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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. 2)
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)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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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 AUGUST 22, 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
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION, PASSED UPON THE
FAIRNESS OR MERITS OF THIS TRANSACTION, OR PASSED UPON THE ACCURACY OR ADEQUACY
OF THE DISCLOSURE IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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.
By Order of the Board of Directors,
H. Thomas Mitchell
Secretary
Eagan, Minnesota
, 2000
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TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY TERM SHEET.......................................... 1
Questions and Answers About the Merger...................... 2
SUMMARY..................................................... 5
The Participants.......................................... 5
The Merger................................................ 6
The Shareholders' Meeting................................. 9
Merger Financing.......................................... 9
BUFFETS' SELECTED HISTORICAL FINANCIAL DATA................. 10
MARKETS AND MARKET PRICE.................................... 11
SPECIAL FACTORS............................................. 12
The Participants.......................................... 13
Structure of the Merger................................... 13
Merger Consideration...................................... 13
Background of the Merger.................................. 13
Purpose and Reasons for the Merger; Recommendation of the
Special Committee and the Board of Directors........... 19
Opinion of Financial Adviser.............................. 22
Messrs. Kramp and Hatlen's Purpose, Reasons, and Position
Regarding Fairness of the Merger....................... 29
Treatment of Existing Stock Options....................... 31
Treatment of Existing Convertible Notes................... 32
Merger Financing.......................................... 32
Estimated Fees and Expenses of the Merger................. 35
Material U.S. Federal Income Tax Consequences............. 35
Additional Interests of Buffets' Management............... 36
Executive Officers and Directors of the Surviving
Corporation............................................ 40
Consequences of the Merger; Plans for Buffets After the
Merger................................................. 40
Conduct of Buffets' Business if the Merger is Not
Completed.............................................. 40
Litigation Challenging the Merger......................... 41
THE MERGER AGREEMENT........................................ 41
The Merger................................................ 41
Completion of the Merger.................................. 41
Articles of Incorporation, By-Laws, Directors, and
Officers of the Surviving Corporation.................. 41
Representation and Warranties............................. 42
Covenants................................................. 42
Conditions to Completing the Merger....................... 44
Termination............................................... 45
Termination Fee and Expense Reimbursement................. 46
THE SPECIAL MEETING......................................... 47
General................................................... 47
Record Date and Voting.................................... 47
Required Vote............................................. 47
Proxies; Revocation....................................... 47
Expenses of Proxy Solicitation............................ 48
Adjournments.............................................. 48
DISSENTERS' RIGHTS.......................................... 49
Filing Written Objection.................................. 49
No Voting in Favor of the Merger Proposal................. 49
</TABLE>
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<TABLE>
<S> <C>
Notice by Buffets......................................... 49
Remittance of Certificates................................ 50
Acceptance or Settlement of Demand........................ 50
Court Determination....................................... 51
COMMON STOCK PURCHASE INFORMATION........................... 53
Purchases by Buffets...................................... 53
Purchases by Directors and Executive Officers of
Buffets................................................ 53
Recent Transactions....................................... 53
CERTAIN FINANCIAL PROJECTIONS............................... 54
PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT AND
OTHERS.................................................... 57
EXECUTIVE OFFICERS AND DIRECTORS OF BUFFETS................. 59
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING
INFORMATION............................................... 61
WHERE YOU CAN FIND MORE INFORMATION......................... 61
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 62
INDEPENDENT AUDITORS........................................ 62
SHAREHOLDER PROPOSALS....................................... 62
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 B-1: Transactions Used for Comparable Transactions
Analysis.
Appendix B-2: Restaurant Industry Transactions Used for
Premiums Paid Analysis.
Appendix B-3: Non-Industry Specific Transactions Used for
Premiums Paid Analysis.
Appendix C: Sections 302A.471 and 302A.473 of the Minnesota
Business Corporation Act.
</TABLE>
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SUMMARY TERM SHEET
This Summary Term Sheet highlights selected information contained in this
proxy statement and may not contain all of the information that is important to
you. We urge you to read this entire proxy statement carefully, including the
appendices.
- Shareholder Vote -- You are being asked to approve the merger agreement
and the merger of Buffets Merger Corporation into Buffets. The merger
agreement must be approved by the holders of a majority of the
outstanding shares of Buffets common stock. A vote of a majority of the
unaffiliated shareholders is not required to approve the merger
agreement and the merger. See "The Special Meeting" beginning on page
47.
- Payment -- In the merger, each share of Buffets common stock will be
converted into the right to receive $13.85 in cash, without interest or
other payment. You will not own any Buffets common stock or any other
interest in Buffets after completion of the merger. See "The Merger
Agreement" beginning on page 41.
- Buffets Merger Corporation -- Buffets Merger Corporation is a newly
formed Minnesota corporation that is wholly owned by Buffets Holdings,
Inc., a newly formed Delaware corporation whose holders are affiliates
of Caxton-Iseman Capital, Inc. See "Summary -- The Participants"
beginning on page 5.
- Management Participants -- Roe H. Hatlen, Kerry A. Kramp, and C. Dennis
Scott, each a director and executive officer of Buffets, and 15 other
members of Buffets' management have agreed to purchase equity interests
in Buffets Holdings, Inc. We refer to these members of Buffets'
management as the "Management Participants." The Management Participants
have interests that are different from, or in addition to, your
interests as a Buffets shareholder. See "Special Factors -- Additional
Interests of Buffets' Management" beginning on page 36.
- Tax Consequences -- Generally, the merger will be taxable for U.S.
federal income tax purposes. You will recognize taxable gain or loss in
the amount of the difference between $13.85 and your adjusted tax basis
for each share of Buffets common stock that you own, unless you are
subject to the special tax situations discussed in this proxy statement.
See "Special Factors -- Material U.S. Federal Income Tax Consequences"
beginning on page 35.
- Conditions -- Completion of the merger is subject to Buffets
shareholders' approval as well as other conditions, including obtaining
the necessary financing to complete the merger and obtaining necessary
consents and approvals. See "The Merger Agreement -- Conditions to
Completing the Merger" beginning on page 44.
- After the Merger -- Upon completion of the merger, affiliates of
Caxton-Iseman Capital, Inc. are expected to own approximately 85.7% of
the voting stock and 77.2% of the common stock of Buffets Holdings,
Inc., Sentinel Capital Partners is expected to own approximately 7.7% of
the voting stock and 6.9% of the common stock, and the Management
Participants are expected to own approximately 6.6% of the voting stock
and 15.9% of the common stock. See "Special Factors -- The Participants"
beginning on page 12 and "-- Additional Interests of Buffets'
Management" beginning on page 36.
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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
closing price 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
approximately 14% over the closing price per share as of June 2, 2000, the
last trading day before the announcement of the merger agreement. We believe
that the published report on June 2, 2000 was primarily responsible for the
increase in Buffets' closing stock price from $11.44 per share on June 1,
2000 to $12.13 per share on 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.
The merger agreement and merger must be approved by the affirmative vote of
a majority of the outstanding shares of Buffets common stock. A vote of a
majority of the unaffiliated shareholders is not required 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 unaffiliated 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 unaffiliated shareholders and
unanimously recommends that shareholders vote "FOR" approval of the merger
agreement and the merger.
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
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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. The
common stock of Buffets is the only security of Buffets entitled to vote at
the meeting, and each share of common stock is entitled to one vote.
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.
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.
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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 at (651) 994-8608 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 61.
If you have questions, you may also contact:
[GEORGESON SHAREHOLDER]
(800) 223-2064
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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 405 restaurants (254 Old Country
Buffet(R), 127 HomeTown Buffet(R), 12 Original Roadhouse Grill(SM), six Granny's
Buffet(R), three Tahoe Joe's Famous Steakhouses(R), two Country Roadhouse Buffet
& Grill(R), and one Soup 'N Salad Unlimited(SM)) in 37 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
before giving effect to any investments in the merger. 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. Affiliates of Caxton-Iseman will own
approximately 88.6% of Holding Company preferred stock and approximately 77.2%
of Holding Company common stock, constituting in the aggregate approximately
85.8% of Holding Company's equity capital. As a result, Caxton-Iseman will
control Holding Company. The Management Participants will own approximately
15.9% of Holding Company's common stock and approximately 3.5% of Holding
Company preferred stock, constituting in the aggregate approximately 6.6% of
Holding Company's equity capital. Mr. Hatlen is the only Management Participant
who has agreed at this time to purchase Holding Company preferred stock.
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 Caxton-Iseman affiliates and Sentinel. Sentinel will
own approximately 6.9% of Holding Company's common stock and approximately 7.9%
of Holding Company's preferred stock, constituting in the aggregate
approximately 7.7% of Holding Company's equity capital. In addition, prior to
the merger, Caxton-Iseman may sell additional
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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. Shares of Buffets common stock contributed by these individuals will be
valued at $13.85 per share and we estimate that approximately 104,000 shares of
Buffets common stock with an aggregate value of approximately $1.4 million will
be contributed by these individuals. 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 "Special Factors -- 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 the unaffiliated 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 the
unaffiliated shareholders and unanimously recommends that Buffets shareholders
vote "FOR" approval of the merger agreement and the merger.
OPINION OF FINANCIAL ADVISER (PAGE 22)
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
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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 "Special Factors -- 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 41)
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 44)
The completion of the merger depends on several conditions being satisfied
or waived, including, among others, the following:
- 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;
- the expiration or termination of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976; the Federal Trade
Commission granted early termination of the waiting period on August 7,
2000;
- the absence of any legal prohibition against the merger; and
- 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 45)
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:
- 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;
- the conditions to completing the merger shall have become impossible to
fulfill through no fault of the party seeking to terminate the merger
agreement;
- 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
- 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
7
<PAGE> 13
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 45)
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 35)
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 49)
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.
INTERESTS OF MANAGEMENT (PAGE 36)
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:
- 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;
- 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;
- 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;
- the advisory agreements that Holding Company expects to enter into with
Roe Hatlen and Dennis Scott;
- 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;
- the obligation of Holding Company to cause Buffets to continue to
provide certain employee benefits to Buffets employees following the
merger; and
- 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.
8
<PAGE> 14
THE SHAREHOLDERS' MEETING (PAGE 47)
DATE, TIME, PLACE, AND PURPOSE OF THE MEETING (PAGE 47)
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 47)
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.
QUORUM (PAGE 47)
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 47)
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. All of our directors and executive officers have indicated to
us that they intend to vote their shares in favor of the merger agreement and
the merger.
MERGER FINANCING (PAGE 32)
The total amount of funds required to (1) fund the payment of the merger
consideration and the surrender of outstanding stock options (approximately
$592.0 million), (2) repay and/or fund our existing indebtedness and other
obligations (approximately $49.2 million) and (3) pay the fees and expenses in
connection with the merger (approximately $24.0 million), is estimated to be
approximately $665.2 million.
Caxton-Iseman intends to obtain these funds from concurrent equity and debt
financings, as follows
- approximately $130 million of Holding Company common and preferred stock
to be purchased by Caxton-Iseman, Sentinel and the Management
Participants;
- approximately $95 million, in the aggregate, of mezzanine debt financing
to be provided to Buffets and to Holding Company by Credit Suisse First
Boston;
- 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 $30 million senior secured revolving credit facility with
Lehman Brothers, Fleet Boston Robertson Stephens Inc. and First Union;
- approximately $20 million from a sale and leaseback of Buffets'
corporate headquarters in Eagan, Minnesota; and
- 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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<PAGE> 15
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 twenty-eight
week periods ended July 14, 1999 and July 12, 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>
<CAPTION>
YEAR (52-53 WEEKS) ENDED 28 WEEKS ENDED
-------------------------------------------------------------------- -------------------
JANUARY 3, JANUARY 1, DECEMBER 31, DECEMBER 30, DECEMBER 29, JULY 14, JULY 12,
1996 1997 1997 1998 1999 1999 2000
---------- ---------- ------------ ------------ ------------ -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Restaurant sales..................... $661,445 $750,707 $808,529 $868,858 $936,854 $500,875 $542,941
Restaurant costs..................... 567,290 659,784 712,004 745,282 800,255 427,539 456,976
-------- -------- -------- -------- -------- -------- --------
Restaurant profits................... 94,155 90,923 96,525 123,576 136,599 73,336 85,965
Selling, general and administrative
expenses........................... 40,276 47,594 48,158 60,777 70,985 37,885 42,249
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 1,148 1,808
Other income (expense)............... 574 (520) (359) 2,465 3,594 1,683 2,272
-------- -------- -------- -------- -------- -------- --------
Earnings (loss) before income
taxes.............................. 53,083 (6,763) 46,508 63,726 67,242 35,986 44,180
Income taxes......................... 20,176 440 17,910 24,375 24,800 13,675 16,790
-------- -------- -------- -------- -------- -------- --------
Net earnings (loss).................. $ 32,907 ($ 7,203) $ 28,598 $ 39,351 $ 42,442 $ 22,311 $ 27,390
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per share:
Basic.............................. $ 0.74 ($ 0.16) $ 0.63 $ 0.87 $ 0.99 $ 0.51 $ 0.66
======== ======== ======== ======== ======== ======== ========
Diluted............................ $ 0.73 ($ 0.16) $ 0.62 $ 0.83 $ 0.95 $ 0.49 $ 0.62
======== ======== ======== ======== ======== ======== ========
Weighted average common shares
assumed outstanding:
Basic.............................. 44,604 45,068 45,257 45,346 42,805 43,499 41,563
Diluted............................ 45,578 45,068 49,140 49,726 46,692 47,362 45,482
BALANCE SHEET DATA:
Current assets....................... $ 62,939 $ 34,463 $ 65,111 $121,944 $101,451 $122,044 $140,339
Property and equipment (net)......... 328,573 327,721 330,647 334,582 353,657 333,685 361,566
Non-current assets................... 8,240 8,499 7,818 10,323 22,527 15,732 23,847
Total assets......................... 399,752 370,683 403,576 466,849 477,635 471,461 525,752
Current liabilities.................. 80,328 83,643 85,528 93,711 100,656 102,079 119,928
Long-term debt....................... 62,643 46,578 44,454 42,289 41,465 41,465 41,465
Non-current liabilities.............. 14,347 3,671 6,907 31,124 29,131 33,898 30,070
Stockholder's equity................. 242,434 236,791 266,687 299,725 306,383 294,019 334,289
RESTAURANT DATA:
Restaurants opened or acquired during
period............................. 65 41 18 28 25 7 5
Restaurants closed, relocated or sold
during period...................... (3) (8) (4) (2) (8) (6) (5)
Restaurants open (end of period):
Company-owned...................... 313 346 360 386 403 387 403
Franchised......................... 25 24 24 24 24 24 24
-------- -------- -------- -------- -------- -------- --------
Total............................ 338 370 384 410 427 411 427
Average weekly sales of company-owned
restaurants open during period..... $ 44,447 $ 43,669 $ 44,242 $ 45,120 $ 46,323 $ 46,128 $ 48,119
</TABLE>
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<PAGE> 16
The ratio of Buffets' earnings to fixed charges at December 30, 1998 was
4.2, at December 29, 1999 was 4.2, and at July 12, 2000 was 4.8. Buffets' book
value per share of common stock was $8.04 at July 12, 2000.
We have not provided any pro forma data giving effect to the proposed
merger. We do not believe such information is material to you in evaluating the
merger proposal because:
- the proposed merger consideration is all cash; and
- if the proposed merger is completed, Buffets common stock would cease to
be publicly traded.
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.
<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
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)....................
</TABLE>
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 and we are providing stock price information on this date
because of the impact we believe that the report had on our stock price on June
2, 2000. 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.
<TABLE>
<CAPTION>
BUFFETS COMMON STOCK
--------------------------
HIGH LOW CLOSE
------ ------ ------
<S> <C> <C> <C>
June 1, 2000................................................ $12.00 $11.38 $11.44
June 2, 2000................................................ 12.50 11.00 12.13
, 2000............................................
</TABLE>
We urge you to obtain a current market quotation for Buffets common stock
before you vote or if you are considering changing your vote.
We have never declared or paid cash dividends on our common stock and do
not plan to pay any cash dividends in the foreseeable future. Our current credit
agreement limits our ability to pay dividends on our common stock. In addition,
under the merger agreement, we have agreed not pay any cash dividends on our
common stock before the closing of the merger.
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<PAGE> 17
SPECIAL FACTORS
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 405 company-owned restaurants (254
Old Country Buffet, 127 HomeTown Buffet, 11 Original Roadhouse Grills, six
Granny's Buffets, two Country Roadhouse Buffet & Grills, three Tahoe Joe's
Famous Steakhouse, and one Soup 'N Salad Unlimited) in 37 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 115 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
before giving effect to any investment in the merger. 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, constituting in the aggregate approximately 85.8% of Holding
Company's equity capital. As a result, Caxton-Iseman will control Holding
Company. The Management Participants will own approximately 15.9% of Holding
Company's common stock and approximately 3.5% of Holding Company preferred
stock,
12
<PAGE> 18
constituting in the aggregate approximately 6.6% of Holding Company's equity
capital. Mr. Hatlen is the only Management Participant who has agreed to
purchase Holding Company preferred stock. 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
Caxton-Iseman affiliates and Sentinel. Sentinel will own approximately 6.9% of
Holding Company's common stock and approximately 7.9% of Holding Company's
preferred stock, constituting in the aggregate approximately 7.7% of Holding
Company's equity capital. 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. Shares of Buffets common stock contributed by these individuals will be
valued at $13.85 per share, and it is estimated that approximately 104,000
shares of Buffets common stock with an aggregate value of approximately $1.4
million will be contributed by these individuals. 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
12-month period ended June 2, 2000 has been approximately $10.25 per share. The
weighted average stock price for our common stock for the five-year period ended
June 2, 2000 has been approximately $11.36 per share. We believe that this is
attributable to both industry factors and factors more specifically related to
Buffets, including the following:
13
<PAGE> 19
- 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;
- 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;
- in recent years restaurant stocks in general have underperformed the
broader market, as represented by the S&P 500 Index;
- 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;
- tightening labor markets have negatively impacted restaurant companies;
- 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;
- the difficulty we have experienced in continuing to expand our core
buffet concepts into certain geographic regions of the United States,
including the Southeast;
- our comparable-store-sales growth, while improving, has not been
reflected in the price of our common stock; and
- 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:
- 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;
- our efforts to implement cost controls and to close or dispose of a
number of unprofitable stores;
- our development and acquisition of additional restaurant concepts,
including our Original Roadhouse Grill and Tahoe Joe's steak-house
restaurants; and
- 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:
- capital-distribution strategies, such as cash dividends, share
repurchases and/or acquisitions of other restaurant concepts;
14
<PAGE> 20
- maintaining the status quo; and
- 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. Under the terms of the engagement letter, Buffets has paid U.S. Bancorp
Piper Jaffray a total of $600,000 to date and expects to pay an additional fee
of approximately $4.1 million upon the closing of the merger. 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 to 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. Buffets and U.S.
Bancorp Piper Jaffray together identified potential acquirors that they believed
had access to capital or were of a sufficient size such that they were believed
to be in a position to acquire Buffets, based on information available to them
and their respective knowledge of the industry. Strategic buyers were selected
on the basis of possible synergies such a buyer might have with Buffets and
financial buyout firms were selected based on U.S. Bancorp Piper Jaffray's
belief that they might have an interest in a potential transaction with Buffets.
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 members of the
compensation committee believed that these agreements would assist Buffets in
retaining these key employees and would help limit their distractions during the
period that a change in control of the company is being considered and 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 Management Participants that following completion
of the merger it intends to cause Buffets to enter into
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<PAGE> 21
severance agreements with the Management Participants assuring them of severance
payments in the event that such Management Participants are terminated by
Buffets other than for cause, death or disability. In addition, both Roe Hatlen
and Dennis Scott are expected to enter into advisory agreements with Buffets
after the merger. In exchange for providing advisory services to Buffets, Mr.
Hatlen will receive approximately $1,375,000 over the five-year period ending in
December 2005 and other benefits comparable to those made available to other
management employees of Buffets. Mr. Scott will receive no cash consideration
beyond his current salary and bonus for the balance of fiscal 2000, but will
retain an office in San Diego at Buffets' expense through fiscal 2005 and
receive other benefits comparable to those made available to other management
employees of Buffets. See "-- Additional Interests of Buffets' Management" for a
discussion of the proposed severance arrangements and the proposed advisory
agreements.
At Buffets' direction, U.S. Bancorp Piper Jaffray contacted by telephone or
voicemail each of the 88 potential acquirors to ascertain its level of interest
in pursuing a transaction with a company that had the characteristics of
Buffets, without identifying Buffets by name. Follow-up phone calls were placed
to solicit interest in a potential transaction with such a company and to answer
questions that potential buyers might have. After learning about Buffets, many
potential buyers decided not to pursue a transaction for a variety of reasons,
including a lack of interest in investing in the restaurant industry, Buffets'
mature restaurant concept, perceived slowing growth opportunities for Buffets
and the large size of the transaction. However, 37 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. U.S. Bancorp Piper Jaffray believes that after reviewing the
descriptive memorandum, many of the potential acquirors determined that they
were not interested in a transaction with Buffets for the reasons described
above, but U.S. Bancorp Piper Jaffray did not survey the parties who decided not
to pursue an acquisition. 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 information supplied by the special committee and U.S. Bancorp Piper
Jaffray regarding the amount of Buffets' management team's current equity
interests in Buffets and the tax consequences of the transaction to them,
subsequently agreed to reduce the level of equity participation to $10 million
and later, in response to requests from Buffets' management, subsequently agreed
to reduce the level of equity contribution required from Buffets' management
team to approximately $8.5 million.
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
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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. The fourth written proposal, from Caxton-Iseman, 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:
- that there may not be a trading market for the preferred stock or notes
after the completion of the merger;
- the preferred stock and notes would have limited, if any, voting or
control rights;
- the junior nature of the proposed securities; and
- 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, because of the risks and
uncertainties stated above, for an all-cash transaction. In expressing its
preference for an all-cash transaction, the special committee believed that the
risks and uncertainties associated with non-cash forms of consideration
outweighed the fact that an all-cash transaction would be fully taxable to the
shareholders. In addition, the special committee believed that a transaction
that included non-cash consideration would likely take longer to complete than
an all-cash transaction.
Two of the four bidders declined to participate further. Because the
revised proposals from Caxton-Iseman and the Other Bidder were in excess of the
original proposals of the other two bidders, U.S. Bancorp Piper Jaffray did not
pursue these bidders after they 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 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
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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. On May 1, 2000, Caxton-Iseman
also reduced the amount of management equity participation required from
approximately $15 million to approximately $10 million after the special
committee and U.S. Bancorp Piper Jaffray informed Caxton-Iseman that Buffets'
management team did not have $15 million of equity interests on an after-tax
basis in Buffets that would be available for such participation. Caxton-Iseman
reduced the amount of management equity to ensure that its offer did not contain
a condition that would not be acceptable to the special committee because it
would not be capable of being satisfied. 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. U.S. Bancorp Piper Jaffray advised the
special committee regarding the difficulty in valuing the preferred stock
portion of the Other Bidder's proposal and the lack of comparable securities.
U.S. Bancorp Piper Jaffray estimated the value of the preferred stock to range
from approximately $0.29 per share to $0.46 per share. After further discussion
by U.S. Bancorp Piper Jaffray with both remaining bidders and without disclosing
the specific bids, but in each case advising both parties when their bids were
inadequate, on May 5, 2000, Caxton-Iseman submitted a revised written proposal
offering to pay $13.85 per share in cash. The increase in Caxton-Iseman's bid
resulted from being informed that its $13.65 per share was below that of the
Other Bidder.
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 reject the offer of the Other Bidder because of the
superior all-cash offer from Caxton-Iseman and to negotiate with Caxton-Iseman a
definitive agreement at an all-cash acquisition price of $13.85 per share. The
special committee believed that the Caxton-Iseman all-cash offer was superior
because of the range and valuation uncertainties and the other risks associated
with the non-cash consideration proposed by the Other Bidder. Given earlier
discussions with the Other Bidder regarding the possibility of it further
increasing its bid, and because of the risk that further delays might jeopordize
the $13.85 bid from Caxton-Iseman, the Other Bidder was not contacted after the
$13.85 bid was submitted and prior to the exclusivity agreement being executed
with Caxton-Iseman. 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, conducted by Kerry A. Kramp and Roe H. Hatlen, regarding
management's role in the company after the merger, including their levels of
equity participation and advisory agreements with Messrs. Hatlen and Scott. As a
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result of these discussions, on or about June 3, 2000, the amount of the
investment required by Caxton-Iseman was further reduced to approximately $8.5
million as a result of finalizing the level of investment by each of the
Management Participants in light of a more complete understanding by them of the
tax consequences of receiving consideration in the merger. 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 2, 2000, a report was published stating that a private equity firm
(not Caxton-Iseman) was considering acquiring Buffets. After publication of this
report, the price of our common stock closed on June 2, 2000 at $12.13 per
share, up from the $11.44 per share close on June 1, 2000. This published report
did not affect the negotiations with Caxton-Iseman.
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 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.
PURPOSE AND 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. Buffets' purpose for engaging in the merger is to allow Buffets'
shareholders to realize the value of their investment in Buffets in cash at a
price that represents a premium to the market price of Buffets common stock
before the public announcement of potential acquisition activity involving
Buffets.
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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, as set forth in the
analysis of U.S. Bancorp Piper Jaffray; the special committee adopted
the analysis of U.S. Bancorp Piper Jaffray with respect to current and
historical prices of Buffets common stock and considered the premium
paid in relation to the current and historical prices;
(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. 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) as discussed in this proxy statement under "Dissenters' Rights," the
fact that Minnesota law entitles Buffets shareholders who do not vote
in favor of the merger and who file a written objection with Buffets to
obtain the "fair value" of their shares, as determined by a court, 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;
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(12) the special committee's belief that the merger agreement, including
the termination fee and reimbursement of out-of-pocket expenses
payable to Holding Company if the merger agreement is terminated for
any of the reasons discussed in "The Merger Agreement -- Termination
Fee and Expense Reimbursement" should not unduly discourage superior
third-party offers and that Buffets, subject to certain conditions,
may 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;
(13) the fact that the merger consideration to be received by Buffets
shareholders in the merger exceeds the average purchase price of
$10.86 per share paid by Buffets in repurchasing shares of common
stock since its repurchase program began in May 1998; and
(14) the special committee's concern that the debt markets could
deteriorate further in the future, with the effect that the per-share
price offered to Buffets' shareholders in the merger may not be
available in the foreseeable future.
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 a shareholder will
generally be taxable to the shareholder in an amount equal to the
excess of $13.85 over the shareholder's tax basis in his or her shares
of Buffets common stock;
(4) as discussed in "Special Factors -- Additional Interests of Buffets'
Management," the potential conflicts of interest of the Management
Participants, including equity interests in Holding Company, advisory
agreements between Buffets and Messrs. Hatlen and Scott and
accelerated vesting of stock options; 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.
In considering the merger, the special committee adopted U.S. Bancorp Piper
Jaffray's "Comparable Company Analysis," "Comparable Transaction Analysis" and
"Discounted Cash Flow Analysis" as relevant measures to determine the going
concern value of Buffets. The special committee and U.S. Bancorp Piper Jaffray
did not attempt to determine the liquidation value of Buffets and gave little
consideration to the book value of Buffets (which was $8.04 per share at July
12, 2000) because they believed that those measures of asset value were not
relevant to the market value of Buffets' business and would be considerably less
than the merger consideration of $13.85 per Buffets share. While the special
committee reviewed with U.S. Bancorp Piper Jaffray its various financial
analyses and reviewed with officers of Buffets its historical and projected
results, the special committee did not independently generate its own separate
financial analysis of the merger transaction.
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
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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 did not consider it
necessary to require approval of the merger agreement and the merger by at least
a majority of our shareholders who are not Management Participants or to retain
any additional unaffiliated representative to act on behalf of Buffets'
unaffiliated shareholders. The special committee and the board believe that the
approval of at least a majority of all our shareholders is sufficient because of
the other procedural safeguards which are in place to ensure the procedural
fairness of the merger. These safeguards include:
- our board of directors established a special committee to consider and
negotiate the merger agreement;
- the committee was comprised of three independent directors, who will
have no continuing interest in Buffets after completion of the merger;
- the special committee selected its choice of investment bankers and
lawyers, without the involvement of the management of Buffets;
- the selection of Caxton-Iseman as the entity to acquire Buffets was the
result of an extensive auction process;
- the special committee was actively involved in evaluating other
alternatives available to Buffets;
- the special committee negotiated the terms of the merger with the
assistance of its investment bankers and lawyers; and
- the voting power of the Management Participants representing less than
9% of the total voting power of Buffets' outstanding common stock, is
small.
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 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
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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. The special committee did not
request that U.S. Bancorp Piper Jaffray determine, and U.S. Bancorp Piper
Jaffray did not determine, the amount of consideration to be paid in the merger.
You also should consider the following when reading the discussion of the
opinion of Buffets' financial adviser in this proxy statement:
- 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;
- U.S. Bancorp Piper Jaffray's written opinion does not address the value
of a Buffets common share;
- U.S. Bancorp Piper Jaffray's written opinion does not address Buffets'
underlying business decision to proceed with or effect the merger; and
- 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:
- a draft of the merger agreement dated June 1, 2000 and the final version
of the merger agreement;
- certain publicly available financial and securities data for Buffets and
the Buffets common shares;
- certain financial, operating and business information related to
Buffets;
- 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");
- 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
- 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:
- members of Buffets senior management concerning topics such as the
financial condition, current operating performance and balance sheet and
prospects of Buffets;
- 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
23
<PAGE> 29
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:
<TABLE>
<CAPTION>
IMPLIED BUFFETS
MULTIPLES AND
PREMIUM
PERCENTAGES
---------------
<S> <C>
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
Premium Paid:
Based on share price as of June 2, 2000 of $12.13......... 14.2%
Based on share price as of May 26, 2000 of $10.88 (one
week prior to announcement)............................ 27.4%
Based on share price as of April 28, 2000 of $9.81 (one
month prior to announcement)........................... 41.1%
</TABLE>
---------------
(1) Based on weighted average fully diluted shares outstanding.
(2) Based on fully diluted shares outstanding assuming a $13.85 share price.
U.S. Bancorp Piper Jaffray presented the premium paid relative to the
Buffets' share price one day prior to announcement, one week prior to
announcement and one month prior to announcement based on standard industry
practice and their belief that an analysis of premiums to trading prices over
more than one measurement period mitigates the effects volatility in a company's
stock price would have on such an analysis.
24
<PAGE> 30
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:
<TABLE>
<S> <C>
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
</TABLE>
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., Piccadilly 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 (other than Star Buffet, Inc.) 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.
This analysis produced the following valuation data:
<TABLE>
<CAPTION>
IMPLIED BUFFETS VALUE
PER SHARE BASED ON COMPARABLE
COMPARABLE COMPANY MULTIPLES IMPLIED COMPANY MULTIPLES
---------------------------- BUFFETS ---------------------------------
LOW MEAN MEDIAN HIGH MULTIPLES LOW MEAN MEDIAN HIGH
---- ---- ------ ----- --------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Company Value/LTM Revenue... 0.2x 0.7x 0.7x 2.0x 0.6x $ 6.66 $17.01 $15.65 $43.39
Company Value/LTM EBITDA.... 3.4x 5.0x 4.8x 6.6x 4.7x 10.39 14.43 13.88 18.52
Company Value/LTM EBIT...... 6.5x 7.5x 7.0x 10.2x 7.6x 12.16 13.74 12.97 17.97
P/E Ratios:
LTM....................... 5.7x 9.6x 9.1x 16.4x 12.8x 6.19 10.38 9.84 17.73
Calendar 2000 Estimated... 2.6x 8.4x 9.1x 12.4x 12.2x 2.91 9.51 10.28 14.12
</TABLE>
The implied Buffets multiples and implied Buffets equity values shown above
reflect that the $13.85 per share merger consideration is within the range of
multiples and implied equity values in each of the categories presented above
for companies deemed comparable by U.S. Bancorp Piper Jaffray, and that the
merger consideration is close to the mean and median multiples and implied
equity values for those companies.
25
<PAGE> 31
The ratio of "Company Value" to "LTM Revenue" measures a company's value
relative to the revenue it generates. The ratio of "Company Value" to "LTM
EBITDA" measures a company's value relative to the operating cash flow that the
company produced. The ratio of "Company Value" to "LTM EBIT" is a measure of a
company's value relative to the operating profits it produced. "P/E" (or price
to earnings) ratios are a measure of the equity value per share of a company
relative to its net income per share.
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:
- transactions in which the target company is classified as an "eating and
drinking place" with a Standard Industrial Classification Code of 5812
or 5813;
- transactions with a value of greater than $10 million;
- transactions not in the nature of repurchases or spinoffs; and
- 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. Appendix B-1 contains a listing of the
transactions included in U.S. Bancorp Piper Jaffray's comparable transaction
analysis.
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>
<CAPTION>
IMPLIED BUFFETS VALUE
RESTAURANT MERGER AND ACQUISITION PER SHARE BASED ON COMPARABLE
TRANSACTION MULTIPLES IMPLIED TRANSACTION MULTIPLES
---------------------------------- BUFFETS ---------------------------------
LOW MEAN MEDIAN HIGH MULTIPLES LOW MEAN MEDIAN HIGH
------ ------ ------- ------ --------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Company Value/LTM
Revenue................. 0.2x 0.8x 0.7x 1.8x 0.6x $ 7.00 $18.08 $16.96 $38.33
Company Value/LTM
EBITDA.................. 4.2x 6.6x 6.3x 10.7x 4.7x 12.45 18.56 17.63 28.65
Company Value/LTM EBIT.... 7.0x 13.1x 12.2x 31.3x 7.6x 13.04 22.62 21.12 51.17
Equity Value/LTM Net
Income.................. 13.0x 18.9x 17.6x 32.6x 13.1x 13.77 20.02 18.61 34.49
</TABLE>
The implied Buffets multiples and implied Buffets equity values above
reflect that the $13.85 per share merger consideration is within the range of
multiples and implied equity values for transactions deemed comparable by U.S.
Bancorp Piper Jaffray, but were in the lower end of the range. U.S. Bancorp
Piper Jaffray noted that the comparable transactions varied from the proposed
Buffets transaction in two significant areas, namely that (1) Buffets had a more
mature restaurant concept with more limited growth opportunities relative to
other companies used in the comparable transaction analysis and (2) that the
Buffets transaction was being completed during a significantly less favorable
debt market than the comparable transactions. No adjustments were made to the
comparable transaction analysis to reflect these factors. However, U.S. Bancorp
Piper Jaffray's analysis of these factors indicated that Buffets should be
valued at the low end of the range of comparable transactions.
26
<PAGE> 32
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:
- restaurant industry acquisitions completed since January 1, 1997
involving more than $50 million in transaction value (20 comparable
transactions, a list of which is included in Appendix B-2); and
- non-industry specific transactions completed since January 1, 1999
involving between $500 million and $1 billion in transaction value (136
comparable transactions, a list of which is included in Appendix B-3).
The premiums paid analysis measures the implied premium paid for a
company's stock relative to the public market pre-announcement trading prices.
Premiums are paid for companies primarily for the control value of a company,
potential synergies with a new partner and potential benefits from a change in
capital structure. The range of premiums paid in selected transactions are
compared to the premium to be paid in the merger, as calculated at various
dates.
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>
<CAPTION>
IMPLIED BUFFETS VALUE
RESTAURANT INDUSTRY ACQUISITION IMPLIED PER SHARE BASED ON
GROUP PREMIUM DATA BUFFETS GROUP PREMIUM DATA
-------------------------------- PREMIUM --------------------------------
LOW MEAN MEDIAN HIGH PERCENTAGE LOW MEAN MEDIAN HIGH
------ ----- ------ ------ ---------- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 month prior to
announcement......... (11.8%) 40.3% 24.8% 176.2% 41.1% $8.66 $13.77 $12.25 $27.10
1 week prior to
announcement......... (35.5%) 28.6% 16.6% 169.8% 27.4% 7.02 13.99 12.68 29.34
1 day prior to
announcement......... (33.3%) 25.9% 15.0% 132.0% 14.2% 8.08 15.27 13.94 28.13
</TABLE>
<TABLE>
<CAPTION>
IMPLIED BUFFETS VALUE
NON-INDUSTRY SPECIFIC ACQUISITION IMPLIED PER SHARE BASED ON
GROUP PREMIUM DATA BUFFETS GROUP PREMIUM DATA
------------------------------------ PREMIUM --------------------------------
LOW MEAN MEDIAN HIGH PERCENTAGE LOW MEAN MEDIAN HIGH
------- ------ ------- ------- ---------- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 month prior to
announcement......... (71.0%) 42.0% 37.7% 186.0% 41.1% $2.84 $13.93 $13.51 $28.06
1 week prior to
announcement......... (74.7%) 35.4% 28.8% 187.7% 27.4% 2.75 14.73 14.00 31.29
1 day prior to
announcement......... (72.7%) 26.7% 22.1% 149.0% 14.2% 3.31 15.36 14.80 30.19
</TABLE>
The implied Buffets premium percentages and implied Buffets equity values
shown above reflect that the $13.85 per share merger consideration is within the
range of premium percentages and equity values based on the premiums paid data
for both restaurant industry and non-industry specific transactions and close to
the mean and median equity values for these transactions.
U.S. Bancorp Piper Jaffray noted that, because of the price increase in
Buffets shares from June 1, 2000 to June 2, 2000, believed to be related to the
published report discussed above, the implied Buffets premium and equity values
relative to the Buffets price one day prior to announcement was more likely to
be at the low end of the range of comparables.
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<PAGE> 33
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:
- the projected cash flows of Buffets using assumptions prepared by
Buffets management; and
- the estimated terminal (or perpetual) value of Buffets for the period of
time from the end of the projections provided by Buffets' management
forward.
The discounted cash flow analysis measures the net present value of the
company's cash flow at a variety of discount rates and terminal value EBITDA
multiples on a per share basis. The net present values are compared to the
$13.85 per share merger consideration.
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:
<TABLE>
<CAPTION>
DISCOUNT RATE
--------------------------
EBITDA MULTIPLE 19.0% 21.0% 23.0%
--------------- ------ ------ ------
<S> <C> <C> <C>
3.5x................................................... $12.60 $11.92 $11.30
4.5x................................................... $14.53 $13.71 $12.95
5.5x................................................... $16.46 $15.49 $14.61
</TABLE>
This analysis indicated a valuation range of the Buffets common stock of
$11.30 per share to $16.46 per share and further indicated that the merger
consideration of $13.85 per share falls within an acceptable range of equity
values for Buffets, based on a discounted cash flow analysis.
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, future results may be 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
28
<PAGE> 34
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, represented the best currently available estimates and good faith
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 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, after interviews with
representatives of U.S. Bancorp Piper Jaffray, selected U.S. Bancorp Piper
Jaffray because of its expertise, reputation and familiarity with Buffets and
the restaurant industry in general. Neither the special committee nor the board
of directors interviewed any other prospective financial advisers. 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:
- $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);
- $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
- 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.
MESSRS. KRAMP AND HATLEN'S PURPOSE, REASONS, AND POSITION REGARDING FAIRNESS OF
THE MERGER
The rules of the SEC require each of Kerry A. Kramp and Roe Hatlen to
express his view as to the fairness of the merger to Buffets' shareholders,
other than the fairness to Messrs. Kramp and Hatlen. As described in more detail
under "Special Factors -- Background of the Merger," the terms of the merger
29
<PAGE> 35
agreement were negotiated at arm's length between Buffets and Caxton-Iseman.
Messrs. Kramp and Hatlen did not independently consider the fairness of the
merger consideration to Buffets' shareholders. Based exclusively on the analysis
by the special committee, its financial adviser, and the board of directors,
including a review of the description in this proxy statement of the information
and factors considered by each of them in concluding that the terms are fair to
Buffets' shareholders (excluding Messrs. Kramp and Hatlen), Messrs. Kramp and
Hatlen have adopted the analysis of the special committee as to the fairness of
the merger consideration and believe the terms of the merger agreement are fair
to Buffets' shareholders (excluding Messrs. Kramp and Hatlen).
In addition to the foregoing:
- Messrs. Kramp and Hatlen adopted the analysis of U.S. Bancorp Piper
Jaffray with respect to current and historical prices of Buffets common
stock and considered the premium paid for the shares in relation to such
current and historical prices;
- Messrs. Kramp and Hatlen considered that the merger consideration of
$13.85 per share exceeded the book value of $8.04 per share at July 12,
2000;
- Messrs. Kramp and Hatlen adopted U.S. Bancorp Piper Jaffray's
"Comparable Company Analysis," "Comparable Transaction Analysis" and
"Discounted Cash Flow Analysis" as relevant measures to determine going
concern value;
- Messrs. Kramp and Hatlen did not consider liquidation value to be a
relevant valuation methodology because there was no intent to liquidate
Buffets and a liquidation sale of individual assets at many locations
was not likely to lead to per share proceeds in excess of that offered
under the merger agreement;
- Mr. Kramp considered that the merger consideration of $13.85 per share
was in excess of the amount per share paid by Mr. Kramp in open market
purchases on February 26, 1999 and March 8, 1999; and
- Messrs. Kramp and Hatlen considered the offer by Caxton-Iseman to be
superior to those received from other bidders in a highly competitive
process.
Messrs. Kramp and Hatlen did not individually receive any report, opinion
or appraisal from an outside party that is materially related to the merger
agreement or the merger.
Because of the variety of factors considered by Messrs. Kramp and Hatlen,
and the special committee, Messrs. Kramp and Hatlen did not find it practicable
to make specific assessments of, quantify or otherwise assign relative weights
to, the specific factors considered. The determination was made after
consideration of all of the factors together. In addition, Messrs. Kramp and
Hatlen do not have the right to rely on the opinion of U.S. Bancorp Piper
Jaffray but have adopted its analysis. The belief of Messrs. Kramp and Hatlen
expressed above should not be construed as a recommendation to Buffets'
shareholders to vote to approve the merger agreement and the merger.
Messrs. Kramp and Hatlen did not consider it necessary to require approval
of the merger agreement and the merger by at least a majority of Buffets'
shareholders who are not management participants or to retain any additional
unaffiliated representative to act on behalf of Buffets' unaffiliated
shareholders for the reasons disclosed by the board of directors and the special
committee.
The rules of the SEC also require each of Messrs. Kramp and Hatlen to
describe his reasons for entering into the transactions described in this proxy
statement. Messrs. Kramp and Hatlen are entering into the transactions because:
- They believe Buffets suffers from being, and is likely to 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 value of
Buffets common stock.
- Based on Buffets' experience as a public company discussed above,
Messrs. Kramp and Hatlen believe that a financial buyer would likely
more highly value Buffets' strong and stable cash flow generation than
would the public markets.
30
<PAGE> 36
- Caxton-Iseman required Messrs. Kramp and Hatlen to make an equity
investment in Holding Company and to continue to provide services as a
condition to the merger.
- Messrs. Kramp and Hatlen believe Caxton-Iseman has a proven track record
of operating acquired companies and believe they will be able to
establish a good working relationship with Caxton-Iseman.
Messrs. Kramp and Hatlen are entering into the transaction now because they
believe robust mergers and acquisitions activity and funding currently available
to financial buyers may not be available in future periods. Messrs. Kramp and
Hatlen also believe that recent operating results of Buffets were instrumental
in determining the per-share merger consideration and there can be no guaranty
of equivalent operating results in the future.
While Messrs. Kramp and Hatlen believe there will be significant
opportunities associated with their investment in Holding Company, there are
substantial risks that they may not recover their investment or that the
opportunities may not be fully realized. In addition, Messrs. Kramp and Hatlen
will retain a minority interest in a private company with no immediate source of
liquidity and no definitive plan for liquidation of their interest.
As of , 2000, Roe Hatlen beneficially owned approximately 4.6%
of the common shares of Buffets and, as a result, had an interest in
approximately 4.6% of the net book value and earnings of Buffets. This net book
value represented approximately $15.4 million (based on Buffets' stockholders
equity on the last day of the fiscal quarter ending on July 12, 2000). Mr.
Hatlen's interest in Buffets' earnings represented approximately $1.3 million
for the twenty-eight week period ended July 12, 2000 (and approximately $2.2
million for the fifty-two week period ended July 12, 2000). After the merger,
Mr. Hatlen will own (1) approximately 5.0% of Holding Company's common stock
(with a net book value of approximately $1.6 million) and, as a result, will
have an interest in approximately 5.0% of the net earnings of Holding Company
and (2) approximately 3.5% of Holding Company's preferred stock (with a net book
value of approximately $3.4 million). In aggregate, Mr. Hatlen will own
approximately 3.8% of Holding Company's equity (with a net book value of
approximately $5.0 million). If Holding Company had the same earnings as
Buffets, Mr. Hatlen's interest in Holding Company's common stock would have
represented approximately $1.4 million for the twenty-eight week period ended
July 12, 2000 (and approximately $2.4 million for the fifty-two week period
ended July 12, 2000). Holding Company will have greater interest expenses than
Buffets and, accordingly, we expect that Holding Company's earnings will be
lower than Buffets' earnings.
As of , 2000, Kerry Kramp beneficially owned approximately 1.0%
of the common shares of Buffets and, as a result, had an interest in
approximately 1.0% of the net book value and earnings of Buffets. This net book
value represented approximately $3.3 million (based on Buffets' stockholders
equity on the last day of the fiscal quarter ending on July 12, 2000). Mr.
Kramp's interest in Buffets' earnings represented approximately $0.3 million for
the twenty-eight week period ended July 12, 2000 (and approximately $0.5 million
for the fifty-two week period ended July 12, 2000). After the merger, Mr. Kramp
will own approximately 4.0% of Holding Company's common stock (with a net book
value of approximately $1.3 million), and, as a result, will have an interest in
approximately 4.0% of the net earnings of Holding Company. If Holding Company
had the same earnings as Buffets, Mr. Kramp's interest in Holding Company's
common stock would have represented approximately $1.1 million for the
twenty-eight week period ended July 12, 2000 (and approximately $1.9 million for
the fifty-two week period ended July 12, 2000). Holding Company will have
greater interest expenses than Buffets and, accordingly, we expect that Holding
Company's earnings will be lower than Buffets' earnings.
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
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<PAGE> 37
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.
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. See
" -- Estimated Fees and Expenses of the Merger." 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.
Buffets expects to repay the debt incurred in connection with the merger
primarily from cash flow from operations. In addition, Buffets may repay this
debt with the proceeds from any sales of assets and/or proceeds from new debt or
equity financings. Holding Company expects to repay the debt incurred in
connection with the merger primarily from dividends from Buffets. In addition,
Holding Company may repay this debt with proceeds from new debt or equity
financings. No alternative financing arrangements or plans exist in the event
the arrangements discussed in this section are not realized. Other than as
described above, there are no plans or arrangements to finance or repay the debt
incurred in connection with the merger.
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
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<PAGE> 38
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 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:
- the closing of the merger occurring on or before September 30, 2000;
- consummation of the merger substantially on the terms of the merger
agreement. See "The Merger Agreement -- Conditions to the Merger;"
- receipt of the equity and senior debt financings and completion of the
headquarters sale and leaseback of Buffets' corporate headquarters;
- receipt of all material consents required as a result of the merger and
the financing;
- receipt by the lenders of a solvency certificate;
- 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
- 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 $340 million secured credit facility with senior lenders, including a $30
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
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<PAGE> 39
the material conditions to be satisfied in order for the financing sources to
fund the amount contemplated by the commitment letter:
- the closing of the merger occurring on or before September 30, 2000;
- consummation of the merger substantially on the terms of the merger
agreement. See "The Merger Agreement -- Conditions to the Merger;"
- receipt of the equity and mezzanine financings and completion of the
headquarters sale and leaseback;
- receipt of all material consents required as a result of the merger and
the financing;
- receipt by the lenders of a solvency certificate;
- 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;
- 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 financial, banking or capital market conditions shall not have
suffered a material disruption or a material adverse change; and
- 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:
- the closing of the merger occurring on or before September 30, 2000;
- consummation of the merger substantially on the terms of the merger
agreement; see "The Merger Agreement -- Conditions to the Merger";
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<PAGE> 40
- receipt of the equity and senior debt financings;
- lender satisfaction with title, survey, zoning, environmental and
structural matters; and
- 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.
ESTIMATED FEES AND EXPENSES OF THE MERGER
Fees and expenses for the merger are estimated at this time to be as
follows:
<TABLE>
<CAPTION>
AMOUNT
DESCRIPTION (IN MILLIONS)
----------- -------------
<S> <C>
Advisory fees and expenses.................................. $ 6.2
Debt financing fees and expenses............................ 11.8
Legal and other consulting fees and expenses................ 5.3
Accounting fees and expenses................................ 0.5
Printing and mailing costs.................................. 0.1
Miscellaneous expenses...................................... 0.1
-----
Total..................................................... $24.0
=====
</TABLE>
Buffets will be responsible for paying all of these expenses if the merger
is completed. These expenses will not reduce the merger consideration to be
received by Buffets' shareholders.
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.
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<PAGE> 41
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
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 3.0% is included in the 15.9% mentioned above)
and shares of Holding Company preferred stock representing approximately 3.5% of
the
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<PAGE> 42
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:
<TABLE>
<CAPTION>
INVESTMENT % OF OUTSTANDING % OF OUTSTANDING
NAME AMOUNT COMMON STOCK PREFERRED STOCK
---- ---------- ---------------- ----------------
<S> <C> <C> <C>
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 --
</TABLE>
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. Shares of
Buffets common stock contributed by these individuals will be valued at $13.85
per share and we estimate that approximately 104,000 shares of Buffets common
stock with an aggregate value of approximately $1.4 million will be contributed
by these individuals. In addition, some of the Management Participants,
including Mr. Kramp, 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:
- ten votes per share on all matters submitted to Holding Company's
shareholders;
- liquidation value equal to the purchase price per share and liquidation
preference senior to all classes of Holding Company's capital stock;
- 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");
- 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
- 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 liquidation value plus declared but
unpaid dividends.
Caxton-Iseman has agreed to cause Buffets to pay certain of the Management
Participants, including Messrs. Kramp and Hatlen, 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
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<PAGE> 43
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 $1.0 million.
Three of the Management Participants, Messrs. Kramp, Hatlen and Scott, 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 payment for their Holding Company common stock
and have agreed to pay the balance due for the common stock, without interest,
when the deferred payments are received.
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:
- 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);
- 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;
- restrictions regarding the transfer of Holding Company stock;
- 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);
- 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;
- preemptive rights to purchase Holding Company common stock on a pro rata
basis, subject to certain exceptions;
- 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;
- 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; and
- Holding Company has agreed to pay some of the legal fees of the
Management Participants.
ADVISORY AGREEMENTS. Messrs. Hatlen and Scott also will have five-year
advisory arrangements with Buffets after the merger. Under his advisory
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
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<PAGE> 44
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 advisory 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 an advisor 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.
In the aggregate, our directors and executive officers will receive
$7,636,827 in cash, before taxes and any withholding, in respect of their stock
options upon completion of the merger. The following table sets forth the cash
amounts, before taxes and any withholding, that each director and executive
officer of Buffets will receive in respect of his or her stock options upon
completion of the merger.
<TABLE>
<CAPTION>
PAYMENT
NAME UPON COMPLETION
---- ---------------
<S> <C>
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, Jr...................................... 103,280
K. Michael Shrader.......................................... 240,542
H. Thomas Mitchell.......................................... 181,438
Jean C. Rostollan........................................... 528,625
Clark C. Grant.............................................. 280,238
Neal L. Wichard............................................. 456,194
Walter R. Barry, Jr......................................... 11,000
Marvin Goldstein............................................ 37,875
Michael T. Sweeney.......................................... 20,375
</TABLE>
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 and the Management Participants 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
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<PAGE> 45
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 Management Participants that following completion of the merger
it intends to cause Buffets to enter into severance agreements with the
Management Participants assuring them of severance payments in the event that
such Management Participants are terminated by the Company other than for cause,
death or disability. The amount of such payment will vary depending on the
officer but will not exceed one year's salary. During the severance period, the
officer also will continue to receive medical benefits and life insurance and
long-term disability benefits from Buffets. In addition, Caxton-Iseman has
advised Buffets 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, Hatlen and
Goronkin are also expected to be members of the Buffets board of directors, but
may be removed at any time by Caxton-Iseman.
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.
CONSEQUENCES OF THE MERGER; PLANS FOR BUFFETS AFTER THE MERGER
As a result of the completion of the merger:
- all of the common stock of Buffets will be owned by Holding Company, all
of the common stock of which will be owned by Caxton-Iseman, its
affiliates, Sentinel and the Management Participants;
- all other current shareholders of Buffets will not participate in
Buffets' future earnings and growth;
- Caxton-Iseman, its affiliates, Sentinel and the Management Participants
will have the opportunity to benefit from any earnings and growth of
Buffets, and will bear the risk of any decrease in Buffets' value;
- Buffets will incur a significant amount of indebtedness;
- Holding Company will issue warrants in connection with some of its debt;
and
- Buffets' common stock will no longer be traded on the Nasdaq National
Market System, price quotations will no longer be available and the
registration of the Buffets common stock under the Exchange Act will be
terminated.
Following the completion of the merger, Caxton-Iseman and its affiliates
expect that the business and operations of Buffets will be continued
substantially as they are currently being conducted. The board of directors and
management of the surviving corporation will, however, continue to evaluate
Buffets' business, operations, corporate structure and organization and will
make changes as they deem appropriate.
CONDUCT OF BUFFETS' BUSINESS IF THE MERGER IS NOT COMPLETED
If the merger is not completed, we intend to continue to operate our
business substantially in the manner it is operated today. From time to time, we
will evaluate and review Buffets' business operations,
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properties, dividend policy and capitalization, and make such changes as are
deemed appropriate, and continue to seek to identify strategic financial
alternatives to maximize shareholder value.
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.) were 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 named as
defendants Buffets and each member of Buffets' board of directors. The
complaints alleged, among other things, that Buffets' directors breached their
fiduciary duties by approving the merger and not maximizing value for Buffets'
shareholders. In addition, the complaints alleged that certain of the directors
have conflicts of interest that prevented them from acting in the best interests
of Buffets shareholders. By an Order filed on August 7, 2000, the Court ordered
that the six actions be consolidated under the name In Re Buffets, Inc.
Shareholder Litigation, that certain law firms be appointed as co-lead counsel
and liaison counsel for the plaintiffs, and that the plaintiffs serve and file a
consolidated and amended complaint within 30 days. Defendants have not yet
received any consolidated or amended complaint. Buffets believes that the claims
alleged in the six original complaints 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 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,
- the articles of incorporation of Merger Sub will become the articles of
incorporation of the surviving corporation;
- the by-laws of Merger Sub will become the by-laws of the surviving
corporation;
- the directors of Merger Sub will become the directors of the surviving
corporation; and
- the officers of Buffets will remain officers of the surviving
corporation.
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REPRESENTATION AND WARRANTIES
The merger agreement contains various customary representations and
warranties by Buffets, relating to, among other matters:
- it and its subsidiaries' organization, good standing, and qualification;
- its capital structure;
- non-violation of its governing instruments or material agreements;
- required governmental approvals of the merger;
- the accuracy of its filings with the SEC;
- absence of certain changes since December 29, 1999, the date of its last
audited balance sheet;
- absence of undisclosed litigation and liabilities;
- tax matters;
- it and its subsidiaries' owned and leased properties;
- it and its subsidiaries' material contracts;
- it and its subsidiaries' intellectual property;
- it and its subsidiaries' employee benefits plans;
- compliance with laws;
- inapplicability of any takeover statute or any anti-takeover provision
of its articles of incorporation or by-laws to the merger;
- environmental matters; and
- 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:
- splitting, combining, or reclassifying any of its capital stock,
declaring or paying any dividends or distributions, or redeeming its
capital stock;
- amending its organizational documents;
- 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;
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- 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;
- selling or leasing any material assets or properties;
- incurring indebtedness or making any guarantees of indebtedness of
another person;
- adopting or modifying any employee benefit plan or arrangement or
increasing employee compensation or benefits;
- entering into any collective bargaining agreement;
- making material changes to its accounting principles, methods, or
practices;
- entering into material contacts; or
- settling the 1995 securities class action lawsuit against Buffets and
its directors without the consent of Holding Company, which shall not be
unreasonably withheld. In this litigation, Buffets and seven of its
present and former directors and executive officers have been named as
defendants in a class action brought on behalf of all purchasers of
common stock of Buffets from October 26, 1993 through October 25, 1994.
Plaintiffs allege that the defendants made material false or misleading
statements about Buffets' operations, restaurant development activities,
and financial performance, as a result of which the market price of
Buffets' stock was artificially inflated during the class period.
Plaintiffs also allege that the individual defendants made sales of
common stock of Buffets' during the class period while in possession of
material undisclosed information. On May 11, 2000, the court denied the
parties' cross-motions for summary judgment in this matter.
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,
- initiate or solicit any inquiries or the making of any proposal or offer
with respect to,
- engage in any negotiations concerning, or
- 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
- 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;
- Buffets notifies Holding Company of the third-party offer and keeps
Holding Company fully informed with respect to the third-party offer;
and
- the third party enters into a confidentiality agreement with Buffets no
less favorable to Buffets than the confidentiality agreement between
Buffets and Caxton-Iseman.
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.
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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:
- 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;
- approval of the merger agreement and the merger by Buffets shareholders;
- the absence of any material adverse change in Buffets and its
subsidiaries' businesses, taken as a whole;
- the absence of any legal prohibition against the merger or other
material litigation instituted by any governmental authority;
- 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;
- the financing for the merger shall have been made available to Holding
Company;
- holders of no more than 10% of Buffets' outstanding common stock shall
have exercised dissenters' rights with respect to the merger;
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- all required filings with, or approvals by, governmental entities shall
have been made or received; and
- 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:
- 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;
- approval of the merger agreement and the merger by Buffets shareholders;
- the absence of any legal prohibition against the merger; and
- 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.
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
- 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;
- 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;
- 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
- 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,
- withdraws or adversely modifies its recommendation of the merger;
- accepts or approves an acquisition offer from a third party; or
- 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
- withdraws or adversely modifies its recommendation of the merger; or
- 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.
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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 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):
- 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
- either company terminates the merger agreement because Buffets
shareholders do not approve the merger agreement and the merger at the
shareholders' meeting.
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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 and
voting in person. Abstentions and broker "non-votes" will have the same effect
as a vote against the merger agreement and the merger. All of our directors and
executive officers have indicated to us that they intend to vote their shares in
favor of 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.
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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 Georgeson Shareholder Communications Inc.
to assist it in the solicitation of proxies, using the means referred to above,
at an anticipated cost of $6,500, 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.
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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 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:
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- the address to which the shareholder must send a demand for payment and
the stock certificates in order to obtain payment;
- the date by which they must be received;
- any restrictions on transfer of uncertificated shares that will apply
after the demand for payment is received;
- 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
- 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
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
- the latest available interim financial statements,
- an estimate of the fair value of the shareholder's shares and a brief
description of the method used to reach the estimate,
- a brief description of the procedure to be followed if the dissenting
shareholder decides to make a demand for a supplemental payment, and
- 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,
50
<PAGE> 56
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
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
51
<PAGE> 57
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 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.
52
<PAGE> 58
COMMON STOCK PURCHASE INFORMATION
PURCHASES BY BUFFETS
The table below sets forth information, by calendar quarters, regarding
purchases by Buffets of its common stock since July 1, 1998, including the
number of shares purchased, the range of prices paid and the average purchase
price:
<TABLE>
<CAPTION>
NO. OF AVERAGE
PERIOD SHARES PRICE RANGE PRICE
------ --------- ------------- -------
<S> <C> <C> <C>
July 1, 1998 to September 30, 1998....................... 756,000 $12.88-$14.00 $13.81
October 1, 1998 to December 31, 1998..................... -- -- --
January 1, 1999 to March 31, 1999........................ 2,170,000 $ 9.73-$10.38 $10.12
April 1, 1999 to June 30, 1999........................... 620,000 $10.00-$10.25 $10.24
July 1, 1999 to September 30, 1999....................... 240,000 $11.38-$11.75 $11.65
September 30, 1999 to December 31, 1999.................. 540,000 $ 9.94-$10.75 $10.27
January 1, 2000 to March 31, 2000........................ -- -- --
April 1, 2000 to June 30, 2000........................... -- -- --
July 1, 2000 to present.................................. -- -- --
</TABLE>
PURCHASES BY DIRECTORS AND EXECUTIVE OFFICERS OF BUFFETS
The table below sets forth information regarding purchases by each of
Buffets' directors and executive officers of our common stock since July 1, 1998
(or the date the individual became an affiliate of Buffets, if that date is
later):
<TABLE>
<CAPTION>
AVERAGE
TYPE OF NO. OF PRICE PER PRICE PER
NAME PURCHASE PURCHASE DATE SHARES SHARE QUARTER
---- --------------- ---------------- ------ --------- ---------
<S> <C> <C> <C> <C> <C>
Kerry A. Kramp.................... Open Market February 26, 1,000 $10.25 $9.80
1999
Kerry A. Kramp.................... Open Market March 8, 1999 1,500 $ 9.50 $9.80
David Goronkin.................... Open Market March 10, 1999 1,000 $ 9.44 $9.44
Jean C. Rostollan................. Option Exercise December 7, 1999 13,500 $ 7.42 $7.42
</TABLE>
RECENT TRANSACTIONS
Except as set forth below, there have been no transactions in our common
stock effected during the past 60 days by us or any of our directors or
executive officers.
<TABLE>
<CAPTION>
NO. OF PRICE PER HOW TRANSACTION
NAME DATE SHARES SHARE WAS EFFECTED
---- ------------- ------ -------------- ---------------
<S> <C> <C> <C> <C>
Roe H. Hatlen........................ June 30, 2000 72,440 Not Applicable Gift of Shares
</TABLE>
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<PAGE> 59
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
Caxton-Iseman's 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 "Special
Factors -- Background of the Merger" and "Special Factors -- Opinion of
Financial Adviser."
The projections set forth below were not prepared by us with a view to
public disclosure or complying with the guidelines established by the American
Institute of Certified Public Accountants with respect to prospective financial
information, but, in the view of Buffets' management, were prepared on a
reasonable basis, reflect the best currently available estimates and judgments
and present, to the best of management's knowledge and belief, the expected
course of action and the expected future performance of Buffets. However, this
information is not fact and should not be relied upon as necessarily indicative
of future results, and readers of this proxy statement are cautioned not to
place undue reliance on the projections.
Neither our independent auditors, nor any other independent accountants,
have compiled, examined, or performed any procedures with respect to the
projections set forth below, nor have they expressed any opinion or given any
other form of assurance on such information or its achievability. Our
independent auditors assume no responsibility for, and disclaim any association
with, the projections.
The assumptions and estimates underlying the projections are inherently
uncertain and, though considered reasonable by Buffets' management as of the
date of this proxy statement, are subject to a wide variety of significant
business, economic, and competitive risks and uncertainties that could cause
actual results to differ materially from those contained in the projections,
including, among others, the following: 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 and which consequently might adversely impact
assumptions about future growth of Buffets. Accordingly, there can be no
assurance that the prospective results are indicative of the future performance
of Buffets or that actual results will not differ materially from those in the
projections set forth below. See "Cautionary Statement Concerning
Forward-Looking Information" on page 55 of this proxy statement.
The inclusion of the projections in this proxy statement should not be
regarded as a representation by any person that the results contained in the
projections will be achieved.
The following table summarizes the projections that were provided:
<TABLE>
<CAPTION>
FISCAL YEARS
--------------------------------------------------------------
ITEM 2000 2001 2002 2003 2004
---- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<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>
54
<PAGE> 60
In preparing the financial projections, we employed the following key
assumptions:
PROJECTED STORE OPENINGS
The following table illustrates projected new unit openings (net of
actual/anticipated store closings) during each year through 2004 and the
anticipated total units as of the end of each year included in the projection
period.
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------------------------------------------------------
2000 2001 2002 2003 2004
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
NET NEW UNITS 13 19 19 19 24
ENDING 416 435 454 473 497
</TABLE>
NET SALES
Net sales are projected to grow at a compound annual rate of approximately
8.0% between 1999 and 2004, or to $1,391 million in 2004 from $937 million in
1999. Sales growth is driven by a projected new unit sales growth rate of
approximately 5.5% and projected same store sales growth of approximately 2.5%.
Sales growth associated with new units is comprised of projected annual growth
in the number of units of approximately 4.5% and an improvement of approximately
1.0% in overall average weekly sales associated with new units. New units are
expected to generate 25-30% more sales than our existing system average
throughout the projection period. This 25%-30% sales volume improvement
translates into an incremental improvement of approximately 1.0% in system-wide
revenues.
With respect to same store sales trends, projected sales growth is
attributable to annual guest check average improvements of 2.5%, with guest
count increases in existing units forecasted at 0% over the projection period.
EXPENSES
Expense projections were primarily based on current expense patterns at the
store level. Food costs are projected to remain stable through 2004, driven by
modest food inflation and Buffets' food substitution capabilities. Labor costs
are projected to decline by approximately 0.7 percentage points from
approximately 31.0% of sales in 1999 through 2004, as ongoing labor-saving
initiatives more than offset underlying wage pressures. Direct and occupancy
costs are expected to decline by 1.2 percentage points over the course of the
projection period. Projected occupancy costs are projected to improve due to
lower rental costs on freestanding buildings and better fixed charge coverage
through higher sales volumes on new and existing units. While over 70% of the
Buffets' units are in-line currently, most new units are expected to be
freestanding.
General and administrative costs are projected to decline by approximately
1.0% on a generally ratable annual basis through 2004 as the existing
administrative base is better leveraged over additional units and various cost
control initiatives are implemented.
OPERATING INCOME
Operating income (excluding charges for impairments in 1999 of $1.9 million
and in 2000 of $1.1 million to be consistent with years 2001 to 2004 where no
impairment charge has been projected) is projected to increase from
approximately 7.2% of sales in 1999 to approximately 10.4% of sales in 2004.
Operating income growth of 16.5% from 1999 to 2004 is driven by sales growth,
enhanced unit level economics and reduced general and administrative charges as
a percentage of sales (expected to decline from approximately 5.0% of sales in
1999 to approximately 4.0% of sales in 2004).
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<PAGE> 61
TAXES
The projected combined effective federal and state tax rate is 38% for
years 2000 through 2004, which compares to historical levels of 38.25% in 1998
and 36.88% in 1999.
INTEREST
Investment yields are assumed to remain at levels experienced in 1999
throughout the projection period. Excess cash generated from operations and not
required for our planned capital program is assumed to be invested on a basis
consistent with past practice.
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.
56
<PAGE> 62
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.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OWNED BENEFICIALLY PERCENTAGE
AS OF , OF SHARES
NAME 2000(1) OUTSTANDING
---- ------------------ -----------
<S> <C> <C>
Roe H. Hatlen............................................... 1,949,273(2) 4.6%
C. Dennis Scott............................................. 666,770(3) 1.6
Neal L. Wichard............................................. 515,180(4) 1.2
Kerry A. Kramp.............................................. 421,496(5) 1.0
David Goronkin.............................................. 148,819(6) *
Jean C. Rostollan........................................... 130,338(7) *
Glenn D. Drasher............................................ 85,175(8) *
Clark C. Grant.............................................. 82,066(9) *
K. Michael Shrader.......................................... 73,734(10) *
H. Thomas Mitchell.......................................... 72,800(11) *
R. Michael Andrews, Jr...................................... 25,000(12) *
Walter R. Barry, Jr......................................... 50,124(13) *
Marvin W. Goldstein......................................... 20,000(14) *
Alan S. McDowell............................................ 262,180(15) *
Michael T. Sweeney.......................................... 10,500(16) *
Massachusetts Financial Services Company.................... 4,223,968(17) 10.2
500 Bolyston Street
Boston, Massachusetts 02116
Capital Group International, Inc............................ 2,681,000(18) 6.4
11100 Santa Monica Boulevard
Los Angeles, California 90025
Capital Guardian Trust Company(18)
333 South Hope Street
Los Angeles, California 90071
*All directors and executive officers as a group (15
persons).................................................. 4,488,455(19) 10.2
</TABLE>
---------------
* 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, 44,323 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.
(4) Includes 143,250 shares subject to stock options.
(5) Includes 157 shares owned of record by Mr. Kramp as custodian for his
nephew and nieces, and 389,500 shares subject to stock options.
57
<PAGE> 63
(6) Includes 145,000 shares subject to stock options.
(7) Includes 117,500 shares subject to stock options.
(8) Includes 85,000 shares subject to stock options.
(9) Includes 76,750 shares subject to stock options.
(10) Includes 73,400 shares subject to stock options.
(11) Includes 72,500 shares subject to stock options.
(12) Includes 25,000 shares subject to stock options.
(13) Includes 10,000 shares subject to stock options.
(14) Includes 10,000 shares subject to stock options.
(15) 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.
(16) 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.
(17) Massachusetts Financial Services Company has sole power to vote 3,793,997
of such shares and sole power to dispose of all of such shares. The
information has been derived from the Form 13F dated August 8, 2000 filed
by Massachusetts Financial Services Company with the SEC and is stated as
of June 30, 2000.
(18) 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 2,237,200 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 August 15, 2000 filed by Capital Guardian
Trust Company with the SEC and is stated as of June 30, 2000.
(19) Includes an aggregate of 2,358,300 shares subject to stock options held by
all directors and executive officers as a group.
58
<PAGE> 64
EXECUTIVE OFFICERS AND DIRECTORS OF BUFFETS
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND BUSINESS
NAME EXPERIENCE FOR LAST FIVE YEARS
---- ---------------------------------
<S> <C>
R. Michael Andrews, Jr............... Chief Financial Officer of Buffets (1), beginning April
2000; Chief Financial Officer of Eerie World Entertainment
(2), an operator of theme-oriented restaurants, December
1999 to April 2000; Chief Financial Officer of Don Pablo's
Restaurants (3), an operator of Mexican-style restaurants,
June 1998 to December 1999; Senior Manager, KPMG Peat
Marwick LLP (4), a public accounting firm, 1995 to 1998.
Glenn D. Drasher..................... Executive Vice President of Marketing of Buffets since
January 1997; Executive Vice President of Country Kitchen
International, an operator of family dining restaurants (5),
June 1996 to January 1997; Vice President of Marketing of
Country Hospitality Worldwide (5), an operator of
restaurants and hotels, September 1993 to June 1996.
David Goronkin....................... Chief Operating Officer of Buffets since August 2000;
Executive Vice President of Operations of Buffets since
September 1996; Vice President of Operations of HomeTown
Buffet (6), an operator of buffet-style restaurants, from,
May 1996 until its acquisition by Buffets in September 1996;
Director of Operations of HomeTown Buffet, November 1994 to
May 1996.
Clark C. Grant....................... Senior Vice President of Finance of Buffets since March
1998; Treasurer of Buffets since May 1986; Executive Vice
President of Finance and Administration of Buffets, December
1994 to March 1998.
Roe H. Hatlen........................ Co-Founder of Buffets; Chairman of Buffets since December
1983; Chief Executive Officer of Buffets from December 1983
to June 30, 2000.
Kerry A. Kramp....................... Chief Executive Officer of Buffets beginning June 30, 2000;
President of Buffets since September 1996, Chief Operating
Officer from August 1998 to June 2000 and Director since
February 2000. President of HomeTown Buffet, from December
1995 to September 1996 and its Chief Operating Officer from
May 1995 to September 1996; Vice President of Operations of
HomeTown Buffet from February 1992 to December 1995.
H. Thomas Mitchell................... Executive Vice President of Buffets since March 1998; Chief
Administrative Officer of Buffets from March 1998 to April
2000; General Counsel and Secretary of Buffets since June
1995; Vice President of Buffets from June 1995 to March
1998; Corporate Counsel of Buffets from June 1994 to June
1995.
Jean C. Rostollan.................... Executive Vice President of Purchasing of Buffets since
September 1996; Assistant Secretary of Buffets since
February 1992; Executive Vice President of Development and
Purchasing of Buffets, December 1994 to September 1996.
C. Dennis Scott...................... Co-Founder and Vice Chairman of Buffets since September
1996; Chief Operating Officer of Buffets from September 1996
to August 1998; Co-Founder of HomeTown Buffet; Director and
Chief Executive Officer of HomeTown Buffet or its
predecessor companies since 1989.
K. Michael Shrader................... Executive Vice President of Human Resources and Training of
Buffets since March 1997; Vice President of Human Resources
of Buffets, September 1996 to March 1997; Vice President of
Human Resources of HomeTown Buffet, January 1996 to
September 1996; Director of Human Resources of HomeTown
Buffet, August 1995 to January 1996.
Neal L. Wichard...................... Senior Vice President of Real Estate of Buffets sine
September 1996; Co-Founder of HomeTown Buffet; Vice Chairman
of HomeTown Buffet, October 1995 to September 1996;
Secretary and Director of HomeTown Buffet, July 1990 to
September 1996; Executive Vice President of HomeTown Buffet,
July 1990 to October 1995.
</TABLE>
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<PAGE> 65
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION AND BUSINESS
NAME EXPERIENCE FOR LAST FIVE YEARS
---- ---------------------------------
<S> <C>
Walter R. Barry, Jr.................. Director of Buffets since 1998; Private investor since 1985;
Executive Vice President of General Mills Inc. from June
1979 to December 1986; Director of Interactive Technologies
Inc.
Marvin W. Goldstein.................. Director of Buffets since 1997; private investor since 1997;
Executive Vice President and Chief Operating Officer of
Regis Corporation (7), an operator and franchisor of hair
and retail product salons, from April 1997 to August 1997;
Chairman, Chief Executive Officer and President of Pet Food
Warehouse, Inc. (8), a retailer of pet supplies until its
merger with Petco Animal Supplies, Inc. in December 1996,
from July 1995 to December 1996; President and Chief
Operating Officer of the Department Store Division of Target
Corporation (f/k/a Dayton Hudson Corporation), a national
general merchandising company, from 1992 to September 1994;
Director of Greenspring Company, Wilson's The Leather
Experts, Appliance Recycling Centers of America, Inc. and
Paper Warehouse, Inc.
Alan S. McDowell..................... Director of Buffets since 1984; private investor since 1983.
Michael T. Sweeney................... Director of Buffets since February 1998; Managing Director,
Golden Hawn Johnson & Morrison Incorporated (9), a
private-equity investment firm, since July 2000; President
of Starbucks Coffee Company (U.K.) Ltd. (10), a provider of
retail coffee products, from September 1998 to March 2000;
Chief Executive Officer of the Minnesota Pizza Company,
L.L.C. (11), a franchisee of Papa John's pizzerias, from
December 1995 to September 1998; President and CEO of
Blockbuster Mid-America, an operator of video rental and
retail stores, from September 1991 to July 1995.
</TABLE>
---------------
(1) The principal business address for Buffets' executive officers and
directors during their employment by Buffets is 1460 Buffet Way, Eagan,
Minnesota 55121; prior to March 2000, Buffets' principal business address
was 10260 Viking Drive, Eden Prairie, Minnesota 55344.
(2) Suite 160, 6505 Commerce Drive, Irving, Texas 75063.
(3) 150 Hancock Street, Madison, Georgia 30650.
(4) 303 Peachtree Street, Atlanta, Georgia 30308.
(5) Carlson Parkway, P.O. Box 59159, Minneapolis, Minnesota 55459.
(6) The principal business address for those executive officers and directors
of Buffets that were employed by HomeTown Buffet before Buffets acquired
that company was 9171 Towne Centre Drive, Suite 575, San Diego, California
92122.
(7) 7201 Metro Boulevard, Edina, Minnesota 55439.
(8) Suite 701, Interchange Tower, 600 South Highway 169, St. Louis Park,
Minnesota 55426.
(9) 5250 Wells Fargo Center, 90 South Seventh Street, Minneapolis, Minnesota
55402.
(10) 11 Heathmans Road, London, England, SW6 4TJ, Great Britain.
(11) 5151 Edina Industrial Boulevard, Suite 650, Edina, Minnesota 55439.
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<PAGE> 66
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 "anticipates," "believes," "estimates," "expects," "should,"
"could," "targets" and "may" or similar expressions.
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 "Special
Factors -- 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.
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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 AUDITORS
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 meeting 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 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.
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APPENDIX A
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
BUFFETS, INC.,
BIG BOY HOLDINGS, INC.,
AND
BIG BOY MERGER CORPORATION
DATED AS OF JUNE 4, 2000
--------------------------------------------------------------------------------
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I THE MERGER.................................................. A-4
1.01 MERGER...................................................... A-4
1.02 EFFECTIVE TIME OF THE MERGER................................ A-4
ARTICLES OF INCORPORATION AND BY-LAWS OF THE SURVIVING
1.03 CORPORATION................................................. A-4
BOARD OF DIRECTORS AND OFFICERS OF THE SURVIVING
1.04 CORPORATION................................................. A-4
1.05 CONVERSION OF SHARES........................................ A-5
1.06 DISSENTERS' RIGHTS.......................................... A-5
1.07 STOCK OPTIONS............................................... A-6
1.08 PAYMENT FOR SHARES.......................................... A-6
1.09 NO FURTHER RIGHTS OR TRANSFERS.............................. A-7
1.10 TENDER OFFER................................................ A-7
ARTICLE II CLOSING.................................................... A-7
2.01 GENERALLY................................................... A-7
2.02 DELIVERIES AT THE CLOSING................................... A-7
ARTICLE III REPRESENTATIONS AND WARRANTIES............................ A-8
3.01 REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... A-8
REPRESENTATIONS AND WARRANTIES OF BUYER AND BUYER
3.02 SUBSIDIARY.................................................. A-19
ARTICLE IV CONDUCT AND TRANSACTIONS BEFORE THE EFFECTIVE TIME......... A-20
4.01 OPERATION OF BUSINESS OF THE COMPANY UNTIL EFFECTIVE TIME... A-20
4.02 SHAREHOLDERS' MEETING; PROXY MATERIAL....................... A-22
4.03 NO SHOPPING................................................. A-22
4.04 ACCESS TO INFORMATION....................................... A-23
4.05 AMENDMENT OF THE COMPANY'S EMPLOYEE PLANS................... A-23
4.06 HSR ACT..................................................... A-23
4.07 CERTAIN RESIGNATIONS........................................ A-23
4.08 CONFIDENTIALITY AGREEMENT................................... A-23
4.09 OPTIONS..................................................... A-23
4.10 AMENDMENT TO RIGHTS AGREEMENT............................... A-23
ARTICLE V CONDITIONS PRECEDENT........................................ A-24
CONDITIONS TO THE OBLIGATIONS OF BUYER AND BUYER
5.01 SUBSIDIARY.................................................. A-24
5.02 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY................ A-25
ARTICLE VI CONDUCT AND TRANSACTIONS AFTER THE EFFECTIVE TIME.......... A-26
6.01 EMPLOYEE MATTERS............................................ A-26
6.02 INDEMNIFICATION............................................. A-26
6.03 DIRECTORS AND OFFICERS LIABILITY INSURANCE.................. A-26
ARTICLE VII TERMINATION AND ABANDONMENT............................... A-27
7.01 GENERALLY................................................... A-27
7.02 PROCEDURE AND EFFECT OF TERMINATION AND ABANDONMENT......... A-28
</TABLE>
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<PAGE> 70
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE VIII MISCELLANEOUS PROVISIONS................................. A-28
TERMINATION OF REPRESENTATIONS AND WARRANTIES OF THE
8.01 COMPANY..................................................... A-28
8.02 AMENDMENT AND MODIFICATION.................................. A-28
8.03 WAIVER OF COMPLIANCE; CONSENTS.............................. A-28
8.04 EXPENSES AND TERMINATION FEE................................ A-28
8.05 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS..................... A-30
8.06 ADDITIONAL AGREEMENTS....................................... A-30
8.07 NOTICES..................................................... A-30
8.08 ASSIGNMENT.................................................. A-31
8.09 INTERPRETATION.............................................. A-31
8.10 GOVERNING LAW............................................... A-31
8.11 COUNTERPARTS................................................ A-31
8.12 HEADINGS; INTERNAL REFERENCES............................... A-31
8.13 ENTIRE AGREEMENT............................................ A-31
8.14 SEVERABILITY................................................ A-31
8.15 DISCLOSURE LETTER........................................... A-31
</TABLE>
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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 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
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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.
(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.
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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 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 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
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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.
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;
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(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).
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
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
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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 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 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
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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 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; (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
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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,
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).
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(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.
(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 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
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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);
(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;
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(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).
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.
(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
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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.
(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
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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 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. sec. 9601 et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. sec. 6901
et seq., the Federal Water Pollution Control Act, 33 U.S.C. sec. 1201
et seq., the Clean Water Act, 33 U.S.C. sec. 1321 et seq., the Clean
Air Act, 42 U.S.C. sec. 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
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(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:
(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 under the Comprehensive Environmental Response
Compensation and Liability Act, 42 U.S.C. sec. 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.
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(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 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
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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 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.
(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.
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(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.
(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.
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(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 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;
(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.
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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 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
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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 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 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.
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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 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
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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).
(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 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
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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 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.
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(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 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. The
representations 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 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
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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 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
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(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 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
with a copy to each of:
H. Thomas Mitchell, General Counsel
Buffets, Inc.
1460 Buffet Way
Eagan, Minnesota 55121
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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.
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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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
BUFFETS, INC.
/s/ Kerry A. Kramp
By:
--------------------------------------
Its: President and Chief Operating
Officer
BIG BOY HOLDINGS, INC.
/s/ Frederick J. Iseman
By:
--------------------------------------
Its: President
BIG BOY MERGER CORPORATION
/s/ Frederick J. Iseman
By:
--------------------------------------
Its: President
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<PAGE> 100
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.
/s/ Frederick J. Iseman
By:
--------------------------------------
Its: President
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APPENDIX 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.
(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;
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<PAGE> 102
Special Committee of the Board of Directors
Buffets, Inc.
June 4, 2000
Page 3
(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.
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.
B-2
<PAGE> 103
Special Committee of the Board of Directors
Buffets, Inc.
June 4, 2000
Page 3
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> 104
APPENDIX B-1
TRANSACTIONS USED FOR COMPARABLE TRANSACTIONS ANALYSIS
<TABLE>
<CAPTION>
DATE
EFFECTIVE TARGET ACQUIROR
--------- ------ --------
<S> <C> <C>
12/29/99 El Pollo Loco American Securities Capital Partners
LP
09/29/99 Sbarro Inc. Sbarro Family
08/13/99 Rock Bottom Restaurants Inc. RB Capital Inc.
08/09/99 Rally's Hamburgers Inc. Checkers Drive-In Restaurants
07/08/99 Coffee People Inc Diedrich Coffee Inc
05/17/99 Au Bon Pain Bruckmann, Rosser, Sherill & Co
04/12/99 Rio Bravo (Applebee's) Chevys (J.W. Childs)
04/05/99 Back Bay Restaurant Group SRC Holdings Inc.
02/16/99 Logan's Roadhouse CBRL Group, Inc.
01/25/99 Spaghetti Warehouse Cracken, Harkey & Co.
12/21/98 Domino's Pizza Inc. Bain Capital
11/24/98 Fuddruckers Inc. King Cannon
10/30/98 Koo Koo Roo Enterprises Inc. Family Restaurants Inc.
09/01/98 Timber Lodge Steakhouse Inc. GB Foods Corp
07/31/98 Morrison Restaurants Inc. Piccadilly Cafeterias Inc
07/21/98 Bertucci's NE Restaurant Co Inc
07/09/98 Pollo Tropical Carrols Corp
07/07/98 Houlihans Restaurant Group Hampstead/Scoggin
04/28/98 Skyline Chili Inc. Fleet Equity Partners
04/03/98 DavCo Restaurants Inc Citicorp Venture Capital
02/03/98 Sagebrush Inc. WSMP Inc.
01/22/98 El Chico Restaurants Inc. Cracken, Harkey & Co.
01/05/98 International Dairy Queen Inc. Berkshire Hathaway Inc.
</TABLE>
B-4
<PAGE> 105
APPENDIX B-2
RESTAURANT INDUSTRY TRANSACTIONS USED FOR PREMIUMS PAID ANALYSIS
<TABLE>
<CAPTION>
DATE
EFFECTIVE TARGET NAME ACQUIROR NAME
--------- ----------- -------------
<S> <C> <C>
12/29/1999 VICORP Restaurants Inc VICORP Restaurants Inc
09/29/1999 Sbarro Inc Investor Group
09/02/1999 Host Marriott Services Autogrill(Edizione Holding)
08/13/1999 Rock Bottom Restaurants Inc RB Capital Inc
08/09/1999 Rally's Hamburgers Inc Checkers Drive-In Restaurants
04/28/1999 Triarc Cos Inc Triarc Cos Inc
02/16/1999 Logans Roadhouse Inc Cracker Barrel Old Country Str
10/30/1998 Uno Restaurant Corp Uno Restaurant Corp
09/25/1998 Cooker Restaurant Corp Cooker Restaurant Corp
07/21/1998 Bertucci's Inc NE Restaurant Co Inc
07/20/1998 Pollo Tropical Inc Carrols Corp
01/22/1998 El Chico Restaurants Inc Investor Group
12/30/1997 Unique Casual Restaurants Inc Investor Group
12/23/1997 Perkins Family Restaurant LP Restaurant Co
12/03/1997 Ground Round Restaurants Inc GRR Holdings LLC
09/26/1997 Krystal Co Port Royal Holdings Inc
08/08/1997 Frisch's Restaurants Inc Frisch's Restaurants Inc
07/25/1997 Uno Restaurant Corp Uno Restaurant Corp
07/17/1997 DAKA International Inc Compass Group PLC
06/02/1997 Ruby Tuesday Inc Ruby Tuesday Inc
</TABLE>
B-5
<PAGE> 106
APPENDIX B-3
NON-INDUSTRY SPECIFIC TRANSACTIONS USED FOR PREMIUMS PAID ANALYSIS
<TABLE>
<CAPTION>
DATE
EFFECTIVE TARGET NAME ACQUIROR NAME
--------- ----------- -------------
<S> <C> <C>
05/15/2000 Mission Critical Software Inc NetIQ Corp
05/12/2000 Thermo Optek Corp Thermo Instrument Systems Inc
04/20/2000 NFO Worldwide Inc Interpublic Group of Cos Inc
04/14/2000 Interleaf Inc BroadVision Inc
04/04/2000 Carolina First Bancshares, NC First Charter Corp, Concord, NC
04/03/2000 Shorewood Packaging Corp International Paper Co
04/03/2000 Arcadia Financial Ltd Associates First Capital Corp
03/28/2000 United Payors & United BCE Emergis Inc (BCE Inc)
03/20/2000 Chicago Title Corp Fidelity National Financial
03/16/2000 Aironet Wireless Communication Cisco Systems Inc
03/13/2000 Maker Communications Inc Conexant Systems Inc
03/10/2000 CompUSA Inc Grupo Sanborns (Grupo Carso)
03/08/2000 Preview Travel Inc Travelocity.com (Sabre Hldg)
03/07/2000 Foremost Corp of America Farmers Insurance Group
03/01/2000 Ardent Software Inc Informix Corp
03/01/2000 Pacific Bank NA, CA City National Corp, California
03/01/2000 Yankee Energy System Inc Northeast Utilities
02/11/2000 Merchants Bancorp, Aurora, IL Old Kent Finl Corp, Michigan
02/10/2000 PSNC SCANA Corp
02/09/2000 Trigen Energy Corp Elyo (Suez Lyonnaise des Eaux)
02/08/2000 Safeskin Corp Kimberly-Clark Corp
02/08/2000 Connecticut Energy Energy East Corp
02/04/2000 Fidelity Financial of Ohio Inc Provident Financial Group Inc
02/03/2000 Micro Warehouse Inc Investor Group
01/13/2000 Wyman-Gordon Co Precision Castparts Corp
01/07/2000 Aquarion Co Kelda Group PLC
01/07/2000 Statewide Financial Corp, NJ Independence Community Bank
01/06/2000 Global Industrial Technologies RHI AG
12/31/1999 Synthetic Industries Inc Investcorp
12/30/1999 Capital Re Corp ACE Ltd
12/22/1999 LeukoSite Inc Millennium Pharmaceuticals Inc
12/20/1999 Ascent Entertainment Group Inc Investor Group
12/16/1999 Authentic Fitness Corp Warnaco Group Inc
12/08/1999 Destia Communications Inc Viatel Inc
12/01/1999 New England Cmnty Bancorp, CT Webster Finl Corp, Waterbury, CT
12/01/1999 Citation Corp Kelso & Co
11/30/1999 Xoom.com Inc NBC
11/29/1999 Shorewood Packaging Corp Chesapeake Corp
11/26/1999 Abacus Direct Corp DoubleClick Inc
11/24/1999 Pool Energy Services Co Nabors Industries Inc
11/23/1999 Transaction Network Services PSINet Inc
11/22/1999 Sunstone Hotel Investors Inc Investor Group
11/22/1999 Furon Co Inc Cie de Saint-Gobain SA
11/22/1999 AFC Cable Systems Inc Tyco International Ltd
</TABLE>
B-6
<PAGE> 107
<TABLE>
<CAPTION>
DATE
EFFECTIVE TARGET NAME ACQUIROR NAME
--------- ----------- -------------
<S> <C> <C>
11/19/1999 Peoples Bank Corp, Indiana Fifth Third Bancorp
11/19/1999 Perclose Inc Abbott Laboratories
11/16/1999 Metricom Inc MCI WorldCom
11/12/1999 Maxxim Medical Inc Investor Group
11/11/1999 Superior Services Inc Vivendi SA
11/05/1999 Xomed Surgical Products Inc Medtronic Inc
11/05/1999 PEC Israel Economic Corp Discount Investment Corp (IDB)
11/04/1999 American Health Properties Inc Health Care Property Investors
11/04/1999 Pennsylvania Enterprises Inc Southern Union Co
11/02/1999 American Heritage Life Invt Allstate Corp
11/02/1999 International Integration Inc Razorfish Inc
11/01/1999 Franchise Mortgage Acceptance Bay View Capital, San Mateo, CA
10/27/1999 Standard Products Co Cooper Tire & Rubber Co
10/26/1999 NetGravity Inc DoubleClick Inc
10/25/1999 Zenith National Insurance Corp Fairfax Financial Holdings Ltd
10/21/1999 Marshall Industries Avnet Inc
10/20/1999 Forte Software Inc Sun Microsystems Inc
10/19/1999 Lodgian Inc Casuarina Cayman Holdings Ltd
10/15/1999 Unitrode Corp Texas Instruments Inc
10/07/1999 Ocwen Asset Investment Corp Ocwen Financial Corp
10/01/1999 Lexford Residential Trust Equity Residential Pptys Trust
10/01/1999 Vistana Inc Starlight Communications
10/01/1999 Long Beach Financial Corp Washington Mutual, Seattle, WA
10/01/1999 Life USA Holding Inc Allianz Life Ins Co (Allianz)
09/24/1999 Sequent Computer Systems Inc IBM Corp
09/23/1999 Metro Networks Inc Westwood One Inc
09/23/1999 Ballard Medical Products Kimberly-Clark Corp
09/03/1999 Empire District Electric Co UtiliCorp United Inc
09/02/1999 Host Marriott Services Autogrill (Edizione Holding)
08/31/1999 International Comfort Products Carrier Corp (United Tech Corp)
08/30/1999 Matewan Bancshares Inc BB&T Corp, Winston-Salem, NC
08/30/1999 Data Processing Resources Corp CompuWare Corp
08/24/1999 Cellular Commun of Puerto Rico Investor Group
08/20/1999 Scotsman Industries Inc Berisford PLC
08/19/1999 Blount International Inc Investor Group
08/15/1999 Aqua Alliance Inc Vivendi SA
08/06/1999 Emerald Financial Corp, OH Fifth Third Bancorp
08/03/1999 Quantum Corp Shareholders
08/02/1999 Broad Natl Bancorp, Newark, NJ Independence Community Bank
08/02/1999 Avondale Industries Inc Litton Industries Inc
07/29/1999 NeXstar Pharmaceuticals Inc Gilead Sciences Inc
07/28/1999 HealthCare Financial Partners Heller Financial Inc
07/27/1999 Paymentech Inc (First USA) First Data Corp
07/26/1999 Penske Motorsports Inc International Speedway Corp
07/22/1999 ABR Information Services Inc Ceridian Corp
07/19/1999 Bank of Commerce, San Diego, CA US Bancorp, Minneapolis, MN
07/15/1999 Mason-Dixon Bancshares, MD BB&T Corp, Winston-Salem, NC
</TABLE>
B-7
<PAGE> 108
<TABLE>
<CAPTION>
DATE
EFFECTIVE TARGET NAME ACQUIROR NAME
--------- ----------- -------------
<S> <C> <C>
07/13/1999 Dialogic Corp Intel Corp
07/13/1999 John H Harland Co Investor Group
07/09/1999 CFSB Bancorp Inc, Lansing, MI Old Kent Finl Corp, Michigan
07/07/1999 St John Knits Inc Investor Group
07/02/1999 Norrell Corp Interim Services Inc
07/01/1999 SierraWest Bancorp, Truckee, CA BancWest Corp, San Francisco, CA
06/30/1999 HF Bancorp Inc, Hemet, CA Temple-Inland Inc, Diboll, Texas
06/30/1999 Peoples Bancorp Inc, New Jersey Sovereign Bancorp, PA
06/24/1999 Dames & Moore Group URS Corp
06/17/1999 CMP Media Inc United News & Media PLC
06/17/1999 Walbro Corp TI Group PLC
06/15/1999 Physician Reliance Network Inc American Oncology Resources
06/15/1999 Trico Marine Svcs (Berkshire) Inverness Management LLC
06/09/1999 Amerin Corp CMAC Investment Corp
06/09/1999 Lawter International Inc Eastman Chemical Co
06/01/1999 FNB Rochester Corp, NY M&T Bank Corp, Buffalo, New York
05/24/1999 Tower Realty Trust Inc Investor Group
05/11/1999 ASA Holdings Inc Delta Air Lines Inc
05/07/1999 American Media Inc Evercore Capital Partners LP
05/05/1999 Snyder Oil Corp Santa Fe Energy Resources
04/29/1999 BA Merchant Svcs (BankAmerica) Bank of America National Trust
04/29/1999 Building One Services Corp Building One Services Corp
04/27/1999 Investment Technology Group Shareholders
04/23/1999 Brylane Inc Pinault-Printemps Redoute
04/02/1999 Eagle Hardware & Garden Inc Lowe's Companies Inc
03/30/1999 Boole & Babbage Inc BMC Software Inc
03/29/1999 First Coastal Bankshares Inc Centura Banks Inc, NC
03/24/1999 Unitog Co Cintas Corp
03/22/1999 Hills Stores Co Ames Department Stores Inc
03/22/1999 Bayonne Bancshares, New Jersey Richmond County Financial, NY
03/17/1999 Capital Re Corp ACE Ltd
03/17/1999 SEQUUS Pharmaceuticals Inc ALZA Corp
03/16/1999 Greyhound Lines Inc Laidlaw Inc
03/01/1999 Kuhlman Corp Borg-Warner Automotive Inc
03/01/1999 MiniMed Inc Medtronic Inc
02/26/1999 GA Financial Inc, Pittsburgh, PA GA Financial Inc, Pittsburgh, PA
02/25/1999 Ryerson Tull Inc Inland Steel Industries Inc
02/11/1999 Interlake Corp GKN PLC
02/10/1999 John H Harland Co Investor Group
02/05/1999 Storage Trust Realty Public Storage Inc
02/02/1999 Carmike Cinemas Inc GS Capital Partners III
01/19/1999 Equity Corp International Service Corp International
01/06/1999 CalMat Co Vulcan Materials Co
01/04/1999 Rio Hotel & Casino Inc Harrah's Entertainment Inc
01/04/1999 Priority Healthcare Corp Shareholders
</TABLE>
B-8
<PAGE> 109
APPENDIX 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 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.
C-1
<PAGE> 110
(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.
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 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.
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<PAGE> 111
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 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
C-3
<PAGE> 112
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.
C-4
