
<PAGE>
HomeTown Buffet, Inc.
August 9, 1996
Page 2
Based upon the foregoing, it is our opinion that for federal income tax
purposes the Merger will constitute a reorganization within the meaning of
section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code"), by reason of section 368(a)(2)(E) thereof and that HomeTown, Buffets
and Sub will each be a "party to a reorganization" within the meaning of
section 368(b) of the Code.
Our opinion is limited to the federal income tax matter addressed, and
no opinion is rendered with respect to any other issue, including any other
tax aspects of the Merger or related transactions. In particular, no opinion
is expressed with respect to any state, local or foreign tax consequences of
the Merger or related transactions. You should be aware that although this
letter represents our opinion concerning the matter specifically discussed,
it is not binding on the courts or on any administrative agency, including
the Internal Revenue Service, and a court or agency may hold or act to the
contrary. We undertake no obligation to update this letter or our opinion at
any time. Our opinion is provided to you as a legal opinion only, and not as
a guaranty or warranty, and is limited to the specific transactions,
documents and matters described above. No opinion may be implied or inferred
beyond that which is expressly stated in this letter.
Our opinion may not be relied upon by any person or entity other than
you, and no person may be subrogated to any rights you have in connection
with our opinion. We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the references to our firm
wherever appearing therein. Without our prior written consent, this opinion
may not be furnished to any other person or entity and may not be quoted in
whole or in part or otherwise referred to in (or be the basis for) any other
report or document furnished to any person or entity.
Very truly yours,
STOEL RIVES LLP
<PAGE>
EXHIBIT 23(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of Buffets, Inc. on Form S-4 of our report dated February 9, 1996, incorporated
by reference in the Annual Report on Form 10-K of Buffets, Inc. for the fiscal
year ended January 3, 1996.
We also consent to the reference to us under the heading "Experts" in such
Registration Statement.
Deloitte & Touche LLP
Minneapolis, Minnesota
August 8, 1996
<PAGE>
EXHIBIT 23(b)
The Board of Directors
HomeTown Buffet, Inc.:
We consent to the incorporation by reference in the Registration Statement
on Form S-4 of Buffets, Inc. of our report dated February 16, 1996, except as to
Note 6 which is as of March 8, 1996, relating to the consolidated balance sheets
of HomeTown Buffet, Inc. and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of income, stockholders' equity (deficit),
and cash flows for each of the years in the three-year period ended December 31,
1995, which report appears in the December 31, 1995 Annual Report on Form 10-K
of HomeTown Buffet, Inc. and subsidiaries and to the reference to our firm under
the heading "Experts" in the Registration Statement.
KPMG Peat Marwick LLP
San Diego, California
August 8, 1996
<PAGE>
EXHIBIT 23(e)
CONSENT OF PIPER JAFFRAY INC.
We hereby consent to the use of our name in the Joint Proxy
Statement/Prospectus of Buffets, Inc. and HomeTown Buffet, Inc., forming part of
the Registration Statement on Form S-4 of Buffets, Inc. and to the inclusion of
our opinion as Exhibit B to such Joint Proxy Statement/Prospectus.
In giving the foregoing consent, we do not admit that we are within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933, as amended, or the rules or regulations of the Securities and
Exchange Commission thereunder.
PIPER JAFFRAY INC.
Minneapolis, Minnesota
August 9, 1996
<PAGE>
EXHIBIT 99(a)
BUFFETS, INC.
PROXY SOLICITED ON BEHALF OF BOARD OF DIRECTORS
The undersigned hereby appoints Clark C. Grant and Diane M. Hasbargen, and each
of them, with full power of substitution, as proxies to vote on behalf of the
undersigned all shares which the undersigned may be entitled to vote at the
Special Meeting of Shareholders of the Company to be held at the Company's Old
Country Buffet Restaurant, 4808 Highway 101, Minnetonka, Minnesota 55345 at
9:00 a.m. on September 19, 1996, and at any adjournments thereof, with all
powers the undersigned would possess if personally present, upon the matters set
forth in the Notice of Special Meeting and Joint Proxy Statement/Prospectus, as
directed on the reverse side hereof.
Any proxy heretofore given by the undersigned with respect to such shares is
hereby revoked. Receipt of the Notice of Special Meeting and Joint Proxy
Statement/Prospectus is hereby acknowledged.
(To be Completed, Signed and Dated on Reverse Side)
<PAGE>
/X/ Please mark your votes as in this example.
FOR AGAINST ABSTAIN
/ / / / / /
1. A proposal to approve the issuance of shares of Buffets, Inc. common
stock in accordance with the terms of an Agreement and Plan of Merger,
dated June 3, 1996, by and among the Company, Country Delaware,
Inc. and HomeTown Buffet, Inc.
2. Transaction of such other business as may properly come before the
meeting and any adjournments thereof.
NOTE: THIS PROXY WILL BE VOTED AS SPECIFIED, IF NO SPECIFICATION IS MADE, IT
WILL BE VOTED FOR PROPOSAL 1. THE PROXIES ARE AUTHORIZED TO VOTE IN THEIR
DISCRETION WITH RESPECT TO OTHER MATTERS WHICH MAY COME BEFORE THE MEETING.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SIGNATURE DATE SIGNATURE DATE
----------------------- -------------- --------------------------- ---------------
(SIGNATURE IF HELD JOINTLY)
</TABLE>
NOTE: Please mark, date and sign exactly as name appears hereon, including
designation as executor, trustee, etc. if applicable. A corporation must sign in
its name by the President or other authorized officer. All co-owners must sign.
PLEASE RETURN THE PROXY PROMPTLY USING THE ENCLOSED ENVELOPE.
<PAGE>
HOMETOWN BUFFET, INC.
SPECIAL MEETING, SEPTEMBER 19, 1996
PROXY SOLICITED BY BOARD OF DIRECTORS
A Special Meeting of the Stockholders of HomeTown Buffet, Inc. will be held
on September 19, 1996, at 9:30 a.m., Pacific Time, at the offices of Stoel Rives
LLP, 900 S.W. Fifth Avenue, 26th Floor, Portland, Oregon.
The shares represented by this proxy will be voted as specified on the
reverse hereof, but if no specification is made, this proxy will be voted for
each of the matters specified. The proxies may vote in their discretion as to
other matters which may come before this meeting.
The undersigned hereby appoints C. Dennis Scott, Kerry A. Kramp and Neal L.
Wichard, and each of them, proxies with power of substitution to vote on behalf
of the undersigned all shares which the undersigned may be entitled to vote at
the Special Meeting of Stockholders of HomeTown Buffet, Inc. (the "Company") on
September 19, 1996 and any adjournments thereof, with all powers that the
undersigned would possess if personally present, with respect to the matters
specified on the reverse hereof.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
[LOGO]
<PAGE>
/X/ PLEASE MARK YOUR CHOICES LIKE THIS
1. Approval and adoption of Agreement and Plan of Merger, dated June 3, 1996,
by and among Buffets, Inc., Country Delaware, Inc. and the Company, and the
Merger contemplated thereby.
FOR AGAINST ABSTAIN
/ / / / / /
2. TRANSACTION OF ANY OTHER BUSINESS THAT PROPERLY COMES BEFORE THE MEETING OR
ANY ADJOURNMENTS THEREOF. A MAJORITY OF THE PROXIES OR SUBSTITUTES AT THE
MEETING MAY EXERCISE ALL THE POWERS GRANTED HEREBY.
PLEASE SIGN AND RETURN THIS PROXY
Please Note: Any shares of stock of the Company held in the name of fiduciaries,
custodians or brokerage houses for the benefit of their clients may only be
voted by the fiduciary, custodian or brokerage house itself -- the beneficial
owner may not directly vote or appoint a proxy to vote the shares and must
instruct the person or entity in whose name the shares are held how to vote
the shares held for the beneficial owner. Therefore, if any shares of stock of
the Company are held in "street name" by a brokerage house, only the brokerage
house, at the instructions of its client, may vote or appoint a proxy to vote
the shares.
Shares:
Date: 1996
--------------------------------------------------------- -------------
- --------------------------------------------------------------------------------
Signature or Signatures
Please date and sign as name is imprinted hereon, including designation as
executor, trustee, etc., if applicable. A corporation must sign its name by the
president or other authorized officer.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
