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EXHIBIT (b)(1)
EXECUTION COPY
CREDIT SUISSE FIRST BOSTON, CAYMAN BRANCH
Eleven Madison Avenue
New York, NY 10010
Caxton-Iseman Capital, Inc.
667 Madison Avenue
New York, NY 10021
Attention: Colm Lanigan
June 2, 2000
Buffets, Inc.
Mezzanine Financings
Commitment Letter
Ladies and Gentlemen:
You have advised Credit Suisse First Boston, Cayman Branch ("CSFB"), that a
corporation established and controlled by you ("you" or the "Sponsor") and Big
Boy Merger Corporation (the "Company") intend to acquire (the "Acquisition") all
the issued and outstanding stock of Buffets, Inc. ("Buffets") pursuant to a
Stock Purchase Agreement (the "Acquisition Agreement"). You have advised us that
the total funds needed to finance the Acquisition, including fees and expenses
(which will not exceed $25.0 million) will be approximately $555.0 million (net
of cash on-hand of approximately $110.2 million) and that such funds will be
provided from the following sources: (i) $310.0 million of borrowings by the
Company under a $310.0 Senior Term Loan Facility and a $20.0 million Revolving
Credit Facility (collectively, the "Credit Facilities") among the Company,
Lehman Brothers Commercial Paper Inc. ("LBCPI"), Fleet National Bank ("Fleet",
and together with LBCPI, the "Bank Agents") and the financial institutions party
thereto, (ii) at least a $130.0 million equity investment by the Sponsor, other
investors selected by it, and management in the Company (the "Equity
Investment"), (iii) $20.0 million of net proceeds of a sale/leaseback
transaction (the "Sale/Leaseback"), (iv) $35.0 million principal amount of 16%
Senior Notes Due 2008 with detachable warrants (the "Mezzanine Debt-Parent") to
be issued by the direct holding company of the Company (the "Parent"), which
will, itself, be formed by the Sponsor and to be placed by CSFB, (v) $60.0
million principal amount of 14% Senior Subordinated Notes Due 2008 with
detachable warrants (the "Mezzanine Debt-Newco", and together with the Mezzanine
Debt-Parent, the "Mezzanine Financings") to be issued by the Company and to be
placed by CSFB. Following
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the Acquisition, neither the Parent nor the Company nor any of their
respective subsidiaries will have any material debt or equity outstanding except
as described in this paragraph, and the Parent will have no material assets
other than its equity interest in the Company. As used below, the defined term
"Company" shall mean both the Company prior to the Acquisition and the Company
as the surviving entity in the merger with Buffets after giving effect to the
Acquisition. The Acquisition and the foregoing transactions are collectively
referred to herein as the "Transactions". You have requested that CSFB (i) agree
to structure, arrange and syndicate the Mezzanine Financings and (ii) commit to
provide the Mezzanine Financings.
In connection with the foregoing, CSFB is pleased to advise you (i) that it
is willing to act as exclusive advisor and arranger for the Mezzanine Financings
and (ii) of its commitment to provide $95.0 million principal amount of the
Mezzanine Financings upon the terms and subject to the conditions set forth or
referred to in this commitment letter (the "Commitment Letter") and in the
summary term sheets attached hereto as Exhibit A (the "Term Sheet") and in
Exhibit B hereto (the "Conditions").
CSFB intends to syndicate the Mezzanine Financings to a group of Investors
(together with CSFB, the "Investors") identified by us in consultation with you.
CSFB intends to finalize syndication efforts promptly upon the execution of this
Commitment Letter. CSFB will, in consultation with you, manage all aspects of
the syndication, including decisions as to the selection of investors to be
approached and when they will be approached, when their commitments will be
accepted, which investors will participate, what titles (if any) they will be
awarded and the allocations of the commitments among the Investors. It is agreed
that CSFB will act as the sole and exclusive advisor and arranger for the
Mezzanine Financings, and will, in such capacities, perform the duties and
exercise the authority customarily performed and exercised by it in such roles.
You agree that no other advisors or arrangers will be appointed, no other titles
will be awarded and no compensation (other than that expressly contemplated by
the Fee Letter referred to below) will be paid in connection with the Mezzanine
Financings unless you and we shall so agree.
You agree to assist CSFB in completing a syndication reasonably
satisfactory to it. Such assistance shall include (a) your using your best
efforts to ensure that the syndication efforts benefit materially from your
existing investor relationships, (b) direct contact between
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senior management and advisors of you and the proposed Investors and (c) the
hosting, with CSFB, of one or more meetings with prospective Investors.
It is understood and agreed that CSFB shall be entitled, after consultation
with you and the Bank Agents, prior to the closing of the Mezzanine Financings,
to change the allocation of aggregate principal amounts between the Mezzanine
Debt-Parent and the Mezzanine Debt-Newco; provided, however, that the aggregate
principal amount of the Mezzanine Financings remains the same.
You further agree to prepare and provide promptly to CSFB all information
with respect to you, the Company and the Transactions and the other transactions
contemplated hereby, including all financial information and projections (the
"Projections"), as we may reasonably request in connection with the arrangement
and syndication of the Mezzanine Financings. You hereby represent and covenant
that (a) all written information other than the Projections (the "Information")
taken as a whole that has been or will be made available to CSFB by you or any
of your representatives in connection with the Transactions is or will be
complete and correct in all material respects and does not or will not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein not misleading in
light of the circumstances under which such statements are made and (b) all
Projections that have been or will be made available to CSFB by you or any of
your representatives in connection with the Transactions have been or will be
prepared in good faith based upon what you believe to be reasonable assumptions
(it being understood that such Projections are subject to significant
uncertainties and contingencies, many of which are beyond your control, and that
no assurance can be given that the Projections will be realized). You agree to
supplement the Information and the Projections from time to time until the
completion of the syndication so that the representation and covenant in the
preceding sentence remain correct without regard to when such Information and
Projections were made available. You understand that in arranging and
syndicating the Mezzanine Financings, CSFB may use and rely on the Information
and the Projections without responsibility for independent verification thereof.
As consideration for CSFB's commitment hereunder and agreement to perform
the services described herein, you agree to pay to CSFB the nonrefundable fees
set forth in the Fee Letter dated May 18, 2000, between you and CSFB (the "Fee
Letter").
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You agree to reimburse the Investors, upon request made from time to time,
for their reasonable fees and expenses incurred in connection with Mezzanine
Financings, and the preparation, execution and delivery of any related
documentation and the activities thereunder or contemplated thereby, including
without limitation due diligence expenses, syndication expenses, consultants'
fees and expenses and the reasonable fees and expenses of Cravath, Swaine &
Moore and Milbank Tweed Hadley & McCloy, counsel to the Investors, whether
incurred before or after the execution of this letter (collectively, the
"Transaction Expenses").
You hereby agree to indemnify and hold harmless CSFB, its affiliates and
their respective officers, directors, employees, agents, advisors and
controlling persons (each, an "Indemnified Person") from and against any and all
losses, claims, damages, liabilities and expenses, joint or several, to which
any such Indemnified Person may become subject arising out of or in connection
with this Commitment Letter, the Mezzanine Financings, the use of the proceeds
thereof, the Transactions or any related transaction or any claim, litigation,
investigation or proceeding relating to any of the foregoing, regardless of
whether any Indemnified Person is a party thereto, and to reimburse each such
Indemnified Person for any reasonable legal or other expenses as they are
incurred in connection with investigating or defending any of the foregoing;
provided, however, that the foregoing indemnification will not, as to any
Indemnified Person, apply to losses, claims, damages, liabilities or expenses to
the extent that they are finally judicially determined by a court of competent
jurisdiction not subject to further appeal to have resulted from the gross
negligence or willful misconduct of such Indemnified Person. No Indemnified
Person shall be liable for any indirect or consequential damages in connection
with its obligations hereunder or its activities related to the Mezzanine
Financings.
This Commitment Letter is delivered to you on the understanding that
neither this Commitment Letter nor any other agreement between us related to
this Commitment Letter or the Transactions, including the Term Sheet, the
Conditions and the Fee Letter, nor any of their terms or substance shall be
disclosed, directly or indirectly, to any other person except (a) to your
officers, employees, agents, accountants, business consultants and legal
advisors who are directly involved in the consideration of this matter (and then
only on a confidential basis) or (b) as may be required by law or compulsory
legal process (in which case you agree to inform us promptly thereof prior to
any such disclosure);
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provided, however, that you may disclose this Commitment Letter, the Term Sheet
and the Conditions and their terms and substance (but not the Fee Letter or its
terms and substance), on a confidential basis, to Buffets and its directors,
officers, employees, agents and legal advisors.
You acknowledge that CSFB and its respective affiliates (the term
"Arrangers" being understood to refer hereinafter in this paragraph to include
such affiliates, including the Initial Lenders) may be providing debt financing,
equity capital or other services (including financial advisory services) to
other companies in respect of which you may have conflicting interests regarding
the transactions described herein and otherwise; provided however that the CSFB
shall not provide such financing or advisory services to any person or entity
for the purpose of acquiring the Acquired Business during the term of this
Commitment Letter. The Arrangers shall not use confidential information obtained
from you by virtue of the transactions contemplated by this Commitment Letter or
their other relationships with you in connection with the performance by such
Arranger of services for other companies, and the Arrangers will not furnish any
such information to other companies. You also acknowledge that no Arranger has
any obligation to use in connection with the transactions contemplated by this
Commitment Letter, or to furnish to you, confidential information obtained from
other companies.
The reimbursement, indemnification and confidentiality provisions contained
herein and in the Fee Letter shall remain in full force and effect regardless of
whether definitive financing documentation shall be executed and delivered and
notwithstanding the termination of this Commitment Letter or CSFB's commitment
hereunder; provided, however, that upon the closing of the definitive
documentation for the Mezzanine Financings, Caxton-Iseman Capital, Inc. will be
released from its reimbursement, indemnification and contribution obligations
hereunder.
This Commitment Letter is intended to be solely for the benefit of the
parties hereto and is not intended to confer any benefits upon, or create any
rights in favor of, any person other than the parties hereto. This Commitment
Letter and CSFB's commitment hereunder shall not be assignable by you without
the prior written consent of CSFB hereto (and any purported assignment without
such consent shall be null and void). CSFB's commitment hereunder may be
assigned by CSFB to any of its affiliates or any Investor. Any such assignment
to an affiliate shall not relieve CSFB from any of its obligations hereunder
unless and until the Mezzanine Financings shall have been funded in full by such
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affiliate. Any assignment to a Investor shall be made in consultation with you
and any such assignment shall be by novation and shall release CSFB from its
commitment hereunder pro tanto. This agreement contains the entire agreement
between the parties relating to the subject matter hereof and supersedes all
oral statements and prior writings with respect thereto. This Commitment Letter
may not be amended or waived except by an instrument in writing signed by you
and CSFB. This Commitment Letter may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original and all
of which together shall constitute one and the same instrument. Delivery of an
executed counterpart of a signature page of this Commitment Letter by facsimile
transmission shall be as effective as delivery of a manually executed
counterpart hereof. This Commitment Letter shall be governed by, and construed
in accordance with, the internal laws of the State of New York.
If the foregoing correctly sets forth our agreement, please indicate your
acceptance of the terms hereof and of the Term Sheet and the Conditions by
returning to us executed counterparts hereof, not later than
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5:00 p.m., New York City time, on June 4, 2000. CSFB's commitment and agreements
contained herein will expire at such time in the event CSFB has not received
such executed counterparts in accordance with the immediately preceding
sentence. If the closing in respect of the Mezzanine Financings does not occur
on or before September 30, 2000, then this Commitment Letter and CSFB's
commitment and undertakings hereunder shall automatically terminate unless CSFB
shall, in its discretion, agree to an extension.
CSFB is pleased to have been given the opportunity to assist you in
connection with this important financing.
Very truly yours,
CREDIT SUISSE FIRST BOSTON,
CAYMAN BRANCH,
By: /s/ G. David M. Maletta, II
------------------------------
Name: G. David M. Maletta, II
Title: Managing Director
By: ------------------------------
Name:
Title:
Accepted and agreed to as of
the date first written above,
CAXTON-ISEMAN CAPITAL, INC.,
By: /s/ Frederick Iseman
----------------------------
Name: Frederick Iseman
Title: Chairman
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EXHIBIT A
BUFFETS, INC.
SUMMARY TERM SHEET
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Issuer: Buffets, Inc. (the "Company").
Securities Offered: $60 million 14% Senior Subordinated Notes Due 2008 (the
"Notes") with detachable warrants to purchase common and
preferred stock of Buffet Holdings, Inc. ("Parent").
Purchasers of the Notes will be required to purchase a pro
rata amount of the senior notes of Parent. The aggregate
principal amount of the Notes may be increased by an amount
not to exceed $20 million, provided that a corresponding
(and equal) reduction in the aggregate principal amount of
the senior notes of Parent will be made.
Use of Proceeds: The net proceeds from the sale of the Notes will be used to
fund the acquisition of Buffets, Inc., to pay transaction
costs and for other general corporate purposes.
Ranking: The Notes will be subordinated to all designated senior
indebtedness of the Company, but will be senior to any other
subordinated indebtedness, preferred stock or common stock
of the Company or its subsidiaries.
Terms Applicable to the Senior Subordinated Notes
Issue Price: 100% of the principal amount of Notes.
Maturity: 8 years.
Closing Date: To be mutually agreed upon.
Interest: Interest at an annual rate of 14% will be paid in cash,
quarterly in arrears on the principal amount of the Notes.
Redemption: The Notes are redeemable, in whole or in part, at any time at
the option of the Company at the following redemption prices:
Year 1-3 Callable at any time, in whole or in part, at the greater of
par (plus accrued interest) or the present value of the future
principal, premium and
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interest payments (calculated on the basis
that the Notes are redeemed at 107.00% of par on August 15, 2003)
(plus accrued interest) discounted at the then current yield on U.S.
Treasury securities of a maturity comparable to the remaining life of
the Notes, plus 75 basis points.
Year 4 107.00% of par
Year 5 105.25% of par
Year 6 103.50% of par
Year 7 101.75% of par
Year 8 100% of par
In addition, during years 1 through 3, the Company may redeem up to 50%
of the aggregate principal amount of the Notes at a redemption price
equal to 107% of par (plus accrued interest) with the proceeds of
primary Public Equity Offering(s) of common stock of the Company or of
Parent having aggregate gross proceeds of at least $100 million.
No mandatory redemption or sinking fund payments.
Guarantees: The Notes will be guaranteed, on a subordinated basis by
guarantors of senior indebtedness of the Company.
Change of Control: Upon the occurrence of a Change of Control (to be defined),
each holder can require the Company to purchase such holder's Notes at a
purchase price equal to the percentage of par as set forth below
opposite the applicable period (plus accrued interest):
Year 1 107%
Year 2 106%
Year 3 105%
Year 4 104%
Year 5 103%
Year 6 102%
Year 7 101%
Year 8 100%
Registration Rights: None.
Negotiated Purchases: Permitted, pro rata among the holders.
Certain Covenants:
Leverage Ratio:
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The Company will not at any time permit the Consolidated
Leverage Ratio (the ratio of Funded Debt to EBITDA for any
period of four fiscal quarters) to exceed 4.0 to 1, with
further step-downs to be agreed.
Fixed Charge Coverage The Company will not permit the Consolidated Fixed Charge
Ratio: Coverage Ratio for any period of four fiscal quarters to be
less than specified ratios to be agreed.
Limitation on Liens: The Company shall not incur or permit to exist any Liens
(other than Permitted Liens, including without limitations,
liens in respect of hedging obligations, capital leases and
other baskets to be agreed) on any of the Company's or its
subsidiaries' properties or assets, unless the Notes are
secured equally (or prior to) and ratably with the
obligations secured by such Lien. "Permitted Liens" will
include (in addition to immaterial, ordinary course Liens)
Liens securing Senior Bank Indebtedness of the Company, Liens
existing on the Issue Date and certain permitted refinancing
Liens.
Limitation on Restricted The Company and its Restricted Subsidiaries may not make
Payments: Restricted Payments (which include dividends on or
acquisitions of Capital Stock of the Company or Parent, acquisitions of
or principal payments of Subordinated Indebtedness and
Investments in Persons other than Restricted Subsidiaries) if (i) any
Default shall have occurred and be continuing immediately before such
Restricted Payment or immediately after giving pro forma effect to
such Restricted Payment, (ii) the Company could not incur U.S. $1.00
of Indebtedness under the first paragraph of the Limitation of
Indebtedness covenant or (iii) cumulative Restricted Payments made
since the Issue Date would exceed the sum of (a) 50% of Consolidated
Net Income (or, in case such Consolidated Net Income shall be
negative, 100% of such deficit) since the Issue Date and (b) other
customary items, including Net Cash Proceeds from the issuance of
Capital Stock and other capital contributions.
Exceptions include certain customary provisions, including so long
as no Default has occurred and is continuing, the acquisition of
Capital Stock or Subordinated Indebtedness out of the cash
proceeds from the substantially concurrent sale of Capital
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Stock (which proceeds will not count toward the amount of permitted
Restricted Payments), certain repurchases of Capital Stock held by
employees of the Company, certain repurchases of Capital Stock held
by the sponsor not to exceed an amount to be agreed and an allowance
for sufficient dividends to Parent to allow Parent to (i) service the
Senior Notes, (ii) pay tax obligations of Parent and (iii) pay overhead
expenses of Parent not in excess of $250,000 per annum.
Limitation on The Company shall not, and shall not permit any of its
Restrictions on Restricted Subsidiaries to, create or permit to exist or
Distributions from become effective any consensual encumbrance or restriction on
Restricted Subsidiaries: the ability of any Restricted Subsidiary (i) to pay dividends
or make any other distributions on its Capital Stock to the Company or
any Restricted Subsidiary, (ii) to pay Indebtedness owed to the
Company, (iii) to make loans or advances to the Company or (iv) to
transfer any property to the Company, except (1) encumbrances and
restrictions in place on the Issue Date, (2) encumbrances or
restrictions included in agreements that replace restrictions described
in (1) above, so long as the restrictions are not more
restrictive than those being replaced, and (3) certain other
customary exceptions.
Limitation on Sales of The Company shall not, and shall not permit any of its
Assets and Subsidiary Restricted Subsidiaries to, make any Asset Disposition
Stock: (including without limitation issuances of Capital Stock)
(unless (i) the Company or its Restricted Subsidiary receives
consideration that, in the reasonable judgment of the Board of
Directors, represents the fair value of the assets or property disposed,
(ii) at least 85% of the consideration received is in the
form of cash or cash equivalents, and (iii) 100% of the Net Available
Cash from such Asset Disposition is applied by the Company or such
Restricted Subsidiary (A) to the extent the Company elects or is
otherwise required by the terms of any credit agreement, to repay
Senior Indebtedness of the Company or Indebtedness of a Restricted
Subsidiary (other than Indebtedness held by an Affiliate) or to the
reinvestment in Additional Capital Assets, in either case within 270
days of the later of such Asset Disposition or the receipt of such
Net Available Cash, (B) to the extent of any excess funds after
application in accordance with clause (A), to make an offer to
purchase Notes at 100% of their principal amount plus accrued
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interest, if any, to the date of purchase, and (C) to the extent of
any balance remaining after application in accordance with
clauses (A) and (B), for any general corporate purpose in accordance with
the provisions of the Note Purchase Agreement. The Company shall not be
required to apply any Net Available Cash in accordance with the
foregoing clause (iii) until the aggregate amount of Net Available
Cash received by the Company and its Restricted Subsidiaries and not
applied in accordance with such clause (iii) exceeds $10 million.
Limitation on Affiliate The Company shall not, and shall not permit any of its
Transactions: Restricted Subsidiaries to, enter into any transaction (or
series of transactions) or conduct any business, with an Affiliate of
the Company (other than Wholly Owned Subsidiaries) unless the terms
thereof (1) are no less favorable to the Company or its Restricted
Subsidiary than those that could be obtained on an arm's length basis
with a Person who is not an Affiliate, (2) are set forth in
writing, and (3) either have been approved as satisfying the condition
set forth in (1) above by a majority of the disinterested directors on
the Board of Directors if the aggregate value of such transaction
or series of related transactions or business involves value in excess of
$1 million, or have been determined by a nationally recognized
appraisal, accounting or investment banking firm to be fair, from a
financial standpoint, to the Company and its Restricted Subsidiaries, if
the aggregate value of such transaction or series of related
transactions or business involves value in excess of $5 million.
The foregoing will not prohibit transactions that are (i) permitted
by the covenant described under "Limitation on Restricted Payments",
(ii) employment and compensation arrangements approved by the
disinterested directors on the Board of Directors entered into the
ordinary course of business and consistent with past practice, (iii)
payments of reasonable fees to directors of the Company who are not
employees of the Company, (iv) stock option and similar plans approved by
the Board of Directors, limited to 10% of the fully diluted outstanding
shares of common stock of Parent as of the Closing Date, (v) provided
that no Default or Event of Default exists, annual fees to the sponsor
not exceeding 2% of the then latest twelve month
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cash flow measure (EBITDA) and (vi) provided that no Default or Event
of Default exists, advisory fees of the sponsor for any material
acquisition or divestiture not exceeding 1% of the consideration.
Limitation on the Sale The Company and its Restricted Subsidiaries may not sell or
and Issuance of Capital issue Capital Stock of a Restricted Subsidiary except (i) to
Stock of Restricted the Company or another Restricted Subsidiary, (ii) directors'
Subsidiaries: qualifying shares and (iii) in a transaction following which such Restricted
Subsidiary is no longer a Subsidiary of the Company and any remaining Investment
in such Person by the Company would be permitted by the Limitation
on Restricted Payments covenant.
Merger and Consolidation: The Company shall not merge with or into, or consolidate
with, or dispose of all or substantially all its assets to,
another Person, unless (i) the survivor (if not the Company)
is a U.S. Person, (ii) the survivor (if not the Company)
assumes all the obligations of the Company under the Note
Purchase Agreement and the Notes, (iii) no Default shall have
occurred and be continuing, (iv) the Company at the time, on
a pro forma basis, is permitted to incur $1.00 of additional
Indebtedness pursuant to the first paragraph of the
Limitation on Indebtedness covenant and (v) certain
certificates and opinions are provided to the Trustee.
Financial Information: The Company shall provide the holders with all reports
that are required to be delivered to the lenders under the Company's
senior credit agreement as in effect on the Closing Date within the time
periods specified therefor.
Events of Default: Events of Default will include (i) failure to pay principal
when due, (ii) failure to pay interest when due and such
default continues for 10 days, (iii) failure to comply with
the covenants described herein, in some cases for 30 days
after a Responsible Officer of Parent or the Company becomes
aware thereof, (iv) failure to comply with other agreements
in the Note Purchase Agreement and such failure continues for
30 days after a Responsible Officer of Parent or the Company
becomes aware thereof, (v) failure to pay principal when due
or interest after giving effect to the applicable grace and
cure periods or the acceleration of any Indebtedness of
Parent, the Company or a Subsidiary, in any case involving
Indebtedness having a principal amount in excess of
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$5 million, (vi) material misrepresentations of Parent or the
Company, (vii) certain events of bankruptcy involving Parent,
the Company or a Significant Subsidiary and (viii) judgments
against Parent, the Company or a Significant Subsidiary that
are unstayed or undischarged for 60 days that involve more
than $5 million.
Amendments: Amendments to or waivers of the Note Purchase Agreement will require the
affirmative vote of holders having a majority of the principal amount of
the Notes, except for amendments involving payments of principal and
interest and similar "money" terms that require the affirmative vote of
each holder affected.
Subordination: The Company is not permitted to pay principal of, premium, if
any, or interest on the Notes or defease, purchase, redeem or
otherwise retire any Notes if (A) any payment of any
Designated Senior Indebtedness of the Company is not paid in
full in cash when due or (B) any other default on Designated
Senior Indebtedness of the Company occurs and the maturity
thereof is accelerated in accordance with its terms (either
(A) or (B) being a "Payment Default").
During the continuance of a default (other than a Payment Default) with
respect to any Designated Senior Indebtedness pursuant to which the
maturity thereof may be accelerated without further notice or upon the
expiration of applicable grace periods, the Company is not
permitted to pay the Notes for a period (a "Payment Blockage Period")
commencing upon the receipt by the holders of the Notes of a written
notice of such default from a representative of the Designated
Senior Indebtedness specifying an election to effect a Payment
Blockage Period and ending 179 days thereafter. A Payment Blockage
Period may terminate earlier under certain circumstances, and the Notes
will not be subject to more than one Payment Blockage Period in any
consecutive 360-day period. No Default or Event of Default existing
on the date of the commencement of a Payment Blockage Period may be used
as the basis of a subsequent Payment Blockage Period.
Governing Law: New York.
Purchasers' Counsel: The fees and disbursements of Purchasers' counsel will be
borne by Parent and/or the Company.
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Terms Applicable to the Warrants
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Detachability of the Warrants: Detachable immediately.
Number of Warrants: An amount equal to 3.5% of the outstanding shares of common
and preferred stock of Parent on a fully diluted basis on the date of
closing. The warrants will be exercisable for preferred stock and
common stock in the same ratio of the sponsor's holdings of capital
stock of Parent.
Exercise Price: $0.01 per share.
Exercise Period: Exercisable at any time prior to the 10th anniversary of the
date of closing.
Put Option: If Parent has not received all the proceeds of an initial
Public Equity Offering of common stock of the Company or
Parent having gross proceeds of at least $50 million and a
pro forma fully distributed market capitalization of at least
$150 million prior to the final scheduled maturity of the
Notes, holders will have the right to put their respective
warrants to Parent based on an equity valuation determined
based on the then latest twelve month cash flow measure
(EBITDA), which shall be audited and determined on a pro
forma basis in accordance with Regulation S-X, and 5x
multiple, less the then outstanding aggregate amount of net
consolidated debt.
Cashless Exercise: Permitted (i.e., the exercise price may be paid by means of
surrendering Notes in equal principal amount).
Registration Rights: Holders of warrants representing more than 50% of all outstanding
warrants will be entitled to one demand registration following
Parent's or the Company's initial Public Equity Offering. In the
event that the Company rather than Parent is engaging in an initial
Public Equity Offering, a mechanism will be provided to allow holders
to exchange, on a tax free basis, current warrants for newly issued
shares in the Company. In addition, holders of warrants will
be entitled to unlimited piggyback registration rights. All expenses
of registration shall be borne by Parent.
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Tag-Along Rights: Subject to appropriate exceptions to be negotiated, holders
of warrants shall have the right to participate in any sale
of common stock by any principal stockholder to any third
party pro rata with the selling stockholders.
Drag-Along Rights: Subject to appropriate exceptions to be negotiated, in the
event that the sponsor sells all of the Capital Stock of
Parent held by it, Parent shall have the right to require all
of the other holders of such Capital Stock to sell it on the
same terms.
Adjustments: The number of shares of common and preferred stock for which the
warrants are exercisable shall be adjusted in connection with stock
splits, reverse stock splits, stock dividends, merger, consolidation,
reorganization and similar events.
Anti-dilution Provisions: In the event that Parent issues any additional shares of
common or preferred stock (or options or warrants to acquire
such shares, other than incentive options issued to
management in amounts to be agreed) for a per share
consideration less than the fair market value per share of
such common or preferred stock, there shall be a downward
adjustment in the exercise price and an increase in the
number of shares of common stock and preferred of Parent
available upon exercise of the warrants.
Governing Law: New York.
Purchasers' Counsel: The fees and disbursements of Purchasers' counsel will be
borne by Parent.
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10
BUFFET HOLDINGS, INC.
SUMMARY TERM SHEET
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Issuer: Buffet Holdings, Inc. ("Parent").
Securities Offered: $35 million 16% Senior Notes Due 2008 (the "Notes") with
detachable warrants to purchase common and preferred stock of
Parent. The aggregate principal amount of the Notes may be
reduced by an amount not exceeding $20 million, provided that
a corresponding (and equal) increase in the aggregate
principal amount of the senior subordinated notes of the
Company will be made.
Use of Proceeds: The net proceeds from the sale of the Notes will be used to
fund the acquisition of Buffets, Inc. (the "Company"), to pay
transaction costs and for other general corporate purposes.
Ranking: The Notes will be senior to all present and future
indebtedness of Parent and will be pari passu with the
guarantees by Parent of obligations of the Company.
Terms Applicable to the Senior Notes
Issue Price: 100% of the principal amount of Notes.
Maturity: 8 years.
Closing Date: To be mutually agreed upon.
Interest: Interest will be paid at 8% per annum in cash and 8% per
annum in kind or in cash (at Parent's option), quarterly in
arrears on the principal amount of the Notes.
Redemption: The Notes are redeemable, in whole or in part, at any time at
the option of Parent at the following redemption prices:
Year 1-3 Callable at any time, in whole or in part, at
the greater of par (plus accrued interest) or
the present value of the future principal,
premium and interest payments (calculated on
the basis that the Notes are redeemed at
108.00% of
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par on August 15, 2003) (plus
accrued interest) discounted at the then
current yield on U.S. treasury securities of a
maturity comparable to the remaining life of
the Notes, plus 75 basis points.
Year 4 108.00% of par
Year 5 106.00% of par
Year 6 104.00% of par
Year 7 102.00% of par
Year 8 100.00% of par
In addition, during years 1 through 3, Parent may redeem up to 50% of
the aggregate principal amount of the Notes at a redemption price
equal to 108% of par (plus accrued interest) with the proceeds of
primary Public Equity Offering(s) of common stock of Parent having
aggregate gross proceeds of at least $100 million.
No mandatory redemption or sinking fund payments.
Change of Control: Upon the occurrence of a Change of Control (to be defined),
each holder can require Parent to purchase such holder's Notes at a
purchase price equal to the percentage of par as set forth below
opposite the applicable period (plus accrued interest):
Year 1 107%
Year 2 106%
Year 3 105%
Year 4 104%
Year 5 103%
Year 6 102%
Year 7 101%
Year 8 100%
Registration Rights: None.
Negotiated Purchases: Permitted, pro rata among all holders.
Certain Covenants:
Limitation on [See Senior Subordinated Notes Term Sheet, except that the
Indebtedness: Consolidated Leverage Ratio will initially be set at 4.3
to 1, with subsequent step-downs to be agreed.]
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Limitation on Restricted [See Senior Subordinated Notes Terms Sheet.]
Payments:
Limitation on [See Senior Subordinated Notes Terms Sheet.]
Restrictions on
Distributions from
Restricted Subsidiaries:
Limitation on Sales of [See Senior Subordinated Notes Term Sheet.]
Assets and Subsidiary
Stock:
Limitation on Affiliate [See Senior Subordinated Notes Term Sheet.]
Transactions:
Limitation on the Sale [See Senior Subordinated Notes Term Sheet.]
and Issuance of Capital
Stock of Restricted
Subsidiaries:
Limitation on Liens: [See Senior Subordinated Notes Term Sheet, applying to Parent
and its Subsidiaries.]
Limitation on Parent shall not enter into any Sale/Leaseback Transaction
Sale/Leasebacks: unless (i) Parent and the Company could have Incurred secured
Indebtedness in an amount equal to the Attributable Indebtedness under
the lease pursuant to the Limitation on Indebtedness and the Limitation
on Liens covenants and (ii) Parent and the Company applies the proceeds
in accordance with the Limitation on Asset Dispositions covenant.
Merger and Consolidation: [See Senior Subordinated Notes Term Sheet.]
Financial Information: [See Senior Subordinated Notes Term Sheet.]
Events of Default: Events of Default will include (i) failure to pay principal
when due, (ii) failure to pay interest when due and such
default continues for 10 days, (iii) failure to comply with
the covenants described herein, in some cases for 30 days
after a Responsible Officer of Parent or the Company becomes
aware thereof, (iv) failure to comply with other agreements
in the Note Purchase Agreement and such failure continues for
30 days after a
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Responsible Officer of Parent or the Company
becomes aware thereof, (v) failure to pay principal when due
or interest after giving effect to the applicable grace and
cure periods or the acceleration of any Indebtedness of
Parent, the Company or a Subsidiary, in any case involving
Indebtedness having a principal amount in excess of
$5 million, (vi) certain events of bankruptcy involving
Parent, the Company or a Significant Subsidiary,
(vii) material misrepresentations of Parent or the Company
and (viii) judgments against Parent, the Company or a
Significant Subsidiary that are unstayed or undischarged for
60 days that involve more than $5 million.
Amendments: Amendments to or waivers of the Note Purchase Agreement will require the
affirmative vote of holders having a majority of the principal amount of
the Notes, except for amendments involving payments of principal and
interest and similar "money" terms, that require the affirmative vote of
each holder affected.
Governing Law: New York.
Purchasers' Counsel: The fees and disbursements of Purchasers' counsel will be
borne by Parent and/or the Company.
Terms Applicable to the Warrants
Detachability of the Warrants: Detachable immediately.
Number of Warrants: An amount equal to 3.0% of the outstanding shares of common
and preferred stock of Parent on a fully diluted basis on the date of
closing. The warrants will be exercisable for preferred stock and
common stock in the same ratio of the sponsor's holdings of capital
stock of Parent.
Exercise Price: $0.01 per share.
Exercise Period: Exercisable at any time prior to the 10th anniversary of the
date of closing.
Put Option: If Parent has not received all the proceeds of an initial
Public Equity Offering of common stock of the Company or
Parent having gross proceeds of at least $50 million and a
pro forma fully distributed
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<PAGE> 21
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market capitalization of at least $150 million prior to the
final scheduled maturity of the Notes, holders will have
the right to put their respective warrants to Parent based
on an equity valuation determined based on the then latest
twelve month cash flow measure (EBITDA), which shall be
audited and determined on a pro forma basis in accordance
with Regulation S-X, and 5x multiple, less the then
outstanding aggregate amount of net consolidated debt.
Cashless Exercise: Permitted (i.e., the exercise price may be paid by means of
surrendering Notes in equal principal amount).
Registration Rights: Holders of warrants representing more than 50% of all
outstanding warrants will be entitled to one demand
registration following Parent's or the Company's initial
Public Equity Offering. In the event that the Company rather
than Parent is engaging in an initial Public Equity Offering,
a mechanism will be provided to allow holders to exchange, on
a tax free basis current warrants for newly issued shares in
the Company. In addition, holders of warrants will be
entitled to unlimited piggyback registration rights. All
expenses of registration shall be borne by Parent.
Tag-Along Rights: Subject to appropriate exceptions to be negotiated, holders
of warrants shall have the right to participate in any sale of common
stock by any principal stockholder to any third party pro rata with the
selling stockholders.
Drag-Along Rights: Subject to appropriate exceptions to be negotiated, In the
event that the sponsor sells all of the Capital Stock of Parent
held by it, Parent shall have the right to require all of the other
holders of such Capital Stock to sell it on the same terms.
Adjustments: The number of shares of common and preferred stock for which the
warrants are exercisable shall be adjusted in connection with stock
splits, reverse stock splits, stock dividends, merger, consolidation,
reorganization and similar events.
Anti-dilution Provisions: In the event that Parent issues any additional shares of
common or preferred stock (or options or warrants to acquire
such shares, other than incentive options issued to
management in amounts to be agreed) for a per share
consideration less than the
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<PAGE> 22
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fair market value per share of such common or preferred
stock, there shall be a downward adjustment in the exercise
price and an increase in the number of shares of common
and preferred stock of Parent available upon exercise of
the warrants.
Governing Law: New York.
Purchasers' Counsel: The fees and disbursements of Purchasers' counsel will be
borne by Parent.
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<PAGE> 23
EXHIBIT B
CONDITIONS
The commitments of Credit Suisse First Boston, Cayman Branch ("CSFB"),
pursuant to the Mezzanine Financings Commitment Letter (the "Letter") shall be
subject to satisfaction of the following conditions (capitalized terms used but
not defined herein shall, unless otherwise specified, have the meanings assigned
to such terms in the Letter):
(i) There not having occurred any material adverse change in the
financial condition, results of operations, business or prospects of
Buffets since December 29, 1999.
(ii) Satisfaction by the Investors with the terms of the Acquisition
Agreement, the Equity Investment, and the management roll-over equity
investment and the Credit Facilities.
(iii) There shall not exist (pro forma for the Acquisition and the
financing contemplated hereby) any default or event of default under the
Credit Facilities, or under any other material indebtedness or agreement of
the Parent, the Company or Buffets (other than the convertible notes which
shall have been called for redemption and the proceeds necessary therefor
placed in an escrow account).
(iv) The Company shall have received (i) at least $130.0 million from
the issuance of its equity to the Sponsor and other investors selected by
it and rollover management equity, (ii) $310.0 million from the initial
borrowings under the Credit Facilities and (iii) at least $20.0 million
from the Sale/Leaseback. The capital structure of each of the Parent and
the Company after the Acquisition (including the amounts available under
the revolving credit facility) shall be reasonably satisfactory to the
Investors. Notwithstanding the foregoing, if the Credit Facilities have a
rating of at least Ba3 from Moody's Investor Services and at least BB- from
Standard & Poor's Corporation, the proceeds of the Mezzanine Debt-Newco may
be $80.0 million and the proceeds of the Mezzanine Debt-Parent may be $15.0
million.
(v) The Acquisition shall have been consummated for an aggregate
purchase price not exceeding $665.2 million (including fees and expenses
not exceeding $25.0 million in the aggregate) pursuant to
<PAGE> 24
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documentation reasonably satisfactory to the Investors, and no material
provision thereof shall have been waived, amended, supplemented or
otherwise modified.
(vi) The Parent, the Sponsor and the Company shall have complied in
all material respects with all of their obligations under the agreements in
the Commitment Letter and shall have paid any fees pursuant to the Fee
Letter.
(vii) The Investors shall not have become aware after the date hereof
of any information or other matter affecting the Parent, the Company,
Buffets or the Transactions that is inconsistent in a material and adverse
manner with any such information or other matter disclosed to the Investors
prior to the date hereof.
(viii) All material governmental and third party approvals (including
landlords' and other consents) and consents including regulatory approvals
necessary in connection with the Acquisition, the financing contemplated
hereby and the continuing operations of the Company and its subsidiaries
shall have been obtained and be in full force and effect, and all
applicable waiting periods shall have expired without any action being
taken or threatened by any competent authority that would restrain, prevent
or otherwise impose adverse conditions on the Acquisition or the financing
contemplated hereby.
(ix) The Investors shall have received audited and unaudited (which
have been reviewed by the independent accountants for the Parent, the
Company or Buffets, as the case may be, as provided in Statement on
Auditing Standards No. 71) financial statements of the Parent, the Company
and Buffets and all other completed or probable acquisitions (including pro
forma financial statements) reasonably satisfactory to the Investors.
(x) The completion of all documentation related to the Mezzanine
Financings, including, without limitation, a note purchase agreement, all
in form and substance reasonably satisfactory to the Investors.
(xi) The Investors shall have received a solvency certificate from the
chief financial officer of the Company which shall document the solvency of
the Company and its subsidiaries after giving pro forma
<PAGE> 25
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effect to the Acquisition and the other transactions contemplated hereby,
all in form and substance satisfactory to the Investors.
(xii) The Investors shall have received such legal opinions (including
opinions from counsel to the Company and its subsidiaries and Buffets and
its subsidiaries, as well as reliance letters in favor of the Investors),
documents and other instruments as are customary for transactions of this
type or as they may reasonably request.
