<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
SPAGHETTI WAREHOUSE, INC.
- - --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
- - --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[X] Fee computed below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: Common
Stock, $.01 par value, of Spaghetti Warehouse, Inc.
- - --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies: 5,742,000
- - --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): $8.00; Cash
Merger Consideration
- - --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction: $45,936,000
- - --------------------------------------------------------------------------------
(5) Total fee paid: $9,188
- - --------------------------------------------------------------------------------
[_] Fee paid previously by written 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: $
- - --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.: Schedule 14A
- - --------------------------------------------------------------------------------
(3) Filing Party: Registrant
- - --------------------------------------------------------------------------------
(4) Date Filed: October 7, 1998
- - --------------------------------------------------------------------------------
<PAGE>
SPAGHETTI WAREHOUSE, INC.
402 WEST I-30
GARLAND, TEXAS 75043
November __, 1998
To our Shareholders:
You are cordially invited to attend a Special Meeting of Shareholders (the
"Special Meeting") of Spaghetti Warehouse, Inc. (the "Company") to be held at
10:00 a.m., local time, on December 17, 1998 at 1815 N. Market Street, Dallas,
Texas, on the second floor.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to adopt the Agreement and Plan of Merger dated as of September 18,
1998 ( the "Merger Agreement") and to approve the merger of Spaghetti Warehouse
Acquisition, Inc., a Texas corporation and a wholly owned subsidiary of
Consolidated Restaurant Companies, Inc., a Delaware corporation ("Purchaser")
with and into the Company (the "Merger") as contemplated by the Merger
Agreement. Cracken, Harkey, Street & Hartnett, L.L.C., a Delaware limited
liability company ("CHC") indirectly controls Purchaser. John D. Harkey, Jr., E.
Gene Street and Stephen P. Hartnett each beneficially own equity interests in
CHC. John R. W. Cracken is the sole beneficiary of a trust that also owns an
equity interest in CHC. Subject to the terms and conditions of the Merger
Agreement, at the effective time of the Merger (the "Effective Time") each share
of common stock, par value $.01 per share, of the Company ("Company Common
Stock") outstanding immediately prior to the Effective Time (other than shares
held in treasury by the Company or owned by Purchaser, or any subsidiary of the
Company or Purchaser, and shares held by shareholders of the Company who have
validly exercised and perfected appraisal rights under Texas law) will be
converted into the right to receive $8.00 in cash. Please note that for federal
income tax purposes, an individual holder of shares of Company Common Stock who
exchanges such shares for cash pursuant to the Merger or who receives cash in
exchange for such shares pursuant to the exercise of appraisal rights will be
treated as having sold his or her shares of Company Common Stock for cash in a
taxable transaction. See "Certain Federal Income Tax Consequences" in the Proxy
Statement.
In connection with the Merger, holders of shares of Company Common Stock
who comply with certain requirements and procedures set forth in Articles 5.11,
5.12 and 5.13 of the Texas Business Corporation Act (the "TBCA") may be entitled
to seek an appraisal of their shares and to obtain the "fair value" of their
shares. To exercise appraisal rights, holders of shares of Company Common Stock
must not vote in favor of the Merger and must comply strictly with the
procedural requirements of Articles 5.11, 5.12 and 5.13 of the TBCA, a
description of which is set forth under "The Merger--Rights of Dissenting
Shareholders," in the Proxy Statement and the full text of which is included as
Appendix C to the Proxy Statement.
The Board of Directors of the Company (the "Board") has carefully reviewed
and considered the terms and conditions of the proposed Merger and the other
factors described in the attached Proxy Statement (the "Proxy Statement") under
"The Merger--The Company's Reasons for the Merger; Recommendation of the Board
of Directors." As more fully set forth in such description of factors
considered by the Board, the Board requested and received a written opinion
dated as of September 17, 1998 from NationsBanc Montgomery Securities LLC
("NMS"), the Company's financial advisor, with respect to the fairness from a
financial point of view (as of such date) of the consideration to be received by
the holders of shares of Company Common Stock pursuant to the Merger. That
opinion is addressed solely to the Board; and under the terms of the engagement
of NMS by the Board, only the Board (as addressee ) may rely on the opinion.
Under the terms of the Engagement Letter, NMS has no responsibility to any other
persons, including the Company's shareholders, and the opinion received by the
Board from NMS may not be relied upon by any Company shareholder or any other
person, and is not in any way, a recommendation by NMS as to whether the
shareholders of the Company should vote for or against the Merger. The full
text of the NMS opinion is included as Appendix B to the Proxy Statement, and
contains certain important qualifications, assumptions made, matters considered,
areas of reliance on others and limitations on the review undertaken. Several
other important factors were considered by the Board, along with the opinion of
NMS, and these are more fully described in the Proxy Statement under "The
Merger--Opinion of Financial Advisor to the Company" and "The Merger--The
Company's Reasons for the Merger; Recommendation of the Board of Directors."
You are urged to read, understand and consider the discussions of all of these
factors in the Proxy Statement in connection with your analysis of whether to
vote for or against the Merger.
<PAGE>
FOR THE REASONS SET FORTH IN THE PROXY STATEMENT, THE BOARD BELIEVES THAT
THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS
SHAREHOLDERS, AND RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" ADOPTION OF THE
MERGER AGREEMENT AND APPROVAL OF THE MERGER.
Details of the proposed Merger and other material information are included
in the Proxy Statement. Please review the Proxy Statement carefully. The
affirmative vote of the holders of at least two-thirds of the outstanding shares
of Company Common Stock is required to adopt the Merger Agreement and approve
the Merger, SO FAILURE TO VOTE WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE
MERGER AGREEMENT AND THE MERGER. ACCORDINGLY, WE URGE YOU TO COMPLETE, SIGN AND
DATE THE ENCLOSED PROXY OR VOTING INSTRUCTION CARD AND RETURN IT IN THE ENCLOSED
RETURN ENVELOPE, whether or not you plan to attend the Special Meeting. Your
vote is important regardless of the number of shares you own.
If you have any questions prior to the Special Meeting or need further
assistance, please call the undersigned at (972) 226-6000.
Sincerely,
/s/ Robert R. Hawk
--------------------------------------------
Robert R. Hawk
Chairman of the Board of Directors,
President and Chief Executive Officer
<PAGE>
SPAGHETTI WAREHOUSE, INC.
402 WEST I-30
GARLAND, TEXAS 75043
---------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 17, 1998
---------------
To the Shareholders of Spaghetti Warehouse, Inc.:
A Special Meeting of Shareholders (the "Special Meeting") of Spaghetti
Warehouse, Inc., a Texas corporation (the "Company"), will be held on December
17, 1998 at 10:00 a.m., local time, at 1815 N. Market Street, Dallas, Texas, on
the second floor, for the following purposes:
1. To consider and vote upon a proposal to (a) adopt the Agreement
and Plan of Merger, dated as of September 18, 1998 (the "Merger
Agreement"), by and among Consolidated Restaurant Companies, Inc., a
Delaware corporation ("Purchaser"), Spaghetti Warehouse Acquisition, Inc.,
a Delaware corporation and a wholly owned subsidiary of Purchaser ("Sub"),
and the Company, and (b) approve the merger of Sub with and into the
Company (the "Merger") as contemplated by the Merger Agreement. Purchaser
is indirectly controlled by Cracken, Harkey, Street & Hartnett, L.L.C., a
Delaware limited liability company ("CHC"). John D. Harkey, Jr., E. Gene
Street and Stephen P. Hartnett each beneficially own equity interests in
CHC. John R.W. Cracken is the sole beneficiary of a trust that also owns an
equity interest in CHC. Subject to the terms and conditions of the Merger
Agreement, at the effective time of the Merger (the "Effective Time") each
share of common stock, par value $.01 per share, of the Company ("Company
Common Stock") outstanding immediately prior to the Effective Time (other
than shares held in treasury by the Company or owned by Purchaser, or any
subsidiary of the Company or Purchaser, and shares held by shareholders of
the Company who have validly exercised and perfected appraisal rights under
Texas law) will be converted into the right to receive $8.00 in cash. For
federal income tax purposes, an individual holder of shares of Company
Common Stock who exchanges such shares for cash pursuant to the Merger or
who receives cash in exchange for such shares pursuant to the exercise of
appraised rights will be treated as having sold his or her shares of
Company Common Stock for cash in a taxable transaction. See "Certain
Federal Income Tax Consequences" in the Proxy Statement. Upon completion of
the Merger, the Company will be a wholly owned subsidiary of Purchaser, all
as more fully set forth in the attached Proxy Statement (the "Proxy
Statement") and in the Merger Agreement, a copy of which is included as
Appendix A thereto; and
2. To transact such other business as may properly come before the
Special Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on November __,
1998, as the record date (the "Record Date") for the determination of
shareholders entitled to notice of, and to vote at, the Special Meeting or any
adjournment thereof. Only holders of record of shares of Company Common Stock
at the close of business on the Record Date are entitled to notice of, and to
vote at, the Special Meeting.
In connection with the Merger, holders of shares of Company Common Stock
who comply with certain requirements and procedures set forth in Articles 5.11,
5.12 and 5.13 of the Texas Business Corporation Act (the "TBCA") may be entitled
to seek an appraisal of their shares and to obtain the "fair value" of their
shares. To exercise appraisal rights, holders of shares of Company Common Stock
must not vote in favor of the Merger and must comply strictly with the
procedural requirements of Articles 5.11, 5.12 and 5.13 of the TBCA, a
description of which is set forth under "The Merger--Rights of Dissenting
Shareholders," in the Proxy Statement and the full text of which is included as
Appendix C to the Proxy Statement.
YOUR VOTE IS IMPORTANT. THE AFFIRMATIVE VOTE OF AT LEAST TWO-THIRDS OF THE
HOLDERS OF THE OUTSTANDING SHARES OF COMPANY COMMON STOCK IS REQUIRED FOR
ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER. EVEN IF YOU PLAN
TO ATTEND THE SPECIAL MEETING IN PERSON, WE REQUEST THAT YOU SIGN AND RETURN THE
ENCLOSED PROXY OR VOTING INSTRUCTION CARD AND THUS ENSURE THAT YOUR SHARES WILL
BE REPRESENTED AT THE SPECIAL MEETING IF YOU ARE UNABLE TO
<PAGE>
ATTEND. IF YOU DO ATTEND THE SPECIAL MEETING AND WISH TO VOTE IN PERSON, YOU MAY
WITHDRAW YOUR PROXY AND VOTE IN PERSON.
PLEASE DO NOT SEND ANY CERTIFICATES REPRESENTING YOUR SHARES OF COMPANY
COMMON STOCK AT THIS TIME. You will receive instructions regarding the
surrender of your share certificate(s) and receive payment for your shares of
Company Common Stock after the Effective Time.
By Order of the Board of Directors
Robert E. Bodnar
Secretary
Garland, Texas
November __, 1998
<PAGE>
SPAGHETTI WAREHOUSE, INC.
402 WEST I-30
GARLAND, TEXAS 75043
---------------
PROXY STATEMENT
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 17, 1998
---------------
This Proxy Statement relates to the proposed merger of Spaghetti Warehouse
Acquisition, Inc., a Texas corporation and wholly owned subsidiary ("Sub") of
Consolidated Restaurant Companies, Inc., a Delaware corporation ("Purchaser"),
with and into Spaghetti Warehouse, Inc., a Texas corporation (the "Company"),
pursuant to the Agreement and Plan of Merger dated as of September 18, 1998, by
and among Purchaser, Sub and the Company (the "Merger Agreement"). The merger
contemplated by the Merger Agreement is referred to herein as the "Merger."
Subject to the terms and conditions of the Merger Agreement, at the
effective time of the Merger (the "Effective Time"), (i) each share of common
stock, par value $.01 per share, of the Company's outstanding common stock
("Company Common Stock") immediately prior to the Effective Time (other than
shares held in treasury by the Company or owned by Purchaser, or any subsidiary
of the Company or Purchaser, and shares held by shareholders of the Company who
have validly exercised and perfected appraisal rights under Texas law) will be
converted into the right to receive $8.00 in cash, (ii) Sub will be merged with
and into the Company, and (iii) the Company will become a wholly owned
subsidiary of Purchaser.
This Proxy Statement is being furnished to holders of shares of Company
Common Stock in connection with the solicitation of proxies by the Board of
Directors of the Company (the "Board") for use at a special meeting of
shareholders of the Company (the "Special Meeting") to be held on December 17,
1998. This Proxy Statement and the accompanying forms of proxy are first being
mailed to shareholders of the Company on or about November __, 1998.
At the Special Meeting, holders of shares of Company Common Stock will be
asked to adopt the Merger Agreement and approve the Merger. THE BOARD HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE MERGER AND UNANIMOUSLY
RECOMMENDS THAT YOU VOTE "FOR" THE ADOPTION OF THE MERGER AGREEMENT AND APPROVAL
OF THE MERGER.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OTHER PERSON.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
<PAGE>
TABLE OF CONTENTS
SUMMARY..................................................................... 1
The Special Meeting.................................................... 1
The Parties............................................................ 1
Conflicts of Interest.................................................. 2
The Merger and the Merger Agreement.................................... 2
Terms of the Merger.................................................... 3
Certain Federal Income Tax Consequences................................ 7
Rights of Dissenting Shareholders...................................... 7
Market Price Data...................................................... 7
Dividend Policy........................................................ 7
INTRODUCTION................................................................ 8
MARKET FOR COMPANY COMMON STOCK AND RELATED SHAREHOLDER MATTERS............. 14
SELECTED FINANCIAL DATA..................................................... 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................. 16
THE SPECIAL MEETING......................................................... 17
Date, Time and Place................................................... 17
Purposes of the Special Meeting........................................ 17
Record Date and Outstanding Shares..................................... 17
Voting and Revocation of Proxies....................................... 17
Vote Required.......................................................... 17
Solicitation of Proxies................................................ 17
Other Matters.......................................................... 18
THE MERGER.................................................................. 19
General Description of the Merger...................................... 19
Background............................................................. 19
The Company's Reasons for the Merger; Recommendation of the
Board of Directors................................................ 20
Opinion of Financial Advisor to the Company............................ 21
Certain Federal Income Tax Consequences................................ 25
Accounting Treatment................................................... 26
Existing Relationships with Purchaser.................................. 26
Rights of Dissenting Shareholders...................................... 26
CERTAIN TERMS OF THE MERGER AGREEMENT....................................... 28
Effective Time of the Merger........................................... 28
Manner and Basis of Converting Shares.................................. 28
Stock Options.......................................................... 29
Conditions to the Merger............................................... 29
Representations and Warranties......................................... 30
Certain Covenants Relating to Conduct of Business Prior to the Merger.. 31
No Solicitation........................................................ 32
Certain Post-Merger Matters............................................ 33
Termination or Amendment of the Merger Agreement....................... 33
Expenses and Termination Fee........................................... 34
Indemnification........................................................ 34
<PAGE>
PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT.................... 36
INDEPENDENT ACCOUNTANTS..................................................... 38
SHAREHOLDER PROPOSALS....................................................... 38
AVAILABLE INFORMATION....................................................... 38
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................. 39
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................................. F-1
APPENDIX A.................................................................. A-1
APPENDIX B.................................................................. B-1
APPENDIX C.................................................................. C-1
ii
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. Reference is made to, and this summary is qualified in its
entirety by, the more detailed information contained in or incorporated by
reference in this Proxy Statement and the appendices hereto. Shareholders of the
Company are urged to read carefully this Proxy Statement and the appendices
hereto in their entirety. As used in this Proxy Statement, unless otherwise
required by the context, the term "Purchaser" means Consolidated Restaurant
Companies, Inc. and its subsidiaries, the term "Sub" means Spaghetti Warehouse
Acquisition, Inc. and its subsidiaries and the term "Company" means Spaghetti
Warehouse, Inc. and its subsidiaries. Capitalized terms used herein without
definition are, unless otherwise indicated, defined in the Merger Agreement and
used herein with such meanings.
THE SPECIAL MEETING
Date, Time and Place. The Special Meeting will be held on December 17, 1998
at 1815 N. Market Street, Dallas, Texas, on the second floor, commencing at
10:00 a.m. local time.
Purposes of the Special Meeting. At the Special Meeting, the Company's
shareholders will consider and vote upon a proposal to adopt the Merger
Agreement and approve the Merger. The Company's shareholders will also consider
and vote upon such other matters as may properly come before the Special
Meeting.
Record Date; Shares Entitled to Vote. Only holders of record of shares of
Company Common Stock at the close of business on November __, 1998 (the "Record
Date") are entitled to notice of and to vote at the Special Meeting. On such
date, there were _____________ shares of Company Common Stock outstanding, each
of which is entitled to one vote on each matter to be acted upon at the Special
Meeting.
Quorum; Vote Required. The presence, in person or by proxy, at the Special
Meeting of the holders of a majority of shares of Company Common Stock
outstanding and entitled to vote at the Special Meeting is necessary to
constitute a quorum at the Special Meeting. The affirmative vote of at least
two-thirds of the holders of shares of Company Common Stock outstanding and
entitled to vote thereon at the Special Meeting is required under the Texas
Business Corporation Act (the "TBCA") to adopt the Merger Agreement and to
approve the Merger. ABSTENTIONS AND BROKER NON-VOTES WILL HAVE THE SAME EFFECT
AS A VOTE AGAINST ADOPTION OF THE MERGER AGREEMENT AND AGAINST APPROVAL OF THE
MERGER.
Security Ownership of Management. As of the Record Date, the directors and
executive officers of the Company and their affiliates owned _________ shares of
Company Common Stock, or approximately ___% of the shares entitled to vote at
the Special Meeting (which does not include ___________ shares of Company Common
Stock subject to vested options or options that will vest as a result of the
Merger).
THE PARTIES
The Company
Spaghetti Warehouse, Inc. (the "Company"), incorporated in Texas in
June 1972, operates as a holding company and conducts substantially all of its
operations through its subsidiaries. The Company's principal executive offices
are located at 402 West I-30, Garland, Texas 75043. The Company operates [30]
restaurants and franchises three restaurants in 13 states under two concepts
using the names "The Spaghetti Warehouse" and "Spaghetti Warehouse Italian
Grill." The Spaghetti Warehouse and Spaghetti Warehouse Italian Grill concepts
are full-service restaurants serving high-quality, value-priced, classic Italian
food in a casual atmosphere. The Company also operates two joint-venture
restaurants and franchises five restaurants in Canada under the name "The Old
Spaghetti Factory." Each of the Company's restaurants offers a memorable dining
experience by serving freshly prepared authentic Italian recipes in a casual and
relaxing atmosphere. The Company owns Old Spaghetti Factory Canada Ltd., the
franchisor of Old Spaghetti Factory restaurants in Canada, and the trademark
rights to the Old Spaghetti Factory concept in Canada. These Canadian
restaurants have a similar restaurant concept and menu to the Company's
Spaghetti Warehouse restaurant concept and menu in the United States. Old
Spaghetti Factory Canada Ltd. is not related to OSF International, which
operates restaurants under the name "The Old Spaghetti Factory" in the United
States, Japan and Germany.
<PAGE>
Purchaser
Purchaser filed its Certificate of Incorporation with the Secretary of
State of Delaware on September 8, 1998 and was incorporated primarily for the
purposes of acquiring and holding the outstanding securities of various
restaurant businesses throughout the United States, consummating the Merger and
holding the outstanding securities of the Company after the Merger. Purchaser's
principal address is 5956 Sherry Lane, Suite 1450, Dallas, Texas 75225.
Purchaser is indirectly controlled by Cracken, Harkey, Street & Hartnett, L.L.C.
a Delaware limited liability company ("CHC"). John D. Harkey, Jr., E. Gene
Street and Stephen P. Hartnett each beneficially own equity interests in CHC.
John R.W. Cracken is the sole beneficiary of a trust that also owns an equity
interest in CHC.
Sub
Sub was incorporated under the laws of the State of Texas on September 18,
1998, for the purpose of consummating the Merger. Sub's principal address is
5956 Sherry Lane, Suite 1450, Dallas, Texas 75225. The assets of Sub consist of
$1,000 of paid-in capital.
CONFLICTS OF INTEREST
After the Merger it is anticipated that several of the executive officers
of the Company will continue their employment with the surviving corporation in
their present positions. Purchaser has entered into discussions with several of
the executive officers regarding employment agreements, although no definitive
arrangements have been made. Such employment terms are not expected to be
materially different than the terms of the officers' existing employment
arrangements. Additionaly, the executive officers are beneficiaries of a
severance plan that will be invoked should their employment be terminated
following the Merger.
In considering the recommendation of the Board with respect to the Merger,
the Company's shareholders should be aware that the Merger Agreement contains
certain provisions with respect to indemnification of the Company's directors
and officers. See "Certain Terms of the Merger Agreement--Indemnification."
THE MERGER AND THE MERGER AGREEMENT
Terms of the Merger. At the Effective Time (as defined below), Sub will
merge with and into the Company, with the Company being the surviving
corporation (the "Surviving Corporation") and becoming a wholly owned subsidiary
of Purchaser. Subject to the terms and conditions of the Merger Agreement, at
the Effective Time, each share of Company Common Stock outstanding at the
Effective Time will be converted into the right to receive $8.00 in cash (the
"Merger Consideration").
Recommendation of the Board of Directors. THE BOARD HAS UNANIMOUSLY
DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF, THE
SHAREHOLDERS OF THE COMPANY AND RECOMMENDS THAT THE SHAREHOLDERS OF THE COMPANY
ADOPT THE MERGER AGREEMENT AND APPROVE THE MERGER. See "The Merger--Background"
and "--The Company's Reasons for the Merger; Recommendation of the Board of
Directors."
Opinion of Financial Advisor to the Company. NationsBanc Montgomery
Securities LLC ("NMS") was retained by the Company to render an opinion to the
Board with respect to the fairness, from a financial point of view, to the
holders of shares of Company Common Stock of the consideration to be received by
such holders in connection with the Merger. That opinion is addressed solely to
the Board; and under the terms of the engagement of NMS by the Board, only the
Board (as addressee) may rely on the opinion. The full text of the written
opinion of NMS, dated as of September 17, 1998, which sets forth certain
important qualifications, assumptions made, matters considered, areas of
reliance on others, and limitations on the review undertaken is attached as
Appendix B to this Proxy Statement. NMS's opinion is directed only to the
fairness from a financial point of view of the consideration to be received by
holders of shares of Company Common Stock pursuant to the Merger, does not
address any other aspect of the Merger or related transactions and does not
constitute a recommendation to any shareholder as to how such shareholder should
vote at the Special Meeting. See "The Merger--Opinion of Financial Advisor to
the Company."
2
<PAGE>
TERMS OF THE MERGER
Effective Time of the Merger. The Merger will become effective upon the
filing of Articles of Merger with the Secretary of State of the State of Texas.
Assuming all conditions to the Merger contained in the Merger Agreement are
satisfied or, to the extent susceptible to waiver, waived prior thereto, it is
anticipated that the Effective Time of the Merger will occur as soon as
practicable following the Special Meeting subject to the Company's and
Purchaser's right to agree, in writing, to another date, time or place (the
"Effective Time").
Certain Conditions to the Consummation of the Merger. The obligations of
Purchaser, Sub and the Company to consummate the Merger are subject to the
satisfaction of certain conditions including the following: (i) adoption of the
Merger Agreement and approval of the Merger by the shareholders of the Company;
(ii) procurement of satisfactory financing by Purchaser; (iii) the absence of
any suit, action, or other proceeding or order by any Governmental Authority (as
that term is defined in the Merger Agreement) making the Merger illegal or
otherwise prohibiting consummation of the Merger; (iv) the absence of certain
regulatory conditions; and (v) the receipt of all Company Required Statutory
Approvals (as that term is defined in the Merger Agreement) and Purchaser
Required Statutory Approvals (as that term is defined in the Merger Agreement).
In addition, the obligations of each of Purchaser, Sub and the Company are
subject to the accuracy of the representations and warranties of the other
parties and to compliance with all agreements and covenants on the part of the
other parties contained in the Merger Agreement. Each of Purchaser, Sub or the
Company may extend the time for performance of any of the obligations of the
other parties or waive compliance with those obligations at its discretion. See
"Certain Terms of the Merger Agreement--Conditions to the Merger."
Governmental Approvals. With respect to the Merger, a filing and
notification is required with the Federal Trade Commission or the Antitrust
Division of the Department of Justice under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), as amended.
Manner and Basis of Converting Shares. At the Effective Time, by virtue of
the Merger and without any action on the part of any holder of any capital stock
of the Company, Purchaser or Sub, each share of Company Common Stock, if any,
that is owned by Purchaser or Sub or any subsidiary of Purchaser or held by the
Company as treasury shares will be canceled and cease to exist and no
consideration will be delivered or deliverable in exchange therefor. Each issued
and outstanding share of Company Common Stock (other than shares of Company
Common Stock canceled pursuant to the previous sentence), will be converted into
the right to receive, upon surrender and exchange of the Certificate
representing such share of Company Common Stock (collectively, the
"Certificates"), the per share amount of $8.00.
Prior to the Effective Time, Sub will appoint a United States bank or trust
company to act as exchange and paying agent (the "Paying Agent") for the Merger.
Prior to the Effective Time, Sub will deposit with the Paying Agent, in a
separate fund established for the benefit of the holders of Company Common
Stock, for payment through the Paying Agent, a sufficient amount of cash to pay
to the shareholders of the Company the Merger Consideration, which shall be paid
by Paying Agent. Such cash will be invested by the Paying Agent in U.S.
government securities maturing in 30 days or less or mutual funds that invest
solely in U.S. government securities and all interest that is earned thereon
prior to the time the cash is fully paid to the shareholders of the Company
shall be paid over by the Paying Agent to the Surviving Corporation in
accordance with the terms of the agreement with the Paying Agent six months
after the Effective Time (if not otherwise required to satisfy obligations owing
to the shareholders of the Company).
Stock Options. At the Effective Time, each outstanding option or right to
purchase or receive shares of Company Common Stock under any of the Company's
stock option plans, stock purchase plans or deferred compensation plans or
arrangements (collectively, the "Stock Plans"), whether or not then exercisable
or vested (collectively, the "Options"), shall be terminated and automatically
converted into the right to receive for each share subject to such Option an
amount of Merger Consideration equal to the difference between the amount paid
in the Merger and the per share price of such Option to the extent such
difference is a positive number (the "Option Consideration"). The receipt by
each Option holder of his Option Consideration shall constitute a release of any
and all rights the holder had or may have had with respect to such Option.
Prior to the Effective Time, the Company shall obtain all necessary consents or
releases from holders of Options under the Stock Plans and take all such other
lawful action as may be reasonably necessary to give effect to these
transactions. The Stock Plans shall terminate as of the Effective Time, and the
provisions in the Company's pension, profit sharing, stock option, stock
purchase, stock bonus, employee stock ownership, incentive, bonus, life, health,
disability or accident plans, deferred compensation plans, and any other
employee compensation or benefit plans, agreements, practices, policies,
customs, contracts, arrangements or commitments (collectively, the "Company
Benefit
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Plans") shall be canceled as of the Effective Time. Prior to the Effective Time,
the Company shall take all action necessary (including causing the Board to take
such actions as are allowed by the Stock Plans) to (i) ensure that, following
the Effective Time, no participant in the Stock Plans or any other plans,
programs or arrangements shall have any right thereunder to acquire equity
securities of the Company or any subsidiary thereof and (ii) terminate all such
plans, programs and arrangements.
No Solicitation. The Merger Agreement provides that the Company will not,
and will not cause its subsidiaries to, permit any of its representatives to,
and will use its best efforts to cause such persons not to, directly or
indirectly, initiate, solicit or encourage, or take any action to facilitate the
making of any inquiry, offer or proposal that constitutes or in reasonable
probability will lead to any Takeover Proposal (as that term is defined in the
Merger Agreement) with respect to the Company. The Merger Agreement further
provides that the Company will notify Purchaser orally and in writing of any
such inquiries, offers or Takeovers Proposals (including, without limitation,
the terms and conditions of any such proposal and the identity of the person
making it) within one business day of the receipt thereof, and that the Company
will immediately cease and cause to be terminated all existing activities,
discussions and negotiations on the date of the Merger Agreement, if any, with
any other persons conducted prior to the date of the Merger Agreement with
respect to any Takeover Proposal regarding the Company. Notwithstanding anything
stated above to the contrary, the Merger Agreement provides that: (i) the
Company may, prior to the vote of the shareholders of the Company for approval
of the Merger (and not thereafter if the Merger is approved thereby) in response
to an unsolicited request therefor, furnish information, including non-public
information, to any person or "group" (within the meaning of Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) pursuant
to a confidentiality agreement on substantially the same terms as provided in
the Company Confidentiality Agreement (as that term is defined in the Merger
Agreement) to the extent and only to the extent that the Board determines that
the offer is a Superior Takeover Proposal (as that term is defined in the Merger
Agreement); (ii) the Company may engage in discussions and negotiations with any
person or group that has made an unsolicited Takeover Proposal, among other
things, to determine whether such proposal (as opposed to any further negotiated
proposal) is a Superior Takeover Proposal and the Company may take and disclose
to its shareholders a position contemplated by Rule 14e-2(a) following the
Company's receipt of a Takeover Proposal that is in the form of a tender offer
under Section 14(e) of the Exchange Act; (iii) the Company may withdraw,
adversely modify or take a public position materially inconsistent with its
recommendation (which may include making any statement required by Rule 14e-2
under the Exchange Act) (a "Recommendation Modification/Withdrawal") if there
exists a Takeover Proposal and the Board determines that it is a Superior
Takeover Proposal; and (iv) the Company may make a "stop-look-and-listen"
communication with respect to a Takeover Proposal or the Merger Agreement of the
nature contemplated in, and otherwise in compliance with, Rule 14d-9 under the
Exchange Act as a result of receiving a Takeover Proposal.
Termination or Amendment of the Merger Agreement. The Merger Agreement may
be terminated at any time prior to the Effective Time (i) by mutual written
consent of the Company and Purchaser or (ii) by either party by written notice
to the other, so long as the Company or Purchaser (as the case may be) is not
then in material breach of its obligations, if (a) the Effective Time has not
occurred on or before 100 days after the date of the Merger Agreement, subject
to a possible extension, (b) any state or federal law, order, rule or regulation
is adopted or issued that shall prohibit consummation of the Merger or if any
court of competent jurisdiction in the United States or any State shall have
issued an order, judgment or decree permanently restraining, enjoining or
otherwise prohibiting the Merger, and such order, judgment or decree shall have
become final and nonappealable, or (c) if the Company accepts a Superior
Takeover Proposal and has paid the requisite termination fee.
The Company may terminate the Merger Agreement, so long as it is not then
in material breach of its obligations, by written notice to Purchaser, upon a
breach of any material representation, warranty, covenant or agreement on the
part of Purchaser set forth in the Merger Agreement, subject to a limited cure
period.
Purchaser may terminate the Merger Agreement, by written notice to the
Company (i) so long as it is not then in material breach of its obligations,
upon a material breach of any representation, warranty, covenant or agreement on
the part of the Company set forth in the Merger Agreement, subject to a limited
cure period under certain circumstances, (ii) if the amount of the Net Adverse
Effects (as defined below) from breaches of the Company's representations and
warranties and statements identified by Purchaser or Sub prior to the
consummation of the Merger (the "Closing"), if any, exceeds $1,000,000, or (iii)
the Board makes a Recommendation Modification/Withdrawal or the Company enters
into a definitive agreement for a Superior Takeover Proposal or any other
Takeover Proposal. "Net Adverse Effects" means the net aggregate adverse effects
on the reasonably determined valuation by Purchaser of the business operations,
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properties (including intangible properties), condition (financial or
otherwise), assets, obligations or liabilities (whether absolute, contingent or
otherwise and whether due or to become due) of the Company and its subsidiaries
or the transactions contemplated by the Merger Agreement.
Termination In Connection with Certain Financing Events. Prior to the date
of the Merger Agreement, Purchaser received the draft funding commitment letter
from AMRESCO Commercial Finance, Inc. ("AMRESCO") and the proposal from U.S.
Restaurant Properties, Inc. ("USRP") (the "AMRESCO Letter" and the "USRP
Letter," respectively). Concurrent with the date of the Merger Agreement,
Purchaser deposited $250,000 and agreed to deposit an additional $250,000 on Day
60 (as defined below) (the aggregate amount of such $500,000 being termed the
"Escrow Fund") into escrow with Texas Bank. Purchaser shall use its commercially
reasonable best efforts to cause AMRESCO (on or prior to the 30th day after the
date of the Merger Agreement ("Day 30")) to (a) remove from the AMRESCO Letter,
as conditions to AMRESCO's funding commitment thereunder, the conditions that
AMRESCO (i) receive a satisfactory valuation report from its appraisers
regarding the collateral securing AMRESCO's loan, (ii) receive all material
required by it to complete its due diligence and (iii) find such material to be
in all things satisfactory and then (b) execute and deliver to Purchaser and Sub
the AMRESCO Letter as so modified (such events being termed the "AMRESCO Day 30
Events"). In accordance with the Merger Agreement, Purchaser shall use its
commercially reasonable best efforts to cause USRP (on or prior to Day 30) to
remove from the USRP Letter, as conditions to USRP's funding, the conditions
that USRP (i) retain an inspection and review period, (ii) receive all material
required by it to complete its due diligence and (iii) find such material to be
in all things satisfactory; and then execute and deliver to Purchaser and Sub a
funding commitment on the terms outlined in the USRP Letter as so modified (such
events being termed the "USRP Day 30 Events"). In accordance with the Merger
Agreement, Purchaser shall use its commercially reasonably best efforts to cause
(on or prior to the 60th day after the date of this Agreement ("Day 60")) each
of AMRESCO and USRP to deliver to Purchaser and Sub a firm funding commitment
(containing the financial terms of the AMRESCO Letter and the USRP Letter,
respectively) that is conditioned only on the delivery of closing documentation
and the accuracy, in all material respects, of the Company's representations and
warranties under the Merger Agreement (a "Firm Commitment").
In addition, the Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time by the Company, (i) at any
time during the five business days immediately following Day 30, as long as the
Company is not then in material breach of its obligations under the Merger
Agreement and as long as the amount of the Net Adverse Effects from breaches of
the Company's representations and warranties and statements does not exceed
$1,000,000, if either the AMRESCO Day 30 Events or the USRP Day 30 Events have
not occurred on or prior to the date of such termination; and (ii) at any time
during the five business days immediately following Day 60, as long as the
Company is not then in material breach of its obligations under the Merger
Agreement and as long as the amount of the Net Adverse Effects from breaches of
the Company's representations and warranties and statements does not exceed
$1,000,000, if either AMRESCO or USRP has not delivered to Purchaser a Firm
Commitment on or prior to the date of such termination.
Payment of Expenses and Damages Payable Upon Termination. If the Merger
Agreement is terminated upon a party's breach, then the breaching party shall
promptly pay to the other party, as liquidated damages, an amount in cash equal
to the out-of-picket expenses and fees incurred by the other party after the
date of the Merger Agreement arising out of, or in connection with or related
to, the Merger or the transactions contemplated by the Merger Agreement not in
excess of $500,000 (the "Out-of-Pocket Expenses"); provided, however, that if
the Merger Agreement is terminated by a party as a result of a willful breach of
a representation, warranty, covenant or agreement by the other party, the non-
breaching party may pursue any remedies available to it at law or in equity and
shall, in addition to the amount of Out-of-Pocket Expenses set forth above, be
entitled to recover such additional amounts as such non-breaching party may be
entitled to receive at law or in equity; provided, further, that the payment by
Purchaser of any Out-of-Pocket Expenses and any amounts required under the
Escrow Agreement shall constitute the Company's sole and exclusive remedy
against Purchaser or Sub for any failure by the parties (or any party) to
consummate the Merger.
Termination Fee. In the event that (a) the Merger Agreement is terminated
by the Company upon acceptance of a Superior Takeover Proposal, (b) the Merger
Agreement is terminated by Purchaser upon a Recommendation
Modification/Withdrawal, or (c) the Company accepts any Takeover Proposal (or
Superior Takeover Proposal) within two years after the Merger Agreement is
terminated by Purchaser pursuant to the Company's breach, then, in each such
case, the Company shall pay Purchaser a fee equal to the sum of (i) $1,500,000
and (ii) Purchaser's Out-of-Pocket Expenses, which such aggregate amount shall
be payable by wire transfer of same day funds within five business days after
the date of such termination (or in the case of (c) above, the amount of
$1,500,000 shall be paid within five days
5
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after the Company accepts any Takeover Proposal or Superior Takeover Proposal,
the Out-of-Pocket Expenses having already been paid).
Indemnification. The Company will, and from and after the Effective Time,
the Surviving Corporation will, indemnify, defend and hold harmless each person
who is at the time of the execution of the Merger Agreement, or has been at any
time prior to the date of execution of the Merger Agreement, an Indemnified
Party (as that term is defined in the Merger Agreement) to the same extent and
in the same manner as is provided in the respective certificates or Articles of
Incorporation or bylaws of the Company and such subsidiaries in effect on June
28, 1998 with respect to any Indemnified Liabilities (as that term is defined in
the Merger Agreement). Any Indemnified Party wishing to claim indemnification,
upon learning of a claim, action, suit, proceeding or investigation, shall
notify the Company (or after the Effective Time, the Surviving Corporation). The
Company, Purchaser and Sub have agreed that the foregoing rights to
indemnification existing in favor of the Indemnified Parties with respect to
matters occurring through the Effective Time shall survive the Merger and shall
continue in full force and effect until the disposition of such Indemnified
Liabilities. The Merger Agreement provides identical protection to that which is
currently afforded by the Company's Articles of Incorporation and Bylaws on the
date of the Merger Agreement.
For a period of six years after the Effective Time, the Surviving
Corporation shall cause to be maintained in effect the current policies of
directors' and officers' liability insurance maintained by the Company and its
subsidiaries (provided that the Surviving Corporation may substitute therefor
policies of at least the same coverage and amounts containing terms and
conditions that are no less advantageous in any material respect to the
Indemnified Parties) with respect to matters arising before and omissions
occurring or existing at or prior to the Effective Time including the
transactions contemplated by the Merger Agreement.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The receipt of cash for shares of Company Common Stock pursuant to the
Merger or pursuant to the exercise of appraisal rights with respect to shares of
Company Common Stock will be a taxable transaction for federal income tax
purposes and may also be a taxable transaction under state, local and other tax
laws. In general, a shareholder will recognize gain or loss for federal income
tax purposes to the extent of the difference between the cash received and the
holder's basis in the shares of Company Common Stock exchanged for cash. For a
discussion of these and other federal income tax considerations in connection
with the Merger, see "The Merger--Certain Federal Income Tax Consequences."
HOLDERS OF SHARES OF COMPANY COMMON STOCK ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS AS TO THE TAX CONSEQUENCES OF THE MERGER PARTICULAR TO THEM, INCLUDING
THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND OTHER TAX LAWS.
RIGHTS OF DISSENTING SHAREHOLDERS
In connection with the Merger, holders of shares of Company Common Stock
who comply with certain requirements and procedures set forth in Articles 5.11,
5.12 and 5.13 of the TBCA may be entitled to seek an appraisal of their shares
and to obtain the "fair value" of their shares. To exercise appraisal rights,
holders of shares of Company Common Stock must not vote in favor of the Merger
and must comply strictly with the procedural requirements of Articles 5.11, 5.12
and 5.13 of the TBCA (the "Appraisal Rights Statutes"), a description of which
is set forth under "The Merger--Rights of Dissenting Shareholders," and the full
text of which is included as Appendix C hereto.
MARKET PRICE DATA
The Company Common Stock is traded on the New York Stock Exchange, Inc.
(the "NYSE") under the symbol "SWH." On September 17, 1998, the last trading day
prior to the date of the announcement by Purchaser and the Company that they had
executed the Merger Agreement, the closing per share sales price of the Company
Common Stock, as reported by the NYSE, was $5.75. On November __, 1998, the
closing per share sales price of the Company Common Stock, as reported by the
NYSE, was $______. See "Market for Company Common Stock and Related Shareholder
Matters." Shareholders are urged to obtain current market quotations for Company
Common Stock.
DIVIDEND POLICY
The Company has never paid cash dividends on Company Common Stock. The
Company presently intends to retain earnings to finance the expansion of its
business and, therefore, does not expect to pay any cash dividends in the
foreseeable future. Any future determination as to the payment of dividends will
depend upon results of operations, capital requirements, the financial condition
of the Company and such other factors as the Board of Directors of the Company
may consider. See "Market for Company Common Stock and Related Shareholder
Matters."
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INTRODUCTION
GENERAL DEVELOPMENT AND SCOPE OF BUSINESS
Spaghetti Warehouse, Inc., incorporated in Texas in June 1972, operates as
a holding company and conducts substantially all of its operations through its
subsidiaries. The Company's principal executive offices are located at 402 West
I-30, Garland, Texas 75043.
The Company operates [30] restaurants and franchises three restaurants in
13 states under two concepts using the names "The Spaghetti Warehouse" and
"Spaghetti Warehouse Italian Grill." The Spaghetti Warehouse and Spaghetti
Warehouse Italian Grill concepts are full-service restaurants serving high-
quality, value-priced, classic Italian food in a casual atmosphere. The Company
also operates two joint-venture restaurants and franchises five restaurants in
Canada under the name "The Old Spaghetti Factory." Each of the Company's
restaurants offers a memorable dining experience by serving freshly prepared
authentic Italian recipes in a casual and relaxing atmosphere.
The Company owns Old Spaghetti Factory Canada Ltd., the franchisor of Old
Spaghetti Factory restaurants in Canada, and the trademark rights to the Old
Spaghetti Factory concept in Canada. These Canadian restaurants have a similar
restaurant concept and menu to the Company's Spaghetti Warehouse restaurant
concept and menu in the United States. Old Spaghetti Factory Canada Ltd. is not
related to OSF International, which operates restaurants under the name "The Old
Spaghetti Factory" in the United States, Japan and Germany.
Many of the Company's restaurants are located in distinctive, older,
restored buildings in urban locations. Dining room seating capacity in downtown
Spaghetti Warehouse restaurants range from approximately 300 to 600 persons,
with an average dining room seating capacity of approximately 450. The typical
downtown Company restaurant has approximately 15,200 square feet devoted to
restaurant use, including kitchen and storage. The Company also operates 10
restaurants in suburban markets. The typical suburban Company restaurant ranges
from 6,500 to 9,600 square feet in size with seating capacity for 275 to 300
persons.
Full alcoholic beverage service is available at the Company's restaurants.
Because of the family orientation of Spaghetti Warehouse restaurants, alcoholic
beverages are served primarily at the dining table with meal service. A bar
area is located adjacent to the dining area, primarily to accommodate customers
waiting for dining tables. The Company adheres to a strict program requiring
moderation in the service and consumption of alcoholic beverages. During the
fiscal years ended June 28, 1998, June 29, 1997, and June 30, 1996, sales of
alcoholic beverages accounted for approximately 8%, 9% and 9% of the Company's
revenues, respectively.
The following table sets forth, for the periods indicated, selected restaurant
information:
YEAR ENDED
----------------------------------------------
JULY 3, JULY 2, JUNE 30, JUNE 29, JUNE 28,
1994 1995 1996 1997 1998
------- ------- -------- -------- --------
Sales per restaurant open
for full year:
Average....................... $2,246 $2,109 $2,173 $2,217 $2,226
High.......................... $4,300 $4,494 $4,546 $4,620 $4,425
Low........................... $1,234 $1,048 $1,514 $1,418 $1,376
Check average per customer,
including alcoholic beverages
(all stores):
Lunch......................... $ 6.19 $ 6.40 $ 6.73 $ 6.98 $ 7.17
Dinner........................ $ 8.41 $ 8.32 $ 8.64 $ 8.90 $ 9.14
Restaurants open for full year... 31 36 29 28 28
Restaurants open at year-end..... 36 37 30 28 30
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RESTAURANT CONCEPTS
THE SPAGHETTI WAREHOUSE
Spaghetti Warehouse restaurants are full-service, family-oriented
restaurants serving high quality, value-priced, classic Italian food in a casual
atmosphere. The Company currently operates nine Spaghetti Warehouse restaurants.
Each of the Company's Spaghetti Warehouse restaurants offers a memorable dining
experience amid a decor of authentic, unusual and eclectic antiques and
memorabilia. The Company's first Spaghetti Warehouse restaurant opened in
Dallas, Texas, in 1972.
The Spaghetti Warehouse menu includes spaghetti entrees with a choice of 12
sauces and five pastas, meat and vegetable lasagna, ravioli, cannelloni,
manicotti, baked ziti, fettucini alfredo, hand-rolled meatballs, Italian
sausage, veal, chicken and eggplant parmigiana, sandwiches and combination
platters. The menu also includes soups, appetizers, house and Caesar salads,
desserts, soft drinks, alcoholic beverages, including many locally available
imported beers and fresh-baked sourdough bread. The Company endeavors to serve
a uniformly high-quality product by preparing most menu items fresh daily. In
order to provide maximum customer value perception, emphasis is placed on
serving substantial portions of quality food at modest prices. Entree
selections, which include soup or salad and sourdough bread, currently range in
price from $3.99 to $8.99 during lunch and $4.59 to $9.59 during dinner.
The decor of a typical Spaghetti Warehouse restaurant features authentic,
unusual and eclectic artifacts and memorabilia, including stained glass windows,
advertising signs, taxidermy, chandeliers, antique furniture and a dine-on
trolley car. The Company's restaurants feature quick, efficient and friendly
table service designed to minimize customer waiting time and facilitate table
turnover, while at the same time making the customer feel at ease in a relaxed
atmosphere.
SPAGHETTI WAREHOUSE ITALIAN GRILL
The Spaghetti Warehouse Italian Grill is an updated version of the
Company's existing Spaghetti Warehouse concept. Thus far, the Company has opened
two new units and converted 19 existing Spaghetti Warehouse restaurants to the
Italian Grill format. The Italian Grill features updated decor, an expanded menu
and improved customer value. The Italian Grill's expanded menu features grilled
meats and fish, pizza and a larger selection of appetizers. Traditional
Spaghetti Warehouse menu items have been improved to enhance taste profiles and
presentations. Additionally, various portion sizes have been increased to
improve the price/value relationship.
Entree prices at the Italian Grill currently range from $4.29 to $9.59 at
lunch and $4.59 to $12.99 at dinner. Both lunch and dinner entrees include a
"Bottomless Warehouse Salad" and fresh-baked bread. In addition to traditional
Spaghetti Warehouse menu items, the Italian Grill offers grilled chicken,
halibut and New York strip steak, oven-baked pizza, and grilled shrimp alfredo
and marinara.
The first Italian Grill conversion was completed at the Company's Marietta,
Georgia, location on November 1, 1995. Due to favorable sales results and
customer response, the Company converted an additional 18 units to the Italian
Grill format subsequent to the Marietta conversion. The Company plans to
convert additional units on a periodic basis in fiscal 1999. Italian Grill
development plans beyond fiscal 1999 will be made based on operating results
achieved in the current and newly converted Italian Grill units.
FUTURE EXPANSION
The Company intends to open one to two new Company-operated Italian Grill
restaurants during fiscal 1999. The Company has scheduled the opening of a new
unit in Corpus Christi, Texas, in the second quarter of fiscal 1999. The
Company anticipates additional new store openings in the future in markets where
it currently has operations, thereby increasing certain supervisory and
marketing efficiencies.
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The Company plans to open Italian Grill units predominantly in the Midwest,
Southwest, Central and Eastern United States. The Company also intends to
expand Old Spaghetti Factory restaurants within Canada by means of joint-venture
owned or franchised Old Spaghetti Factory restaurants. There can be no
assurance, however, that the Company will be able to achieve these objectives.
FRANCHISING
The Company has developed a franchise program under which it has attracted
two franchisees in the United States. Currently operating franchise units
include those located in Wichita, Kansas; Newport News (Norfolk), Virginia; and
Glen Allen (Richmond), Virginia. All franchise units operate under the Italian
Grill format.
Franchisees pay an initial franchise fee of $35,000 per unit, and pay
ongoing royalty fees and marketing fees of 3.5% and 0.5% of restaurant sales,
respectively. The Company currently does not plan to grant any additional
franchises in the United States.
RESTAURANT OPERATIONS
All Spaghetti Warehouse and Italian Grill restaurants are operated under
uniform standards and specifications set forth in the Company's operating manual
and internal procedures memoranda. The standards govern the restaurants'
operation of the kitchen, dining room and bar area; repair and maintenance of
premises and equipment; and the administration, training and conduct of
restaurant personnel. The Company also emphasizes uniform standards for product
quality, facility maintenance, portion control, sanitation and customer service.
The Company requires franchisees to maintain these same uniform standards. The
Company maintains financial, accounting and management controls for its
restaurants through the use of centralized accounting and information systems.
RESTAURANT MANAGEMENT
The Company emphasizes both quality and efficiency in its operations.
Operational standards are set through the development of annual business plans
and are maintained by restaurant management personnel and regional operations
directors. Each operations director is generally responsible for seven to eight
restaurants. Each restaurant staff consists of a general manager, a senior
kitchen manager, three to five assistant managers and 65 to 150 hourly
employees. Restaurant managers are responsible for day-to-day operations,
including customer relations, food preparation and quality control, cost
control, restaurant maintenance and human resource functions. In order to
control labor costs, the managers use customer count forecasts and employee
work-schedule systems designed to match employee work hours to anticipated
customer traffic. Each restaurant also has an inventory control system designed
to aid the manager in food cost and waste control, as well as in the evaluation
of purchasing needs. A restaurant manager receives a fixed salary plus a bonus
based upon the sales and profitability of the restaurant under his or her
supervision. Regional operations directors and general managers who exhibit
superior performance are also eligible for stock options.
PURCHASING
The Company uses its own standardized recipes for menu items in all of its
restaurants to ensure uniform quality and freshness. The Company's ability to
maintain consistent product quality throughout its chain of restaurants depends
upon acquiring specified food products and related items from reliable sources,
and involves negotiating purchases directly from manufacturers to obtain
favorable pricing. The Company has a contract with a national wholesale
distributor to deliver the majority of the nonperishable and frozen food
products used in its Spaghetti Warehouse and Italian Grill restaurants. The use
of a national distributor has helped to reduce average restaurant inventory
levels. Food products and related restaurant supplies not purchased through the
national wholesale distributor are purchased from independent wholesale food
distributors and manufacturers, while other items, including fresh produce,
dairy and some meat products, are purchased locally by each restaurant. The
Company does not maintain a central product warehouse or commissary. Management
believes that all essential food and beverage products are available from
several qualified suppliers in all cities in which the Company's restaurants are
located.
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ADVERTISING AND MARKETING
The Company's primary markets are the business trade for lunch and the
family trade for dinner. In addition to word-of-mouth advertising, the Company
relies primarily on radio, print, television (in certain markets) and billboard
advertising and special promotions to increase customer traffic and sales. The
Company's marketing department develops and implements Company-wide and local
promotions emphasizing value, menu variety, food quality and fun. Emphasis is
also placed on local community involvement. During the fiscal year ended June
28, 1998, the Company's expenditures for advertising (including local promotions
and production costs) were approximately 4.0% of revenues.
GOVERNMENT REGULATION
The Company is subject to various Federal, state and local laws affecting
its business. The Company's restaurants are subject to health, sanitation and
safety standards, as well as state and local licensing and regulations with
respect to the sale and service of alcoholic beverages. The sale and service of
alcoholic beverages is material to the business of the Company, and as such, the
failure or delay in receiving or retaining a liquor license in a particular
location could adversely affect the Company's operations in that location and
could impair the Company's ability to obtain licenses elsewhere. Typically,
licenses must be renewed annually and may be revoked or suspended for cause at
any time. The Company has not encountered any material problems relating to
alcoholic beverage licenses and permits to date. In certain states, the Company
is subject to "dram-shop" statutes, which generally give a person injured by an
intoxicated person the right to recover damages from an establishment that
wrongfully served alcoholic beverages to such person. The Company carries liquor
liability insurance coverage as part of its existing comprehensive general
liability insurance.
Management is not aware of any Federal or state environmental regulations
that have had a material effect on the Company's operations to date. However,
more stringent and varied requirements of local governmental bodies with respect
to waste disposal, zoning, construction and land use have increased both the
cost of and the time required for construction of new restaurants and the cost
of operating existing Company restaurants.
The Company is also subject to the Fair Labor Standards Act, which governs
such matters as minimum wages, overtime and other working conditions. Because a
number of the Company's food service personnel are paid at rates related to the
Federal minimum wage, the recent increases in the Federal minimum, which became
effective October 1, 1996 and September 1, 1997, have caused a corresponding
increase in the Company's labor costs. Furthermore, the Company also operates
in states with minimum wage rates in excess of the Federal minimum requirement,
thus causing the Company to incur higher labor costs in those markets.
The Company's franchising program is subject to a substantial number of
laws, rules and regulations governing the sale and operation of franchises. In
recent years, many states have enacted laws that require detailed disclosure in
the offer and sale of franchises and the registration of the franchisor with
state administrative agencies. The Company is also subject to Federal Trade
Commission regulations relating to disclosure requirements in the sale of
franchises. Certain states have enacted, and others may enact, legislation
governing the termination or nonrenewal of a franchise and other aspects of the
franchise relationship that are intended to protect franchisees. The laws
applicable to franchise operations and relationships is rapidly developing and
the Company is unable to predict the effect on its franchising program of
additional requirements or restrictions that may be enacted or promulgated or of
court decisions that may be adverse to franchisors.
SERVICE MARKS AND PATENTS
The Company has registered "SPAGHETTI WAREHOUSE & Design," "THE SPAGHETTI
WAREHOUSE & Design," "PASTA POWER & Design," "THE SPAGHETTI WAREHOUSE,"
"OCTOBERFEAST," "THE SPAGHETTI WAREHOUSE GREAT ITALIAN FOOD. ALL-AMERICAN FUN. &
DESIGN," "THE SPAGHETTI WAREHOUSE RESTAURANT & Design" and "THE SPAGHETTI
WAREHOUSE ITALIAN GRILL & Design" service marks with the U.S. Patent and
Trademark office. The Company also has 10 registered state service marks. The
range of expiration dates of the initial terms of the Company's federally
registered service marks is from 2000 to 2010. The Company intends to renew
these service mark registrations.
The range of initial and renewal terms of the Company's Canadian service
mark registrations in connection with the Old Spaghetti Factory restaurant
concept in Canada is from 2003 to 2006. The Company intends to renew these
service mark registrations.
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The Company currently has 40 registered service marks and five applications
pending for service marks in 18 foreign countries. The Company does not
currently anticipate that it will be using its service marks in foreign
countries other than Canada during the next 12 months. The Company generally
intends to renew the terms of those registered service marks that it deems of
value at the time of renewal.
The Company regards its service marks and trademarks as having significant
value and being an important factor in the marketing of its restaurants. The
Company's policy is to pursue registrations of its service marks wherever
practicable and to oppose vigorously any infringement of its marks. The laws of
some foreign countries, however, do not protect the Company's proprietary rights
to the same extent as do the laws of the United States.
EMPLOYEES
The Company presently employs approximately 1,030 persons on a full-time
basis, 41 of whom are corporate management and staff personnel while the
remainder are restaurant management and staff. The Company also employs
approximately 2,450 part-time restaurant employees. Except for corporate and
restaurant management personnel, employees are generally paid on an hourly
basis. Company restaurants employ an average of 30 full-time and 80 part-time
hourly employees. None of the Company's employees are covered by collective
bargaining agreements and the Company has never experienced a major work
stoppage, strike or labor dispute. The Company believes that its working
conditions and compensation arrangements compare favorably with its competition
and considers relations with its employees to be good. Restaurant managers are
paid a base salary, plus incentive compensation, that is contingent upon
achieving certain objectives. The Company believes that managers who produce
superior economic results and deliver quality customer experiences earn more at
the Company than the average compensation in the industry for similar positions
and experience levels.
COMPETITION
The restaurant business is highly competitive, and competition in the
Italian restaurant segment has increased in recent years. The Company believes
that the primary competitive concerns in its business are the variety, quality
and price of the food offered, the quality of the service provided by the
restaurant's employees and the location and atmosphere of the restaurant. The
business of the Company is also affected by general economic conditions, changes
in consumer tastes, population, traffic patterns and spending habits of
consumers. The Company competes with various food service operations in each of
its markets, including locally owned restaurants, as well as national and
regional restaurant chains, some of which operate more restaurants and have
greater financial resources than the Company. The Company believes that its
competitive position depends upon its ability to offer and maintain its quality
food, unusual decor, a moderately priced menu and a comfortable full-service,
family-oriented dining atmosphere. There is also active competition for quality
management personnel and desirable commercial real estate sites suitable for
restaurants. Management believes that financial resources and size are important
factors in obtaining suitable sites, and that such factors, as well as
compensation, are important in attracting quality management personnel.
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PROPERTIES
The Company owns 20 and leases space for 10 of its Company-operated
restaurants. Two of the currently operating Company-owned units are subject to
ground leases. The Company also owns its corporate office headquarters and
warehouse facilities, comprised of two buildings containing a combined total of
28,000 square feet of space. These buildings are situated on two separate
properties totaling approximately two acres of land in Garland, Texas, a suburb
of Dallas. None of the Company's properties are encumbered by mortgage
indebtedness. The Company believes that its corporate office and warehouse
facilities are adequate to meet its requirements through at least fiscal 1999
and that suitable additional space will be available, as needed, to accommodate
further physical expansion of corporate operations.
The Company's restaurant leases, including renewal options, expire at
various times from 2007 to 2029, and generally provide for minimum annual
rentals and, in five cases, for payment of additional rent based on a percentage
of restaurant sales. Five of the Company's leases provide for a preferential
right of first refusal upon sale of the property. One lease provides for a
bargain purchase option at the end of the lease term. The Company is required to
pay real estate taxes, insurance, maintenance expenses and utilities under
substantially all of its leases. The Company depends on short-term leases for
parking at eight of its 30 restaurants. There can be no assurance that adequate
parking will continue to be available, or that the lack of such parking will not
have an adverse impact on the operations of the respective restaurants.
LEGAL PROCEEDINGS
As discussed in the Company's Form 10-K for the fiscal year ended June 29,
1997, Bright-Kaplan International Corporation ("BK") submitted a claim against
the Company to the American Arbitration Association ("AAA") in Dallas, Texas.
BK, a former franchisee, claimed that the Company misrepresented and concealed
numerous material facts in order to induce BK to enter into a franchise
agreement, failed to provide a variety of services in support of BK's franchise,
engaged in deceptive trade practices and violated Federal Trade Commission
disclosure rules. BK sought damages in excess of $9.0 million. In 1996, the
AAA arbitration panel heard the evidence presented to the arbitration
proceeding, and in a unanimous opinion delivered in January 1997, ruled that the
Company had no liability to BK, and awarded no damages to BK. Subsequent to the
conclusion of the arbitration case, the Circuit Court of Hamilton County,
Tennessee, dismissed a lawsuit filed by Elizabeth Bright and Thomas C. Bright,
the principal shareholders of BK, attempting to litigate the same claims decided
by the arbitration panel. Elizabeth Bright and Thomas C. Bright appealed the
Circuit Court's dismissal to the Court of Appeals of Tennessee at Knoxville, and
on April 29, 1998, that appellate court unanimously affirmed the trial court's
decision in favor of the Company. The judgement of the Court of Appeals became
final on June 30, 1998, without further appeal of the plaintiffs, thus
effectively ending the lawsuit and claim against the Company.
The Company is involved in routine litigation from time to time. Such
litigation in which the Company is currently involved is not material to the
Company's consolidated financial condition or results of operations.
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MARKET FOR COMPANY COMMON STOCK
AND RELATED SHAREHOLDER MATTERS
The Company's common stock is quoted on the NYSE under the symbol "SWH."
The following table sets forth the high and low closing sale prices as reported
on the NYSE for the periods indicated.
HIGH LOW
---- ---
Fiscal year ending June 29, 1997:
First Quarter......................... 5 5/8 4 3/4
Second Quarter........................ 6 5
Third Quarter......................... 5 3/8 5
Fourth Quarter........................ 6 4 3/4
Fiscal year ending June 28, 1998:
First Quarter......................... 7 1/8 5 1/4
Second Quarter........................ 7 3/8 5 5/8
Third Quarter......................... 7 5 1/2
Fourth Quarter........................ 8 3/8 5 15/16
Fiscal year ending July 4, 1999:
First Quarter......................... 8 5 3/4
Second Quarter (through November ___). __ __
The Company has never paid cash dividends. Management presently intends to
retain any earnings for the operation and expansion of the Company's business
and does not anticipate paying cash dividends in the foreseeable future. Any
future determination as to the payment of dividends will depend upon results of
operations, capital requirements, the financial condition of the Company and
such other factors as the Board of Directors of the Company may consider.
As of November __, 1998, the number of record holders of Company Common
Stock was approximately ___, and the Company estimates that as of that date
there were ______ beneficial owners of its stock.
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SELECTED FINANCIAL DATA
The information required to be disclosed in this section is incorporated
herein by reference to the Company's Annual Report in Form 10-K for the fiscal
year ended June 28, 1998 filed with the Securities and Exchange Commission on
September 24, 1998.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required to be disclosed in this section is incorporated
herein by reference to the Company's Annual Report in Form 10-K for the fiscal
year ended June 28, 1998 filed with the Securities and Exchange Commission on
September 24, 1998.
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THE SPECIAL MEETING
DATE, TIME AND PLACE
The Special Meeting will be held December 17, 1998, at 1815 N. Market
Street, Dallas, Texas, on the second floor, commencing at 10:00 a.m. local time.
PURPOSES OF THE SPECIAL MEETING
The purposes of the Special Meeting are to consider and vote upon (i) a
proposal to adopt the Merger Agreement and approve the Merger and (ii) such
other matters as may properly be brought before the Special Meeting.
RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Company Common Stock at the close of business on
the Record Date are entitled to notice of, and to vote at, the Special Meeting.
On the Record Date, there were approximately _____ holders of record of the
_______________ shares of Company Common Stock then issued and outstanding. Each
share of Company Common Stock entitles the holder thereof to one vote on each
matter submitted for shareholder approval. See "Principal Shareholders and Stock
Ownership of Management" for information regarding persons known to management
of the Company to be the beneficial owners of more than 5% of the outstanding
shares of Company Common Stock. A complete list of the shareholders entitled to
notice of, and to vote at, the Special Meeting will be available for examination
at the offices of the Company in Garland, Texas during normal business hours by
any of the Company's shareholders, for any purpose germane to the Special
Meeting, for a period of 10 days prior to the Special Meeting.
VOTING AND REVOCATION OF PROXIES
A form of proxy for use by shareholders of the Company at the Special
Meeting accompanies this Proxy Statement. All properly executed proxies that are
received prior to or at the Special Meeting and not revoked will be voted at the
Special Meeting in accordance with the instructions contained therein. IF A
HOLDER OF COMPANY COMMON STOCK EXECUTES AND RETURNS A PROXY AND DOES NOT SPECIFY
OTHERWISE, THE SHARES REPRESENTED BY SUCH PROXY WILL BE VOTED "FOR" ADOPTION OF
THE MERGER AGREEMENT AND APPROVAL OF THE MERGER IN ACCORDANCE WITH THE
RECOMMENDATION OF THE BOARD. A shareholder of the Company who has executed and
returned a proxy may revoke it at any time before it is voted at the Special
Meeting by (i) executing and returning a proxy bearing a later date, (ii) filing
written notice of such revocation with the Secretary of the Company stating that
the proxy is revoked or (iii) attending the Special Meeting and voting in
person.
VOTE REQUIRED
The presence at the Special Meeting, in person or by proxy, of the holders
of a majority of the outstanding shares of Company Common Stock entitled to vote
thereat will constitute a quorum for the transaction of business. Adoption of
the Merger Agreement and approval of the Merger requires the affirmative vote of
at least two-thirds of the issued and outstanding shares of Company Common Stock
entitled to vote thereon. On the Record Date, there were _________ shares of
Company Common Stock outstanding and entitled to vote at the Special Meeting. In
determining whether the Merger Agreement and the Merger have received the
requisite number of affirmative votes, abstentions and broker non-votes will
have the same effect as a vote against the Merger.
SOLICITATION OF PROXIES
In addition to solicitation by mail, the directors, officers, employees and
agents of the Company may solicit proxies from the shareholders of the Company
by personal interview, telephone, telegram or otherwise. The Company will bear
the costs of the solicitation of proxies from its shareholders. Arrangements
will also be made with brokerage firms and other custodians, nominees and
fiduciaries who hold of record voting securities of the Company for the
forwarding of solicitation materials to the beneficial owners thereof. The
Company will reimburse such brokers, custodians, nominees and fiduciaries for
the reasonable out-of-pocket expenses incurred by them in connection therewith.
In addition, the Company will retain Corporate Investor Communications, Inc., a
proxy solicitation firm, to assist it in the solicitations of proxies from
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shareholders. The Company anticipates that costs for such solicitation services
will be $4,500, plus reimbursement of out-of-pocket expenses.
OTHER MATTERS
At the date of this Proxy Statement, the Board does not know of any
business to be presented at the Special Meeting other than as set forth in the
notices attached to this Proxy Statement. If any other matters should properly
come before the Special Meeting, it is intended that the shares represented by
proxies will be voted with respect to such matters in accordance with the
judgment of the persons voting such proxies.
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THE MERGER
GENERAL DESCRIPTION OF THE MERGER
The Merger Agreement provides that, at the Effective Time, Sub will merge
with and into the Company, with the Company being the surviving corporation,
and, subject to the terms and conditions of the Merger Agreement and the
provisions of the TBCA concerning dissenting shareholders' right of appraisal,
each outstanding share of Company Common Stock will be converted into the right
to receive $8.00 in cash. As a consequence of the Merger, the Company will
become a wholly owned subsidiary of Purchaser.
BACKGROUND
From time to time during 1998, the Company received certain unsolicited
exploratory inquires from interested third parties about possible combinations
with or acquisitions of the Company. In March 1998, the Company received a
verbal expression of interest from an interested party seeking a potential
merger between such party and the Company. On April 3, 1998, the Company
received an unsolicited offer from an additional interested party seeking to
acquire the Company's Common Stock and offering to assume the long-term debt of
the Company in connection with any such acquisition. On April 6, 1998, the Board
met to discuss the offer from the second interested party and to request
management to prepare a valuation analysis of the Company to assist the Board in
analyzing such offer. This interested party made a public announcement on April
23, 1998, regarding its offer to the Company. The valuation analysis was
presented to the Board at the April 29, 1998 meeting of the Board.
On April 17, 1998, the Company received a written offer from the initial
interested party seeking a merger between the Company and such party. On April
21, 1998, the Company received an unsolicited offer from a third interested
party seeking to acquire the Company's Common Stock and offering to assume the
long-term debt of the Company in connection with any such acquisition. The
Board met on April 22, 1998 to discuss these two offers and decided at that time
to table any further discussion of the Company's acquisition or merger
opportunities until the regularly scheduled meeting of the Board to be held on
April 29, 1998.
At the April 29, 1998 meeting, the Board reviewed the Company's financial
condition and certain projections, noted the market price of the Company Common
Stock and discussed recent developments. The Board determined at that time that
it did not then want to pursue a sale of the Company without further examining
its strategic alternatives; and if a sale of the Company were to be pursued as
the best strategic alternative, the Board wanted to further investigate whether
the foregoing proposals reflected the best and highest price available for a
sale of the Company. At this meeting the Board voted to authorize management to
engage an investment bank to advise the Board about its alternatives for
maximizing shareholder value.
On May 12, 1998, the Company engaged NMS as a financial advisor to identify
opportunities for maximizing shareholder value, advise the Company concerning
such opportunities and participate on the Company's behalf in negotiations
resulting from these opportunities. The Board requested NMS to make a
preliminary analysis of the recent expressions of interest and to report on
possible courses of action for the Company.
At a Board Meeting held on May 27, 1998, NMS presented various strategic
alternatives to the Company. Such presentation included (i) an analysis of the
Company's current situation, (ii) analyses of the Company's stock price and
shareholder ownership, and (iii) management's business plan. NMS reviewed
strategic alternatives the Company might pursue and their possible outcomes,
time frames to achieve these outcomes and possible risks associated with those
outcomes. The strategic alternatives included potential acquisitions by the
Company, financial restructurings such as share repurchases or a special
dividend to shareholders, a potential sale of the Company and maintenance of the
existing strategy. As to the possible sale of the Company, NMS discussed a list
of potential strategic and financial buyers and a list of specific firms that
had expressed interest or that might be interested in buying the Company. NMS
did not express an opinion as to a recommended alternative, but rather described
the key elements of each alternative, as discussed above.
On June 2, 1998, the Board, after review of the alternatives presented by
NMS and discussions with its largest institutional shareholders, voted to pursue
a controlled sale of the Company. The Board believed that a controlled sale of
all or part of the Company presented the most effective way to enhance
shareholder value, in addition to providing immediate liquidity for all
shareholders and providing the Company with a structure and process with which
to evaluate the buyer
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interest that had been expressed. A controlled sale is a process pursuant to
which a wide range of logical, potential buyers are contacted and qualified
based upon the likelihood of those buyers paying a fair and adequate price in
the sale and their financial ability to consummate a transaction. In addition,
the Board believed that a controlled sale of the Company would provide a degree
of confidentiality while at the same time stimulating a sense of competition
among buyers. This type of sale is in contrast to a closed negotiation, whereby
an extremely limited number of contacts are made and discussions are held only
with those parties that had previously expressed interest in a transaction. The
Board then specifically directed NMS to assist in soliciting bids or indications
of interest from strategic and financial buyers and to provide information to
potential buyers signing an appropriate confidentiality agreement. The Board
further requested that NMS conduct a full market test in connection with the
sale process, whereby NMS would assist the Company in the preparation of a
confidential offering memorandum concerning the Company, which would be made
available to, and used in discussions with, prospective purchasers of the
Company. NMS also developed and prepared for the Board a list of potential
strategic and financial buyers that could be interested in acquiring the
Company.
The Board met on July 17, 1998 to discuss the bids that were received in the
first round of the auction process described above. The Board sought an all
cash bid. NMS described the process used, the parties contacted, their
response, and their evaluation of the parties' interest. Each of the interested
parties received a confidential offering memorandum, including those entities
that had previously made unsolicited exploratory inquiries to the Company or
delivered expressions of interest. NMS further described the number of investors
contacted, the number of confidential offering memorandums sent to those
parties, the remarks and concerns expressed to NMS regarding the Company, the
Company's reputation within the restaurant industry, the potential for synergies
and the portability of the Company's concept. NMS reviewed the purchase price
per share of each bid, the form of the transaction that was proposed (stock
purchase versus asset purchase), the conditions to closing (necessary board of
directors and shareholder approvals), due diligence requirements and financing
contingencies. The bids, the bidders, their finances, and their indicated due
diligence requirements were analyzed by NMS, but NMS did not express an opinion
regarding the recommendation of any particular bid or bidder. NMS also reviewed
any available financing documentation that supported the offer. The Board
unanimously determined that a second round of bidding should be conducted.
Arrangements were made for the bidders to have access to additional
confidential Company material and to meet with senior members of management for
their due diligence review. Counsel for the Company was directed to draft a form
of acquisition agreement to be used in negotiating with bidders.
The Board met with NMS again on August 19, 1998. After discussing the bids
received in the second round of the sale process, the Board determined that it
should continue negotiations with Purchaser. The form of consideration of
Purchaser's bid was all cash, subject to available financing. The Purchaser's
bid, finances, due diligence requirements and terms and conditions were
discussed by the Board and NMS. NMS reviewed the financing contingencies for
the bid, including preliminary commitment letters received from lenders to
Purchaser. Counsel to the Company reviewed Purchaser's proposed form of
definitive agreement and discussed with the Board in detail the revisions to the
form of definitive agreement that had been circulated to the bidders.
After further consideration and negotiations with Purchaser, the Board
unanimously approved Purchaser's agreement. On September 17, 1998, the Board
considered the form of consideration, purchase price per share, the proposed
form of the transaction and the conditions to closing and gave its final
approval of the Merger on September 17, 1998. The Merger Agreement was executed
on September 18, 1998 and the transaction was publicly announced on the same
date.
THE COMPANY'S REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
At a meeting held on September 17, 1998, the Board concluded that the Merger
was fair to and in the best interests of the shareholders of the Company,
unanimously approved the Merger Agreement and the Merger, and recommended that
the shareholders of the Company adopt the Merger Agreement and approve the
Merger. Based upon its business judgment regarding competition in the Italian
food service industry, the Company's recent business trends and the results of
the controlled sale process adopted by the Company, the Board believed that the
proposed Merger represented the best opportunity to maximize shareholder value.
In reaching its determination, the Board considered a number of factors,
including the matters discussed above and the oral opinion of NMS rendered to
the Board on September 17, 1998 (subsequently confirmed by delivery of a written
opinion dated as of such date) to the effect that, as of such date and based
upon and subject to certain matters stated in such opinion, the consideration to
be received by the holders of shares of Company Common Stock was fair to such
holders, from a financial point of view, as of such date. The September 17, 1998
written opinion rendered by NMS to the Board is the same in all material
respects as the oral opinion delivered by NMS to the Board on the same date. See
"--Opinion of Financial Advisor to the Company." The
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Board considered such opinion in the total mix of information regarding the
proposed Merger that was available to, and evaluated by, the Board. See
"--Background."
The Board believes that all of the factors described above supported its
conclusion that the Merger is in the best interests of the Company and its
shareholders. Because the Board believes that the Merger is in the best
interests of all of the shareholders and that no material conflicts of interest
exist between the Board and nonaffiliated shareholders, an independent
representative to represent the interests of any shareholder was not retained.
The Board also recognized that the possibility of a Superior Takeover Proposal
was not precluded by the Merger Agreement.
In analyzing the proposed Merger, the Board evaluated the factors and
considerations described above and consulted with its financial and legal
advisors and with the Company's management. In evaluating the Merger versus
other alternatives, the Board considered the factors noted above, but did not
view any one such factor as determinative and did not assign particular weight
to any one such factor. Based upon the information presented to the directors,
the members of the Board unanimously adopted the Merger Agreement and
recommended that the shareholders of the Company vote "FOR" the adoption of the
Merger Agreement and approval of the Merger.
OPINION OF FINANCIAL ADVISOR TO THE COMPANY
Pursuant to an engagement letter dated May 12, 1998 (the "Engagement Letter"),
the Board retained NMS to act as its financial advisor in connection with the
consideration by the Company of various strategic alternatives available to it
to maximize shareholder value, including the possible acquisition of one or more
entities by the Company, or the possible sale of all or a portion of the
Company. The Company selected and retained NMS for this assignment on the basis
of NMS's experience and expertise in merger transactions, and its reputation in
the restaurant industry and the investment banking community. NMS is a
nationally recognized investment banking and financial advisory firm and, as
part of its investment banking activities, is regularly engaged in the valuation
of businesses and their securities in connection with merger transactions and
other types of acquisitions, negotiated underwritings, secondary distributions
of listed and unlisted securities, private placements and valuations for
corporate and other purposes.
In connection with the consideration by the Board of the merits of the Merger,
NMS was asked under the terms of the Engagement Letter to perform various
financial analyses and deliver to the Board its opinion based on such analyses,
which opinion is more fully described below. THE OPINION OF NMS WAS DIRECTED
SOLELY TO THE BOARD FOR ITS CONSIDERATION IN CONNECTION WITH THE MERGER, AND IS
NOT A RECOMMENDATION TO ANY HOLDER OF COMPANY COMMON STOCK AS TO WHETHER THE
MERGER IS IN SUCH HOLDER'S BEST INTERESTS OR AS TO WHETHER HOLDERS OF COMPANY
COMMON STOCK SHOULD VOTE FOR OR AGAINST THE MERGER. THE FULL TEXT OF SUCH
WRITTEN OPINION OF NMS, DATED SEPTEMBER 17, 1998, IS ATTACHED HERETO AS APPENDIX
B AND SETS FORTH CERTAIN IMPORTANT QUALIFICATIONS, ASSUMPTIONS MADE, MATTERS
CONSIDERED, AREAS OF RELIANCE ON OTHERS, AND LIMITATIONS ON THE REVIEW
UNDERTAKEN IN CONNECTION WITH SUCH OPINION.
The summary description of NMS's opinion set forth below is qualified in its
entirety by the full text of the opinion attached hereto as Appendix B.
In connection with its opinion, NMS among other things: (i) reviewed certain
publicly available financial and other data with respect to the Company,
including the consolidated financial statements for recent years and interim
periods to June 28, 1998, and certain other relevant financial and operating
data relating to the Company made available to NMS from published sources and
from the internal records of the Company; (ii) reviewed the financial terms and
conditions of the Merger Agreement; (iii) reviewed certain publicly available
information concerning the trading of, and the trading market for, Company
Common Stock; (iv) compared the Company from a financial point of view with
certain other companies in the restaurant industry which NMS deemed to be
relevant; (v) considered the financial terms, to the extent publicly available,
of selected recent business combinations involving companies in the restaurant
industry which NMS deemed to be comparable, in whole or in part, to the Merger;
(vi) assisted the Company in soliciting indications of interest and bids from
third parties seeking to enter into a transaction with the Company similar to,
or as an alternative to, the Merger; (vii) reviewed and discussed with
representatives of the management of the Company certain information of a
business and financial nature regarding the Company furnished to NMS by
management of the Company, including
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financial forecasts and related assumptions of the Company; (viii) made
inquiries regarding and discussed the Merger, the Merger Agreement and other
matters related thereto with the Company's counsel; and (ix) performed such
other analyses and examinations as NMS deemed appropriate.
Based upon its review of the foregoing, but subject to the limitations set
forth below and in reliance upon the assumptions set forth below, NMS provided
the Board with its opinion as investment bankers that as of the date of their
opinion (September 17, 1998), the aggregate consideration to be received by the
holders of Company Common Stock pursuant to the Merger was fair to such holders
of shares of Company Common Stock from a financial point of view. The terms of
the Merger and the amount of the consideration to be received by shareholders of
the Company thereunder was determined pursuant to negotiations between the
Company and Purchaser and not pursuant to recommendations of NMS. No
limitations were imposed by the Company on NMS with respect to the
investigations made or procedures followed in rendering its opinion.
In connection with its review, NMS did not assume any obligation independently
to verify the foregoing information and relied on its being accurate and
complete in all material respects. With respect to the financial forecasts of
the Company provided to NMS by management of the Company, upon its advice and
with its consent, NMS assumed for purposes of its opinion that the forecasts had
been reasonably prepared on bases reflecting the best currently available
estimates and judgments of management of the Company as to the future financial
performance of the Company and that they provided a reasonable basis upon which
NMS could form its opinion. NMS also assumed that there were no material changes
in the Company's assets, financial condition, results of operations, business or
prospects since the respective dates of its last financial statements made
available to NMS. NMS relied on advice of the counsel and the independent
accountants to the Company as to all legal, tax and financial reporting matters
with respect to the Company, the Merger and the Merger Agreement. NMS assumed
that the Merger would be consummated in a manner that complies in all respects
with the applicable provisions of the Securities Act of 1933, as amended (the
"Securities Act") and all other applicable federal and state statutes, rules and
regulations. In addition, NMS did not assume responsibility for making an
independent evaluation, appraisal or physical inspection of any of the assets or
liabilities (contingent or otherwise) of the Company, nor was NMS furnished with
any such appraisals. Finally, NMS's opinion was based on economic, monetary and
market and other conditions as in effect on, and the information made available
to it as of, the date of the opinion (September 17, 1998). Accordingly,
although subsequent developments may affect its opinion, NMS did not assume any
obligation to update, revise or reaffirm its opinion.
NMS also assumed with the consent of the Board that the Merger will be
consummated in accordance with the terms described in the Merger Agreement,
without any amendments thereto, and without waiver by the Company of any of the
conditions to its obligations thereunder. The full text of the Merger Agreement
is attached hereto as Appendix A and the terms described in the Merger Agreement
and the conditions to the Company's obligations thereunder should be reviewed
and understood by holders of shares of Company Common Stock in connection with
their consideration of the Merger.
Set forth below is a brief summary of selected analyses presented by NMS to
the Board on September 17, 1998 in connection with its opinion described above.
Premiums Paid Analysis. NMS reviewed the consideration paid in comparable
U.S. acquisitions involving cash consideration of between $50 million and $100
million (excluding technology and biotechnology deals) that have been announced
since January 1, 1997. NMS calculated the premiums paid in these transactions
over the applicable stock prices of the target companies one day, one week, and
thirty days prior to the announcement of the acquisition offer, and then
calculated the mean and median of those premiums (which were 17.1% and 15.3%,
18.6% and 16.6%, and 26.7% and 20.7%, respectively). NMS then applied the mean
and median premiums so derived to the Company's closing share prices on June 1,
1998 ($5.94), May 25, 1998 ($7.38) and May 2, 1998 ($7.75). The share price of
the Company as of June 1, 1998, was selected for this analysis because on the
following day (June 2) the Board announced its intention to auction the Company.
This analysis in which NMS used the median premiums one day and one week prior
to such announcement for purposes of its opinion indicated an equity value of
the Company of between approximately $7.00 and $8.60 per share of Company Common
Stock.
Comparable Public Company Analysis. Using public and other available
information, NMS calculated a range of implied values for the Company based on a
comparison of the last twelve months' earnings before interest, taxes,
depreciation and amortization ("LTM EBITDA"), the last twelve months' earnings
before interest and taxes ("LTM EBIT") and the projected calendar 1998 earnings
per share ("1998P EPS"), of the Company and sixteen other publicly
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traded comparable growth restaurant companies with recent performance issues
(the "Comparable Restaurants"). The Comparable Restaurants used in this analysis
were Applebee's, Au Bon Pain, Boston Chicken, Inc., Cooker Restaurant Corp.,
Einstein/Noah Bagel Corp., Friendly Ice Cream Corp., Lone Star Steakhouse, NPC
International, Planet Hollywood, Quality Dining, Inc., Rock Bottom Restaurants,
Ryan's Family Steakhouse, Shoneys, Inc., Sbarro, Inc., Taco Cabana, and Uno
Restaurant Corp. The September 15, 1998 stock prices of the Comparable
Restaurants reflected mean and median multiples of 5.9x and 5.8x LTM EBITDA,
12.2x and 9.3x LTM EBIT and 15.9x and 11.2x 1998P EPS, respectively. NMS applied
the mean and median multiples for the Comparable Restaurants of LTM EBITDA, LTM
EBIT and 1998P EPS to the applicable results and estimates for the Company to
determine the implied equity value of the Company. The range of values produced
from these calculations was then weighted by NMS to reflect its assessment of
the appropriate reasonable range for the implied equity value of the Company.
This analysis indicated an equity value (defined as imputed aggregate value
minus estimated net debt of $4.5 million) of the Company of between $7.00 to
$8.00 per share of Company Common Stock.
Comparable M&A Transaction Analysis. NMS also reviewed the consideration paid
in comparable merger and acquisition transactions in the restaurant industry
that have been announced since February 1992. NMS analyzed the consideration
paid in these transactions as a multiple of the aggregate value to the target
companies' LTM Revenues, LTM EBITDA and LTM Net Income, respectively. Such
analysis yielded a range of mean and median multiples of 1.0x and 0.8x LTM
Revenues, 6.9x and 6.6x LTM EBITDA and 22.0x to 20.1x LTM Net Income,
respectively. NMS then applied the foregoing multiples to the Company's 1998
Revenues, 1998 EBITDA and 1998 Net Income to determine the implied equity value
of the Company. The range of values produced from these calculations was then
weighted by NMS to reflect its assessment of the appropriate reasonable range of
the implied equity value of the Company. This analysis indicated an equity
value (defined as aggregate value minus estimated net debt of $4.5 million for
1998 Revenue and 1998 EBITDA calculations) of the Company of between $7.50 and
$8.50 per share of Company Common Stock.
No other company or transaction used in the comparable company analysis, the
comparable transactions analysis or the premiums paid analysis as a comparison
is identical to the Company or the Merger. Accordingly, an analysis of the
results of the foregoing is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of the companies to which the Company and the Merger are being
compared.
Discounted Cash Flow Analysis. NMS applied a discounted cash flow analysis
using financial forecasts for 1999 through 2003 provided by the Company's
management. The Company did not provide NMS with any financial forecasts for
periods beyond 2003. In conducting this discounted cash flow analysis, NMS
first calculated the estimated future streams of free cash flows that the
Company would produce through 2003, as well as a terminal value of cash flows
beyond 2003 by applying a range of exit multiples from 7.0x to 8.0x to the
Company's estimated EBITDA in 2003. Such cash flow streams and terminal values
were discounted to present values using discount rates ranging from 13% to 14%,
chosen to reflect assumptions regarding the Company's cost of capital. The
range of values produced from such calculations was approximately $50.0 million
to $59.5 million which corresponds to range of implied equity values (after
subtracting estimated net debt of $4.5 million) of approximately $7.70 to $9.30
per share of Company Common Stock.
While the foregoing summary describes all analyses and examinations that NMS
deemed material to the preparation of its opinion to the Board, it does not
purport to be a comprehensive description of all analyses and examinations
actually conducted by NMS. The preparation of a fairness opinion necessarily is
not susceptible to partial analysis or summary description; and selecting
portions of the analyses and of the factors considered by NMS, without
considering all analyses and factors, would create an incomplete or misleading
view of the process underlying the analyses set forth in the presentation of NMS
to the Board on September 17, 1998. In addition, NMS may have given some
analyses more or less weight than other analyses, and may have deemed various
assumptions more or less probable than other assumptions. Accordingly, the
ranges of valuations resulting from any particular analysis described above
should not be taken to be NMS's view of the actual value of the Company or
Company Common Stock. To the contrary, NMS expressed no opinion on the actual
value of the Company or Company Common Stock, and its opinion that is addressed
and limited to the Board extends only to the belief expressed by NMS that the
immediate value to holders of Company Common Stock, from a financial point of
view under the Merger, is within the range of values that might fairly be
ascribed to the Company Common Stock as of the date of the opinion of NMS
(September 17, 1998).
In performing its analyses, NMS made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of the Company. The analyses
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performed by NMS are not necessarily indicative of actual values or actual
future results, which may be significantly more or less favorable than those
suggested by such analyses. Such analyses were prepared solely as part of NMS's
analysis for the Board of the fairness of the Merger to the Company's
shareholders from a financial point of view, and were provided solely to the
Board in connection with the Board's consideration of the Merger. The analyses
do not purport to be appraisals or to reflect the prices at which any company
might actually be sold or the prices at which any securities may trade at any
time in the future. NMS used in its analyses various projections of future
performance prepared by or adopted by the management of the Company. The
projections are based on numerous variables and assumptions which are inherently
unpredictable and in large part are beyond the control of the Company and its
advisors. Accordingly, actual results could vary significantly from those set
forth in such projections, and none of the Company, NMS or any other person
assumes any responsibility if future results are materially different from those
projected.
As described above, the opinion of NMS and the presentation to the Board
summarized above were among the many factors taken into consideration by the
Board in making its determination to approve and adopt, and to recommend that
its shareholders approve and adopt, the Merger. NMS, however, does not make any
recommendation to holders of shares of Company Common Stock (or to any other
person or entity) as to whether the Merger is in such shareholders' best
interests.
In accordance with the Engagement Letter, the opinion of NMS is addressed
solely to the Board for the personal use of the directors (in their capacity as
members of the Board) in connection with their review and evaluation of the
Merger and neither the opinion nor NMS's underlying financial analysis may be
relied upon by any person other than the directors (in their capacity as members
of the Board) without the prior written consent of NMS. Accordingly, under the
terms of the Engagement Letter no shareholder of the Company may rely or allege
any reliance on NMS's opinion or analysis in connection with such shareholder's
consideration of the merits of the Merger or otherwise. It is NMS's position
that its duties in connection with its fairness opinion are solely to the Board,
and that it has no legal responsibility to any other persons, including the
Company's shareholders, under New York state law (the governing law of the
Engagement Letter). NMS would likely assert the substance of the foregoing
disclaimer as a defense to claims (if any) that might be brought against it by
holders of Company Common Stock with respect to its fairness opinion. However,
since no New York court has definitively ruled on the availability to a
financial advisor of such a defense to shareholder liability with respect to its
fairness opinion, this issue necessarily would have to be resolved by a court of
competent jurisdiction. Furthermore, there can be no assurance that a court of
competent jurisdiction would apply New York state law to the resolution of this
issue if it were ever to be presented. In any event, the availability or non-
availability of such a defense will have no effect on NMS's rights and
responsibilities under the federal securities laws, or the rights and
responsibilities of the Board under governing state law or under the federal
securities laws.
Pursuant to the Engagement Letter, if the Merger is effected on the terms set
forth in the Merger Agreement, the Company will pay NMS a fee of approximately
$1.0 million (the "Contingent Fee"). The Company will be obligated to pay the
Contingent Fee only if the Merger (or any other transaction described in the
Engagement Letter) is consummated. Accordingly, the payment of substantially
all of NMS's total fee under the Engagement Letter is subject to the
consummation of the Merger. The Board was aware of this fee structure and took
it into account in considering NMS's opinion and in approving the Merger
Agreement and the transactions contemplated thereby. Pursuant to a separate
letter agreement, the Company has agreed to indemnify NMS, its affiliates, and
their respective partners, directors, officers, agents, consultants, employees
and controlling persons against certain liabilities, including liabilities under
the federal securities laws, relating to or arising out of NMS's engagement.
In the ordinary course of its business, NMS trades equity securities of the
Company for its own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of certain federal income tax consequences
of the Merger to holders of shares of Company Common Stock. This discussion is
based on the Internal Revenue Code of 1986, as amended (the "Code"), existing
and proposed regulations thereunder, Internal Revenue Service ("IRS") rulings
and pronouncements, reports of congressional committees, judicial decisions and
current administrative rulings and practice, all as in effect on the date
hereof. Any change to the foregoing sources could be retroactive and,
accordingly, could modify the tax consequences discussed herein. No ruling from
the IRS with respect to the matters discussed herein has been requested and
there is no assurance that the IRS will agree with the conclusions set forth in
this discussion. In addition, no tax opinion has been requested or received by
the Company with respect to the federal income tax consequences of the Merger.
The discussion below does not address all of the federal income tax
consequences that may be relevant to particular shareholders in light of their
personal circumstances or to certain types of shareholders (such as dealers in
securities, corporations, insurance companies, foreign individuals and entities,
financial institutions and tax-exempt entities) who may be subject to special
treatment under the federal income tax laws. This discussion also does not
address the federal income tax consequences to shareholders who acquired their
shares of Company Common Stock through the exercise of employee stock options or
otherwise as compensation. Furthermore, this discussion does not address any
tax consequences under state, local or foreign laws. This summary assumes that
the shares of the Company Common Stock are held as "capital assets" within the
meaning of Section 1221 of the Code.
For federal income tax purposes, an individual holder of shares of Company
Common Stock who exchanges such shares for cash pursuant to the Merger or who
receives cash in exchange for such shares pursuant to the exercise of appraisal
rights will be treated as having sold his or her shares of Company Common Stock
for cash in a taxable transaction. Gain or loss will be recognized on the
exchange in an amount equal to the difference between the cash received and the
holder's adjusted tax basis in the shares of Company Common Stock exchanged
therefor. Such gain or loss will be a capital gain or loss if the holder of the
shares of Company Common Stock held such shares as a capital asset at the
Effective Time, and may qualify as long-term capital gain or loss if such holder
held the shares of Company Common Stock for a period greater than 12 months at
the Effective Time.
Holders of Company Common Stock or other payees generally will be required to
provide the Exchange Agent (as defined in "Certain Terms of the Merger
Agreement--Manner and Basis of Converting Shares") with their correct taxpayer
identification numbers (certified under penalties of perjury) on the Substitute
Forms W-9 included as part of the transmittal forms sent to such shareholders
pursuant to the Merger. The taxpayer identification number of an individual is
his or her social security number. A holder of Company Common Stock or other
payee who does not provide the Exchange Agent with a correct taxpayer
identification number may be subject to a $50 fine imposed by the IRS.
Furthermore, payments made to a holder of Company Common Stock or other payee
may be subject to backup withholding if: (i) the Company shareholder or other
payee fails to furnish a correct taxpayer identification number, (ii) the
Company shareholder or other payee furnishes an incorrect taxpayer
identification number, (iii) the Company, Purchaser, or the Exchange Agent is
notified by the IRS that such Company shareholder or other payee failed to
report interest or (iv) under certain circumstances, the Company shareholder
fails to provide a certified statement, signed under penalty of perjury, that
the taxpayer identification number provided is the correct number and that the
Company shareholder is not subject to backup withholding.
If backup withholding applies, the Exchange Agent is required to and will
withhold 31 percent of any payment made to a holder of Company Common Stock or
other payee. Backup withholding is not an additional tax but is credited
against the federal income tax liability of the taxpayer subject to the
withholding. If backup withholding results in an overpayment of a taxpayer's
federal income taxes, that taxpayer may obtain a refund from the IRS.
Generally, a holder of Company Common Stock or other payee may avoid backup
withholding by completing the Substitute Form W-9 included as part of the
transmittal forms and certifying that the taxpayer identification number
included therein is correct and that the holder of Company Common Stock or other
payee is not subject to backup withholding. Certain types of taxpayers
(including corporations and certain foreign individuals) are not subject to
these reporting or withholding requirements.
SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM OF PARTICIPATING IN THE MERGER, INCLUDING THE APPLICABILITY
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OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, CHANGES IN APPLICABLE TAX LAWS AND ANY
PENDING OR PROPOSED LEGISLATION.
ACCOUNTING TREATMENT
The Merger will be accounted for as a purchase under generally accepted
accounting principles ("GAAP").
EXISTING RELATIONSHIPS WITH PURCHASER
The Company has never conducted business with nor has it had any business
relationship with Purchaser prior to the transactions described in the Merger
Agreement. The Company's activities have been limited to providing due diligence
information and reasonable accommodation with respect to Purchaser's information
needs in its efforts to secure financing commitments.
RIGHTS OF DISSENTING SHAREHOLDERS
If the Merger is consummated, shareholders of the Company who did not vote in
favor of the Merger will have certain rights to dissent and demand the appraisal
of and payment in cash for the "fair value" of their shares of Company Common
Stock pursuant to Articles 5.11, 5.12 and 5.13 of the TBCA. Under the Appraisal
Rights Statutes, if the statutory procedures are complied with, a judicial
determination of the fair value (excluding any depreciation or appreciation in
anticipation of the Merger) required to be paid in cash to such dissenting
holders for their shares will be made. The value so determined could be more or
less than the purchase price per share pursuant to the Merger Agreement.
ANY SHAREHOLDER CONTEMPLATING THE EXERCISE OF APPRAISAL RIGHTS IS URGED TO
REVIEW CAREFULLY THE PROVISIONS OF ARTICLES 5.11, 5.12 AND 5.13 OF THE TBCA (A
COPY OF WHICH IS ATTACHED AS APPENDIX C TO THIS PROXY STATEMENT), PARTICULARLY
WITH RESPECT TO THE PROCEDURAL STEPS REQUIRED TO PERFECT THE RIGHT OF APPRAISAL.
IF THE RIGHT OF APPRAISAL IS LOST DUE TO THE SHAREHOLDER'S FAILURE TO COMPLY
WITH THE PROCEDURAL REQUIREMENTS OF THE APPRAISAL RIGHTS STATUTES, THE
SHAREHOLDER WILL RECEIVE THE MERGER CONSIDERATION WITHOUT INTEREST FOR EACH
SHARE OWNED. SET FORTH BELOW IS A SUMMARY OF THE PROCEDURES RELATING TO THE
EXERCISE OF THE RIGHT OF APPRAISAL, WHICH SHOULD BE READ IN CONJUNCTION WITH THE
FULL TEXT OF ARTICLES 5.11, 5.12 AND 5.13 OF THE TBCA.
Article 5.12 of the TBCA provides that a shareholder wishing to exercise such
shareholder's rights for appraisal with respect to the Merger must file, prior
to the Special Meeting, a written objection to the Merger stating that its right
to dissent will be exercised if the Merger becomes effective and giving the
shareholder's address, to which notice of the approval of the Merger shall be
delivered or mailed in such event. If the Merger is effected and the
shareholder did not vote in favor of the Merger, the surviving corporation will,
within 10 days after the Effective Time, deliver or mail to the shareholder
written notice that the Merger has been effected. In order to exercise his or
her right of appraisal, a shareholder must, within ten days from the delivery or
mailing of the notice from the surviving corporation, make written demand
("Demand") on the surviving corporation for payment of the fair value of the
shareholder's shares. The Demand must state the number of shares owned by such
shareholder, and the shareholder's estimate of the fair value of such shares.
Any shareholder failing to make Demand within the 10-day period will be bound by
the Merger.
The Demand should be executed by or for such shareholder of record, fully and
correctly, as such shareholder's name appears on the certificate(s) formerly
representing the shares. If shares are owned of record in a fiduciary capacity,
such as by a trustee, guardian or custodian, execution of the Demand should be
made in such capacity. If shares are owned of record by more than one person,
as in a joint tenancy or tenancy in common, the Demand should be executed by or
for all joint owners. Any shareholder who has made a Demand may withdraw the
Demand at any time before payment for the shares is made or before any petition
asking for a determination of the fair value of the shares is filed.
Within 20 days after making a Demand, the shareholder must submit the
certificates representing the shares to the surviving corporation for notation
thereon that a Demand has been made. The failure of a shareholder to submit the
certificates will terminate the shareholder's rights of appraisal.
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Within 20 days after receipt of a Demand, the surviving corporation must
deliver or mail to the shareholder a written notice that either (i) accepts the
amount claimed in the Demand and agrees to pay such amount within 90 days after
the Effective Time upon the surrender of the duly endorsed certificates formerly
representing such shareholder's shares, or (ii) contains an estimate by the
surviving corporation of the fair value of the shares together with an offer to
pay such amount within 90 days after the Effective Time. If the surviving
corporation responds to the Demand with an estimate of the fair value of the
shares and the shareholder wishes to accept the surviving corporation's
estimate, the surviving corporation must receive written notice from the
shareholder accepting such estimate within 60 days after the shareholder
receives the estimate from the surviving corporation and surrendering the duly
endorsed certificates formerly representing such shareholder's shares. If,
within 60 days after the Effective Time, the value of the shares is agreed upon
between the shareholder and the surviving corporation, payment for the shares
will be made within 90 days after the Effective Time and upon surrender of the
certificates duly endorsed. Upon payment of the agreed value, the shareholder
will cease to have any interest in the shares or the company.
If, within the period of 60 days after the Effective Time, the shareholder and
the surviving corporation do not agree on the fair value of the Shares, then the
shareholder or the surviving corporation may, within 60 days following the
expiration of such 60-day period, file a petition in any court of competent
jurisdiction in the county in which the principal office of the surviving
corporation is located, to obtain a judicial finding and determination of the
fair value of the shareholder's shares. Upon filing such petition, the
shareholder must serve the surviving corporation with a copy of such petition.
Within 10 days after being served with a copy of the petition, the surviving
corporation must file with the court a list of shareholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached. All shareholders will be notified as to the time
and place of the hearing of the petition. All shareholders thus notified and the
surviving corporation will then be bound by the final judgement of the court.
After the hearing of the petition, the court will appoint one or more qualified
appraisers who will determine the fair value of the shares and will file a
report of that value with the clerk of the court. Each party will have
reasonable opportunity to submit to the appraisers pertinent evidence as to the
value of the shares. Either party may make exceptions to the appraiser's
report. The court will then determine the fair value of the shares and will
direct the surviving corporation, upon receipt of the duly endorsed certificates
formerly representing such Shares, to pay the value together with interest
thereon beginning on the 91st day after the Effective Time to the date of the
judgment to such shareholders entitled to payment. Upon payment of the
judgment, the dissenting shareholders will cease to have any interest in the
shares or the company.
The TBCA provides that, in the absence of fraud, the foregoing procedures
represent the exclusive remedy under Texas law for a shareholder objecting to
the Merger Agreement for the recovery of the value of such holder's shares or of
money damages to such shareholder with respect to the Merger.
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CERTAIN TERMS OF THE MERGER AGREEMENT
The following description does not purport to be complete and is qualified in
its entirety by reference to the Merger Agreement, a copy of which is attached
as Appendix A to this Proxy Statement and is incorporated herein by reference.
EFFECTIVE TIME OF THE MERGER
The Merger Agreement provides that, as soon as practicable after the
satisfaction or waiver of the conditions to effecting the Merger, the parties
shall cause the Merger to be consummated by filing Articles of Merger with the
Secretary of State of the State of Texas, in such form as required by, and
executed in accordance with, the relevant provisions of the TBCA and making any
and all other filings or recordings required under the TBCA. It is anticipated
that, if the Merger Agreement is approved and adopted at the Special Meeting and
all other conditions to the Merger have been satisfied or waived, the Effective
Time will occur on the date of the Special Meeting or as soon thereafter as
practicable.
MANNER AND BASIS OF CONVERTING SHARES
At the Effective Time, by virtue of the Merger and without any action on the
part of any holder of any capital stock of the Company, Purchaser or Sub, each
share of Company Common Stock, if any, that is owned by Purchaser or Sub or any
subsidiary of Purchaser or held by the Company as treasury shares will be
canceled and cease to exist and no consideration will be delivered or
deliverable in exchange therefor. Each issued and outstanding share of Company
Common Stock (other than shares of Company Common Stock canceled pursuant to the
previous sentence), will be converted into the right to receive, upon surrender
and exchange of the Certificate representing such share of Company Common Stock,
the Merger Consideration, or $8.00 per share. Upon such conversion, all such
shares of Company Common Stock will be canceled and will cease to exist, and the
holder of a Certificate will cease to have any rights with respect thereto,
except the right to receive the Merger Consideration upon the surrender of such
Certificate (or, in the case of shareholders perfecting their right to dissent
in accordance with the TBCA, the rights of dissenting shareholders under the
TBCA). Each issued and outstanding share of common stock, par value $.01 per
share, of Sub will be converted into one fully paid and nonassessable share of
common stock, par value $.01 per share, of the Surviving Corporation.
Holders of shares of Company Common Stock have the right under Article 5.11 of
the TBCA to dissent from the Merger. If the Merger is consummated, each holder
of Company Common Stock who has not voted in favor of the Merger and who
otherwise has perfected his right to dissent under Article 5.12 of the TBCA will
be entitled to such rights of a dissenting shareholder, including the right to
receive payment of the appraised value of such shares, and each share of Company
Common Stock with respect to which such rights to dissent shall have been
perfected shall not be converted into the Merger Consideration unless such
appraisal rights cease as provided in Article 5.13 of the TBCA.
Prior to the Effective Time, Sub will appoint the Paying Agent for the Merger.
Prior to the Effective Time, Sub will deposit with the Paying Agent, in a
separate fund established for the benefit of the holders of Company Common
Stock, for payment through the Paying Agent, a sufficient amount of cash to pay
to the shareholders of the Company the Merger Consideration, which shall be
paid by Paying Agent. Such cash will be invested by the Paying Agent in U.S.
government securities maturing in 30 days or less or mutual funds that invest
solely in U.S. government securities and all interest that is earned thereon
prior to the time the cash is fully paid to the shareholders of the Company
shall be paid over by the Paying Agent to the Surviving Corporation in
accordance with the terms of the agreement with the Paying Agent six months
after the Effective Time (if not otherwise required to satisfy obligations owing
to the shareholders of the Company).
As soon as reasonably practicable after the Effective Time, Purchaser will
instruct the Paying Agent to mail to each holder of record of a Certificate or
Certificates immediately prior to the Effective Time. (i) a form of letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Paying Agent) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for payment of the Merger
Consideration. Upon surrender of a Certificate for cancellation to the Paying
Agent together with a duly executed letter of transmittal and such other
documents as the Paying Agent requires, the holder of such Certificate will be
entitled to receive the Merger Consideration, and the surrendered Certificate
will be canceled. No interest shall be paid or accrued on the Merger
Consideration payable upon the surrender of any Certificate. If payment is to
be made to a person other than the person in whose name the surrendered
Certificate is registered, it shall be a condition of payment that the
Certificate so surrendered shall be properly endorsed or otherwise in proper
form for transfer and that the person
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requesting such payment shall pay any transfer or other taxes required by reason
of the payment to a person other than the registered holder of the surrendered
Certificate or established to the satisfaction of the Surviving Corporation that
such tax has been paid or is not applicable. Until surrendered as contemplated
by this paragraph, each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender the
Merger Consideration.
At the Effective Time, the stock transfer books of the Company will be closed
and no transfer of any Company Common Stock will thereafter be made. If, after
the Effective Time, any Certificates are presented to the Paying Agent for
transfer, they will be canceled and exchanged for the Merger Consideration.
All funds held by the Paying Agent for payment that remain undistributed to
the holders of Company Common Stock for six months after the Effective Time
shall be returned to the Surviving Corporation whereupon any holders of
unsurrendered Certificates shall look only to the Surviving Corporation for
payment of Merger Consideration to which they are entitled, subject to
applicable law. None of the Purchaser, Sub, the Company nor the Surviving
Corporation shall be liable to any person for such shares or funds delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law.
At and after the Effective Time, the officers and directors of the Surviving
Corporation will be authorized to execute and deliver, in the name and on behalf
of the Company or Sub, any deeds, bills of sale, assignments or assurances and
to take and do, in the name and on behalf of the Company or Sub, any other
actions and things to vest, perfect or conform of record or otherwise in the
surviving corporation any and all right, title and interest in, to and under any
of the rights, properties or assets acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger.
STOCK OPTIONS
At the Effective Time, each holder of a then outstanding Option, whether or
not then exercisable or vested, shall be terminated and automatically converted
into the right to receive the Option Consideration. The receipt by each Option
holder of his Option Consideration shall constitute a release of any and all
rights the holder had or may have had with respect to such Option. Prior to the
Effective Time, the Company shall obtain (without paying amounts per share that
are greater than the relevant Option Consideration) all necessary consents or
releases from holders of Options under the Stock Plans and take all such other
lawful action as may be reasonably necessary to give effect to these
transactions. The Stock Plans shall terminate as of the Effective Time, and the
provisions in the Company Benefit Plans of the Company or any subsidiary thereof
shall be canceled as of the Effective Time. Prior to the Effective Time, the
Company shall take all action necessary (including causing the Board to take
such actions as are allowed by the Stock Plans) to (i) ensure that, following
the Effective Time, no participant in the Stock Plans or any other plans,
programs or arrangements shall have any right thereunder to acquire equity
securities of the Company, the Surviving Corporation or any subsidiary thereof
and (ii) terminate all such plans, programs and arrangements. The total number
of Options subject to the provisions of the Merger Agreement on the date of the
Merger Agreement (assuming full vesting) is (i) 461,343 under the Company's
stock option plans, at a weighted average exercise price of $5.28, (ii) 56,345
under the Company's employee stock purchase plan, and (iii) 25,459 under the
Company's deferred compensation plan.
CONDITIONS TO THE MERGER
The respective obligations of each party to consummate the Merger are subject
to the satisfaction of the following conditions, any or all of which may be
waived in writing by the Company and Purchaser to the extent permitted by
applicable law: (a) the Company's Shareholder Approval (as that term is defined
in the Merger Agreement) shall have been obtained on or prior to 90 days after
the date of the Merger Agreement, and no temporary restraining order or
preliminary or permanent injunction or other order by any federal or state court
preventing consummation of the Merger shall have been issued and continue in
effect; provided, however, that prior to invoking this condition, each party
shall use commercially reasonable best efforts to have any such decree, ruling,
injunction or order vacated; and (b) the Company Required Statutory Approvals
and the Purchaser Required Statutory Approvals shall have been obtained at or
prior to the Effective Time (or, in the case of the filings required, if any,
under the HSR Act, all applicable waiting periods and any extensions thereof
shall have expired or otherwise been terminated).
The obligation of Purchaser to effect the Merger is also subject to the
satisfaction at or prior to the Closing Date of the following conditions, any or
all of which may be waived in writing by Purchaser, in whole or in part: (a) the
Company shall have performed in all material respects its agreement and
covenants contained in or contemplated by the Merger Agreement
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required to be performed by it at or prior to the Effective Time; (b) the
representations and warranties of the Company set forth in the Merger Agreement
shall be true and correct in all material respects as of the date of the Merger
Agreement and as of the Closing Date, except as otherwise contemplated by the
Merger Agreement; (c) Purchaser shall have received a certificate signed by the
Chief Executive Officer and Chief Financial Officer of the Company, dated the
date of Closing (the "Closing Date"), to the effect that, to each such officer's
knowledge, certain conditions set forth in the Merger Agreement have been
satisfied; (d) there shall have been no event that has occurred that caused or
would cause a Material Adverse Effect (as that term is defined in the Merger
Agreement); (e) Purchaser shall have received an opinion of Jenkens & Gilchrist,
a Professional Corporation, in form and substance reasonably satisfactory to
Purchaser, addressed to Purchaser and dated as of the Closing Date; (f) the
Company Required Consents (as that term is defined in the Merger Agreement)
shall have been obtained except those that in the aggregate would not result in
and would not reasonably be likely to result in a Material Adverse Effect; (g)
there shall not have been threatened, instituted or pending any suit, action,
investigation, inquiry or other proceeding by or before any court or
governmental or other regulatory or administrative agency or commission
requesting or looking toward an order, judgment or decree that, individually or
in the aggregate, would in reasonable probability have a Material Adverse Effect
on the Surviving Corporation; (h) Purchaser and/or Sub shall have obtained
secured senior debt financing for the transactions contemplated in the Merger
Agreement in an aggregate amount not less than $30,000,000; (i) each outstanding
option or restricted stock award (or any other right to stock) that remains
unexercised or unvested under the Stock Plans shall have been terminated under
the provisions of the Merger Agreement; (j) all documents to be delivered by the
Company to Purchaser and Sub at the Closing shall be duly executed and in form
and substance reasonably satisfactory to Purchaser and Sub; and (k) Purchaser
and Sub shall have received such other documents or certificates as Purchaser
and Sub may reasonably have requested.
The obligation of the Company to effect the Merger is also subject to the
satisfaction at or prior to the Closing Date of the following conditions, any or
all of which may be waived in writing by the Company, in whole or in part: (a)
Purchaser shall have performed in all material respects its agreements and
covenants contained in or contemplated by the Merger Agreement required to be
performed by it at or prior to the Effective Time; (b) the representations and
warranties of Purchaser set forth in the Merger Agreement shall be true and
correct in all material respects as of the Closing Date as if made on and as of
the Closing Date, except as otherwise contemplated by the Merger Agreement; (c)
the Company shall have received a certificate signed by the Chief Executive
Officer and Chief Financial Officer of Purchaser, date the Closing Date, to the
effect that, to each such officer's knowledge, the conditions set forth in the
Merger Agreement have been satisfied; (d) the Company shall have received an
opinion Andrews & Kurth, L.L.P., in form and substance reasonably satisfactory
to the Company, addressed to the Company and dated the Closing Date, which
opinion may be based on appropriate representations of Purchaser and Sub; (e)
the opinion of NMS delivered and addressed to the Board shall not have been
withdrawn; (f) all documents to be delivered by Purchaser or Sub to the Company
at the Closing shall be duly executed and in form and substance reasonably
satisfactory to the Company; and (g) the Company shall have received such other
documents or certificates as the Company may reasonably have requested.
There can be no assurance that all of the conditions to the Merger will be
satisfied.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of the
Company, Sub and Purchaser relating to, among other things: (a) various
corporate organization and qualification matters, (b) authorization matters in
connection with the approval of the Merger Agreement, (c) the non-contravention
of the Merger Agreement with any of the Company's, Purchaser's or Sub's
corporate and financial documents, (d) the Company Required Statutory Approvals
and the Purchaser Required Statutory Approvals, (e) the ownership of Company
Common Stock by Purchaser, (f) the truthfulness and accuracy of certain
information supplied by the Purchaser, (g) the ownership of any subsidiaries by
the Company, (h) the capitalization of the Company and Sub; and the Company
makes further representations and warranties concerning (i) compliance with
governmental and licensing requirements, (j) the financial statements, financial
reports and reports filed by the Company with the Securities and Exchange
Commission (the "Commission"), (k) any undisclosed liabilities of the Company,
(l) real property, (m) Company equipment, (n) intellectual property, (o)
litigation, (p) employee matters, (q) collective bargaining and employee
agreements and other compensation matters, (r) labor matters, (s) environmental
matters, (t) the vote requirements for passage of the Merger Agreement, (u)
insurance, (v) material contracts and commitments, (w) tax matters and (x) state
takeover statutes and the absence of a super-majority provision in Texas.
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CERTAIN COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO THE MERGER
The Company has agreed that, prior to the Effective Time, the Company will,
and will cause its subsidiaries to, conduct their respective businesses in the
usual, regular and ordinary course in substantially the same manner as conducted
prior to entering into the Merger Agreement and use all commercially reasonable
best efforts to preserve their respective business organizations and goodwill,
preserve the goodwill and relationships with customers, suppliers, distributors
and others having business dealings with them and, subject to prudent management
of workforce needs and ongoing programs in force on the date of the Merger
Agreement, keep available the services of their officers and employees employed
on the date of the Merger Agreement.
The Company has also agreed that, prior to the Effective Time, the Company
will not, nor will it permit any of its subsidiaries to: (a) declare or pay any
dividends or make other distributions in respect of any of their capital stock
other than to the Company or its subsidiaries; (b) split, combine or reclassify
any of their capital stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of, or in substitution for, shares of
their capital stock; or (c) redeem repurchase or otherwise acquire any shares of
their capital stock, other than (i) intercompany acquisitions of capital stock,
or (ii) in connection with the administration of employee benefit and dividend
reinvestment plans as in effect on the date of the Merger Agreement in the
ordinary course of the operation of such plans.
The Company has also agreed that prior to the Effective Time it will not, and
will not permit any of its subsidiaries to, issue, agree to issue, deliver or
sell, or authorize or propose the issuance, delivery or sale of, any shares of
their capital stock or any class or any securities convertible into or
exchangeable for, or any rights, warrants or options to acquire, any such shares
or convertible or exchangeable securities except for: (a) the issuance of
common stock or other securities by the Company pursuant to the Stock Plans, in
each case in the ordinary course of the operation of such plans and arrangements
in accordance with their current terms; (b) shares issued in conversion,
exchange or exercise of existing outstanding securities of the Company in
connection with rights currently existing under such outstanding securities; or
(c) issuances by a wholly owned subsidiary of its capital stock to the Company.
The Company has agreed that, prior to the Effective Time: (a) the Company will
not amend or propose to amend its Articles of Incorporation or Bylaws in any way
adverse to Purchaser; (b) except as required by law, the Company will not, nor
will it permit any of its subsidiaries to, make any capital expenditures, except
for normal extensions to or replacements of properties or in the ordinary course
of business consistent with prior practice not in excess of $100,000 in the
aggregate, or merge or consolidate with any other person or acquire, except in
the ordinary course of business consistent with prior practice, a material
amount of assets of any other person; (c) the Company will not, nor will it
permit any of its subsidiaries to, sell, lease, license, encumber or otherwise
dispose of any assets that are material, except for normal extensions to or
replacements or dispositions of properties in the ordinary course of business
consistent with prior practice; (d) the Company will not, nor will it permit any
of its subsidiaries to, incur or guarantee any indebtedness (including any debt
borrowed or guaranteed or otherwise assumed, including, without limitation, the
issuance of debt securities), except for: (i) short-term indebtedness in the
ordinary course of business consistent with past practice, (ii) long-term
indebtedness in connection with the refinancing of existing indebtedness either
at its stated maturity or at a lower cost of funds, (iii) borrowings or letters
of credit under existing credit facilities, or (iv) borrowings or letters of
credit, not to exceed $2,500,000, required to finance construction and/or finish
out of the New Restaurant (as defined below), nor will the Company cancel, or
permit any of its subsidiaries to cancel, any aggregate amount of indebtedness
in excess of $10,000 or waive any claims or rights of value in excess of
$10,000, or increase or change any assumptions underlying, or methods of
calculating, any bad debt contingency or other reserves; (e) except as required
by applicable law or the provisions of any employee benefit plan, or as
contemplated by the Merger Agreement, the Company will not, nor will it permit
any of its subsidiaries to, enter into, adopt or amend or increase the amount of
or accelerate the payment or vesting of any benefit or amount payable under any
employee benefit plan or any other contract, agreement, commitment, arrangement,
plan or policy maintained by, contributed to or entered into by the Company, as
the case may be, or their respective subsidiaries, or increase, or enter into
any contract, agreement, commitment or arrangement to increase in any manner,
the compensation or fringe benefits, or otherwise to extend, expand or enhance
the engagement, employment or any related rights of any director, officer or
other employee of the Company, or its respective subsidiaries, except for normal
increases in the ordinary course of business consistent with past practice that,
in the aggregate, do not result in a material increase in benefits or
compensation expense to Purchaser or the Company, as the case may be, or their
respective subsidiaries, or enter into or amend any employment, severance, or
special pay arrangement with respect to the termination of employment or other
similar contract, agreement or arrangement with any director or officer or other
employee other than in the ordinary course of business consistent with past
practice; (f) the Company will not, nor will it permit any of its subsidiaries
to, make any material changes in its or their accounting methods,
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except as required by law, rule, regulation or GAAP; (g) the Company will, and
will cause its subsidiaries to, maintain with financially responsible insurance
companies (or through self-insurance not inconsistent with such party's past
practice) insurance in such amounts and against such risks and losses as are
customary for companies engaged in the same industry and such other businesses
as conducted by such party and its subsidiaries; (h) the Company will use
commercially reasonable efforts to maintain in effect all existing material
permits pursuant to which the Company operates; (i) the Company shall not, nor
shall it permit any of its subsidiaries to, enter into any collective bargaining
or labor agreement; (j) the Company shall not, nor shall it permit any of its
subsidiaries to, pay, loan or advance certain amounts to its officers, directors
or shareholders, or to those of its subsidiaries or their affiliates; (k) the
Company will not, nor will it permit any of its subsidiaries to, dispose of or
permit to lapse any right to use any patent, trademark, assumed name, service
mark, trade name, copyright, license or application therefor or dispose of or
disclose to any person other than representatives of Purchaser and Sub any trade
secret, recipe, formula, process or know-how not theretofore a matter of public
knowledge that is currently used or in reasonable probability will be used in
the Company's business; (l) the Company will not, nor will it permit any of its
subsidiaries to, voluntarily incur any liabilities or obligations of any nature
whatsoever (whether absolute, accrued, contingent or otherwise and whether due
or to become due), except for (i) liabilities or obligations incurred in the
usual, regular and ordinary course of business and (ii) liabilities or
obligations incurred in connection with the construction and operation of the
Company's restaurant that is being constructed at the following location: 4201
South Padre Island Drive, Corpus Christi, Texas 78411 (the "New Restaurant");
(m) the Company will not, nor will it permit any of its subsidiaries to, pay,
discharge or satisfy any claim, encumbrance, liability or obligation (whether
absolute, accrued, contingent or otherwise and whether due or to become due),
other than the payment, discharge or satisfaction of liabilities and obligations
in the usual, regular and ordinary course of business; (n) the Company will not,
nor will it permit any of its subsidiaries to, permit the expiration of, any
Lease option or option to purchase any property; (o) the Company will not, nor
will it permit any of its subsidiaries to, omit to do any act, or permit any act
or omission to act, that may cause a breach of any contract, commitment or
obligation of the Company or of any subsidiary of the Company, or any breach of
any representation, warrant, covenant or agreement made by the Company in the
Merger Agreement; (p) the Company will not, nor will it permit any of its
subsidiaries to, pre-pay any party for amounts not yet due (except in the
ordinary course of the Company's business and consistent with past practice), or
pay any party in a non-timely manner; (q) the Company shall not merge or
consolidate with any other corporation or person or enter into any similar
transaction not in the ordinary course of its business.
NO SOLICITATION
The Merger Agreement provides that the Company will not, and will not cause
its subsidiaries to, permit any of its Representatives (as that term is defined
in the Merger Agreement) to, and will use its best efforts to cause such persons
not to, directly or indirectly, initiate, solicit or encourage, or take any
action to facilitate the making of any inquiry, offer or proposal that
constitutes or in reasonable probability will lead to any Takeover Proposal with
respect to the Company. The Merger Agreement further provides that the Company
will notify Purchaser orally and in writing of any such inquiries, offers or
Takeovers Proposals (including, without limitation, the terms and conditions of
any such proposal and the identity of the person making it) within one business
day of the receipt thereof, and that the Company will immediately cease and
cause to be terminated all existing activities, discussions and negotiations on
the date of the Merger Agreement, if any, with any other persons conducted prior
to the date of the Merger Agreement with respect to any Takeover Proposal
regarding the Company. Notwithstanding anything stated above to the contrary,
the Merger Agreement provides that: (i) the Company may, prior to the vote of
the shareholders of the Company for approval of the Merger (and not thereafter
if the Merger is approved thereby) in response to an unsolicited request
therefor, furnish information, including non-public information, to any person
or "group" (within the meaning of Section 13(d)(3) of the Exchange Act) pursuant
to a confidentiality agreement on substantially the same terms as provided in
the Company Confidentiality Agreement (as that term is defined in the Merger
Agreement) to the extent and only to the extent that the Board determines that
the offer is a Superior Takeover Proposal; (ii) the Company may engage in
discussions and negotiations with any person or group that has made an
unsolicited Takeover Proposal, among other things, to determine whether such
proposal (as opposed to any further negotiated proposal) is a Superior Takeover
Proposal and the Company may take and disclose to its shareholders a position
contemplated by Rule 14e-2(a) following the Company's receipt of a Takeover
Proposal that is in the form of a tender offer under Section 14(e) of the
Exchange Act; (iii) the Company may withdraw, adversely modify or take a public
position materially inconsistent with its recommendation (which may include
making any statement required by Rule 14e-2 under the Exchange Act) if there
exists a Takeover Proposal and the Board determines that it is a Superior
Takeover Proposal; and (iv) the Company may make a "stop-look-and-listen"
communication with respect to a Takeover Proposal or the Merger Agreement of the
nature contemplated in, and otherwise in compliance with, Rule 14d-9 under the
Exchange Act as a result of receiving a Takeover Proposal.
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CERTAIN POST-MERGER MATTERS
Once the Merger is consummated, Sub will cease to exist as a corporation, and
the Company, as the Surviving Corporation, will succeed to all of the assets,
rights and obligations of Sub.
Pursuant to the Merger Agreement, the Company's Articles of Incorporation and
the Sub's Bylaws, as in effect immediately prior to the Effective Time, will be
the Articles of Incorporation and Bylaws of the Surviving Corporation, until
duly amended.
Pursuant to the Merger Agreement, the individuals who are members of the board
of directors of Sub immediately prior to the Effective Time shall comprise the
full Board of Directors of the Surviving Corporation, until the earlier of their
death, resignation or removal or until their respective successors are duly
elected and qualified.
Pursuant to the Merger Agreement, the individuals who are officers of Sub
immediately prior to the Effective Time shall be the initial officers of the
Company, as the Surviving Corporation, until the earlier of their death,
resignation or removal or until their respective successors are duly elected and
qualified.
TERMINATION OR AMENDMENT OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time prior to the Effective Time
(i) by mutual written consent of the Company and Purchaser or (ii) by either
party by written notice to the other, so long as the Company or Purchaser (as
the case may be) is not then in material breach of its obligations, if (a) the
Effective Time has not occurred on or before 100 days after the date of the
Merger Agreement, subject to a possible extension, (b) any state or federal law,
order, rule or regulation is adopted or issued that shall prohibit consummation
of the Merger or if any court of competent jurisdiction in the United States or
any State shall have issued an order, judgment or decree permanently
restraining, enjoining or otherwise prohibiting the Merger, and such order,
judgment or decree shall have become final and nonappealable, (c) if the Company
accepts a Superior Takeover Proposal and has paid the requisite termination fee.
By the Company. The Company may terminate the Merger Agreement, so long as
it is not then in material breach of its obligations, by written notice to
Purchaser, upon a breach of any material representation, warranty, covenant or
agreement on the part of Purchaser set forth in the Merger Agreement, subject to
a limited cure period.
By Purchaser. Purchaser may terminate the Merger Agreement, by written
notice to the Company (i) so long as it is not then in material breach of its
obligations, upon a material breach of any representation, warranty, covenant or
agreement on the part of the Company set forth in the Merger Agreement, subject
to a limited cure period under certain circumstances, (ii) if the amount of the
Net Adverse Effects from breaches of the Company's representations and
warranties and statements identified by Purchaser or Sub prior to the Closing,
if any, exceeds $1,000,000, or (iii) the Board makes a Recommendation
Modification/Withdrawal or the Company enters into a definitive agreement for a
Superior Takeover Proposal or any other Takeover Proposal.
Termination In Connection with Certain Financing Events. Prior to the date of
the Merger Agreement, Purchaser received the AMRESCO Letter and the USRP Letter.
Concurrent with the date of the Merger Agreement, Purchaser deposited the Escrow
Fund into escrow with Texas Bank. Purchaser shall use its commercially
reasonable best efforts to cause AMRESCO to (on or prior to Day 30) (a) remove
from the AMRESCO Letter, as conditions to AMRESCO's funding commitment
thereunder, the conditions that AMRESCO (i) receive a satisfactory valuation
report from its appraisers regarding the collateral securing AMRESCO's loan,
(ii) receive all material required by it to complete its due diligence and (iii)
find such material to be in all things satisfactory and then (b) execute and
deliver to Purchaser and Sub the AMRESCO Letter as so modified (such events
being termed the "AMRESCO Day 30 Events"). Purchaser shall use its commercially
reasonable best efforts to cause USRP (on or prior to Day 30) to remove from the
USRP Letter, as conditions to USRP's funding, the conditions that USRP (i)
retain an inspection and review period, (ii) receive all material required by it
to complete its due diligence and (iii) find such material to be in all things
satisfactory; and then execute and deliver to Purchaser and Sub a funding
commitment on the terms outlined in the USRP Letter as so modified (such events
being termed the "USRP Day 30 Events"). Purchaser shall use its commercially
reasonably best efforts to cause (on or prior to day 60) each of AMRESCO and
USRP to deliver to Purchaser and Sub a firm funding commitment (containing the
financial terms of the AMRESCO Letter and the USRP Letter, respectively) that is
conditioned only on the delivery of closing documentation
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and the accuracy, in all material respects, of the Company's representations and
warranties under the Merger Agreement (a "Firm Commitment").
In addition, the Merger Agreement may be terminated and the Merger may be
abandoned at any time prior to the Effective Time by the Company, (i) at any
time during the five business days immediately following Day 30, as long as the
Company is not then in material breach of its obligations under the Merger
Agreement and as long as the amount of the Net Adverse Effects from breaches of
the Company's representations and warranties and statements does not exceed
$1,000,000, if either the AMRESCO Day 30 Events or the USRP Day 30 Events have
not occurred on or prior to the date of such termination; and (ii) at any time
during the five business days immediately following Day 60, as long as the
Company is not then in material breach of its obligations under the Merger
Agreement and as long as the amount of the Net Adverse Effects from breaches of
the Company's representations and warranties and statements does not exceed
$1,000,000, if either AMRESCO or USRP has not delivered to Purchaser a Firm
Commitment on or prior to the date of such termination.
In the event of termination of the Merger Agreement by either the Company or
Purchaser, the Merger Agreement shall forthwith become void and there shall be
no liability or obligation on the part of Purchaser, Sub or the Company or their
respective affiliates, officers, directors or shareholders except (i) with
respect to certain provisions of the Escrow Agreement, and (ii) that no such
termination will relieve any party from liability for any willful breach
thereof. Purchaser will continue to be bound under all of the terms and
conditions contained in the Confidentiality Agreement.
Subject to applicable law, the Merger Agreement may be amended, modified or
supplemented only by written agreement of Purchaser, Sub and the Company at any
time prior to the Effective Date with respect to any of the terms contained
therein.
EXPENSES AND TERMINATION FEE
Payment of Expenses and Damages Payable Upon Termination. If the Merger
Agreement is terminated upon a party's breach, then the breaching party shall
promptly pay to the other party, as liquidated damages, an amount in cash equal
to the out-of-pocket expenses and fees incurred by the other party after the
date of the Merger Agreement arising out of, or in connection with or related
to, the Merger or the transactions contemplated by the Merger Agreement not in
excess of $500,000 (the "Out-of-Pocket Expenses"); provided, however, that if
the Merger Agreement is terminated by a party as a result of a willful breach of
a representation, warranty, covenant or agreement by the other party, the non-
breaching party may pursue any remedies available to it at law or in equity and
shall, in addition to the amount of Out-of-Pocket Expenses set forth above, be
entitled to recover such additional amounts as such non-breaching party may be
entitled to receive at law or in equity; provided, further, that the payment by
Purchaser of any Out-of-Pocket Expenses and any amounts required under the
Escrow Agreement shall constitute the Company's sole and exclusive remedy
against Purchaser or Sub for any failure by the parties (or any party) to
consummate the Merger.
Termination Fee. In the event that (a) the Merger Agreement is terminated by
the Company upon acceptance of a Superior Takeover Proposal, (b) the Merger
Agreement is terminated by Purchaser upon a Recommendation
Modification/Withdrawal, or (c) the Company accepts any Takeover Proposal (or
Superior Takeover Proposal) within two years after the Merger Agreement is
terminated by Purchaser pursuant to the Company's breach, then, in each such
case, the Company shall pay Purchaser a fee equal to the sum of (i) $1,500,000
and (ii) Purchaser's Out-of-Pocket Expenses, which aggregate amount shall be
payable by wire transfer of same day funds within five business days after the
date of such termination (or in the case of (c) above, the amount of $1,500,000
shall be paid within five days after the Company accepts any Takeover Proposal
or Superior Takeover Proposal, the Out-of-Pocket Expenses having already been
paid).
INDEMNIFICATION
The Company will, and from and after the Effective Time, the Surviving
Corporation will, indemnify, defend and hold harmless each person who is at the
time of the execution of the Merger Agreement, or has been at any time prior to
the date of execution of the Merger Agreement, an Indemnified Party to the same
extent and in the same manner as is provided in the respective certificates or
articles of incorporation or bylaws of the Company and such subsidiaries in
effect on June 28, 1998 with respect to any Indemnified Liabilities. Any
Indemnified Party wishing to claim indemnification, upon learning of a claim,
action, suit, proceeding or investigation, shall notify the Company (or after
the Effective Time, the Surviving Corporation). The Company, Purchaser and Sub
have agreed that the foregoing rights to indemnification existing in favor of
the Indemnified Parties with respect to matters occurring through the Effective
Time shall survive the Merger and shall
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continue in full force and effect until the disposition of such Indemnified
Liabilities. The Merger Agreement provides identical protection to that which is
currently afforded by the Company's Articles of Incorporation and Bylaws on the
date of the Merger Agreement.
For a period of six years after the Effective Time, the Surviving Corporation
shall cause to be maintained in effect the current policies of directors' and
officers' liability insurance maintained by the Company and its subsidiaries
(provided that the Surviving Corporation may substitute therefor policies of at
least the same coverage and amounts containing terms and conditions that are no
less advantageous in any material respect to the Indemnified Parties) with
respect to matters arising before and omissions occurring or existing at or
prior to the Effective Time including the transactions contemplated by the
Merger Agreement.
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PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial ownership
of Common Stock as of the Record Date by (i) each director of the Company; (ii)
each executive officer; (iii) all present executive officers and directors of
the Company as a group; and (iv) each other person known to the Company to own
beneficially more than five percent (5%) of the Common Stock.
BENEFICIAL OWNERSHIP (1)
------------------------------
NAME OF BENEFICIAL OWNER NUMBER OF SHARES PERCENTAGE
- - ------------------------ ---------------- ----------
Private Capital Management, Inc. (2) 644,600 (3) 11.4%
Wachovia Corporation (4) 353,300 6.2%
Dimensional Fund Advisors Inc. (5) 453,552 (6) 8.0%
Fleet Financial Group, Inc. (7) 355,100 6.3%
First Manhattan Co. (8) 309,735 (9) 5.5%
Franklin Resources, Inc. (10) 550,000 9.7%
Robert R. Hawk 8,300 *
Robert E. Bodnar 18,269 (11) *
K. Dieter Esch 49,896 (12) *
Garry J. Gay 26,147 (13) *
C. Cleave Buchanan, Jr. 6,036 (14) *
Frank Cuellar, Jr. 16,005 (15) *
John T. Ellis 175,581 (16)(17) 3.1%
Peter L. Hnatiw 13,037 (18) *
James F. Moore 6,036 (19) *
Cynthia I. Pharr 12,067 (20) *
William B. Rea, Jr. 28,761 (21) *
All executive officers and directors
as a group (16 persons) 525,212 (16)(22) 9.0%
*Less than 1%
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(1) Unless otherwise indicated, each person or group has sole voting and
investment power with respect to all such shares.
(2) Private Capital Management, Inc. forms part of a group that consists of
Private Capital Management, Inc. and The Entrepreneurial Value Fund L.P.
The business address of both Private Capital Management, Inc. and The
Entrepreneurial Value Fund, L.P. is 3003 Tamiami Trail North, Suite 360,
Naples, Florida 34102.
(3) Includes 644,600 shares of which Private Capital Management, Inc. shares
investment power with Mr. Bruce S. Sherman.
(4) The business address of Wachovia Corporation is 301 North Main Street,
Winston-Salem, North Carolina 27150-3099.
(5) The business address of Dimensional Fund Advisors Inc. ("Dimensional") is
1299 Ocean Avenue, 11th Floor, Santa Monica, California 90401.
Dimensional, a registered investment advisor, is deemed to have beneficial
ownership of 453,552 shares of the Company's Common Stock as of June 30,
1998, all of which shares are held in portfolios of DFA Investment
Dimensions Group Inc., a registered open-end investment company, or in
series of The DFA Investment Trust Company, a Delaware business trust, or
the DFA Group Trust and the DFA Participating Group Trust, investment
vehicles for qualified employee benefit plans, all of which Dimensional
Fund Advisors Inc. serves as investment manager. Dimensional disclaims
beneficial ownership of all such shares.
(6) Persons who are officers of Dimensional also serve as officers of DFA
Investment Dimensions Group Inc. (the "Fund"), and The DFA Investment Trust
Company (the "Trust"), each an open-end management investment company
registered under the Investment Company Act of 1940. In their capacity as
officers of the Fund and the Trust, these persons vote 52,400 shares which
are owned by the Fund and 101,100 shares which are owned by the Trust.
(7) The business address of Fleet Financial Group, Inc. ("Fleet") is One
Federal Street, Boston, Massachusetts 02211.
(8) The business address of First Manhattan Co. is 437 Madison Avenue, New
York, New York 10022.
(9) Includes 4,000 shares owned by family members of General Partners of First
Manhattan Co.
(10) Franklin Resources, Inc. forms a group consisting of Franklin Resources,
Inc. and Franklin Advisory Services, Inc. The business address of Franklin
Resources, Inc. is 777 Mariners Island Boulevard, San Mateo, California
94404 and the address of Franklin Advisory Services, Inc. is One Parker
Plaza, 16th Floor, Fort Lee, New Jersey 07024.
(11) Includes 15,834 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date.
(12) Includes 47,025 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date.
(13) Includes 25,200 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date.
(14) Includes 6,036 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date.
(15) Includes 14,537 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date.
(16) Includes 81,758 and 82,984 shares held by the John T. Ellis Trust of 1989
and the Nancy M. Ellis Trust of 1989, respectively, of which Mr. John T.
Ellis is trustee.
(17) Includes 10,839 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date.
(18) Includes 11,037 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date.
(19) Includes 6,036 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date.
(20) Includes 12,037 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date.
(21) Includes 8,761 shares issuable pursuant to the exercise of stock options
exercisable within 60 days of the Record Date.
(22) Includes an aggregate of 206,033 shares issuable pursuant to the exercise
of stock options exercisable within 60 days of the Record Date.
37
<PAGE>
INDEPENDENT ACCOUNTANTS
The Company's independent public accountants since February 3, 1998, have been
the firm of KPMG Peat Marwick LLP. It is expected that one or more
representatives of such firm will attend the Special Meeting and will be
available to respond to any questions. Such representatives will be given an
opportunity to make statements at the Annual Meeting, if they so desire, and are
expected to be available to respond to appropriate questions.
Effective February 3, 1998, Arthur Andersen LLP resigned as auditors of the
Company. In connection with the audits for the fiscal years ended June 29,
1997, and June 30, 1996, and during the period from June 30, 1997 through
February 3, 1998, there were no disagreements with Arthur Andersen LLP on
matters of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure which would require disclosure under the
regulations. Arthur Andersen LLP's reports on the financial statements of the
Company for the years ended June 29, 1997, and June 30, 1996, did not contain
any adverse opinion or disclaimer of opinion nor were they qualified or modified
as to uncertainty, audit scope, or accounting principles.
On February 3, 1998, the Company notified KPMG Peat Marwick LLP of its
intention to retain such firm as independent public accountants for the audit of
its financial statements for the year ending June 28, 1998. Prior to its
engagement, the Company did not consult with KPMG Peat Marwick LLP on either the
application of accounting principles to a completed or proposed specific
transaction, or the type of audit opinion that might be rendered on the
Company's financial statements. The change in the independent accountants was
approved by the Audit Committee of the Board of Directors.
SHAREHOLDER PROPOSALS
If the Merger is not consummated, any proposals of shareholders of the Company
intended to be presented at the Annual Meeting of Shareholders of the Company to
be held in 1999 must have been received by the Company, addressed to the
Secretary of the Company at 402 West I-30, Garland, Texas 75043, by no later
than August 29, 1999, to be considered for inclusion in the proxy statement and
form of proxy relating to that meeting.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports and other information with the
Commission. Reports, proxy statements and other information filed by the
Company can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's Regional Offices at Seven World Trade Center, 13th
Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained by mail from the Public Reference Section of the Commission at 450 West
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
also maintains a Web Site (http://www.sec.gov) at which reports, proxy
statements and information statements and other information regarding the
Company may be accessed. In addition, such reports, proxy statements,
information statements and other information can also be inspected at the office
of New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
After the Merger, registration of the Company Common Stock under the Exchange
Act will be terminated. Copies of the documents referred to herein may also be
obtained from the Company, without charge, upon request to the Company, Robert
E. Bodnar, Secretary, 402 West I-30, Garland, Texas 75043.
38
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Company (File No.
001-10291) pursuant to the Exchange Act are incorporated by reference in this
Proxy Statement:
1. The Company's Annual Report on Form 10-K for the year ended June 28, 1998;
2. The Company's Definitive Proxy Statement on Schedule 14A dated
September 23, 1998; and
3. The Company's Current Report on Form 8-K dated September 24, 1998;
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14, or
15(d) of the Exchange Act after the date of this Proxy Statement and prior to
the date of the Special Meeting shall be deemed to be incorporated by reference
into this Proxy Statement and to be a part hereof from the date of filing of
such documents. Any statement contained in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that the statement contained herein (or in any
other subsequently filed document that is or is deemed to be incorporated by
reference herein) modifies or supersedes such previous statement. Any statement
so modified or superseded shall not be deemed to constitute a part hereof except
as so modified or superseded. All information appearing in this Proxy Statement
is qualified in its entirety by the information and financial statements
(including the notes thereto) appearing in the documents incorporated herein by
reference.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE THAT ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN CERTAIN
EXHIBITS THERETO) ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST BY
ANY PERSON TO WHOM THIS PROXY STATEMENT HAS BEEN DELIVERED, FROM SPAGHETTI
WAREHOUSE, INC., 402 WEST I-30, GARLAND, TEXAS 75043, ATTENTION: CORPORATE
SECRETARY (TELEPHONE (972) 226-6000). IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY NOVEMBER __, 1998.
BY ORDER OF THE BOARD OF DIRECTORS
Robert E. Bodnar
Garland, Texas
November __, 1997
PLEASE COMPLETE AND RETURN YOUR PROXY CARD PROMPTLY IN THE ENCLOSED ENVELOPE.
NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
39
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SPAGHETTI WAREHOUSE, INC. AND SUBSIDIARIES
The information required to be disclosed in this section is incorporated
herein by reference to the Company's Annual Report in Form 10-K for the fiscal
year ended June 28, 1998 filed with the Securities and Exchange Commission on
September 24, 1998.
F-1
<PAGE>
APPENDIX A
A-1
<PAGE>
AGREEMENT AND PLAN OF MERGER
dated September 18, 1998
by and among
SPAGHETTI WAREHOUSE, INC.
and
SPAGHETTI WAREHOUSE ACQUISITION, INC.,
and
CONSOLIDATED RESTAURANT COMPANIES, INC.,
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I - CERTAIN DEFINITIONS........................................... -1-
ARTICLE II - THE MERGER................................................... -6-
Section 2.1 The Merger............................................... -6-
Section 2.2 Closing.................................................. -6-
Section 2.3 Effective Time of the Merger............................. -6-
Section 2.4 Effects of the Merger.................................... -6-
ARTICLE III - EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES.................................. -7-
Section 3.1 Effect of Merger on Capital Stock........................ -7-
Section 3.2 Conversion of Securities................................. -7-
Section 3.3 Payment for Shares....................................... -8-
Section 3.4 Stock Transfer Books..................................... -9-
Section 3.5 Stock Plans.............................................. -9-
Section 3.6 Dissenting Shares........................................ -10-
Section 3.7 Further Assurances....................................... -10-
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF PARENT..................... -11-
Section 4.1 Organization and Qualification........................... -11-
Section 4.2 Information Supplied..................................... -11-
Section 4.3 Execution and Delivery................................... -11-
Section 4.4 Non-Contravention........................................ -11-
Section 4.5 Statutory Approvals...................................... -12-
Section 4.6 Ownership of Company Common Stock........................ -12-
ARTICLE V - REPRESENTATIONS AND WARRANTIES OF SUB......................... -12-
Section 5.1 Organization and Standing................................ -12-
Section 5.2 Capital Structure........................................ -12-
Section 5.3 Authority; Non-Contravention............................. -13-
ARTICLE VI - REPRESENTATIONS AND WARRANTIES OF THE COMPANY................ -13-
Section 6.1 Organization and Qualification........................... -13-
Section 6.2 Subsidiaries............................................. -13-
Section 6.3 Capitalization........................................... -14-
Section 6.4 Authority; Non-Contravention; Statutory Approvals;
Compliance.............................................. -15-
Section 6.5 Reports and Financial Statements......................... -17-
Section 6.6 Absence of Undisclosed Liabilities...................... -18-
Section 6.7 Real Property............................................ -18-
Section 6.8 Company Equipment........................................ -20-
-i-
<PAGE>
Section 6.9 Contracts and Commitments................................ -20-
Section 6.10 Intellectual Property.................................... -22-
Section 6.11 Litigation............................................... -23-
Section 6.12 Employee Matters......................................... -23-
Section 6.13 Collective Bargaining Agreements; Compensation;
Employee Agreements..................................... -24-
Section 6.14 Labor Matters............................................ -25-
Section 6.15 Environmental Matters.................................... -26-
Section 6.16 Vote Required............................................ -26-
Section 6.17 Insurance................................................ -26-
Section 6.18 State Takeover Statutes; Absence of
Supermajority Provision................................. -27-
Section 6.19 Tax Matters.............................................. -27-
ARTICLE VII - COVENANTS RELATING TO CONDUCT OF BUSINESS................... -28-
Section 7.1 Ordinary Course of Business.............................. -28-
Section 7.2 Dividends................................................ -28-
Section 7.3 Issuance of Securities................................... -29-
Section 7.4 Charter Documents........................................ -29-
Section 7.5 Capital Expenditures..................................... -29-
Section 7.6 No Dispositions.......................................... -29-
Section 7.7 Intellectual Property.................................... -29-
Section 7.8 Liabilities and Obligations.............................. -30-
Section 7.9 Indebtedness............................................. -30-
Section 7.10 Compensation, Benefits................................... -31-
Section 7.11 Collective Bargaining.................................... -31-
Section 7.12 Loans and Advances....................................... -31-
Section 7.13 Accounting............................................... -31-
Section 7.14 Lease and Purchase Options............................... -31-
Section 7.15 Insurance................................................ -31-
Section 7.16 Permits.................................................. -31-
Section 7.17 Non-contravention........................................ -32-
Section 7.18 Payments to Suppliers and Vendors........................ -32-
ARTICLE VIII - ADDITIONAL AGREEMENTS...................................... -32-
Section 8.1 Cooperation, Notification................................ -32-
Section 8.2 Third-Party Consents..................................... -32-
Section 8.3 Access to Information.................................... -33-
Section 8.4 Regulatory Matters....................................... -33-
Section 8.5 Shareholder Approval; Proxy Materials.................... -34-
Section 8.6 Indemnification; Directors' and Officers' Insurance...... -34-
Section 8.7 Disclosure Schedule...................................... -37-
Section 8.8 Public Announcements..................................... -37-
Section 8.9 Stock Option, Stock Purchase and Bonus Plans............. -37-
Section 8.10 No Solicitations......................................... -38-
Section 8.11 No Withdrawal of Recommendation.......................... -39-
Section 8.12 Expenses................................................. -39-
-ii-
<PAGE>
Section 8.13 Inventory................................................ -39-
Section 8.14 Covenant to Satisfy Conditions........................... -39-
Section 8.15 Strategic Consultations.................................. -40-
Section 8.16 Guaranty of Equity of Sub................................ -40-
Section 8.17 Employee Benefit Matters; Severance...................... -40-
ARTICLE IX - CONDITIONS................................................... -40-
Section 9.1 Conditions to Each Party's Obligation to Effect
the Merger.............................................. -40-
Section 9.2 Conditions to Obligation of Parent to Effect Merger...... -41-
Section 9.3 Conditions to Obligation of the Company to Effect
the Merger.............................................. -42-
ARTICLE X - TERMINATION, AMENDMENT AND WAIVER............................. -43-
Section 10.1 Termination.............................................. -43-
Section 10.2 Termination In Connection with Certain Financing Events.. -44-
Section 10.3 Effect of Termination.................................... -46-
Section 10.4 Payment of Expenses and Termination Fee.................. -46-
Section 10.5 Amendment................................................ -47-
Section 10.6 Extension; Waiver........................................ -47-
ARTICLE XI - GENERAL PROVISIONS........................................... -47-
Section 11.1 Non-survival of Representations and Warranties........... -47-
Section 11.2 Brokers.................................................. -47-
Section 11.3 Notices.................................................. -48-
Section 11.4 Interpretation........................................... -49-
Section 11.5 Miscellaneous............................................ -49-
Section 11.6 Counterparts; Effect..................................... -49-
Section 11.7 Parties in Interest...................................... -49-
Section 11.8 Further Assurances....................................... -50-
Section 11.9 Governing Law............................................ -50-
EXHIBITS
- - --------
Exhibit A - Articles of Incorporation
Exhibit B - AMRESCO Letter
Exhibit C - USRP Letter
Exhibit D - Escrow Agreement
-iii-
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of September 18, 1998 (this
"Agreement"), is made and entered into by and among Consolidated Restaurant
Companies, Inc., a corporation formed under the laws of the State of Delaware
("Parent"), Spaghetti Warehouse Acquisition, Inc., a corporation formed under
the laws of the State of Texas ("Sub"), and Spaghetti Warehouse, Inc., a
corporation formed under the laws of the State of Texas (the "Company").
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have approved, and the Company has declared advisable and in the best interests
of its shareholders, the acquisition of the Company by Parent, by means of the
merger (the "Merger") of the Sub with and into the Company, upon the terms and
subject to the conditions set forth in this Agreement;
WHEREAS, the Board of Directors of the Company has approved the Merger and
agreed to recommend to the shareholders of the Company that they vote in favor
of the Merger;
WHEREAS, pursuant to the Merger, each issued and outstanding share of Company
Common Stock not owned directly or indirectly by Parent or the Company will be
converted into the right to receive the Merger Consideration (as defined
herein); and
WHEREAS, Parent, Sub and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the consummation thereof,
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements herein contained, the parties hereto,
intending to be legally bound, hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
"Articles of Merger" shall have the meaning set forth in SECTION 2.3.
"Certificates" shall have the meaning set forth in SECTION 3.3(b).
"Closing" and "Closing Date" shall have the meaning set forth in SECTION 2.2.
"Company Benefit Plans" shall have the meaning set forth in SECTION 6.12(a).
"Company Common Stock" shall mean the common stock, par value $0.01 per share,
of the Company.
<PAGE>
"Company Disclosure Schedule" shall have the meaning set forth in the
introductory sentence of ARTICLE VI.
"Company Financial Statements" shall have the meaning set forth in SECTION
6.5(d).
"Company Material Adverse Effect" shall mean a Material Adverse Effect with
respect to the Company.
"Company Preferred Stock" shall mean the preferred stock, par value $0.01 per
share, of the Company.
"Company Required Consents" shall mean all required third-party consents or
other approvals necessary for (a) the execution and delivery by each of the
parties, as appropriate, of this Agreement and (b) the consummation of the
transactions contemplated hereby.
"Company Required Statutory Approvals" shall have the meaning set forth in
SECTION 6.4(c).
"Company SEC Reports" shall have the meaning set forth in SECTION 6.5(b).
"Company Shareholders' Approval" shall have the meaning set forth in SECTION
6.4(a)(i).
"Confidentiality Agreement" shall mean that certain confidentiality agreement,
dated as of June 15, 1998, by and between Parent and the Company.
"Constituent Corporations" shall have the meaning set forth in SECTION 2.1.
"Dissenting Shares" shall have the meaning set forth in SECTION 3.6.
"Effective Time" shall have the meaning set forth in SECTION 2.3.
"Exchange Value" shall have the meaning set forth in SECTION 3.1(a).
"Environmental Claims" shall mean, with respect to any person, (A) any and all
administrative, regulatory, or judicial actions, suits, demands, demand letters,
directives, claims, liens, investigations, proceedings or notices of
noncompliance or violation in writing by or from any person or entity (including
any Governmental Authority), whether pending or threatened, or (B) any oral
information provided by a Governmental Authority that written action of the type
described in the foregoing clause is in process or is threatened, which (in case
of either (A) or (B)) alleges potential liability (including, without
limitation, potential liability for enforcement, investigatory costs, cleanup
costs, governmental response costs, removal costs, remedial costs, natural
resources damages, property damages, personal injuries, or penalties) arising
out of, based on or resulting from (a) the presence, or Release or threatened
Release into the environment, of any Hazardous Materials at any location,
whether or not owned, operated, leased or managed by such person, (b)
circumstances forming the basis of any violation, or alleged violation, of any
Environmental Law or (c) any and all claims by any third party seeking damages,
contribution, indemnification, cost recovery, compensation or injunctive relief
resulting from the presence or Release of any Hazardous Materials.
-2-
<PAGE>
"Environmental Laws" shall mean all federal, state and local laws, rules,
regulations and guidances relating to pollution or protection of human health or
the environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws, rules, regulations and guidances relating to Releases or threatened
Releases of Hazardous Materials or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of Hazardous Materials.
"Environmental Permits" shall mean all applicable environmental, health and
safety permits and authorizations.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Financing" shall have the meaning set forth in SECTION 8.16.
"GAAP" shall mean generally accepted accounting principles.
"Governmental Authority" shall mean any court, governmental or regulatory body
(including a stock exchange or other self-regulatory body) or authority,
domestic or foreign.
"Hazardous Materials" shall mean (a) any petroleum or petroleum products or
by-products, radioactive materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation, and transformers or other equipment
that contain dielectric fluid containing polychlorinated biphenyls, (b) any
chemicals, materials or substances which are now defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous materials,"
"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants," or words of similar import, under any Environmental Law and
(c) any other chemical, material, substance or waste, exposure to which is now
prohibited, limited or regulated under any Environmental Law in a jurisdiction
in which such person operates.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended.
"Indemnified Party" shall have the meaning set forth in SECTION 8.6.
"Indemnified Liabilities" shall have the meaning set forth in SECTION 8.6.
"In reasonable probability" shall mean more likely than not to occur.
"Material Adverse Effect" or "Material Adverse Change" means, with respect to
any party, any change, occurrence or effect (direct or indirect), other than as
a result of changes in general conditions, including economical or political
developments, applicable to the industry as a whole in which the Company
operates, on the business, operations, properties (including tangible
properties), condition (financial or otherwise), assets, obligations or
liabilities (whether absolute, contingent or otherwise and whether due or to
become due) of such party and its subsidiaries taken as a whole that reasonably
could be expected to exceed $500,000.
-3-
<PAGE>
"Material" or "materially" or words of like effect shall refer to items
capable of producing a monetary effect of at least $500,000 on the business,
operations, properties (including intangible properties), condition (financial
or otherwise), assets, obligations or liabilities (whether absolute, contingent
or otherwise and whether due or to become due) of the relevant party and its
subsidiaries taken as a whole.
"Merger Consideration" shall have the meaning set forth in SECTION 3.2(a).
"Options" shall have the meaning set forth in SECTION 3.5.
"Option Consideration" shall have the meaning set forth in SECTION 3.5.
"Parent Common Stock" shall mean the common stock, par value $.01 per share,
of Parent.
"Parent Material Adverse Effect" shall mean a Material Adverse Effect with
respect to Parent.
"Parent Required Statutory Approvals" shall have the meaning set forth in
SECTION 4.5(c).
"Paying Agent" shall have the meaning set forth in SECTION 3.3(a).
"Payment Fund" shall have the meaning set forth in SECTION 3.3(a).
"Proxy Materials" shall have the meaning set forth in SECTIONS 6.4(c).
"Release" shall mean any release, spill, emission, leaking, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the
atmosphere, soil, subsurface, surface water, groundwater or property.
"Rights Plan" shall mean that certain Rights Agreement, dated as of February
2, 1995, between the Company and Chemical Bank.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shares" shall mean the shares of Company Common Stock.
"Stock Plans" shall have the meaning set forth in SECTION 3.5.
"Sub Common Stock" shall mean the common stock, par value $.01 per share, of
Sub.
"Sub Material Adverse Effect" shall mean a Material Adverse Effect with
respect to Sub.
"Subsidiary" shall mean, with respect to any person, any corporation or other
entity (including partnerships and other business associations) in which a
person directly or indirectly owns at least a majority of the outstanding voting
securities or other equity interests having the power, under
-4-
<PAGE>
ordinary circumstances, to elect a majority of the directors, or otherwise to
direct the management and policies, of such corporation or other entity.
"Superior Takeover Proposal" with respect to a party means any bona fide
Takeover Proposal to acquire, directly or indirectly, in a transaction or a
series of related transactions, for consideration consisting of cash, securities
or a combination thereof, 66 2/3% of the common stock of that party then
outstanding or all or substantially all of the assets of that party on terms
that the Board of Directors of that party determines in its good faith
reasonable judgment (after consultation with a financial advisor of nationally
recognized reputation) to be more favorable to that party's shareholders than
the Merger.
"Surviving Corporation" shall have the meaning set forth in SECTION 2.1.
"Takeover Proposal," with respect to a party, shall mean (i) any tender or
exchange offer, proposal for a merger, consolidation or other business
combination involving such party or any of its material Subsidiaries, (ii) any
proposal or offer to acquire from a party in any manner, directly or indirectly,
any equity or voting securities of that party in excess of 15% of the equity
voting securities of that party or any Subsidiary thereof or a material amount
of the assets of that party and its Subsidiaries, taken as a whole, or (iii) any
proposal or offer to acquire from the shareholders of that party by tender
offer, exchange offer or otherwise more than 15% of the outstanding common stock
of that party; provided, however, that a "Takeover Proposal" shall not mean the
Merger or any alternative transaction between the Company and Parent that may be
proposed as contemplated hereby.
"Taxes" shall mean any federal, state, county, local or foreign taxes,
charges, fees, levies or other assessments, including, without limitation, all
net income, gross income, sales and use, ad valorem, transfer, gains, profits,
excise, franchise, real and personal property, gross receipts, capital stock,
production, business and occupation, disability, employment, payroll, license,
estimated, stamp, custom duties, severance or withholding taxes or charges
imposed by any governmental entity, and includes any interest and penalties
(civil or criminal) on or additions to any such taxes, charges, fees, levies or
other assessments, and any expenses incurred in connection with the
determination, settlement or litigation of any liability for any of the
foregoing.
"Tax Return" shall mean any report, return or other information required to be
supplied to a governmental entity with respect to Taxes, including, where
permitted or required, combined or consolidated returns for any group of
entities that includes Parent or any of its Subsidiaries on the one hand, or the
Company or any of its Subsidiaries on the other hand.
"TBCA" shall mean the Texas Business Corporation Act, as amended.
-5-
<PAGE>
ARTICLE II
THE MERGER
Section 2.1 The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the TBCA, Sub shall be
merged with and into the Company at the Effective Time. At the Effective Time,
the separate corporate existence of Sub shall cease and the Company shall
continue as the surviving corporation and a direct wholly owned subsidiary of
Parent (Sub and the Company are sometimes hereinafter referred to as
"Constituent Corporations" and, as the context requires, the Company is
sometimes hereinafter referred to as the "Surviving Corporation"), and shall
continue under the name Spaghetti Warehouse, Inc.
Section 2.2 Closing. Unless this Agreement shall have been
terminated and the transactions herein contemplated shall have been abandoned
pursuant to ARTICLE X , and subject to the satisfaction or waiver of the
conditions set forth in ARTICLE IX, the closing of the Merger (the "Closing")
shall take place at the offices of Jenkens & Gilchrist, a Professional
Corporation, 1445 Ross Avenue, Suite 3200, Dallas, Texas 75202 at 10:00 a.m.
local time, on the later to occur of (i) 90 days from the date of this Agreement
or (ii) the second business day after satisfaction and/or waiver of all of the
conditions set forth in ARTICLE IX (the "Closing Date"), unless another date,
time or place is agreed to in writing by the parties hereto.
Section 2.3 Effective Time of the Merger. The parties acknowledge
that it is their mutual desire and intent to consummate the Merger as soon as
practicable after the date hereof. Accordingly, the parties shall use all
commercially reasonable best efforts to bring about the satisfaction as soon as
practicable of all the conditions specified in ARTICLE IX and otherwise to
effect the consummation of the Merger as soon as practicable. Subject to
SECTION 2.2 and the other terms hereof, as soon as practicable after all of the
conditions set forth in ARTICLE IX shall have been satisfied or waived, the
parties hereto will (i) file articles of merger (the "Articles of Merger")
executed in accordance with the relevant provisions of the TBCA and (ii) make
all other filings or recordings required under the TBCA. The Merger shall
become effective at such time as the Articles of Merger are duly filed with the
Secretary of State of Texas or at such other time as Sub and the Company shall
agree shall be specified in the Articles of Merger (the "Effective Time").
Section 2.4 Effects of the Merger.
(a) The Merger shall have the effects as set forth in the applicable
provisions of the TBCA.
(b) The directors and the officers of Sub shall, from and after the
Effective Time, be the initial directors and officers of the Surviving
Corporation until their successors have been duly elected or appointed and
qualified, or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Articles of Incorporation and Bylaws.
-6-
<PAGE>
(c) The Articles of Incorporation of the Company, as amended and restated
at the Effective Time to read in their entirety as set forth in Exhibit A
hereto, shall be the Articles of Incorporation of the Surviving Corporation
following the Effective Time, until duly amended.
(d) The Bylaws of Sub as in effect prior to the Effective Time shall be
the Bylaws of the Surviving Corporation following the Effective Time, until duly
amended.
ARTICLE III
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
Section 3.1 Effect of Merger on Capital Stock. At the Effective
Time, by virtue of the Merger and without any action on the part of Parent, Sub
or any holder of Shares of Company Common Stock, or shares of capital stock of
Sub:
(a) Capital Stock of Sub. Each share of the capital stock of Sub issued
and outstanding immediately prior to the Effective Time shall be converted into
and become one fully paid and nonassessable share of Common Stock, par value
$0.01 per share, of the Surviving Corporation (the "Exchange Value").
(b) Cancellation of Treasury Stock and Parent-Owned/Sub-Owned Stock. Each
Share of Company Common Stock and all other shares of capital stock of the
Company that are owned by the Company and all shares of Company Common Stock and
other shares of capital stock of the Company owned by Parent or Sub shall be
canceled and retired and shall cease to exist and no consideration shall be
delivered or deliverable in exchange therefor.
Section 3.2 Conversion of Securities. At the Effective Time, by
virtue of the Merger and without any action on the part of Parent, Sub, the
Company or the holders of any equity interests therein:
(a) Subject to the other provisions of this SECTION 3.2, each Share of
Company Common Stock issued and outstanding immediately prior to the Effective
Time (excluding shares owned, directly or indirectly, by the Company, any of the
Company's Subsidiaries, or by Parent, Sub or any other Subsidiary of Parent and
Dissenting Shares (as defined in SECTION 3.6)) shall be converted into the right
to receive, upon surrender and exchange of the Certificate representing such
Share of Company Common Stock, the per share amount of $8.00 (the "Merger
Consideration"). Such Merger Consideration shall be payable to the holders of
Company Common Stock in cash, without any interest thereon.
(b) All such shares of Company Common Stock, when converted as provided in
SECTION 3.2(A), no longer shall be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each Certificate previously
evidencing such Shares shall thereafter represent only the right to receive the
Merger Consideration. The holders of Certificates previously evidencing Shares
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to the Company Common Stock except as otherwise provided
herein or by law and, upon the surrender
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of Certificates in accordance with the provisions of SECTION 3.3, shall only
represent the right to receive for their Shares, the Merger Consideration,
without any interest thereon.
Section 3.3 Payment for Shares.
(a) Paying Agent. Prior to the Effective Time, Sub shall appoint a United
States bank or trust company reasonably acceptable to the Company to act as
exchange and paying agent (the "Paying Agent") for the payment of the Merger
Consideration, and Sub shall deposit with the Paying Agent, in a separate fund
established for the benefit of the holders of shares of Company Common Stock,
for payment in accordance with this ARTICLE III, through the Paying Agent (the
"Payment Fund"), immediately available funds in amounts necessary to make the
payments pursuant to SECTION 3.2(a) and this SECTION 3.3 to holders (other than
the Company or Parent, Sub or any other Subsidiary of Parent, or holders of
Dissenting Shares) of the Shares of Company Common Stock. The Paying Agent
shall, pursuant to irrevocable instructions, pay the Merger Consideration. Such
cash will be invested by the Paying Agent in U.S. government securities maturing
in 30 days or less or mutual funds that invest solely in U.S. government
securities and all interest which is earned thereon prior to the time the cash
is fully paid to the shareholders of the Company shall be paid over by the
Paying Agent to Sub in accordance with the terms of the agreement with the
Paying Agent six months after the Closing Date (if not otherwise required to
satisfy obligations owing to the shareholders of the Company).
If for any reason (including losses) the Payment Fund is inadequate to pay the
amounts to those holders of Shares of Company Common Stock that are entitled
thereto under this SECTION 3.3, Parent shall take all steps necessary to deposit
in trust additional cash with the Paying Agent sufficient to make all payments
required under this Agreement and Parent shall in any event be liable for
payment thereof. The Payment Fund shall not be used for any purpose except as
expressly provided in this Agreement.
(b) Payment Procedures. As soon as reasonably practicable after the
Effective Time, Parent shall instruct the Paying Agent to mail to each holder of
record (other than the Company or Parent, Sub or any other Subsidiary of Parent)
of a Certificate or Certificates which, immediately prior to the Effective Time,
evidenced outstanding Shares of Company Common Stock (the "Certificates"), (i) a
form of letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
proper delivery of the Certificates to the Paying Agent, and shall be in such
form and have such other provisions as Parent may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for payment of the Merger Consideration. Upon surrender of a Certificate for
cancellation to the Paying Agent together with such letter of transmittal, duly
executed, and such other customary documents as may be required pursuant to such
instructions, the holder of such Certificate shall be entitled to receive the
Merger Consideration, and the Certificate so surrendered shall forthwith be
canceled. No interest shall be paid or accrued on the Merger Consideration
payable upon the surrender of any Certificate. If payment is to be made to a
person other than the person in whose name the surrendered Certificate is
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the person requesting such payment shall pay any transfer or other
taxes required by reason of the payment to a person other than the registered
holder of the surrendered Certificate
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or established to the satisfaction of the Surviving Corporation that such tax
has been paid or is not applicable. Until surrendered in accordance with the
provisions of this SECTION 3.3, each Certificate (other than Certificates
representing Shares owned by the Company or Parent, Sub or any other Subsidiary
of Parent) shall be deemed at any time after the Effective Time to represent for
all purposes only the right to receive the Merger Consideration.
(c) Termination of Payment Fund; Interest. Any portion of the Payment
Fund that remains undistributed to the holders of Company Common Stock for six
months after the Effective Time shall be delivered to the Surviving Corporation,
upon demand, and any holders of Company Common Stock who have not theretofore
complied with this ARTICLE III and the instructions set forth in the letter of
transmittal mailed to such holder after the Effective Time shall thereafter look
only to the Surviving Corporation for payment of the Merger Consideration to
which they are entitled. All interest accrued in respect of the Payment Fund
shall inure to the benefit of and be paid from time to time to the Surviving
Corporation.
(d) No Liability. None of Parent, Sub, the Company or the Surviving
Corporation shall be liable to any holder of Shares of Company Common Stock for
any consideration from the Payment Fund delivered to a public official pursuant
to any applicable abandoned property, escheat or similar law.
Section 3.4 Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of Shares of Company Common Stock thereafter on the
records of the Company. On or after the Effective Time, any Certificates
presented to the Paying Agent or Parent for any reason shall be converted into
the Merger Consideration as provided in this ARTICLE III.
Section 3.5 Stock Plans.
(a) Stock Plans of the Company. At the Effective Time, each holder of a
then outstanding option or right to purchase or receive Shares under any of the
Company's stock option plans, stock purchase plan or deferred compensation plan
or arrangements (collectively, the "Stock Plans"), or otherwise set forth on
SCHEDULE 6.3 of the Company Disclosure Schedule (whether or not vested or
exercisable) (collectively, the "Options") shall be terminated and automatically
converted into the right to receive for each Share subject to such Option an
amount (subject to any applicable withholding tax) of Merger Consideration equal
to the difference between the amount per share actually paid in the Merger and
the per share exercise price of such Option to the extent such difference is a
positive number (such amount being hereinafter referred to as, the "Option
Consideration"); provided, however, that with respect to any person subject to
Section 16(a) of the Exchange Act, any such amount shall be paid as soon as
practicable after the first date payment can be made without liability to such
person under Section 16(b) of the Exchange Act (although the Options will in
each case be terminated at or prior to the Effective Time). The receipt by each
Option holder of their Option Consideration shall constitute a release of any
and all rights the holder had or may have had in respect of such Option. Prior
to the Effective Time, the Company shall obtain (without paying amounts per
share that are greater than the relevant Option Consideration) all necessary
consents or releases from holders of Options under the Stock Plans and take all
such other lawful action as may be reasonably necessary to give effect to the
transactions contemplated
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by this SECTION 3.5. The Stock Plans shall terminate as of the Effective Time,
and the provisions in the Company Benefit Plans of the Company or any Subsidiary
thereof shall be canceled as of the Effective Time. Prior to the Effective Time,
the Company shall take all action necessary (including causing the Board of
Directors of the Company to take such actions as are allowed by the Stock Plans)
to (i) ensure that, following the Effective Time, no participant in the Stock
Plans or any other plans, programs or arrangements shall have any right
thereunder to acquire equity securities of the Company, the Surviving
Corporation or any Subsidiary thereof and (ii) terminate all such plans,
programs and arrangements. The total number of Options subject to the provisions
of this SECTION 3.5 on the date hereof (assuming full vesting) is (i) under the
Company's stock option plans, 461,343 at a weighted average exercise price of
$5.28, (ii) under the Company's employee stock purchase plan, 56,345, and (iii)
under the Company's deferred compensation plan, 25,459.
Section 3.6 Dissenting Shares. Notwithstanding any other provisions
of this Agreement to the contrary, shares of Company Common Stock outstanding
immediately prior to the Effective Time and which are held by shareholders who
shall have not voted in favor of the Merger or consented thereto in writing and
who shall have demanded properly an appraisal for such shares in accordance with
Article 5.11 of the TBCA (collectively, the "Dissenting Shares") shall not be
converted into or represent the right to receive the Merger Consideration. Such
shareholders instead shall be entitled to receive payment of the appraised value
of such shares of Company Common Stock held by them in accordance with the
provisions of such Article 5.11 of the TBCA, except that all Dissenting Shares
held by shareholders who shall have failed to perfect or who effectively shall
have withdrawn or otherwise lost their rights to appraisal of such shares of
Company Common Stock under such Article 5.11 of the TBCA shall thereupon be
deemed to have been converted into and to have become exchangeable, as of the
Effective Time, for the right to receive, without any interest thereon, the
Merger Consideration upon surrender in the manner provided in SECTION 3.3, of
the Certificate or Certificates that immediately prior to the Effective Time,
evidenced such shares of Company Common Stock.
Section 3.7 Further Assurances. At and after the Effective Time, the
officers and directors of the Surviving Corporation will be authorized to
execute and deliver, in the name and on behalf of the Company or Sub, any deeds,
bills of sale, assignments or assurances and to take and do, in the name and on
behalf of the Company or Sub, any other actions and things to vest, perfect or
conform of record or otherwise in the Surviving Corporation any and all right,
title and interest in, to and under any of the rights, properties or assets
acquired or to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to the Company as follows:
Section 4.1 Organization and Qualification. Parent is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has all requisite corporate power and authority to enter
into this Agreement and, subject to the Parent Required Statutory Approvals, to
consummate the transactions contemplated thereby. Parent and Sub have
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heretofore made available to the Company complete and correct copies of their
Bylaws and Certificate of Incorporation and Articles of Incorporation,
respectively.
Section 4.2 Information Supplied. None of the information supplied
or to be supplied by Parent or Sub for inclusion or incorporation by reference
in the Proxy Statement will, at the date it is first mailed to the Company's
shareholders or at the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. If, at any time prior
to the Effective Time, any event with respect to Parent or Sub, or with respect
to information supplied by Parent or Sub for inclusion in the Proxy Statement,
shall occur which is required to be described in an amendment of, or a
supplement to, any of such documents, such event shall be so described to the
Company.
Section 4.3 Execution and Delivery. This Agreement has been duly and
validly executed and delivered by Parent and Sub and, assuming the due
authorization, execution and delivery hereof by the Company, constitutes the
valid and binding obligation of Parent and Sub, enforceable against Parent and
Sub in accordance with its terms, except as would be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance or other similar
laws affecting the enforcement of creditors' rights generally and except that
the availability of equitable remedies, including specific performance, may be
subject to the discretion of any court before which any proceeding therefor may
be brought.
Section 4.4 Non-Contravention. The execution and delivery of this
Agreement by Parent and Sub do not, and the consummation of the transactions
contemplated hereby and thereby will not (subject, in the cases of items (ii)
and (iii) below, to Parent and/or Sub obtaining the Parent Required Statutory
Approvals), result in any violation by Parent and Sub or any of their
Subsidiaries under any provisions of:
(a) the Bylaws and Certificate of Incorporation or Articles of
Incorporation of Parent and Sub, respectively;
(b) any statute, law, ordinance, rule, regulation, judgment, decree,
order or injunction of any Governmental Authority applicable to Parent and Sub
or any of their respective properties or assets;
(c) any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, contract, lease or other instrument, obligation
or agreement of any kind to which Parent and Sub or any of their Subsidiaries is
now a party or by which it or any of its properties or assets may be bound or
affected;
excluding from the foregoing clauses (a), (b) and (c) such violations as would
not, in the aggregate, in reasonable probability have a Parent Material Adverse
Effect.
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Section 4.5 Statutory Approvals. Except for (i) filing by Parent and
Sub of a pre-merger Notification Report form under the HSR Act and (ii) the
filing of the Articles of Merger with the Secretary of State of Texas with
respect to the Merger as provided in the TBCA, no declaration, filing or
registration with, or notice to or authorization, consent or approval of, any
Governmental Authority is necessary on the part of Parent of Sub for the
execution and delivery of this Agreement by Parent and Sub or the consummation
by Parent and Sub of the transactions contemplated hereby, the failure to
obtain, make or give which would in reasonable probability have a Parent
Material Adverse Effect (the "Parent Required Statutory Approvals"), it being
understood that references in this Agreement to "obtaining" such Parent Required
Statutory Approvals shall mean making such declarations, filings or
registrations; giving such notice; obtaining such consents or approvals; and
having such waiting periods expire as are necessary to avoid a violation of law.
Section 4.6 Ownership of Company Common Stock. Parent does not
"beneficially own" (as such term is defined in Rule 13d-3 under the Exchange
Act) any shares of Company Common Stock, and no entity or person "beneficially
owning" any capital stock in Parent "beneficially owns" any shares of Company
Common Stock.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SUB
In addition to those warranties and representations of Sub contained in
Article IV hereof, Sub represents and warrants to the Company as follows:
Section 5.1 Organization and Standing. Sub is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Texas. Sub was organized solely for the purpose of acquiring the Company and
engaging in the transactions contemplated by this Agreement and has not engaged
in any business since it was incorporated which is not in connection with the
Merger and this Agreement.
Section 5.2 Capital Structure. The authorized capital stock of Sub
consists of 1,000 shares of common stock, par value $0.01 per share, all of
which are validly issued and outstanding, fully paid and nonassessable, free of
preemptive rights and are owned by Parent free and clear of all liens, claims
and encumbrances.
Section 5.3 Authority; Non-Contravention. Sub has all requisite
power and authority to enter into this Agreement and to consummate the Merger
and the other transactions contemplated hereby. The execution and delivery of
this Agreement by Sub, the performance by Sub of its obligations hereunder and
the consummation of the transactions contemplated hereby have been duly
authorized by its Board of Directors of Sub and Parent as its sole shareholder,
and, except for the corporate filings required by state law, no other corporate
proceedings on the part of Sub are necessary to authorize this Agreement and the
Merger and the other transactions contemplated hereby.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Company disclosure schedule attached hereto (the
"Company Disclosure Schedule"), the Company represents and warrants to Parent as
follows:
Section 6.1 Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing, under the
laws of the State of Texas, and each of the Company's Subsidiaries is a
corporation or limited partnership duly organized, validly existing and in good
standing, under the laws of its jurisdiction of formation. Each of the Company
and its Subsidiaries has all requisite corporate power and authority, and is
duly authorized by all necessary regulatory approvals and orders, to own, lease
and operate its assets and properties and to carry on its business as it is now
being conducted, and is duly qualified and in good standing to do business in
each jurisdiction in which the nature of its business or the ownership or
leasing of its assets and properties makes such qualification necessary, other
than such failure which, individually or in the aggregate, would not in
reasonable probability have a Company Material Adverse Effect. The minute books
of the Company and of each Subsidiary thereof, as heretofore made available to
Parent, are correct and complete in all material respects.
Section 6.2 Subsidiaries.
(a) SCHEDULE 6.2 of the Company Disclosure Schedule identifies each
Subsidiary of the Company and sets forth, for each such Subsidiary, its capital
structure, place of organization and the other jurisdictions in which it is
qualified to do business. All of the issued and outstanding shares of capital
stock or other equity interests of each Subsidiary of the Company are (i)
validly issued, fully paid, and, in the case of each Subsidiary that is a
corporation, nonassessable, (ii) free of statutory rights and (iii) owned
directly or indirectly by the Company free and clear of any liens, claims,
encumbrances, security interests, equities, charges and options of any nature
whatsoever, and there are no outstanding subscriptions, options, calls,
contracts, voting trusts, proxies or other commitments, understandings,
restrictions, arrangements, rights or warrants, including any right of
conversion or exchange under any outstanding security, instrument or other
agreement, obligating any such Subsidiary to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of its capital stock or other
equity interests or obligating it to grant, extend or enter into any such
agreement or commitment.
(b) Except as described in SCHEDULE 6.2 of the Company Disclosure
Schedule, the Company does not (i) own, beneficially or of record, any shares of
any other corporation or entity or any interests in any partnership or limited
liability companies or (ii) participate in any manner in any joint ventures,
corporate alliance agreements or corporate partnering agreements. Except for the
Company's interest in each Subsidiary of the Company identified on SCHEDULE 6.2
of the Company Disclosure Schedule, neither the Company nor any such Subsidiary
of the Company has an interest in, or is subject to, any agreement, obligation
or commitment to make any equity investment in or loan or advance to any other
person or entity.
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Section 6.3 Capitalization.
(a) As of the date hereof, the authorized capital stock of the Company
consists of 20,000,000 shares of Company Common Stock and 1,000,000 shares of
Company Preferred Stock.
(b) As of the close of business on September 15, 1998, 5,662,085 shares
of Company Common Stock were issued and outstanding and no shares of Company
Preferred Stock were issued and outstanding. As of the close of business on
September 15, 1998, 1,057,341 shares of Company Common Stock and no shares of
Company Preferred Stock were held by the Company in its treasury or owned by any
of the Company's Subsidiaries.
(c) All of the issued and outstanding shares of the capital stock of the
Company are validly issued, fully paid, nonassessable and free of preemptive
rights, and were not issued in violation of any preemptive rights or any
applicable law.
(d) At the close of business on September 15, 1998, (i) 461,343 shares
of Company Common Stock were reserved for issuance pursuant to outstanding
options under the employee and director stock option plans as described in
SCHEDULE 6.3 of the Company Disclosure Schedule, and (ii) 221,319 shares of
Company Common Stock were reserved for future awards under the stock option
plans as described in SCHEDULE 6.3 of the Company Disclosure Schedule.
(e) At the close of business on September 15, 1998, (i) 56,345 shares of
Company Common Stock were reserved for issuance pursuant to the employee stock
purchase plan as described in SCHEDULE 6.3 of the Company Disclosure Schedule,
and (ii) 25,459 shares of Company Common Stock were reserved for issuance
pursuant to the deferred compensation plan as described in SCHEDULE 6.3 of the
Company Disclosure Schedule.
(f) Except as described in SCHEDULE 6.3 of the Company Disclosure
Schedule, there are no outstanding subscriptions, options, calls, contracts,
voting trusts, proxies or other understandings, restrictions, arrangements,
rights or warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement, obligating the Company to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of the capital stock of the Company or obligating the Company to grant,
extend or enter into any such agreement or commitment.
(g) The Merger shall be an "Approved Acquisition" as that term is
defined in the Rights Plan, so that the entering into of this Agreement, the
Merger and the other transactions contemplated hereby and thereby will not
result in the grant of any rights to any person under the Rights Plan or enable
or require any rights thereunder to be exercised, distributed or triggered.
Section 6.4 Authority; Non-Contravention; Statutory Approvals;
Compliance.
(a) Authority.
(i) The Board of Directors of the Company has approved this Agreement
and the Merger. The Board of Directors of the Company has approved and
declared the Merger fair to and advisable and in the best interests of the
shareholders of the Company and has determined
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to recommend to such shareholders that they vote in favor of the Merger. The
Company has all requisite power and authority to enter into this Agreement
and, subject to approval by the Company's shareholders in accordance with the
TBCA (the "Company Shareholders' Approval") and the Company Required
Statutory Approvals, to consummate the transactions contemplated hereby.
(ii) The execution and delivery of this Agreement and, subject to
obtaining the Company Shareholders' Approval, the consummation by the Company
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of the Company.
(iii) This Agreement has been duly and validly executed and delivered by
the Company and, assuming the due authorization, execution and delivery hereof
by Parent and Sub, constitutes the valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except
as would be limited by applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance or other similar laws affecting the enforcement of
creditors' rights generally and except that the availability of equitable
remedies, including specific performance, may be subject to the discretion of
any court before which any proceeding therefor may be brought.
(b) Non-Contravention. The execution and delivery of this Agreement by
the Company do not, and the consummation of the transactions contemplated hereby
and thereby will not, (subject, in the cases of items (ii) and (iii) below, to
the Company obtaining the Company Required Statutory Approvals and Company
Required Consents, respectively) result in any violation by the Company or any
of its Subsidiaries under any provisions of or result in termination,
cancellation or modification of, or constitute a default under:
(i) the Articles of Incorporation, Bylaws or similar governing documents
of the Company or any of its Subsidiaries;
(ii) any statute, law, ordinance, rule, regulation, judgment, decree,
order or injunction of any Governmental Authority applicable to the Company or
any of its Subsidiaries or any of their respective properties or assets;
(iii) any note, bond, mortgage, indenture, deed of trust, license,
franchise, permit, concession, contract, lease or other instrument,
obligation or agreement of any kind to which the Company or any of its
Subsidiaries is now a party or by which it or any of its properties or assets
may be bound or affected;
excluding from the foregoing clauses (ii) and (iii) such violations,
accelerations, terminations, modifications or defaults as would not, in the
aggregate, in reasonable probability have a Company Material Adverse Effect.
(c) Statutory Approvals. Except for (i) filing by the Company of a pre-
merger Notification Report form under the HSR Act, (ii) the filing with the SEC
of (A) a preliminary and definitive proxy statement with respect to the Merger
in accordance with Regulation 14A under the Exchange Act (the "Proxy Materials")
and (B) such reports under Section 13(a) of the Exchange
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Act as may be required in connection with this Agreement and the transactions
contemplated hereby and (iii) the filing of the Articles of Merger with the
Secretary of State of Texas with respect to the Merger as provided in the TBCA
and appropriate documents with the relevant authorities in other states in which
the Company is qualified to do business, no declaration, filing or registration
with, or notice to or authorization, consent or approval of, any Governmental
Authority is necessary for the execution and delivery of this Agreement by the
Company, the consummation by the Company of the transactions contemplated
hereby, the failure to obtain, make or give which would in reasonable
probability have a Company Material Adverse Effect (the "Company Required
Statutory Approvals"), it being understood that references in this Agreement to
"obtaining" such Company Required Statutory Approvals shall mean making such
declarations, filings or registrations; giving such notice; obtaining such
consents or approvals; and having such waiting periods expire as are necessary
to avoid a violation of law.
(d) Compliance.
(i) Except as disclosed in the Company SEC Reports, neither the Company
nor any of its Subsidiaries is in violation of or under investigation with
respect to, or has been given notice or been charged with any violation of,
any law, statute, order, rule, regulation, ordinance or judgment (including,
without limitation, any applicable environmental law, ordinance or
regulation) of any Governmental Authority, except for violations that would
not in reasonable probability have a Company Material Adverse Effect.
(ii) The Company and its Subsidiaries have all permits, licenses,
franchises and other governmental authorizations, consents and approvals (all
of which are in full force and effect) necessary, to conduct their respective
businesses as currently conducted, except those the failure to obtain which
would not in reasonable probability have a Company Material Adverse Effect,
except those violations which would not in reasonable probability have a
Company Material Adverse Effect. No violations exist or, to the best
knowledge of the Company, have been reported in respect of such permits,
licenses, franchises, authorizations, consents and approvals, except those
violations which would not in reasonable probability have a Company Material
Adverse Effect. To the best knowledge of the Company, the consummation of
this Agreement will not require the transfer, modification or amendment of
any material permits, licenses (other than liquor licenses), franchises,
authorizations, consents and approvals.
Section 6.5 Reports and Financial Statements.
(a) Since June 28, 1998, the filings required to be made by the Company
and its Subsidiaries under the Securities Act or the Exchange Act have been
filed with the SEC as required by each such law or regulation, including all
forms, statements, reports, agreements and all documents, exhibits, amendments
and supplements appertaining thereto, and the Company and its Subsidiaries have
complied in all material respects with all applicable requirements of the
appropriate act and the rules and regulations thereunder.
(b) The Company has made available to Parent a true and complete copy of
each report, schedule, registration statement and definitive proxy statement
filed by the Company with the SEC since June 28, 1998 and through the date
hereof (such documents as filed, and any and all
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amendments thereto, together with the draft (dated September 11, 1998) of the
Company's Form 10-K provided to Parent by the Company, the "Company SEC
Reports").
(c) The Company SEC Reports, including without limitation any financial
statements or schedules included therein, at the time filed, and all forms,
reports or other documents filed by the Company with the SEC after the date
hereof, did not and will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
(d) The audited consolidated financial statements and unaudited interim
financial statements of the Company included in the Company SEC Reports
(collectively, the "Company Financial Statements") have been prepared, and the
audited consolidated financial statements and unaudited interim financial
statements of the Company as included in all forms, reports or other documents
filed with the SEC after the date hereof will be prepared in accordance with
GAAP applied on a consistent basis (except as may be indicated therein or in the
notes thereto and except with respect to unaudited statements as permitted by
Form 10-Q), are accurate and correct in all material respects, and fairly
present in all material respects the financial position of the Company as of the
respective dates thereof or the results of operations and cash flows for the
respective periods then ended, as the case may be, subject, in the case of the
unaudited interim financial statements, to normal, recurring audit adjustments.
(e) True, accurate and complete copies of the Articles of Incorporation
and Bylaws of the Company and of each Subsidiary thereof, as in effect on the
date hereof, have been delivered to Parent.
Section 6.6 Absence of Undisclosed Liabilities.
(a) Except as set forth in the Company SEC Reports or SCHEDULE 6.6(A) of
the Company Disclosure Schedule, from June 28, 1998 through the date hereof, the
Company and each of its Subsidiaries has conducted its business only in the
ordinary course of business consistent with past practice and there has not been
(i) any declaration, setting aside or payment of any dividend (whether in cash,
stock or property) with respect to any of the Company's capital stock, (ii) (A)
any granting by the Company or any of its Subsidiaries to any executive officer
of the Company or any of its Subsidiaries of any increase in compensation,
except in the ordinary course of business consistent with prior practice or as
was required under employment agreements in effect as of June 28, 1998, (B) any
granting by the Company or any of its Subsidiaries to any such executive officer
of any increase in severance or termination pay, except as was required under
employment, severance or termination agreements in effect as of June 28, 1998,
or (C) any entry by the Company or any of its Subsidiaries into any employment,
severance or termination agreement with any such executive officer, (iii) any
damage, destruction or loss, whether or not covered by insurance, that would in
reasonable probability have a Company Material Adverse Effect; (iv) any mortgage
or pledge of any of its property, business or assets, tangible or intangible;
(v) any sale, transfer, lease or disposal of any of a material amount of its
assets, except for transactions in the ordinary course of business, or
cancellation or compromise of any material debt or claim (other than accounts
receivable compromised in the ordinary course of business consistent with its
prior practice), or waiver or release of any right, except for such rights the
loss of which, in any one case or in the aggregate,
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would not in reasonable probability have, a Company Material Adverse Effect;
(vi) receipt of any notice or threat of termination of any contract, lease or
other agreement or any damage, destruction or loss (not covered by insurance)
which, in any case or in the aggregate, would in reasonable probability have a
Company Material Adverse Effect; (vii) the issuance of any shares of capital
stock or voting securities of the Company, any phantom stock, options or other
rights to acquire from the Company any capital stock, voting securities
convertible into or exchangeable for capital stock or voting securities of the
Company (except pursuant to warrants, options and other rights outstanding on
the date hereof in accordance with the terms of such agreements as of the date
hereof); or (viii) any other fact or condition exists that would in reasonable
probability have a Company Material Adverse Effect.
(b) Neither the Company nor any of its Subsidiaries has any material
liabilities or obligations (whether absolute, accrued, contingent or otherwise)
except liabilities, obligations or contingencies (i) that are accrued or
reserved against in the consolidated financial statements of the Company or
reflected in the notes thereto for the year ended June 28, 1998, or (ii) that
were incurred after June 28, 1998 in the ordinary course of business.
Section 6.7 Real Property.
(a) Set forth in SCHEDULE 6.7 of the Company Disclosure Schedule is a
complete list of all real property that the Company or any of its Subsidiaries
currently owns or has owned in the past two years. The Company (or such
Subsidiary) has good and indefeasible title in fee simple to such currently
owned real property and to all buildings and improvements thereon, free and
clear of any mortgages, liens, claims, charges, pledges, security interests or
other encumbrances of any nature whatsoever.
(b) With respect to any deeds, title insurance policies, surveys,
mortgages, agreements and other documents granting to the Company or such
Subsidiary title to or an interest in or otherwise affecting any such real
property, (i) no breach or event of default on the part of the Company or such
Subsidiary, (ii) no material breach or event of default, to the best knowledge
of the Company, on the part of any other party thereto, and (iii) no event that,
with the giving of notice or lapse of time or both, would constitute such breach
or event of default on the part of the Company or such Subsidiary or, to the
best knowledge of the Company, on the part of any other party thereto, has
occurred and is continuing.
(c) SCHEDULE 6.7 of the Company Disclosure Schedule contains a complete
and accurate list of all real property leases to which the Company or any of its
Subsidiaries is a party (collectively, the "Leases") (including all amendments
thereof and modifications thereto), including the address of each property, the
name and address of each landlord or tenant, if applicable, the expiration date
of each Lease, whether an option to renew or an option to purchase has been
exercised or is available, and whether the obligations of the Company or any
Subsidiary thereunder have been guaranteed by any other party. The Company's or
Subsidiary's interests in and to all Leases are free and clear of all mortgages,
liens, claims, charges, pledges, security interests or other encumbrances of any
nature whatsoever including, without limitation, subleases, chattel mortgages,
mechanics' and materialmen's liens, conditional sales contracts, collateral
security arrangements and other interest retention arrangements. Neither the
Company nor any Subsidiary has received notice of any default
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by the Company or such Subsidiary under any of the Leases, and there are no
facts or conditions that would, with notice or lapse of time or both, constitute
a default by the Company or such Subsidiary under any of the Leases. To the best
knowledge of the Company, none of the landlords under any of the Leases is in
default.
(d) The buildings and improvements owned or leased by the Company or any
Subsidiary on any real property owned by the Company or any Subsidiary and on
any Lease, and the operation and maintenance thereof as operated and maintained,
do not (i) contravene any zoning or building Law or ordinance or other
administrative regulation or (ii) violate any restrictive covenant or any
applicable Law. To the best knowledge of the Company, all of the plants,
buildings and structures located on any real property owned by the Company or
any Subsidiary or on any Lease are in a state of good maintenance and repair
(normal wear and tear excepted) suitable in all respects for the operation of
the Company's business.
(e) There is no pending or, to the best knowledge of the Company,
threatened condemnation, eminent domain or similar proceeding with respect to,
or that could affect, any real property owned by the Company or any Subsidiary
or any Lease.
Section 6.8 Company Equipment. The Company or its Subsidiaries have
good and valid title to the equipment used in its business. To the best
knowledge of the Company, taken as a whole, such equipment is in good and normal
operating condition and repair and adequate for the uses to which it is being
put by the Company and such Subsidiaries. Neither the Company nor any
Subsidiary has received any notification from any governmental or regulatory
authority within the last five years that the Company or such Subsidiary is in
violation of any health, sanitation, fire, safety, zoning, building or other
law, ordinance or regulation in respect of such equipment or operations, which
violation has not been appropriately and completely resolved.
Section 6.9 Contracts and Commitments.
(a) All contracts, agreements and commitments to which the Company or
any Subsidiary is a party or is bound (and which provide for payment by the
Company or any Subsidiary or receipt by the Company or any Subsidiary of more
than $100,000 over the life of the contract, agreement or commitment or which
are otherwise material to the Company and the Subsidiaries, taken as a whole)
are listed in SCHEDULE 6.9 of the Company Disclosure Schedule.
(b) Neither the Company nor any Subsidiary is a party to or bound by any
agreements, contracts or commitments which individually or when aggregated with
all related agreements, contracts or commitments, provide for the grant of any
preferential rights to purchase or lease any of the Company's or any
Subsidiary's assets.
(c) The Company has delivered or made available to Parent and Sub true
and complete copies of each written agreement, contract or commitment listed in
SCHEDULE 6.9 of the Company Disclosure Schedule, as well as true and accurate
summaries of any oral agreement listed thereon.
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(d) The enforceability of the agreements, contracts and commitments
referred to in this SECTION 6.9 will not be affected in any respect by the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby.
(e) No purchase contracts or commitments of the Company or any
Subsidiary are in excess of the normal, ordinary and usual requirements of the
Company or any Subsidiary, or to the best knowledge of the Company, were entered
into at prices in excess of those available in the industry in arm's length
transactions on the respective dates thereof.
(f) Except as set forth in SCHEDULE 6.9(F), neither the Company nor any
Subsidiary is a party to or bound by any outstanding agreements, arrangements or
contracts with any of its officers, directors, employees, agents, consultants,
advisors or sales representatives (or any affiliates of such persons) that (i)
are cancelable by it only upon notice of longer than 30 days and with the
imposition of a liability, penalty or premium, (ii) require non-cancelable
payment by the Company or any Subsidiary of over $50,000, or (iii) provide for
any bonus or other payment based on the sale of the Company or any portion
thereof.
(g) Except as set forth in SCHEDULE 6.9(F), neither the Company nor any
Subsidiary is a party to or bound by any employment agreement, consulting
agreement or any other agreement that contains any provision for severance or
termination pay liabilities or obligations (including, without limitation,
change of control or "golden parachute" provisions).
(h) Neither the Company nor any Subsidiary is a party to or bound by:
(i) any material mortgage, indenture, note, installment obligation or
other instrument, agreement or arrangement for or relating to any borrowing
of money by the Company or any Subsidiary;
(ii) any guaranty, direct or indirect, by the Company or any Subsidiary
of any material obligation for borrowings or otherwise, excluding
endorsements made for collection in the ordinary course of business;
(iii) any obligation to make payments, contingent or otherwise, of over
$100,000 in the aggregate arising out of any prior acquisition of the
business, assets or stock of other persons, other than with respect to
acquisitions of food or supplies in the ordinary course of business;
(iv) any collective bargaining agreement with any labor union;
(v) except as set forth in SCHEDULE 6.9(H)(V), any agreement containing
noncompetition or other limitations restricting the conduct of the business
of the Company or any Subsidiary; and
(vi) except as set forth in SCHEDULE 6.2, any partnership, joint venture
or similar agreement.
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(i) Neither the Company nor any Subsidiary is bound by any agreement or
arrangement for the sale of any of the assets or capital stock of the Company or
the Subsidiaries or for the grant of any preferential rights to purchase any of
the assets or capital stock of the Company or the Subsidiaries.
(j) With respect to each contract and agreement listed in SCHEDULE 6.9
of the Company Disclosure Schedule, except as set forth therein, (i) each of
such contracts and agreements is valid, binding and in full force and effect and
is enforceable by the Company (or its Subsidiary, as the case may be) in
accordance with its terms, subject to bankruptcy, insolvency, reorganization and
other laws and judicial decisions of general applicability relating to or
affecting creditors' rights and to general principles of equity; (ii) there have
been no cancellations or threatened cancellations thereof nor are there any
outstanding disputes thereunder; (iii) neither the Company or any Subsidiary,
nor, to the best knowledge of the Company, any other party is in breach of any
material provision thereof; and (iv) there does not exist any default under, or
any event or condition which with the giving of notice or passage of time or
both would become a breach or default under, the terms of any such contract or
agreement on the part of the Company or any Subsidiary or, to the best knowledge
of the Company, on the part of any other party thereto.
Section 6.10 Intellectual Property.
(a) SCHEDULE 6.10 of the Company Disclosure Schedule contains an
accurate and complete list of all U.S. and Canadian (i) patents, trademarks
(registered or unregistered), trade names, assumed names, registered copyrights
and all applications therefor, owned or filed by the Company or any Subsidiary
and used in or materially necessary for the conduct of the Company's business
and, with respect to registered trademarks and trade names, contains a list of
all jurisdictions in which such trademarks are registered and all registration
numbers; (ii) all licenses (including, but not limited to, liquor licenses),
permits and other agreements relating thereto; and (iii) all agreements relating
to technology (other than software licenses), recipes (including but not limited
to current recipes in use, previously developed recipes not currently in use and
recipes currently under development), know-how or processes used in or necessary
for the conduct of the business of the Company's business which the Company or
any Subsidiary is licensed or authorized to use by others. The Company has valid
licenses to all software currently being used by the Company.
(b) Except as set forth in SCHEDULE 6.10, such patents, trademarks
(registered or unregistered), copyrights, licenses and permits are (i) valid,
subsisting and enforceable, and (ii) except for unregistered trademarks and
copyrights, duly recorded in the names of the persons set forth in SCHEDULE 6.10
of the Company Disclosure Schedule.
(c) The persons set forth in SCHEDULE 6.10 of the Company Disclosure
Schedule have the full right, free from any liens, mortgages, security
interests, charges or encumbrances, to use the patents, trademarks (registered
or unregistered), copyrights and applications therefor set forth beside their
names, and the Company and/or its Subsidiaries has the full right, free from any
liens, mortgages, security interests, charges or encumbrances, to use the trade
names, assumed names, technology, recipes, know-how, inventions, works and
processes referred to in such lists and all trade secrets required for the
conduct of the Company's business in the jurisdictions in which such
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business is conducted, and the consummation of the transactions contemplated
hereby will not alter or impair any such rights.
(d) Except as set forth in SCHEDULE 6.10(D), no claims have been
asserted in writing delivered to the Company or any Subsidiary by any person
against the Company or any Subsidiary with respect to the ownership, validity,
enforceability, misappropriation or use of any product or service of the
Company's business or such patents, trademarks (registered or unregistered, or
of any confusingly similar or dilative trademarks), trade names, assumed names,
copyrights, applications therefor, technology, recipes, know-how, processes or
trade secrets or challenging or questioning the validity or effectiveness of any
such license, permits or agreement.
(e) To the best knowledge of the Company, the use or other exploitation
of any product or service of the Company or any Subsidiary or patents,
trademarks (registered or unregistered), trade names, assumed names, copyrights,
applications therefor, recipes, technology, know-how, processes and trade
secrets by the Company or any Subsidiary does not infringe the rights of any
person.
(f) To the best knowledge of the Company, no other person is infringing
the rights of the Company or any Subsidiary with respect to the patents,
trademarks (registered or unregistered), trade names, assumed names, copyrights,
and applications therefor, recipes, technology, know-how, inventions, works,
processes or trade secrets described in this section.
(g) Since the Company has no operations outside of the U.S. and Canada
(and has had no operations outside the U.S. and Canada in the last five years),
the scope of the representations contained in this SECTION 6.10 cover the U.S.
and Canada only.
Section 6.11 Litigation. Except as set forth in the Company SEC
Reports, there are no claims, suits, actions or proceedings, pending or, to the
knowledge of the Company, threatened, nor are there, to the knowledge of the
Company, any investigations or reviews pending or threatened against, relating
to or affecting the Company or any of its Subsidiaries or the business or any
property or rights thereof or judgments, decrees, injunctions, rules or orders
of any court, governmental department, commission, agency, instrumentality or
authority or any arbitrator applicable to the Company or any of its
Subsidiaries, that, individually or in the aggregate, would in reasonable
probability have a Company Material Adverse Effect. The Company is not subject
to any continuing court or agency order, writ, injunction or decree applicable
specifically to its business, operations or assets or its employees, nor in
default with respect to any order, writ, injunction or decree of any court or
agency with respect to its assets, business, operations or employees, which
order, writ, injunction or decree or default with respect thereto would in
reasonable probability have a Company Material Adverse Effect.
Section 6.12 Employee Matters.
(a) Benefit Plans. SCHEDULE 6.12 of the Company Disclosure Schedule sets
forth as of the date of this Agreement, all of the pension, profit sharing,
stock option, stock purchase, stock bonus, employee stock ownership, incentive,
bonus, life, health, disability or accident plans, deferred compensation plans,
and other employee compensation or benefit plans, agreements, practices,
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policies, customs, contracts, arrangements or commitments, including, without
limitation, changes in control or severance agreements, holiday, vacation or
other similar plans, programs or arrangements, employee benefit plans (within
the meaning of section 3(3) of ERISA), and labor union agreements under or with
respect to which the Company or any person ("ERISA Affiliate") who would be
treated as being a "single employer" with the Company under Section 414 of the
Code, has any liability or obligation, whether current, contingent, secondary or
otherwise (collectively, the "Company Benefit Plans" and individually, a
"Company Benefit Plan"), and the Company has furnished to Parent and Sub
complete copies of all of the foregoing as amended and in effect on the date
hereof, including, where applicable, any trust agreements, insurance contracts
or other funding mediums related to any Company Benefit Plan. With respect to
all Company Benefit Plans, except as set forth in SCHEDULE 6.12, except as set
forth in the Company SEC Reports and except, in the case of clauses (ii) through
(x), as would not, individually or in the aggregate, in reasonable probability
have a Company Material Adverse Effect: (i) none of the Company Benefit Plans is
a "multi-employer plan" within the meaning of ERISA; (ii) none of the Company
Benefit Plans promises or provides retiree medical or life insurance benefits to
any person, except as otherwise required by law; (iii) each Company Benefit Plan
intended to be qualified under Section 401(a) of the Code has received a
favorable determination letter from the Internal Revenue Service that it is so
qualified and nothing has occurred since the date of such letter that could in
reasonable probability be expected to affect the qualified status of such
Company Benefit Plan; (iv) each Company Benefit Plan has been operated in all
respects in accordance with its terms and the requirements of applicable law;
(v) neither the Company nor any of its Subsidiaries has incurred any direct or
indirect liability under, arising out of or by operation of Title IV of ERISA in
connection with the termination of, or withdrawal from, any Company Benefit Plan
or other retirement plan or arrangement, and no fact or event exists that could
in reasonable probability be expected to give rise to any such liability; (vi)
the Company and each Company Benefit Plan is in compliance with the provisions
of ERISA and the Code insofar as ERISA and the Code are applicable to such
Company Benefit Plan, except for such noncompliance as would not in reasonable
probability have a Company Material Adverse Effect; (vii) there has not occurred
with respect to any Company Benefit Plan any "Prohibited Transaction" as defined
in either Section 406 of ERISA or Section 4975 of the Code; (viii) that has not
occurred with respect to any Company Benefit Plan any "Reportable Event" as
defined in Section 4043 of ERISA; (ix) neither (A) the Company or a director,
officer, employee or agent of the Company or its Subsidiaries have, with respect
to any Company Benefit Plan, nor (B) any Company Benefit Plan or trust created
thereunder or trustee or administrator thereof have, engaged in any kind of
conduct that would result in any penalties under Section 502(i) of ERISA or any
liability under Section 409 of ERISA that would in reasonable probability have a
Company Material Adverse Effect; and (x) each Company Benefit Plan maintained by
the Company specifically provides that it may be terminated at any time by its
sponsoring employer (subject, in the case of any Company Benefit Plan which is
subject to Title IV of ERISA, to the provisions of Section 4041 of ERISA), and
there are no circumstances or conditions that exist prior to the Merger that
would prevent the applicability of these provisions. The aggregate accumulated
benefit obligations of any Company Benefit Plan subject to Title IV of ERISA do
not exceed the fair market value of the assets of such Company Benefit Plan.
The Company has furnished Parent with true and complete copies of the Company
Benefit Plans.
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Section 6.13 Collective Bargaining Agreements; Compensation; Employee
Agreements.
(a) Neither the Company nor any Subsidiary has in effect any collective
bargaining agreement and neither is currently engaged in any bargaining with any
labor union.
(b) To the best knowledge of the Company, no petition is on file with
the National Labor Relations Board submitted by a labor union seeking to
represent any of the employees of the Company or any Subsidiary and the Company
is not aware of any attempts to organize the employees of the Company or any
Subsidiary by any labor union.
(c) SCHEDULE 6.13 of the Company Disclosure Schedule sets forth a
complete and accurate list showing the names, the rate of compensation and the
portions thereof attributable to salary and bonuses, respectively, as well as
the location of all officers of the Company and its Subsidiaries and of all
employees of or consultants to the Company or any Subsidiary that received
annual base salary and cash bonus totaling in excess of $50,000 for the fiscal
year ended June 28, 1998.
(d) There are no covenants, agreements or restrictions to which the
Company or any Subsidiary is a party, including but not limited to employee
noncompete agreements, prohibiting, limiting or in any way restricting any
current employee listed in SCHEDULE 6.13 of the Company Disclosure Schedule from
engaging in any type of business activity in any location.
Section 6.14 Labor Matters.
(a) The Company and its Subsidiaries have complied and are presently
complying with all applicable laws respecting employment and employment
practices, terms and conditions of employment, and wages and hours, except for
any noncompliance that in the aggregate would not in reasonable probability have
a Company Material Adverse Effect.
(b) Except as set froth in SCHEDULE 6.14(G), there is no open and
unresolved unfair labor practice charge or complaint against the Company or any
Subsidiary for which the Company or any Subsidiary has received service of
process or other appropriate notice or, to the best knowledge of the Company,
pending (without having been so served or noticed) being considered or
threatened before the National Labor Relations Board.
(c) There is no open and unresolved grievance or any open and unresolved
arbitration proceeding arising out of or under collective bargaining agreements
for which the Company or any Subsidiary has received service of process or other
appropriate notice and, to the best knowledge of the Company, no such grievance
or arbitration proceeding is pending (without having been so served or noticed)
or is being considered or threatened.
(d) There is no basis for any charge, complaint or grievance described
in this SECTION 6.14, and, to the best knowledge of the Company, none is being
considered.
(e) There is no labor strike, slowdown or work stoppage for which the
Company or any Subsidiary has received service of process or other appropriate
notice or, to the best knowledge of
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the Company, pending (without having been so served or noticed) or threatened
against the Company or any Subsidiary.
(f) Neither the Company nor any Subsidiary has been a party within the
past two years to any proceedings before the National Labor Relations Board, and
neither is a party to any arbitration proceeding arising out of or under
collective bargaining agreements.
(g) Except as set forth in SCHEDULE 6.14(G) there is no open and
unresolved charge or complaint for which the Company or any Subsidiary has
received service of process or other appropriate notice or, to the best
knowledge of the Company, which is being considered or threatened against the
Company or any Subsidiary before the Equal Employment Opportunity Commission or
any state, local, federal or foreign agency responsible for the prevention of
unlawful employment practices.
(h) Neither the Company nor any Subsidiary has received notice of the
intent of any federal, state, local or foreign agency responsible for the
enforcement of labor or employment laws to conduct an investigation of or
relating to the Company or any Subsidiary, and, to the best knowledge of the
Company, no such investigation is in progress.
(i) There are no current Affirmative Action Plans to which the Company
or any Subsidiary is a party and, to the best knowledge of the Company, there
are no current or pending audits contemplated against the Company or any
Subsidiary by the Office of Federal Compliance Programs pursuant to Executive
Order 11246.
Section 6.15 Environmental Matters. Except as disclosed in the Company
SEC Reports and except as would not, individually or in the aggregate, in
reasonable probability have a Company Material Adverse Effect, (i) the Company
and each of its Subsidiaries are in compliance with all applicable Environmental
Laws and the terms and conditions of all applicable Environmental Permits, (ii)
there are no Environmental Claims against the Company or any of its
Subsidiaries, and (iii) no Hazardous Materials have been released, discharged or
disposed of on any of the properties owned or occupied by the Company or its
Subsidiaries in any manner or quantity which requires investigation, assessment,
monitoring, remediation or cleanup under currently applicable Environmental
Laws.
Section 6.16 Vote Required. The approval of the Agreement by the
holders of at least two-thirds of the outstanding shares of Company Common Stock
(the "Company Shareholders' Approval") is the only vote of holders of any class
or series of the capital stock of the Company required to approve this
Agreement, the Merger and the other transactions contemplated hereby.
Section 6.17 Insurance. The Company and each of its Subsidiaries is,
and has been continuously since June 28, 1998, insured in such amounts and
against such risks and losses (the related insurance polices hereinafter
referred to as the "Insurance Policies") as are (i) customary for companies
conducting the respective businesses conducted by the Company and its
Subsidiaries during such time period and (ii) sufficient for compliance with all
requirements of law and of all agreements with respect to the operation of the
business of the Company. Neither the Company nor any of its Subsidiaries has
received any notice of cancellation or termination with respect to any
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Insurance Policy. All Insurance Policies of the Company and its Subsidiaries are
valid and enforceable policies.
Section 6.18 State Takeover Statutes; Absence of Supermajority
Provision. The Company has taken all action to assure that no state takeover
statute or similar statute or regulation shall apply to the Merger or any of the
other transactions contemplated hereby. Except for the Company Shareholders'
Approval, no other shareholder action on the part of the Company is required for
approval of the Merger, this Agreement and the transactions contemplated hereby.
No provisions of the Company's Articles of Incorporation or Bylaws or other
governing instruments of its Subsidiaries or the terms of the Rights Plan or
other takeover defense mechanism of the Company would, directly or indirectly,
restrict or impair the ability of Parent to vote, or otherwise to exercise the
rights of a shareholder with respect to, securities of the Company and its
Subsidiaries that may be acquired or controlled by Parent or permit any
shareholder to acquire securities of the Company on a basis not available to
Parent in the event that Parent were to acquire securities of the Company.
Section 6.19 Tax Matters.
(a) For purposes of this Agreement, "Tax Return" means any report,
statement, form, return or other document or information required to be supplied
to a taxing authority in connection with Taxes.
(b) All Tax Returns required to be filed on or before the Closing Date
by the Company or any Subsidiary have been or will be filed within the time
prescribed by Law (including extensions of time approved by the appropriate
taxing authority). The Tax Returns so filed are complete, correct and accurate
representations of the Tax liabilities of the Company and its Subsidiaries and
such Tax Returns accurately set forth or will accurately set forth all items to
the extent required to be reflected or included in such returns.
(c) The Company and it Subsidiaries have timely paid or made adequate
provision in the Company's balance sheet for the payment of all Taxes due on
such Tax Returns that have been filed or will be filed for periods ending on or
before the date of the balance sheet.
(d) Except as set forth in SCHEDULE 6.19(D), there is no action, suit,
investigation, proceeding, audit or claim that has been served against or
otherwise noticed to the Company or any Subsidiary, or, to the best knowledge of
the Company, pending or proposed against or with respect to the Company or any
Subsidiary in respect of any Tax. There are no material liens for Taxes upon
any of the assets of the Company or any Subsidiary.
(e) The Company and its Subsidiaries have withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, creditor, independent contractor, or other person.
(f) Neither the Company nor any Subsidiary have waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency.
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(g) Neither the Company nor any Subsidiary has in effect a consent under
Section 341(f) of the Code concerning collapsible corporations.
(h) Neither the Company nor any Subsidiary has made any payment, or
become obligated to make any payment, or become a party to any agreement that
could obligate it to make any payment that will not be deductible under section
280G of the Code or will be subject to Tax under section 4999 of the Code.
(i) There has never been a Tax sharing or allocation agreement in place
between the Company or any Subsidiary or any other Person other than those, if
any, with respect to which the applicable statute of limitations has run.
(j) Neither the Company nor any Subsidiary is liable for a Tax incurred
by any other corporation that was a member of a consolidated group of
corporations (within the meaning of Treasury regulation section 1.1502) that
included the Company or any Subsidiary.
ARTICLE VII
COVENANTS RELATING TO CONDUCT OF BUSINESS
After the date hereof and prior to the Effective Time or earlier termination
of this Agreement, the Company shall, and shall cause its Subsidiaries to,
comply with the provisions of this ARTICLE VII.
Section 7.1 Ordinary Course of Business. The Company shall, and shall
cause its Subsidiaries to, conduct their respective businesses in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted and use all commercially reasonable best efforts to preserve their
respective business organizations and goodwill, preserve the goodwill and
relationships with customers, suppliers, distributors and others having business
dealings with them and, subject to prudent management of workforce needs and
ongoing programs currently in force, keep available the services of their
present officers and employees.
Section 7.2 Dividends. The Company shall not, nor shall it permit any
of its Subsidiaries to:
(a) declare or pay any dividends or make other distributions in respect
of any of their capital stock other than to the Company or its Subsidiaries.
(b) split, combine or reclassify any of their capital stock or issue or
authorize or propose the issuance of any other securities in respect of, in lieu
of, or in substitution for, shares of their capital stock; or
(c) redeem, repurchase or otherwise acquire any shares of their capital
stock, other than
(i) intercompany acquisitions of capital stock, or
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(ii) in connection with the administration of employee benefit and
dividend reinvestment plans as in effect on the date hereof in the ordinary
course of the operation of such plans.
Section 7.3 Issuance of Securities. The Company shall not, and shall
not permit any of its Subsidiaries to, issue, agree to issue, deliver or sell,
or authorize or propose the issuance, delivery or sale of, any shares of their
capital stock or any class or any securities convertible into or exchangeable
for, or any rights, warrants or options to acquire, any such shares or
convertible or exchangeable securities except for:
(a) the issuance of common stock or other securities by the Company
pursuant to the plans and arrangements listed in SCHEDULE 6.3 of the Company
Disclosure Schedule, in each case in the ordinary course of the operation of
such plans and arrangements in accordance with their current terms,
(b) shares issued in conversion, exchange or exercise of existing
outstanding securities of the Company in connection with rights currently
existing under such outstanding securities, or
(c) issuances by a wholly owned Subsidiary of its capital stock to the
Company.
Section 7.4 Charter Documents. The Company shall not amend or propose
to amend its Articles of Incorporation or Bylaws in any way adverse to Parent.
Section 7.5 Capital Expenditures. Except as required by law and except
for those expenditures specifically set forth in SCHEDULE 7.5, the Company shall
not, nor shall it permit any of its Subsidiaries to, make any capital
expenditures, except for normal extensions to or replacements of properties or
in the ordinary course of business consistent with prior practice not in excess
of $100,000 in the aggregate; or merge or consolidate with any other person or
acquire, except in the ordinary course of business consistent with prior
practice, a material amount of assets of any other person.
Section 7.6 No Dispositions. Except as described in SCHEDULE 7.6 of
the Company Disclosure Schedule, the Company shall not, nor shall it permit any
of its Subsidiaries to, sell, lease, license, encumber or otherwise dispose of
any assets that are material, except for normal extensions to or replacements or
dispositions of properties in the ordinary course of business consistent with
prior practice.
Section 7.7 Intellectual Property. The Company shall not, nor shall
it permit any of its Subsidiaries to, dispose of or permit to lapse any right to
use any patent, trademark, assumed name, service mark, trade name, copyright,
license or application therefor or dispose of or disclose to any person other
than representatives of Parent and Sub any trade secret, recipe, formula,
process or know-how not theretofore a matter of public knowledge that is
currently used or in reasonable probability will be used in the Company's
business.
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Section 7.8 Liabilities and Obligations.
(a) The Company shall not, nor shall it permit any of its Subsidiaries
to, voluntarily incur any liabilities or obligations of any nature whatsoever
(whether absolute, accrued, contingent or otherwise and whether due or to become
due), except for (i) liabilities or obligations incurred in the usual, regular
and ordinary course of business in substantially the same manner as heretofore
conducted and (ii) liabilities or obligations incurred in connection with the
construction and operation of the Company's restaurant that is being constructed
at the following location: 4201 South Padre Island Drive, Corpus Christi, Texas
78411 (the "New Restaurant").
(b) The Company shall not, nor shall it permit any of its Subsidiaries
to, pay, discharge or satisfy any claim, encumbrance, liability or obligation
(whether absolute, accrued, contingent or otherwise and whether due or to become
due), other than the payment, discharge or satisfaction of liabilities and
obligations in the usual, regular and ordinary course of business in
substantially the same manner as heretofore conducted.
Section 7.9 Indebtedness .
(a) The Company shall not, nor shall it permit any of its Subsidiaries
to, incur or guarantee any indebtedness (including any debt borrowed or
guaranteed or otherwise assumed, including, without limitation, the issuance of
debt securities), except for:
(i) short-term indebtedness in the ordinary course of business
consistent with past practice,
(ii) long-term indebtedness in connection with the refinancing of
existing indebtedness either at its stated maturity or at a lower cost of
funds,
(iii) borrowings or letters of credit under existing credit facilities, or
(iv) borrowings or letters of credit, not to exceed $2,500,000, required
to finance construction and/or finish out of the New Restaurant.
(b) The Company shall not, nor shall it permit any of its Subsidiaries
to, cancel any aggregate amount of indebtedness in excess of $10,000 or waive
any claims or rights of value in excess of $10,000.
(c) The Company shall not, nor shall it permit any of its Subsidiaries
to, increase or change any assumptions underlying, or methods of calculating,
any bad debt, contingency or other reserves.
Section 7.10 Compensation, Benefits. Except as may be required by
applicable law or the provisions of any Company Benefit Plan, or as contemplated
by this Agreement, the Company shall not, nor shall it permit any of its
Subsidiaries to, (without the consent of Sub, which may be withheld in its sole
discretion) enter into, adopt or amend or increase the amount of or accelerate
the payment or vesting of any benefit or amount payable under any Company
Benefit Plan or any other contract,
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agreement, commitment, arrangement, plan or policy maintained by, contributed to
or entered into by the Company, as the case may be, or their respective
Subsidiaries, or increase, or enter into any contract, agreement, commitment or
arrangement to increase in any manner, the compensation or fringe benefits, or
otherwise to extend, expand or enhance the engagement, employment or any related
rights of any director, officer or other employee of the Company, or its
respective Subsidiaries, except for normal increases in the ordinary course of
business consistent with past practice that, in the aggregate, do not result in
a material increase in benefits or compensation expense to Parent or the
Company, as the case may be, or their respective Subsidiaries, or enter into or
amend any employment, severance, or special pay arrangement with respect to the
termination of employment or other similar contract, agreement or arrangement
with any director or officer or other employee other than in the ordinary course
of business consistent with past practice.
Section 7.11 Collective Bargaining. The Company shall not, nor shall it
permit any of its Subsidiaries to, enter into any collective bargaining or labor
agreement.
Section 7.12 Loans and Advances. The Company shall not, nor shall it
permit any of its Subsidiaries to, pay, loan or advance any amount (except for
the payment of salary and benefits) to any of the officers, directors or
shareholders of the Company, any of its Subsidiaries or any of their respective
affiliates.
Section 7.13 Accounting. The Company shall not, nor shall it permit any
of its Subsidiaries to, make any material changes in its or their accounting
methods, except as required by law, rule, regulation or GAAP.
Section 7.14 Lease and Purchase Options. The Company shall not, nor
shall it permit any of its Subsidiaries to permit the expiration of, any Lease
option or option to purchase any property.
Section 7.15 Insurance. The Company shall, and shall cause its
Subsidiaries to, maintain with financially responsible insurance companies (or
through self-insurance not inconsistent with such party's past practice)
insurance in such amounts and against such risks and losses as are customary for
companies engaged in the same industry and such other businesses as conducted by
such party and its Subsidiaries.
Section 7.16 Permits. The Company shall use commercially reasonable
best efforts to maintain in effect all existing material permits pursuant to
which the Company operates.
Section 7.17 Non-contravention. The Company shall not, nor shall it
permit any of its Subsidiaries to, omit to do any act, or permit any act or
omission to act, which may cause a breach of any contract, commitment or
obligation of the Company or of any Subsidiary of the Company, or any breach of
any representation, warranty, covenant or agreement made by the Company herein.
Section 7.18 Payments to Suppliers and Vendors. The Company shall
not, nor shall it permit any of its Subsidiaries to, pre-pay any party for
amounts not yet due (except in the ordinary course of the Company's business and
consistent with past practice), or pay any party in a non-timely manner.
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ARTICLE VII
ADDITIONAL AGREEMENTS
Section 8.1 Cooperation, Notification. After the date hereof and prior
to the Effective Time or earlier termination of this Agreement, Parent shall,
and shall cause its Subsidiaries to, and the Company shall, and shall cause its
Subsidiaries to:
(a) confer on a regular and frequent basis with one or more
representatives of the other party to discuss matters pertinent to the proposed
business combination,
(b) promptly notify the other party of any significant changes in its
business, properties, assets, condition (financial or otherwise), prospects or
results of operations,
(c) advise the other party of any change or event that has had or, to
the knowledge of such party, would in reasonable probability have a Parent
Material Adverse Effect, a Sub Material Adverse Effect or a Company Material
Adverse Effect, and
(d) consult with each other prior to making any filings with any state
or federal court, administrative agency, commission or other Governmental
Authority in connection with this Agreement and the transactions contemplated
hereby, and promptly after each such filing provide the other with a copy
thereof.
Section 8.2 Third-Party Consents. Each of Parent and the Company
shall, and shall cause its Subsidiaries to, use all commercially reasonable best
efforts to obtain all third-party consents necessary to consummate the Merger,
and specifically regarding the Leases, each of Parent and the Company agree to
use commercially reasonable best efforts to obtain prior to the Closing all
consents and landlord approvals necessary, in the reasonable determination of
Parent, to consummate the transactions contemplated hereby, including, without
limitation, estoppel certificates, consents to leasehold mortgage, memoranda of
leases and renewal options. All consents shall be in writing and in form and
substance reasonably satisfactory to Parent. Each party shall promptly notify
the other party of any failure or prospective failure to obtain any such
consents and, if requested by the other party, shall provide to the other party
copies of all such consents, as the case may be, obtained by such party.
Section 8.3 Access to Information.
(a) Upon reasonable notice, the Company shall, and shall cause its
Subsidiaries to, afford to the officers, directors, accountants, counsel,
investment bankers, financial advisors, consultants and other representatives of
Parent (collectively, the "Parent Personnel") reasonable access, during normal
business hours throughout the period prior to the Effective Time, to all of its
properties, books, contracts, commitments and records, including, but not
limited to, Tax Returns, but excluding (i) that information that is restricted
by applicable confidentiality and secrecy agreements, (ii) that information that
a party may be restricted from disclosing under applicable law, (iii) the
corporate proceedings of the Company in considering the Merger or other similar
transactions in the
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past, and, during such period, the Company shall, and shall cause its
Subsidiaries to, furnish promptly to the other:
(i) a copy of each report, schedule and other document filed by it or
any of its Subsidiaries with the SEC and any other document pertaining to the
transactions contemplated hereby filed with any Governmental Authority that
is not filed as an exhibit to an SEC filing or described in an SEC filing,
and
(ii) all information concerning itself, its Subsidiaries, directors,
officers and shareholders and such matters as may be reasonably requested by
Parent in connection with any filings, applications or approvals required or
contemplated by this Agreement.
In the event that any of the Parent Personnel desires to formally inspect any of
the Company's restaurants, such Parent Personnel shall provide reasonable prior
notice (which may be oral) to the Company of such desire and shall reasonably
cooperate with the Company in making such inspections and tours so as to
minimize the disruptive effect thereof on the operations of the affected
restaurants.
Section 8.4 Regulatory Matters.
(a) HSR Filings. Each party hereto shall, in cooperation with the other,
file or cause to be filed with the Federal Trade Commission and the Department
of Justice any notifications required to be filed by their respective "ultimate
parent entities" under the HSR Act, and the rules and regulations promulgated
thereunder with respect to the transactions contemplated hereby. Each party
hereto shall notify the other immediately upon receiving any request for
additional information from either of such agencies with respect to such filings
and shall respond promptly to any such requests.
(b) Other Regulatory Approvals.
(i) Each party hereto shall cooperate and use its commercially
reasonable best efforts promptly to prepare and file all necessary permits,
consents, approvals and authorizations of all Governmental Authorities and
all other persons necessary or advisable to consummate the transactions
contemplated by this Agreement, including, without limitation, the Company
Required Statutory Approvals.
(ii) Parent shall have the right to review and approve in advance all
characterizations of the information relating to Parent, on the one hand, and
the Company shall have the right to review and approve in advance all
characterizations of the information relating to the Company, on the other
hand, in either case, which appear in any filing made in connection with the
transactions contemplated by this Agreement or the Merger.
(iii) The Company and Parent shall each consult with the other with
respect to the obtaining of all such necessary or advisable permits,
consents, approvals and authorizations of Governmental Authorities.
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Section 8.5 Shareholder Approval; Proxy Materials.
(a) The Company and Parent will, as soon as practicable following the
execution of the Agreement, prepare and file the Proxy Statement with the SEC.
The Company will use all commercially reasonable best efforts to respond to all
SEC comments with respect to the Proxy Statement and to cause the Proxy
Statement to be mailed to the Company's shareholders at the earliest practicable
date.
(b) The Company and Sub will, as soon as practicable following the
execution of this Agreement, duly call, give notice of, convene and hold
meetings of the Sub's and the Company's shareholders, respectively, for the
purpose of approving this Agreement and the transactions contemplated hereby.
At the Company's shareholders meeting, Parent shall cause all of the shares of
Company Common Stock then owned by Parent and Sub to be voted in favor of the
Merger.
(c) Cooperation. Parent shall furnish all information concerning itself,
Sub and its other Subsidiaries that is required or customary for inclusion in
the Proxy Materials.
Section 8.6 Indemnification; Directors' and Officers' Insurance.
(a) The Company shall, and from and after the Effective Time, the
Surviving Corporation shall, indemnify, defend and hold harmless each person who
is now, or has been at any time prior to the date hereof or who becomes prior to
the Effective Time, an officer or director of the Company or any of its
Subsidiaries (the "Indemnified Parties") against all losses, claims, damages,
costs, expenses (including attorneys' fees and expenses), liabilities or
judgments or amounts that are paid in settlement with the approval of the
indemnifying party (which approval shall not be unreasonably withheld) of or in
connection with any threatened or actual claim, action, suit, proceeding or
investigation based in whole or in part on or arising in whole or in part out of
the fact that such person is or was a director or officer of the Company or any
of its Subsidiaries whether pertaining to any matter existing or occurring at or
prior to the Effective Time or any acts or omissions occurring or existing at or
prior to the Effective Time and whether asserted or claimed prior to, or at or
after, the Effective Time ("Indemnified Liabilities"), including all Indemnified
Liabilities based in whole or in part on, or arising in whole or in part out of,
or pertaining to this Agreement or the transactions contemplated hereby, in each
case subject to the limitations, terms and conditions set forth in the Company's
Articles of Incorporation and Bylaws) as in effect on June 28, 1998 (unless
otherwise limited by the applicable provisions of the TBCA); provided, however,
that the procedure for indemnification (if not in conflict with the Company's
Articles of Incorporation and Bylaws, as in effect on June 28, 1998, or the
TBCA) shall be set forth below. In addition to the foregoing right to
indemnification, the Company and the Surviving Corporation, as the case may be,
shall promptly pay all expenses upon receipt of evidence of the same in advance
of the final disposition of any such action or proceeding to each Indemnified
Party subject to the limitations, terms and the conditions set forth in the
Company's current Articles of Incorporation and Bylaws as in effect on June 28,
1998 (unless otherwise limited by the applicable provisions of the TBCA). In
connection with the foregoing, in the event any such claim, action, suit,
proceeding or investigation is brought against any Indemnified Parties (whether
arising before or after the Effective Time), (i) the Indemnified Parties may
retain legal counsel satisfactory to them and reasonably satisfactory to the
Company (or to them and reasonably satisfactory to the Surviving Corporation
after the Effective Time) and the
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Company (or after the Effective Time, the Surviving Corporation) shall pay all
reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received, and (ii) the Company (or after the
Effective Time, the Surviving Corporation) will use all commercially reasonable
best efforts to assist in the vigorous defense of any such matter (but shall not
be required to provide additional legal counsel), provided that neither the
Company nor the Surviving Corporation shall be liable for any settlement
effected without its prior written consent (which consent shall not unreasonably
be withheld). Any Indemnified Party wishing to claim indemnification under this
SECTION 8.6, upon learning of any such claim, action, suit, proceeding or
investigation, shall notify the Company (or after the Effective Time, the
Surviving Corporation) (provided that the failure so to notify shall relieve the
Company or the Surviving Corporation, as the case may be, from any liability
which it may have under this SECTION 8.6 to the extent such failure prejudices
the Company or Surviving Corporation's position with respect to such claims).
The Indemnified Parties as a group may retain only one law firm to represent
them with respect to each such matter unless there is, under applicable
standards of professional conduct, a conflict on any significant issue between
the positions of any two or more Indemnified Parties in which case such
additional counsel as may be required (as shall be reasonably determined by the
Indemnified Parties and the Company or the Surviving Corporation, as the case
may be) may be retained by the Indemnified Parties at the cost and expense of
the Company (or Surviving Corporation). The foregoing rights to indemnification
and the foregoing rights to advances of expenses incurred in defense existing in
favor of the Indemnified Parties with respect to matters occurring through the
Effective Time, shall survive the Merger and shall continue in full force and
effect for not less than six years from the Effective Time; provided, however,
that all rights to indemnification in respect of any Indemnified Liabilities
asserted or made within such period shall continue until the disposition of such
Indemnified Liabilities. Furthermore, the provisions with respect to
indemnification set forth in the Articles of Incorporation of the Surviving
Corporation shall not be amended for a period of six years following the
Effective Time if such amendment would materially and adversely affect the
rights thereunder of individuals who at any time prior to the Effective Time
were directors, officers, employees or agents of the Company in respect of
actions or omissions occurring at or prior to the Effective Time. This agreement
is intended to provide protection that is no greater than that afforded by the
Company's Articles of Incorporation and Bylaws, as in existence on the date
hereof. The Company (and, after the Effective Time, the Surviving Corporation)
shall pay all costs (including attorneys fees) incurred by any Indemnified Party
in any lawsuit brought in good faith to enforce the provisions of this SECTION
8.6, or to enforce rights to indemnification under the Company's (or Surviving
Corporations, as the case may be) Articles of Incorporation or Bylaws or under
applicable law.
(b) Notwithstanding the foregoing, with respect to any Indemnified
Party, "Indemnified Liabilities" shall not include any matter arising as a
result of, or in connection with, any breach of any of the representations and
warranties set forth in Article VI hereof.
(c) For a period of six years after the Effective Time, the Surviving
Corporation shall cause to be maintained in effect the current policies of
directors' and officers' liability insurance maintained by the Company and its
Subsidiaries (provided that 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
Indemnified Parties), with
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respect to the Indemnified Parties), with respect to matters arising before and
omissions occurring or existing at or prior to the Effective Time including the
transactions contemplated by this Agreement.
(d) The Surviving Corporation shall perform and discharge its obligations
under this SECTION 8.6 and its indemnification obligations under the Surviving
Corporation's Articles of Incorporation and Bylaws and under applicable law.
(e) The provisions of this SECTION 8.6 are for the benefit of, and shall be
enforceable by, each Indemnified Party, his heirs and his personal
representatives as if such Indemnified Party were a party hereto and shall be
binding on all successors and assigns of Sub, the Company and the Surviving
Corporation; provided, however, that neither Parent nor its affiliates shall
bring any action against any Indemnified Parties on their own account for any
breaches of the representations and warranties set forth in ARTICLE VI hereof.
(f) Notwithstanding anything in this Agreement to the contrary, in no
circumstance shall Parent be obligated to contribute capital (or otherwise fund)
the Surviving Corporation's indemnification obligations under this SECTION 8.6,
it being the intent of the parties to look solely to the assets of the Surviving
Corporation therefor.
Section 8.7 Disclosure Schedule.
(a) On or prior to the date of this Agreement, the Company shall have
delivered to Parent the Company Disclosure Schedule.
(b) The Company Disclosure Schedule when so delivered, shall constitute an
integral part of this Agreement and each schedule therein shall modify or
otherwise affect all of the representations, warranties, covenants or agreements
of the Company contained herein. The Company, acting reasonably and in good
faith, will supplement and/or amend the Company Disclosure Schedule to reflect
changes in facts occurring after the date hereof which, if existing on the date
of this Agreement, would have been required to be set forth or described in the
Company Disclosure Schedule. Parent and Sub shall be entitled to treat any such
supplemental disclosures by the Company as a breach of the appropriate
representation or warranty, whether or not the event or condition giving rise to
such supplemental disclosure occurred on or prior to the date of this Agreement,
unless such supplementation is a result of any of the activities not prohibited
by Article VII of this Agreement.
(c) Any and all statements, representations, warranties or disclosures set
forth in the Company Disclosure Schedule shall be deemed to have been made on
and as of the date of this Agreement and, again, at the Closing.
Section 8.8 Public Announcements. The Company, on the one hand, and
Parent and Sub, on the other hand, shall cooperate with each other in the
development and distribution of all news releases and other public information
disclosures with respect to this Agreement or any of the transactions
contemplated hereby and shall not issue any public announcement or statement
with respect thereto prior to consultation with the other party, except that
each party may respond to questions from shareholders and may respond to
inquiries from financial analysts and media
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representatives in a manner consistent with its past practice and each party may
make such disclosure as may be required by applicable law or by obligations
pursuant to any listing agreement with any national securities exchange or
Nasdaq National Market without prior consultation to the extent such
consultation is not reasonably practicable. The parties agree that the initial
press release or releases to be issued in connection with the execution of this
Agreement shall be mutually agreed upon prior to the issuance thereof.
Section 8.9 Stock Option, Stock Purchase and Bonus Plans. The following
provisions shall apply to each stock option plan, stock purchase plan, bonus
plan, deferred compensation plan and similar plans of the Company under which
the delivery of Company Common Stock is required to be used for purposes of the
payment of benefits, grant of awards or exercise of options, all of which are
described in SCHEDULE 6.3 of the Company Disclosure Schedule. The Company shall
take such action as may be necessary so that (i) from and after the date hereof,
except as set forth in SCHEDULE 6.3, no further grants of stock, options, or
other rights shall be made under the Stock Plans, and (ii) on or before the
Effective Time each outstanding option or restricted stock award (or any other
right to stock) that remains unexercised or unvested under the Stock Plans as of
the Effective Time shall be canceled at or prior to the Effective Time in
accordance with the provisions of SECTION 3.5.
Section 8.10 No Solicitations.
(a) The Company shall not, and shall cause its Subsidiaries not to, permit
any of its representatives to, and shall use its best efforts to cause such
persons not to, directly or indirectly, initiate, solicit or encourage, or take
any action to facilitate the making of any inquiry, offer or proposal that
constitutes or in reasonable probability will lead to any Takeover Proposal with
respect to the Company.
(b) The Company shall notify Parent orally and in writing of any such
inquiries, offers or Takeover Proposals (including, without limitation, the
terms and conditions of any such proposal and the identity of the person making
it) within one business day of the receipt thereof.
(c) The Company shall immediately cease and cause to be terminated all
existing activities, discussions and negotiations, if any, with any other
persons conducted heretofore with respect to any Takeover Proposal regarding the
Company, and inform such other persons of its obligation in this SECTION 8.10.
(d) Notwithstanding anything in this SECTION 8.10 to the contrary:
(i) The Company may, prior to the vote of the shareholders of the Company
for approval of the Merger (and not thereafter if the Merger is approved
thereby) in response to an unsolicited request therefor, furnish information,
including non-public information, to any person or "group" (within the meaning
of Section 13(d)(3) of the Exchange Act) pursuant to a confidentiality
agreement on substantially the same terms as provided in the Confidentiality
Agreement to the extent and only to the extent that the Board of Directors of
the Company determines that the requester is offering a Superior Takeover
Proposal.
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(ii) The Company may engage in discussions and negotiations with any
Person or group that has made an unsolicited Takeover Proposal, among other
things, to determine whether such proposal (as opposed to any further
negotiated proposal) is a Superior Takeover Proposal and (ii) the Company may
take and disclose to its shareholders a position contemplated by Rule 14e-2(a)
following the Company's receipt of a Takeover Proposal that is in the form of
a tender offer under Section 14(e) of the Exchange Act.
(iii) The Company may withdraw, adversely modify or take a public position
materially inconsistent with its recommendation referred to in SECTION 6.4(A)
(which may include making any statement required by Rule 14e-2 under the
Exchange Act) (a "Recommendation Modification/Withdrawal") if there exists a
Takeover Proposal and the Board of Directors of the Company determines that it
is a Superior Takeover Proposal.
(iv) The Company may make a "stop-look-and-listen" communication with
respect to a Takeover Proposal or this Agreement of the nature contemplated
in, and otherwise in compliance with, Rule 14d-9 under the Exchange Act as a
result of receiving a Takeover Proposal.
Section 8.11 No Withdrawal of Recommendation. Neither the Board of
Directors of the Company nor any committee thereof shall, except in connection
with the termination of this Agreement pursuant to SECTION 10.1, (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to Parent or Sub
the approval or recommendation by the Board of Directors of the Company or any
such committee of this Agreement or the Merger or take any action having such
effect or (ii) approve or recommend, or propose to approve or recommend, any
Takeover Proposal (other than a Superior Takeover Proposal, subject to the
rights and obligations of the parties under SECTIONS 10.1 and 10.3).
Section 8.12 Expenses. Subject to SECTION 10.4, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses.
Section 8.13 Inventory. The Company agrees that, in aggregate, at least
$450,000 in food and beverage Inventory (valued on a cost basis) at the
Company's restaurants will be part of the Company's assets to be transferred to
Sub at the Closing and that, during the period between the date of this
Agreement and the Closing, the Company will continue to replenish such inventory
in good faith in accordance with the usual practices of the business of the
Company. The Company agrees to allow Parent and Sub to take a physical inventory
of the food and beverage inventory within the week prior to the Closing Date (or
at another time shortly before the Closing that is mutually acceptable to the
parties); the Company may designate one or more representatives to take such
physical inventory along with Parent's and/or Sub's representative(s).
Section 8.14 Covenant to Satisfy Conditions.
(a) Each of Parent, Sub and the Company shall take all reasonable actions
necessary, to comply promptly with all legal requirements that may be imposed on
it with respect to this Agreement.
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(b) Subject to the terms and conditions hereof, and taking into account the
circumstances and giving due weight to the materiality of the matter involved or
the action required, Parent, Sub and the Company shall each use their
commercially reasonable best efforts to take or cause to be taken all actions,
and to do or cause to be done all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the Merger and
the other transactions contemplated hereby (subject to the Company Shareholders'
Approval), including fully cooperating with the other in obtaining the Company
Required Statutory Approvals and all other approvals and authorizations of any
Governmental Authorities necessary or advisable to consummate the transactions
contemplated hereby.
Section 8.15 Strategic Consultations. Between the date hereof and the
Effective Time, the Board of Directors and the officers of the Company shall
consult from time to time with members of the Board of Directors of Parent with
regard to the determination of the Company's strategic direction and shall, when
in the best interest of the Company, adopt strategic initiatives proposed by
such members of Parent's Board.
Section 8.16 Guaranty of Equity of Sub. Subject to the fulfillment of
the conditions set forth in SECTION 9.1 and 9.2 (including without limitation
the condition that Parent and/or Sub shall have received transaction financing
as specified in SECTION 9.2(h)), Parent hereby guarantees that, at the Effective
Time, Sub shall have, over and above the amount realized from the financing as
contemplated by SECTION 9.2(h), the amount of $5,000,000 in immediately
available funds available to it to allow Sub to fund the Payment Fund under the
terms of this Agreement. Furthermore, Parent guarantees that Sub shall have all
funds necessary to satisfy obligations, if any, arising on its account under
SECTION 10.4(a) hereof.
Section 8.17 Employee Benefit Matters; Severance.
(a) Following the Closing, Parent shall, to the extent reasonably
practicable, maintain the level of benefits provided to the employees and all
former employees of the Company and its Subsidiaries that is in effect as of the
date hereof (other than benefits under any Stock Plans) until Parent shall
provide benefits to such employees and former employees on a basis consistent
with the provision of benefits provided otherwise to other employees and former
employees within the Parent system (other than benefits under any stock option
plans, stock purchase plan or deferred compensation plan or arrangements of
Parent or any affiliate of Parent within the Parent system).
(b) Parent shall maintain and give effect to each employment severance
policy of the Company that is in effect as of the date hereof with respect to
employees of the Company at the Closing until the date on which such employment
severance policy of the Company terminates or expires in accordance with its
terms (which date is six months following the Effective Time).
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ARTICLE IX
CONDITIONS
Section 9.1 Conditions to Each Party's Obligation to Effect the Merger.
The respective obligations of each party to effect the Merger or cause the
Merger to be effected shall be subject to the satisfaction on or prior to the
Closing Date of the following conditions, except, to the extent permitted by
applicable law, that such conditions may be waived in writing pursuant to
SECTION 10.5:
(a) Shareholder Approval. The Company Shareholders' Approval shall have
been obtained on or prior to 90 days after the date of this Agreement.
(b) No Injunction or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction preventing the consummation of the Merger shall be in
effect; provided, however, that prior to invoking this condition, each party
shall use all commercially reasonable best efforts to have any such decree,
ruling, injunction or order vacated.
(c) Statutory Approvals. The Company Required Statutory Approvals and the
Parent Required Statutory Approvals shall have been obtained at or prior to the
Effective Time (or, in the case of the filings required, if any, under the HSR
Act, all applicable waiting periods and any extensions thereof shall have
expired or otherwise been terminated).
Section 9.2 Conditions to Obligation of Parent to Effect Merger. The
obligation of Parent to effect the Merger or cause the Merger to be effected
shall be further subject to the satisfaction, on or prior to the Closing Date,
of the following conditions, except as may be waived by Parent in writing
pursuant to SECTION 10.5:
(a) Performance of Obligations of the Company. The Company shall have
performed its agreements and covenants contained in or contemplated by this
Agreement required to be performed by it at or prior to the Effective Time,
except as otherwise contemplated by SECTION 10.1(E).
(b) Representations and Warranties. The representations and warranties of
the Company set forth in this Agreement shall be true and correct as of the
Closing Date as if made on and as of the Closing Date, except as otherwise
contemplated by SECTION 10.1(g).
(c) Closing Certificates. Parent shall have received a certificate signed
by the Chief Executive Officer and Chief Financial Officer of the Company, dated
the Closing Date, to the effect that, to each such officer's knowledge, the
conditions set forth in SECTIONS 9.2(A), (B), (D) AND (G) have been satisfied.
(d) Company Material Adverse Change. Since the date hereof, there shall
not have been any changes or events which have resulted or would result, so far
as can be reasonably foreseen, in a net change to the Company that has or in
reasonable probability will have a Company Material Adverse Effect.
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(e) Opinion of Jenkens & Gilchrist, a Professional Corporation. Parent
shall have received an opinion of Jenkens & Gilchrist, a Professional
Corporation, in form and substance reasonably satisfactory to Parent, addressed
to Parent and dated the Closing Date, which opinion may be based on appropriate
representations of the Company.
(f) Company Required Consents. The Company Required Consents shall have
been obtained except those that, if not received or obtained, in the aggregate
would not in reasonable probability result in a Company Material Adverse Effect.
(g) No Litigation. There shall not be threatened, instituted or pending
any suit, action, investigation, inquiry or other proceeding by or before any
court or governmental or other regulatory or administrative agency or commission
requesting or looking toward an order, judgment or decree that, individually or
in the aggregate, would in reasonable probability have a Material Adverse Effect
on the business, operations, condition (financial or otherwise), liabilities,
assets or earnings of the Surviving Corporation.
(h) Financing. Subject to the qualifications set forth in SECTION 10.2,
Parent and/or Sub shall have obtained secured senior debt financing for the
transactions contemplated hereby in an aggregate amount not less than
$30,000,000, on terms which are reasonable and satisfactory to them.
(i) Termination of Unexercised Rights Under Stock Plans. Each outstanding
option or restricted stock award (or any other right to stock) that remains
unexercised or unvested under the Stock Plans shall have been terminated under
the provisions of SECTION 3.5.
(j) Documents. All documents to be delivered by the Company to Parent and
Sub at the Closing shall be duly executed and in form and substance reasonably
satisfactory to Parent and Sub.
(k) Other. Parent and Sub shall have received such other documents or
certificates as Parent and Sub may reasonably have requested, including, without
limitation, certificates of good standing with respect to each of the Company
and its Subsidiaries from the appropriate authority in its jurisdiction of
incorporation and certificates of good standing with respect to the Company and
each of its Subsidiaries from the appropriate authority in each jurisdiction in
which it is qualified to do business.
Section 9.3 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger or cause the Merger
to be effected shall be further subject to the satisfaction, on or prior to the
Closing Date, of the following conditions, except as may be waived by the
Company in writing pursuant to SECTION 10.5.
(a) Performance of Obligations of Parent. Parent shall have performed its
agreements and covenants contained in or contemplated by this Agreement required
to be performed by it at or prior to the Effective Time, except as otherwise
contemplated by SECTION 10.1(d).
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(b) Representations and Warranties. The representations and warranties of
Parent and Sub set forth in this Agreement shall be true and correct as of the
Closing Date as if made on and as of the Closing Date, except as otherwise
contemplated by SECTION 10.1(d).
(c) Closing Certificates. The Company shall have received a certificate
signed by the Chief Executive Officer and Chief Financial Officer of Parent,
dated the Closing Date, to the effect that, to such officers' knowledge, the
conditions set forth in SECTIONS 9.3(a) and (b) have been satisfied.
(d) Opinion of Andrews & Kurth L.L.P.. The Company shall have received an
opinion of Andrews & Kurth L.L.P., in form and substance reasonably satisfactory
to the Company, addressed to the Company and dated the Closing Date, which
opinion may be based on appropriate representations of Parent and Sub.
(e) Fairness Opinion. The opinion delivered and addressed to the Board of
Directors on the date hereof by NationsBanc Montgomery Securities shall not have
been withdrawn.
(f) Documents. All documents to be delivered by Parent or Sub to the
Company at the Closing shall be duly executed and in form and substance
reasonably satisfactory to the Company.
(g) Other. The Company shall have received such other documents or
certificates as the Company may reasonably have requested, including, without
limitation, certificates of good standing with respect to each of Parent and Sub
from the appropriate authority in its jurisdiction of incorporation and
certificates of good standing with respect to each of Parent and Sub from the
appropriate authority in each jurisdiction in which it is qualified to do
business.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
Section 10.1 Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, whether before
or after approval of the matters presented in connection with the Merger by the
shareholders of the Company contemplated by this Agreement:
(a) by mutual written consent of the Company and Parent;
(b) by the Company or Parent so long as the Company or Parent (as the case
may be) is not then in material breach of its obligations hereunder, if the
Merger shall not have been consummated on or before 100 days after the date of
this Agreement; provided, however, that this Agreement may be extended by
written notice of either Parent or the Company to a date not later than 130 days
after the date of this Agreement, if the Merger shall not have been consummated
as a direct result of the conditions in SECTION 9.1(A) and SECTION 9.1(C);
provided, that the right to terminate this Agreement under this SECTION 10.1
shall not be available to the Company (or Parent) as the case may be if its
failure to fulfill any obligation under this Agreement has been a cause of or
resulted in the failure of the Merger to occur on or before such date;
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(c) by either the Company or Parent if any permanent injunction or other
order of a court or other competent authority preventing the consummation of the
Merger shall have become final and non-appealable;
(d) by the Company so long as the Company is not then in material breach of
its obligations hereunder, if there has been a breach of any representation,
warranty, covenant or agreement on the part of Parent set forth in this
Agreement which breach has not been cured within 20 calendar days following
receipt by the breaching party of notice of such breach, unless such breach
could not, individually or in the aggregate with other breaches, in reasonable
probability materially adversely affect the ability of the parties hereto to
consummate the transactions contemplated hereby;
(e) by Parent so long as Parent is not then in material breach of its
obligations hereunder, if there has been a breach of any covenant or agreement
on the part of the Company set forth in this Agreement which breach has not been
cured within 20 calendar days following receipt by the breaching party of notice
of such breach, unless such breach could not, individually or in the aggregate
with other breaches, in reasonable probability materially adversely affect the
ability of the parties hereto to consummate the transactions contemplated
hereby;
(f) by the Company, if (i) the Board of Directors of the Company shall have
accepted a Superior Takeover Proposal and (ii) the Company shall have paid the
termination fee set forth in SECTION 10.4(b);
(g) by Parent or Sub if the amount of the Net Adverse Effects (as defined
below) from breaches of the Company's representations and warranties and
statements identified by Parent or Sub prior to the Closing, if any, exceeds
$1,000,000. "Net Adverse Effects" shall mean the net aggregate adverse effects
on the reasonably determined valuation by Parent of the business operations,
properties (including intangible properties), condition (financial or
otherwise), assets, obligations or liabilities (whether absolute, contingent or
otherwise and whether due or to become due) of the Company and its Subsidiaries
or the transactions contemplated by this Agreement; and
(h) by Parent if (i) the Board of Directors of the Company makes a
Recommendation Modification/Withdrawal or (ii) the Company enters into a
definitive agreement for a Superior Takeover Proposal or any other Takeover
Proposal.
Section 10.2 Termination In Connection with Certain Financing Events.
(a) Parent has received the draft funding commitment letter from AMRESCO
Commercial Finance, Inc. ("AMRESCO") attached hereto as Exhibit B (the "AMRESCO
Letter") and the proposal from U.S. Restaurant Properties, Inc. ("USRP")
attached hereto as Exhibit C (the "USRP Letter").
(b) Parent is herewith depositing the amount of $250,000 and agrees to
deposit an additional $250,000 on Day 60 (as defined below) (the aggregate
amount of such $500,000 being termed the "Escrow Fund") into escrow with Texas
Bank for the purposes of this SECTION 10.2 in
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accordance with the terms of the Escrow Agreement attached hereto as Exhibit D
(the "Escrow Agreement").
(c) Parent shall use its commercially reasonable best efforts to cause
AMRESCO to (on or prior to the 30th day after the date of this Agreement ("Day
30")) (i) remove from the AMRESCO Letter, as conditions to AMRESCO's funding
commitment thereunder, the conditions that AMRESCO (1) receive a satisfactory
valuation report from its appraisers regarding the collateral securing AMRESCO's
loan, (2) receive all material required by it to complete its due diligence
and (3) find such material to be in all things satisfactory and then (ii)
execute and deliver to Parent and Sub the AMRESCO Letter as so modified (such
events being termed the "AMRESCO Day 30 Events").
(d) Parent shall use its commercially reasonable best efforts to cause
USRP to (on or prior to Day 30) (i) remove from the USRP Letter, as conditions
to USRP's funding, the conditions that USRP (1) retain an inspection and review
period, (2) receive all material required by it to complete its due diligence
and (3) find such material to be in all things satisfactory and then (ii)
execute and deliver to Parent and Sub a funding commitment on the terms outlined
in the USRP Letter as so modified (such events being termed the "USRP Day 30
Events").
(e) Parent shall use its commercially reasonable best efforts to cause (on
or prior to the 60th day after the date of this Agreement ("Day 60")) each of
AMRESCO and USRP to deliver to Parent and Sub a firm funding commitment
(containing the financial terms of the AMRESCO Letter and the USRP Letter,
respectively) that is conditioned only on (i) the delivery of closing
documentation and (ii) the accuracy, in all material respects, of the Company's
representations and warranties hereunder (a "Firm Commitment").
(f) In addition to the provisions of SECTION 10.1, this Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time:
(i) by the Company, at any time during the five business days immediately
following Day 30, as long as the Company is not then in material breach of its
obligations hereunder and as long as the amount of the Net Adverse Effects
from breaches of the Company's representations and warranties and statements
does not exceed $1,000,000, if either the AMRESCO Day 30 Events have not
occurred on or prior to the date of such termination or the USRP Day 30 Events
have not occurred on or prior to the date of such termination; and
(ii) by the Company, at any time during the five business days immediately
following Day 60, as long as the Company is not then in material breach of its
obligations hereunder and as long as the amount of the Net Adverse Effects
from breaches of the Company's representations and warranties and statements
do not exceed $1,000,000, if either AMRESCO or USRP has not delivered to
Parent a Firm Commitment on or prior to the date of such termination.
Section 10.3 Effect of Termination. In the event of termination of this
Agreement by either the Company or Parent as provided in SECTION 10.1 or SECTION
10.2, this Agreement shall forthwith become void and there shall be no liability
or obligation on the part of Parent, Sub or the Company or their respective
affiliates, officers, directors or shareholders except (i) with respect to the
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provisions of SECTION 10.4 or SECTION 3 of the Escrow Agreement, as applicable,
and (ii) that, subject to the last proviso of SECTION 10.4(a), no such
termination shall relieve any party from liability for any willful breach
hereof. Parent further agrees that following such termination, it shall
continue to be bound under all of the terms and conditions contained in the
Confidentiality Agreement.
Section 10.4 Payment of Expenses and Termination Fee.
(a) Damages Payable Upon Termination. If this Agreement is terminated
pursuant to SECTION 10.1(d), (e) OR (g), then the breaching party shall promptly
(but in no event later than five business days after receipt of notice that the
amount is due from the other party) pay to the other party, as liquidated
damages, an amount in cash equal to the out-of-pocket expenses and fees incurred
by the other party after the date hereof arising out of, or in connection with
or related to, the Merger or the transactions contemplated by this Agreement not
in excess of $500,000 (the "Out-of-Pocket Expenses"); provided, however, that if
this Agreement is terminated by a party as a result of a willful breach of a
representation, warranty, covenant or agreement by the other party, the non-
breaching party may pursue any remedies available to it at law or in equity
(subject, however, to the last proviso of this SECTION 10.4(a) and the
arbitration provisions of SECTION 11.10 hereof) and shall, in addition, to the
amount of Out-of-Pocket Expenses set forth above, be entitled to recover such
additional amounts as such non-breaching party may be entitled to receive at law
or in equity (subject, however, to the last proviso of this SECTION 10.4(a) and
the arbitration provisions of SECTION 11.10 hereof); provided, further, that the
payment by Parent of any Out-of-Pocket Expenses under the terms of this SECTION
10.4(a) and any amounts required under SECTION 3 of the Escrow Agreement shall
constitute the Company's sole and exclusive remedy against Parent or Sub for any
failure by the parties (or any party) to consummate the Merger.
(b) Termination Fee. In the event that (x) this Agreement is terminated by
the Company pursuant to SECTION 10.1(f), (y) this Agreement is terminated by
Parent pursuant to SECTION 10.1(h), or (z) the Company accepts any Takeover
Proposal (or Superior Takeover Proposal) within two years after this Agreement
is terminated by Parent pursuant to SECTION 10.1(E), then, in each such case,
the Company shall pay Parent a fee equal to the sum of (i) One Million Five
Hundred Thousand Dollars ($1,500,000) and (ii) Parent's Out-of-Pocket Expenses,
which aggregate amount (the "Section 10.4(b) Amount") the parties acknowledge is
a reasonable estimate (albeit a low estimate) as of the date of this Agreement
of the direct, indirect and opportunity costs and expenses that Parent will
incur in preparing for the Closing and which Section 10.4(b) Amount shall be
payable by wire transfer of same day funds within five business days after the
date of such termination (or in the case of (z) above, the amount of $1,500,000
shall be paid within five days after the Company accepts any Takeover Proposal
or Superior Takeover Proposal, the Out-of-Pocket Expenses having already been
paid). The Company acknowledges that the agreements contained in this SECTION
10.4(b) are an integral part of the transactions contemplated in this Agreement,
and that, without these agreements, Parent and Sub would not enter into this
Agreement; accordingly, if the Company fails to promptly pay the Section 10.4(b)
Amount due pursuant to this SECTION 10.4(b) and, in order to obtain such
payment, Parent or Sub commences an action in arbitration that results in a
judgment against the Company for such Section 10.4(b) Amount, the Company shall
pay to Parent its costs and expenses (including attorneys' fees) in connection
with such action in arbitration, together with interest on the Section 10.4(b)
Amount at the rate of 8.0% per annum. In the event Parent has
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received the Section 10.4(b) Amount, it shall not (i) assert or pursue in any
manner, directly or indirectly, any claim or cause of action based in whole or
in part upon alleged tortious or other interference with rights under this
Agreement against any entity or person submitting a Takeover Proposal or (ii)
assert or pursue in any manner, directly or indirectly, any Claim or cause of
action against the Company or any of its officers or directors based in whole or
in part upon its or their receipt, consideration, recommendation or approval of
a Takeover Proposal for the Company's exercise of its right of termination.
Section 10.5 Amendment. Subject to applicable law, this Agreement may
be amended, modified or supplemented only by written agreement of Parent, Sub
and the Company at any time prior to the Effective Date with respect to any of
the terms contained herein.
Section 10.6 Extension; Waiver. At any time prior to the Effective
Time, the parties hereto, may, to the extent legally allowed and only if agreed
to by all parties hereto: (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto; (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto; and (iii) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party. The failure of any party
hereto to assert any of its rights hereunder shall not constitute a waiver of
such rights.
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 Non-survival of Representations and Warranties. The
representations and warranties in this Agreement shall terminate at the
Effective Time. This SECTION 11.1 shall not limit any covenant or agreement of
the parties hereto that by its terms contemplates performance after the
Effective Time.
Section 11.2 Brokers.
(a) The Company represents and warrants that, except for NationsBanc
Montgomery Securities, no broker, finder or investment bank is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company.
(b) Parent represents and warrants that except for an arrangement with El
Chico Management Co., L.P. (for which the Company shall have no responsibility
or obligation), no broker, finder or investment bank is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent.
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Section 11.3 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given (a) if delivered personally, or
(b) if sent by overnight courier service (receipt confirmed in writing), or (c)
if delivered by facsimile transmission (with receipt confirmed), or (d) five (5)
days after being mailed by registered or certified mail (return receipt
requested) to the parties, in each case to the following addresses (or at such
other address for a party as shall be specified by like notice):
(i) if to the Company:
Spaghetti Warehouse, Inc.
402 West Interstate 30
Garland, Texas 75043
Attention: Robert Bodnar, Chief Financial Officer
Fax: (972) 203-9594
with a copy to:
Jenkens & Gilchrist, a Professional Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202
Attention: Ronald J. Frappier, Esq.
Fax: (214) 855-4300
(ii) if to Parent or Sub:
Consolidated Restaurant Companies, Inc.
5956 Sherry Lane, Suite 1450
Dallas, Texas 75225
Attention: John R.W. Cracken
Fax: (214) 785-7086
with a copy to:
Andrews & Kurth L.L.P.
1717 Main Street, Suite 3700
Dallas, Texas 75201
Attention: J. Gregory Holloway
Fax: (214) 659-4401
Section 11.4 Interpretation. When reference is made in this Agreement
to Articles, Sections or Exhibits, such reference shall be to an Article,
Section or Exhibit of this Agreement, as the case may be, unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
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Section 11.5 Miscellaneous.
(a) This Agreement, including the Company Disclosure Schedule, the Escrow
Agreement and the other documents and instruments referred to herein, (i)
constitutes the entire agreement and supersedes all other prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof other than the Confidentiality Agreement,
(ii) shall not be assigned by operation of law or otherwise, and (iii) shall be
governed by and construed in accordance with the laws of the State of Texas
applicable to contracts executed in and to be fully performed in such State,
without giving effect to its conflicts of laws statutes, rules or principles.
(b) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect. The parties hereto
shall negotiate in good faith to replace any provision of this Agreement so held
invalid or unenforceable with a valid provision that is as similar as possible
in substance to the invalid or unenforceable provision.
Section 11.6 Counterparts; Effect. This Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same agreement.
Section 11.7 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto, and, except for rights of
Indemnified Parties and their heirs and representatives as set forth in SECTION
8.6, nothing in this Agreement, express or implied, is intended to confer upon
any person any rights or remedies of any nature whatsoever under or by reason of
this Agreement.
Section 11.8 Further Assurances. Each party hereto shall execute such
further documents and instruments and take such further actions as may
reasonably be requested by any other party hereto in order to consummate the
Merger in accordance with the terms hereof.
Section 11.9 Governing Law.
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO ITS CONFLICTS
OF LAW RULES.
(b) Any controversy or claim arising out of or relating to this Agreement,
or the breach thereof, shall be settled by binding arbitration administered by
the American Arbitration Association (the "AAA") under its Commercial
Arbitration Rules ("Rules"), and shall be held in Dallas, Texas. Any dispute
submitted for arbitration shall be referred to a panel of three arbitrators.
The party or parties submitting ("Submitting Party") the intention to arbitrate
(the "Submission") shall nominate one arbitrator. Within 30 days of receipt of
the Submission, the party or parties receiving the Submission ("Answering
Party") shall nominate one arbitrator. If the Answering Party fails to timely
nominate an arbitrator, then the second arbitrator shall be appointed by the AAA
in accordance with the Rules. If the arbitrator chosen by the Submitting Party
and the arbitrator chosen by or selected
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for the Answering Party can agree upon a neutral arbitrator within fifteen (15)
days of the choice or selection of the Answering Party's arbitrator, then such
individual shall serve as the third arbitrator. If no such agreement is reached,
a third neutral arbitrator shall be appointed by the AAA in accordance with the
Rules. The parties agree that they will consent to an expedited proceeding under
the Rules, to the full extent the AAA can accommodate such a request. Any
disputes arising in respect to arbitration may be resolved, and judgment on the
award rendered by the arbitrators may be entered, only in a Texas State District
Court in Dallas County, Texas. The ruling of the arbitrators shall be binding
and conclusive upon Parent, Sub and the Company and any person with an interest
in the matter.
(c) In any proceeding regarding Indemnification Matters, all direct,
reasonable costs and expenses (including AAA administration fees and arbitrator
fees) incurred by the parties to the proceeding shall, at the conclusion of the
proceeding, be paid by the party incurring same.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be signed
by their respective officers thereunto duly authorized, and as of the date first
written above.
SPAGHETTI WAREHOUSE ACQUISITION,
INC.
By: /s/ John R. W. Cracken
------------------------------------------------
John R. W. Cracken,
President
CONSOLIDATED RESTAURANT
COMPANIES, INC.
By: /s/ E. Gene Street
------------------------------------------------
E. Gene Street,
Chairman of the Board, Chief Executive Officer
and President
SPAGHETTI WAREHOUSE, INC.
By: /s/ Robert R. Hawk
------------------------------------------------
Name: Robert R. Hawk
Title: Chairman of the Board of Directors, President
and Chief Financial Officer
<PAGE>
APPENDIX B
B-1
<PAGE>
September 17, 1998
Board of Directors
Spaghetti Warehouse, Inc.
402 West Interstate 30
Garland, Texas 75043
Gentlemen and Ladies:
We understand that Consolidated Restaurant Companies, Inc., a Delaware
corporation ("Buyer"), Spaghetti Warehouse Acquisition, Inc., a Texas
corporation ("Sub"), and Spaghetti Warehouse, Inc., a Texas corporation
("Seller"), propose to enter into an Agreement and Plan of Merger, a draft of
which has been provided to us by management of Seller dated September 17, 1998
(the "Merger Agreement") pursuant to which Sub will be merged with and into
Seller (the "Merger"), and Seller will become a wholly-owned subsidiary of
Buyer. Pursuant to the Merger, as more fully described in the Merger Agreement
and as further described to us by management of Seller, we understand that each
outstanding share of the common stock, $.01 par value per share, of Seller (the
"Seller Common Stock") shall be converted into the right to receive $8.00 per
share in cash (the "Merger Consideration"). The terms and conditions of the
Merger as we understand them are set forth in more detail in the Merger
Agreement.
You have asked for our opinion as investment bankers as to whether the
Consideration to be received by the shareholders of Seller pursuant to the
Merger is fair to such shareholders from a financial point of view, as of the
date hereof.
In connection with our opinion, we have, among other things: (i) reviewed
certain publicly available financial and other data with respect to Seller,
including the consolidated financial statements for recent years and interim
periods to June 28, 1998, and certain other relevant financial and operating
data relating to Seller made available to us from published sources and from the
internal records of Seller; (ii) reviewed the financial terms and conditions of
the Merger Agreement; (iii) reviewed certain publicly available information
concerning the trading of, and the trading market for, Seller Common Stock; (iv)
compared Seller from a financial point of view with certain other companies in
the restaurant industry which we deemed to be relevant; (v) considered the
financial terms, to the extent publicly available, of selected recent business
combinations involving companies in the restaurant industry which we deemed to
be comparable, in whole or in part, to the Merger; (vi) assisted Seller in
soliciting indications of interest and bids from third parties seeking to enter
into a transaction with Seller similar to, or as an alternative to, the Merger;
(vii) reviewed and discussed with representatives of the management of Seller
certain information of a business and financial nature regarding Seller
furnished to us by management of Seller, including financial forecasts and
related assumptions of Seller; (viii) made inquiries regarding and discussed the
Merger, Merger Agreement and other matters related thereto with Seller's
counsel; and (ix) performed such other analyses and examinations as we have
deemed appropriate.
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its being
accurate and complete in all material respects. With respect to the financial
forecasts for Seller provided to us by management of Seller, upon your advice
and with your consent we have assumed for purposes of our opinion that the
forecasts have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of management of Seller as to the future
financial performance of Seller and that they provide a reasonable basis upon
which we can form our opinion. We have also assumed that there have been no
material changes in Seller's assets, financial condition, results of operations,
business or prospects since the respective dates of its last financial
statements made available to us. We have relied on advice of the counsel and
the independent accountants to Seller as to all legal, tax and financial
reporting matters with respect to Seller, the Merger and the Merger Agreement.
We have assumed that the Merger will be consummated in a manner that complies in
all respects with the Securities Exchange Act of 1934, as amended, and all other
applicable federal and state statutes, rules and regulations. In addition, we
have not assumed responsibility for making an independent evaluation, appraisal
or physical inspection of any of the assets or liabilities (contingent or
otherwise) of Seller, nor have we been furnished with any such appraisals.
Finally, our opinion is based on economic, monetary and market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. Accordingly, although subsequent developments may affect this
opinion, we have not assumed any obligation to update, revise or reaffirm this
opinion.
<PAGE>
We have further assumed with your consent that the Merger will be consummated
in accordance with the terms described in the Merger Agreement, without any
amendments thereto, and without waiver by Seller of any of the conditions to its
obligations thereunder.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Consideration to be received by the shareholders of
Seller pursuant to the Merger is fair to such shareholders from a financial
point of view, as of the date hereof.
In the ordinary course of our business, we trade the equity securities of
Seller for our own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities.
This opinion is directed solely to the Board of Directors of Seller in
connection with its consideration of the Merger, and is not a recommendation to
any shareholder as to how shareholders should vote with respect to the Merger.
Shareholders of Seller are neither addressees nor intended beneficiaries of our
opinion (which is addressed solely to the members of the Board of Directors of
Seller for their personal use as directors in connection with their review and
evaluation of the Merger) or our underlying financial analysis, and no
shareholder of Seller may rely or allege any reliance on our opinion or analysis
in connection with such shareholder's consideration of the merits of the Merger
or otherwise. Further, this opinion addresses only the financial fairness of
the Consideration to the shareholders of Seller, as of the date hereof, and does
not address any other aspect of the Merger including, without limitation, the
relative merits of the Merger, any alternatives to the Merger or Seller's
underlying decision to proceed with or effect the Merger. This opinion may not
be used or referred to by Seller, or quoted or disclosed to any person in any
manner, without our prior written consent, which consent is hereby given to the
inclusion of this opinion in its entirety in any proxy statement filed by Seller
with the Securities and Exchange Commission in connection with the Merger that
requires a description of the factors considered by the Board of Directors of
Seller in connection with its approval of a proposed merger.
Very truly yours,
NationsBanc Montgomery
Securities LLC
<PAGE>
APPENDIX C
C-1
<PAGE>
ART. 5.11 RIGHTS OF DISSENTING SHAREHOLDERS IN THE EVENT OF CERTAIN
CORPORATE ACTIONS
A. Any shareholder of a domestic corporation shall have the right to dissent
from any of the following corporate actions:
(1) Any plan of merger to which the corporation is a party if shareholder
approval is required by Article 5.03 or 5.16 of this Act and the shareholder
holds shares of a class or series that was entitled to vote thereon as a class
or otherwise;
(2) Any sale, lease, exchange or other disposition (not including any
pledge, mortgage, deed of trust or trust indenture unless otherwise provided in
the articles of incorporation) of all, or substantially all, the property and
assets, with or without good will, of a corporation if the special authorization
of the shareholders is required by this Act and the shareholders hold shares of
a class or series that was entitled to vote thereon as a class or otherwise;
(3) Any plan of exchange pursuant to Article 5.02 of this Act in which the
shares of the corporation of the class or series held by the shareholder are to
be acquired.
B. Notwithstanding the provisions of Section A of this Article, a shareholder
shall not have the right to dissent from any plan of merger in which there is a
single surviving or new domestic or foreign corporation, or from any plan of
exchange, if: (1) the shares held by the shareholder are part of a class or
series of shares which are on the record date fixed to determine the
shareholders entitled to vote on the plan of merger or plan of exchange: (a)
listed on a national securities exchange; (b) listed on the NASDAQ stock market
(or successor quotation system) or designated as a national market security on
an interdealer quotation system by the National Association of Securities
Dealers, Inc., or successor entity; or (c) held of record by not less than 2,000
holders; (2) the shareholder is not required by the terms of the plan of merger
or plan of exchange to accept for the shareholder's shares any consideration
that is different than the consideration (other than cash in lieu of fractional
shares that the shareholder would otherwise be entitled to receive) to be
provided to any other holder of shares of the same class or series of shares
held by such shareholder; and (3) the shareholder is not required by the terms
of the plan of merger or the plan of exchange to accept for the shareholder's
shares any consideration other than: (a) shares of a domestic or foreign
corporation that, immediately after the effective time of the merger or
exchange, will be part of a class or series, shares of which are: (i) listed,
or authorized for listing upon official notice of issuance, on a national
securities exchange; (ii) approved for quotation as a national market security
on an interdealer quotation system by the National Association of Securities
Dealers, Inc., or successor entity; or (iii) held of record by not less than
2,000 holders; (b) cash in lieu of fractional shares otherwise entitled to be
received; or (c) any combination of the securities and cash described in
subdivisions (a) and (b) of this subsection.
ART. 5.12 PROCEDURE FOR DISSENT BY SHAREHOLDERS AS TO SAID CORPORATE ACTIONS
A. Any shareholder of any domestic corporation who has the right to dissent
from any of the corporate actions referred to in Article 5.11 of this Act may
exercise that right to dissent only by complying with the following procedures:
(1)(a) With respect to proposed corporate action that is submitted to a
vote of shareholders at a meeting, the shareholder shall file with the
corporation, prior to the meeting, a written objection to the action, setting
out that the shareholder's right to dissent will be exercised if the action is
effective and giving the shareholder's address, to which notice thereof shall be
delivered or mailed in that event. If the action is effected and the
shareholder shall not have voted in favor of the action, the corporation, in the
case of action other than a merger, or the surviving or new corporation (foreign
or domestic) or other entity that is liable to discharge the shareholder's right
of dissent, in the case of a merger, shall, within ten (10) days after the
action is effected, deliver or mail to the shareholder written notice that the
action has been effected, and the shareholder may, within ten (10) days from the
delivery or mailing of the notice, make written demand on the existing,
surviving, or new corporation (foreign or domestic) or other entity, as the case
may be, for payment of the fair value of the shareholder's shares. The fair
value of the shares shall be the value thereof as of the day immediately
preceding the meeting, excluding any appreciation or depreciation in
anticipation of the proposed action. The demand shall state the number and
class of the shares owned by the shareholder and the fair value of the shares as
estimated by the shareholder. Any shareholder failing to make demand within the
ten (10) day period shall be bound by the action.
(b) With respect to proposed corporate action that is approved pursuant to
Section A of Article 9.10 of this Act, the corporation, in the case of action
other than a merger, and the surviving or new corporation (foreign or domestic)
<PAGE>
or other entity that is liable to discharge the shareholder's right of dissent,
in the case of a merger, shall, within ten (10) days after the date the action
is effected, mail to each shareholder of record as of the effective date of the
action notice of the fact and date of the action and that the shareholder may
exercise the shareholder's right to dissent from the action. The notice shall
be accompanied by a copy of this Article and any articles or documents filed by
the corporation with the Secretary of State to effect the action. If the
shareholder shall not have consented to the taking of the action, the
shareholder may, within twenty (20) days after the mailing of the notice, make
written demand on the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, for payment of the fair value of
the shareholder's shares. The fair value of the shares shall be the value
thereof as of the date the written consent authorizing the action was delivered
to the corporation pursuant to Section A of Article 9.10 of this Act, excluding
any appreciation or depreciation in anticipation of the action. The demand
shall state the number and class of shares owned by the dissenting shareholder
and the fair value of the shares as estimated by the shareholder. Any
shareholder failing to make demand within the twenty (20) day period shall be
bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of a
demand for payment made by a dissenting shareholder in accordance with
Subsection (1) of this Section, the corporation (foreign or domestic) or other
entity shall deliver or mail to the shareholder a written notice that shall
either set out that the corporation (foreign or domestic) or other entity
accepts the amount claimed in the demand and agrees to pay that amount within
ninety (90) days after the date on which the action was effected, and, in the
case of shares represented by certificates, upon the surrender of the
certificates duly endorsed, or shall contain an estimate by the corporation
(foreign or domestic) or other entity of the fair value of the shares, together
with an offer to pay the amount of that estimate within ninety (90) days after
the date on which the action was effected, upon receipt of notice within sixty
(60) days after that date from the shareholder that the shareholder agrees to
accept that amount and, in the case of shares represented by certificates, upon
the surrender of the certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate action
was effected, the value of the shares is agreed upon between the shareholder and
the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, payment for the shares shall be made within ninety
(90) days after the date on which the action was effected and, in the case of
shares represented by certificates, upon surrender of the certificates duly
endorsed. Upon payment of the agreed value, the shareholder shall cease to have
any interest in the shares or in the corporation.
(B) If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporation (foreign or domestic) or
other entity may, within sixty (60) days after the expiration of the sixty (60)
day period, file a petition in any court of competent jurisdiction in the county
in which the principal office of the domestic corporation is located, asking for
a finding and determination of the fair value of the shareholder's shares. Upon
the filing of any such petition by the shareholder, service of a copy thereof
shall be made upon the corporation (foreign or domestic) or other entity, which
shall, within ten (10) days after service, file in the office of the clerk of
the court in which the petition was filed a list containing the names and
addresses of all shareholders of the domestic corporation who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the corporation (foreign or domestic) or other
entity. If the petition shall be filed by the corporation (foreign or domestic)
or other entity, the petition shall be accompanied by such a list. The clerk of
the court shall give notice of the time and place fixed for the hearing of the
petition by registered mail to the corporation (foreign or domestic) or other
entity and to the shareholders named on the list at the addresses therein
stated. The forms of the notices by mail shall be approved by the court. All
shareholders thus notified and the corporation (foreign or domestic) or other
entity shall thereafter be bound by the final judgment of the court.
C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The
appraisers shall have power to examine any of the books and records of the
corporation the shares of which they are charged with the duty of valuing, and
they shall make a determination of the fair value of the shares upon such
investigation as to them may seem proper. The appraisers shall also afford a
reasonable opportunity to the parties interested to submit to them pertinent
evidence as to the value of the shares. The appraisers shall also have such
power and authority as may be conferred on Masters in Chancery by the Rules of
Civil Procedure or by the order of their appointment.
<PAGE>
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall be its
judgment determine the fair value of the shares of the shareholders entitled to
payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other entity,
together with interest thereon, beginning 91 days after the date on which the
applicable corporate action from which the shareholder elected to dissent was
effected to the date of such judgment, to the shareholders entitled to payment.
The judgment shall be payable to the holders of uncertificated shares
immediately but to the holders of shares represented by certificates only upon,
and simultaneously with, the surrender to the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of duly
endorsed certificates for those shares. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those shares or in
the corporation. The court shall allow the appraisers a reasonable fee as court
costs, and all court costs shall be allotted between the parties in the manner
that the court determines to be fair and equitable.
E. Shares acquired by the existing, surviving, or new corporation (foreign or
domestic) or other entity, as the case may be, pursuant to the payment of the
agreed value of the shares or pursuant to payment of the judgment entered for
the value of the shares, as in this Article provided, shall, in the case of a
merger, be treated as provided in the plan of merger and, in all other cases,
may be held and disposed of by the corporation as in the case of other treasury
shares.
F. The provisions of this Article shall not apply to a merger if, on the date
of the filing of the articles of merger, the surviving corporation is the owner
of all the outstanding shares of the other corporations, domestic or foreign,
that are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided by this
Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action.
If the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article, any
shareholder who fails to comply with the requirements of this Article shall not
be entitled to bring suit for the recovery of the value of his shares or money
damages to the shareholder with respect to the action.
ART. 5.13 PROVISIONS AFFECTING REMEDIES OF DISSENTING SHAREHOLDERS
A. Any shareholder who has demanded payment for his shares in accordance with
either Article 5.12 or 5.16 of this Act shall not thereafter be entitled to vote
or exercise any other rights of a shareholder except the right to receive
payment for his shares pursuant to the provisions of those articles and the
right to maintain an appropriate action to obtain relief on the ground that the
corporate action would be or was fraudulent, and the respective shares for which
payment has been demanded shall not thereafter be considered outstanding for the
purposes of any subsequent vote of shareholders.
B. Upon receiving a demand for payment from any dissenting shareholder, the
corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made shall be transferred, any new certificate issued
therefor shall bear similar notation together with the name of the original
dissenting holder of such shares and a transferee of such shares shall acquire
by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making demand for the payment of the
fair value thereof.
C. Any shareholder who has demanded payment for his shares in accordance with
either Article 5.12 or 5.16 of this Act may withdraw such demand at any time
before payment for his shares or before any petition has been filed pursuant to
Article 5.12 or 5.16 of this Act asking for a finding and determination of the
fair value of such shares, but no such demand may be withdrawn after such
payment has been made or, unless the corporation shall consent thereto, after
any such petition has been filed. If, however, such demand shall be withdrawn as
hereinbefore provided, or if pursuant to Section B of this Article the
corporation shall terminate the shareholder's rights under Article 5.12 or 5.16
of this Act, as the case
<PAGE>
may be, or if no petition asking for a finding and determination of fair value
of such shares by a court shall have been filed within the time provided in
Article 5.12 or 5.16 of this Act, as the case may be, or if after the hearing of
a petition filed pursuant to Article 5.12 or 5.16, the court shall determine
that such shareholder is not entitled to the relief provided by those articles,
the, in any such case, such shareholder and all persons claiming under him shall
be conclusively presumed to have approved and ratified the corporate action from
which he dissented and shall be bound thereby, the right of such shareholder to
be paid the fair value of his shares shall cease, and his status as a
shareholder shall be restored without prejudice to any corporate proceedings
which may have been taken during the interim, and such shareholder shall be
entitled to receive any dividends of other distributions made to shareholders in
the interim.
<PAGE>
SPAGHETTI WAREHOUSE, INC.
402 WEST I-30
GARLAND, TEXAS 75043
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON DECEMBER 17, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Robert R. Hawk and Robert E. Bodnar and each
of them, as Proxies, each with the power to appoint substitutes, and hereby
authorizes each of them to represent and to vote, as designated below, all of
the shares of the Common Stock, par value $0.01 per share, of Spaghetti
Warehouse, Inc. (the "Company") held of record by the undersigned at the close
of business on November __, 1998, that the undersigned is entitled to vote, at
the Special Meeting of Shareholders of the Company to be held at 1815 N. Market
Street, Dallas, Texas on the second floor, on December 17, 1998, at 10:00 a.m.
Dallas time, or any adjournments thereof.
(1) Adoption of Agreement and Plan of Merger and approval of Merger.
/ / FOR / / AGAINST / / ABSTAIN
(2) As such proxies may in their discretion determine upon such other matters as
may properly come before the meeting.
/ / FOR / / AGAINST / / ABSTAIN
PLEASE NOTE
THIS PROXY IS TO BE VOTED AS DIRECTED. IN THE ABSENCE OF SPECIFIC DIRECTION, IT
IS INTENDED TO VOTE THE SHARES REPRESENTED BY THIS PROXY FOR EACH OF THE
PROPOSALS.
You are urged to sign and return your proxy without delay in the return envelope
provided for that purpose, which requires no postage if mailed in the United
States or Canada.
PLEASE SEND IN YOUR PROXY
In order that there may be proper representation at the Special Meeting, each
shareholder, whether he or she owns one or more shares, is requested to sign
this proxy and return it promptly in the enclosed envelope.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR EACH OF THE
PROPOSALS.
<PAGE>
This Proxy, when properly executed, will be voted in the manner directed
herein by the undersigned shareholder(s). IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR THE PROPOSALS SET FORTH ABOVE, AND IN THE DISCRETION OF THE
PROXIES WITH RESPECT TO ANY OTHER MATTER THAT IS PROPERLY BROUGHT BEFORE THE
MEETING.
Dated:___________________________________, 1998.
_________________________________________
Signature
__________________________________________________
Signature if Held Jointly
Please execute this Proxy as your name appears hereon. When
shares are held by joint tenants, both should sign. When
signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation,
please sign in full corporate name by the president or other
authorized officer. If a partnership, please sign in
partnership name by authorized person. PLEASE MARK, SIGN,
DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
