SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section
14(a) of the Securities Exchange
Act of 1934 (Amendment No. __ )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_| Check the appropriate box:
|X| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Buffets, Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if
other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|_| No fee required.
|X| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, $.01 par value
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2) Aggregate number of securities to which transaction applies:
46,528,598 shares (assumes the exercise of all outstanding
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stock options with per-share exercise prices lower than
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$13.85)
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:
The proposed maximum aggregate offering price was calculated
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as follows: (a) the product of $13.85 multiplied by 41,599,223
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outstanding shares of Common Stock plus (b) the excess of
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$13.85 over $10.30, which is the weighted average per-share
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exercise price of all outstanding options to purchase Common
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Stock (excluding options with per-share exercise prices of
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$13.85 or greater), multiplied by 4,928,575, which is the
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number of such outstanding options.
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4) Proposed maximum aggregate value of transaction:
$593,645,680
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5) Total fee paid:
$118,730
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|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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Subject to Completion - Dated July 3, 2000
[LOGO OF BUFFETS]
___________, 2000
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders
of Buffets, Inc. to be held on __________, 2000, at ______ a.m., local time, at
the company's headquarters, 1460 Buffet Way, Eagan, Minnesota 55121.
At this important meeting, you will be asked to consider and vote upon
the merger of Buffets with an affiliate of Caxton-Iseman Capital, Inc., a New
York-based private-equity firm. If the transaction is completed, Buffets
shareholders will become entitled to receive $13.85 per share in cash for all of
their shares of Buffets stock. After the merger, Buffets will be a wholly owned
subsidiary of Buffets Holdings, Inc., an affiliate of Caxton-Iseman. Members of
current management of Buffets will also have ownership interests in the holding
company and will continue as executive officers of Buffets after the merger.
A special committee of Buffets' independent directors negotiated the
$13.85 per-share price and the other terms of the transaction with
Caxton-Iseman. The special committee unanimously approved the merger agreement
and recommended that the entire board of directors approve it and the merger
contemplated by the agreement.
YOUR BOARD OF DIRECTORS, ACTING ON THE RECOMMENDATION OF THE SPECIAL
COMMITTEE, HAS UNANIMOUSLY APPROVED THE MERGER AND HAS DETERMINED THAT IT IS
FAIR TO, AND IN THE BEST INTERESTS OF, BUFFETS AND ITS SHAREHOLDERS.
ACCORDINGLY, YOUR BOARD RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF THE MERGER
AGREEMENT AND THE MERGER.
Your vote is important. We cannot complete the transaction unless the
holders of a majority of the outstanding Buffets shares vote to approve the
merger agreement and the merger. Whether or not you plan to attend the special
meeting, please sign and return your proxy as soon as possible in the enclosed
self-addressed envelope or take advantage of our phone or Internet voting
procedures. If you fail to return the proxy card, vote by phone or Internet or
vote in person at the special meeting, it will have the same effect as a vote
against the merger.
The accompanying notice of meeting and proxy statement explain the
proposed merger and provide specific information concerning the shareholders'
meeting. Please read these materials carefully.
Sincerely,
Roe H. Hatlen
Chairman of the Board of Directors
This proxy statement is dated ___________, 2000 and is first being
mailed to shareholders on or about ___________, 2000.
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[LOGO]
BUFFETS, INC.
1460 BUFFET WAY
EAGAN, MINNESOTA 55121
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ___________, 2000
Notice is hereby given that a special meeting of shareholders of
Buffets, Inc., a Minnesota corporation, will be held on ___________, 2000 at
______ a.m., local time, at the company's headquarters, 1460 Buffet Way, Eagan,
Minnesota 55121, for the following purpose:
To consider and vote upon a proposal to approve the Agreement and Plan
of Merger among Buffets, Inc., Buffets Holdings, Inc., and Buffets
Merger Corporation, dated as of June 4, 2000, and to approve the merger
contemplated thereby pursuant to which Buffets Merger Corporation will
be merged with and into Buffets and shareholders of Buffets will become
entitled to receive $13.85 per share in cash for their shares of
Buffets common stock.
Only those persons who were holders of record of Buffets common stock
at the close of business on the record date of ___________, 2000 are entitled to
notice of, and to vote at, the special meeting.
Approval of the merger agreement and the merger requires the
affirmative vote of the holders of a majority of the outstanding shares of
Buffets common stock entitled to vote at the special meeting. The board of
directors of Buffets, acting on the recommendation of a special committee of
independent directors, has unanimously approved the merger agreement and has
determined that it is fair to, and in the best interests of, Buffets and its
shareholders. Accordingly, your board recommends that you vote "FOR" approval of
the merger agreement and the merger.
Under Minnesota law, dissenters' rights will be available to Buffets
shareholders who dissent from the merger and do not vote in favor of the merger
agreement. In order to exercise their dissenters' rights, shareholders must
carefully follow the procedures required by Minnesota law, which are summarized
under "Dissenters' Rights" in the accompanying proxy statement. A copy of the
relevant sections of the Minnesota statutes relating to dissenters' rights is
attached as Appendix C to the accompanying proxy statement.
The merger agreement and the merger are explained in the accompanying
proxy statement, which you are urged to read carefully. A copy of the merger
agreement is attached as Appendix A to the proxy statement.
Eagan, Minnesota By Order of the Board of Directors,
______________, 2000
H. Thomas Mitchell
Secretary
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TABLE OF CONTENTS
Questions and Answers About the Merger.........................................1
SUMMARY........................................................................4
The Participants...........................................................4
The Merger.................................................................5
The Shareholders' Meeting..................................................8
Merger Financing...........................................................9
BUFFETS' SELECTED HISTORICAL FINANCIAL DATA...................................10
MARKETS AND MARKET PRICE......................................................11
THE MERGER....................................................................12
The Participants..........................................................12
Structure of the Merger...................................................13
Merger Consideration......................................................13
Background of the Merger..................................................13
Reasons for the Merger; Recommendation of the Special Committee and the
Board of Directors........................................................19
Opinion of Financial Adviser..............................................21
Treatment of Existing Stock Options.......................................28
Treatment of Existing Convertible Notes...................................29
Merger Financing..........................................................29
Material U.S. Federal Income Tax Consequences.............................32
Additional Interests of Buffets' Management...............................33
Executive Officers and Directors of the Surviving Corporation.............37
Litigation Challenging the Merger.........................................37
THE MERGER AGREEMENT..........................................................38
The Merger................................................................38
Completion of the Merger..................................................38
Articles of Incorporation, By-Laws, Directors, and Officers of the
Surviving Corporation.....................................................38
Representation and Warranties.............................................38
Covenants.................................................................39
Conditions to Completing the Merger.......................................41
Termination...............................................................43
Termination Fee and Expense Reimbursement.................................43
THE SPECIAL MEETING...........................................................44
General...................................................................44
Record Date and Voting....................................................44
Required Vote.............................................................44
Proxies; Revocation.......................................................45
Expenses of Proxy Solicitation............................................45
Adjournments..............................................................46
DISSENTERS' RIGHTS............................................................46
Filing Written Objection..................................................46
No Voting in Favor of the Merger Proposal.................................47
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Notice by Buffets.........................................................47
Remittance of Certificates................................................47
Acceptance or Settlement of Demand........................................48
Court Determination.......................................................48
CERTAIN FINANCIAL PROJECTIONS.................................................50
PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT AND OTHERS..........51
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION...................52
WHERE YOU CAN FIND MORE INFORMATION...........................................53
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE...............................54
INDEPENDENT ACCOUNTANTS.......................................................54
SHAREHOLDER PROPOSALS.........................................................54
Appendix A: Agreement and Plan of Merger dated as of June 4, 2000.
Appendix B: Opinion of U.S. Bancorp Piper Jaffray Inc. dated June 4, 2000.
Appendix C: Sections 302A.471 and 302A.473 of the Minnesota Business Corporation
Act.
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Questions and Answers About the Merger
Q: What will I receive in the merger?
A: You will receive $13.85 in cash for each share of Buffets common stock
that you hold.
Q: What kind of premium to the price of Buffets stock is implied by the
merger consideration?
A: The merger consideration represents a premium of approximately 21% over
the last closing price per share of Buffets common stock on June 1,
2000, the last trading day before the day on which there were the first
public reports that a firm (not Caxton-Iseman) was considering buying
Buffets, and a premium of 43% over the 180-day average of Buffets
closing price per share as of June 2, 2000.
Q: What will happen to my stock options?
A: If you own options to purchase shares of Buffets common stock, you will
be entitled to receive, for each share subject to an option, the excess
of $13.85 over the per-share exercise price of that option, regardless
of whether the option is fully vested. Options having a per-share
exercise price of $13.85 or more will be cancelled for no
consideration. The amount you will receive, however, will be reduced to
the extent of any federal and state income and payroll tax withholding
that is due.
Q: When do you expect the merger to be completed?
A: We expect that the approval of the merger agreement and the merger by
Buffets' shareholders will be the last condition to completing the
merger and that the merger will be completed no later than the business
day following the meeting date.
Q: What are the U.S. federal income tax consequences of the merger to me?
A: You will generally recognize a gain or a loss with respect to the
receipt of cash in exchange for your shares of Buffets common stock.
Q: What am I being asked to vote upon?
A: You are being asked to vote to approve the merger agreement and the
merger.
Q: How does the board of directors of Buffets recommend that I vote?
A: The Buffets board believes that the terms of the merger are fair to,
and in the best interests of, Buffets and its shareholders and
unanimously recommends that shareholders vote "FOR" approval of the
merger agreement and the merger. In addition, the Buffets board
established a special committee consisting of three independent
directors to negotiate the price and the other terms of the proposed
merger. The special committee, like the full board, believes that the
terms of the merger are fair to, and in the best interests of, Buffets
and its shareholders and unanimously recommends that shareholders vote
"FOR" approval of the merger agreement and the merger.
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Q: Why was the special committee formed?
A: Roe Hatlen, Dennis Scott and Kerry Kramp are members of Buffet's board
of directors, and all second-round offers received in the auction for
Buffets required that members of senior management make an equity
investment. Accordingly, it was contemplated that each of them would
acquire an ownership interest in the holding company that will own
Buffets after the merger. Therefore, the board of directors formed a
special committee consisting of independent directors to act on behalf
of Buffets' unaffiliated shareholders. The committee did not include
Messrs. Hatlen, Scott or Kramp. The committee independently selected
and retained legal and financial advisers to assist it in its
deliberations and negotiation of the merger agreement.
Q: Who will own Buffets after the merger?
A: As a result of the merger, Buffets will become a privately held company
owned by Buffets Holdings, Inc. Buffets Holdings, which we refer to as
"Holding Company" in this proxy statement, will be owned by affiliates
of Caxton-Iseman Capital Inc. (which are collectively referred to as
"Caxton-Iseman" in this proxy statement), Sentinel Capital Partners,
L.P., any additional institutional or qualified individual investors
selected by Caxton-Iseman, as well as 18 members of Buffets' senior
management, which we refer to as the "Management Participants" in this
proxy statement.
In addition, following the merger, Buffets also may make available to
some of its employees stock option plans or other long-term incentives.
Q: Why are 18 members of Buffets' senior management retaining ownership
interests in Buffets following the merger?
A: Caxton-Iseman believes that the Management Participants have been
integral to Buffets' success in the past and that their involvement is
integral to Buffets' future success. Accordingly, Caxton-Iseman wants
to ensure that the Management Participants have a financial interest in
Buffets' future. Therefore, Caxton-Iseman required that the Management
Participants invest approximately $8.5 million in the transaction as a
condition of Caxton-Iseman's offer.
Q: What will happen to the market for Buffets' common stock after the
merger?
A: At the effective time of the merger, trading in Buffets' common stock
on the Nasdaq National Market will cease. Price quotations for Buffets'
common stock will no longer be available and the registration of
Buffets' common stock under the Securities Exchange Act of 1934 will be
terminated.
Q: Who can vote?
A: Shareholders of record as of the close of business on the record date
of ________, 2000 are entitled to vote at the shareholders' meeting.
Q: How do I vote?
A: All shareholders of record may vote by mail. Shareholders of record may
vote in person at the meeting or vote by proxy card, by telephone, or
by Internet. Beneficial owners will receive instructions from their
bank, broker, or other nominee describing how to vote their shares.
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Beneficial owners can vote by telephone or via the Internet if those
options are offered by the bank, broker, or other nominee.
Voting by Mail. Shareholders of record may sign, date, and
mail their proxies in the enclosed postage-paid envelope. If
you sign, date, and mail your proxy card without indicating
how you want to vote, your proxy will be voted FOR the merger
proposal.
Voting by Telephone. Shareholders of record may vote by using
the toll-free number and following the instructions listed on
the proxy card.
Voting via the Internet. Shareholders of record may vote via
the Internet as instructed on the proxy card.
Q: How may I change my vote?
A: Whether you vote by mail, telephone, or the Internet, you may revoke
your proxy any time before it is exercised at the meeting by (1)
notifying Buffets' Corporate Secretary in writing, (2) returning a
later-dated proxy or (3) voting again by telephone or the Internet at a
later time. If you hold your shares through a bank, broker or other
nominee, you should contact that firm to find out how to change your
vote.
Q: Should I send in my stock certificates now?
A: No. You will receive instructions for surrendering your stock
certificates in exchange for the cash payment in a separate mailing
after the shareholders' meeting.
Q: What if I object to the merger? Am I entitled to dissenters' rights?
A: Yes. You have the right to dissent from the merger and, subject to
strict compliance with the requirements and procedures of Minnesota
law, to receive payment of the "fair value" of your shares of Buffets
common stock. These rights, as well as the requirements and procedures
for asserting them under Minnesota law are described in this proxy
statement. In addition, the full text of the relevant sections of the
Minnesota Statutes is reprinted in Appendix C to this proxy statement.
Q: Whom should I call with questions?
A: You should call Buffets Investor Relations toll-free at ______________
with questions about the merger. You may also obtain additional
information about Buffets from the documents it files with the
Securities and Exchange Commission by following the instructions in the
section "Where You Can Find More Information" beginning on page 53.
If you have questions, you may also contact:
[Proxy Solicitor Logo and Contact Information]
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SUMMARY
The following is a summary of material information contained in this
proxy statement. For more information, you should refer to the discussion in the
main body of this proxy statement along with the exhibits and the information
incorporated by reference. A copy of the merger agreement is attached as
Appendix A to this proxy statement and incorporated by reference. You should
refer to that agreement for a complete statement of the terms of the merger.
THE PARTICIPANTS (page 12)
Buffets, Inc.
Buffets, Inc. currently operates 404 restaurants (254 Old Country
Buffet(R), 126 HomeTown Buffet(R), 12 Original Roadhouse GrillSM, six Granny's
Buffet(R), three Tahoe Joe's Famous Steakhouses(R), two Country Roadhouse Buffet
& Grill(R), and one Soup `N Salad UnlimitedSM) in 38 states, and franchises 24
buffet restaurants in 10 states. The company has approximately 27,000 employees
nationwide. Shares of Buffets common stock are listed on the Nasdaq National
Market System under the symbol "BOCB." Buffets corporate headquarters are
located at 1460 Buffet Way, Eagan, Minnesota 55121, and its telephone number is
(651) 994-8608.
Caxton-Iseman
Caxton-Iseman Capital, Inc. is a leading New York-based private-equity
investment firm specializing in leveraged buyouts formed in 1993. Caxton
Corporation, one of the founders of Caxton-Iseman, is a New York investment firm
which manages more than $3.5 billion in capital. Investment entities affiliated
with Caxton-Iseman have available investment funds in excess of $700 million.
Caxton-Iseman's current portfolio companies include Vitality Beverages, Inc.,
Anteon Corporation and Leisure Link Holdings.
Sentinel
Sentinel Capital Partners is a New York-based private-equity investment
firm founded in 1995 by David S. Lobel and John F. McCormack. Sentinel invests
in management buyouts, recapitalizations, restructurings and growth-oriented
financings of established businesses. Current portfolio companies include Tony
Roma's, NorSun Food Group and Falcon Holdings (the largest franchisee in
Church's Chicken).
Holding Company
Buffets Holdings, Inc. was incorporated in Delaware on June 2, 2000,
for the sole purpose of completing the merger. It has not carried on any
activities to date other than those incident to its formation, entering into the
merger agreement, its name change (from Big Boy Holdings, Inc.), entering into
agreements with the Management Participants (described below) and financing and
completing the merger. It is expected that Holding Company preferred stock and
common stock will be acquired for an aggregate consideration of $130 million, of
which $97.5 million will be from preferred stock issuances and $32.5 million
will be from common stock issuances. Caxton-Iseman will own approximately 88.6%
of Holding Company preferred stock and approximately 77.2% of Holding Company
common stock. As a result, Caxton-Iseman will control Holding Company. The
Management Participants will own approximately 15.9% of Holding Company's common
stock and Mr. Hatlen will own approximately 3.5% of Holding Company preferred
stock, constituting in the aggregate approximately 6.6% of Holding Company's
equity capital. Sentinel will own approximately 6.9% of Holding Company's common
stock and approximately 7.9% of Holding Company's preferred stock. In addition,
prior to the merger, Caxton-
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Iseman may sell additional minority interests in Holding Company to other
institutional investors. Holding Company's address is c/o Caxton-Iseman Capital,
Inc., 667 Madison Avenue, New York, NY 10021.
Merger Sub
Buffets Merger Corporation was incorporated in Minnesota on June 2,
2000, for the sole purpose of completing the merger. It has not carried on any
activities to date other than those incident to its formation, entering into the
merger agreement, its name change (from Big Boy Merger Corporation) and
completion of the merger. All of the outstanding capital stock of Merger Sub is
owned by Holding Company. Merger Sub's address is c/o Caxton-Iseman Capital,
Inc., 667 Madison Avenue, New York, NY 10021.
Management Participants
Eighteen members of Buffets' senior management, including Roe H.
Hatlen, Kerry A. Kramp and C. Dennis Scott, each an executive officer and a
director of Buffets, have agreed to acquire capital stock of Holding Company in
connection with the merger. These individuals will acquire Holding Company
capital stock either by contributing shares of Buffets common stock they then
hold in exchange for Holding Company stock, by paying cash or by tendering a
full-recourse promissory note to Holding Company, or some combination of these
purchase methods. These individuals are referred to throughout this proxy
statement as "Management Participants." The total amount to be invested in
Holding Company capital stock by the Management Participants is expected to be
approximately $8.5 million and they are expected to hold in the aggregate
approximately 15.9% of the Holding Company common stock and 3.5% of the Holding
Company preferred stock to be outstanding immediately after the merger,
constituting approximately 6.6% of Holding Company's equity capital. Some of the
Management Participants have certain other interests in the merger. See "The
Merger--Additional Interests of Buffets' Management" for a discussion of the
equity participation of the Management Participants and of these other
interests.
THE MERGER (page 12)
Structure of the Merger (page 13)
The proposed transaction will be structured as a merger of Merger Sub
into Buffets, with Buffets being the surviving corporation and becoming a
subsidiary of Holding Company.
What Buffets Shareholders Will Receive in the Merger (page 13)
Buffets shareholders will receive $13.85 in cash for each share of
Buffets common stock that they hold.
Recommendation of Buffets' Board of Directors and Special Committee (page 19)
The Buffets board believes that the terms of the merger are fair to,
and in the best interests of, Buffets and its shareholders and unanimously
recommends that shareholders vote "FOR" approval of the merger agreement and the
merger. In addition, the Buffets board established a special committee
consisting of three independent directors and that did not include any of the
Management Participants to negotiate the price and the other terms of the
proposed merger. The special committee, like the full board, believes that the
terms of the merger are fair to, and in the best interests of, Buffets and its
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shareholders and unanimously recommends that Buffets shareholders vote "FOR"
approval of the merger agreement and the merger.
Opinion of Financial Adviser (page 21)
The special committee and the board of directors of Buffets received
U.S. Bancorp Piper Jaffray's oral opinion, delivered at the June 4, 2000 meeting
of the special committee (which was also confirmed in writing), that, as of June
4, 2000 and based upon and subject to the matters stated in its opinion, the
$13.85 per share in cash to be received by the Buffets' shareholders in the
merger was fair, from a financial point of view, to those shareholders. The full
text of U.S. Bancorp Piper Jaffray's written opinion, which sets forth the
assumptions made, matters considered and limitations on the review undertaken by
U.S. Bancorp Piper Jaffray, is attached as Appendix B to this proxy statement.
You are urged to, and should, read the opinion of U.S. Bancorp Piper Jaffray
carefully. In addition, the presentation of and the factors considered by U.S.
Bancorp Piper Jaffray in delivering its fairness opinion, as discussed under
"The Merger--Opinion of Financial Adviser," supported the special committee's
and the board's determination to recommend the merger to the shareholders of
Buffets.
Completion of the Merger (page 38)
The merger will be completed when articles of merger are filed with the
Minnesota Secretary of State or at such later time as agreed to by Buffets and
Holding Company. The parties anticipate that the articles will be filed and the
merger will be completed no later than the business day after the shareholders'
meeting.
Conditions That Must Be Satisfied for the Merger to Be Completed (page 41)
The completion of the merger depends on several conditions being
satisfied or waived, including, among others, the following:
o the approval of the merger agreement and the merger by holders of
a majority of the outstanding shares of Buffets common stock;
the financing for the merger shall have been made available; in
this regard, Caxton-Iseman has received written commitments to
provide the funds necessary to complete the merger; however, these
commitments are subject to various conditions;
o the expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976;
o the absence of any legal prohibition against the merger; and
o the material accuracy of the representations and warranties of the
parties contained in the merger agreement and the material
compliance with the obligations of the parties to be performed
under the merger agreement.
Termination of the Merger Agreement (page 43)
The parties to the merger agreement may agree to terminate the merger
agreement by mutual consent at any time before completing the merger, even after
Buffets shareholders have approved the merger agreement and the merger.
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Either Holding Company or Buffets may terminate the merger agreement
if:
o the merger is not completed by December 31, 2000, unless the party
seeking to terminate the agreement has caused the failure to
complete the merger by failing to fulfill its obligations under
the merger agreement;
o the conditions to completing the merger shall have become
impossible to fulfill through no fault of the party seeking to
terminate the merger agreement;
o the other party shall have breached a material representation or
warranty of that party contained in the merger agreement and the
breach has not been cured after 30 days' notice; or
o Buffets shareholders do not approve the merger agreement and the
merger at the shareholders' meeting.
In addition, either Holding Company or Buffets may terminate the merger
agreement if Buffets' board of directors withdraws or adversely modifies its
recommendation of the merger or accepts or approves an acquisition offer from a
third party, or, in the case of termination by Holding Company, if Buffets'
board of directors does not reject a third-party acquisition offer within 30
days after it is made.
Termination Fee and Expense Reimbursement (page 43)
If either company terminates the merger agreement because Buffets
shareholders do not approve the merger agreement and the merger at the
shareholders' meeting, and if no termination fee is then payable, then Buffets
has agreed to reimburse Holding Company's out-of-pocket expenses incurred in
connection with the merger, up to $4 million.
If the merger agreement is terminated because Buffets' board of
directors withdraws or adversely modifies its recommendation of the merger or
because of certain other events occurring in connection with an unsolicited
third-party offer, Buffets has agreed to pay Holding Company a termination fee
of $19.29 million and to reimburse Holding Company's out-of-pocket expenses
incurred in connection with the merger, up to $6.43 million.
Material U.S. Federal Income Tax Consequences (page 32)
Buffets shareholders will generally recognize a gain or a loss with
respect to the receipt of cash in exchange for their shares of Buffets common
stock. The amount of your gain or loss will be determined by the difference
between the cash you receive and your tax basis in your shares of Buffets common
stock.
Dissenters' Rights (page 46)
Under Minnesota law, you are entitled to object to the merger and to
demand payment for your shares of Buffets common stock in an amount that a
Minnesota court determines is the fair value of your shares, if you comply with
strict statutory procedures. This amount may be higher than, the same as, or
lower than $13.85 per share.
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Interests of Management (page 33)
In considering the recommendations of the special committee and the
board of directors, you should be aware that certain of Buffets' officers and
directors have interests in the merger or have certain relationships, including
those referred to below, that present or may present actual or potential, or the
appearance of actual or potential, conflicts of interest in connection with the
merger, including:
o the financial interests of the Management Participants as
stockholders of Holding Company following the merger as a result
of the shares of capital stock of Holding Company to be received
by them shortly before the merger in exchange for some of their
shares of Buffets common stock or otherwise purchased by them;
o the interests of some of Buffets' employees in equity or stock
appreciation rights plans and other incentives relating to Holding
Company's equity securities that may be adopted and implemented in
connection with the merger;
o the interests of certain officers and directors in stock options
that will vest upon completion of the merger and entitle the
holders to cash payments;
o the consulting agreements that Holding Company expects to enter
into with Roe Hatlen and Dennis Scott;
o the obligation of Holding Company to cause Buffets to continue to
provide certain indemnification and related insurance coverage to
directors and officers of Buffets following the merger;
o the obligation of Holding Company to cause Buffets to continue to
provide certain employee benefits to Buffets employees following
the merger; and
o the implementation by Holding Company of certain severance
arrangements following the merger.
The special committee and the board of directors were aware of these
actual or potential conflicts of interest and considered them along with other
matters in approving the merger.
THE SHAREHOLDERS' MEETING (page 44)
Date, Time, Place, and Purpose of the Meeting (page 44)
Buffets will hold a special meeting of shareholders on ________,
_______, 2000 at ______ a.m., local time, at Buffets' corporate headquarters,
1460 Buffet Way, Eagan, Minnesota 55121. At the meeting, Buffets shareholders of
record at the close of business on the record date of ________, 2000 will be
asked to approve the merger agreement and the merger. No other business will be
conducted at the meeting.
Record Date and Outstanding Shares (page 44)
Only holders of record of Buffets common stock at the close of business
on the record date are entitled to vote at the meeting. As of that time, there
were approximately ___ million shares of Buffets common stock outstanding and
entitled to vote, held by approximately ____ record holders.
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Quorum (page 44)
The required quorum for the transaction of business at the meeting is a
majority of the shares of Buffets common stock outstanding on the record date.
Vote Required (page 44)
The affirmative vote of a majority of the outstanding shares of Buffets
common stock is required to approve the merger agreement. Each shareholder is
entitled to one vote per share. As of the record date, ___% of the outstanding
shares entitled to vote were held by Buffets' directors, executive officers and
their affiliates.
MERGER FINANCING (page 29)
The total amount of funds required to (1) fund the payment of the
merger consideration and the surrender of outstanding stock options, (2) repay
and/or fund our existing indebtedness and other obligations and (3) pay the fees
and expenses in connection with the merger is estimated to be approximately
$665.2 million.
Caxton-Iseman intends to obtain these funds from concurrent equity and
debt financings, as follows
o approximately $130 million of Holding Company common and preferred
stock to be purchased by Caxton-Iseman, Sentinel and the
Management Participants;
o approximately $95 million, in the aggregate, of mezzanine debt
financing to be provided to Buffets and to Holding Company by
Credit Suisse First Boston;
o approximately $310 million to be provided to Buffets, as the
surviving company after the merger, under a $310 million senior
secured term loan facility and a $20 million senior secured
revolving credit facility with Lehman Brothers, Fleet Boston
Robertson Stephens Inc. and First Union;
o approximately $20 million from a sale and leaseback of Buffets'
corporate headquarters in Eagan, Minnesota; and
o approximately $110.2 million from the available cash of Buffets at
the time or closing.
All of these financing commitments are subject to closing and/or
borrowing conditions.
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BUFFETS' SELECTED HISTORICAL FINANCIAL DATA
Buffets' selected historical financial data presented below as of and
for the five fiscal years ended December 29, 1999 are derived from the financial
statements of Buffets and its subsidiaries. Data as of and for the sixteen-week
periods ended April 21, 1999 and April 19, 2000 have been derived from unaudited
financial statements of Buffets. Interim operating results are not necessarily
indicative of the results that may be achieved for the entire year. The
following selected financial data should be read in conjunction with Buffets'
most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q, which
are incorporated by reference in this proxy statement.
(Dollars in thousands, except share, per share and average weekly sales
information)
<TABLE>
Year (52-53 Weeks) Ended 16 Weeks Ended
--------------------------------------------------------------------- -----------------------
Statement of Operations Data January 3, January 1, December 31, December 30, December 29, April 21, April 19,
1996 1997 1997 1998 1999 1999 2000
---------- ---------- ------------ ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Restaurant sales ................... $661,445 $750,707 $808,529 $868,858 $936,854 $277,838 $302,740
Restaurant costs ................... 567,290 659,784 712,004 745,282 800,255 240,234 256,052
---------- ---------- ------------ ------------ ------------ --------- ---------
Restaurant profits ................. 94,155 90,923 96,525 123,576 136,599 37,604 46,688
Selling, general & administrative
expenses .......................... 40,276 47,594 48,158 60,777 70,985 21,744 25,092
Merger and merger related costs .... - 6,584 - - - - -
Duplicate site closing costs ....... - 10,702 - - - - -
Impairment of assets and site
closing costs ..................... 1,370 32,286 1,500 1,538 1,966 329 1,139
Other income (expense) ............. 574 (520) (359) 2,465 3,594 939 1,084
========== ========== ============ ============ ============ ========= =========
Earnings before income taxes ....... 53,083 (6,763) 46,508 63,726 67,242 16,470 21,541
Income taxes ....................... 20,176 440 17,910 24,375 24,800 6,260 8,185
---------- ---------- ------------ ------------ ------------ --------- ---------
Net earnings (loss) ................ $32,907 ($7,203) $28,598 $39,351 $42,442 $10,210 $13,356
========== ========== ============ ============ ============ ========= =========
Earnings (loss) per Share
Basic .............................. $0.74 ($0.16) $0.63 $0.87 $0.99 $0.23 $0.32
========== ========== ============ ============ ============ ========= =========
Diluted ............................ $0.73 ($0.16) $0.62 $0.83 $0.95 $0.22 $0.31
========== ========== ============ ============ ============ ========= =========
Weighted average common shares
assumed outstanding
Basic .............................. 44,604 45,068 45,257 45,346 42,805 44,238 41,547
========== ========== ============ ============ ============ ========= =========
Diluted ............................ 45,578 45,068 49,140 49,726 46,692 48,056 45,265
========== ========== ============ ============ ============ ========= =========
Balance sheet data:
Property & equipment (net) ......... $328,573 $327,721 $330,647 $334,582 $353,657 $333,750 $358,007
Total assets ....................... 399,752 370,683 403,576 466,849 477,635 459,933 503,458
Long-term debt (including current
portion and capital leases) ....... 64,655 48,633 46,693 44,405 42,151 43,650 41,491
Stockholder's equity ............... 242,434 236,791 266,687 299,725 306,383 288,087 319,758
Restaurant data:
Restaurants opened or acquired
during period ..................... 65 41 18 28 25 6 2
Restaurants closed or relocated
during period ..................... (3) (8) (4) (2) (8) (1) (2)
Restaurants open (end of Period):
Company-owned ................. 313 346 360 386 403 391 403
Franchised .................... 25 24 24 24 24 24 24
---------- ---------- ------------ ------------ ------------ --------- ---------
Total .................... 338 370 384 410 427 415 427
Average weekly sales of company
owned restaurants open
during period ..................... $44,447 $43,669 $44,242 $45,120 $46,323 $44,798 $46,969
</TABLE>
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MARKETS AND MARKET PRICE
Shares of Buffets common stock are listed and principally traded on the
Nasdaq National Market System under the symbol "BOCB."
The following table shows, for the calendar periods indicated, the
reported high and low sale prices per share on the Nasdaq Stock Market for
Buffets common stock. Buffets has not paid dividends during the periods
presented.
High Low
---- ---
1998
First Quarter............................... $13.81 $8.38
Second Quarter.............................. 17.13 12.88
Third Quarter............................... 15.88 9.50
Fourth Quarter.............................. 14.13 9.63
1999
First Quarter............................... $12.06 $7.81
Second Quarter.............................. 11.75 9.63
Third Quarter............................... 12.00 10.31
Fourth Quarter.............................. 11.88 8.91
2000
First Quarter............................... $10.50 $7.91
Second Quarter.............................. 13.19 8.25
Third Quarter (through ____, 2000)..........
Set forth below are the high, low, and closing sale prices of Buffets
common stock on June 1, June 2, and ________, 2000. On June 2, a report was
published stating that a private-equity firm (not Caxton-Iseman) was considering
acquiring Buffets. June 1, 2000 was the last full trading day prior to the
published report. June 2 was the last full trading day before Buffets and
Caxton-Iseman announced that they had entered into the merger agreement.
________, 2000 was the last practicable trading day for which information was
available prior to the date of the first mailing of this proxy statement.
Buffets
Common Stock
High Low Close
---- --- -----
June 1, 2000...... $12.00 $11.38 $11.44
June 2, 2000...... 12.50 11.00 12.13
________, 2000....
We urge you to obtain a current market quotation for Buffets common
stock before you vote or if you are considering changing your vote.
11
<PAGE>
THE MERGER
THE PARTICIPANTS
Buffets
Buffets is principally engaged in the development and operation of
buffet-style restaurants under the names Old Country Buffet, HomeTown Buffet and
Granny's Buffet. Buffets currently operates 404 company-owned restaurants (254
Old Country Buffet, 126 HomeTown Buffet, 11 Original Roadhouse Grills, six
Granny's Buffets, three Country Roadhouse Buffet & Grills, three Tahoe Joe's
Famous Steakhouse, and one Soup `N Salad Unlimited) in 38 states. In addition,
Buffets has 24 franchised restaurants in operation in ten states.
Buffets' core restaurants offer a wide variety of freshly prepared menu
items, presented in a self-service buffet format in which customers select the
items and portions of their choice. The restaurants utilize uniform menus,
recipes, and ingredient specifications, except for certain variations adopted in
response to regional preferences. Buffets' core restaurants have an average size
of approximately 10,000 square feet, seat from 225 to 600 people, and generally
include areas that can be partitioned to accommodate private meetings and group
outings. To date, Buffets has located its restaurants primarily within or
adjacent to strip or neighborhood shopping centers and, to a lesser extent,
regional malls. The company has 114 freestanding locations, 25 of which it owns.
A more detailed description of Buffets' business is contained in the
company's most recent Annual Report on Form 10-K, which is incorporated by
reference into this proxy statement. Other information about the company is
available at its Internet site www.buffet.com. The information on that site is
not incorporated by reference into this proxy statement.
Caxton-Iseman
Caxton-Iseman Capital, Inc. is a leading New York-based private-equity
investment firm specializing in leveraged buyouts formed in 1993. Caxton
Corporation, one of the founders of Caxton-Iseman, is a New York investment firm
which manages more than $3.5 billion in capital. Investment entities affiliated
with Caxton-Iseman have available investment funds in excess of $700 million.
Caxton-Iseman's current portfolio companies include Vitality Beverages, Inc.,
Anteon Corporation and Leisure Link Holdings.
Sentinel
Sentinel Capital Partners is a New York-based private-equity investment
firm founded in 1995 by David S. Lobel and John F. McCormack. Sentinel invests
in management buyouts, recapitalizations, restructurings and growth-oriented
financings of established businesses. Current portfolio companies include Tony
Roma's, NorSun Food Group and Falcon Holdings (the largest franchisee in
Church's Chicken).
Holding Company
Buffets Holdings, Inc. was incorporated in Delaware on June 2, 2000,
for the sole purpose of completing the merger. It has not carried on any
activities to date other than those incident to its formation, entering into the
merger agreement, its name change (from Big Boy Holdings, Inc.), entering into
agreements with the Management Participants (described below) and financing and
completing the merger. It is expected that Holding Company preferred stock and
common stock will be acquired for an
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<PAGE>
aggregate consideration of $130 million, of which $97.5 million will be from
preferred stock issuances and $32.5 million will be from common stock issuances.
Caxton-Iseman will own approximately 88.6% of Holding Company preferred stock
and approximately 77.2% of Holding Company common stock. As a result,
Caxton-Iseman will control Holding Company. The Management Participants will own
approximately 15.9% of Holding Company's common stock and Mr. Hatlen will own
approximately 3.5% of Holding Company preferred stock, constituting in the
aggregate approximately 6.6% of Holding Company's equity capital. Sentinel will
own approximately 6.9% of Holding Company's common stock and approximately 7.9%
of Holding Company's preferred stock. In addition, prior to the merger,
Caxton-Iseman may sell additional minority interests in Holding Company to other
institutional investors. Holding Company's address is c/o Caxton-Iseman Capital,
Inc., 667 Madison Avenue, New York, NY 10021.
Merger Sub
Buffets Merger Corporation was incorporated in Minnesota on June 2,
2000, for the sole purpose of completing the merger. It has not carried on any
activities to date other than those incident to its formation, entering into the
merger agreement, its name change (from Big Boy Merger Corporation) and
completion of the merger. All of the outstanding capital stock of Merger Sub is
owned by Holding Company. Merger Sub's address is c/o Caxton-Iseman Capital,
Inc., 667 Madison Avenue, New York, NY 10021.
Management Participants
Eighteen members of Buffets' senior management, including Roe H.
Hatlen, Kerry A. Kramp and C. Dennis Scott, each an executive officer and a
director of Buffets, have agreed to acquire capital stock of Holding Company in
connection with the merger. These individuals will acquire Holding Company
capital stock either by contributing shares of Buffets common stock they then
hold in exchange for Holding Company stock, by paying cash or by tendering a
full-recourse promissory note to Holding Company, or some combination of these
purchase methods. The total amount to be invested in Holding Company capital
stock by the Management Participants is expected to be approximately $8.5
million and they are expected to hold in the aggregate approximately 15.9% of
the Holding Company common stock and 3.5% of the Holding Company preferred stock
to be outstanding immediately after the merger, constituting approximately 6.6%
of Holding Company's equity capital. Some of the Management Participants have
certain other interests in the merger. See " --Additional Interests of Buffets'
Management" for a discussion of the equity participation of the Management
Participants and of these other interests.
STRUCTURE OF THE MERGER
The proposed transaction will be structured as a merger of Merger Sub
into Buffets, with Buffets being the surviving corporation and becoming a wholly
owned subsidiary of Holding Company.
MERGER CONSIDERATION
At the completion of the merger, Buffets' shareholders will be entitled
to receive $13.85 in cash for each share of Buffets common stock that they own.
BACKGROUND OF THE MERGER
For the last several years the stock price of our common stock has
languished. The weighted average trading price of our common stock for the last
year has been approximately $10.25 per share. We
13
<PAGE>
believe that this is attributable to both industry factors and factors more
specifically related to Buffets, including the following:
o although several years ago the restaurant industry was favorably
viewed by financial markets, in recent years financial markets
have viewed the industry with increasing disfavor due in part to
the severe financial difficulties experienced by several publicly
traded restaurant companies such as Planet Hollywood and Boston
Market and a general lack of interest in many mature market
sectors in favor of higher growth industries, such as information
technology and e-commerce;
o there has been decreased financial analyst coverage of, and
institutional investor interest in, our common stock as a result
of the relatively small size of Buffets' market capitalization and
the relative lack of liquidity in the market for our common stock;
o in recent years restaurant stocks in general have underperformed
the broader market, as represented by the S&P 500 Index;
o our stock performance has compared unfavorably to that of certain
other restaurant companies, principally large capitalization
companies and those with a new, viable, growth story;
o tightening labor markets have negatively impacted restaurant
companies;
o the slowing growth rate of our core buffet concepts because of
increased real estate costs and the competition for appropriate
sites for new restaurant units;
o the difficulty we have experienced in continuing to expand our
core buffet concepts into certain geographic regions of the United
States, including the Southeast;
o our comparable-store-sales growth, while improving, has not been
reflected in the price of our common stock; and
o our new non-buffet concepts are relatively immature in their
development and will require significant investments of capital
and management time and commitment to initially determine whether
they represent viable growth vehicles and, if they do, to
successfully implement any wide-scale roll-out.
The impact of these factors can be seen in the company's price/earnings
ratio, which is below the restaurant industry average (particularly the
larger-capitalization restaurant companies), the reduced coverage of Buffets by
financial analysts and the limited trading volume of our common stock compared
to our numbers of shares outstanding.
Faced with this environment, we have attempted to increase shareholder
value in a number of ways including the following, each of which appears to have
had limited positive results on our stock price:
o our renewed focus since acquiring HomeTown Buffet, Inc. in late
1996 on improving the operations and efficiency of our core buffet
concepts, which focus has resulted in 11 consecutive quarters of
year-over-year comparable-store sales increases and restaurant
margin improvements;
14
<PAGE>
o our efforts to implement cost controls and to close or dispose of
a number of unprofitable stores;
o our development and acquisition of additional restaurant concepts,
including our Original Roadhouse Grill and Tahoe Joe's
steak-house restaurants; and
o our implementation of a stock repurchase program, pursuant to
which we have purchased a total of 4,326,000 shares of common
stock at an average purchase price of $10.86 per share and an
aggregate purchase price of approximately $47 million since the
repurchase program began in May 1998.
Because of these continuing industry and company-specific factors and
because of the relative ineffectiveness of steps previously taken by us to
increase shareholder value, the board of directors in May 1999 met with U.S.
Bancorp Piper Jaffray to discuss and explore additional ways of increasing
shareholder value. The alternatives discussed included:
o capital-distribution strategies, such as cash dividends, share
repurchases and/or acquisitions of other
restaurant concepts;
o maintaining the status quo; and
o a possible sale of the company.
Other than to continue in place its previously announced share repurchase
program, the board did not take any action at that time, but continued to
discuss the alternatives proposed. In October 1999, U.S. Bancorp Piper Jaffray
again met with the board to provide a market update.
At the board of directors meeting held December 7, 1999, the board
addressed the issue of the strategic direction of the company, along with a
number of management succession issues. The board concluded that given the
continuing weak market performance of Buffets common stock and the expected
continuation of the factors discussed above regarding the industry and the
company, Buffets should explore a possible sale of the company as a way of
maximizing shareholder value.
Promptly following the December 7, 1999 meeting, members of the board
met with representatives of Faegre & Benson, Buffets' principal outside legal
counsel, and U.S. Bancorp Piper Jaffray to discuss how to proceed in exploring a
possible sale of the company. At a meeting of the board of directors held on
December 14, 1999, the board retained U.S. Bancorp Piper Jaffray as its
financial adviser to explore a possible sale of the company, subject to the
negotiation and execution of a mutually acceptable engagement letter. U.S.
Bancorp Piper Jaffray and Buffets executed an engagement letter on December 31,
1999. See "--Opinion of Financial Adviser" for a discussion of the experience
and expertise of U.S. Bancorp Piper Jaffray and of the compensation to be paid
U.S. Bancorp Piper Jaffray under the engagement letter.
In January and February 2000, Buffets and U.S. Bancorp Piper Jaffray
jointly prepared a descriptive memorandum to be provided to potential acquirors.
The memorandum discussed Buffets and our operations, financial performance and
prospects in detail. Concurrently with the preparation of the memorandum, U.S.
Bancorp Piper Jaffray and Buffets identified 88 potential acquirors of Buffets,
including both strategic buyers that were participants in, or likely to be
interested in entering, the restaurant industry, and financial buyers that would
likely view acquiring Buffets as an attractive investment.
15
<PAGE>
In addition, during January and February 2000, the board of directors,
through its compensation committee comprised of outside directors, negotiated
management agreements with each of Roe Hatlen, Dennis Scott, Kerry Kramp and
David Goronkin, each an executive officer of Buffets. The purpose of these
agreements is to retain these key employees and to limit their distractions
during the period that a change in control of the company is being considered
and to maintain their objectivity and dedication to the best interests of the
company in evaluating change-in-control proposals. These agreements provide that
if, within three years after a change in control, the officer's employment is
terminated by Buffets other than for cause, on account of death, disability or
retirement or voluntarily by the officer, the officer is entitled to receive a
lump-sum severance payment and certain other benefits. The amount of the payment
is equal to approximately three times the officer's then-current compensation.
The amount may be reduced, however, to an amount that is deductible by Buffets
and does not subject the officer to any excise tax. These agreements were
entered into on February 15, 2000. Pursuant to agreements entered into between
Holding Company and each of these officers, the management agreements will be
terminated immediately prior to the completion of the merger. Therefore,
assuming the merger is completed, no payments will be made to the officers under
the management agreements in connection with the merger or otherwise. However,
Caxton-Iseman has advised the members of senior management that following
completion of the merger it intends to cause Buffets to enter into severance
agreements with members of senior management ensuring them of severance payments
in the event that such members of management are terminated by Buffets other
than for cause, death or disability. See "--Additional Interests of Buffets'
Management" for a discussion of the proposed severance arrangements.
At Buffets' direction, U.S. Bancorp Piper Jaffray contacted each of the
88 potential acquirors in February 2000 to ascertain its level of interest in
pursuing a transaction with Buffets. Thirty-seven of the potential acquirors,
including Caxton-Iseman, expressed an interest in exploring a transaction with
Buffets. In February and March 2000, Buffets entered into confidentiality and
standstill agreements with those 37 parties and provided each of them with a
copy of the descriptive memorandum and a letter setting forth bidding
requirements and a deadline for the submission of written preliminary
indications of interest in acquiring Buffets.
In March 2000, Buffets received preliminary indications of interest
from eight of the 37 parties that had received the descriptive memorandum,
including Caxton-Iseman. No strategic buyer submitted a preliminary indication
of interest. In March 2000, the board of directors reviewed the indications of
interest that the eight potential acquirors had submitted. Based on the
preliminary indications, the board of directors authorized the company to invite
the eight potential acquirors to participate in a due diligence review of the
company.
Each of the eight potential acquirors met separately in late April 2000
with Buffets' management and were provided with the opportunity to review
confidential due diligence materials in Minneapolis, Minnesota. Following such
meetings, Buffets requested that each of the eight parties submit a formal
acquisition proposal and include in the proposal their comments on a draft
merger agreement previously provided by Buffets. On April 17 and 18, 2000, four
potential acquirors submitted written proposals in response to Buffets' request.
The other four parties declined to submit proposals. All of the written
proposals required an equity participation by current Buffets management along
with the bidder in any acquisition transaction. Caxton-Iseman's initial proposal
required Buffets' management team to make an investment of approximately $15
million in the equity of Holding Company by contributing their shares of Buffets
common stock or tendering their stock options to purchase shares of Buffets
common stock on a tax efficient basis. As described below, Caxton-Iseman, in
response to requests from Buffets' management team, subsequently agreed to
reduce the level of equity contribution required from Buffets' management team
to approximately $8.5 million.
16
<PAGE>
At a meeting held on April 20, 2000, the board of directors discussed
with its advisers the potential conflict of interest that such an equity
participation could present to those board members that were also executive
officers in evaluating any of the proposed transactions. After discussion, the
board of directors appointed a special committee comprised of non-employee
directors McDowell, Goldstein and Barry to review and evaluate the written
proposals and make a recommendation with respect to the parties that had
submitted written proposals. The special committee met separately after the
board of directors meeting and, after discussion, engaged Faegre & Benson as its
counsel and U.S. Bancorp Piper Jaffray as its financial adviser.
Two of the four written proposals presented to the board and the
special committee on April 20, 2000 provided for cash-only transactions ranging
in price from $11.50 to $13.00 per share. A proposal by a third potential
acquiror (the "Other Bidder") provided for a per-share consideration of $11.375
in cash plus $1.625 in face amount of a new class of Buffets preferred stock to
be authorized and issued in connection with the proposed transaction. The
proposed preferred stock would be generally non-voting, accrue dividends at a
rate of 8% per year, rank junior to another class of newly created preferred
stock to be held by the potential acquiror and be mandatorily redeemable 12
years after the completion of the merger. Caxton-Iseman's written proposal
contained two different consideration alternatives: first, a per-share proposal
consisting of $11.62 in cash plus $3.13 in principal amount of new debt to be
issued by Buffets in conjunction with the merger; and second, a proposal
consisting of $13.15 in cash plus a contingent payment of up to $.50 per share
to be paid in two equal installments (one 18 months after the completion of the
transaction and the other 30 months after completion) if certain performance
objectives were met. The proposed debt portion of Caxton-Iseman's first proposal
would be senior to all equity in the company but junior to substantially all
other debt incurred to finance the acquisition, bear interest at 7% per year
payable either through the issuance of additional debt or cash, at the option of
Caxton-Iseman, and be due eight years after the completion of the transaction.
Each of the written proposals contemplated that significant third-party
financing would be necessary to consummate a transaction. Only the proposals
received from Caxton-Iseman and the Other Bidder contained a detailed mark-up of
the form of merger agreement previously provided to all bidders. Faegre & Benson
reviewed the mark-ups with the special committee.
In reviewing the written proposals, the special committee and U.S.
Bancorp Piper Jaffray discussed the risks associated with the non-cash
consideration proposed by Caxton-Iseman and the Other Bidder and the difficulty
in valuing this type of consideration. These risks included:
o that there may not be a trading market for the preferred stock or
notes after the completion of the merger;
o the preferred stock and notes would have limited, if any, voting
or control rights;
o the junior nature of the proposed securities; and
o the ultimate payment of dividends, interest and the principal or
liquidation amount would depend upon the financial success of a
highly leveraged company after the transaction.
U.S. Bancorp Piper Jaffray informed the special committee that these
non-cash forms of consideration should be discounted significantly from their
face or principal amount. The special committee instructed U.S. Bancorp Piper
Jaffray to contact all four bidders in an effort to increase their offers and to
express to them the special committee's preference for an all-cash transaction.
Two of the four bidders declined to participate further. On May 1,
2000, the committee received revised written proposals from Caxton-Iseman and
the Other Bidder. Caxton-Iseman's revised offer
17
<PAGE>
included three different consideration packages: (1) $13.64 per share in cash;
(2) $13.16 per share in cash and a promissory note (on substantially the same
terms as discussed above regarding the debt portion of Caxton-Iseman's original
proposal) in the principal amount of approximately $1.59 per share; and
(3) $12.56 per share in cash plus a promissory note (on substantially the same
terms as discussed above) in the principal amount of approximately $2.44 per
share. Caxton-Iseman also reduced the amount of management equity participation
required from approximately $15 million to approximately $10 million. The Other
Bidder raised its offer on May 1, 2000 to $13.00 per share in cash plus $1.40
in face amount of newly created preferred stock (on substantially the same terms
as the preferred stock discussed above).
U.S. Bancorp Piper Jaffray had further discussions with both parties.
In addition, Faegre & Benson discussed the mark-ups of the merger agreement with
legal counsel for each of the remaining two bidders. On May 3, 2000,
Caxton-Iseman responded by increasing their cash proposal to $13.65 per share.
On May 4, the Other Bidder proposed a transaction consisting of $13.50 per share
in cash plus $1.00 in face amount of newly created preferred stock (on
substantially the same terms as the preferred stock discussed above). The
special committee met and discussed further with U.S. Bancorp Piper Jaffray the
risks and possible discounted values related to the proposed non-cash
consideration contained in the offers. After further discussion with both
remaining bidders, on May 5, 2000, Caxton-Iseman submitted a revised written
proposal offering to pay $13.85 per share in cash.
The special committee met with U.S. Bancorp Piper Jaffray and Faegre &
Benson on May 5, 2000, to consider the proposals. After discussion, the special
committee decided to negotiate with Caxton-Iseman a definitive agreement at an
all-cash acquisition price of $13.85 per share. As requested by Caxton-Iseman,
Buffets agreed that Caxton-Iseman would be granted a 30-day exclusivity period
to attempt to negotiate a definitive agreement. Pursuant to the exclusivity
agreement, Buffets agreed that it would not solicit offers for the purchase of
the company from others or negotiate with others with respect to any unsolicited
offers; the board of directors would have the right, however, if deemed
necessary in the exercise of its fiduciary duties, to have discussions and
negotiations with third parties making unsolicited proposals, other than those
parties who had previously made written bids for the acquisition of the company.
Following the execution of the exclusivity agreement on May 5, 2000 and
continuing through the end of May 2000, representatives of Caxton-Iseman, its
legal and financial advisers and its independent accountants and other
consultants conducted further due diligence on the company, including on-site
document review in Minneapolis and Eagan, Minnesota. Members of Caxton-Iseman's
management team also met with company management to discuss our financial
performance and operations. During the 30-day exclusivity period, we received no
acquisition inquiries or other communications from any other potential acquiror.
During May 2000, Caxton-Iseman also had discussions with Buffets' management
regarding their role in the company after the merger, including their levels of
equity participation. As a result of these discussions, the amount of investment
was further reduced to approximately $8.5 million. Management was independently
represented in certain matters by the law firm of Leonard, Street and Deinard
Professional Association. See "--Additional Interests of Buffets' Management"
for a discussion of these arrangements with management.
The special committee met on May 31, June 1 and June 2 to discuss the
status of the negotiations with Caxton-Iseman. The draft of the merger
agreement, together with changes that had been negotiated by Faegre & Benson and
counsel to Caxton-Iseman, was reviewed by Faegre & Benson with the special
committee and the major outstanding issues were discussed. The special committee
authorized Faegre & Benson and U.S. Bancorp Piper Jaffray to continue
negotiations on the outstanding issues.
On June 4, 2000, the special committee met again. U.S. Bancorp Piper
Jaffray and Faegre & Benson updated the special committee on the status of
negotiations and the proposed resolution of the
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<PAGE>
remaining issues regarding the merger agreement. Faegre & Benson reviewed with
the special committee the other provisions of the most recent draft of the
merger agreement that had previously been distributed to the members of the
special committee. The special committee discussed the recent financial results
and prospects of the company. The terms of the proposed financing were discussed
in detail, as well as the arrangements and interests of Buffets' management in
the transaction. U.S. Bancorp Piper Jaffray made a presentation to the special
committee describing the financial aspects of the proposed transaction and
rendered to the special committee its opinion as to the fairness, from a
financial point of view, of the $13.85 per-share cash consideration to be
received in the merger contemplated by the merger agreement by the holders of
shares of Buffets common stock.
The special committee unanimously approved the merger agreement and the
merger contemplated by the merger agreement. Immediately thereafter, the board
of directors of Buffets met. After a presentation to the board regarding the
recommendation of the special committee, the board appointed an independent
committee, consisting of all independent directors of the board for purposes of
Section 302A.673 of the Minnesota Statutes, to consider whether to approve the
merger agreement and the merger contemplated thereby. This independent committee
then met and unanimously approved the merger agreement and the merger. The board
of directors then reconvened and unanimously approved the merger agreement and
the merger contemplated by the merger agreement and determined that the merger
agreement and the merger were fair to and in the best interests of the company
and its shareholders. Promptly thereafter, representatives of the company and of
Holding Company and Merger Sub executed the merger agreement.
On the morning of June 5, 2000, Caxton-Iseman and Buffets publicly
announced that they had entered into the merger agreement.
REASONS FOR THE MERGER; RECOMMENDATION OF THE SPECIAL COMMITTEE AND THE BOARD
OF DIRECTORS
Both the special committee and the full board of directors of Buffets
unanimously recommend that our shareholders approve the merger agreement and the
merger.
In recommending approval of the merger agreement and the merger to the
full board of directors, the special committee considered a number of factors
that they believed supported their recommendation, including:
(1) the merger will provide Buffets shareholders a premium for
their shares compared to the market price of our common stock;
(2) the special committee's belief, after considering the possible
alternatives to the merger, the auction process conducted by
U.S. Bancorp Piper Jaffray that canvassed the market of the
most likely prospective purchasers and the highly competitive
bidding process between Caxton-Iseman and the Other Bidder,
that no other buyer would be likely to provide a superior
value to the shareholders;
(3) the risks and factors previously identified associated with
remaining an independent public company and the special
committee's belief that a financial buyer would likely more
highly value the company's strong and stable cash flow
generation than would the public markets;
(4) the presentations of U.S. Bancorp Piper Jaffray at various
special committee meetings and its final presentation at the
June 4, 2000 meeting, including the opinion of U.S.
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Bancorp Piper Jaffray as to the fairness, from a financial
point of view, of the merger consideration to the holders of
Buffets common stock;
(5) the past performance and reputation of Caxton-Iseman in making
acquisitions;
(6) the special committee's knowledge of Buffets' business,
operations, assets, financial condition, operating results and
prospects, which the special committee considered in light of
the premium offered under the terms of the merger agreement;
(7) the limitations Buffets suffered and could likely continue to
suffer as a public company, including its limited trading
volume, institutional sponsorship and diminishing research
attention from analysts, all of which adversely affect the
trading market and the value of Buffets common stock;
(8) the fact that Minnesota law entitles Buffets shareholders to
dissenters' rights if the merger is completed;
(9) the fact that the consideration to be received by Buffets
shareholders in the merger will consist entirely of cash;
(10) the benefits to our employees from Holding Company's covenant
contained in the merger agreement to provide current employees
who continue to be employees of Buffets after the merger with
certain employee benefits no less favorable than those they
currently enjoy for at least one year after completion of the
merger;
(11) the fact that the merger agreement, which prohibits Buffets
and its directors, employees, representatives and agents from
initiating or soliciting any inquiries or the making of any
proposal or offer with respect to an acquisition proposal,
engaging in negotiations concerning an acquisition proposal,
and providing any confidential information or data to any
person relating to an acquisition proposal, does permit
Buffets to furnish information to, or to participate in
discussions and negotiations with, any person or entity that
makes an unsolicited acquisition proposal and to modify or
withdraw its recommendation of the merger or recommend an
alternative acquisition proposal and terminate the merger
agreement, if the board determines after consultation with its
legal and financial advisers that to do otherwise would
constitute a breach of its fiduciary duties to shareholders
under applicable law; although, as described above, the
special committee did not believe that a superior third-party
proposal would be made; and
(12) the special committee's belief that the terms of the merger
agreement, taking into account the termination fee and the
required reimbursement of out-of-pocket expenses payable to
Holding Company if the merger agreement is terminated because
of, among other things, Buffets' withdrawal or modification,
in a manner adverse to Holding Company, of its recommendation
of the merger or its recommendation of an alternative
transaction, or its entry into a definitive agreement for an
alternative transaction, should not unduly discourage superior
third-party offers and that Buffets, subject to certain
conditions, has the right under the terms of the merger
agreement to enter into a superior definitive agreement with
another party simultaneously with the termination of the
merger agreement upon five business days' notice to Holding
Company of its intent to enter into such superior definitive
agreement.
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<PAGE>
The special committee also considered a variety of risks and other
potentially negative factors concerning the merger. These included the
following:
(1) our only recourse in the event of a wrongful termination or
material breach of the merger agreement is against Holding
Company, a company without assets; however, Caxton-Iseman also
represented to Buffets that they did not have any reason to
expect that the conditions included in the various financing
commitments would not be satisfied and that a breach in those
representations would entitle Buffets to pursue Caxton-Iseman;
(2) the obligation of Holding Company to complete the merger is
conditioned upon financing being made available to Holding
Company; the financing may not be received by Holding Company
for reasons beyond the control of Buffets or Holding Company;
see "--Financing of the Merger" for a discussion of the
proposed financing and the funding conditions contained in the
financing commitments;
(3) that the cash consideration to be received by the shareholders
will be taxable to them;
(4) the potential conflicts of interest of the Management
Participants; and
(5) following the merger, Buffets shareholders (other than the
Management Participants) will cease to participate in any
future earnings growth of Buffets or benefit from any increase
in the value of the company.
After considering these factors, the special committee concluded that
the positive factors outweighed the negative factors. Because of the variety of
factors considered, the special committee did not find it practicable to, and
did not make specific assessments of, quantify or otherwise assign relative
weights to the specific factors considered in reaching its determination. The
determination was made after consideration of all of the factors together.
For their services on the special committee, Buffets has agreed to pay
to each of the committee members a fee of $25,000 in addition to their regular
directors' fees.
The Buffets board consists of seven directors, three of whom served on
the special committee. At the June 4, 2000 meeting of the board, the special
committee, with its legal and financial advisers participating, reported to the
other members of the board on its review of the merger agreement and the related
financing commitments and the factors taken into account by the special
committee in reaching its determination that the merger was fair to, and in the
best interests of, Buffets shareholders. The board considered the conclusions
and recommendations of the special committee and believes that these factors
supported the board's fairness determination. Furthermore, the board considered
the fact that the $13.85 per-share cash consideration and the terms and
conditions of the merger agreement were the result of arm's-length negotiations
among the special committee and Caxton-Iseman and their respective advisers. The
board believes that this factor supports the board's fairness determination.
THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS EACH UNANIMOUSLY
RECOMMENDS THAT YOU VOTE IN FAVOR OF THE APPROVAL OF THE MERGER AGREEMENT AND
THE MERGER.
OPINION OF FINANCIAL ADVISER
Pursuant to an engagement letter dated December 31, 1999, the board of
directors of Buffets retained U.S. Bancorp Piper Jaffray to act as its exclusive
financial adviser in connection with the consideration of strategic alternatives
by Buffets, including a possible sale of the company, and, if
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<PAGE>
requested, to render to the board of directors an opinion as to the fairness,
from a financial point of view, of the consideration to be received by Buffets
shareholders in any such transaction. On April 4, 2000, the special committee
retained U.S. Bancorp Piper Jaffray to act as its financial adviser, pursuant
to the terms of the engagement letter.
At the meeting of the special committee of Buffets held on June 4,
2000, U.S. Bancorp Piper Jaffray rendered to the special committee its oral
opinion that, as of that date and based on and subject to the assumptions,
factors and limitations presented in the opinion and described below, the $13.85
per share in cash to be paid to the Buffets shareholders in the merger was fair,
from a financial point of view, to those shareholders. The opinion of U.S.
Bancorp Piper Jaffray was set forth in writing and dated June 4, 2000. A copy of
U.S. Bancorp Piper Jaffray's written opinion is included in Appendix B to this
proxy statement and the opinion is incorporated into this proxy statement by
reference. You are urged to read the opinion carefully in its entirety.
While U.S. Bancorp Piper Jaffray rendered its opinion and provided
certain financial analyses to the special committee and the board of directors
of Buffets, the opinion of U.S. Bancorp Piper Jaffray to the special committee
of Buffets, as described above, was among many factors taken into consideration
by the special committee and the board of directors of Buffets in making their
determination to approve the merger agreement. You also should consider the
following when reading the discussion of the opinion of Buffets' financial
adviser in this proxy statement:
o U.S. Bancorp Piper Jaffray's written opinion, which was delivered
for use and considered by the special committee and the board of
directors, is directed only to the fairness, from a financial
point of view, of the proposed consideration to be received by
Buffets shareholders in the merger;
o U.S. Bancorp Piper Jaffray's written opinion does not address the
value of a Buffets common share;
o U.S. Bancorp Piper Jaffray's written opinion does not address
Buffets' underlying business decision to proceed with or effect
the merger; and
o U.S. Bancorp Piper Jaffray's written opinion does not constitute a
recommendation to any Buffets shareholder as to how a shareholder
should vote with respect to the merger or any related matter.
In arriving at its opinion, U.S. Bancorp Piper Jaffray reviewed:
o a draft of the merger agreement dated June 1, 2000 and the final
version of the merger agreement;
o certain publicly available financial and securities data for
Buffets and the Buffets common shares;
o certain financial, operating and business information related to
Buffets;
o certain internal financial information of Buffets prepared for
financial planning purposes and furnished by Buffets management,
including the financial projections included elsewhere in this
proxy statement (See "Certain Financial Projections");
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<PAGE>
o to the extent publicly available, financial terms of certain
acquisition transactions involving companies operating in
industries deemed similar to that in which Buffets operates; and
o certain valuation and other financial information on selected
public companies deemed comparable to Buffets.
In addition, U.S. Bancorp Piper Jaffray engaged in discussions with:
o members of Buffets senior management concerning topics such as the
financial condition, current operating performance and balance
sheet and prospects of Buffets;
o members of the board of directors and special committee of
Buffets.
In delivering its oral opinion and its written opinion of June 4, 2000
to the special committee of Buffets, U.S. Bancorp Piper Jaffray prepared and
delivered to the special committee and the board of directors written materials
containing various analyses and other information material to the opinion. The
following is a summary of those analyses. The summary includes information
presented in tabular format. In order to understand fully the financial analyses
used by U.S. Bancorp Piper Jaffray, these tables must be read together with the
text of each analysis summary. The tables alone do not constitute a complete
summary of the analyses. The order in which the analyses are presented below
should not be taken as any indication of the relative weight given to the
analyses by U.S. Bancorp Piper Jaffray in the rendering of its opinion.
Proposed Consideration. Based on the proposed $13.85 per-share merger
price to be paid for each Buffets common share and the capitalization data
provided by Buffets' management, U.S. Bancorp Piper Jaffray calculated the
implied aggregate equity value of Buffets to be approximately $643 million,
consisting of approximately $576 million in common share consideration,
approximately $18 million in consideration payable to holders of options to
purchase Buffets' common shares and approximately $49 million in consideration
payable to holders of subordinated notes (assuming conversion thereof). Based on
this implied aggregate equity value and the approximately $93 million of cash on
Buffets' balance sheet as of April 19, 2000, U.S. Bancorp Piper Jaffray then
calculated the implied aggregate "enterprise value" or "company value" (equity
value, plus debt, less cash) to be approximately $550 million (assuming
conversion of convertible notes). Based on these implied aggregate equity and
enterprise values for Buffets, on Buffets' revenue, EBITDA (earnings before
interest, taxes, depreciation and amortization), operating income and net income
for the latest twelve months ("LTM") as of April 19, 2000 and on management's
estimates for Buffets' net income for fiscal year 2000, U.S. Bancorp Piper
Jaffray also calculated the following valuation multiples and premium paid
percentages for the proposed transaction:
Implied Buffets
---------------
Multiples and
-------------
Premium Percentage
----------------------
Company Value/LTM Revenue 0.6x
Company Value/LTM EBITDA 4.7x
Company Value/LTM Operating Income 7.6x
Equity Value/LTM Net Income 13.1x
P/E Ratios:
LTM (1) 12.8x
Calendar 2000 Estimated (2) 12.2x
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<PAGE>
Implied Buffets
---------------
Multiples and
-------------
Premium Percentage
----------------------
Premium Paid: 14.2%
Based on share price as of
June 2, 2000 of $12.13
Based on share price as of May 26, 2000 27.4%
of $10.88 (one week prior to announcement)
Based on share price as of April 28, 2000 41.1%
of $9.81 (one month prior to announcement)
------------
(1) Based on weighted average fully diluted shares outstanding.
(2) Based on fully diluted shares outstanding assuming a $13.85 share price.
The Market for Buffets Common Shares. U.S. Bancorp Piper Jaffray
reviewed the stock trading history of Buffets common shares. U.S. Bancorp Piper
Jaffray presented the following data for Buffets common shares:
Closing stock price as of June 2, 2000....................... $12.13
30 day average as of June 2, 2000........................... $11.25
60 day average as of June 2, 2000........................... $10.29
90 day average as of June 2, 2000........................... $ 9.71
180 day average as of June 2, 2000........................... $ 9.67
Market capitalization (based on June 2, 2000 closing
price and primary shares outstanding).................. $ 504 million
52 week high trade (as of June 2, 2000) ..................... $12.50
52 week low trade (as of June 2, 2000)....................... $ 7.91
On June 2, 2000, a published report indicated that a private equity
firm (not Caxton-Iseman) was considering buying Buffets. Buffets believes that
this report contributed to the increase in its stock price from its June 1, 2000
closing price of $11.44 to its June 2, 2000 closing price of $12.13.
Comparable Company Analysis. U.S. Bancorp Piper Jaffray compared
financial information and valuation ratios relating to Buffets to corresponding
data and ratios from the following eight publicly traded companies deemed
comparable to Buffets: Bob Evans Farms, Inc., CBRL Group, Inc., Garden Fresh
Restaurant Corp., IHOP Corp., Luby's, Inc., Picadilly Cafeterias, Inc., Ryan's
Family Steak Houses, Inc. and Star Buffet, Inc. This group was selected from
comparable family dining restaurant companies with market capitalizations
greater than $25 million and less than $850 million and profitable operations.
Based on the comparable companies' share prices and shares outstanding
as of June 2, 2000 and research analysts' consensus earnings per share estimates
for these companies, U.S. Bancorp Piper Jaffray calculated valuation multiples
for the comparable companies equal to the quotient of their respective valuation
data, such as company value and equity value, and their associated most recently
available operating data, such as revenues, EBITDA and operating income. U.S.
Bancorp Piper Jaffray then compared the lows, means, medians and highs of these
multiples to the implied Buffets valuation multiples derived as described above
for the last twelve months as of April 19, 2000, assuming a $13.85 share price.
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<PAGE>
This analysis produced the following valuation data:
<TABLE>
Implied Comparable Company Multiples
Buffets
Multiples ----------------------------------------------------
Low High
Mean Median
------------ ------------ ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Company Value/LTM Revenue 0.6x 0.2x 0.7x 0.7x 2.0x
Company Value/LTM EBITDA 4.7x 3.4x 5.0x 4.8x 6.6x
Company Value/LTM EBIT 7.6x 6.5x 7.5x 7.0x 10.2x
P/E Ratios:
LTM 12.8x 5.7x 9.6x 9.1x 16.4x
Calendar 2000 Estimated 12.2x 2.6x 8.4x 9.1x 12.4x
</TABLE>
Comparable Transaction Analysis. U.S. Bancorp Piper Jaffray reviewed
the terms of certain recent merger and acquisition transactions reported in SEC
filings, public company disclosures, press releases, industry and popular press
reports, databases and other sources that satisfied the following criteria:
o transactions in which the target company is classified as an
"eating and drinking place" with a Standard Industrial
Classification Code of 5812 or 5813;
o transactions with a value of greater than $10 million;
o transactions not in the nature of repurchases or spinoffs; and
o restaurant industry transactions otherwise deemed comparable
by U.S. Bancorp Piper Jaffray.
This search yielded 23 comparable acquisitions deemed to have
sufficient data available for analysis. Of such comparable acquisitions, ten
were completed in 1999 and 13 were completed in 1998.
U.S. Bancorp Piper Jaffray calculated valuation multiples for the
acquired companies in the comparable transactions equal to the quotient of their
respective valuation data, such as company value and equity value, and their
associated most recently available operating data, such as revenue, EBITDA, EBIT
and net income. U.S. Bancorp Piper Jaffray then compared the lows, means,
medians and highs of these multiples to the Buffets implied valuation multiples
derived as described above for the last twelve months as of April 19, 2000,
assuming a $13.85 share price.
U.S. Bancorp Piper Jaffray presented the following implied value and
valuation multiple data based on the restaurant industry merger and acquisition
transactions:
<TABLE>
Implied Restaurant Merger and Acquisition
Buffets Transaction Multiples
Multiples ----------------------------------------------------
Low High
Mean Median
------------ ------------ ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Company Value/LTM Revenue 0.6x 0.2x 0.8x 0.7x 1.8x
Company Value/LTM EBITDA 4.7x 4.2x 6.6x 6.3x 10.7x
Company Value/LTM EBIT 7.6x 7.0x 13.1x 12.2x 31.3x
Equity Value/LTM Net Income 13.1x 13.0x 18.9x 17.6x 32.6x
</TABLE>
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<PAGE>
Premiums Paid Analysis. U.S. Bancorp Piper Jaffray analyzed the implied
premium paid in selected transactions relative to public market pre-announcement
trading prices for the following two groups:
o restaurant industry acquisitions completed since January 1, 1997
involving more than $50 million in transaction value (11
comparable transactions); and
o non-industry specific transactions completed since January 1, 1999
involving between $500 million and $1 billion in transaction
value (136 comparable transactions).
U.S. Bancorp Piper Jaffray presented the following premium data
associated with the applicable transaction groups relative to the public market
pre-announcement trading prices at each of one month, one week and one day prior
to announcement of such acquisition and compared those premiums to the implied
premium paid in the merger, based upon the Buffets common share closing price on
April 28, 2000 of $9.81, May 26, 2000 of $10.88, and June 2, 2000 of $12.13,
respectively, as detailed below:
<TABLE>
Implied
Restaurant Industry Acquisition Buffets
Group Premium Data Premium
Percentage
-------------------------------------------------
Mean Median High
Low
------------ ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
1 month prior to announcement (11.8%) 40.3% 24.8% 176.2% 41.1%
1 week prior to announcement (35.5%) 28.6% 16.6% 169.8% 27.4%
1 day prior to announcement (33.3%) 25.9% 15.0% 132.0% 14.2%
</TABLE>
<TABLE>
Implied
Non-Industry Specific Acquisition Buffets
Group Premium Data Premium
Percentage
-------------------------------------------------
Mean Median High
Low
------------ ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
1 month prior to announcement (71.0%) 42.0% 37.7% 186.0% 41.1%
1 week prior to announcement (74.7%) 35.4% 28.8% 187.7% 27.4%
1 day prior to announcement (72.7%) 26.7% 22.1% 149.0% 14.2%
</TABLE>
Discounted Cash Flow Analysis. U.S. Bancorp Piper Jaffray performed a
discounted cash flow analysis on Buffets in which it calculated the sum of the
present values of:
o the projected cash flows of Buffets using assumptions prepared by
Buffets management; and
o the estimated terminal (or perpetual) value of Buffets for the
period of time from the end of the projections provided by
Buffets' management forward.
In making these calculations, U.S. Bancorp Piper Jaffray applied a
range of terminal value EBITDA multiples of 3.5x to 5.5x and a range of discount
rates of 19% to 23%, based on weighted average cost of capital computations,
qualitative assessments of Buffets' projected results and the risks inherent
therein and relevant industry experience. This analysis yielded the following
implied per share equity values for Buffets common shares:
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<PAGE>
EBITDA Multiple
Discount Rate
------------------------------ -------------------------------------------
19.0% 21.0% 23.0%
------------- ------------- ------------
3.5x $12.60 $11.92 $11.30
4.5x $14.53 $13.71 $12.95
5.5x $16.46 $15.49 $14.61
In reaching its conclusion as to the fairness, from a financial point
of view, of the consideration to be received by Buffets shareholders in the
merger, U.S. Bancorp Piper Jaffray did not rely on any single analysis or factor
described above, assign relative weights to the analyses or factors considered
by it, or make any conclusion as to how the results of any given analysis, taken
alone, supported its opinion. The preparation of an opinion, from a financial
point of view, of the consideration to be received by shareholders in a merger
is a complex process and not necessarily susceptible to partial analysis or
summary description. U.S. Bancorp Piper Jaffray believes that its analyses must
be considered as a whole and that the selection of portions of its analyses and
of the factors considered by it, without considering all of the factors and
analyses, would create a misleading view of the processes underlying its
opinion.
The analyses of U.S. Bancorp Piper Jaffray are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than suggested by the analyses. Analyses relating to the value
of companies do not purport to be appraisals or valuations or necessarily
reflect the prices at which businesses or securities may actually be sold. No
company or transaction used in any analysis for purposes of comparison is
identical to Buffets or the merger. In addition, in performing its analyses,
U.S. Bancorp Piper Jaffray made numerous assumptions with respect to industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of the parties to the merger
and U.S. Bancorp Piper Jaffray. Accordingly, an analysis of the results of the
comparisons is not mathematical; rather, it involves complex considerations and
judgments about differences in the companies to which Buffets was compared and
other factors that could affect the public trading value of Buffets' common
shares. Because such analyses are inherently subject to uncertainty, being based
upon numerous factors and events beyond the control of the parties to the merger
and U.S. Bancorp Piper Jaffray, neither the parties nor U.S. Bancorp Piper
Jaffray assume responsibility if future results are materially different from
those forecast.
For purposes of its opinion, U.S. Bancorp Piper Jaffray relied upon and
assumed the accuracy, completeness and fairness of the financial statements and
other information provided to it by Buffets or otherwise made available to U.S.
Bancorp Piper Jaffray and did not assume responsibility for the independent
verification of that information. With respect to the financial statement data
and other internal financial information (including the projected financial
planning data) provided to U.S. Bancorp Piper Jaffray in connection with its
review of the financial aspects of the merger, U.S. Bancorp Piper Jaffray relied
upon the assurances of the management of Buffets that the information was
prepared on a reasonable basis in accordance with industry practice, and, with
respect to the financial planning data, reflected the best currently available
estimates and judgment of the management of Buffets, and that management was not
aware of any information or facts that would make the information provided to
U.S. Bancorp Piper Jaffray incomplete or misleading.
U.S. Bancorp Piper Jaffray also assumed that there have been no
material changes in the assets, financial condition, results of operations,
business or prospects of Buffets since the date of the latest financial
statements or the date of other information made available to it.
In arriving at its opinion, U.S. Bancorp Piper Jaffray was not
requested to perform, did not perform, and was not furnished with any appraisals
or valuations of any specific assets or
27
<PAGE>
liabilities of Buffets. U.S. Bancorp Piper Jaffray was not requested to opine
as to, and its opinion does not address, the basic business decision to proceed
with or effect the merger. U.S. Bancorp Piper Jaffray analyzed Buffets as a
going concern and accordingly expressed no opinion as to its liquidation value.
The opinion is based on information available to U.S. Bancorp Piper
Jaffray and the facts and circumstances as they existed and were subject to
evaluation on the opinion date. Events occurring after that date could
materially affect the assumptions used in preparing the opinion. U.S. Bancorp
Piper Jaffray has not undertaken and is not obligated to affirm or revise its
opinion or otherwise comment on any events occurring after the date it was
given, unless any further "bring-down" opinions are requested by Buffets.
U.S. Bancorp Piper Jaffray, as a customary part of its investment
banking business, evaluates 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. The special committee and the board of directors of Buffets selected
U.S. Bancorp Piper Jaffray because of its expertise, reputation and familiarity
with Buffets and the restaurant industry in general. U.S. Bancorp Piper Jaffray
maintains a market in the common shares of Buffets and provides research
coverage for Buffets. In the ordinary course of business, U.S. Bancorp Piper
Jaffray and its affiliates may actively trade securities of Buffets for their
own accounts or the accounts of their customers and, accordingly, may at any
time hold a long or short position in those securities.
Under the terms of the engagement letter dated December 31, 1999
Buffets has agreed to pay U.S. Bancorp Piper Jaffray the following:
o $100,000 as a retainer upon execution of the engagement letter
between Buffets' board of directors and U.S. Bancorp Piper Jaffray
(which has already been paid by Buffets);
o $500,000 upon the delivery of U.S. Bancorp Piper Jaffray's written
opinion dated June 4, 2000 (which has already been paid by
Buffets); and
o a fee equal to approximately $4.1 million upon the closing of the
merger.
The engagement letter also provides that Buffets will reimburse U.S.
Bancorp Piper Jaffray for its reasonable out-of-pocket expenses, including fees
and disbursements of counsel, and will indemnify U.S. Bancorp Piper Jaffray and
related parties from and against certain liabilities, including liabilities
under the federal securities laws, arising out of or in connection with the
engagement of U.S. Bancorp Piper Jaffray.
TREATMENT OF EXISTING STOCK OPTIONS
The merger agreement provides that each stock option outstanding
immediately prior to the completion of the merger, whether or not the option is
fully vested, will be cancelled in exchange for a cash payment from Buffets
equal to the excess, if any, of $13.85 over the per-share exercise price of each
stock option. The amount received, however, will be reduced to the extent of any
federal and state income and payroll tax withholding that is due. Stock options
with an exercise price in excess of $13.85 per share will be cancelled in the
merger for no consideration. As a result, stock options representing an
aggregate of 4,928,575 shares of our common stock, at a weighted average
exercise price of $10.3027 per share, will, based on the $13.85 per-share cash
consideration, be exchanged for a total cash payment of approximately $17.5
million.
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TREATMENT OF EXISTING CONVERTIBLE NOTES
In Buffets' 1996 acquisition of HomeTown Buffet, Buffets guaranteed
HomeTown's obligations under its outstanding 7% Convertible Subordinated Notes
due 2002 in the principal amount of $41.5 million. In connection with that
transaction, Buffets also entered into a supplemental indenture providing for,
among other things, the convertibility of the notes into Buffets common stock
instead of HomeTown common stock and the treatment of the notes upon a
subsequent acquisition of Buffets. The notes are presently convertible into
Buffets common stock at approximately $11.67 per share.
Under the supplemental indenture, following completion of the merger,
the notes will continue to be outstanding and will be convertible not into
Buffets stock but instead into the amount of cash that a noteholder would have
received had he or she converted his or her notes immediately before the
completion of the merger. This means that, after the merger is completed, a
noteholder may convert his or her notes into the right to receive approximately
$1,187 in cash for each $1,000 in principal amount of notes so converted. At the
completion of the merger, Caxton-Iseman intends to cause Buffets to call the
notes for redemption. The notes that are not converted into the right to receive
the merger consideration will be redeemable at an amount equal to $1,030 per
each $1,000 in principal amount, plus any accrued interest.
MERGER FINANCING
Generally. It is estimated that approximately $665.2 million will be
required to complete the merger and pay related fees and expenses. This sum
will be provided by a combination of equity financing, debt financing, a
sale-leaseback of the company's headquarters and available cash. Caxton-Iseman
and Sentinel have entered into commitment letters with Holding Company to
provide the equity financing to Holding Company. In addition, Caxton-Iseman has
received financing commitment letters from (1) Lehman Brothers Inc., Lehman
Commercial Paper Inc., Inc., Fleet National Bank and FleetBoston Robertson
Stephenson Inc. to provide the senior debt financing, (2) Credit Suisse First
Boston to provide the mezzanine debt and (3) Corporate Property Associates 14,
L.P., an affiliate of W.P. Carey & Co., Inc., to purchase and leaseback Buffet's
headquarters. Each financing commitment letter is subject to certain conditions.
The commitments of the respective financing sources to provide the debt
financing under the financing commitment letters will expire on September 30,
2000.
Equity Financing. It is expected that approximately $130 million of
equity financing will be required to complete the merger. The equity portion of
the merger financing will be provided by (1) a cash investment of approximately
$111.5 million from currently available funds by Caxton-Iseman, (2) a cash
investment of up to approximately $10 million from currently available funds by
Sentinel and (3) the acquisition of approximately $8.5 million of equity by the
Management Participants. To the extent that the Management Participants provide
more equity financing Caxton-Iseman will provide less equity financing. In
addition, Caxton-Iseman may seek other institutional or qualified individual
investors to provide equity financing and to the extent these other investors
provide equity financing Caxton-Iseman will provide less equity financing. As
discussed below, some of the Management Participants may purchase their shares
of Holding Company common stock with notes and will have a portion of their
federal incomes tax liability reimbursed. See "--Additional Interests of
Buffets' Management."
Caxton-Iseman's and Sentinel's obligations to provide the equity
financing are conditioned upon completion of the merger and funding of the
financing contemplated by the merger agreement.
Mezzanine Financing. The financing commitment letter from Credit Suisse
First Boston for the mezzanine debt provides for $95 million of mezzanine
indebtedness. It is expected that Buffets will incur $80 million and that
Holding Company will incur $15 million of the mezzanine indebtedness. The
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note purchase agreements for the mezzanine debt will contain customary
representations and warranties by Buffets and Holding Company, as applicable.
The commitment to provide the mezzanine debt financing is subject to the
satisfaction of customary conditions and covenants, including the accuracy in
all material respects of the representations and warranties of Buffets and
Holding Company. The following is a summary of some of the material conditions
to be satisfied in order for the financing sources to fund the amount
contemplated by the commitment letter:
o the closing of the merger occurring on or before September 30,
2000;
o consummation of the merger substantially on the terms of the
merger agreement. See "The Merger Agreement--Conditions to the
Merger;"
o receipt of the equity and senior debt financings and completion
of the headquarters sale and leaseback of Buffets' corporate
headquarters;
o receipt of all material consents required as a result of the
merger and the financing;
o receipt by the lenders of a solvency certificate;
o the absence of any material adverse condition or change in or
affecting the business, operations, property, condition
(financial or otherwise) or prospects of Buffets and its
subsidiaries, taken as a whole; and
o none of the financing sources becoming aware of any
information or other matter affecting Buffets or its
subsidiaries that is inconsistent, in the financing source's
judgment, in a material and adverse manner with any
information or other material previously disclosed to them.
The mezzanine debt at Buffets will be guaranteed by Holding Company and
all of Buffets' existing or subsequently acquired or organized domestic
subsidiaries. Interest on the mezzanine debt will be payable at per annum rates
of 14% for Buffets and 16% for Holding Company. One half of the interest on
Holding Company mezzanine debt may be paid by the issuance of additional
mezzanine debt of Holding Company. The mezzanine debt will mature eight years
after the closing of the merger.
Holders of the mezzanine debt will receive warrants exercisable to
purchase an aggregate of up to 6.5% of the outstanding shares of Holding Company
common stock and preferred stock.
Senior Debt Financing. The financing commitment letter for the senior
debt from Lehman Brothers Inc. and Fleet Boston Robertson Stephens Inc. provides
for a $330 million secured credit facility with senior lenders, including a $20
million revolving credit facility with an option to have letters of credit
issued for its account, a term A loan of $160 million and a term B loan of $150
million. The credit facility will contain customary representations and
warranties by Buffets. The commitment to provide the senior debt financing is
subject to the satisfaction of customary conditions and covenants, including the
accuracy in all material respects of Buffets representations and warranties. The
following is a summary of some of the material conditions to be satisfied in
order for the financing sources to fund the amount contemplated by the
commitment letter:
o the closing of the merger occurring on or before September 30,
2000;
o consummation of the merger substantially on the terms of the
merger agreement. See "The Merger Agreement--Conditions to the
Merger;"
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o receipt of the equity and mezzanine financings and completion of
the headquarters sale and leaseback;
o receipt of all material consents required as a result of the
merger and the financing;
o receipt by the lenders of a solvency certificate;
o the absence of any material adverse condition or change in or
affecting the business, operations, property, condition
(financial or otherwise) or prospects of Buffets and its
subsidiaries, taken as a whole;
o none of the financing sources becoming aware of any
information or other matter affecting Buffets or its
subsidiaries that is inconsistent, in the financing source's
judgment, in a material and adverse manner with any
information or other material previously disclosed to them;
o the financial, banking or capital market conditions shall not have
suffered a material disruption or a material adverse change; and
o the surviving company having a senior leverage ratio of not
greater than 2.5x on a pro forma basis.
Borrowings under the credit facility will be secured by a perfected
first priority security interest in all of Buffets and Buffet's subsidiaries
tangible and intangible assets (including, without limitation, real property,
intellectual property, and all of the capital stock of Buffets and each of its
direct and indirect subsidiaries), subject to exceptions to be agreed upon. The
credit facility will be guaranteed by Holding Company and all of Buffets
existing or subsequently acquired or organized domestic subsidiaries. Interest
on the revolving credit facility and the term A loan will be calculated
initially as a function of either the prime rate or the interbank eurodollar
rate plus 2.25% or 3.25%, respectively, and in the case of the term B loan, plus
2.75% or 3.75%, respectively. The interest rate is subject to reduction based on
the leverage of Buffets at various times.
The revolving credit facility under the credit facility terminates five
years after the closing of the merger. Buffets will be required to repay the
term A loan in quarterly installments beginning March 31, 2001 and until the
date that is five years after the closing of the merger. Buffets will be
required to repay the term B loan, which matures in 6.5 years, in quarterly
installments of $1.5 million per year beginning March 31, 2001 until the date
that is five years after the closing of the merger. Buffets will be required to
repay the remaining principal balance of the term B loan in quarterly
installments beginning five and one quarter years after the closing of the
merger until the maturity of the term B loan.
Sale and Leaseback of Headquarters. The commitment letter for the sale
and leaseback of Buffets headquarters in Eagan, Minnesota provides for $20.0
million of gross proceeds. The lease will be a net lease with a term of 20 years
and two ten-year renewal terms at tenant's option. The sale and leaseback
documentation will contain customary representations and warranties by Buffets.
The financing source's commitment to consummate the sale and leaseback is
subject to the satisfaction of customary conditions and covenants, including
customary due diligence. The following is a summary of some of the material
conditions to be satisfied in order for the finance source to fund the amount
contemplated by the commitment letter:
o the closing of the merger occurring on or before September 30,
2000;
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o consummation of the merger substantially on the terms of the
merger agreement. See "The Merger Agreement--Conditions to the
Merger;"
o receipt of the equity and senior debt financings;
o lender satisfaction with title, survey, zoning, environmental and
structural matters; and
o the absence of any material adverse condition or change in or
affecting the business, operations, property, condition
(financial or otherwise) or prospects of Buffets and its
subsidiaries, taken as a whole.
The rent on the headquarters will be $1,850,000 for the first year
(subject to possible upward adjustment under the terms of the commitment)
increasing every year thereafter during the term of the lease.
Available Cash. Buffets expects to use approximately $110 million of
available cash at closing to help finance the merger.
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material U.S. federal income
tax consequences of the merger to holders of Buffets common stock. The
discussion is based on the current provisions of the Internal Revenue Code of
1986, existing and proposed Treasury Regulations, interpretive rulings of the
Internal Revenue Service, and court decisions, all of which are subject to
change at any time, possibly with retroactive effect. Any such change could
affect the continuing accuracy of this discussion.
Holders of Buffets common stock should be aware that this discussion
does not deal with all federal income tax considerations that may be relevant to
all shareholders in light of their particular circumstances or to shareholders
who are subject to special treatment under the Internal Revenue Code; thus, for
example, the discussion may not be applicable to insurance companies, tax-exempt
organizations, financial institutions, nonresident alien individuals, or foreign
entities. Other holders with special considerations include those who are
subject to the alternative minimum tax provisions of the Internal Revenue Code,
who do not hold their shares of Buffets common stock as a capital asset, who
acquired their shares in connection with stock option plans or in other
compensatory transactions, or who hold shares in a hedging transaction or as
part of a straddle or conversion transaction. In addition, the following
discussion does not address the tax consequences of the merger under foreign,
state, or local tax laws or the tax consequences of transactions effectuated
before or after, or concurrently with, the merger. Nor does this discussion
address the tax consequences of payments by Buffets to the holders of Buffets
stock options or other stock-based awards or to the Management Participants in
the merger.
Neither Holding Company nor Buffets will request a ruling from the
Internal Revenue Service in connection with the merger.
ACCORDINGLY, HOLDERS OF BUFFETS COMMON STOCK OR STOCK OPTIONS ARE URGED
TO CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES
OF THE MERGER IN THEIR PARTICULAR CIRCUMSTANCES.
Receipt of cash for shares of Buffets common stock in the merger will
be a taxable transaction for U.S. federal income tax purposes. Consequently,
subject to the limitations and qualifications referred to in this section, the
merger will generally result in the following U.S. federal income tax
consequences to
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the holders of Buffets common stock who hold that stock as a capital asset and
to Buffets, Holding Company, and Merger Sub:
1. A holder of Buffets common stock who receives cash for his or
her common stock in the merger will generally recognize capital
gain or loss in an amount equal to the excess of the cash
received by the holder over the holder's tax basis in his or
her shares of Buffets common stock.
2. The capital gain or loss will generally be long-term capital
gain or loss if the holder has held his or her Buffets common
stock for more than one year.
3. A holder of Buffets common stock who exercises dissenters'
rights and receives a cash payment for his or her stock
generally will recognize capital gain or loss measured by the
difference between the holder's tax basis in the stock and the
amount of cash received.
4. Certain noncorporate holders of Buffets common stock may be
subject to backup withholding at a 31% rate on cash payments
received in exchange for Buffets common stock, or received upon
the exercise of dissenters' rights. Backup withholding
generally will not apply, however, to a holder who furnishes a
correct taxpayer identification number and certifies under
penalties of perjury that the number is correct and that he or
she is not subject to backup withholding on the substitute Form
W-9 included in the letter of transmittal, or is otherwise
exempt from backup withholding.
THE PRECEDING DISCUSSION IS NOT A COMPLETE ANALYSIS OR DISCUSSION OF
ALL POTENTIAL TAX EFFECTS RELEVANT TO THE MERGER. HOLDERS OF BUFFETS COMMON
STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISERS AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO THEM, INCLUDING TAX RETURN REPORTING REQUIREMENTS,
THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, AND OTHER TAX LAWS, AND
THE EFFECTS OF ANY PROPOSED CHANGES IN THE TAX LAWS.
ADDITIONAL INTERESTS OF BUFFETS' MANAGEMENT
In considering the recommendation of the special committee and the
board of directors, you should be aware that some of Buffets' officers and
directors have interests in the merger as employees and/or directors of Buffets,
or as shareholders with a continuing equity interest in Buffets, that are
different from, or in addition to, your interests as a Buffets shareholder. In
particular, the Management Participants have been provided an opportunity, and
are expected, to acquire an equity interest in Holding Company. When making the
determination to approve and recommend approval of the merger to Buffets
shareholders, both the Buffets board and the special committee were aware of and
took into consideration the interests described below.
Management Participants. The Management Participants have agreed to
enter into subscription agreements to acquire shares of capital stock in Holding
Company representing approximately 15.9% of the outstanding common stock of
Holding Company and approximately 3.5% of the outstanding preferred stock of
Holding Company. The Management Participants will pay the same price per share
for common stock of Holding Company as Caxton-Iseman affiliates and the other
investors. The Management Participants will not be required to purchase shares
of Holding Company preferred stock in connection with purchases of approximately
12.9% of the outstanding common stock of Holding Company whereas other investors
in Holding Company are purchasing such preferred stock. Mr. Hatlen has agreed to
acquire, on the same terms as Caxton-Iseman affiliates and the other investors,
additional shares of Holding Company common stock representing approximately
3.0% of the outstanding Holding Company common stock immediately following
completion of the merger (which 3.5% is included in the 15.9%
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mentioned above) and shares of Holding Company preferred stock representing
approximately 3.5% of the outstanding Holding Company preferred stock
immediately following completion of the merger. Caxton-Iseman may permit the
other Management Participants to acquire additional shares of common stock and
preferred stock of Holding Company in the same ratio and at the same price as
the other holders of Holding Company's common stock. The dollar amount of the
investment in Holding Company common stock and preferred stock and the
percentage ownership of Holding Company common stock and preferred stock to be
held immediately after the merger by Roe H. Hatlen, Kerry A. Kramp and C. Dennis
Scott, each a director and executive officer of Buffets, is as follows:
Investment % of Outstanding % of Outstanding
Name Amount Common Stock Preferred Stock
---- ------ ------------ ---------------
Roe H. Hatlen $5,000,000 5.0% 3.5%
Kerry A. Kramp 1,300,000 4.0 ---
C. Dennis Scott 162,500 0.5 ---
The other 15 Management Participants, including seven of Buffets'
executive officers, have agreed in principle to invest an aggregate of
approximately $2.1 million in Holding Company common stock, representing
approximately 6.4% of the outstanding common stock of Holding Company
immediately after the merger. None of these 15 Management Participants is
investing more than $500,000 and, accordingly, none of them will own more than
approximately 1.5% of the outstanding common stock of Holding Company
immediately after the merger.
The Management Participants may acquire their shares of Holding Company
stock using cash or by contributing outstanding Buffets' common stock. In
addition, some of the Management Participants may acquire a portion of their
shares of Holding Company common stock by providing Holding Company with a
promissory note. An aggregate of approximately $1 million in promissory notes
are expected to be delivered. These promissory notes will have the following
terms: seven year term; full personal recourse to the Management Participants;
due at maturity or upon the Management Participant's termination of employment
with Buffets or sale of Holding Company's common stock; secured by a pledge of
the Management Participants' Holding Company common stock; and an interest rate
of 7% per annum. Repayment of the notes may be deferred if proceeds from the
sale of shares following the exercise of put or call rights described below have
not been received upon termination of employment.
The Holding Company preferred stock will have the following terms:
o one vote per share on all matters submitted to Holding Company's
shareholders;
o liquidation value equal to the purchase price per share and
liquidation preference senior to all classes of Holding Company's
capital stock;
o right to receive dividends when, as and if declared by Holding
Company's Board of Directors, up to a maximum aggregate amount
of 10% per year of the liquidation value compounded quarterly
during the period from initial issuance to redemption (the
"Maximum Dividend");
o no distribution may be made on Holding Company's common stock
while the preferred stock is outstanding until an amount equal
to the liquidation value and the Maximum Dividend has been
paid to holders of the preferred stock; and
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o redeemable by Holding Company at its option at any time that
the Maximum Dividend has been paid and at the holders election
upon a change of control of Holding Company, at par plus
declared but unpaid dividends.
Caxton-Iseman has agreed to cause Buffets to pay certain of the
Management Participants a portion of the estimated amount of Federal income tax
payable by them by reason of payments they will receive with respect to their
options to acquire Buffets common stock held by them. These amounts are payable
after the merger and no later than the date upon which these Management
Participants are required to pay Federal income tax, except in one case where a
Management Participant has agreed that a portion of the payment may be deferred
up to one year. The total amount of these payments is expected to be
approximately $0.8 million.
Three of the Management Participants have agreed that Holding Company
may defer payment of a portion of the cash they are eligible to receive upon the
cancellation of their options to purchase Buffets' common stock. These payments
may be deferred up to one year and will be without interest. The aggregate
amount of payments which may be deferred is approximately $1.1 million. To the
extent these payments are deferred, these Management Participants may defer for
their Holding Company common stock.
These agreements also provide that the existing management agreements
between Buffets and each of Messrs. Hatlen, Kramp, Scott and Goronkin will be
terminated upon the closing of the merger. See "--Background of the Merger" for
a discussion of the management agreements.
Each of the Management Participants have agreed to enter into a
stockholders agreement covering his or her shares of Holding Company stock with
the following terms:
o Holding Company common stock vests over five years, with 20%
vesting per year on each anniversary of the effective date of
the merger (subject to exceptions for Messrs. Hatlen and
Scott, described below);
o Holding Company may call Holding Company stock owned by
Management Participants following termination of employment
and Management Participants (or their estates) may cause
Holding Company to purchase their Holding Company Stock,
subject to certain restrictions and limitations, following
termination upon death or disability at various prices
depending on whether the stock is vested or unvested and
whether the Management Participant is terminated for cause;
o restrictions regarding the transfer of Holding Company stock;
o Holding Company's right of first refusal with respect to
Holding Company stock that any Management Participant proposes
to sell to a third party (other than specified permitted
transferees);
o right of Management Participants to sell their shares of
Holding Company common stock on the same basis as
Caxton-Iseman if Caxton-Iseman sells control of Holding
Company and Caxton-Iseman's right to require Management
Participants to sell their Holding Company stock in this
circumstance;
o preemptive rights to purchase Holding Company common stock
on a pro rata basis, subject to certain exceptions;
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o termination of most of these transfer restrictions, call
rights, rights of first refusal and preemptive rights upon the
initial public offering of Holding Company stock; and
o agreement not to compete with Buffets and not to solicit
employees of Buffets during the Management Participant's term
of employment and for two years following termination of his
or her employment.
Consulting Agreements. Messrs. Hatlen and Scott also will have
five-year consulting arrangements with Buffets after the merger. Under his
consulting agreement, Mr. Hatlen will receive his current salary and bonus for
the balance of fiscal 2000. In fiscal 2001, he will receive compensation of
$325,000; in fiscal 2002, $300,000; in fiscal 2003, $275,000; in fiscal 2004,
$250,000; and in fiscal 2005, $225,000. Mr. Hatlen will receive health, medical
and other benefits comparable to those made available to management employees of
Buffets for five years. Mr. Hatlen will purchase approximately 5.0% of the
shares of Holding Company common stock (where 1.0% of the outstanding shares of
Holding Company common stock acquired by Mr. Hatlen will be subject to vesting)
and approximately 3.5% of the shares of Holding Company preferred stock. The
shares of Holding Company common stock subject to vesting will vest over three
years at the rate of one-third for each year Mr. Hatlen completes as a member of
Holding Company's Board of Directors. Holding Company has certain rights to
repurchase the unvested shares of its common stock if Mr. Hatlen ceases to serve
as a member of Holding Company's Board of Directors, at various prices depending
on whether Mr. Hatlen is terminated with cause or without cause. Under Mr.
Scott's consulting agreement, he will continue to receive his current salary and
bonus for the balance of fiscal 2000, and no cash compensation thereafter. Mr.
Scott will purchase 0.5% of the shares of Holding Company common stock. These
shares will be subject to Holding Company's right to repurchase these shares
upon Mr. Scott's termination as a consultant to Holding Company, at various
prices depending on whether Mr. Scott is terminated with cause or without cause.
Mr. Scott will retain a San Diego office at company expense through fiscal 2005
and will receive health, medical and other benefits comparable to those made
available to management employees of Buffets for five years. Mr. Scott will be
required to provide services to Buffets for a maximum of four days per month.
Treatment of Options. Some of our directors, officers and employees
hold options to acquire shares of our common stock under various stock option
plans. In the merger, all such outstanding options will be cancelled in exchange
for a cash payment from Buffets for each Buffets share subject to the option
equal to the excess, if any, of $13.85 over the per-share exercise price of the
option.
The following table sets forth the cash amounts, before taxes and any
withholding, that directors and executive officers of Buffets will receive in
respect of their stock options upon completion of the merger.
Payment
Name Upon Completion
---- ---------------
Roe H. Hatlen $2,050,000
Kerry A. Kramp 1,502,472
C. Dennis Scott 1,468,692
David Goronkin 432,846
Glenn D. Drasher 323,250
R. Michael Andrews 103,280
K. Michael Shrader 240,542
H. Thomas Mitchell 181,438
Jean C. Rostollan 528,625
Clark C. Grant 280,238
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Payment
Name Upon Completion
---- ---------------
Neal L. Wichard 456,194
Walter R. Barry Jr. 11,000
Marvin Goldstein 37,875
Michael T. Sweeney 20,375
Continuing Benefit Plans. Pursuant to the merger agreement, for a
period of at least one year after the merger is completed, all Buffets employees
will continue to be provided with benefits that, in the aggregate, are no less
favorable to the employees than those currently provided to those employees by
Buffets. In addition, Holding Company has agreed that, after completion of the
merger, it will take into account the service of Buffets employees under any
benefit plans for which Buffets employees will be eligible to participate.
Caxton-Iseman has advised Buffets that it intends to leave salaries and health
and welfare benefits for the Management Participants materially unchanged at
least through 2001, except for the changes regarding Messrs. Hatlen and Scott
described above.
Indemnification and Insurance. Pursuant to the merger agreement, for
six years after the closing date of the merger, Buffets will indemnify and hold
harmless our present and former officers and directors for acts or omissions
occurring before the completion of the merger to the extent provided under our
articles of incorporation and by-laws in effect on the date of the merger
agreement. For six years after the completion of the merger, Buffets will
provide officers' and directors' liability insurance for acts or omissions
occurring before the completion of the merger covering each such person
currently covered by our officers' and directors' liability insurance policy on
terms with respect to coverage and amount no less favorable than those in effect
on the date of the merger agreement; provided, that the cost of such insurance
does not exceed 200% of the average annual premiums paid by us over the last
three years.
Additional Holding Company Benefits Following the Merger. Caxton-Iseman
has advised the members of senior management that following completion of the
merger it intends to cause Buffets to implement a severance plan for members of
senior management assuring them of severance payments in the event such members
of management are terminated by the Company other than for cause. The amount of
such payment will vary depending on the officer but will not exceed one year's
salary. In addition, Caxton-Iseman has advised senior management that it may
implement a broad based equity based compensation arrangement for management
employees of Buffets and it is possible that certain of the Management
Participants may be eligible to participate in such arrangements.
EXECUTIVE OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION
The majority of the directors of Buffets after the merger are expected
to be nominees of Caxton-Iseman and it is expected that Frederick J. Iseman will
be the Chairman of the Buffets board of directors. Messrs. Kramp and Hatlen are
also expected to be members of the Buffets board of directors.
Under the merger agreement, the executive officers of Buffets
immediately before the effective time of the merger will be the executive
officers of Buffets after the merger.
LITIGATION CHALLENGING THE MERGER
Six purported class actions (Brown v. Hatlen et al.; Burton v. Hatlen
et al.; Piorkowski v. Hatlen et al.; Sheren v. Hatlen et al.; Kingsberg v.
Hatlen et al.; and Blech v. Hatlen et al.) have been commenced on behalf of
putative classes of the public shareholders of Buffets in Dakota County
(Minnesota) District Court seeking, among other things, to enjoin the merger.
The complaints name as defendants Buffets and each member of Buffets' board of
directors. The complaints allege, among other things, that Buffets' directors
breached their fiduciary duties by approving the merger and not maximizing
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value for Buffets' shareholders. In addition, the complaints allege that certain
of the directors have conflicts of interest that prevented them from acting in
the best interests of Buffets shareholders. Buffets believes that the claims are
without merit.
THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the
merger agreement. Because this summary is not a complete description of the
merger agreement, we qualify it by reference to the merger agreement and urge
you to read the merger agreement in its entirety for a complete description of
the terms and conditions of the merger. We attach a copy of the merger agreement
to this proxy statement as Appendix A and incorporate it by reference in this
proxy statement.
THE MERGER
The merger agreement provides that Merger Sub, a wholly owned
subsidiary of Holding Company will merge with and into Buffets. At the
completion of the merger, Merger Sub will cease to exist and Buffets will be the
surviving corporation in the merger and will become a wholly owned subsidiary of
Holding Company.
COMPLETION OF THE MERGER
Unless the parties to the merger agreement agree otherwise, the closing
of the merger will take place after all of the conditions to the merger have
been fulfilled or waived. The merger will become effective upon the filing of
articles of merger with the Minnesota Secretary of State. Buffets and Holding
Company have agreed to have the articles of merger filed as soon as practicable
after the shareholders' meeting.
ARTICLES OF INCORPORATION, BY-LAWS, DIRECTORS, AND OFFICERS OF THE SURVIVING
CORPORATION
When the merger is completed,
o the articles of incorporation of Merger Sub will become the
articles of incorporation of the surviving corporation;
o the by-laws of Merger Sub will become the by-laws of the
surviving corporation;
o the directors of Merger Sub will become the directors of the
surviving corporation; and
o the officers of Buffets will remain officers of the surviving
corporation.
REPRESENTATION AND WARRANTIES
The merger agreement contains various customary representations and
warranties by Buffets, relating to, among other matters:
o it and its subsidiaries' organization, good standing, and
qualification;
o its capital structure;
o non-violation of its governing instruments or material
agreements;
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o required governmental approvals of the merger;
o the accuracy of its filings with the Securities and Exchange
Commission;
o absence of certain changes since December 29, 1999, the date
of its last audited balance sheet;
o absence of undisclosed litigation and liabilities;
o tax matters;
o it and its subsidiaries' owned and leased properties;
o it and its subsidiaries' material contracts;
o it and its subsidiaries' intellectual property;
o it and its subsidiaries' employee benefits plans;
o compliance with laws;
o inapplicability of any takeover statute or any anti-takeover
provision of its articles of incorporation or by-laws to the
merger;
o environmental matters; and
o labor matters.
The merger agreement also contains various representations and
warranties by Holding Company and Merger Sub, relating to, among other matters,
the financing commitments received in connection with the merger.
Please see Articles III and IV of the merger agreement for a full
statement of the representations and warranties of the parties. The
representations and warranties terminate upon the completion of the merger.
COVENANTS
Conduct of Buffets' Business Before the Merger. Buffets and its
subsidiaries are subject to restrictions on their conduct and operations until
the merger is completed. Buffets has agreed to conduct its business only in the
ordinary course and to use reasonable efforts to preserve intact its business
organization, to keep available the services of its present officers and key
employees, and to preserve its relationships with persons having significant
business dealings with it. Accordingly, Buffets has agreed with limited
exceptions, and except to the extent the merger agreement contemplates otherwise
or with the prior written consent of Holding Company, that it will not take any
of the following actions:
o splitting, combining, or reclassifying any of its capital stock,
declaring or paying any dividends or distributions, or redeeming
its capital stock;
o amending its organizational documents;
o issuing or authorizing any shares of capital stock or any
securities convertible into or exchangeable for shares of capital
stock, other than upon the exercise of existing options or upon
the conversion of the HomeTown convertible notes;
o acquiring any capital assets, making any capital expenditures
outside of its current budget, purchasing or developing any
enterprise resource or management information system, or
purchasing any business;
o selling or leasing any material assets or properties;
o incurring indebtedness or making any guarantees of indebtedness
of another person;
o adopting or modifying any employee benefit plan or arrangement or
increasing employee compensation or benefits;
o entering into any collective bargaining agreement;
o making material changes to its accounting principles, methods, or
practices;
o entering into material contacts; or
o settling the 1995 securities class action lawsuit against Buffets
and its directors without the consent of Holding Company, which
shall not be unreasonably withheld.
No Solicitation of Acquisition Proposals. Buffets has agreed that it
will not, and that it will not permit its directors, employees, agents, and
representatives to,
o initiate or solicit any inquiries or the making of any proposal or
offer with respect to,
o engage in any negotiations concerning, or
o provide any confidential information or data to any person
relating to,
a merger, reorganization, share exchange, or similar transaction, or a purchase
of a significant portion of the assets or any equity securities of, it or any of
its subsidiaries.
However, Buffets may provide information in response to a request by a
person who has made an unsolicited bona fide written acquisition proposal if
o Buffets' board of directors, after consulting with its legal and
financial advisers, determines that to do otherwise would result
in a breach of the directors' fiduciary duties under applicable
law;
o Buffets notifies Holding Company of the third-party offer and
keeps Holding Company fully informed with respect to the
third-party offer; and
o the third party enters into a confidentiality agreement with
Buffets no less favorable to Buffets than the confidentiality
agreement between Buffets and Caxton-Iseman.
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As discussed below, Buffets may terminate the merger agreement if it
receives and accepts a superior proposal from a third party.
Employee Benefits. Holding Company has agreed that, for a period of at
least one year of the merger is completed, all Buffets' employees will continue
to be provided with benefits that, in the aggregate, are no less favorable to
the employees than those currently provided to those employees by Buffets.
Holding Company has also agreed that, after completion of the merger,
it will take into account the service of Buffets employees under any benefit
plans for which Buffets employees will be eligible to participate.
Indemnification and Directors' and Officers' Insurance. The merger
agreement provides that, after the completion of the merger, the surviving
corporation will indemnify each present and former director and officer of
Buffets against any costs, expenses (including reasonable attorneys' fees),
judgments, or damages incurred in connection with any claim, lawsuit, or other
proceeding arising out of matters existing or occurring at or before the
completion of the merger, to the fullest extent that Buffets would have been
permitted under Minnesota law and its articles of incorporation or by-laws in
effect on the date of the merger agreement to indemnify any such person.
The surviving corporation is obligated either to maintain Buffets'
existing directors' and officers' liability insurance or to obtain directors'
and officers' liability insurance that is substantially comparable to Buffets'
existing insurance for a period of six years after the completion of the merger,
so long as the annual premium for such insurance would not exceed 200% of the
average annual premium in effect during the prior three years. However, if such
insurance cannot be acquired during the six-year period for not in excess of
200% of the average annual premium in effect during the prior three years, then
the surviving corporation will obtain as much directors' and officers' insurance
as can be obtained for the remainder of such period for a premium not in excess
of such 200% amount.
Amendment to Share Rights Agreement. The parties agreed that Buffets'
board of directors will take all necessary action to exempt the merger and the
merger agreement from the operation of Buffets' share rights agreement and to
terminate the outstanding preferred stock purchase rights under the rights
agreement immediately before the completion of the merger. In furtherance of
this requirement, as of June 4, 2000, the board of directors approved an
amendment to the company's rights agreement to effect the foregoing.
Substitute Financing. Holding Company has agreed that if for any reason
the financing for which it has received commitments is unavailable, then it will
use its reasonable best efforts to obtain substitute financing on the same or
more favorable terms.
Please see Articles IV and VI of the merger agreement for a full
statement of the covenants of the parties before and after the completion of the
merger.
CONDITIONS TO COMPLETING THE MERGER
Conditions to Holding Company's Obligation. The obligation of Holding
Company to complete the merger is subject to the satisfaction or waiver of the
following conditions:
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o the material accuracy of the representations and warranties of
Buffets contained in the merger agreement and the material
compliance with Buffets' obligations to be performed under the
merger agreement;
o approval of the merger agreement and the merger by Buffets
shareholders;
o the absence of any material adverse change in Buffets and its
subsidiaries' businesses, taken as a whole;
o the absence of any legal prohibition against the merger or other
material litigation instituted by any governmental authority;
o the termination or expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976;
o no rights shall have become exercisable under Buffet's share
rights agreement, which would only happen if a third party were to
acquire 20% or more of Buffets' outstanding common stock;
o the financing for the merger shall have been made available to
Holding Company;
o holders of no more than 10% of Buffets' outstanding common stock
shall have exercised dissenters' rights with respect to the
merger;
o all required filings with, or approvals by, governmental entities
shall have been made or received; and
o immediately before the completion of the merger, Buffets shall
have cash and cash equivalents of no less than $110 million on its
balance sheet.
Conditions to Buffets' Obligation. The obligation of Buffets to
complete the merger is subject to the satisfaction or waiver of the following
conditions:
o the material accuracy of the representations and warranties of
Holding Company and Merger Sub contained in the merger agreement
and the material compliance with Holding Company and Merger Sub's
obligations to be performed under the merger agreement;
o approval of the merger agreement and the merger by Buffets
shareholders;
o the absence of any legal prohibition against the merger;
o the termination or expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976; and
o all required filings with, or approvals by, governmental entities
shall have been made or received.
Please refer to Article V of the merger agreement for a full statement
of the conditions to completing the merger.
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TERMINATION
The parties to the merger agreement may agree to terminate the merger
agreement by mutual consent at any time before completing the merger, even after
Buffets shareholders have approved the merger agreement and the merger.
Either Holding Company or Buffets may terminate the merger agreement if
o the merger is not completed by December 31, 2000, unless the party
seeking to terminate the agreement has caused the failure to
complete the merger by failing to fulfill its obligations under
the merger agreement;
o the conditions to completion of the merger shall have become
impossible to fulfill through no fault of the party seeking to
terminate the merger agreement;
o the other party shall have breached a material representation or
warranty of that party contained in the merger agreement and the
breach has not been cured after 30 days' notice; or
o Buffets shareholders do not approve the merger agreement and the
merger at the special meeting.
In addition, Holding Company may terminate the merger agreement if
Buffets' board of directors, in the good faith exercise of its fiduciary duties,
o withdraws or adversely modifies its recommendation of the merger;
o accepts or approves an acquisition offer from a third party; or
o does not reject a third-party acquisition offer within 30 days
after it is made.
In addition, Buffets may terminate the merger agreement if its board
of directors
o withdraws or adversely modifies its recommendation of the merger;
or
o determines that an unsolicited third-party acquisition offer would
result in a transaction more favorable to Buffets' shareholders
than the merger and accepts or approves the third-party offer.
TERMINATION FEE AND EXPENSE REIMBURSEMENT
If either Buffets or Holding Company terminates the merger agreement
because Buffets shareholders do not approve the merger agreement and the merger
at the shareholders' meeting, and if no termination fee is then payable, then
Buffets has agreed to reimburse Holding Company's out-of-pocket expenses
incurred in connection with the merger, up to $4 million.
If either Buffets or Holding Company terminates the merger agreement
because Buffets' board of directors withdraws or adversely modifies its
recommendation of the merger, accepts or approves an acquisition offer from a
third party, or in the case of termination by Holding Company, does not reject a
third-party acquisition offer within 30 days after it is made, then Buffets has
agreed to pay Holding Company a termination fee of $19.29 million and to
reimburse Holding Company's out-of-pocket
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expenses incurred in connection with the merger, up to $6.43 million (less any
amount previously paid by Buffets for such expenses). Buffets must also pay the
termination fee and expenses if Holding Company terminates the merger agreement
as a result of a material breach by Buffets of its obligations regarding the
shareholders meeting and negotiations with third parties.
If the merger agreement is terminated in any of the following
circumstances, and if a third party shall have previously made or announced an
offer to acquire Buffets through any form of business combination, or to acquire
30% or more its total assets or outstanding stock, at a price superior to the
merger consideration, and if a third-party transaction is agreed to or completed
within six months of termination, then Buffets has agreed to pay Holding Company
a termination fee of $19.29 million and to reimburse Holding Company's
out-of-pocket expenses incurred in connection with the merger, up to $6.43
million (less any amount previously paid by Buffets for such expenses):
o Holding Company terminates the merger agreement because the merger
has not closed prior to December 31, 2000 or if any of the
conditions to Holding Company's obligations have become impossible
to fulfill and because such failure to close or the failure of the
condition resulted from a material breach by Buffets; or
o either company terminates the merger agreement because Buffets
shareholders do not approve the merger agreement and the merger at
the shareholders' meeting.
THE SPECIAL MEETING
GENERAL
This proxy statement is being furnished to Buffets shareholders as part
of the solicitation of proxies by Buffets' board of directors for use at a
special meeting to be held on ___________, 2000, at ______ a.m., local time, at
the company's headquarters, 1460 Buffet Way, Eagan, Minnesota 55121. The purpose
of the special meeting is for our shareholders to consider and vote upon a
proposal to approve the merger agreement between Buffets, Holding Company, and
Merger Sub and the merger contemplated by the merger agreement.
RECORD DATE AND VOTING
The holders of record of Buffets shares as of the close of business on
the record date of ___________, 2000 are entitled to receive notice of, and to
vote at, the special meeting. On that date, there were _____________ shares of
Buffets common stock outstanding held by __________ holders of record. The
presence of holders of a majority of the outstanding shares of Buffets common
stock on ___________, 2000, represented in person or by proxy, will constitute a
quorum for purposes of the special meeting. A quorum is necessary to hold the
special meeting. If a shareholder abstains from voting on the merger agreement,
then the shares held by that shareholder will be deemed present at the meeting
for purposes of determining a quorum. If a broker returns a "non-vote" proxy,
indicating a lack of authority to vote on the merger, then the shares covered by
such non-vote will be deemed present at the special meeting for purposes of
determining a quorum.
REQUIRED VOTE
You are entitled to cast one vote at the special meeting for each share
of Buffets common stock you held on ___________, 2000. Completion of the merger
requires the approval of the merger agreement by the affirmative vote of the
holders of a majority of the outstanding shares of Buffets common stock. You may
vote your shares by voting your proxy or by appearing at the special meeting
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and voting in person. Abstentions and broker "non-votes" will have the same
effect as a vote against the merger agreement and the merger.
PROXIES; REVOCATION
There are three ways to vote your proxy. Your telephone or Internet
vote authorizes the proxies to vote your shares in the same manner as if you
mark, sign and return your proxy card.
Vote by phone--toll free--1-800-________
Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days
a week. You will be prompted to enter your 3-digit company number and
your 7-digit control number, both of which appear on the enclosed proxy
card. Follow the simple instructions the recorded voice provides you.
Vote by Internet--http://www.__________________
Access the above Internet site to vote your proxy 24 hours a day, 7
days a week. You will be prompted to enter your 3-digit company number
and your 7-digit control number, both of which appear on the enclosed
proxy card, to create an electronic ballot.
Vote by mail
Mark, sign and date your proxy card and return it in the postage-paid
envelope provided.
IF YOU VOTE BY PHONE OR INTERNET, PLEASE DO NOT MAIL YOUR PROXY CARD.
If you vote your shares of Buffets common stock by signing and
returning a proxy card, your shares will be voted at the special meeting as you
indicate on the card. If no instructions are indicated on your signed proxy
card, your shares of Buffets common stock will be voted "FOR" the approval of
the merger proposal.
If your shares are held in "street name" by your broker, do not follow
the above voting instructions. Rather, your broker will provide you with
separate written instructions on voting your shares, and you should follow those
instructions.
You may revoke your proxy at any time before the proxy is voted at the
special meeting. A proxy may be revoked prior to the vote at the special meeting
by submitting a written revocation to the Secretary of Buffets at 1460 Buffet
Way, Eagan, Minnesota 55121, or by submitting a new proxy, in either case, dated
after the date of the proxy that is being revoked, or by again following the
procedures for voting by phone or the Internet at a later time. However, simply
attending the special meeting will not revoke a proxy.
EXPENSES OF PROXY SOLICITATION
All expenses incurred in connection with solicitation of the enclosed
proxy will be paid by Buffets. Officers and employees of Buffets may solicit
proxies by telephone or in person. However, they will not be paid for soliciting
proxies. Buffets also will request that persons and entities holding shares in
their names or in the names of their nominees that are beneficially owned by
others send proxy materials to and obtain proxies from those beneficial owners,
and will reimburse those holders for their reasonable expenses in performing
those services. Buffets has retained ___________________ to assist it in the
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solicitation of proxies, using the means referred to above, at an anticipated
cost of $___________, plus reimbursement of out-of-pocket expenses.
ADJOURNMENTS
Although it is not expected, the special meeting may be adjourned for
the purpose of soliciting additional proxies. Any adjournment of the special
meeting may be made without notice, other than by an announcement made at the
special meeting, by approval of the holders of a majority of the outstanding
shares of Buffets common stock present in person or represented by proxy at the
special meeting, whether or not a quorum exists. Any proxies received by Buffets
will be voted in favor of an adjournment of the special meeting if the purpose
of the adjournment is to provide additional time to solicit votes to approve the
merger agreement, unless the shareholder has voted against the merger proposal.
Thus, proxies voting against the merger will not be used to vote for adjournment
of the special meeting for the purpose of providing additional time to solicit
votes to approve the merger agreement and the merger. Any adjournment or
postponement of the special meeting for the purpose of soliciting additional
proxies will allow Buffets shareholders who have already sent in their proxies
to revoke them at any time prior to their use.
DISSENTERS' RIGHTS
If the merger is completed, holders of Buffets common stock on
___________, 2000, who did not vote in favor of the merger agreement will have
the right to dissent from the merger and to obtain payment for the "fair value"
of their Buffets shares, plus interest, in accordance with Sections 302A.471 and
302A.473 of the Minnesota Business Corporation Act. The term "fair value" means
the value of the shares of common stock immediately before the effective time of
the merger and the term "interest" means interest commencing five days after the
effective time of the merger up to and including the date of payment at the rate
provided by Minnesota law for interest on verdicts and judgments, currently 5%
per year.
Any Buffets shareholder contemplating the exercise of dissenters'
rights is urged to review carefully the provisions of Sections 302A.471 and
302A.473 of the Minnesota Business Corporation Act, particularly with respect to
the procedural steps required to perfect dissenters rights. Failure to comply
with the statutory requirements will result in the loss of the shareholder's
dissenters' rights. The following is a summary of the material provisions of the
dissenters' rights statute but it is not a complete statement of the relevant
provisions of Minnesota Law. This summary should be read in conjunction with the
full text of Sections 302A.471 and 302A.473, which is attached to this proxy
statement as Appendix C, and any amendments to such sections as may be adopted
after the date of this proxy statement.
FILING WRITTEN OBJECTION
Shareholders of record who desire to exercise their dissenters' rights
must satisfy all of the following conditions. A WRITTEN NOTICE OF INTENT TO
DEMAND FAIR VALUE FOR SHARES MUST BE DELIVERED TO THE EXECUTIVE OFFICES OF
BUFFETS BEFORE THE TAKING OF THE SHAREHOLDER VOTE TO APPROVE THE MERGER
AGREEMENT AND THE MERGER AT THE SPECIAL MEETING ON ___________, 2000. This
written demand must be in addition to and separate from any proxy or vote
against approval of the merger proposal. Voting against, abstaining from voting
or failing to vote to approve the merger proposal does not constitute a demand
for fair value of the shares within the meaning of the MBCA.
The written demand should be delivered to the Corporate Secretary of
Buffets at 1460 Buffet Way, Eagan, Minnesota 55121. The written demand should
specify the shareholder's name and mailing
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address, the number of shares owned and that the shareholder intends to demand
the "fair value," plus interest, of his or her shares.
NO VOTING IN FAVOR OF THE MERGER PROPOSAL
Shareholders electing to exercise their dissenters' rights under the
MBCA must not vote for approval of the merger proposal. A shareholder's failure
to vote against approval of the merger proposal will not constitute a waiver of
dissenters' rights. However, if a shareholder returns a signed proxy but does
not specify a vote against approval of the merger proposal or direction to
abstain, the proxy will be voted for approval of the merger agreement and the
merger, and the shareholder's dissenters' rights will be waived.
A shareholder may not assert dissenters' rights as to less than all of
the shares registered in such holder's name except where certain shares are
beneficially owned by another person but registered in such holder's name. If a
record owner, such as a broker, nominee, trustee or custodian, wishes to dissent
with respect to shares beneficially owned by another person, the shareholder
must dissent with respect to all of such shares and must disclose the name and
address of the beneficial owner on whose behalf the dissent is made. A
beneficial owner of shares of Buffets common stock who is not the record owner
of those shares may assert dissenters' rights as to shares held on such person's
behalf, provided that the beneficial owner submits a written consent of the
record owner to Buffets at or before the time such rights are asserted.
NOTICE BY BUFFETS
After approval of the merger agreement and the merger by the
shareholders at the special meeting, Buffets will send a written notice to each
shareholder who filed a written demand for dissenters' rights. The notice will
contain:
o the address to which the shareholder must send a demand for
payment and the stock certificates in order to obtain payment;
o the date by which they must be received;
o any restrictions on transfer of uncertificated shares that
will apply after the demand for payment is received;
o a form to be used to certify the date on which such
shareholder, or the beneficial owner on whose behalf the
shareholder dissents, acquired the shares, or an interest in
them, and to demand payment; and
o a copy of Sections 302A.471 and 302A.473 of the MBCA and a
brief description of the procedures to be followed under those
sections.
REMITTANCE OF CERTIFICATES
In order to receive the fair value for his or her shares under Section
302A.473, a dissenting shareholder must, within 30 days after the date Buffets
gives the notice described in the preceding paragraph, demand payment and
deposit his or her stock certificates, at the address specified in the notice.
Under Minnesota law, notice by mail is given by Buffets when deposited in the
U.S. mail. A dissenting shareholder will retain all rights as a shareholder
until the effective time of the merger. After a valid demand for payment and the
related stock certificates are timely received, or after the completion of the
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merger, whichever is later, Buffets will remit to each dissenting shareholder
who has complied with the statutory requirements the amount that Buffets
estimates to be the fair value of the dissenting shareholder's shares, with
interest commencing five days after the effective time of the merger at a rate
prescribed by statute, currently 5% per year. Buffets has no current intention
of offering to pay more than $13.85 per share as its estimate of fair value of a
dissenting shareholder's shares and reserves the right to offer less. Buffets
will also send its closing balance sheet and statement of income for a fiscal
year ending not more than 16 months before the effective time of the merger,
together with
o the latest available interim financial statements,
o an estimate of the fair value of the shareholder's shares and
a brief description of the method used to reach the estimate,
o a brief description of the procedure to be followed if the
dissenting shareholder decides to make a demand for a
supplemental payment, and
o a copy of Sections 302A.471 and 302A.473 of the MBCA.
As described below, Buffets is not required at that time to send its estimated
payment to any person who was not a shareholder, and who is not dissenting on
behalf of a person who was the beneficial owner of shares of common stock, of
Buffets on June 5, 2000. If, however, the merger is not completed or Buffets
disputes a shareholder's right to dissent, Buffets will not send to the
shareholder the fair value of such shareholder's share or the additional
information listed above.
ACCEPTANCE OR SETTLEMENT OF DEMAND
If the dissenting shareholder believes that the amount remitted by
Buffets is less than the fair value of the holder's shares, plus interest, if
any, the shareholder must give written notice to Buffets of such holder's own
estimate of the fair value of the shares, plus interest, if any, within 30 days
after the mailing date of the remittance and demand payment of the difference.
The notice must be given at the executive offices of Buffets at the address set
forth above. A shareholder who fails to give written notice within this time
period is entitled only to the amount remitted by Buffets.
Within 60 days after receipt of a demand for supplemental payment,
Buffets must either (1) pay the shareholder the amount demanded or agreed to by
the shareholder after discussion with Buffets, or (2) petition a county court in
Minnesota for the determination of the fair value of the shares, plus interest,
if any. Upon payment of the agreed value, the dissenting shareholder will cease
to have any interest in Buffets. Buffets has no current intention of offering to
pay more than $13.85 per share in respect of any dissenting shareholder's
shares.
COURT DETERMINATION
If, within the 60 days after the receipt of demand for supplemental
payment, any one or more of the dissenting shareholders and Buffets do not agree
on the fair value of the shares, then Buffets must file a petition with the
court to obtain a judicial finding and determination of the fair value of the
dissenting shareholder's shares of Buffets common stock. The petition must name
as parties all shareholders who have demanded supplemental payment and have not
reached an agreement with Buffets.
The court, after determining that the shareholder or shareholders in
question have complied with all statutory requirements, may use any valuation
method or combination of methods it deems appropriate to use, whether or not
used by Buffets or a dissenting shareholder, and may appoint appraisers to
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recommend the amount of the fair value of the shares. The court's determination
will be binding on all shareholders of Buffets who properly exercised
dissenters' rights and did not agree with Buffets as to the fair value of the
shares and may be less than, equal to or more than the merger consideration.
Dissenting shareholders are entitled to judgment in cash for the amount by which
the court-determined fair value per share, plus interest, exceeds the amount per
share, plus interest, remitted to the shareholders by Buffets. The shareholders
shall not be liable to Buffets for any amounts paid by Buffets which exceed the
fair value of the shares as determined by the court, plus interest.
The costs and expenses of such a proceeding, including the expenses and
compensation of any appraisers, will be determined by the court and assessed
against Buffets, except that the court may, in its discretion, assess part or
all of those costs and expenses against any shareholder whose action in
demanding supplemental payment is found to be arbitrary, vexatious or not in
good faith. The court may award fees and expenses to an attorney for the
dissenting shareholders out of the amount, if any, awarded to such shareholders.
The court may assess fees and expenses of experts or attorneys against any
person who acted arbitrarily, vexatiously or not in good faith in bringing the
proceeding and also may award fees and expenses of experts or attorneys against
Buffets if Buffets fails to comply substantially with Section 302A.473 of the
MBCA.
Buffets may withhold the remittance of the estimated fair value, plus
interest, for any shares owned by any person who was not a shareholder or who is
dissenting on behalf of a person who was not a beneficial owner on June 5, 2000,
the date on which the proposed merger was first announced to the public. Buffets
will forward to any dissenting shareholder who was not a shareholder on June 5,
2000 but who has complied with all requirements in exercising dissenters' rights
the notice and all other materials sent after shareholder approval of the merger
agreement to all shareholders who have properly exercised dissenters' rights,
together with a statement of the reason for withholding the remittance and an
offer to pay the dissenting shareholder the amount listed in the materials if
the shareholder agrees to accept that amount in full satisfaction. The
shareholder may decline this offer and demand payment by following the same
procedure as that described for demand of supplemental payment by shareholders
who owned their shares as of June 5, 2000. Any shareholder who did not own
shares on June 5, 2000 and who fails properly to demand payment will be entitled
only to the amount offered by Buffets. Upon proper demand by any shareholder,
rules and procedures applicable in connection with receipt by Buffets of the
demand for supplemental payment given by a dissenting shareholder who owned
shares on June 5, 2000 will also apply to any shareholder properly giving a
demand but who did not own shares of record or beneficially on June 5, 2000,
except that any such shareholder is not entitled to receive any remittance from
Buffets until the fair value of the shares, plus interest, has been determined
pursuant to such rules and procedures.
Shareholders considering exercising dissenters' rights should bear in
mind that the fair value of their shares determined under Sections 302A.471 and
302A.473 of the MBCA could be more than, the same as, or less than the
consideration they would receive pursuant to the merger agreement if they did
not seek appraisal of their shares. Furthermore, the opinion of any investment
banking firm as to fairness, from a financial point of view, is not an opinion
as to fair value under Sections 302A.471 and 302A.473 of the MBCA.
Under Section 302A.471 of the MBCA a shareholder of Buffets has no
right at law or equity to set aside the adoption of the merger agreement or the
consummation of the merger, unless such shareholder can establish that adoption
or consummation was fraudulent with respect to such shareholder or Buffets.
Any holder who fails to comply fully with the statutory procedures
summarized above within the time periods specified above will forfeit his or her
rights of dissent and will receive the cash consideration
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payable in the merger for his or her shares, which may be more or less than or
equal to the fair value of the shares determined under section 302A.473 of
the MBCA.
CERTAIN FINANCIAL PROJECTIONS
We do not as a matter of course make public forecasts as to future
revenues, earnings or other financial information. We did, however, prepare
certain projections which we provided to Caxton-Iseman and to U.S. Bancorp Piper
Jaffray in connection with its analysis of Caxton-Iseman's proposal and their
evaluation of Buffets' financial position at that time. The projections set
forth below are included in this proxy statement solely because such information
was provided to Caxton-Iseman. See "The Merger-- Background of the Merger" and
"The Merger--Opinion of Financial Adviser."
The projections set forth below were not prepared by us with a view to
public disclosure or compliance with published guidelines of the SEC or the
American Institute of Certified Public Accountants regarding prospective
financial information. In addition, the projections were not prepared with the
assistance of or reviewed, compiled or examined by, independent accountants. The
projections reflect numerous assumptions, all made by our management, with
respect to industry performance, general business, economic, market and
financial conditions and other matters, all of which are difficult to predict
and many of which are beyond our control. Furthermore, these projections did not
take into account any debt burden on Buffets, including interest and
amortization payments, that would have been placed on Buffets in a leveraged
buyout. Accordingly, there can be no assurance that the assumptions made in
preparing the projections set forth below will prove accurate, and actual
results may be materially greater or less than those contained in the
projections set forth below. See "Cautionary Statement Concerning
Forward-Looking Information" beginning on page 52 of this proxy statement.
The inclusion of the projections in this proxy statement should not be
regarded as an indication that we or any of our representatives, officers or
directors consider such information to be an accurate prediction of future
events or necessarily achievable. In light of the uncertainties inherent in
forward looking information of any kind, we caution against undue reliance on
such information. We do not intend to update or revise such projections to
reflect circumstances existing after the date when prepared or to reflect the
occurrence of future events, unless required by law.
The following table summarizes the projections that were provided:
<TABLE>
Fiscal years
-----------------------------------------------------------------------------------------------
Item 2000 2001 2002 2003 2004
-------------------------------------- ------------- -------------- ------------- -------------
(in millions)
<S> <C> <C> <C> <C> <C>
Restaurant sales......... 1,025,016 1,098,567 1,190,944 1,287,100 1,391,195
Operating income......... 81,656 97,707 110,827 127,212 144,853
Net income............... 50,822 62,484 72,004 85,099 97,702
</TABLE>
The projections set forth above should be read together with the
"Selected Historical Financial Data" included in this proxy statement and our
historical financial statements and other financial information and the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" as set forth in Buffets' Annual Report on Form 10-K for the fiscal
year ended December 29, 1999 and Buffets' Quarterly Report on Form 10-Q for a
sixteen-week period ended April 19, 2000, each of which is incorporated by
reference into this proxy statement.
50
<PAGE>
PRINCIPAL SHAREHOLDERS
AND STOCK OWNERSHIP OF MANAGEMENT AND OTHERS
The following table sets forth, as of ___________, 2000, the beneficial
ownership of our common stock by all of our directors and executive officers
and all shareholders beneficially owning in excess of five percent of our
outstanding shares. Unless otherwise indicated, the mailing address for each
person listed in the table is 1460 Buffet Way, Eagan, Minnesota 55121.
Number of Shares Owned Percentage of
Beneficially as of Shares
Name _________, 2000(1) Outstanding
---------------------------------------------------------------- ---------------
Roe H. Hatlen 1,949,273 (2) 4.6%
C. Dennis Scott 666,770 (3) 1.6
Kerry A. Kramp 421,496 (4) 1.0
David Goronkin 148,819 (5) *
Glenn D. Drasher 85,175 (6) *
Walter R. Barry, Jr. 50,124 (7) *
Marvin W. Goldstein 20,000 (8) *
Alan S. McDowell 262,180 (9) *
Michael T. Sweeney 10,500 (10) *
Massachusetts Financial Services Company 4,231,228 (11) 10.2
500 Bolyston Street
Boston, Massachusetts 02116
Capital Group International, Inc. 2,648,000 (12) 6.4
11100 Santa Monica Boulevard
Los Angeles, California 90025
Capital Guardian Trust Company (12)
333 South Hope Street
Los Angeles, California 90071
Merrill Lynch Asset Management, L.P. 2,239,955 (13) 5.4
800 Scudders Mill Road
Plainsboro, New Jersey 08536
*All directors and executive officers
as a group (15 persons) 4,488,455 (14) 10.2
-------------------
*Less than one percent.
(1) As discussed elsewhere in this proxy statement, all options to purchase
Buffets common stock will become fully exercisable before the
completion of the merger. Accordingly, the table includes all such
stock options when calculating beneficial ownership.
(2) Includes 130,288 shares owned of record by certain members of Mr.
Hatlen's family and 93,744 shares owned of record by Mr. Hatlen's wife
as trustee for their children, as to all of which Mr. Hatlen disclaims
beneficial ownership, 16,000 shares owned of record by the Hatlen
Foundation (of which Mr. Hatlen is an officer), 150,000 shares owned of
record by Eventyr Investments Limited Partnership (of which Mr. Hatlen
is the sole general partner and a limited partner) and 805,000 shares
subject to stock options.
(3) Includes 420,400 shares subject to stock options.
51
<PAGE>
(4) Includes 157 shares owned of record by Mr. Kramp as custodian for his
nephew and nieces, and 389,500 shares subject to stock options.
(5) Includes 145,000 shares subject to stock options.
(6) Includes 85,000 shares subject to stock options.
(7) Includes 10,000 shares subject to stock options.
(8) Includes 10,000 shares subject to stock options.
(9) Includes 19,680 shares owned of record by Mr. McDowell's daughter and
son and 6,500 shares owned of record by the McDowell Foundation (of
which Mr. McDowell is an officer), as to all of which Mr. McDowell
disclaims beneficial ownership.
(10) Includes 500 shares owned of record by the Sweeney Family Educational
Trust, with respect to which Mr. Sweeney disclaims beneficial
ownership, and 10,000 shares subject to stock options.
(11) All shares are subject to stock options.
(12) Massachusetts Financial Services Company has sole power to vote
3,800,357 of such shares and sole power to dispose of all of such
shares. The information has been derived from the Form 13F dated April
27, 2000 filed by Massachusetts Financial Services Company with the SEC
and is stated as of March 31, 2000.
(13) Capital Group International, Inc. is the parent holding company of a
group of investment management companies that, in the aggregate, have
the sole power to vote 2,239,500 of their reported shares and sole
power to dispose of all of their reported shares. Capital Group
International, Inc. does not itself exercise investment or voting power
over any of these shares but may be deemed to beneficially own these
shares by virtue of Rule 13d-3 under the Securities Exchange Act of
1934. These shares include shares over which Capital Guardian Trust
Company exercises voting and/or dispositive power. Capital Group
International, Inc. and Capital Guardian Trust Company disclaim
beneficial ownership with respect to all of their respective shares.
The information relating to the beneficial ownership of Capital Group
International, Inc. and Capital Guardian Trust Company has been derived
from the Form 13F dated May 15, 2000 filed by Capital Guardian Trust
Company with the SEC and is stated as of March 31, 2000.
(14) The information has been derived from the Form 13F dated May 2, 2000
filed by Fund Asset Management, L.P. with the SEC and is stated as of
March 31, 2000.
(15) Includes an aggregate of 2,358,300 shares subject to stock options held
by all directors and executive officers as a group.
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION
This proxy statement includes and incorporates by reference statements
that are not historical facts. These forward-looking statements are based on our
current estimates and assumptions and, as such, involve uncertainty and risk.
Forward-looking statements include the information concerning our possible or
assumed future results of operations and also include those preceded or followed
by the words
52
<PAGE>
"anticipates," "believes," "estimates," "expects," "should," "could," "targets"
and "may" or similar expressions. For each of these statements, we claim the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995.
The forward-looking statements are not guarantees of future
performance, and actual results may differ materially from those contemplated by
such forward-looking statements. In addition to the factors discussed elsewhere
in this proxy statement, including those discussed in "The Merger - Background
of the Merger," other factors that could cause actual results to differ
materially include changes in the cost of food and labor, weather conditions,
health and regulatory developments and general economic conditions. In addition,
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 qualified restaurant
managers and the availability of capital. These and other factors are discussed
in the documents that we incorporate by reference into this proxy statement.
Except to the extent required under the federal securities laws,
Buffets does not intend to update or revise the forward-looking statements to
reflect circumstances arising after the date of the preparation of the
forward-looking statements.
WHERE YOU CAN FIND MORE INFORMATION
Buffets files annual, quarterly, and current reports, proxy statements,
and other information with the SEC. You may read and copy any reports,
statements, or other information that Buffets files at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference room.
Buffets' public filings are also available to the public from commercial
document retrieval services and at the Internet site maintained by the SEC at
http://www.sec.gov.
The SEC allows Buffets to "incorporate by reference" into this document
the information in documents Buffets files with the SEC, which means that
Buffets can disclose important information to you by referring you to another
document filed separately with the SEC. The information incorporated by
reference is deemed to be a part of this document, except for any information
superseded by information contained directly in this document. This document
incorporates by reference certain documents that Buffets has previously filed
with the SEC. See "Incorporation Of Certain Documents By Reference." These
documents contain important business information about Buffets and its financial
condition.
Buffets may have sent to you some of the documents incorporated by
reference, but you can obtain any of them through Buffets or the SEC or the
SEC's Internet site described above. Documents incorporated by reference are
available from Buffets without charge, excluding all exhibits unless
specifically incorporated by reference as an exhibit to this document.
Shareholders may obtain documents incorporated by reference in this document
upon written or oral request to the following address or telephone number:
BUFFETS, INC.
1460 BUFFET WAY
EAGAN, MINNESOTA 55121
(651) 994-8608
Attention: Corporate Secretary
Buffets will send any document so requested to the requesting
shareholder by first-class mail or other equally prompt means within one day of
receiving the request.
53
<PAGE>
If you would like to request documents from Buffets, please do so at
least five business days before the date of the special meeting in order to
receive timely delivery of such documents prior to the special meeting.
You should rely only on the information contained or incorporated by
reference in this document to vote your Buffets shares at the special meeting.
Buffets has not authorized anyone to provide you with information that is
different from what is contained in this document. This document is dated
___________, 2000. You should not assume that the information contained in this
document is accurate as of any date other than that date, and the mailing of
this document to shareholders does not create any implication to the contrary.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Buffets hereby incorporates the following documents previously filed
with the SEC (SEC File No. 0-14370) into this proxy statement:
(1) Buffets' Annual Report on Form 10-K for the fiscal year ended
December 29, 1999, including information incorporated by
reference into that report from Buffet's 1999 Annual Report to
Shareholders and portions of Buffet's definitive proxy
statement for its 2000 Annual Meeting of Shareholders;
(2) Buffets' Quarterly Report on Form 10-Q for the period ended
April 19, 2000; and
(3) Buffets' Current Report on Form 8-K filed June 6, 2000.
Buffets also incorporates by reference in this proxy statement all
additional documents that it may file with the SEC between the date of this
proxy statement and the date of the special meeting. These documents include
periodic reports, such as Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K. Any statements contained in a document incorporated by reference in
this proxy statement will be deemed to be modified or superseded for purposes of
this proxy statement to the extent that a statement contained in this proxy
statement, or in any other subsequently filed document which also is
incorporated by reference in this proxy statement, modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed to be a
part of this proxy statement except as so modified or superseded.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of Buffets as of December 30,
1998 and December 29, 1999 and the related consolidated statements of earnings,
stockholders' equity, and cash flows for each of the three years (52 weeks) in
the period ended December 29, 1999 have been audited by Deloitte & Touche LLP,
independent auditors, as set forth in their report incorporated herein by
reference.
SHAREHOLDER PROPOSALS
If the merger proposal is approved, you will no longer own shares of
Buffets, and Buffets will not solicit proxies for an annual meeting in 2001. If
the merger proposal is not approved, Buffets will hold an annual meting in May
2001. If you want to have a shareholder proposal considered for inclusion in the
proxy statement for that meeting, you must submit the proposal in writing to
Buffets at its principal executive officers no later than December 1, 2000. If
notice of any other shareholder proposal intended to be presented at that
meeting is not received by Buffets on or before February 14, 2001, then the
proxy solicited by the Buffets' board of directors for use in connection with
that meeting may confer authority
54
<PAGE>
on the proxies named in the proxy to vote in their discretion on the proposal
without any discussion in the proxy statement of either the proposal or how the
proxies intend to exercise their voting discretion. Buffets suggests that all
such proposals be sent by certified mail, return receipt requested.
<PAGE>
Exhibit A
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
among
BUFFETS, INC.,
BIG BOY HOLDINGS, INC.,
and
BIG BOY MERGER CORPORATION
Dated as of June 4, 2000
--------------------------------------------------------------------------------
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
<S> <C> <C>
ARTICLE I THE MERGER.............................................................A-4
1.01 MERGER.................................................................A-4
1.02 EFFECTIVE TIME OF THE MERGER...........................................A-4
1.03 ARTICLES OF INCORPORATION AND BY-LAWS OF THE SURVIVING CORPORATION.....A-5
1.04 BOARD OF DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION...........A-5
1.05 CONVERSION OF SHARES...................................................A-5
1.06 DISSENTERS' RIGHTS.....................................................A-6
1.07 STOCK OPTIONS..........................................................A-6
1.08 PAYMENT FOR SHARES.....................................................A-7
1.09 NO FURTHER RIGHTS OR TRANSFERS.........................................A-8
1.10 TENDER OFFER...........................................................A-9
ARTICLE II CLOSING...............................................................A-9
2.01 GENERALLY..............................................................A-9
2.02 DELIVERIES AT THE CLOSING..............................................A-9
ARTICLE III REPRESENTATIONS AND WARRANTIES......................................A-10
3.01 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................A-10
3.02 REPRESENTATIONS AND WARRANTIES OF BUYER AND BUYER SUBSIDIARY..........A-25
ARTICLE IV CONDUCT AND TRANSACTIONS BEFORE THE EFFECTIVE TIME...................A-28
4.01 OPERATION OF BUSINESS OF THE COMPANY UNTIL EFFECTIVE TIME.............A-28
4.02 SHAREHOLDERS' MEETING; PROXY MATERIAL.................................A-30
4.03 NO SHOPPING...........................................................A-31
4.04 ACCESS TO INFORMATION.................................................A-31
4.05 AMENDMENT OF THE COMPANY'S EMPLOYEE PLANS.............................A-32
4.06 HSR ACT...............................................................A-32
4.07 CERTAIN RESIGNATIONS..................................................A-32
4.08 CONFIDENTIALITY AGREEMENT.............................................A-32
4.09 OPTIONS...............................................................A-32
4.10 AMENDMENT TO RIGHTS AGREEMENT.........................................A-32
ARTICLE V CONDITIONS PRECEDENT..................................................A-33
5.01 CONDITIONS TO THE OBLIGATIONS OF BUYER AND BUYER SUBSIDIARY...........A-33
5.02 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY..........................A-35
A-2
<PAGE>
ARTICLE VI CONDUCT AND TRANSACTIONS AFTER THE EFFECTIVE TIME....................A-36
6.01 EMPLOYEE MATTERS......................................................A-36
6.02 INDEMNIFICATION.......................................................A-36
6.03 DIRECTORS AND OFFICERS LIABILITY INSURANCE............................A-37
ARTICLE VII TERMINATION AND ABANDONMENT.........................................A-37
7.01 GENERALLY.............................................................A-37
7.02 PROCEDURE AND EFFECT OF TERMINATION AND ABANDONMENT...................A-39
ARTICLE VIII MISCELLANEOUS PROVISIONS...........................................A-39
8.01 TERMINATION OF REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........A-39
8.02 AMENDMENT AND MODIFICATION............................................A-39
8.03 WAIVER OF COMPLIANCE; CONSENTS........................................A-39
8.04 EXPENSES AND TERMINATION FEE..........................................A-39
8.05 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS...............................A-41
8.06 ADDITIONAL AGREEMENTS.................................................A-42
8.07 NOTICES...............................................................A-42
8.08 ASSIGNMENT............................................................A-43
8.09 INTERPRETATION........................................................A-43
8.10 GOVERNING LAW.........................................................A-43
8.11 COUNTERPARTS..........................................................A-44
8.12 HEADINGS; INTERNAL REFERENCES.........................................A-44
8.13 ENTIRE AGREEMENT......................................................A-44
8.14 SEVERABILITY..........................................................A-44
8.15 DISCLOSURE LETTER.....................................................A-44
</TABLE>
A-3
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger is dated as of June 4, 2000, among
Buffets, Inc., a Minnesota corporation (the "Company"), Big Boy Holdings, Inc.,
a Delaware corporation ("Buyer"), and Big Boy Merger Corporation, a Minnesota
corporation and a wholly owned subsidiary of Buyer ("Buyer Subsidiary" and,
together with the Company, sometimes referred to as the "Constituent
Corporations").
RECITALS
Buyer desires to acquire the Company by effecting a merger (the
"Merger") of Buyer Subsidiary with and into the Company under the terms hereof,
whereby the shareholders of the Company will receive cash for their shares of
capital stock of the Company.
The Board of Directors of each of the Constituent Corporations deems
the Merger desirable and in the best interests of the shareholders of the
Constituent Corporation.
AGREEMENT
Now, therefore, in consideration of the premises and of the mutual
covenants, representations, warranties, and agreements herein contained, the
parties hereby agree as follows:
ARTICLE I
THE MERGER
1.01 MERGER. At the Effective Time (as defined in Section 1.02),
and in accordance with the terms of this Agreement and the Minnesota Business
Corporation Act (the "Minnesota Act"), Buyer Subsidiary shall be merged with and
into the Company, the separate corporate existence of Buyer Subsidiary shall
thereupon cease, and the Company shall be the surviving corporation in the
Merger (sometimes referred to as the "Surviving Corporation"). At the Effective
Time, the Merger shall have the other effects provided in the applicable
provisions of the Minnesota Act.
1.02 EFFECTIVE TIME OF THE MERGER. Subject to, and promptly
following (but not more than one business day (unless the Company and Buyer
shall otherwise mutually agree)), the receipt of the vote of the shareholders
of the Company approving this Agreement and the satisfaction or waiver of all
other conditions to the consummation of the Merger set forth in Article V of
this Agreement, the Company and Buyer Subsidiary shall execute in the manner
required by the Minnesota Act and deliver for filing to the Secretary of State
of the State of Minnesota articles of merger with respect to the Merger
("Articles of Merger"). The Merger shall become effective upon the filing of
the Articles of Merger with the Minnesota Secretary of
A-4
<PAGE>
State in accordance with Section 302A.615 of the Minnesota Act. The term
"Effective Time" means the date and time when the Merger becomes effective.
1.03 ARTICLES OF INCORPORATION AND BY-LAWS OF THE SURVIVING
CORPORATION. The Articles of Incorporation of Buyer Subsidiary in effect
immediately before the Effective Time shall be the Articles of Incorporation of
the Surviving Corporation, until amended in accordance with the laws of the
State of Minnesota and such Articles of Incorporation. The By-Laws of Buyer
Subsidiary in effect immediately before the Effective Time shall be the By-Laws
of the Surviving Corporation, until further amended in accordance with the laws
of the State of Minnesota, the Articles of Incorporation of the Surviving
Corporation, and such By-Laws.
1.04 BOARD OF DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION.
The directors of Buyer Subsidiary immediately before the Effective Time shall be
the directors of the Surviving Corporation, each of such directors to hold
office, subject to the applicable provisions of the Articles of Incorporation
and By-Laws of the Surviving Corporation, until the expiration of the term for
which such director was elected and until his or her successor is elected and
has qualified or as otherwise provided in the Articles of Incorporation or
By-Laws of the Surviving Corporation. The officers of the Company immediately
before the Effective Time shall be the officers of the Surviving Corporation
until their respective successors are chosen and have qualified or as otherwise
provided in the By-Laws of the Surviving Corporation.
1.05 CONVERSION OF SHARES. The manner and basis of converting
the shares of stock of each of the Constituent Corporations shall be as follows:
(a) At the Effective Time, each share of Common Stock of the
Company, par value $.01 per share ("Company Common Stock"), issued and
outstanding immediately before the Effective Time (other than (i)
Dissenting Shares (as defined below) and (ii) shares of Company Common
Stock held of record by Buyer or Buyer Subsidiary or any other direct
or indirect wholly owned subsidiary of Buyer or the Company immediately
before the Effective Time) shall, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into and
represent the right to receive $13.85 in cash (the "Merger
Consideration"), without interest.
(b) At the Effective Time, each share of Common Stock of Buyer
Subsidiary, par value $.01 per share, issued and outstanding
immediately before the Effective Time shall, by virtue of the Merger
and without any action on the part of the holder thereof, be converted
into and exchanged for one fully paid and nonassessable share of Common
Stock of the Surviving Corporation ("Surviving Corporation Common
Stock"), which shall constitute the only issued and outstanding shares
of capital stock of the Surviving Corporation immediately after the
Effective Time. From and after the Effective Time, each outstanding
certificate theretofore representing shares of Common Stock of Buyer
Subsidiary shall be deemed for all purposes to evidence ownership and
to represent the same number of shares of Surviving Corporation Common
Stock.
A-5
<PAGE>
(c) At the Effective Time, each share of Company Common Stock
held of record by Buyer or Buyer Subsidiary or any other direct or
indirect wholly owned subsidiary of Buyer or the Company immediately
before the Effective Time shall, by virtue of the Merger and without
any action on the part of the holder thereof, be canceled and cease to
exist, and no payment shall be made with respect thereto.
1.06 DISSENTERS' RIGHTS.
(a) Notwithstanding Section 1.05 hereof, shares of Company
Common Stock issued and outstanding immediately before the Effective
Time, if any, that are held of record or beneficially owned by a person
who has properly exercised and preserved and perfected dissenters'
rights with respect to such shares under Sections 302A.471 and 302A.473
of the Minnesota Act and has not withdrawn or lost such rights
("Dissenting Shares") shall not be converted into or represent the
right to receive the Merger Consideration for such shares, but instead
shall be treated in accordance with Sections 302A.471 and 302A.473 of
the Minnesota Act unless and until such person effectively withdraws or
loses such person's right to payment under Section 302A.473 of the
Minnesota Act (through failure to preserve or protect such right or
otherwise). If, after the Effective Time, any such person shall
effectively withdraw or lose such right, then each such Dissenting
Share held of record or beneficially owned by such person will
thereupon be treated as if it had been converted into, at the Effective
Time, the right to receive the Merger Consideration, without interest.
(b) Each person holding of record or beneficially owning
Dissenting Shares who becomes entitled, under the provisions of
Sections 302A.471 and 302A.473 of the Minnesota Act, to payment of the
fair value of such Dissenting Shares shall receive payment therefor
(plus interest determined in accordance with Section 302A.473 of the
Minnesota Act) from the Surviving Corporation.
(c) The Company shall give Buyer prompt written notice upon
receipt by the Company at any time before the Effective Time of any
notice of intent to demand the fair value of any shares of Company
Common Stock under Section 302A.473 of the Minnesota Act and any
withdrawal of any such notice. The Company will not, except with the
prior written consent of Buyer, negotiate, voluntarily make any payment
with respect to, or settle or offer to settle, any such demand at any
time before the Effective Time.
1.07 STOCK OPTIONS. Immediately before the Effective Time, each
holder of a then-outstanding option (collectively, the "Options" and
individually, an "Option") to purchase shares of Company Common Stock granted
under any employee stock option or compensation plan of, or other arrangement
with, the Company shall be entitled (whether or not such Option is then
exercisable) to receive in cancellation of such Option a cash payment from the
Company in an
A-6
<PAGE>
amount equal to the amount, if any, by which the Merger Consideration exceeds
the per-share exercise price of such Option, multiplied by the number of shares
of Company Common Stock then subject to such Option (the "Option Settlement
Amount"), without interest, but subject to all required tax withholdings by the
Company. The Company shall take all steps necessary including giving such
notices and entering into such instruments consistent with the foregoing to give
effect to this Section 1.07.
1.08 PAYMENT FOR SHARES.
(a) Immediately before the Effective Time, Buyer or Buyer
Subsidiary shall deposit or cause to be deposited in immediately
available funds with American Stock Transfer Company or any other
disbursing agent having capital, surplus and undivided profits
exceeding $500 million that is selected by Buyer and reasonably
satisfactory to the Company (the "Disbursing Agent"), cash in an amount
equal to the product (rounded up or down to the nearest $.01) of (i)
the number of shares of Company Common Stock issued and outstanding
immediately before the Effective Time (other than (i) Dissenting Shares
and (ii) shares then held of record by Buyer or Buyer Subsidiary or any
other direct or indirect wholly owned subsidiary of Buyer or the
Company) times (ii) the Merger Consideration (such amount being
referred to as the "Fund").
(b) At or before the Effective Time, Buyer shall deliver
irrevocable written instructions to the Disbursing Agent in form and
substance reasonably satisfactory to the Company to make, out of the
Fund, the payments referred to in Section 1.05(a) in accordance with
Section 1.08(c). The Fund shall not be used for any other purpose,
except as provided in this Agreement.
Any amount remaining in the Fund including, without
limitation, all interest and other income received by the Disbursing
Agent in respect of amounts in the Fund six months after the Closing
Date (as defined below) may be refunded to the Surviving Corporation,
at its option; provided, however, that the Surviving Corporation shall
continue to be liable for any payments required to be made thereafter
under Section 1.05(a) hereof. If any Merger Consideration shall not
have been disbursed prior to two years after the Effective Time (or
immediately prior to such earlier date on which any Merger
Consideration or Option Settlement Amount payable to the former holder
of Company Common Stock or Option would otherwise escheat to or become
the property of any governmental authority), any such Merger
Consideration or Option Settlement Amount shall, to the extent
permitted by applicable law, become the property of the Surviving
Corporation, free and clear of all claims or interest of any person
previously entitled thereto.
(c) As soon as practicable after the Effective Time, the
Disbursing Agent shall mail to each holder of record (other than Buyer
or Buyer Subsidiary or any other direct or indirect wholly owned
subsidiary of Buyer or the Company) of a certificate or certificates
A-7
<PAGE>
that, immediately before the Effective Time, represented issued and
outstanding shares of Company Common Stock (other than Dissenting
Shares) a letter of transmittal for return to the Disbursing Agent, and
instructions for use in effecting the surrender of such certificate or
certificates and the receipt of cash for each of such holder's shares
of Company Common Stock under Section 1.05(a). The Disbursing Agent, as
soon as practicable following receipt of any such certificate or
certificates together with a duly executed letter of transmittal and
any other items specified in the letter of transmittal, shall pay by
cashier's check of the Disbursing Agent to the persons entitled thereto
(subject to any required withholding of taxes by the Surviving
Corporation) the amount (rounded up or down to the nearest $.01)
determined by multiplying the number of shares of Company Common Stock
represented by the certificate or certificates so surrendered by the
Merger Consideration. No interest will be paid or accrued on the cash
payable upon the surrender of any such certificate or certificates. If
payment is to be made to a person other than the person in whose name
the certificate surrendered is registered, it shall be a condition of
payment that the certificate so surrendered be properly endorsed or
otherwise be in proper form for transfer and that the person requesting
such payment pay any transfer or other taxes required by reason of the
payment to a person other than the registered holder of the certificate
surrendered or establish to the satisfaction of the Surviving
Corporation that such tax has been paid or is not applicable.
(d) If any such certificate or certificates shall have been
lost, stolen or destroyed, upon the making of an affidavit of that fact
and customary indemnification against loss by the person claiming such
certificate or certificates to have been lost, stolen or destroyed, the
Disbursing Agent will pay in exchange for such lost, stolen or
destroyed certificate to the persons entitled thereto (subject to any
required withholding of taxes by the Surviving Corporation) the
applicable Merger Consideration in respect thereof calculated pursuant
to Section 1.08(c) upon receipt by the Disbursing Agent of such
affidavit and indemnification against loss.
1.09 NO FURTHER RIGHTS OR TRANSFERS. At the Effective Time, all
shares of Company Common Stock issued and outstanding immediately before the
Effective Time shall be canceled and cease to exist, and each holder of a
certificate or certificates that represented shares of Company Common Stock
issued and outstanding immediately before the Effective Time shall cease to have
any rights as a shareholder of the Company with respect to the shares of Company
Common Stock represented by such certificate or certificates, except for the
right to surrender such certificate or certificates in exchange for the payment
provided under Section 1.05(a) or to preserve and perfect such holder's right to
receive payment for such holder's shares under Section 302A.473 of the Minnesota
Act and Section 1.06 hereof if such holder has validly exercised and not
withdrawn or lost such right, and no transfer of shares of Company Common Stock
issued and outstanding immediately before the Effective Time shall be made on
the stock transfer books of the Surviving Corporation.
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1.10 TENDER OFFER. Notwithstanding anything to the contrary in this
Agreement, Buyer shall have the right to commence a cash tender offer to
purchase all the outstanding shares of Common Stock (with at least a majority of
the fully-diluted shares of Common Stock as a minimum condition, which cannot be
waived without the written consent of the Company) at a price equal to or in
excess of what would have been the Merger Consideration. The only conditions to
acceptance of the shares shall be such conditions as are set forth in Section
5.01 and the minimum condition, unless the Company in its sole discretion shall
agree to other conditions. Notwithstanding Buyer's exercise of its right to
commence such an offer, this Agreement shall remain in full force and effect.
Any shares of Common Stock not purchased in such offer shall, as promptly as
possible, be acquired on the terms set forth in this Agreement, provided that if
Buyer acquires, directly or indirectly, at least 90% of the outstanding shares
pursuant to the offer, Buyer will take all necessary and appropriate action to
cause the Merger to become effective in accordance with Section 302A.621 of the
Minnesota Act without a meeting of the shareholders as soon as practicable after
the purchase of the shares pursuant to such offer.
ARTICLE II
CLOSING
2.01 GENERALLY. Subject to Articles V and VII, the closing (the
"Closing") of the Merger shall occur not later than the business day next
following the special meeting of shareholders of the Company to be called under
Section 4.02, or at such other time as the Company and Buyer may mutually agree
(the "Closing Date"). The Closing shall be held at the offices of Paul, Weiss,
Rifkind, Wharton & Garrison in New York, New York, or at such other place as the
Company and Buyer may mutually agree.
2.02 DELIVERIES AT THE CLOSING. Subject to Articles V and VII,
at the Closing:
(a) there shall be delivered to Buyer, Buyer Subsidiary and
the Company the certificates and other documents and instruments the
delivery of which is contemplated under Article V;
(b) the Company and Buyer Subsidiary shall cause the Articles
of Merger to be filed as provided in Section 1.02 and shall take all
other lawful actions and do all other lawful things necessary to cause
the Merger to become effective; and
(c) subject to the right of the Surviving Corporation to
receive a refund of amounts remaining in the Fund six months after the
Closing Date under Section 1.08(b), Buyer or Buyer Subsidiary shall
irrevocably deposit with the Disbursing Agent the amount designated as
the Fund in Section 1.08(a).
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.01 Representations and Warranties of the Company. The Company
represents and warrants to Buyer and Buyer Subsidiary as follows:
(a) Organization, Standing, Qualification. Each of the Company
and the corporations listed in Section 3.01(a) of the Disclosure Letter
delivered by the Company to Buyer on June 4, 2000 (the "Disclosure
Letter") under the heading "Subsidiaries" (collectively, the
"Subsidiaries" and individually, a "Subsidiary") is a corporation duly
incorporated, validly existing and in good standing under the laws of
the jurisdiction of its incorporation (as identified in the Disclosure
Letter) and has the requisite corporate power and corporate authority
to own, lease and operate its properties and assets and to carry on its
business as it is now being conducted. The Company has no subsidiaries
other than the Subsidiaries. Each of the Company and its Subsidiaries
is duly qualified or licensed as a foreign corporation to do business,
and is in good standing, in each jurisdiction where the character of
the properties owned, operated or leased by it, or the nature of its
business, makes such qualification or licensing necessary, except such
jurisdictions where failure to be so qualified, licensed or in good
standing would not have, individually or in the aggregate, a material
adverse effect upon the business, operations, properties or financial
condition of the Company and its Subsidiaries, taken as a whole (a
"Material Adverse Effect"). The copies of the Articles or Certificate
of Incorporation and By-Laws or similar organizational documents of the
Company and each Subsidiary provided to Buyer are complete and correct
as of the date of this Agreement.
(b) Capitalization. The authorized capital stock of the
Company consists of 60 million shares of Company Common Stock, of
which, as of the date of this Agreement, 41,577,129 shares are issued
and outstanding, and five million shares of Preferred Stock, par value
$.01 per share, of which 600,000 shares have been designated as Series
A Junior Participating Preferred Stock ("Series A Preferred Stock"),
none of which, as of the date of this Agreement, is issued and
outstanding. All of the issued and outstanding shares of capital stock
of the Company and of each Subsidiary have been duly authorized and
validly issued, are fully paid and nonassessable and were not granted
in violation of any preemptive rights. There are no outstanding
subscriptions, options, warrants, calls or other agreements or
commitments under which the Company or any Subsidiary is or may become
obligated to issue, sell, transfer or otherwise dispose of, or
purchase, redeem or otherwise acquire, any shares of capital stock of,
or other equity interests in, the Company or any Subsidiary, and there
are no outstanding securities convertible into or exchangeable for any
such capital stock or other equity interests, except for (i) Options to
purchase up to 5,440,897 shares of Company Common Stock (as of the date
of this Agreement) at the exercise prices set forth in Section 3.01(b)
of the
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Disclosure Letter, (ii) the Rights Agreement dated as of October
24, 1995 between the Company and American Stock Transfer and Trust
Company (the "Rights Agreement") under which each outstanding share of
Company Common Stock has attached to it certain rights (the "Rights"),
including rights under certain circumstances to purchase a fraction of
a share of Series A Preferred Stock at $65 per right, subject to
adjustment, and (iii) the Company's 7% Convertible Subordinated Notes
due 2002 (the "Convertible Notes") in aggregate principal amount of
$41,465,000 as of the date of this Agreement. At the Effective Time,
the Options referred to in clause (i) will be cancelled in accordance
with Section 1.07, the Rights Agreement will not be applicable to the
Merger and the other transactions contemplated by this Agreement and
the holders of the Rights will have no rights under the Rights or the
Rights Agreement and the Convertible Notes will be convertible solely
into the right to receive approximately $1,187.143 in cash for each
$1,000 principal amount converted thereunder. The Company owns,
directly or indirectly, all of the issued and outstanding shares of
capital stock of every class of each Subsidiary, free and clear of all
liens, security interests, pledges, charges and other encumbrances.
Section 3.01(b) of the Disclosure Letter contains a complete and
correct list of each corporation, limited liability company,
partnership, joint venture, other business association or person in
which the Company has any direct or indirect equity ownership interest.
(c) Authorization and Execution. The Company has the corporate
power and corporate authority to execute and deliver this Agreement
and, subject to approval by the holders of the Company Common Stock at
the special meeting of shareholders referred to in Section 4.02, to
consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement by the Company have been
duly authorized by the Board of Directors of the Company, and no
further corporate action of the Company, other than the approval of its
shareholders, is necessary to consummate the transactions contemplated
hereby. This Agreement has been duly executed and delivered by the
Company and, assuming the accuracy of the representations and
warranties set forth in Section 3.02(b), constitutes the legal, valid
and binding obligation of the Company, enforceable against the Company
in accordance with its terms, except to the extent that enforceability
may be limited by applicable bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally, and subject,
as to enforceability, to general principles of equity (regardless of
whether enforcement is sought in a court of law or equity).
(d) No Conflicts. Neither the execution and delivery of this
Agreement by the Company nor the consummation by the Company of the
transactions contemplated hereby, will (i) conflict with or result in a
breach of the Articles or Certificate of Incorporation, By-Laws or
similar organizational documents, as currently in effect, of the
Company or any of its Subsidiaries, (ii) except for the requirements
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), compliance with the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the
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filing of the Articles of Merger with the Secretary of State of the
tate of Minnesota, require any filing with, or consent or approval of,
any governmental authority having jurisdiction over any of the business
or assets of the Company or any of its Subsidiaries, (iii) violate any
statute, law, ordinance, rule or regulation applicable to the Company
or any of its Subsidiaries or any injunction, judgment, order, writ or
decree to which the Company or any of its Subsidiaries has been
specifically identified as subject, or (iv) result in a breach of, or
constitute a default or an event that, with the passage of time or the
giving of notice, or both, would constitute a default, give rise to a
right of termination, cancellation or acceleration, create any
entitlement of any third party to any material payment or benefit,
require the consent of any third party, or result in the creation of
any lien on the assets of the Company or any of its Subsidiaries under,
any Material Contract (as defined below), except, in the case of
clauses (ii), (iii), and (iv), where such violation, breach, default,
termination, cancellation, acceleration, payment, benefit or lien, or
the failure to make such filing or obtain such consent or approval,
would not, individually or in the aggregate, materially impair the
ability of the Company to consummate the transactions contemplated by
this Agreement or have a Material Adverse Effect.
(e) SEC REPORTS; FINANCIAL STATEMENTS; NO UNDISCLOSED
LIABILITIES.
(i) The Company has made available to Buyer, in the
form filed with the Securities and Exchange Commission (the
"SEC"), all reports, registration statements, and other
filings (including amendments to previously filed documents)
filed by the Company with the SEC since January 1, 1997 (all
such reports, proxy statements, registration statements and
filings, other than the Proxy Statement (as defined below),
are collectively called the "SEC Reports" and individually
called an "SEC Report"). No SEC Report, as of its filing date,
contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in the
light of the circumstances under which they were made, not
misleading, and each SEC Report at the time of its filing
complied as to form in all material respects with all
applicable requirements of the Securities Act of 1933, as
amended (the "Securities Act"), the Exchange Act, and the
rules and regulations of the SEC promulgated thereunder. Since
January 1, 1997, the Company has filed all reports that it was
required to file with the SEC under the Exchange Act and the
rules and regulations of the SEC.
(ii) The consolidated financial statements contained
in the SEC Reports were 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 thereto) and fairly present, in all material
respects, the consolidated financial position of the Company
and its Subsidiaries as at the respective dates thereof and
the consolidated results of operations and
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consolidated cash flows of the Company and its Subsidiaries
for the periods indicated, subject, in the case of interim
financial statements, to normal year-end adjustments, and
except that the interim financial statements do not contain
all of the footnote disclosures required by generally accepted
accounting principles.
(iii) Except as and to the extent reflected or
reserved against on the most recent balance sheet contained in
the Company's Annual Report on Form 10-K for the fiscal year
ended December 29, 1999 (the "Balance Sheet"), neither the
Company nor any of its Subsidiaries had, as of the date of
such Balance Sheet, any material obligations or liabilities of
any nature that as of such date would have been required to be
included on a balance sheet prepared in accordance with
generally accepted accounting principles as in effect on such
date (without regard to any events, incidents, assertions or
state of knowledge occurring after such date).
(f) PROXY STATEMENT. The Proxy Statement will not, at the time
the Proxy Statement is mailed, contain any untrue statement of a
material fact, or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading, and
will not, at the time of the meeting of shareholders to which the Proxy
Statement relates or at the Effective Time, as then amended or
supplemented, omit to state any material fact necessary to correct any
statement which has become false or misleading in any earlier
communication with respect to the solicitation of any proxy for such
meeting (except that no representation is made by the Company with
respect to statements made in, or incorporated by reference into, the
Proxy Statement based on information furnished by Buyer or Buyer
Subsidiary in writing specifically for inclusion in the Proxy
Statement).
(g) ABSENCE OF CERTAIN CHANGES OR EVENTs. Since the date of
the Balance Sheet and to and including the date of this Agreement, the
Company and its Subsidiaries have conducted their respective businesses
and operations in the ordinary course consistent with past practices
and neither the Company nor any of its Subsidiaries has (i) split,
combined or reclassified any shares of its capital stock or made any
other changes in its equity capital structure; (ii) purchased, redeemed
or otherwise acquired, directly or indirectly, any shares of its
capital stock or any options, rights or warrants to purchase any such
capital stock or any securities convertible into or exchangeable for
any such capital stock; (iii) declared, set aside or paid any dividend
or made any other distribution in respect of shares of its capital
stock, except for dividends or distributions by any Subsidiary to the
Company or another Subsidiary; (iv) issued any shares of its capital
stock or granted any options, rights or warrants to purchase any such
capital stock or any securities convertible into or exchangeable for
any such capital stock, except for issuances of shares of Company
Common Stock upon the exercise of Options and grants of Options for
308,000 shares of Company Common Stock; (v) purchased any business,
purchased any stock of any corporation, or merged or consolidated with
any person;
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(vi) sold, leased or otherwise disposed of any assets or
properties which were material to the Company and its Subsidiaries,
taken as a whole, other than dispositions in the ordinary course of
business; (vii) incurred, assumed or guaranteed any indebtedness for
money borrowed other than intercompany indebtedness; (viii) changed or
modified in any material respect any existing accounting method,
principle or practice, other than as required by reason of a concurrent
change in generally accepted accounting principles; (ix) amended any
terms of any of its outstanding securities, including, without
limitation, the rights under the indenture governing the Company's 7%
Convertible Subordinated Notes due 2002; (x) created or assumed any
Lien (as defined below) on any material asset other than in the
ordinary course of business consistent with past practices; (xi) except
in the ordinary course of business consistent with past practice, (A)
granted any severance or termination pay to any director, executive
officer or key employee, (B) entered into any employment, deferred
compensation or other similar agreement (or any amendment to any such
existing agreement) with any director, executive officer or key
employee, (C) increased benefits payable under any existing severance
or termination pay policies or employment agreements with any director,
executive officer or key employee, or (D) increased compensation, bonus
or other benefits payable to directors, executives, officers or key
employees; (xii) cancelled any material debts or claims or waived any
material rights; (xiii) amended its charter or by-laws; (xiv) made any
loans, advances or capital contributions to, or other investments in,
any other person, other than to any direct or indirect wholly-owned
Subsidiary; (xv) experienced a material adverse change with respect to
a material supplier relationship; (xvi) made any material revaluation
of any of its significant assets; (xvii) except for this Agreement,
entered into any commitment to do any of the foregoing; or (xviii)
suffered any business interruption, damage to or destruction of its
properties or other incident, occurrence or event which interruption,
damage, destruction, incident, occurrence or event has had or would
reasonably be expected to have (after giving effect to insurance
coverage) a Material Adverse Effect. "Lien" means, with respect to any
asset or right, any mortgage, deed of trust, lien (statutory or other),
pledge, hypothecation, assignment, claim, charge, security interest,
conditional sale agreement, title, exception, or encumbrance, option,
right of first offer or refusal, easement, servitude, transfer
restriction, or any other right of another to or adverse claim of any
kind in respect of such asset or right, including, without limitation,
under any stockholder agreement.
(h) TAX MATTERS.
(i) The Company and its Subsidiaries have timely
filed (or received appropriate extensions of time to file) all
material federal, state, local and foreign tax returns
(collectively, "Tax Returns") required to be filed by them
with respect to income, gross receipts, withholding, social
security, unemployment, payroll, franchise, property, excise,
sales, use and other taxes of whatever kind (collectively,
"Taxes"), and have paid on a timely basis all Taxes required
to be paid, including,
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without limitation, those shown on such
Tax Returns to the extent such Taxes have become due.
(ii) No Tax Returns filed by the Company or any of
its Subsidiaries are the subject of pending audits as of the
date of this Agreement. Neither the Company nor any of its
Subsidiaries has received, before the date of this Agreement,
a notice of deficiency or assessment of additional Taxes which
notice or assessment remains unresolved. Neither the Company
nor any of its Subsidiaries has extended the period for
assessment or payment of any Tax, which has not since expired.
(iii) The Company and its Subsidiaries have withheld
and paid over to the appropriate governmental authorities all
Taxes required by law to have been withheld and paid in
connection with amounts paid or owing to any employee, except
for any such Taxes that are immaterial in amount and except
for self-reported employee tips.
(iv) Neither the Company nor any of its Subsidiaries
has been a member of an affiliated group (as such term is
defined in Section 1504 of the Internal Revenue Code of 1986,
as amended (the "Code")) filing a consolidated federal income
tax return for any tax year since January 1, 1992 other than a
group the common parent of which was the Company.
(v) Neither the Company nor any of its Subsidiaries
has filed a consent under Code Section 341(f) concerning
collapsible corporations.
(vi) Neither the Company nor any of its Subsidiaries
has been a United States real property holding corporation
within the meaning of Code Section 897(c)(2) during the
applicable period specified in Code Section 897(c)(1)(A)(ii).
(vii) Neither the Company nor any of its Subsidiaries
is a party to any Tax allocation or sharing agreement other
than between the Company and the Subsidiaries.
(viii) The Company has delivered or made available to
the Buyer true and complete copies of all requested federal,
state, local and foreign income tax returns with respect to
the Company and each of its Subsidiaries.
(ix) There is no contract, agreement, plan or
arrangement covering any employee or former employee of the
Company or any of its Subsidiaries that, individually or
collectively, could give rise to the payment of any amount
that would not be deductible under Section 280G of the Code.
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(i) REAL AND PERSONAL PROPERTY.
(i) Owned Property; Personalty. Section 3.01(i)(i) of
the Disclosure Letter sets forth a list of all real property owned in
fee by the Company or any Subsidiary. One or more of the Company and
its Subsidiaries has good and marketable title to all such real
property (including all buildings, fixtures and other improvements
thereto, the "Owned Real Property"), free and clear of all mortgages,
liens, security interests, charges and encumbrances, except (i) liens
for taxes, assessments and other governmental charges that are not due
and payable or that are being contested in good faith and in respect of
which adequate reserves have been established, (ii) mechanics',
materialmen's, carriers', workmen's, warehousemen's, repairmen's,
landlord's or other similar liens securing obligations that are not due
and payable or that are being contested in good faith and in respect of
adequate reserves have been established, (iii) mortgages, liens,
security interests, charges and encumbrances evidenced by any lease,
contract or agreement that is described in the Disclosure Letter or in
the SEC Reports filed before the date of this Agreement or the
non-disclosure of which therein does not constitute a misrepresentation
under Section 3.01(j), (iv) imperfections of title and liens, charges
and encumbrances that do not materially detract from the value or
materially interfere with the present use of the properties subject
thereto or affected thereby, (v) in the case of any Owned Real Property
subject to a title commitment described in the Disclosure Letter,
imperfections of title and mortgages, liens, security interests,
charges and encumbrances that are shown on such title commitment or are
otherwise of record, and (vi) other mortgages, liens, security
interests, charges and encumbrances described in the Disclosure Letter
or in the SEC Reports filed before the date of this Agreement (clauses
(i) through (iv) and clause (vi) being collectively the "Permitted
Encumbrances"). The Company and its Subsidiaries have good and
marketable title to, or the right to use, all of their other tangible
properties and assets necessary to conduct their respective businesses
as currently conducted, except for Permitted Encumbrances and other
Liens of an immaterial nature. All of the Real Property (as hereinafter
defined) and other tangible properties and assets are in good condition
and repair, normal wear and tear excepted, and adequate in all material
respects for the continued conduct of the business of the Company and
its Subsidiaries in the manner in which it is currently conducted. The
Company is not a guarantor of the tenant's obligations under the leases
for the seven store sites indicated with an asterisk in Section
3.01(i)(i) of the Disclosure Letter.
(ii) Leased Real Property. Section 3.01(i)(ii) of the
Disclosure Letter sets forth a list of all leases, subleases and other
agreements (collectively, the "Real Property Leases") under which the
Company or any Subsidiary uses or occupies or has the right to use or
occupy, now or in the future, any real property that is not Owned Real
Property (the land, buildings and other improvements covered by the
Real Property Leases being herein called the "Leased Real Property").
The Company has provided the Buyer with a true and correct copy of each
Real Property Lease and any amendments thereto. Each Real Property
Lease is valid, binding and in full force and effect, unless
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the failure of any Real Property Lease to be in full force and effect
has not had and would not reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect. Neither the Company nor
any of its Subsidiaries nor, to the knowledge of the Company, any
landlord under any Real Property Leases is in breach of or in default
under any of the Real Property Leases, except for breaches or defaults
which have not had and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. Except for
Permitted Encumbrances, the Company's and its Subsidiaries' interest in
the Leased Real Property is free and clear of Liens. A Subsidiary of
the Company, but not the Company, is the tenant under all of the Real
Property Leases.
(iii) Entire Premises. All of the land, buildings,
structures and other improvements used by the Company or any of the
Subsidiaries in the conduct of their businesses are included in the
Owned Real Property or the Leased Real Property. The Leased Real
Property and the Owned Real Property are hereinafter collectively
referred to as the "Real Property."
(iv) Space Leases. Section 3.01(i)(iv) of the
Disclosure Letter contains a true, correct and complete schedule of all
leases, subleases and other agreements (collectively, the "Space
Leases") granting to any person or entity other than the Company or any
of the Subsidiaries any right to the possession, use, occupancy or
enjoyment of the Real Property or any portion thereof. The Company has
provided the Buyer with a true and correct copy of each Space Lease. To
the Company's knowledge, no notice of default or termination under any
Space Lease is outstanding and no termination event or condition or
uncured default on the part of the Company, any of the Subsidiaries or
the Space Tenant exists under any Space Lease, except for those
defaults or terminations which have not had and would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect.
(v) Condemnation. The Company and the Subsidiaries
have not received notice of, and to the knowledge of the Company, there
is not any pending, threatened or contemplated condemnation proceeding
affecting the Real Property or any part thereof, or any sale or other
disposition of the Real Property or any part thereof in lieu of
condemnation.
(j) MATERIAL CONTRACTS. Except as set forth in Section 3.01(j)
of the Disclosure Letter or in the SEC Reports filed before the date of
this Agreement, and except for contracts entered into after the date
hereof in compliance with Section 4.01, neither the Company nor any of
its Subsidiaries is a party to or bound by any:
(i) employment agreement (other than those that are
terminable by the Company or any Subsidiary without cost or
penalty upon 60 days' or less notice);
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(ii) operating or capital lease, whether as lessor
or lessee, with respect to any real property;
(iii) contract, whether as licensor or licensee, for
the license of any patent, know-how, trademark, trade name,
service mark, copyright or other intangible asset (other than
non-negotiated licenses of commercial off-the-shelf computer
software);
(iv) loan or guaranty agreement, indenture or other
instrument, contract or agreement under which any money has
been borrowed or loaned or any note, bond or other evidence of
indebtedness has been issued;
(v) mortgage, security agreement, conditional sales
contract, capital lease or similar agreement which effectively
creates a lien on any assets of the Company or any of its
Subsidiaries;
(vi) contract restricting the Company or any
of its Subsidiaries in any material respect from engaging in
business or from competing with any other parties;
(vii) plan of reorganization;
(viii) partnership or joint venture agreement;
(ix) collective bargaining agreement;
(x) that is a "material contract" (as defined
in Item 601(b)(10) of Regulation S-K of the SEC);
(xi) franchise, restaurant services management,
royalty or similar agreement;
(xii) agreements relating to the acquisition of any
business (but excluding any acquisition of restaurant
locations consistent with past practices);
(xiii) investment banking agreement; or
(xiv) except for negotiable instruments in the
process of collection, any power of attorney outstanding or
any contract, commitment or liability (whether absolute,
accrued, contingent or otherwise) as guarantor, surety,
cosigner, endorser, co-maker, indemnitor in respect of the
contract or commitment of any other person, corporation,
partnership, joint venture, association, organization or other
entity (other than the Subsidiaries).
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All of the foregoing are collectively called
"Material Contracts." To the extent Material Contracts are evidenced by
documents, true and complete copies thereof have been delivered or made
available to Buyer. Each Material Contract is in full force and effect,
unless the failure of any Material Contracts to be in full force and
effect has not had and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. Neither
the Company nor any of its Subsidiaries nor, to the knowledge of the
Company, any other party is in breach of or in default under any of the
Material Contracts, except for breaches or defaults which have not had
and would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
(k) INTELLECTUAL PROPERTY. Section 3.01(k) of the Disclosure
Letter contains a complete and correct list of all United States and
foreign material patents and registered trademarks, trade names,
service marks, Internet Domain names and copyrights, and all
applications for any of the foregoing (collectively, "Proprietary
Rights"), and all material licenses held by the Company and its
Subsidiaries. Except as set forth in Section 3.01(k) of the Disclosure
Letter, the Proprietary Rights constitute all the intellectual property
rights that are required or reasonably necessary for the conduct of the
business of the Company or its Subsidiaries as currently conducted.
Except as set forth in Section 3.01(k) of the Disclosure Letter, the
Company owns or otherwise possesses legally enforceable rights to use,
sell and license, free and clear of any and all liens or material
restrictions, any and all material intellectual property used in the
conduct of the business of the Company and the Subsidiaries as
currently conducted or proposed to be conducted, and the consummation
of the transactions contemplated hereby will not materially adversely
alter or impair any such right . None of the Proprietary Rights have
been declared unenforceable or otherwise invalid by any court or
governmental agency. There is, to the knowledge of the Company, no
material existing infringement, misuse or misappropriation of any
Proprietary Rights by others. Since January 1, 1997, neither the
Company nor any of its Subsidiaries has received any written notice
alleging that the operation of the business of the Company or any of
its Subsidiaries infringes, misuses or misappropriates in any material
respect the intellectual property rights of others.
(l) LITIGATION. Except as described in Section 3.01(l) of the
Disclosure Letter or in the SEC Reports filed at least five (5)
business days before the date of this Agreement, no litigation,
arbitration or administrative proceeding is pending or, to the
knowledge of the Company, threatened against the Company or any
Subsidiary that, would have, individually or in the aggregate, a
Material Adverse Effect, or that seeks to enjoin or otherwise
challenges the consummation of the transactions contemplated by this
Agreement. Neither the Company nor any of its Subsidiaries is
specifically identified as a party subject to any material restrictions
or limitations under any injunction, writ, judgment, order or decree of
any court, administrative agency or commission or other governmental
authority.
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(m) COMPLIANCE WITH LAWS. The Company and each of the
Subsidiaries is and at all times since January 1, 1997 has been in
compliance with and, to the knowledge of the Company, is not under
investigation with respect to and has not been threatened in writing to
be charged with or given written notice of any violation of, any
statute, law, rule, regulation, judgment, decree, order, permit,
license or other governmental authorization or approval applicable to
the Company or any of the Subsidiaries or by which any property, asset
or operation of the Company or any of the Subsidiaries is bound or
effected, except for failures to comply or violations (A) that have not
had, or cannot reasonably be expected to have individually or in the
aggregate, a Material Adverse Effect or (B) that have not resulted in,
or could not reasonably be expected to result in, the imposition of a
criminal fine, penalty or sanction against the Company, any of the
Subsidiaries or any of their respective officers or directors.
(n) NO BROKERS OR FINDERS. Except for U.S. Bancorp Piper
Jaffray Inc., the Company has not engaged any investment banker,
broker or finder in connection with the transactions contemplated
hereby. The Surviving Corporation shall be liable for all
obligations of the Company under its engagement letter with U.S.
Bancorp Piper Jaffray Inc., a copy of which has previously been
provided to Buyer.
(o) RETIREMENT AND BENEFIT PLANS.
(i) Each employee pension benefit plan ("Pension Plan"), as
defined in Section 3(2) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), each employee welfare benefit plan
("Welfare Plan"), as defined in Section 3 of ERISA, and each deferred
compensation, bonus, incentive, stock incentive, option, stock
purchase, severance or other material employee benefit plan, agreement,
commitment or arrangement ("Benefit Plan"), which is currently
maintained by the Company or any Subsidiary or to which the Company or
any Subsidiary currently contributes or is under any current obligation
to contribute, or under which the Company or any Subsidiary has any
current liability (collectively, the "Employee Plans" and individually,
an "Employee Plan") is listed in Section 3.01(o) of the Disclosure
Letter and, true and complete copies of all written plans have been
delivered or made available to Buyer. In addition, summaries of all
oral agreements, copies of the annual report (Form 5500 Series)
required to be filed with any governmental agency with respect to each
Pension Plan and Welfare Plan for the most recent plan year of such
plan for which reports have been filed, the most recent IRS
determination letters, if relevant, and summary plan descriptions have
been delivered or made available to Buyer.
(ii) The Company and each Subsidiary has made on a timely
basis all contributions or payments required to be made by it under the
terms of the Employee Plans, ERISA, the Code or other applicable laws,
unless such contributions or payments that have not been made are
immaterial in amount and the failure to make such payments or
contributions will not materially and adversely affect the Employee
Plans.
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(iii) Each Employee Plan (and any related trust or other
funding instrument) has been administered in all material respects in
compliance with its terms and in both form and operation is in
compliance in all material respects with the applicable provisions of
ERISA, the Code and other applicable laws and regulations (other than
adoption of any plan amendments for which the deadline has not yet
expired), and all material reports required to be filed with any
governmental agency with respect to each Employee Plan have been timely
filed.
(iv) Each Employee Plan that is intended to be qualified
within the meaning of Code section 401(a) is so qualified and has
received a favorable determination letter from the IRS as to its
qualification, and nothing has occurred, whether by action or failure
to act, that could reasonably be expected to cause the loss of such
qualification.
(v) Except as set forth in Section 3.01(o)(v) of the
Disclosure Letter, no Employee Plan exists that could result in the
payment to any present or former employee of the Company or any
Subsidiary of any money or other property or accelerate or provide any
other rights or benefits to any present or former employee of the
Company or its Subsidiaries as a result of the transaction contemplated
by this Agreement, whether or not such payment would constitute a
parachute payment within the meaning of Code section 280G.
(vi) Except as set forth in Section 3.01(o)(vi) of the
Disclosure Letter, none of the Company or the Subsidiaries has or will
have any obligation or liability under a Welfare Plan which provides
medical or dental benefits with respect to current or former employees
of the Company beyond their termination of employment other than
required by COBRA or other applicable laws, and all Welfare Plans are
in compliance with the requirements of COBRA, to the extent applicable.
(vii) There has been no "mass layoff" or "plant closing" as
each such term is defined by the Workers Adjustment and Retraining
Notification Act ("WARN"), with respect to the employees of the Company
or any of its Subsidiaries, with respect to which there could be any
future liability to such employees under WARN.
(viii) There is no material litigation, arbitration or
administrative proceeding pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary or, to the knowledge
of the Company, any plan fiduciary by the Internal Revenue Service, the
U.S. Department of Labor, the Pension Benefit Guaranty Corporation, any
participant or beneficiary, or any other governmental agency, with
respect to any Employee Plan. None of the Company, any Subsidiary, any
ERISA affiliate, or to the knowledge of the Company, any plan fiduciary
of any Pension or Welfare Plan has engaged in any transaction in
violation of Section 406(a) or (b) of ERISA for which no exemption
exists under Section 408 of ERISA or any "prohibited
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transaction" (as defined in Section 4975(c)(1) of the Code) for which
no exemption exists under Section 4975(c)(2) or 4975(d) of the Code,
or is subject to any excise tax imposed by the Code or ERISA with
respect to any Employee Plan.
(v) Neither the Company nor any Subsidiary nor any ERISA
Affiliate (as defined below) currently maintains, nor at any time in
the previous six calendar years maintained or had an obligation to
contribute to, any defined benefit pension plan subject to Title IV of
ERISA, or any "multiemployer plan" as defined in Section 3(37) of
ERISA.
(vi) Neither the Company nor any Subsidiary has any liability
with respect to any plan, program or arrangement maintained or
contributed to by any ERISA Affiliate that would be an Employee Plan if
it were maintained by the Company.
(vii) For purposes of this Section 3.01(o), "ERISA Affiliate"
means (A) any trade or business with which the Company is under common
control within the meaning of Section 4001(b) of ERISA, (B) any
corporation with which the Company is a member of a controlled group of
corporations within the meaning of Section 414(b) of the Code, (C) any
entity with which the Company is under common control within the
meaning of Section 414(c) of the Code, (D) any entity with which the
Company is a member of an affiliated service group within the meaning
of Section 414(m) of the Code, and (E) any entity with which the
Company is aggregated under Section 414(o) of the Code.
(p) ENVIRONMENTAL MATTERS.
(i) For purposes of this Section 3.01(p),
(A) "Environmental Law" means the Comprehensive
Environmental Response, Compensation and Liability Act, 42
U.S.C.ss. 9601 et seq., the Resource Conservation and
Recovery Act, 42 U.S.C.ss. 6901 et seq., the Federal Water
Pollution Control Act, 33 U.S.C.ss. 1201 et seq., the Clean
Water Act, 33 U.S.C.ss.1321 et seq., the Clean Air Act, 42
U.S.C.ss. 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 or the environment; and
(B) "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.
(ii) Except as described in Section 3.01(p) of the Disclosure
Letter or in the SEC Reports filed before the date of this Agreement:
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(A) The Company and each of its Subsidiaries are in
full compliance in all material respects with all applicable
Environmental Laws, including all limitations, restrictions,
conditions, standards, prohibitions, requirements,
obligations, schedules and timetables contained in all
applicable Environmental Laws.
(B) The Company and each of its Subsidiaries have
obtained, are in material compliance with, and have made all
appropriate filings for issuance or renewal of, all material
permits, licenses, authorizations, registrations and other
governmental consents required by applicable Environmental
Laws ("Environmental Permits"), including, without limitation,
those regulating emissions, discharges or releases of
Hazardous Substances, or the use, storage, treatment,
transportation, release, emission and disposal of raw
materials, by-products, wastes and other substances used or
produced by or otherwise relating to the business of the
Company or any of its Subsidiaries.
(C) Neither the Company nor any Subsidiary has
released any Hazardous Substances onto any real property owned
or leased by the Company or any of its Subsidiaries in such a
manner so as to create any material liability for the Company
or any of its Subsidiaries.
(D) There are no claims, notices, civil, criminal or
administrative actions, suits, hearing investigations,
inquiries or proceedings pending or, to the Knowledge of the
Company, threatened against the Company or any of its
Subsidiaries that are based on or related to the failure to
have any required Environmental Permits.
(E) To the knowledge of the Company, there are no
past or present conditions, events, circumstances, facts,
activities, practices, incidents, actions, omissions or plans
(i) that is reasonably likely to give rise to any material
liability or other material obligation for the Company under
any Environmental Laws or (ii) that is reasonably likely to
form the basis of any claim, action, suit, proceeding,
hearing, investigation or inquiry against or involving the
Company or any of its Subsidiaries resulting in material
liability for the Company or any of its Subsidiaries.
(F) Neither the Company nor any of its Subsidiaries
has received written notice from any governmental agency that
any of them have any material liability with respect to the
release of any Hazardous Substances from any underground or
aboveground storage tanks.
(G) Neither the Company nor any of its Subsidiaries
has received any written notice that any of them is or may be
a potentially responsible person
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under the Comprehensive Environmental Response Compensation
and Liability Act, 42 U.S.C. ss. 9601 et seq., or any similar
state or local statute, in connection with any waste disposal
site allegedly containing any Hazardous Substances, or other
location used for the disposal of any Hazardous Substances.
(H) Neither the Company nor any of its Subsidiaries
has received any written notice that it has any material
liability pursuant to any failure of the Company or any of its
Subsidiaries to comply in any material respect with any
Environmental Law or the requirements of any Environmental
Permit.
(I) Neither the Company nor any of its Subsidiaries
has been in material violation of any Environmental Laws, nor
has it been requested or required by any governmental entity
to perform any investigatory or remedial activity or other
action in connection with any actual or alleged release of
Hazardous Substances or any other environmental matter.
(q) INSURANCE. The Disclosure Letter contains a list of all
insurance policies maintained by the Company and its Subsidiaries as of
the date of this Agreement, together with a brief description of the
coverages afforded thereby. All of such insurance policies are in full
force and effect as of the date of this Agreement.
(r) NO UNDISCLOSED LIABILITIES. Except as set forth in Section
3.01(r) of the Disclosure Letter or in the SEC Reports filed prior to
the date hereof, neither the Company nor any Subsidiary has any
liabilities (absolute, accrued, contingent or otherwise) which
individually, or in the aggregate, are reasonably likely to have a
Material Adverse Effect.
(s) LABOR MATTERs. Except as set forth in Section 3.01(s) of
the Disclosure Letter, (i) the Company has no knowledge of any strikes,
slowdowns, work stoppages, lockouts, or threats thereof, by or with
respect to any employees or former employees of the Company or of any
Subsidiary, and (ii) neither the Company nor any Subsidiary is a party
to any collective bargaining agreements and there are no labor unions
or other organizations representing, purporting to represent, or
attempting to represent, any employee of the Company.
(t) OPINION OF FINANCIAL ADVISOR. The Board of Directors
of the Company has received the opinion of U.S. Bancorp Piper Jaffray
Inc., a copy of which has been provided to Buyer, to the effect
that, as of the date of this Agreement, the consideration to be
received in the Merger by the holders of shares of Company Common
Stock (other than Buyer or its affiliates) is fair to such holders
from a financial point of view.
(u) VOTE REQUIRED. The only vote of the holders of any class
or series of Company capital stock necessary to approve the Merger is
the affirmative vote of the
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holders of not less than a majority of the votes entitled to be cast by
the holders of all of the outstanding shares of Company Common Stock.
(v) STATE TAKEOVER STATUTES. The Company has taken all actions
necessary under the Minnesota Act to approve the transactions
contemplated by this Agreement. The Agreement and the Merger have been
approved by a committee of the Board of Directors of the Company formed
pursuant to Section 302A.673(d) of the Minnesota Act. Assuming for
purposes of this Section 3.01(v) that no person or entity associated or
affiliated with Buyer is an "interested shareholder" (as such term is
defined in the Minnesota Act) of the Company who has not continuously
been an interested shareholder of the Company during the four-year
period preceding the Merger, Section 302A.673 of the Minnesota Act
applicable to a "business combination" does not, and will not, prohibit
the transactions contemplated hereunder, and the restrictions contained
in Section 302A.671 of the Minnesota Act applicable to "control share
acquisitions" will not prohibit the authorization, execution, delivery
and performance of this Agreement or the consummation of the Merger by
the Company. The authorization, execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated
hereunder do not, and any formation of a "group" for purposes of
Section 13(d)(3) of the Exchange Act in connection with this Agreement
will not, result in a "control share acquisition" as defined in Section
302A.011 of the Minnesota Act. No other "fair price," "moratorium" or
other similar anti-takeover statute or regulation prohibits (by reason
of Company's participation therein) the Merger or the other
transactions contemplated by this Agreement.
(w) AFFILIATE TRANSACTIONS. Except to the extent disclosed in
any SEC Report, there are no other transactions, agreements,
arrangements or understandings between the Company or any Subsidiary,
on the one hand, and the Company's affiliates (other than wholly-owned
Subsidiaries of the Company) or other persons, on the other hand, that
would be required to be disclosed under Item 404 of Regulation S-K
under the Securities Act of 1933, as amended. For purposes of this
Agreement, the term "affiliate," when used with respect to any person,
means any other person directly or indirectly controlling, controlled
by, or under common control with such person. As used in the definition
of "affiliate," the term "control" means possession, directly or
indirectly, of the power to direct or cause the direction of the
management or policies of a person, whether through the ownership of
voting securities, by contract or otherwise.
3.02 REPRESENTATIONS AND WARRANTIES OF BUYER AND BUYER
SUBSIDIARY. Buyer and Buyer Subsidiary jointly and severally represent and
warrant to the Company as follows:
(a) ORGANIZATION, STANDING, EQUITY OWNERSHIP. Each of Buyer
and Buyer Subsidiary is a corporation duly incorporated, validly
existing and in good standing under the laws of its state of
incorporation. Buyer owns all of the issued and outstanding capital
stock of Buyer Subsidiary. The copies of the Articles or Certificate of
Incorporation and
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By-Laws of Buyer and Buyer Subsidiary provided to the
Company are complete and correct as of the date of this Agreement.
Buyer Subsidiary was formed solely for the purpose of effecting the
Merger and has not engaged in any business activities or conducted any
operations other than in connection with the Merger and the financing
thereof.
(b) AUTHORIZATION AND EXECUTION. Each of Buyer and Buyer
Subsidiary has the corporate power and corporate authority to execute
and deliver this Agreement and consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement by
each of Buyer and Buyer Subsidiary have been duly authorized by the
respective Boards of Directors of Buyer and Buyer Subsidiary and by
Buyer as the sole shareholder of Buyer Subsidiary, and no further
corporate action of Buyer or Buyer Subsidiary is necessary to
consummate the transactions contemplated hereby. This Agreement has
been duly executed and delivered by each of Buyer and Buyer Subsidiary
and, assuming the accuracy of the representations and warranties set
forth in Section 3.01(c), constitutes the legal, valid and binding
obligation of each of Buyer and Buyer Subsidiary, enforceable against
Buyer and Buyer Subsidiary in accordance with its terms, except to the
extent that enforceability may be limited by applicable bankruptcy,
insolvency or similar laws affecting the enforcement of creditors'
rights generally, and subject, as to enforceability, to general
principles of equity (regardless of whether enforcement is sought in a
court of law or equity).
(c) NO CONFLICTS. Neither the execution and delivery of this
Agreement by Buyer and Buyer Subsidiary, nor the consummation by Buyer
and Buyer Subsidiary of the transactions contemplated hereby, will (i)
conflict with or result in a breach of the Articles or Certificate of
Incorporation or By-Laws, as currently in effect, of Buyer or Buyer
Subsidiary, (ii) except for the requirements under the HSR Act,
compliance with the Exchange Act, and the filing of the Articles of
Merger with the Secretary of State of the State of Minnesota, require
any filing with, or consent or approval of, any governmental authority
having jurisdiction over any of the business or assets of Buyer or
Buyer Subsidiary, (iii) violate any statute, law, ordinance, rule or
regulation applicable to Buyer or Buyer Subsidiary or any injunction,
judgment, order, writ or decree to which Buyer or Buyer Subsidiary has
been specifically identified as subject, or (iv) result in a breach of,
or constitute a default or an event which, with the passage of time or
the giving of notice, or both, would constitute a default under, or
require the consent of any third party under, any instrument, contract
or agreement to which Buyer or Buyer Subsidiary is a party or by which
Buyer or Buyer Subsidiary is bound, except, in the case of clauses
(ii), (iii) and (iv), where such violation, breach or default, or the
failure to make such filing or obtain such consent or approval, would
not, individually or in the aggregate, materially impair the ability of
Buyer or Buyer Subsidiary to consummate the transactions contemplated
by this Agreement.
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(d) PROXY STATEMENT. None of the information furnished or to
be furnished by Buyer or Buyer Subsidiary in writing specifically for
inclusion in the Proxy Statement will, at the time the Proxy Statement
is mailed, contain any untrue statement of a material fact, or omit to
state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances
under which they were made, not misleading, or will, at the time of the
meeting of shareholders to which the Proxy Statement relates or at the
Effective Time, as then amended or supplemented, omit to state any
material fact necessary to correct any statement which has become false
or misleading in any earlier communication with respect to the
solicitation of any proxy for such meeting.
(e) LITIGATION. No litigation, arbitration or administrative
proceeding is pending or, to the knowledge of Buyer or Buyer
Subsidiary, threatened against Buyer or Buyer Subsidiary as of the date
of this Agreement that seeks to enjoin or otherwise challenges the
consummation of the transactions contemplated by this Agreement.
(f) NO BROKERS OR FINDERS. Neither Buyer nor Buyer Subsidiary
has engaged any investment banker, broker or finder in connection with
the transactions contemplated hereby, except for persons and their
affiliates name in clause (g) of this Section 3.02. Buyer shall be
liable for all obligations of Buyer and Buyer Subsidiary to any such
persons.
(g) AVAILABILITY OF FUNDS.
(i) With respect to senior bank financing, Buyer has
delivered to the Company a true and complete copy of a
commitment of Lehman Brothers Commercial Paper, Inc. and Fleet
National Bank (the "Senior Commitment"). The Senior Commitment
is in full force and effect, and neither Buyer nor Buyer
Subsidiary has any reason to expect that the conditions
included in the Senior Commitment will not be satisfied before
the Effective Time.
(ii) With respect to mezzanine financing, Buyer has
delivered to the Company a true and complete copy of a
commitment of Credit Suisse First Boston (the "Mezzanine
Commitment"). The Mezzanine Commitment is in full force and
effect, and neither Buyer nor Buyer Subsidiary has any reason
to expect that the conditions included in the Mezzanine
Commitment will not be satisfied before the Effective Time.
(iii) With respect to equity financing, Buyer has
delivered to the Company a commitment letter of Caxton-Iseman
Capital, Inc. ("Caxton-Iseman Capital"). The Caxton-Iseman
Capital commitment is in full force and effect, and neither
Buyer nor Buyer Subsidiary has any reason to expect that the
conditions included in this commitment will not be satisfied
before the Effective Time.
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(iv) Buyer believes that the financing described in
paragraphs (i) through (iii) above is sufficient to enable
Buyer to complete the transactions contemplated by this
Agreement.
ARTICLE IV
CONDUCT AND TRANSACTIONS BEFORE THE EFFECTIVE TIME
4.01 OPERATION OF BUSINESS OF THE COMPANY UNTIL EFFECTIVE TIME.
(a) From the date hereof to the Effective Time, the Company
will, and will cause each Subsidiary to, exercise reasonable commercial
efforts to preserve intact in all material respects its business
organization, keep available for itself and the Surviving Corporation
the services of its present officers and key employees, and preserve
its present relationships with other persons having significant
business dealings with the Company or any Subsidiary, except as
otherwise consented to in writing by Buyer.
(b) From the date hereof to the Effective Time, the Company
will, and will cause each Subsidiary to, conduct its business and
operations in the ordinary and usual course, except as otherwise
required or permitted by this Agreement or consented to in writing by
Buyer.
(c) Except as otherwise required or permitted by this
Agreement or consented to in writing by Buyer, the Company will not,
from the date hereof until the Effective Time, (i) split, combine or
reclassify any shares of its capital stock or make any other changes in
its equity capital structure; (ii) purchase, redeem or otherwise
acquire, directly or indirectly, any shares of its capital stock or any
options, rights or warrants to purchase any such capital stock or any
securities convertible into or exchangeable for any such capital stock;
(iii) declare, set aside or pay any dividend or make any other
distribution in respect of shares of its capital stock; or (iv) enter
into any commitment to do any of the foregoing.
(d) Except as otherwise required or permitted by this
Agreement or consented to in writing by Buyer, the Company will not,
and will not permit any Subsidiary to, from the date hereof until the
Effective Time,
(i) amend its Articles or Certificate of
Incorporation, By-Laws or similar organizational documents;
(ii) issue any shares of its capital stock or any
options, rights or warrants to purchase any such capital stock
or any securities convertible into or
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exchangeable for any such capital stock, except for option
grants to employees consistent with past practices or
issuances of shares of Company Common Stock upon the exercise
of any Options or of any Rights under the Rights Agreement or
upon the conversion of the Company's 7% Convertible
Subordinated Notes due 2002, or designate any class or series
of capital stock from its authorized but undesignated
Preferred Stock;
(iii) purchase any capital assets or make any capital
expenditures (except as set forth in the Company's capital
expenditures budget previously delivered to Buyer), purchase
any business, purchase any stock of any corporation, or merge
or consolidate with any person and in no event enter into any
commitment to purchase or develop any enterprise resource or
management information system (provided, however, that the
Company may continue to fund the exploration of such systems,
such funding not to exceed $500,000);
(iv) sell, lease or otherwise dispose of any assets
or properties that are material to the Company and its
Subsidiaries, taken as a whole, other than dispositions in the
ordinary course of business and other than those consistent
with the Company's existing asset impairment policies, but in
no event shall such dispositions exceed $5 million in the
aggregate;
(v) incur, assume or guarantee any
indebtedness for money borrowed other than
intercompany indebtedness;
(vi) enter into any new employee benefit plan,
program or arrangement, or any new employment or severance
agreement, modify in any respect materially adverse to the
Company or any Subsidiary any existing employee benefit plan,
program or arrangement (except as required by law), or any
existing employment or severance agreement, or, except as
required under existing agreements or in the ordinary course
of business, grant any increases in employee compensation or
benefits consistent with past practice, provided, however,
that no additional options, warrants, stock appreciation
rights or similar securities representing interests in the
equity of the Company or any of its Subsidiaries shall be
awarded or granted;
(vii) enter into any collective bargaining
agreement, except as required by law;
(viii) change or modify in any material respect any
existing accounting method, principle or practice, other than
as required by changes in generally accepted accounting
principles after the date hereof;
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(ix) enter into any new Material Contract (other than
in the ordinary course of business, including real estate
leases, land purchase agreements, and development agreements),
or modify in any respect materially adverse to the Company or
any Subsidiary any existing Material Contract;
(x) settle the existing securities class action
lawsuit against the Company and certain present and former
directors and officers of the Company, such consent of Buyer
not to be unreasonably withheld; or
(xi) enter into any commitment to do any of the
foregoing.
4.02 SHAREHOLDERS' MEETING; PROXY MATERIAL.
(a) The Company shall use reasonable best efforts to cause a
special meeting of its shareholders to be duly called and held as soon
as reasonably practicable after the execution of this Agreement for the
purpose of voting on the approval of this Agreement. The Board of
Directors of the Company shall recommend approval of this Agreement by
the shareholders of the Company, unless the Board of Directors of the
Company, after consulting with its legal and financial advisors,
determines that to do so would result in a breach of the fiduciary
duties of the Board of Directors of the Company under applicable law.
(b) The Company (i) as promptly as reasonably practicable
following the execution of this Agreement, shall prepare and file with
the SEC a proxy statement, together with a form of proxy, with respect
to such shareholders meeting (such proxy statement, together with any
amendments thereof or supplements thereto, being called the "Proxy
Statement"), (ii) shall use reasonable best efforts to have the Proxy
Statement cleared by the SEC as soon as reasonably practicable, and
(iii) as soon as reasonably practicable thereafter, shall cause copies
of such Proxy Statement and form of proxy to be mailed to its
shareholders in accordance with the provisions of the Minnesota Act
(unless the Board of Directors of the Company shall determine, in the
good-faith exercise of its fiduciary duties, that such mailing should
not be made). Before the filing of the Proxy Statement and form of
proxy with the SEC, the Company shall provide reasonable opportunity
for Buyer to review and comment upon the contents of the Proxy
Statement and form of proxy. The Proxy Statement and form of proxy
shall comply as to form in all material respects with the applicable
requirements of the Exchange Act and the rules and regulations of the
SEC promulgated thereunder. After the delivery to the Company's
shareholders of copies of the Proxy Statement and form of proxy, the
Company shall use reasonable efforts to solicit proxies in connection
with such shareholders meeting in favor of approval of this Agreement,
unless the Board of Directors of the Company, after receiving a bona
fide unsolicited Third Party Acquisition Offer (as defined below) and
after consulting with its legal and financial advisors, determines that
to do so would result in a breach
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of the fiduciary duties of the Board of Directors of the Company under
applicable law.
4.03 NO SHOPPING. From the date hereof until the Effective Time, the
Company will not, and will not permit any officer, director, financial adviser
or other agent or representative of the Company, directly or indirectly, to (a)
take any action to seek, initiate or solicit any offer, proposal or indication
of interest from any person or group to acquire any shares of capital stock of
the Company or any Subsidiary, to merge, consolidate or enter into any business
combination with the Company or any Subsidiary, or to otherwise acquire, except
to the extent not prohibited by Section 4.01(d)(iv), any significant portion of
the assets of the Company and its Subsidiaries, taken as whole (a "Third-Party
Acquisition Offer"), or (b) except to the extent the Board of Directors of the
Company shall otherwise determine, after receiving a bona fide unsolicited Third
Party Acquisition Offer and after consulting with its legal and financial
advisors, that to do otherwise would result in a breach of the fiduciary duties
of the Board of Directors of the Company under applicable law, engage in
negotiations concerning a Third-Party Acquisition Offer with any person or
group, or disclose financial information relating to the Company or any
Subsidiary or any confidential or proprietary trade or business information
relating to the business of the Company or any Subsidiary, or afford access to
the properties, books or records of the Company or any Subsidiary, to any person
or group that the Company has reason to believe may be considering a Third-Party
Acquisition Offer.
The Company will as promptly as reasonably practicable notify Buyer
after receipt of any Third-Party Acquisition Offer or any indication that any
person is considering making a Third-Party Acquisition Offer or any request for
nonpublic information relating to the Company or any of its Subsidiaries or for
access to the properties, books or records of the Company or any of its
Subsidiaries by any person that may be considering making, or has made, a
Third-Party Acquisition Offer or that the Company intends to engage in
negotiations with, or to provide information to any such person. The Company
shall as promptly as reasonably practicable provide Buyer with a reasonable
description of such Third-Party Acquisition Offer and a copy of such Third-Party
Acquisition Offer. The Company shall require that such person enter into a
confidentiality agreement with terms no less favorable to the Company than the
Confidentiality Agreement referred in Section 4.08. The Company shall keep Buyer
fully informed on a current basis of the status and details of any such
Third-Party Acquisition Offer, indication or request.
4.04 ACCESS TO INFORMATION. From the date hereof until the Effective
Time, the Company will give Buyer and its counsel, financial advisers, auditors
and other authorized representatives and its financing sources reasonable access
to the offices, properties, books and records of the Company and each Subsidiary
at all reasonable times and upon reasonable notice, and will instruct the
employees, counsel, financial advisers and auditors of the Company and each
Subsidiary to cooperate with Buyer and each such representative and financing
source in all reasonable respects in its investigation of the business of the
Company and its Subsidiaries. Buyer and each such representative and financing
source will conduct such investigation in a manner as not to unreasonably
interfere with the operations of the Company and its Subsidiaries
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and will take all necessary precautions (including obtaining the written
agreement of its respective employees or representatives involved in such
investigation) to protect the confidentiality of any information of the Company
and its Subsidiaries disclosed to such persons during such investigation.
4.05 AMENDMENT OF THE COMPANY'S EMPLOYEE PLANS. The Company will,
effective at or immediately before the Effective Time, cause any Employee Plans
that it may have to be amended, to the extent, if any, reasonably requested by
Buyer, for the purpose of permitting such Employee Plan to continue to operate
in conformity with ERISA and the Code following the Merger.
4.06 HSR ACT. Each of the Company, Buyer and Buyer Subsidiary will file
all Notification and Report Forms and related material that it may be required
to file with the Federal Trade Commission and the Antitrust Division of the
United States Department of Justice under the HSR Act, will exercise reasonable
efforts to obtain an early termination of the applicable waiting period, and
will make any further filings pursuant thereto that may be necessary or
advisable.
4.07 CERTAIN RESIGNATIONS. The Company will use its reasonable
efforts to assist Buyer in procuring the resignation, effective as of the
Effective Time, of all of the members of the Boards of Directors of the
Company and its Subsidiaries.
4.08 CONFIDENTIALITY AGREEMENT. The Confidentiality Agreement between
the Company and Buyer dated February 25, 2000 shall remain in full force and
effect until the Effective Time. Until the Effective Time, the Company and Buyer
shall comply with the terms of the Confidentiality Agreement.
4.09 OPTIONS. The Company will take such actions as are necessary to
cause each Option outstanding immediately before the Effective Time (whether or
not such Option is then exercisable) to be canceled immediately before the
Effective Time in consideration for a cash payment by the Company equal to the
Option Settlement Amount for such Option, subject to all applicable tax
withholding. The Company shall comply with all applicable requirements regarding
income tax withholding in connection with the foregoing.
4.10 AMENDMENT TO RIGHTS AGREEMENT. Before, or simultaneously with, the
execution and delivery of this Agreement, the Board of Directors of the Company
amended the Rights Agreement to provide that (a) neither Buyer nor Buyer
Subsidiary will become an "Acquiring Person" (as defined in the Rights
Agreement) as a result of the execution of this Agreement or the consummation of
the Merger, (b) no "Shares Acquisition Date," "Distribution Date," "Section
11(a)(ii) Event," or "Section 13 Event" (as such terms are defined in the Rights
Agreement) will occur as a result of the consummation of the Merger, and (c) all
outstanding Rights issued and outstanding under the Rights Agreement will expire
immediately before the Effective Time. Anything in this Agreement to the
contrary notwithstanding, the Company shall
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have the right at any time after the date of this Agreement and before the
Effective Time to further amend, or take any other action with respect to, the
Rights Agreement as deemed necessary by the Company; provided, however, that
any such further action or amendment shall not contravene the amendment referred
to in this Section 4.10; provided further, however, that any such amendment or
action shall be subject to the prior written approval of Buyer which approval
shall not be unreasonably withheld.
4.11 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 to
cause to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement,
including cooperating fully with the other party and with Buyer's financing
sources. 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 Surviving 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 the Surviving Corporation may take all such
necessary action.
4.12 SUBSTITUTE FINANCING. If for any reason any portion of the
financing described in Section 3.02(g) (the "Financing") shall not be available,
Purchaser shall use its reasonable best efforts to secure one or more substitute
financing commitments on terms no less favorable to Purchaser than those
contained in the commitment letters relating to the Financing until the earlier
of the termination of this Agreement and December 31, 2000.
ARTICLE V
CONDITIONS PRECEDENT
5.01 CONDITIONS TO THE OBLIGATIONS OF BUYER AND BUYER SUBSIDIARY. The
obligations of Buyer and Buyer Subsidiary to effect the Merger shall be subject
to the fulfillment at or before the Effective Time of the following conditions,
any one or more of which (except for the conditions set forth in Sections
5.01(b) and (e)) may be waived by Buyer and Buyer Subsidiary:
(a) The representations and warranties of the Company
contained in Section 3.01 of this Agreement shall be true and correct
in all respects as of the date of this Agreement and immediately before
the Effective Time, except to the extent any inaccuracies in any such
representation or warranty, individually or in the aggregate, do not
materially impair the ability of the Company to consummate the
transactions contemplated hereby and has not had and is not reasonably
likely to have a Material Adverse Effect (provided that, solely for
purposes of this Section 5.01(a), any representation or warranty in
Section 3.01 that is qualified by Material Adverse Effect
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language or other materiality qualifier shall be read as if such
language were not present), except those representations and warranties
that speak of an earlier date, which shall be true and correct as of
such earlier date. The Company shall have performed and complied in all
material respects with the agreements and obligations contained in this
Agreement required to be performed and complied with by it immediately
before the Effective Time; and Buyer and Buyer Subsidiary shall have
received a certificate signed by an executive officer of the Company to
the effects set forth in this Section 5.01(a).
(b) This Agreement shall have been approved at the meeting of
the shareholders of the Company referred to in Section 4.02 by the vote
required by the Minnesota Act and the Company's Articles of
Incorporation.
(c) Neither the Company nor any Subsidiary shall have, since
the date of this Agreement, suffered any business interruption, damage
to or destruction of its properties or other incident, occurrence,
change or event (other than incidents, occurrences or events generally
applicable to the industry in which the Company and the Subsidiaries
operate or changes in general economic or market conditions) that has
had or would reasonably be expected to have (after giving effect to any
insurance coverage) a Material Adverse Effect; provided, however, that
none of the items set forth in the Disclosure Letter shall be deemed to
have had a Material Adverse Effect for purposes of this Section
5.01(c).
(d) There shall not be pending any action or proceeding
brought by any governmental or other regulatory or administrative
agency or commission requesting or looking toward an injunction, writ,
order, judgment or decree that, in the reasonable judgment of Buyer, is
reasonably likely, if issued, to restrain or prohibit the consummation
of any of the transactions contemplated hereby or require rescission of
this Agreement or any such transactions or result in material damages
to Buyer, Buyer Subsidiary or the Surviving Corporation or their
respective officers or directors if the transactions contemplated
hereby are consummated, nor shall there be in effect any provision of
applicable law prohibiting the consummation of the Merger or any
injunction, writ, judgment, preliminary restraining order or other
order or decree of any nature issued by a court or governmental agency
of competent jurisdiction directing that any of the transactions
provided for herein not be consummated as so provided.
(e) All applicable waiting periods (and any extensions
thereof) under the HSR Act shall have expired or otherwise been
terminated.
(f) No Rights shall have become exercisable under the
Rights Agreement.
(g) Funds in the amount of the Senior Commitment and the
Mezzanine Commitment shall have been made available to Buyer or Buyer
Subsidiary as contemplated in Sections 3.02(g)(i) and (ii).
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(h) The holders of not more than 10% of the outstanding shares
of Common Stock shall have exercised dissenters' rights in accordance
with the Minnesota Act.
(i) All actions by or in respect of or filings with any
governmental body, agency, official or authority required to permit the
consummation of the Merger shall have been made or obtained.
(j) Immediately prior to the Effective Time, the Company shall
have cash and cash equivalents (as determined in accordance with
generally accepted accounting principals) of at least $110 million.
5.02 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligations
of the Company to effect the Merger shall be subject to the fulfillment at or
before the Effective Time of the following conditions, any one or more of which
(except for the conditions set forth in Section 5.02(b) and (d)) may be waived
by the Company:
(a) The representations and warranties of Buyer and Buyer
Subsidiary contained in Section 3.02 of this Agreement shall be true
and correct in all material respects as of the date of this Agreement
and immediately before the Effective Time, except those representations
and warranties that speak of an earlier date, which shall be true and
correct as of such earlier date. Each of Buyer and Buyer Subsidiary
shall have performed and complied in all material respects with the
agreements and obligations contained in this Agreement required to be
performed and complied with by it immediately before the Effective
Time; and the Company shall have received a certificate signed by an
executive officer of each of Buyer and Buyer Subsidiary to the effects
set forth in this Section 5.02(a).
(b) This Agreement shall have been approved at the meeting of
the shareholders of the Company referred to in Section 4.02 by the vote
required by the Minnesota Act and the Company's Articles of
Incorporation.
(c) There shall not be in effect any provision of applicable
law prohibiting the consummation of the Merger or any injunction, writ,
judgment, preliminary restraining order or other order or decree of any
nature issued by a court or governmental agency of competent
jurisdiction directing that any of the transactions provided for herein
not be consummated as so provided.
(d) All applicable waiting periods (and any extension thereof)
under the HSR Act shall have expired or otherwise been terminated.
(e) All actions by or in respect of or filings with any
governmental body, agency, official or authority required to permit the
consummation of the Merger shall have been made or obtained.
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ARTICLE VI
CONDUCT AND TRANSACTIONS AFTER THE EFFECTIVE TIME
6.01 EMPLOYEE MATTERS.
(a) For a period of at least one year after the
Effective Time, Buyer shall, or shall cause the Surviving Corporation,
a Subsidiary or any other affiliate of Buyer to maintain welfare and
pension benefit plans, programs and arrangements that are, in the
aggregate, for the employees as a whole who were active full-time
employees of the Company or any Subsidiary immediately before the
Effective Time and continue to be active full-time employees of Buyer,
the Surviving Corporation, any Subsidiary or any other affiliate of
Buyer, no less favorable than those provided by the Company and its
Subsidiaries immediately before the Effective Time (provided that
nothing herein shall obligate Buyer, the Surviving Corporation, any
Subsidiary or any other affiliate of Buyer to provide such employees
with any equity or stock-based compensation).
(b) From and after the Effective Time, for purposes of
determining eligibility, vesting and entitlement to vacation and
severance benefits for employees actively employed full-time by the
Company or any Subsidiary immediately before the Effective Time under
any compensation, severance, welfare, pension, benefit or savings plan
of Buyer or any of its affiliates in which active full-time employees
of the Company and its Subsidiaries become eligible to participate
(whether under Section 6.01(a) above or otherwise), service with the
Company or any of its Subsidiaries (whether before or after the
Effective Time) shall be credited as if such service had been rendered
to Buyer or such affiliate.
(c) If the Surviving Corporation or any of the
Subsidiaries, or any of their respective successors or assigns,
transfers all or substantially all of its properties and assets to any
person or persons (other than Buyer or an affiliate of Buyer) within
one year of the Effective Date, then, and in each such case, proper
provision shall be made so that the transferee assumes (and if more
than one, the transferees assume, jointly and severally) the
obligations set forth in this Section 6.01.
6.02 INDEMNIFICATION. All rights to indemnification, expense
advancement and exculpation existing in favor of any present or former director,
officer or employee of the Company or any of its Subsidiaries as provided in the
Articles or Certificate of Incorporation, By-Laws or similar organizational
documents of the Company or any of its Subsidiaries or by law as in effect on
the date hereof shall survive the Merger for a period of at least six years
after the Effective Time (or, in the event any relevant claim is asserted or
made within such six-year period, until final disposition of such claim) with
respect to matters occurring at or before the Effective Time, and no action
taken during such period shall be deemed to diminish the
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obligations set forth in this Section 6.02. Buyer hereby guarantees, effective
at the Effective Time, all obligations of the Surviving Corporation and the
Subsidiaries in respect of such indemnification and expense advancement.
6.03 DIRECTORS AND OFFICERS LIABILITY INSURANCE. For a period of at
least six years after the Effective Time, the Surviving Corporation shall, and
Buyer (for so long as it shall control the Surviving Corporation) shall cause
the Surviving Corporation to, maintain in effect either (i) the current policy
of directors' and officers' liability insurance maintained by the Company
(provided that Buyer or the Surviving Corporation may substitute therefor
policies of at least the same coverage and amounts containing terms and
conditions which are no less advantageous in any material respect to the insured
parties thereunder) with respect to claims arising from facts or events that
occurred at or before the Effective Time (including consummation of the Merger),
or (ii) a run-off (i.e., "tail") policy or endorsement with respect to the
current policy of directors' and officers' liability insurance covering claims
asserted within six years after the Effective Time arising from facts or events
that occurred at or before the Effective Time (including consummation of the
Merger); and such policies or endorsements shall name as insureds thereunder all
present and former directors and officers of the Company or any of its
Subsidiaries; provided, however, that the Surviving Corporation shall not be
obligated to spend more than 200% of the average annual premium in effect during
the last three years in connection with this Section 6.03. Notwithstanding the
foregoing, if the amount of the coverage required by this Section exceeds 200%
of the amount of the average annual premium in effect during the last three
years, Buyer and the Surviving Corporation shall use all reasonable efforts to
maintain the most advantageous policies of directors' and officers' insurance
obtainable for an annual premium equal to no more than such 200% amount. If
Buyer or the Surviving Corporation or any of their respective successors or
assigns (i) consolidates with or merges into any other person and is not the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers all or substantially all of its properties and assets to any
person, proper provisions shall be made so that the successors and assigns of
Buyer and/or the Surviving Corporation are bound by the obligations of the
respective party set forth in Section 6.02 and this Section 6.03.
ARTICLE VII
TERMINATION AND ABANDONMENT
7.01 Generally. This Agreement may be terminated and abandoned at
any time before the Effective Time, whether before or after approval of this
Agreement by the shareholders of the Company:
(a) by mutual consent of the Boards of Directors of Buyer
and the Company;
(b) by Buyer or the Company if the transactions
contemplated hereby shall not have been consummated on or before
December 31, 2000 (which date may be extended
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by mutual agreement of Buyer and the Company), provided that such
failure is not due to the failure of the party seeking to terminate
this Agreement (or, in the event Buyer is seeking to terminate this
Agreement, of Buyer Subsidiary) to comply in all material respects with
its obligations under this Agreement;
(c) by Buyer, if (i) any of the conditions set forth in
Section 5.01 shall become impossible to fulfill other than for reasons
within the control of Buyer or Buyer Subsidiary, and such conditions
shall not have been waived by Buyer under Section 8.03, or (ii) the
shareholders of the Company shall fail to approve this Agreement by the
vote required by the Minnesota Act and the Company's Articles of
Incorporation at the first shareholders meeting called for that purpose
or any adjournment thereof;
(d) by the Company, if (i) any of the conditions set forth
in Section 5.02 shall become impossible to fulfill other than for
reasons within the control of the Company, and such conditions shall
not have been waived by the Company under Section 8.03, or (ii) the
shareholders of the Company shall fail to approve this Agreement by the
vote required by the Minnesota Act and the Company's Articles of
Incorporation at the first shareholders meeting called for that purpose
or any adjournment thereof;
(e) by the Company upon not less than five days notice to
Buyer, if the Board of Directors of the Company, in the good-faith
exercise of its fiduciary duties, withdraws or adversely modifies its
recommendation of the Merger, or if a bona fide Third-Party Acquisition
Offer is received by the Company or its shareholders, which the Board
of Directors of the Company determines, in the good faith exercise of
its fiduciary duties, to accept, approve or recommend (provided,
however, that the parties agree that the provision of any notice under
this Section 7.01(e) shall not in itself provide Buyer with any right
to terminate this Agreement); or
(f) by the Buyer, if the Board of Directors of the Company
withdraws or adversely modifies its recommendation of the Merger, or if
the Board of Directors of the Company accepts, approves or recommends,
or publicly proposes to accept, approve or recommend, a Third-Party
Acquisition Offer, or if there is any public announcement that any
person or group has made or intends to make a Third-Party Acquisition
Proposal and such Third-Party Acquisition Proposal is not rejected by
the Board of Directors of the Company within 30 days of such
announcement.
(g) by Buyer, if the Company shall have breached any
representation or obligation contained in this Agreement, such breach
would give rise to a failure of the condition set forth in Section
5.01(a) and such breach has not been cured within 30 days after the
giving of written notice to the Company.
(h) by the Company, if Buyer shall have breached any
representation or obligation contained in this Agreement, such breach
would give rise to a failure of the
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condition set forth in Section 5.02(a) and such breach has not been
cured within 30 days after the giving of written notice to Buyer.
7.02 PROCEDURE AND EFFECT OF TERMINATION AND ABANDONMENT. In the
event of termination of this Agreement by the Company or Buyer under Section
7.01, written notice thereof shall forthwith be given to the other party and
this Agreement shall terminate and the Merger shall be abandoned without further
action by any of the parties. If this Agreement is terminated as provided
herein, no party hereto shall have any liability or further obligation to any
other party to this Agreement, except as otherwise provided in Section 8.04 or
to the extent that the termination is a direct result of a willful and material
breach or violation by such party of a representation, warranty, or covenant
contained in this Agreement.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.01 TERMINATION OF REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Therepresentations and warranties of the parties set forth in this Agreement
(including those set forth in the Disclosure Letter) or in any certificate
furnished under this Agreement shall not survive the Effective Time.
8.02 AMENDMENT AND MODIFICATION. To the extent permitted by
applicable law, this Agreement may be amended, modified or supplemented only by
written agreement of the parties hereto at any time before the Effective Time
with respect to any of the terms contained herein, except that after the meeting
of shareholders contemplated by Section 4.02, the amount of the Merger
Consideration shall not be decreased and the form of the Merger Consideration
shall not be altered without the approval of the shareholders.
8.03 WAIVER OF COMPLIANCE; CONSENTS. Any failure of Buyer or Buyer
Subsidiary, on the one hand, or the Company, on the other hand, to comply with
any obligation, covenant, agreement or condition herein (except the conditions
in Sections 5.01(b) and (e) and 5.02(b) and (d) of this Agreement) may be waived
in writing by the Company or by Buyer and Buyer Subsidiary, respectively, but
such waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure. Whenever this Agreement
requires or permits consent by or on behalf of any party hereto, such consent
shall be given in writing in a manner consistent with the requirements for a
waiver of compliance as set forth in this Section 8.03.
8.04 EXPENSES AND TERMINATION FEE.
(a) Except as otherwise provided in Sections 8.04(b) and
(e), all expenses incurred in connection with this Agreement and the
consummation of the transactions contemplated hereby shall be paid by
the party incurring such expenses. Any such
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expenses incurred by the Company and not paid before the Effective Time
shall be liabilities of the Surviving Corporation. Provided that if the
Merger is completed, Buyer's expenses incurred in connection with this
Agreement and the consummation of the transactions contemplated hereby
will be paid by the Surviving Corporation immediately following the
Effective Time.
(b) If this Agreement is terminated under Section 7.01
and if Buyer is entitled to a Termination Fee (as defined below) under
paragraph (c) of this Section 8.04 or the Agreement is terminated in
accordance with Section 7.01(c)(ii) or 7.01(d)(ii) and Buyer is not
entitled to a Termination Fee under paragraph (c) of this Section 8.04
and has not materially breached its obligations hereunder, then the
Company shall, at the same time as the Termination Fee is required to
be paid under paragraph (c) of this Section 8.04 (or not later than
five business days following such termination under Section 7.01(c)(ii)
or 7.01(d)(ii)), pay Buyer an amount equal to all reasonable,
documented out-of-pocket expenses incurred by or on behalf of Buyer or
Buyer Subsidiary in connection with the negotiation, preparation,
financing, execution or consummation of this Agreement and the
transactions contemplated hereby, including reasonable legal,
accounting, travel, filing, printing, financing commitment and other
out-of-pocket expenses; provided, however, that the aggregate expenses
payable by the Company to Buyer under this Section 8.04(b) in the event
Buyer is entitled to a Termination Fee shall not exceed $6.43 million,
and that the aggregate expenses payable by the Company to Buyer under
this Section 8.04(b) in the event of a termination under Section
7.01(c)(ii) or 7.01(d)(ii) where no Termination Fee is payable shall
not exceed $4 million.
(c) The Company shall, within five business days after
termination of this Agreement under Section 8.04(c)(i) and within five
business days after the consummation or the execution of the definitive
agreement referred to in Section 8.04(c)(ii), pay Buyer a fee of $19.29
million (a "Termination Fee"), in addition to the expenses set forth in
Section 8.04(b), if any of the following occurs:
(i) this Agreement is terminated (A) by the Company
under Section 7.01(e), (B) by Buyer under Section 7.01(f) or
(C) by Buyer if there shall have been any material breach of
any provision of Section 4.02 or 4.03; or
(ii) this Agreement is terminated (A) by Buyer under
Section 7.01(b) or (c)(i) and the condition giving rise to
Buyer's right of termination resulted from a breach by the
Company of any of its representations, warranties or covenants
contained in this Agreement (except as provided in paragraph
8.04(c)(i)(C)), (B) by Buyer under Section 7.01(c)(ii), or (C)
by the Company under Section 7.01(d)(ii); provided, however,
that (I) prior to any termination under Section 7.01(b) or
(c)(i)) or in the case of a termination under Section
7.01(c)(ii) or (d)(ii) prior to any meeting of the
shareholders of the Company called for purposes of approving
this Agreement either (A) any person or group shall have
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informed the Company that such person or group proposes,
intends to propose, is considering proposing, or will or may,
if the Merger is delayed, abandoned or not approved by the
Company's shareholders, propose, a Third-Party Transaction (as
defined below), or (B) any such person or group or the Company
publicly announces (including any filing with any federal or
state office or agency) that such person or group has
proposed, intends to propose, is considering proposing, or
will or may, if the Merger is delayed, abandoned or not
approved by the Company's shareholders, propose, a Third-Party
Transaction; and (II) within six months after such termination
a Third-Party Transaction is consummated or a binding
agreement providing for a Third-Party Transaction is entered
into by the Company.
(d) In no event shall more than one Termination Fee be
payable under this Section 8.04. As used herein, "Third-Party
Transaction" means the occurrence of any of the following events:
(i) the acquisition of the Company by merger,
consolidation, statutory share exchange or other business
combination transaction by any person other than Buyer, Buyer
Subsidiary or any affiliate thereof (a "Third Party"), in
which transaction the holders of shares of Company Common
Stock immediately before the transaction receive a per-share
consideration in excess of the Merger Consideration;
(ii) the acquisition by any Third Party of 30% or
more (in book value or market value) of the total assets of
the Company and its Subsidiaries, taken as a whole, for
consideration that indicates a total value for the Company and
its Subsidiaries in excess of the sum of (A) the product of
the number of shares of Company Common Stock outstanding on
the date of this Agreement multiplied by the Merger
Consideration, plus (B) the aggregate of the Option Settlement
Amounts for all Options outstanding on the date of this
Agreement; or
(iii) the acquisition by a Third Party of 30% or more
of the outstanding shares of Company Common Stock, whether by
tender offer, exchange offer or otherwise, for a per-share
consideration in excess of the Merger Consideration.
8.05 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No party to this
Agreement shall issue any press release or make any public announcement relating
to the subject matter of this Agreement without prior written approval of the
other parties, which approval shall not be unreasonably withheld or delayed;
provided, however, that each of the Company and Buyer may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly traded securities (in which
case the disclosing party will provide the other parties to this Agreement with
a draft of the proposed disclosure sufficiently in advance to permit such other
parties to provide comments to the disclosure and the
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disclosing party will revise such disclosure to reflect all reasonable comments
before making the disclosure).
8.06 ADDITIONAL AGREEMENTS. 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 do or cause to be done all things
necessary, proper or advisable under applicable laws and regulations, to ensure
that the conditions set forth in Article V are satisfied and to consummate and
make effective the transactions contemplated by this Agreement. If, at any time
after the Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement, the proper officers and directors of each
corporation that is a party to this Agreement shall take all such necessary
action.
8.07 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, effective when
delivered, or if delivered by express delivery service, effective when
delivered, or if mailed by registered or certified mail (return receipt
requested), effective three business days after mailing, 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 Buyer or Buyer Subsidiary, to it at:
Big Boy Holdings, Inc.
667 Madison Avenue
New York, NY 10021
Attention: Frederick J. Iseman
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, NY 10019-6064
Attention: Carl L. Reisner, Esq.
(b) If to the Company, to it at:
1460 Buffet Way
Eagan, Minnesota 55121
Attention: Roe H. Hatlen
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with a copy to each of:
H. Thomas Mitchell, General Counsel
Buffets, Inc.
1460 Buffet Way
Eagan, Minnesota 55121
And
Douglas P. Long
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402
8.08 ASSIGNMENT. This Agreement and all of the provisions hereof
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any party hereto without the prior written consent of the other parties;
provided, however, that Buyer and Buyer Subsidiary may assign all or any of
their rights hereunder to any of their respective affiliates or to any person
providing financing to Buyer or Buyer Subsidiary provided that no such
assignment shall relieve the assigning party of its obligations hereunder.
Except for the provisions of Article I and Sections 6.01, 6.02 and 6.03, this
Agreement is not intended to confer upon any other person except the parties
hereto any rights or remedies hereunder.
8.09 INTERPRETATION. As used in this Agreement, (i) "including"
means "including without limitation"; (ii) "person" includes an individual, a
partnership, a limited liability company, a joint venture, a corporation, a
trust, an incorporated organization and a government or any department or agency
thereof; (iii) "affiliate" has the meaning set forth in Rule 12b-2 promulgated
under the Exchange Act; (iv) "business day" means any day other than a Saturday,
Sunday or a day which is a statutory holiday under the laws of the United States
or the State of Minnesota; (v) all dollar amounts are expressed in United States
funds; (vi) the phrase "to the knowledge of the Company" or any similar phrase
shall mean the actual knowledge of one or more of the executive officers of the
Company; and (vii) "subsidiary" of any specified corporation shall mean any
person of which the outstanding securities having ordinary voting power to elect
a majority of the board of directors are directly or indirectly owned by such
specified corporation.
8.10 GOVERNING LAW. The Agreement shall be governed by the laws
of the State of Minnesota without giving effect to conflict-of-laws
principles.
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8.11 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute the same instrument.
8.12 HEADINGS; INTERNAL REFERENCES. The Article and Section
headings contained in this Agreement are solely for the purpose of reference,
and are not part of the agreement of the parties and shall not affect in
any way the meaning or interpretation of this Agreement.
8.13 ENTIRE AGREEMENT. This Agreement, including the Disclosure
Letter and the exhibits hereto, and the Confidentiality Agreement described in
Section 4.08, embody the entire agreement and understanding of the parties
hereto in respect of the subject matter contained herein, and supersede all
prior agreements and understandings among the parties with respect to such
subject matter. There are no restrictions, promises, representations, warranties
(express or implied), covenants or undertakings of the parties, other than those
expressly set forth or referred to in this Agreement or such Confidentiality
Agreement.
8.14 SEVERABILITY. If any term, provision, covenant, agreement or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants, agreements and restrictions of this Agreement will continue in full
force and effect and will in no way be affected, impaired or invalidated.
8.15 DISCLOSURE LETTER. Matters reflected in the Disclosure Letter
are not necessarily limited to matters required by this Agreement to be
reflected in the Disclosure Letter. Such additional matters are set forth for
informational purposes and do not necessarily include other matters of a similar
nature. A disclosure made by the Company in any Section of this Agreement or the
Disclosure Letter shall qualify other sections of the Agreement or the
Disclosure Letter only to the extent that it is reasonably apparent from a
reading of such disclosure that it also qualifies or applies to such other
sections.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
BUFFETS, INC.
By: /s/ Kerry A. Kramp
-------------------------------------------------
Its: President and Chief Operating Officer
-------------------------------------------------
BIG BOY HOLDINGS, INC.
By: /s/ Frederick J. Iseman
-------------------------------------------------
Its: President
-------------------------------------------------
BIG BOY MERGER CORPORATION
By: /s/ Frederick J. Iseman
-------------------------------------------------
Its: President
-------------------------------------------------
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<PAGE>
For the benefit of Buffets, Inc., the undersigned, Caxton-Iseman
Capital, Inc., hereby makes to Buffets, Inc. the representations and warranties
contained in Section 3.02(g) of the Agreement and Plan of Merger (replacing the
term "Buyer" with Caxton-Iseman Capital, Inc.) and undertakes and agrees to
cause Buyer to perform Buyer's agreements under Section 4.12 of the Agreement
and Plan of Merger. The undersigned hereby represents and warrants to Buffets,
Inc. that (i) it has full corporate power and authority to execute and deliver
this agreement and perform its obligations hereunder, (ii) it has taken all
actions necessary to authorize the execution, delivery and performance of this
agreement by it, (iii) such execution, delivery and performance do not conflict
with, violate or otherwise result in a default under its Certificate of
Incorporation, Bylaws or other organizational documents, and (iv) this agreement
is the legal, valid and binding obligation of the undersigned, enforceable in
accordance with its terms. Buffets, Inc., by its execution of the Agreement and
Plan of Merger, acknowledges that the undersigned is not a party to or bound by
the terms thereof except to the extent that it involves the representations and
warranties and undertakings set forth in this paragraph.
CAXTON-ISEMAN CAPITAL, INC.
By: /s/ Frederick J. Iseman
------------------------------------
Its: President
------------------------------------
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<PAGE>
EXHIBIT B
[Letterhead of U.S. Bancorp Piper Jaffray Inc.]
June 4, 2000
Special Committee of the Board of Directors
Buffets, Inc.
1460 Buffet Way
Eagan, MN 55121
Members of the Special Committee:
You have requested our opinion as to the fairness, from a financial point of
view, to the shareholders of the outstanding shares of Common Stock (the
"Shares") of Buffets, Inc. (the "Company"), of the proposal to convert each
outstanding Share of the Company into the right to receive $13.85 per Share in
cash upon the completion of the merger (the "Merger") of the Company with Big
Boy Merger Corporation ("Acquiror"), a wholly owned subsidiary of Big Boy
Holdings, Inc. ("Parent"). The terms of the Merger are set forth in the
Agreement and Plan of Merger, to be dated as of June 4, 2000, by and among the
Company, Acquiror and Parent (the "Merger Agreement").
U.S. Bancorp Piper Jaffray Inc. ("U.S. Bancorp Piper Jaffray"), as a customary
part of its investment banking business, is regularly 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. U.S. Bancorp Piper Jaffray
is currently acting as financial advisor to the Special Committee of the Board
of Directors of the Company in connection with the Merger, for which the Company
will pay a fee that is contingent upon the consummation of the Merger. For our
services in rendering this opinion, the Company will pay us a fee that is not
contingent upon the consummation of the Merger. The Company has also agreed to
indemnify us against certain liabilities in connection with this engagement.
U.S. Bancorp Piper Jaffray makes a market in shares of the Company's common
stock, provides research coverage on the Company and has provided certain
investment banking services to the Company in the past.
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:
(i) Reviewed the latest draft of the Merger Agreement;
(ii) Reviewed the Annual Reports on Form 10-K for the Company for
the three fiscal years ended December 31, 1997, December 30,
1998 and December 29, 1999;
(iii) Reviewed the Quarterly Reports on Form 10-Q for the Company
for the quarters ended April 21, 1999, July 14, 1999, October
6, 1999, and April 19, 2000;
(iv) Reviewed the Company's proxy statements dated May 9, 2000 and
May 11, 1999.
B-1
<PAGE>
Special Committee of the Board of Directors
Buffets, Inc.
June 4, 2000
Page 2
(v) Conducted discussions with certain members of senior
management of the Company concerning topics such as the
financial condition, operating performance and balance sheet
of the Company, and the prospects for the Company;
(vi) Conducted discussions with members of the Company's Board
of Directors and the Special Committee of the Board of
Directors;
(vii) Reviewed the historical prices and trading activity for the
Company Common Stock;
(viii) Reviewed the financial terms, to the extent publicly
available, of certain comparable merger and acquisition
transactions which we deemed relevant;
(ix) Performed discounted cash flow analysis on the five-year
financial forecast for the Company, as furnished by the
Company's management;
(x) Compared certain financial data of the Company with certain
financial and securities data of companies we deemed similar
to the Company;
(xi ) Reviewed the Company's store-level results;
(xii) Compared premiums paid relative to recent public market
pre-announcement trading prices of certain selected merger and
acquisition transactions to the Company's implied premium; and
(xiii) Reviewed recent press releases as well as published research
analyst reports.
We have, with your consent, relied upon and assumed the accuracy, completeness
and fairness of the financial statements and other information provided by the
Company or otherwise made available to us and have not assumed responsibility
for independently verifying such information. In reliance upon the assurances of
the Company management, we have assumed that the information provided pertaining
to the Company has been prepared on a reasonable basis in accordance with
industry practice and, with respect to financial planning data, reflects the
best currently available estimates and judgment of the Company's management as
to the expected future financial performance of the Company, and that the
Company's management is not aware of any information or facts that would make
the information provided to us incomplete or misleading. We have also assumed
that there have been no material changes in the Company's assets, financial
condition, results of operations, business or prospects since the date of the
last financial statements or the date that other information made available to
us.
In arriving at our opinion, we have assumed that the Merger will be consummated
on the terms set forth in the Merger Agreement, have not performed any
appraisals or valuations of specific assets or liabilities of the Company, have
not been furnished with any such appraisals or valuations, have made no physical
inspection of the properties or assets of the Company. In addition, we express
no opinion regarding the liquidation value of the Company.
B-2
<PAGE>
Special Committee of the Board of Directors
Buffets, Inc.
June 4, 2000
Page 3
Without limiting the generality of the foregoing, we have undertaken no
independent analysis of any pending or threatened litigation, possible
unasserted claims or other contingent liabilities, to which either the Company
or its affiliates is a party or may be subject and at the Company's direction
and with its consent, our opinion makes no assumption concerning, and therefore
does not consider, the possible assertion of claims, outcomes or damages arising
out of any such matters.
Our opinion is necessarily based upon information available to us and facts and
circumstances and economic, market and other conditions as they exist and are
subject to evaluation on the date hereof. Events occurring after the date hereof
could materially affect the assumptions used in preparing this opinion. We are
not expressing any opinion as to the prices at which shares of Company Common
Stock have traded or at which such shares may trade at any future time.
This opinion is furnished pursuant to our engagement letter dated December 31,
1999. Except with respect to the use of this opinion in connection with the
proxy statement relating to the Merger, this opinion may not be used or referred
to by the Company or quoted or disclosed to any person in any manner without our
prior written consent (which consent shall not be unreasonably withheld or
delayed). We have not been asked to opine as to, and this opinion does not
address the basic decision to proceed with or effect the Merger. This opinion is
directed to the Special Committee of the Board of Directors, except that the
Board of Directors of the Company is expressly authorized to rely on this
opinion. This opinion is not intended to be and shall not be deemed to be a
recommendation to any shareholder of the Company as to how to vote with respect
to the Merger.
Based upon and subject to the foregoing, and based upon such other facts as we
consider relevant, it is our opinion that, as of the date hereof, the
consideration to be received by the shareholders of the Company pursuant to the
Merger Agreement is fair, from a financial point of view.
Sincerely,
/s/ U.S. Bancorp Piper Jaffray Inc.
U.S. BANCORP PIPER JAFFRAY INC.
B-3
<PAGE>
Exhibit C
302A.471. RIGHTS OF DISSENTING SHAREHOLDERS.
SUBDIVISION 1. ACTIONS CREATING RIGHTS. A shareholder of a corporation
may dissent from, and obtain payment for the fair value of the shareholder's
shares in the event of, any of the following corporate actions:
(a) An amendment of the articles that materially and adversely affects
the rights or preferences of the shares of the dissenting shareholder in that
it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the
redemption of the shares, including a provision respecting a sinking
fund for the redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of
the shares to acquire shares, securities other than shares, or rights
to purchase shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a
matter, or to cumulate votes, except as the right may be excluded or
limited through the authorization or issuance of securities of an
existing or new class or series with similar or different voting
rights; except that an amendment to the articles of an issuing public
corporation that provides that section 302A.671 does not apply to a
control share acquisition does not give rise to the right to obtain
payment under this section;
(b) A sale, lease, transfer, or other disposition of all or
substantially all of the property and assets of the corporation, but not
including a transaction permitted without shareholder approval in section
302A.661, subdivision 1, or a disposition in dissolution described in section
302A.725, subdivision 2, or a disposition pursuant to an order of a court, or a
disposition for cash on terms requiring that all or substantially all of the net
proceeds of disposition be distributed to the shareholders in accordance with
their respective interests within one year after the date of disposition;
(c) A plan of merger, whether under this chapter or under chapter 322B,
to which the corporation is a constituent organization, except as provided in
subdivision 3;
(d) A plan of exchange, whether under this chapter or under chapter
322B, to which the corporation is a party as the corporation whose shares will
be acquired by the acquiring corporation, if the shares of the shareholder are
entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote
with respect to which the articles, the bylaws, or a resolution approved by the
board directs that dissenting shareholders may obtain payment for their shares.
SUBD. 2. BENEFICIAL OWNERS. (a) A shareholder shall not assert
dissenters' rights as to less than all of the shares registered in the name of
the shareholder, unless the shareholder dissents with respect to all the shares
that are beneficially owned by another person but registered in the name of the
shareholder and discloses the name and address of each beneficial owner on whose
behalf the shareholder dissents. In
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that event, the rights of the dissenter shall be determined as if the shares as
to which the shareholder has dissented and the other shares were registered in
the names of different shareholders.
(b) A beneficial owner of shares who is not the shareholder may assert
dissenters' rights with respect to shares held on behalf of the beneficial
owner, and shall be treated as a dissenting shareholder under the terms of this
section and section 302A.473, if the beneficial owner submits to the corporation
at the time of or before the assertion of the rights a written consent of the
shareholder.
SUBD. 3. RIGHTS NOT TO APPLY. (a) Unless the articles, the bylaws,
or a resolution approved by the board otherwise provide, the right to obtain
payment under this section does not apply to a shareholder of the
surviving corporation in a merger, if the shares of the shareholder are not
entitled to be voted on the merger.
(b) If a date is fixed according to section 302A.445, subdivision 1,
for the determination of shareholders entitled to receive notice of and to vote
on an action described in subdivision 1, only shareholders as of the date fixed,
and beneficial owners as of the date fixed who hold through shareholders, as
provided in subdivision 2, may exercise dissenters' rights.
SUBD. 4. OTHER RIGHTS. The shareholders of a corporation who have a
right under this section to obtain payment for their shares do not have a right
at law or in equity to have a corporate action described in subdivision 1 set
aside or rescinded, except when the corporate action is fraudulent with regard
to the complaining shareholder or the corporation.
C-2
<PAGE>
302A.473 PROCEDURES FOR ASSERTING DISSENTERS' RIGHTS.
SUBDIVISION 1. DEFINITIONS. (a) For purposes of this section, the
terms defined in this subdivision have the meanings given them.
(b) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action referred to in section 302A.471, subdivision 1 or
the successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a
corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
(d) "Interest" means interest commencing five days after the effective
date of the corporate action referred to in section 302A.471, subdivision 1, up
to and including the date of payment, calculated at the rate provided in section
549.09 for interest on verdicts and judgments.
SUBD. 2. NOTICE OF ACTION. If a corporation calls a shareholder meeting
at which any action described in section 302A.471, subdivision 1 is to be voted
upon, the notice of the meeting shall inform each shareholder of the right to
dissent and shall include a copy of section 302A.471 and this section and a
brief description of the procedure to be followed under these sections.
SUBD. 3. NOTICE OF DISSENT. If the proposed action must be approved by
the shareholders, a shareholder who is entitled to dissent under section
302A.471 and who wishes to exercise dissenters' rights must file with the
corporation before the vote on the proposed action a written notice of intent to
demand the fair value of the shares owned by the shareholder and must not vote
the shares in favor of the proposed action.
SUBD. 4. NOTICE OF PROCEDURE; DEPOSIT OF SHARES. (a) After the
proposed action has been approved by the board and, if necessary, the
shareholders, the corporation shall send to all shareholders who have complied
with subdivision 3 and to all shareholders entitled to dissent if no shareholder
vote was required, a notice that contains:
(1) The address to which a demand for payment and certificates
of certificated shares must be sent in order to obtain payment and the
date by which they must be received;
(2) Any restrictions on transfer of uncertificated shares that
will apply after the demand for payment is received;
(3) A form to be used to certify the date on which the
shareholder, or the beneficial owner on whose behalf the shareholder
dissents, acquired the shares or an interest in them and to demand
payment; and
(4) A copy of section 302A.471 and this section and a brief
description of the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply with
any restrictions on transfer of uncertificated
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shares within 30 days after the notice required by paragraph (a) was given, but
the dissenter retains all other rights of a shareholder until the proposed
action takes effect.
SUBD. 5. PAYMENT; RETURN OF SHARES. (a) After the corporate action
takes effect, or after the corporation receives a valid demand for payment,
whichever is later, the corporation shall remit to each dissenting shareholder
who has complied with subdivisions 3 and 4 the amount the corporation estimates
to be the fair value of the shares, plus interest, accompanied by:
(1) the corporation's closing balance sheet and statement of
income for a fiscal year ending not more than 16 months before the
effective date of the corporate action, together with the latest
available interim financial statements;
(2) an estimate by the corporation of the fair value of the
shares and a brief description of the method used to reach the
estimate; and
(3) a copy of section 302A.471 and this section, and a brief
description of the procedure to be followed in demanding supplemental
payment.
(b) The corporation may withhold the remittance described in paragraph
(a) from a person who was not a shareholder on the date the action dissented
from was first announced to the public or who is dissenting on behalf of a
person who was not a beneficial owner on that date. If the dissenter has
complied with subdivisions 3 and 4, the corporation shall forward to the
dissenter the materials described in paragraph (a), a statement of the reason
for withholding the remittance, and an offer to pay to the dissenter the amount
listed in the materials if the dissenter agrees to accept that amount in full
satisfaction. The dissenter may decline the offer and demand payment under
subdivision 6. Failure to do so entitles the dissenter only to the amount
offered. If the dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the
deposit of certificates or the imposition of transfer restrictions on
uncertificated shares, it shall return all deposited certificates and cancel all
transfer restrictions. However, the corporation may again give notice under
subdivision 4 and require deposit or restrict transfer at a later time.
SUBD. 6. SUPPLEMENTAL PAYMENT; DEMAND. If a dissenter believes that the
amount remitted under subdivision 5 is less than the fair value of the shares
plus interest, the dissenter may give written notice to the corporation of the
dissenter's own estimate of the fair value of the shares, plus interest, within
30 days after the corporation mails the remittance under subdivision 5, and
demand payment of the difference. Otherwise, a dissenter is entitled only to the
amount remitted by the corporation.
SUBD. 7. PETITION; DETERMINATIOn. If the corporation receives a demand
under subdivision 6, it shall, within 60 days after receiving the demand, either
pay to the dissenter the amount demanded or agreed to by the dissenter after
discussion with the corporation or file in court a petition requesting that the
court determine the fair value of the shares, plus interest. The petition shall
be filed in the county in which the registered office of the corporation is
located, except that a surviving foreign corporation that receives a demand
relating to the shares of a constituent domestic corporation shall file the
petition in the county in this state in which the last registered office of the
constituent corporation was located. The petition shall name as parties all
dissenters who have demanded payment under subdivision 6 and who have not
reached agreement with the corporation. The corporation shall, after filing the
petition, serve
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all parties with a summons and copy of the petition under the rules of civil
procedure. Nonresidents of this state may be served by registered or certified
mail or by publication as provided by law. Except as otherwise provided, the
rules of civil procedure apply to this proceeding. The jurisdiction of the court
is plenary and exclusive. The court may appoint appraisers, with powers and
authorities the court deems proper, to receive evidence on and recommend the
amount of the fair value of the shares. The court shall determine whether the
shareholder or shareholders in question have fully complied with the
requirements of this section, and shall determine the fair value of the shares,
taking into account any and all factors the court finds relevant, computed by
any method or combination of methods that the court, in its discretion, sees fit
to use, whether or not used by the corporation or by a dissenter. The fair value
of the shares as determined by the court is binding on all shareholders,
wherever located. A dissenter is entitled to judgment in cash for the amount by
which the fair value of the shares as determined by the court, plus interest,
exceeds the amount, if any, remitted under subdivision 5, but shall not be
liable to the corporation for the amount, if any, by which the amount, if any,
remitted to the dissenter under subdivision 5 exceeds the fair value of the
shares as determined by the court, plus interest.
SUBD. 8. COSTS; FEES; EXPENSES. (a) The court shall determine the costs
and expenses of a proceeding under subdivision 7, including the reasonable
expenses and compensation of any appraisers appointed by the court, and shall
assess those costs and expenses against the corporation, except that the court
may assess part or all of those costs and expenses against a dissenter whose
action in demanding payment under subdivision 6 is found to be arbitrary,
vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses of
any experts or attorneys as the court deems equitable. These fees and expenses
may also be assessed against a person who has acted arbitrarily, vexatiously, or
not in good faith in bringing the proceeding, and may be awarded to a party
injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an
attorney for the dissenters out of the amount awarded to the dissenters, if any.
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[LOGO]
Buffets, Inc. Proxy
1460 Buffet Way
Eagan, Minnesota 55121
--------------------------------------------------------------------------------
This proxy is solicited by the board of directors for use at the special meeting
of shareholders to be held __________, 2000.
The shares of stock you hold in your account will be voted as you specify on
this proxy, by telephone, or via the Internet.
IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED "FOR" PROPOSAL 1.
By signing the proxy, you revoke all prior proxies and appoint each of Clark C.
Grant and H. Thomas Mitchell as proxies, with full power of substitution and
revocation, to vote all shares of Buffets that you are entitled to vote at the
special meeting of Buffets shareholders to be held _________, 2000 and any
adjournments of the meeting.
See reverse for voting instructions.
<PAGE>
VOTE BY INTERNET
HTTP://WWW._________________
Use the Internet to vote your proxy 24 hours a day, 7 days a week. Have your
proxy card in hand when you access the web site. You will be prompted to enter
your 3-digit company number and a 7-digit control number (these numbers are
located above) to create an electronic ballot.
VOTE BY TELEPHONE
TOLL FREE 1-_______________
Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a week.
Have your proxy card in hand when you call. You will be prompted to enter your
3-digit company number and a 7-digit control number (these numbers are located
above). Follow the recorded instructions.
VOTE BY MAIL
Mark, sign, and date your proxy card and return it in the postage-paid envelope
provided.
Your Internet or telephone vote authorizes the named proxies to vote your shares
in the same manner as if you marked, signed, and returned your proxy card. The
deadline for Internet or telephone voting is noon (Central Time) on
_______________, 2000.
IF YOU VOTE BY PHONE OR INTERNET, PLEASE DO NOT MAIL YOUR PROXY CARD
Please detach here
The board of directors recommends a vote FOR Proposal 1.
1. To approve the Agreement and Plan of Merger among Buffets, Inc.,
Buffets Holdings, Inc., and Buffets Merger Corporation, dated as of
June 4, 2000, and to approve the merger contemplated thereby pursuant
to which Buffets Merger Corporation will be merged with and into
Buffets and shareholders of Buffets will become entitled to receive
$13.85 per share in cash for their shares of Buffets common stock.
FOR |_| AGAINST |_| ABSTAIN |_|
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR THE PROPOSAL.
NOTE: Please sign this proxy exactly as the name(s) appears hereon. When signing
as attorney-in-fact, executor, administrator, trustee or guardian, please add
your title as such. Proxies executed in the name of a corporation should be
signed on behalf of the corporation by a duly authorized officer. Where shares
are owned in the name of two or more persons, all such persons should sign this
proxy.
Dated: ___________, 2000
----------------------------- -----------------------------
Signature of Shareholder Signature of Shareholder
Proxy # Account # Issue or Issuer #
<PAGE>
Faegre & Benson llp
2200 Norwest Center, 90 South Seventh Street
Minneapolis, Minnesota 55402-3901
TELEPHONE 612-336-3000
FACSIMILE 612-336-3026
Michael A. Stanchfield
[email protected]
612/336-3449
July 3, 2000
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Re: Buffets, Inc. -- Preliminary Merger Proxy Statement
Ladies and Gentlemen
On behalf of Buffets, Inc., a Minnesota corporation, there is hereby
transmitted for filing, pursuant to the EDGAR system, Buffets' preliminary proxy
statement relating to the merger of the company with an affiliate of
Caxton-Iseman Capital, Inc.
The filing fee of $118,730, which was calculated in accordance with
Rule 0-11 promulgated under the Securities Exchange Act of 1934, has been wired
for the benefit of the company (CIK No. 000-14370) to the Commission's account
at Mellon Bank.
Please direct any inquiries or comments to the undersigned at (612)
336-3449 or to Doug Long of this office at (612) 336-3288.
Very truly yours,
/s/ Michael A. Stanchfield
Michael A. Stanchfield
