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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. 1)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
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[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
RUDY'S RESTAURANT GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Douglas M. Rudolph, Rudy's Restaurant Group, Inc.,
11900 Biscayne Blvd., Suite 806, Miami, FL 33181
(305) 895-7200 Fax (305) 895-2881
Charles J. Rennert, Esq., Berman Wolfe & Rennert, P.A.,
100 S.E. Second Street, 35th Floor, Miami, FL 33131
(305) 577-4177 Fax (305) 373-6036
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $.01 per share ("Common Stock"), of Rudy's
Restaurant Group, Inc. ("Rudy's")
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
3,765,000 shares of Rudy's Common Stock
------------------------------------------------------------------------
(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):
$5.20 per share ($5.00 plus an estimated upward adjustment as per the
terms of the Agreement and Plan of Merger by and among Benihana Inc.,
Benihana Merger Corp., Rudy's Restaurant Group, Inc., Bayview Partners
and Douglas M. Rudolph dated July 22, 1997), multiplied by 3,765,000
shares, yielding $19,578,000 maximum aggregate value.
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$19,578,000
------------------------------------------------------------------------
(5) Total fee paid:
$3,915.60 (1/50 of 1% of $19,578,000)
------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
RUDY'S RESTAURANT GROUP, INC.
11900 BISCAYNE BOULEVARD, SUITE 806
MIAMI, FLORIDA 33181
Dear Stockholder:
I am pleased to enclose information relating to a Special Meeting of
Stockholders of Rudy's Restaurant Group, Inc. ("Rudy's") to be held at Rudy's
headquarters located at 11900 Biscayne Boulevard, Suite 806, Miami, Florida, at
9:00 a.m. E.D.T. on November , 1997.
The purpose of the Special Meeting of Stockholders is to consider and vote
upon a proposal to approve and adopt an Agreement and Plan of Merger dated July
22, 1997 (the "Merger Agreement") by and among Rudy's, Benihana Inc., a Delaware
corporation ("Benihana"), Benihana Merger Corp., a Nevada corporation and a
wholly-owned subsidiary of Benihana ("Newco"), Bayview Partners, a general
partnership organized under the laws of the State of Texas, and Douglas M.
Rudolph, and the merger contemplated thereby (the "Merger"), pursuant to which
Newco will be merged with and into Rudy's, whereupon Rudy's will become a
wholly-owned subsidiary of Benihana, and the stockholders of Rudy's will receive
the right to receive cash consideration of a minimum of $5.00 per share (the
"Cash Consideration Per Share"). The Cash Consideration Per Share may be
increased as provided in the Merger Agreement based on the operating performance
of Rudy's through the closing of the Merger. There is no limitation on the
increase, if any, in the Cash Consideration Per Share payable to the
stockholders of Rudy's. Based on the performance of Rudy's during the same
period last year, the Cash Consideration Per Share would have been increased by
approximately $.15. Rudy's does not anticipate that the increase, if any, will
be materially different than the $.15 per share. There can be no assurances that
Rudy's performance during the same period last year will be substantially
similar to this year's performance. A copy of the Merger Agreement is attached
as Appendix A to, and is summarized in, the accompanying Proxy Statement.
You will also be asked to approve the adjournment or postponement of the
Special Meeting of Rudy's Stockholders in the event such adjournment or
postponement is necessary in order to solicit additional votes for approval of
the Merger Agreement and the Merger contemplated thereby.
Your vote is important. In order to ensure that your vote is represented at
the Special Meeting of Stockholders, please indicate your vote on the Proxy
form, date and sign it, and return it in the enclosed postage pre-paid envelope.
A prompt response is appreciated. If you are able to attend the Special Meeting
of Stockholders, you may revoke your Proxy and vote in person if you wish.
The Board of Directors of Rudy's recommends that you vote for the proposals
described above.
Very truly yours,
--------------------------------------
Douglas M. Rudolph
Chairman of the Board, President,
Chief Executive Officer and Secretary
(i)
<PAGE> 3
RUDY'S RESTAURANT GROUP, INC.
11900 BISCAYNE BOULEVARD, SUITE 806
MIAMI, FLORIDA 33181
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER , 1997
To the Stockholders of Rudy's Restaurant Group, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"Meeting") of Rudy's Restaurant Group, Inc. ("Rudy's") will be held at Rudy's
headquarters located at 11900 Biscayne Boulevard, Suite 806, Miami, Florida
33181 on November , 1997 at 9:00 a.m. local time for the purpose of
considering and taking action upon the following proposals:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger dated July 22, 1997 by and among Rudy's,
Benihana Inc., a Delaware corporation ("Benihana"), Benihana Merger Corp.,
a Nevada corporation and a wholly-owned subsidiary of Benihana ("Newco"),
Bayview Partners, a general partnership organized under the laws of the
State of Texas, and Douglas M. Rudolph (the "Merger Agreement"), and the
merger contemplated thereby (the "Merger"), pursuant to which Newco will be
merged with and into Rudy's, whereupon Rudy's will become a wholly-owned
subsidiary of Benihana, and the stockholders of Rudy's will receive the
right to receive cash consideration of a minimum of $5.00 per share (the
"Cash Consideration Per Share"). There are no fractional shares of Common
Stock of Rudy's outstanding. The Cash Consideration Per Share may be
increased as provided in the Merger Agreement based on the performance of
Rudy's through the closing of the Merger, generally by an amount per share,
if any, calculated as the following amount divided by the number of Rudy's
shares of Common Stock outstanding: The sum of (i) the amount by which
Rudy's net working capital as of the date immediately preceding the
effective date of the Merger exceeds $1,937,127; plus (ii) all of Rudy's
out-of-pocket expenses paid or accrued in connection with the transactions
contemplated by the Merger Agreement; plus (iii) Rudy's capital
expenditures since April 13, 1997 (other than those expenditures which have
been capitalized by Rudy's as current assets); plus (iv) one-half of
certain debt paid by Rudy's since April 13, 1997. There is no limitation on
the increase, if any, in the Cash Consideration Per Share payable to the
stockholders of Rudy's. Based on the operating performance of Rudy's during
the same period last year, the Cash Consideration Per Share would have been
increased approximately $.15 per share. Rudy's does not anticipate that the
increase, if any, will be materially different than $.15 per share. There
can be no assurances that Rudy's operating performance this year will be
substantially similar to Rudy's last year's operating performance. A copy
of the Merger Agreement is attached as Appendix A to, and is summarized in,
the accompanying Proxy Statement; and
2. To consider and vote upon a proposal to adjourn or postpone the
Meeting in the event that such adjournment or postponement is necessary to
solicit additional votes for approval of the foregoing proposal.
3. To act upon any other matters properly coming before the Meeting or
any adjournment or postponement thereof.
The affirmative vote of holders of a majority of the outstanding shares of
Common Stock on the record date for the Meeting is required to approve and adopt
the Merger Agreement and the Merger.
Management currently knows of no other business to be presented at the
Meeting. If any other matters come before the Meeting, the persons named in the
enclosed proxy card will vote in accordance with the judgment of the persons
voting such proxies.
The Board of Directors has fixed the close of business on October 14, 1997
as the record date for the Meeting. Only stockholders of record at that time are
entitled to notice of, and all such holders of Common Stock are entitled to vote
at the Meeting and any adjournment or postponement thereof. A complete list of
stockholders entitled to vote at the Meeting will be available for inspection by
any stockholder for any purpose
(i)
<PAGE> 4
germane to the Meeting for ten days prior to the Meeting during ordinary
business hours at the headquarters of Rudy's located at 11900 Biscayne
Boulevard, Suite 806, Miami, Florida 33181.
If the Merger is consummated, stockholders who oppose the Merger and who
elect to assert dissenters' rights under Nevada law may do so in accordance with
Sections 92A.300 through 92A.500 of the Nevada Revised Statutes (the "NRS"). See
"THE MERGER -- DISSENTERS' RIGHTS and Appendix B hereto.
As of the Effective Time, each share of Rudy's Common Stock outstanding,
will no longer be outstanding, will automatically be canceled and retired and
will cease to exist, and the holders of those shares will cease to have any
rights with respect thereto, except the right to receive the Cash Consideration
Per Share. Notwithstanding the foregoing, persons who have properly asserted
dissenters' rights will be entitled to receive payment for shares in accordance
with the NRS.
To assure that your vote is counted, please complete, date and sign the
enclosed proxy card and return it promptly in the enclosed envelope, whether or
not you plan to attend the Meeting in person. A self-addressed postage paid
envelope is enclosed for your convenience. No additional postage is required if
mailed in the United States. If you do attend the Meeting, you may withdraw your
proxy and vote your shares in person if you so choose. In any event, you may
revoke your proxy prior to its exercise by providing written notice to the
Secretary of Rudy's or by submitting a subsequent proxy relating to the same
shares. Shares represented by proxies that are returned properly signed but
unmarked will be voted in favor of the foregoing proposals.
THE BOARD OF DIRECTORS OF RUDY'S UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS VOTE FOR EACH OF THE PROPOSALS DESCRIBED ABOVE.
By order of the Board of Directors,
Douglas M. Rudolph
Chairman of the Board, President,
Chief Executive Officer, Secretary
Miami, Florida
October , 1997
(ii)
<PAGE> 5
RUDY'S RESTAURANT GROUP, INC.
11900 BISCAYNE BOULEVARD, SUITE 806
MIAMI, FLORIDA 33181
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER , 1997
GENERAL INFORMATION
PURPOSE OF MEETING
This Proxy Statement is being furnished to holders of Common Stock, par
value $.01 per share (the "Common Stock"), of Rudy's Restaurant Group, Inc., a
Nevada corporation ("Rudy's"), in connection with the solicitation of proxies by
the Board of Directors of Rudy's from such holders for use at the Special
Meeting of Stockholders of Rudy's (the "Meeting") to be held on November ,
1997 at 9:00 a.m. local time at 11900 Biscayne Boulevard, Suite 806, Miami,
Florida 33181 and at any adjournment or postponement thereof. This Proxy
Statement, the enclosed Notice of Special Meeting of Stockholders and the form
of proxy are first being mailed to the Stockholders of Rudy's on or about
October , 1997.
At the Meeting, stockholders of Rudy's will be asked to consider and vote
upon a proposal to approve and adopt (i) an Agreement and Plan of Merger dated
July 22, 1997 (the "Merger Agreement") among Rudy's, Benihana Inc., a Delaware
corporation ("Benihana"), Benihana Merger Corp., a Nevada corporation and a
wholly-owned subsidiary of Benihana ("Newco"), and Douglas M. Rudolph, the
Chairman of the Board of Directors, President, Secretary and holder of
approximately 55.5% of the outstanding shares of Rudy's Common Stock as of the
Record Date, and Bayview Partners, a general partnership organized under the
laws of the State of Texas and holder of approximately 11.9% of the outstanding
shares of Common Stock of Rudy's as of the Record Date (as defined below)
("Bayview"), (Douglas M. Rudolph and Bayview are sometimes collectively referred
to as the "Principal Stockholders"), and (ii) the merger contemplated thereby
(the "Merger"). The Merger Agreement, a copy of which is attached as Appendix A
hereto, provides for the merger of Newco with and into Rudy's, whereupon Rudy's
will become a wholly-owned subsidiary of Benihana, and the stockholders of
Rudy's will receive the right to receive cash consideration of a minimum of
$5.00 per share (the "Cash Consideration Per Share"). The Cash Consideration Per
Share may be increased as provided in the Merger Agreement based on the
performance of Rudy's through the closing of the Merger. See "Proposal 1. THE
MERGER -- THE MERGER AGREEMENT."
PURSUANT TO THE MERGER AGREEMENT, THE PRINCIPAL STOCKHOLDERS OWNING IN THE
AGGREGATE APPROXIMATELY 67.4% OF THE OUTSTANDING SHARES OF COMMON STOCK OF
RUDY'S AS OF THE RECORD DATE HAVE AGREED TO VOTE ALL OF SUCH SHARES IN FAVOR OF
EACH OF THE MERGER AGREEMENT AND THE MERGER.
The Board knows of no matters that will be presented for consideration at
the Meeting other than those matters set forth in the Notice of Special Meeting
of Stockholders. If any other matters are properly presented at the Meeting or
any postponement or adjournment thereof, the persons named in the enclosed proxy
and acting thereunder will have authority to vote on such matters, to the extent
permitted by the rules of the Securities and Exchange Commission, in accordance
with the judgement of the person voting such proxies.
RECORD DATE; VOTE REQUIRED FOR APPROVAL
The Board of Directors has fixed the close of business on October 14, 1997
as the record date (the "Record Date") for the determination of stockholders
entitled to notice of and to vote at the Meeting. Accordingly, only stockholders
of record at the close of business on the Record Date shall be entitled to
notice of and to vote at the Meeting and at any adjournment or postponement
thereof. As of the Record Date, there were 3,765,000 shares of Common Stock
issued and outstanding held by approximately 316 holders of record.
Each share of Common Stock entitles the holder of record thereof to one
vote, exercisable in person or by properly executed proxy, on all matters that
properly come before the Meeting and any adjournment or
(iii)
<PAGE> 6
postponement thereof. The presence, in person or by proxy, of stockholders
representing a majority of the voting power of the Common Stock outstanding on
the Record Date will constitute a quorum for purposes of voting at the Meeting.
Under the Nevada Revised Statutes ("NRS"), the affirmative vote of the
holders of a majority of the voting power of the Common Stock outstanding on the
Record Date is required to approve and adopt the Merger Agreement and the
Merger. Under the NRS, the affirmative vote of the holders of a majority of the
voting power present, either in person or by proxy, at the Special Meeting is
required to approve the possible adjournment or postponement of the Special
Meeting.
Pursuant to the Merger Agreement, the Principal Stockholders owning in the
aggregate approximately 67.4% of the outstanding shares of Common Stock of
Rudy's as of the Record Date have agreed to vote all of such shares in favor of
each of the Merger Agreement and the Merger. See "Proposal 1. THE MERGER -- THE
MERGER AGREEMENT."
PROXIES
The enclosed proxy is being solicited by the Board of Directors for use in
connection with the Meeting and any postponement or adjournment thereof. All
Common Stock represented at the Meeting by properly executed proxies received
prior to or at the Meeting or any postponement or adjournment thereof and not
revoked in the manner described below will be voted in accordance with the
instructions indicated on such proxies.
If a proxy is marked as "Abstain" on any matter, or if specific
instructions are given that no vote be cast on any specific matter (a "Specified
Non-Vote"), the shares represented by proxy will not be voted on such matter.
Abstentions and Specified Non-Votes will be included within the number of shares
present at the Meeting and entitled to vote for purposes of determining whether
such matter has been authorized and accordingly will have the same effect as a
negative vote. A duly executed but unmarked proxy will be voted "FOR" the
approval and adoption of the proposals, as indicated in the accompanying Proxy
Card.
The accompanying proxy confers discretionary authority to vote with respect
to amendments or variations to the matters identified in the notice calling the
Meeting or other matters that may properly come before the Meeting, which do not
require a new notice to stockholders, such as those matters that are procedural
in nature. The Board does not intend to bring any business before the Meeting
other than the matters referred to in the accompanying notice. If, however, any
other matters properly come before the Meeting, it is intended that the person
named in the accompanying proxy will vote pursuant to the proxy in accordance
with his best judgment on such matters to the extent permitted by applicable law
and regulations. The discretionary authority includes matters which the Board
does not know are to be presented at the Meeting by others, any proposals of
stockholders omitted from the proxy material pursuant to Rule 14a-8 or Rule
14a-9 of the Securities and Exchange Commission (of which Rudy's has no present
notice or awareness), or any matters incident to the conduct of the Meeting.
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement, will be borne by Rudy's. In addition to
solicitation by use of the mail, proxies may be solicited by telephone,
telegraph or personally by the directors, officers and employees of Rudy's, who
will receive no extra compensation for their services. Rudy's will reimburse
banks, brokerage firms and other custodians, nominees and fiduciaries for
reasonable expenses incurred by them in sending proxy soliciting materials to
beneficial owners of shares of Common Stock.
Proxies may be revoked by those persons executing the proxies by (a)
delivering to the Secretary of Rudy's, at or before the Meeting, a written
notice of revocation bearing a later date than the proxy, (b) duly executing a
subsequent proxy relating to the same shares of Common Stock and delivering it
to the Secretary of Rudy's at or before the Meeting or (c) attending the Meeting
and voting in person (although attendance at the Meeting will not in and of
itself constitute revocation of a proxy). Any written notice revoking a proxy
should be delivered at or prior to the Meeting to: Secretary, Rudy's Restaurant
Group, Inc., 11900 Biscayne Boulevard, Suite 806, Miami, Florida 33181.
(iv)
<PAGE> 7
RIGHTS OF DISSENTING STOCKHOLDERS
Stockholders who oppose the proposed Merger and who elect to assert
dissenters' rights under Nevada law may do so in accordance with Sections
92A.300 through 92A.500 of the NRS, which are attached under Appendix B to this
Proxy Statement. See "THE MERGER -- DISSENTERS' RIGHTS" and Appendix B hereto
(which contains the full text of Sections 92A.300 through 92A.500 of the NRS).
[This Space Intentionally Left Blank]
(v)
<PAGE> 8
RUDY'S RESTAURANT GROUP, INC.
PROXY STATEMENT
TABLE OF CONTENTS
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PAGE
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SUMMARY..................................................... 1
PROPOSAL 1. THE MERGER..................................... 1
THE COMPANIES............................................... 1
EFFECT OF THE MERGER........................................ 1
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF
DIRECTORS................................................. 2
OPINION OF FINANCIAL ADVISOR................................ 2
DISSENTERS' RIGHTS.......................................... 2
ACCOUNTING TREATMENT; CERTAIN FEDERAL INCOME TAX
CONSEQUENCES.............................................. 2
MARKET PRICE DATA........................................... 3
REQUIRED REGULATORY APPROVALS............................... 3
PROPOSAL 2. APPROVAL OF ADJOURNMENT OR POSTPONEMENT OF
SPECIAL MEETING................................ 3
THE MERGER.................................................. 4
BACKGROUND OF THE MERGER.................................... 4
RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS FOR THE
MERGER.................................................... 5
All-cash nature of the proposed transaction............... 5
Market for Rudy's Common Stock............................ 5
Lack of opportunity for additional growth through
acquisition or through internal growth through new
restaurant development................................. 5
The Ladenburg Opinion..................................... 5
ACCOUNTING TREATMENT........................................ 6
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER....... 6
OPINION OF FINANCIAL ADVISOR................................ 6
Opinion of Financial Advisor.............................. 6
Information and Materials Considered...................... 7
Overview of Analyses...................................... 7
Qualitative Considerations................................ 8
Quantitative Analyses..................................... 8
Determination of Consideration............................ 10
Comparison of the Consideration to the Values of Rudy's... 10
Limitations of Analyses................................... 11
INTEREST OF CERTAIN PERSONS IN THE MERGER................... 11
</TABLE>
DISSENTERS' RIGHTS.......................................... 12
THE MERGER AGREEMENT........................................ 15
Effective Time............................................ 15
The Merger................................................ 15
Consideration To Be Received in the Merger................ 15
Surrender of Shares and Payment........................... 15
Conditions To Consummation of the Merger.................. 16
Representations and Warranties............................ 17
Conduct of Business Pending The Merger.................... 17
Acquisition Transaction................................... 18
Additional Agreements..................................... 19
Termination, Amendment And Waiver......................... 20
MARKET PRICE OF AND DIVIDENDS ON RUDY'S COMMON STOCK........ 22
BUSINESS OF RUDY'S.......................................... 23
(vi)
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GENERAL..................................................... 23
RESTAURANT OPERATIONS....................................... 23
COMPETITION................................................. 23
GOVERNMENT REGULATION....................................... 24
SERVICE MARKS............................................... 24
LEGAL PROCEEDINGS........................................... 24
PROPERTIES.................................................. 24
EMPLOYEES................................................... 25
EXECUTIVE COMPENSATION...................................... 25
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................ 26
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION OF
RUDY'S.................................................... 27
Third Quarter Ended June 8, 1997 vs. Third Quarter Ended
June 9, 1996........................................... 27
Fiscal Year Ended September 29, 1996 vs. Fiscal Year Ended
October 1, 1995........................................ 28
APPROVAL OF ADJOURNMENT OR POSTPONEMENT OF SPECIAL
MEETING................................................... 31
STOCKHOLDER PROPOSALS FOR 1997 ANNUAL MEETING............... 32
OTHER MATTERS............................................... 32
INDEX TO FINANCIAL STATEMENTS............................... F-1
APPENDICES
Appendix A -- Agreement and Plan of Merger dated July 22,
1997 by and among Benihana Inc., Benihana
Merger Corp., Rudy's Restaurant Group, Inc.,
Bayview Partners and Douglas M. Rudolph....... A-1
Appendix B -- Sections 92A.300 through 92A.500 of the Nevada
Revised Statutes.............................. B-1
Appendix C -- Fairness Opinion of Ladenburg Thalmann & Co.
Inc........................................... C-1
</TABLE>
(vii)
<PAGE> 10
SUMMARY
The following is a brief summary of the information contained elsewhere in
this Proxy Statement. The information contained in this Summary is qualified in
its entirety by and should be read in conjunction with, the full text of this
Proxy Statement and the Appendices.
PROPOSAL 1. THE MERGER
THE COMPANIES
Rudy's Restaurant Group, Inc. ("Rudy's") through its wholly-owned
subsidiaries, owns and operates nine Japanese steak and seafood restaurants
located throughout the eastern and mid-eastern United States, six of which
operate under the name Samurai Japanese Steak and Seafood Restaurant and three
of which operate under the name Kyoto Japanese Steak and Seafood Restaurant.
Rudy's restaurants feature the "teppanyaki" style of Japanese cooking, in which
steak, chicken, shrimp and other seafood are prepared on a grill which forms the
focal point at the center of a large table seating from eight to ten patrons.
The decor of each of its restaurants features a traditional Japanese theme. The
restaurants range in size from approximately 5,000 to 10,000 square feet and
include a bar and lounge area designed to provide a casual and comfortable
atmosphere. Seating capacity ranges from 128 to 192 and averages 156 persons. In
addition to entrees prepared at the table, a variety of Japanese appetizers and
alcoholic and non-alcoholic beverages are available. In addition, three of the
nine restaurants have a "sushi" bar offering various types of raw fish served
either in the traditional manner or as "sashimi."
Rudy's executive offices are located at 11900 Biscayne Boulevard, Suite
806, Miami, Florida 33181, telephone (305) 895-7200. Rudy's Common Stock is
quoted for trading on the Nasdaq SmallCap Market(SM) under the symbol "RUDY."
Benihana Inc. owns and operates 40 Benihana and Benihana Grill dinnerhouse
restaurants and licenses 12 others. The Benihana restaurants also feature the
"teppanyaki" style of Japanese cooking. The Benihana restaurants feature a
distinctly Japanese design creating an authentic atmosphere for its patrons. The
restaurants have a limited menu offering a full course meal consisting of an
appetizer, soup, salad, tea and an entree of steak, seafood, chicken or a
combination of them. Specific menu items may be different in the various
restaurants depending upon the local geographic market. The servings are all
portion-controlled to provide consistency in quantities served to each patron.
Alcoholic beverages, including specialty mixed drinks, wines, beers and soft
drinks are available. The Benihana restaurants offer sushi both at the
teppanyaki grill and at separate sushi bar areas within most restaurants.
EFFECT OF THE MERGER
The acquisition by Benihana of Rudy's will be effected by means of the
merger of Newco with and into Rudy's, with Rudy's being the surviving
corporation. In connection with the closing of the Merger, Rudy's and Newco will
execute Articles of Merger (the "Articles of Merger") in accordance with the
NRS. The Merger will become effective at the time and on the date (the
"Effective Time") that the Articles of Merger have been accepted for filing by
the Secretary of State of the State of Nevada, or at such later time as may be
specified in the Articles of Merger.
At the Effective Time, each share of Rudy's Common Stock issued and
outstanding will be converted into the right to receive cash consideration per
share of a minimum of $5.00 (the "Cash Consideration Per Share"). The Cash
Consideration Per Share may be increased as provided in the Merger Agreement
based on the performance of Rudy's through the closing of the Merger. See
"Proposal 1. THE MERGER -- THE MERGER AGREEMENT." As of the Effective Time, all
shares of Rudy's Common Stock outstanding, will no longer be outstanding, will
automatically be canceled and retired and will cease to exist, and the holders
of those shares will cease to have any rights with respect thereto, except the
right to receive the Cash Consideration Per Share. Notwithstanding the
foregoing, persons who have properly asserted dissenters' rights will be
entitled to receive payment for shares in accordance with the NRS.
1
<PAGE> 11
BY VIRTUE OF THE MERGER STOCKHOLDERS OF RUDY'S WILL NOT RECEIVE ANY COMMON
STOCK OR OTHER SECURITIES OF BENIHANA OR ITS SUBSIDIARIES AND WILL NOT HAVE ANY
CONTINUING INVESTMENT IN BENIHANA, ITS SUBSIDIARIES, OR RUDY'S FROM AND AFTER
THE EFFECTIVE TIME. BENIHANA WILL OWN 100% OF THE OUTSTANDING COMMON STOCK OF
RUDY'S FROM AND AFTER THE EFFECTIVE TIME.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
The Merger Agreement has been unanimously approved by the Board of
Directors of Rudy's and Benihana and Newco. The effectiveness of the Merger is
subject to the approval of Rudy's stockholders. The Merger Agreement provides
that consummation of the Merger is subject to Rudy's and Benihana having
complied with their covenants and agreements set forth in the Merger Agreement
and their representations and warranties being, in all material respects, true
and accurate as of the Effective Time. The recommendation of Rudy's Board of
Directors is based on a number of factors, which are discussed below in the
section "THE MERGER -- RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS FOR THE
MERGER." Rudy's Board of Directors recommends that Rudy's stockholders vote in
favor of the Merger and approve and adopt the Merger Agreement.
OPINION OF FINANCIAL ADVISOR
Ladenburg Thalmann & Co. Inc. ("Ladenburg") has acted as financial advisor
to Rudy's in connection with the Merger and has delivered to the Board of
Directors of Rudy's a written opinion dated the date of this Proxy Statement to
the effect that, as of the date of such opinion and based upon and subject to
certain matters stated therein, the Cash Consideration Per Share was fair, from
a financial point of view, to the public stockholders of Rudy's Common Stock
other than Bayview Partners ("Bayview") and Douglas M. Rudolph. The full text of
the written opinion of Ladenburg dated the date of this Proxy Statement, which
sets forth the assumptions made, matters considered and limitations on the
review undertaken, is attached as Appendix "C" to this Proxy Statement and
should be read carefully in its entirety. Ladenburg's opinion is directed only
to the fairness of the Cash Consideration Per Share from a financial point of
view, does not address any other aspect of the Merger or related transactions
and does not constitute a recommendation to any stockholder as to how such
stockholder should vote at the Meeting. See "OPINION OF FINANCIAL ADVISOR."
DISSENTERS' RIGHTS
A holder of Rudy's Common Stock who has not voted in favor of the Merger
will be entitled to demand dissenters' rights in respect of such shares under
Chapter 92A of the NRS ("Chapter 92A") subject to satisfaction by such
stockholder of the conditions for dissenters' rights established by Chapter 92A.
The portion of Chapter 92A relating to dissenter's rights is set forth in full
as Appendix B hereto. See "THE MERGER -- DISSENTERS' RIGHTS" and Appendix B
hereto.
ACCOUNTING TREATMENT; CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger will be accounted for by Benihana under the purchase method of
accounting in accordance with generally accepted accounting principles. The
transaction intended by the Merger Agreement is NOT a tax-free transaction,
reorganization or exchange, and each holder of Rudy's Common Stock will be
subject to federal income tax on the gain represented by the excess of the Cash
Consideration Per Share over such stockholder's basis in the share. See "THE
MERGER -- CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
The firm of Deloitte & Touche LLP serves as independent accountants for
both Rudy's and Benihana. A representative of Deloitte & Touche LLP is expected
to be present at the Meeting and is expected to be available to respond to
appropriate questions. The representative will also have the opportunity to make
a statement if he or she desires to do so.
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MARKET PRICE DATA
Rudy's Common Stock was traded on the Nasdaq National Market System(SM)
from the closing of its initial public offering on June 18, 1986 through
February 11, 1990. From February 12, 1990 through July 3, 1996 Rudy's Common
Stock was listed for trading on the OTC Electronic Bulletin Board. Since July 5,
1996 Rudy's Common Stock has been traded on the Nasdaq SmallCap Market(SM). On
July 22, 1997, the last full trading day prior to the public announcement of the
proposed Merger, the high and low bid prices of Rudy's Common Stock were $3.375
and $3.25, respectively. See "MARKET PRICE OF AND DIVIDENDS ON RUDY'S COMMON
STOCK." Stockholders are urged to obtain current market quotations for Rudy's
Common Stock.
REQUIRED REGULATORY APPROVALS
Rudy's is aware of no federal or state regulatory requirements that must be
complied with or other approvals that must be obtained prior to consummation of
the Merger, other than (i) compliance with applicable federal and state
securities laws, (ii) the acceptance for filing of the Articles of Merger as
required under the laws of the State of Nevada and (iii) the receipt of consents
to the transfer from Rudy's to Benihana of the alcoholic beverage licenses and
permits necessary for Benihana to operate Rudy's restaurants. See "THE MERGER
AGREEMENT."
PROPOSAL 2. APPROVAL OF ADJOURNMENT OR POSTPONEMENT OF
SPECIAL MEETING
At the Special Meeting, Rudy's stockholders will be asked to approve the
adjournment or postponement of the Special Meeting in the event such adjournment
or postponement is necessary in order to solicit additional votes for the
approval and adoption of the Merger Agreement and the Merger contemplated
thereby.
Rudy's Board of Directors unanimously recommends that you vote FOR this
proposal.
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THE MERGER
BACKGROUND OF THE MERGER
In May 1996, Peter M. Graham, a member of the Board of Directors of Rudy's
received an unsolicited telephone call from Darwin Dornbush, a member of the
Board of Directors of Benihana requesting that Mr. Graham meet with Mr. Dornbush
to discuss, on an introductory and preliminary basis, the possibility of an
acquisition of Rudy's by Benihana. At a meeting in May 1996, Mr. Dornbush
requested that Mr. Graham discuss with Douglas M. Rudolph the possibility of the
acquisition of Rudy's by Benihana. Mr. Graham discussed this with Douglas M.
Rudolph, and on May 23, 1996 at a special meeting of the Rudy's Board of
Directors, Rudy's authorized management of Rudy's to negotiate and enter into a
confidentiality agreement with Benihana (the "Confidentiality Agreement"). On
May 24, 1996 Rudy's and Benihana entered into the Confidentiality Agreement.
From May 24, 1996 through November 1996, three separate meetings between Douglas
M. Rudolph and Michael Burris, Chief Financial Officer of Benihana were held,
one of which was held in late May 1996, one of which was held in mid June 1996
and one of which was held in early November 1996. The meetings were held to
discuss the business of both companies, the positioning of each company within
the restaurant industry, growth expectations of each company and, on a
preliminary basis, the potential benefits and operational and financial
synergies that could be derived from the acquisition of Rudy's by Benihana. No
outside legal, financial or accounting advisors were present at these
preliminary meetings. In December 1996 Benihana informed Rudy's that Benihana
had engaged Southcoast Capital Corporation ("Southcoast Capital") to assist
Benihana in evaluating a possible acquisition of Rudy's. On January 2, 1997,
representatives of Southcoast Capital met with Marie Peterson, Chief Operating
Officer and Chief Financial Officer of Rudy's to learn further about Rudy's from
a structural, financial and operational perspective. At this January 2, 1997
meeting, Ms. Peterson reviewed with the representatives of Southcoast Capital
certain financial and corporate information of Rudy's. On January 29, 1997
representatives of Southcoast Capital met via telephonic conference with Mr.
Rudolph to discuss further due diligence issues and the general positioning of
Rudy's and Benihana in the restaurant industry and specifically within the
Japanese steakhouse segment of the restaurant industry and the possibilities for
growth within the Japanese steakhouse segment of the restaurant industry. On
March 14, 1997 a subsequent meeting was held between Mr. Rudolph, Peter M.
Graham and representatives of Southcoast Capital to discuss the concept of a
possible acquisition by Benihana of Rudy's. On March 18, 1997 representatives of
Southcoast Capital met with Mr. Rudolph and Ms. Peterson and presented Mr.
Rudolph and Ms. Peterson with a draft financial model, prepared by Southcoast
Capital, but based on information received by Southcoast Capital from Rudy's and
Benihana, which draft financial model presented on a preliminary basis,
unaudited financial information of Benihana and Rudy's combined. On March 28,
1997, representatives of Southcoast Capital met via telephone conference with
Mr. Rudolph and Ms. Peterson to discuss a revised financial model. At a special
meeting of the Board of Directors of Rudy's held on April 1, 1997, Douglas M.
Rudolph informed the Rudy's Board of Directors of the matters discussed at his
meetings with Southcoast Capital and the Rudy's Board of Directors resolved,
with Mr. Graham abstaining from voting, to engage Ladenburg to represent Rudy's
and to assist Rudy's in connection with the possible sale of Rudy's to Benihana.
On April 15, 1997, representatives of Southcoast Capital met with Mr. Rudolph
and Ms. Peterson and representatives of Ladenburg to discuss preliminary issues
relating to a possible acquisition of Rudy's by Benihana, including the type and
nature of the consideration, personnel issues and operating strategies. On May
23, 1997 representatives of Southcoast Capital met with Mr. Rudolph, Ms.
Peterson and representatives of Ladenburg to further discuss the possible
operating synergies of the two companies if a business combination were to take
place. On June 16, 1997 representatives of Southcoast Capital, Mr. Rudolph, Joel
Schwartz, the President of Benihana, Mr. Burris and representatives of Ladenburg
met to discuss the terms of an acquisition agreement, including pricing,
conditions to closing and personnel issues. After extensive negotiations,
Benihana and Rudy's determined to proceed toward the negotiation of a definitive
acquisition agreement. Between June 16, 1997 and July 21, 1997 financial and
legal due diligence with respect to Rudy's was performed by Benihana. During the
same period, management of each of Benihana and Rudy's and their respective
legal and financial advisors negotiated the definitive terms of the Merger
Agreement. On July 21, 1997 the Rudy's Board of Directors met to consider
approval of the Merger Agreement. At such meeting, Ladenburg delivered to the
Rudy's Board of Directors its oral opinion (which
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opinion was confirmed in its entirety by delivery of a written opinion dated
July 22, 1997) to the effect that, as of such date and based upon certain
matters stated in such opinion, the Consideration Per Share was fair from a
financial point of view to the public stockholders of Rudy's Common Stock other
than Bayview and Douglas M. Rudolph and reviewed with the Rudy's Board of
Directors certain financial analyses performed by Ladenburg in connection with
such opinion. See "-- OPINION OF FINANCIAL ADVISOR." Rudy's outside legal
advisors with respect to the Merger reviewed the terms of the Merger Agreement
from a legal perspective and advised the Rudy's Board of Directors as to its
legal obligations in considering whether to approve the proposed transaction.
After a full discussion of all of the relevant issues and upon consideration of
the factors described under "-- RECOMMENDATION OF THE BOARD OF DIRECTORS;
REASONS FOR THE MERGER," Rudy's Board of Directors concluded that the Merger
Agreement was fair to and in the best interests of Rudy's stockholders and
unanimously approved the Merger Agreement. The definitive Merger Agreement was
executed by the parties on the evening of July 22, 1997 and publicly announced
the morning of July 23, 1997. No other business combinations or strategic
alternatives were considered by Rudy's Board of Directors.
RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS FOR THE MERGER
The Board of Directors of Rudy's has unanimously approved the Merger, and
recommends a vote for the Merger. Rudy's Board of Directors believes the Merger
is fair and in the best interests of Rudy's stockholders. The material factors
considered by Rudy's Board of Directors in reaching its conclusion to approve
and recommend the Merger are as follows:
All-cash nature of the proposed transaction. In the event the Merger
becomes effective, the Cash Consideration Per Share will become available
to the stockholders of Rudy's without any holdbacks, escrows or retainages.
Rudy's stockholders will not have to bear the risks that would be involved
in a purchase transaction where components of the purchase price would be
paid on a deferred basis by promissory notes or where components of the
purchase price are paid as earn-outs or other forms of contingent
consideration dependent on future performance of Rudy's from and after the
Effective Time. Furthermore, other than a possible increase in the Cash
Consideration Per Share, the Cash Consideration Per Share is fixed at a
minimum of $5.00 per share. Rudy's Board of Directors considers the $5.00
minimum all cash form of the transaction to be a substantial benefit
inasmuch as, among other things, it represents a premium over historical
and current trading prices for Rudy's Common Stock.
Market for Rudy's Common Stock. Even though Rudy's Common Stock has
been quoted for public trading on either the OTC Bulletin Board or the
NASDAQ Small Cap Market since 1985, it has generally been thinly traded and
stockholders have experienced a lack of liquidity in the market.
Lack of opportunity for additional growth through acquisition or
through internal growth through new restaurant development. For several
years, Rudy's management has explored opportunities to grow through
acquisition and through the opening of new restaurants. Other than Rudy's
purchase of the three Kyoto Japanese Steakhouse and Seafood Restaurants in
February 1996, Rudy's has not been able to effect any acquisitions or new
store openings which would lead to expansion of its business.
The Ladenburg Opinion. The opinion dated July 22, 1997 (which opinion
has been updated to the date of this Proxy Statement) of Ladenburg to
Rudy's Board of Directors to the effect that, as of such date and based
upon and subject to certain matters stated in such opinion, the Cash
Consideration Per Share was fair, from a financial point of view, to the
public stockholders of Rudy's Common Stock other than Bayview and Douglas
M. Rudolph.
Rudy's Board of Directors evaluated the primary factors listed above, as
well as others, in light of their knowledge of the business and operations of
Rudy's and their business judgment. In view of the variety of factors considered
in connection with evaluation of the transaction, the Board of Directors did not
find it practical to, and did not, quantify or otherwise attempt to assign
relative weights to the specific factors considered in its determination.
However, the Board placed special emphasis on the fact that the Cash
Consideration Per Share is at a premium over historical and current trading
prices for Rudy's Common Stock, that it will be paid in cash at the Effective
Time, and the difficulties that it perceives Rudy's would have in expanding its
business if it were to remain an independent company. The Rudy's Board of
Directors reviewed
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the severance and non-competition payment arrangements of certain personnel of
Rudy's, including Douglas M. Rudolph and Marie G. Peterson. The Rudy's Board of
Directors was aware that such arrangements may give such persons individual
interests in the Merger that are in addition to the interests of Rudy's
stockholders generally. See "BUSINESS OF RUDY'S -- Certain Relationships and
Related Transactions."
ACCOUNTING TREATMENT
The Merger will be treated as a purchase by Benihana of the shares of
Rudy's for accounting and financial reporting purposes.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary describes the material federal income tax
consequences of the Merger to holders of Rudy's Common Stock who are citizens or
residents of the United States. It does not discuss all the tax consequences
that may be relevant to stockholders of Rudy's in special tax situations (such
as insurance companies, dealers in securities, tax exempt organizations or
non-U.S. persons) or to stockholders of Rudy's who acquired their shares of
Rudy's Common Stock pursuant to the exercise of employee stock options or
otherwise as compensation. Neither Rudy's, Benihana nor Newco has requested a
ruling from the Internal Revenue Service in regard to any of the federal income
tax consequences of the Merger. A stockholder of Rudy's who receives the Cash
Consideration Per Share in payment for a share of Common Stock of Rudy's will
recognize gain or loss equal to the difference between the Cash Consideration
Per Share received and such stockholder's basis in the shares. A dissenting
stockholder who receives cash for such stockholder's Common Stock pursuant to
the exercise of dissenters' rights will recognize gain or loss equal to the
difference between the amount of cash received with respect to such shares
(other than amounts, if any, which are or are deemed to be interest for federal
income tax purposes, which amounts will be taxed as ordinary income), and such
stockholder's basis in such shares of the Rudy's Common Stock. If Common Stock
of Rudy's were held as a capital asset, such gain or loss will be capital gain
or loss and will be a long term capital gain or loss.
The transaction intended by the Merger Agreement is NOT a tax-free
transaction, reorganization or exchange, and each holder of Rudy's Common Stock
will be subject to federal income tax on the gain represented by the excess of
the Cash Consideration Per Share over such shareholder's basis in such share.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION ONLY.
THE DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE U.S. INTERNAL
REVENUE CODE. NO INFORMATION IS PROVIDED HEREIN WITH RESPECT TO THE TAX
CONSEQUENCES, IF ANY, OF THE MERGER UNDER APPLICABLE FOREIGN, STATE AND LOCAL
LAWS. RUDY'S COMMON STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS
TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN
REPORTING REQUIREMENTS, THE APPLICABILITY AND AFFECT OF FOREIGN, STATE, LOCAL
AND OTHER APPLICABLE TAX LAWS, AND THE POSSIBLE EFFECT OF ANY PROPOSED CHANGES
IN THE TAX LAWS.
OPINION OF FINANCIAL ADVISOR
Opinion of Financial Advisor
Ladenburg was retained by Rudy's to act as its financial advisor in
connection with the Merger. Rudy's selected Ladenburg as its financial advisor
in connection with the Merger because Rudy's believed Ladenburg was familiar
with the restaurant industry and the Company's overall objectives related to the
Merger. On July 21, 1997 Ladenburg delivered its oral opinion (subsequently
confirmed by delivery of a written opinion dated July 22, 1997) to the Board of
Directors of Rudy's to the effect that, as of such date, the consideration to be
received by Rudy's in the Merger is fair, from a financial point of view, to the
public stockholders of Rudy's Common Stock other than Bayview and Douglas M.
Rudolph. Ladenburg has confirmed its opinion dated July 22, 1997 by delivery of
a written opinion dated the date of this Proxy Statement (the "Opinion"). A copy
of the Opinion of Ladenburg dated as of the date of this Proxy Statement is
attached hereto as Appendix C to this Proxy Statement. Rudy's stockholders are
urged to read the Opinion in its entirety for assumptions made and matters
considered by Ladenburg.
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Information and Materials Considered
In connection with rendering its Opinion, Ladenburg reviewed such
information as it deemed necessary or appropriate for the purpose of rendering
its Opinion. Ladenburg reviewed information including, but not limited to, the
following: (i) the Merger Agreement; (ii) audited financial statements for the
three fiscal years ended September 29, 1996, October 1, 1995 and October 2, 1994
and the unaudited financial statements for the 36 week periods ended June 9,
1996 and June 8, 1997 of Rudy's; (iii) projected financial statements as
developed by Ladenburg and reviewed by Rudy's; (iv) the Non-Competition
Agreement by and between Rudy's, Benihana and each of Douglas M. Rudolph and
Marie G. Peterson; (v) the Warrant Agreement by and between Benihana and Douglas
M. Rudolph; (vi) Rudy's Common Stock price and volume trading history; and (vii)
publicly available market information regarding the industry, Rudy's and its
competitors. In addition, Ladenburg had several conversations with management of
Rudy's regarding Rudy's, its competitors and the industry but noted, in the
course of these discussions, that management did not have projected financial
statements of their own.
In rendering its Opinion, Ladenburg assumed and relied upon the accuracy
and completeness of all financial and other material furnished to Ladenburg by
Rudy's regarding Rudy's, the Merger, the industry in which Rudy's operates and
its respective competition. Ladenburg did not attempt to independently verify
the information provided to it by Rudy's. Ladenburg has not made or been
provided with an independent evaluation or appraisal of the assets or
liabilities (contingent or otherwise) of Rudy's. Ladenburg was not authorized
to, and did not, solicit third party indications of interest in acquiring all or
part of Rudy's, and Ladenburg was not asked to consider, and its Opinion does
not address, the consideration Rudy's might receive from a third-party
purchaser, the relative merits of the Merger as compared to any alternative
business strategies that might exist for Rudy's or the effect of any other
transaction in which Rudy's might engage. Ladenburg's Opinion is based upon
information available to it, and financial, stock market and other conditions
and circumstances existing and disclosed to Ladenburg, as of the date of the
Opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF LADENBURG DATED AS OF THE DATE OF
THIS PROXY STATEMENT, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED
AND LIMITATIONS OF THE REVIEW UNDERTAKEN, IS ATTACHED HERETO AS APPENDIX C AND
IS INCORPORATED HEREIN BY REFERENCE. RUDY'S STOCKHOLDERS ARE URGED TO READ THIS
OPINION CAREFULLY IN ITS ENTIRETY. LADENBURG'S OPINION IS DIRECTED ONLY TO THE
FAIRNESS TO THE PUBLIC STOCKHOLDERS OF RUDY'S, OTHER THAN BAYVIEW AND DOUGLAS M.
RUDOLPH, OF THE CONSIDERATION TO BE RECEIVED IN THE TRANSACTION FROM A FINANCIAL
POINT OF VIEW AND DOES NOT ADDRESS ANY OTHER ASPECT OF THE TRANSACTION. THE
SUMMARY OF THE OPINION OF LADENBURG SET FORTH IN THIS PROXY STATEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
Overview of Analyses
Ladenburg used both quantitative and qualitative assessments to evaluate
Rudy's. Ladenburg's determination that the consideration to be received in the
Merger is fair, from a financial point of view, to the public stockholders of
Rudy's other than Bayview and Douglas M. Rudolph is based on all the
quantitative and qualitative analyses described herein.
For its quantitative evaluations, Ladenburg calculated a range of values
for the entity being valued using five separate approaches: (i) a Market
Multiples Analysis based upon comparable publicly-traded companies, (ii) an
Acquisition Multiples Analysis based upon acquisitions of comparable companies
over the previous three years, (iii) a Discounted Cash Flow Analysis, (iv) a
Debt Capacity Analysis and (v) a Net Book Value Analysis. Ladenburg also
reviewed the historical trading price and volume of Rudy's Common Stock. In
examining all the approaches thoroughly, Ladenburg reached the conclusion that
certain approaches were more relevant, represented more direct comparability or
provided a higher degree of certainty than others. However, Ladenburg did not
ascribe different weightings to each analysis because the Cash Consideration Per
Share is within the range of median per share values derived from each analysis.
In determining the proper
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application of certain valuation multiples and discount rates, Ladenburg
considered the qualitative aspects of the entity being valued, including its
access to capital, ownership structure, management team, market position and
intensity of competition.
Qualitative Considerations
In addition to the quantitative analyses discussed below, Ladenburg
considered a number of qualitative factors related to Rudy's. Ladenburg did not
apply weightings to any of these qualitative analyses. Among the qualitative
factors relating to Rudy's, Ladenburg noted that Rudy's: (i) small market
capitalization deters institutions from accumulating positions; (ii) Common
Stock is illiquid, as evidenced by its low volume trading history; (iii)
principal stockholder, Douglas M. Rudolph, controls approximately 55.5% of the
outstanding Common Stock; (iv) lacks a strong brand name to attract customers;
(v) has a low rate of internal growth compared to comparable companies; (vi)
units are difficult to replicate thereby hindering expansion; and (vii)
geographic diversity makes it difficult for regional acquirors to purchase
Rudy's.
Quantitative Analyses
Ladenburg evaluated Rudy's, through various methods described below, to
derive implied equity values and implied per share equity values for 100% of the
value of Rudy's.
(a) Historical and Projected Financial Performance. Ladenburg reviewed
Rudy's historical financial performance for each of the three fiscal years in
the three-year period ended September 29, 1996 and the 36 weeks ended June 9,
1996 and June 8, 1997, and its projected performance as developed by Ladenburg
and reviewed by management, for the next five years.
(b) Historical Market Price Analysis. Ladenburg examined the closing
market prices of Rudy's Common Stock over the 90-day trading period prior to the
announcement of the Merger on July 23, 1997 during which time the closing market
price ranged from $2.41 to $3.50 and had an average high and low trading price
of $2.88 and $3.16, respectively, and a closing price of $3.31 on July 22, 1997.
(c) Market Multiples Analysis. Ladenburg conducted a market multiples
analysis for Rudy's which determined the implied public market value of the
entity being valued based on the multiples of comparable public companies.
Ladenburg derived results based upon the multiples of the following group of
public companies which Ladenburg believes are comparable to Rudy's: Benihana
Inc.; Bertucci's Inc.; Brinker International, Inc.; Cooker Restaurant
Corporation; Cracker Barrel Old Country Store, Inc.; Logan's Roadhouse, Inc.;
Lone Star Steakhouse & Saloon, Inc.; Max and Erma's Restaurants, Inc.;
O'Charley's, Inc.; Outback Steakhouse, Inc.; Ruby Tuesday, Inc.; Sagebrush,
Inc.; and Uno Restaurant Corporation (the "Comparable Companies").
In choosing the Comparable Companies for Rudy's in this valuation,
Ladenburg excluded Applebee's International, Inc., Cheesecake Factory
Incorporated, Darden Restaurants, Inc., Landry's Seafood Restaurants, Inc. and
Morton's Restaurant Group, Inc. because of certain factors inherent in these
companies versus the universe of comparable companies and Rudy's specifically.
These factors include: (i) the strength of their respective brand names; (ii)
the importance of the brand name as an asset in their businesses; (iii) the
large size of these businesses based on market capitalization and revenues; and
(iv) the high degree of liquidity in their common stock. Ladenburg excluded
Cucos, Inc. because of its poor operating history, small size and not meaningful
valuation. Ladenburg also excluded fast-food operators, franchisees and upscale
theme restaurants.
Ladenburg derived the following median common stock trading multiples for
the Comparable Companies: (i) revenue; (ii) earnings before interest, taxes,
depreciation and amortization ("EBITDA"); (iii) earnings before interest and
taxes ("EBIT"); (iv) net income; (v) projected net income; and (vi) book value.
Revenue, EBITDA and EBIT multiples are based on total enterprise value divided
by each financial measure, respectively. Total enterprise value is defined as
the market value of common stock, plus total debt, less cash and cash
equivalents. Total enterprise value is essentially the value of a company
assuming an
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unleveraged capital structure. The remaining multiples are derived by dividing
the market value of the common stock in aggregate, or per share as appropriate,
by net income, projected net income and book value.
The implied equity valuations for Rudy's based on revenue, EBITDA and EBIT
were calculated by multiplying Rudy's revenue, EBITDA and EBIT by the median
revenue, EBITDA and EBIT multiples, respectively, for the Comparable Companies,
then subtracting debt outstanding and adding cash and cash equivalents as of
June 8, 1997. For the valuations based on net income, projected net income and
book value, Ladenburg multiplied Rudy's net income, projected net income and
book value by the median net income, projected net income and book value
multiples, respectively, for the Comparable Companies. This range of implied
equity values was divided by the total number of Rudy's shares outstanding to
derive a range of implied equity values per share.
Ladenburg applied a 20% discount to the median Comparable Company multiples
to account for the qualitative and quantitative difference between Rudy's and
the Comparable Companies. The reasons for the discount include, but are not
limited to: (i) the illiquidity and low trading volume of Rudy's Common Stock;
(ii) control of Rudy's by a single stockholder; (iii) the small market
capitalization of Rudy's; (iv) a low rate of historical and projected internal
growth for Rudy's; and (v) the lack of a strong brand name to attract customers.
The median market multiples for the Comparable Companies were as follows:
(1) 1.0x as a multiple of revenues; (ii) 7.0x as a multiple of EBITDA; (iii)
10.8x as a multiple of EBIT; (iv) 15.6x as a multiple of net income; (v) 14.8x
as a multiple of projected net income for year one; (vi) 13.3x as a multiple of
projected net income for year two; and (vii) 2.2x as a multiple of book value.
The result of this analysis indicated a range of equity values for Rudy's from
$3.87 to $5.75 per share, the median of which was $4.66 per share.
(d) Acquisition Multiples Analysis. Ladenburg conducted an acquisition
multiples analysis which was similar to the market multiples analysis but
instead relied upon multiples from comparable mergers and acquisitions in the
restaurant industry. For purposes of this analysis, the purchase price was equal
to the amount paid for the target's equity and the merger value was equal to the
purchase price, plus the target's outstanding interest-bearing debt, less cash
and cash equivalents. Ladenburg compared multiples from merger and acquisition
transactions of the following target and acquiring companies, respectively: the
acquisition of Krystal Co. by Port Royal Holdings, Inc.; the acquisition of
Hardee's Restaurants by CKE Restaurants, Inc.; the acquisition of Charlie
Brown's Inc. by Castle Harlan Partners III; the acquisition of DeliMex by Fenway
Partners; the acquisition of McCormick & Schmick's by Apple South, Inc.; the
acquisition of Hops Grill & Bar by Apple South, Inc.; the acquisition of Casa
Bonita, Inc. by CKE Restaurants, Inc.; the acquisition of Black-eyed Pea USA,
Inc. by DenAmerica Corp; the acquisition of Bruegger's Corporation by Quality
Dining; the acquisition of Denwest Restaurants by American Family Restaurants;
the acquisition of Champps Entertainment, Inc. by Daka International, Inc.; the
acquisition of DF&R Restaurants, Inc. by Apple South, Inc.; the acquisition of
Grill Concepts, Inc. by Magellan Restaurant Systems; the acquisition of TUG,
Inc. by Apple South, Inc.; the acquisition of Southern Hospitality Corporation
by DavCo Restaurants, Inc.; the acquisition of On The Border Cafes, Inc. by
Brinker International, Inc.; and the acquisition of Boston Restaurant Associates
by Cappuccino's, Inc.
The median multiples for the selected Mergers were as follows: (i) 1.1x as
a multiple of sales; (ii) 8.8x as a multiple of EBITDA; (iii) 15.8x as a
multiple of EBIT; (iv) 12.4x as a multiple of net income; and (v) 2.5x as a
multiple of book value. Once again, Ladenburg applied a 20% discount to the
median acquisition multiples for the comparable companies for the same reasons
described above in (c). The range of implied equity values derived from the
acquisition multiples analysis was divided by the number of shares of Rudy's
Common Stock outstanding to derive implied equity value per share. The range of
implied equity values per share of Rudy's Common Stock was $3.60 to $8.28, the
median of which was $5.54.
(e) Discounted Cash Flow Analysis. Ladenburg conducted a discounted cash
flow analysis which derived implied equity values based on the present value of
future net cash flows, less current total debt, plus current total cash and cash
equivalents. The cash flows were discounted using a range of discount rates
based upon the median weighted average cost of capital for the Comparable
Companies. The discount rates for Rudy's were increased over the median weighted
average cost of capital for the Comparable Companies by
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dividing the median by the excess of 100% less 20%. This approach was taken
because many of the Comparable Companies are larger and have higher rated
credit, giving them access to less expensive capital than Rudy's. For purposes
of this analysis, annual free cash flow equals de-levered net income, plus
depreciation and amortization, less capital expenditures, less the change in
working capital. In the exit year, free cash flow also included proceeds from
the sale of the business, which is typically assumed for valuation purposes as a
more representative "terminal value" than using cash flows in perpetuity. The
terminal value was determined by applying a range of exit multiples based on the
median EBITDA multiple of the Comparable Companies, discounted by 20% for the
reasons noted above in (c). Ladenburg applied discount rates of 9.7% to 10.9%
and exit multiples of 5.1x to 6.1x. The equity value was divided by the number
of shares of Rudy's Common Stock outstanding to derive equity value per share.
The equity value per share ranged from $4.87 to $5.68, the median of which was
$5.26.
(f) Debt Capacity Analysis. Ladenburg conducted a debt capacity analysis
which derived an unleveraged equity value based on the amount a financial buyer
could reasonably expect to pay for a company assuming the maximum amount of debt
financing and equity to the extent leveraged buy-out returns of 35% to 40% can
be obtained. The analysis determines equity values based on operating
projections and general assumptions indicated by current market conditions.
Ladenburg constructed capital structures that meet the risk-return requirements
of today's senior and subordinated lenders as well as private equity investors.
Capital structures are derived by assuming a minimum EBITDA-to-interest coverage
ratio of two times.
Senior debt is limited to what can be reasonably collateralized by a
company's assets. In the case of Rudy's, Ladenburg assumed the principal assets
are real estate and fixed assets. Senior debt is assumed to be limited to the
sum of (i) 75% of real estate, (ii) 65% of improvements, (iii) 45% of machinery
and equipment, and (iv) 20% of other fixed assets. Senior debt is issued with an
interest rate equal to prime (8.50%) plus 2.00%, or 10.50%. Ladenburg believed
this rate to be typical of senior debt in highly leveraged mergers. The
subordinated debt would bear interest at 6.5% above the rate on a treasury note
maturing in seven years, which yielded 6.08% as of October 14, 1997. The amount
of subordinated debt would be limited to maintain an EBITDA coverage of interest
of two times. Ladenburg assumed warrants for Common Stock in Rudy's would be
granted to the investors in the subordinated debt to increase returns to these
investors to the 20% to 25% range. Ladenburg assumed the amount of equity
available for such a merger would be limited by an investor's ability to obtain
a 35% to 40% return on investment after granting a 5.0% equity position to
management.
The sum of the senior debt, subordinated debt and equity, less fees to
consummate such a merger, provides an implied debt capacity valuation for
Rudy's. The equity value was divided by the number of shares of Rudy's Common
Stock outstanding to derive equity value per share. The implied equity value per
share of Rudy's Common Stock was $3.97.
(g) Net Book Value Analysis. Ladenburg analyzed the net book value of the
assets of Rudy's. Ladenburg took the total assets and subtracted the total
liabilities based on Rudy's June 8, 1997 balance sheet. The equity value was
divided by the number of shares of Rudy's Common Stock outstanding to derive
equity value per share. The implied equity value per share of Rudy's Common
Stock was $2.63.
Determination of Consideration
For purposes of Ladenburg's analysis the consideration to be paid to Rudy's
stockholders in the Merger consists of cash equal to a minimum of $5.00 per
share of Rudy's Common Stock (the "Cash Consideration Per Share"). The Cash
Consideration Per Share may be increased as provided in the Merger Agreement
based on the performance of Rudy's through the closing of the Merger. See "The
Merger Agreement -- Consideration To Be Received in the Merger."
Comparison of the Consideration to the Values of Rudy's
Ladenburg concluded that the Cash Consideration Per Share to be received in
the Merger is fair, from a financial point of view, to the public stockholders
of Rudy's other than Douglas M. Rudolph and Bayview, as of the date of this
Proxy Statement, based on among other things, the following considerations: (i)
the Cash Consideration Per Share falls within the range of median per share
values for Rudy's of $2.63 to $5.54; and
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(ii) the Cash Consideration Per Share represents a 51.1% premium to Rudy's
closing stock price as of July 22, 1997, one day prior to the announcement of
the Merger.
Limitations of Analyses
Although each analysis employed by Ladenburg in rendering its Opinion is
summarized above, the above summary does not purport to be a complete
description of Ladenburg's analyses and contains those aspects of Ladenburg's
analyses deemed most relevant. In its analyses, Ladenburg made numerous
assumptions with respect to industry performance, general business, economic,
market and financial conditions and other matters, based on, among other things,
information provided to (and relied upon by) Ladenburg by Rudy's, many of which
are beyond the control of Rudy's. Any estimates contained in Ladenburg's
analyses are not necessarily indicative of actual values, which may be
significantly more or less favorable than as set forth therein. Additionally,
estimates of the value of businesses do not purport to be appraisals or
necessarily to reflect the prices at which businesses actually may be sold.
Because such estimates are inherently subject to uncertainty since the
assumptions upon which such estimates are based may not materialize, neither
Rudy's, Ladenburg nor any other person assumes responsibility for the accuracy
of such estimates. Ladenburg's analysis does not reflect, among other things,
changes since the date of the Opinion for Rudy's business or prospects, changes
in general business and economic conditions or any other Merger or event that
has occurred or that may occur and that was not anticipated at the time such
materials were prepared.
Ladenburg is nationally recognized investment banking firm which, as part
of its investment banking business, is continually engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
merchant banking, leveraged buyouts, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. Peter
Graham, President of Ladenburg Thalmann & Co. Inc. and a member of Rudy's Board
of Directors and the holder of 100,000 shares of Rudy's Common Stock did not
participate in the preparation of the analysis presented herein.
Ladenburg was engaged to act as financial advisor to Rudy's in connection
with the Merger and has delivered the Opinion in connection with the Merger.
Ladenburg will be paid a fee in connection therewith of approximately $250,000.
In addition, Rudy's agreed to reimburse Ladenburg for its related expenses.
Rudy's also agreed, in a separate letter agreement, to indemnify Ladenburg, its
affiliates and each of their respective directors, officers, agents, consultants
and employees and each person, if any, controlling Ladenburg or any of its
affiliates against certain liabilities, including liabilities under federal
securities laws. In the ordinary course of its business Ladenburg may trade the
securities of Rudy's or Benihana Inc. for its own account and for the account of
its customers, and may at any time hold a long or short position in such
securities. Ladenburg has rendered financial advisory services in the past to
Rudy's for which it received customary compensation.
INTEREST OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors of Rudy's with
respect to the Merger Agreement, Rudy's stockholders should be aware that of the
Board, Chief Executive Officer, President and Secretary and Marie G. Peterson,
Rudy's Chief Financial Officer and Chief Operating Officer, respectively, have
interests in the Merger that are in addition to or different from the interests
of Rudy's stockholders generally. Douglas M. Rudolph participated in the
negotiation and consideration of the Merger Agreement. At the Effective Time, as
an inducement for Benihana to enter into the Merger Agreement both Douglas M.
Rudolph and Marie G. Peterson will each enter into separate Non-Competition
Agreements with Benihana and Rudy's which, among other things, provide for
consideration to be paid to each of Douglas M. Rudolph and Marie G. Peterson in
exchange for their respective covenants not to compete with Benihana or Rudy's
for a period of four years from the Effective Time. In the case of Douglas M.
Rudolph, Benihana has agreed (i) to pay to Douglas M. Rudolph the sum of
$200,000 cash at the Effective Time and $200,000 per year for a period of four
years immediately following the Effective Time; and (ii) to deliver to Douglas
M. Rudolph a warrant entitling Douglas M. Rudolph to purchase at any time and
from time-to-time for a period of five years from the Effective Time, 200,000
shares of Class A Common Stock of Benihana at a purchase price of $8.00 per
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share. In the case of Marie G. Peterson, Benihana has agreed to pay to Marie G.
Peterson in one lump sum at the Effective Time the sum of $431,000.
Additionally, at the Effective Time, except for Rudy's obligation to pay to
Douglas M. Rudolph and Marie G. Peterson severance amounts equal to
approximately $430,000 and $275,000, respectively, Marie G. Peterson's existing
employment agreement with Rudy's and Douglas M. Rudolph's employment arrangement
with Rudy's will be terminated and neither Rudy's nor either of Douglas M.
Rudolph nor Marie G. Peterson will have any further obligations thereunder.
DISSENTERS' RIGHTS
Holders of shares of Rudy's Common Stock are entitled to dissenters' rights
under Chapter 92A of the NRS ("Chapter 92A") provided they comply with the
conditions established by Chapter 92A. The portion of Chapter 92A relating to
Rights of Dissenting Owners (NRS Sections 92A.300 to 92A.500 inclusive) is
reprinted in its entirety as Appendix B to this Proxy Statement. The following
discussion is not a complete statement of the law relating to dissenters' rights
and is qualified in its entirety by reference to Appendix B. This discussion and
Appendix B should be reviewed carefully by any holder who wishes to exercise
statutory dissenters' rights or who wishes to preserve the right to do so, as
failure to comply with the procedures set forth herein or therein will result in
the loss of dissenters' rights.
A record holder of shares of Rudy's Common Stock who makes the demand
described below with respect to such shares, who continuously is the record
holder of such shares through the Effective Time of the Merger, who otherwise
complies with the statutory requirements of Chapter 92A and who neither votes in
favor of the Merger nor consents thereto in writing will be entitled to receive
the "fair value" of his shares of Rudy's Common Stock as determined under
Chapter 92A. All references in Chapter 92A and in this summary of dissenters'
rights to a "stockholder" or "holders of Rudy's Common Stock" are to the record
holder or holders of shares of Rudy's Common Stock.
A stockholder who desires to assert dissenters' rights must deliver a
separate written notice of his intent to demand payment for his shares under
Chapter 92A, if the Merger is effectuated, to the Secretary of Rudy's prior to
the vote by the stockholders of Rudy's on the Merger, and must NOT vote his
shares in favor of the Merger. Chapter 92A provides that a stockholder who does
not satisfy the requirement of sending such a written notice, or a stockholder
who votes in favor of the Merger, is NOT entitled to dissenters' rights or
payment for his shares pursuant to Chapter 92A.
Such notice of intent to demand dissenters' rights must be executed by or
on behalf of the stockholder of record, fully and correctly, as such
stockholder's name appears on the certificate or certificates representing the
shares of Rudy's Common Stock. A stockholder of record may assert dissenters'
rights as to fewer than all of the shares registered in his name only if he
dissents with respect to all shares beneficially owned by any one person and
notifies Rudy's in writing of the name and address of each person on whose
behalf he asserts dissenters' rights. The rights of a partial dissenter are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different stockholders.
A beneficial stockholder may assert dissenters' rights as to shares held on
his behalf only if (a) he submits to Rudy's the written consent of the
stockholder of record to the dissent not later than the time the beneficial
stockholder asserts dissenters' rights; and (b) he does so with respect to all
shares of which he is the beneficial stockholder or over which he has power to
direct the vote. Accordingly, a person having a beneficial interest in shares of
Rudy's Common Stock that are held of record in the name of another person, such
as a broker, fiduciary or other nominee, must act promptly to cause the record
holder to follow the steps summarized herein properly and in a timely manner to
perfect whatever dissenters' rights are available. If the shares of Rudy's
Common Stock are owned of record by more than one person, such as in a joint
tenancy or tenancy in common, the written notice of intent to demand dissenters'
rights must be executed by all joint owners.
A stockholder who elects to exercise dissenters' rights should mail or
deliver his or her written notice of intent to demand dissenters' rights to
Rudy's Restaurant Group, Inc., 11900 Biscayne Boulevard, Suite 806,
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Miami, Florida, 33181, Attn: Douglas M. Rudolph, Secretary. Such notice must be
received by Rudy's at such address on or prior to the day before the date of the
Special Meeting or may be delivered in person at the Special Meeting prior to
the vote on the Merger. The written notice should specify the stockholder's name
and mailing address, the number of shares of Rudy's Common Stock owned, and that
the stockholder is thereby notifying Rudy's of his or her intent to demand
payment for payment for his or her shares under Chapter 92A. A proxy or vote
against the Merger will not constitute such a notification or demand.
If the Merger is approved at the Special Meeting, Rudy's must deliver a
written dissenters' notice ("Dissenters' Notice") to all stockholders who
satisfied the requirements to assert dissenters' rights. This notification must
be sent no later than ten (10) days after the Effective Time of the Merger, and
must (a) state where the written demand for payment must be sent and where and
when certificates for the shares which are the subject of dissenters' rights
must be deposited and set forth a date by which Rudy's must receive such demand
for payment and deposit of shares ("Demand Date"), which may be not less than 30
nor more than 60 days after the Dissenters' Notice is delivered, (b) supply a
form for demanding payment that includes the date of the first announcement to
the news media or to the stockholders of the terms of the proposed action
("Announcement Date," which is established as July 23, 1997) and require that
the person asserting dissenters' rights certify whether or not he acquired
beneficial ownership of the shares before the Announcement Date and (c) be
accompanied by a copy of that portion of Chapter 92A relating to Rights of
Dissenting Owners (Nevada Revised Statutes 92A.300 to 92A.500, inclusive).
A stockholder to whom a Dissenters' Notice is sent must (a) demand payment
in writing for his shares ("Demand Notice"), (b) certify whether he acquired
beneficial ownership of the shares before the Announcement Date set forth in the
Dissenters' Notice and, (c) deposit his certificates for shares of Rudy's Common
Stock in accordance with the terms of the Dissenters' Notice. Such demand and
deposit must be received by Rudy's on or before the Demand Date set forth in the
Dissenters' Notice. Any stockholder who does not demand payment or deposit his
certificates where required, each by the Demand Date set forth in the
Dissenters' Notice, will lose his dissenters' rights under Chapter 92A and will
not be entitled to demand payment for his shares pursuant to Chapter 92A.
Within 30 days after Rudy's receives a Demand Notice from a stockholder
which has complied with all requirements of Chapter 92A for the assertion of
dissenters' rights, Rudy's shall pay such dissenter the amount of Rudy's
estimate of the fair value of his shares, plus accrued interest from the
Effective Time. Such payment must be accompanied by (a) Rudy's financial
statements as at the fiscal year ended September 29, 1996 and the latest
available interim quarterly financial statements (as at June 8, 1997); (b) a
statement of Rudy's estimate of the fair value of the shares; (c) an explanation
of how interest was calculated, (d) a statement of the dissenters' rights to
demand payment of his own estimate of the fair value of the shares under Chapter
92A (as described below), and (e) be accompanied by a copy of that portion of
Chapter 92A relating to Rights of Dissenting Owners (NRS Sections 92A.300 to
92A.500, inclusive). The obligation of Rudy's to pay such amount may be enforced
by the district court of the State of Nevada in the county where Rudy's
registered office is located. At the election of any dissenter residing or
having its registered office in the State of Nevada, enforcement may also be
obtained in the district court of the State of Nevada in the county where the
dissenter resides or has its registered office. In a proceeding commenced to
enforce Rudy's obligation to make payment of the amounts estimated by Rudy's to
be the fair value of the shares, the court may assess the costs against Rudy's,
except that the court may assess costs against all or some of the dissenters who
are parties to the proceeding, in amounts the court finds equitable, to the
extent the court finds that such parties did not act in good faith in
instituting the proceeding. In the event that a dissenter became a beneficial
owner of shares of Rudy's Common Stock after the Announcement Date, Rudy's may
withhold actual payment of Rudy's estimate of the fair value of the applicable
shares, but instead must offer to pay such amount to each such dissenter who
agrees to accept it in full satisfaction of his demand. Such offer must be
accompanied by the same information set forth above in subparagraphs (a) through
(e) of this paragraph.
A dissenting stockholder who has complied with all requirements of Chapter
92A may, within 30 days after receiving Rudy's payment to him of Rudy's estimate
of the fair value of his shares, or in cases where Rudy's has withheld payment,
Rudy's offer to pay Rudy's estimate of the fair value of his shares, notify
Rudy's in writing of his own estimate of the fair value of his shares and the
amount of interest due, and demand
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payment of his estimate, less any payment already made by Rudy's, if he believes
that the amount paid or offered by Rudy's is less than the fair value of his
shares or that the interest due is incorrectly calculated. A dissenter waives
his right to demand payment pursuant to Chapter 92A unless he notifies Rudy's of
his demand in writing within such 30 day time period.
If a demand for payment from a dissenter who has complied with all
requirements of Chapter 92A remains unsettled, Rudy's must commence a proceeding
within 60 days after receiving the demand of the stockholder's estimate of the
fair value of his shares, and petition the court to determine the fair value of
the shares and accrued interest. If Rudy's does not commence such proceeding
within the 60 day period, it shall pay each dissenter who has complied with all
requirements of Chapter 92A and whose demand remains unsettled, the amount
demanded. The court proceeding will be commenced in the district court of the
State of Nevada where the registered office of Rudy's is located, which court
has plenary and exclusive jurisdiction. The court may appoint appraisers to
determine the fair value of the shares. Each dissenter who has complied with all
requirements of Chapter 92A and whose demands remain unsettled at such time
shall be made a party to the proceeding and receive notice thereof. Each such
dissenter shall be entitled to a judgment for the amount, if any, by which the
court finds the fair value of his shares, plus interest, exceeds the amount paid
by Rudy's (and in the case of a dissenting stockholder who acquired his shares
after the Announcement Date, and for which Rudy's withheld payment, the fair
value of such after-acquired shares plus accrued interest).
The court shall determine and assess all costs of such proceeding
(including the cost of appraisers appointed by the court) against Rudy's, except
that the court may assess costs against some or all the dissenters, in amounts
the court finds equitable, to the extent the court finds the dissenters acted
arbitrarily, vexatiously or not in good faith in demanding payment. The court
may also assess the fees and expenses of counsel and experts for their
respective parties, in amounts the court finds equitable: (a) against Rudy's and
in favor of all dissenters if the court finds Rudy's did not substantially
comply with the requirements of Chapter 92A, or (b) against Rudy's or a
dissenter in favor of any other party, if the court finds that the party against
whom the fees and expenses are assessed acted arbitrarily, vexatiously or not in
good faith with respect to the rights provided by Chapter 92A. If the court
finds that the services of counsel for any dissenter were of substantial benefit
to other dissenters similarly situated, and that the fees for those services
should not be assessed against Rudy's, the court may award to those counsel
reasonable fees to be paid out of the amounts awarded to the dissenters who
benefitted.
Stockholders considering seeking dissenters' rights should recognize that
the fair value of their shares determined under Chapter 92A could be more, the
same as or less than the Cash Consideration Per Share they are to receive
pursuant to the Merger Agreement if they do not seek dissenters' rights with
respect to their shares. Stockholders seeking and perfecting dissenters' rights
under Chapter 92A will receive payment for their shares only as determined under
Chapter 92A, which will be in lieu of, and not in addition to, the Cash
Consideration Per Share, and such stockholders will not receive the Cash
Consideration Per Share provided in the Merger Agreement. If, after the
Effective Time, a holder of shares of Rudy's Common Stock which had previously
sent a notice of intent to assert dissenters' rights, fails to comply with the
requirements of Chapter 92A, or waives, withdraws, fails to perfect, or
otherwise loses his dissenters' rights, he will have only the right to receive
the Cash Consideration Per Share in respect of such shares. As a condition to
the closing of the Merger holders of Rudy's shares of Common Stock representing
no more than 7.5% of the outstanding Rudy's shares of Common Stock shall have
duly submitted valid written requests for the payment of the fair value of their
Rudy's shares in accordance with applicable law.
THE MERGER AGREEMENT
THE TERMS AND CONDITIONS OF THE PROPOSED MERGER ARE CONTAINED IN THE MERGER
AGREEMENT, A COPY OF WHICH IS ATTACHED AS APPENDIX A TO THIS PROXY STATEMENT.
STOCKHOLDERS ARE URGED TO READ THE MERGER AGREEMENT CAREFULLY. THE DESCRIPTIONS
OF THE MATERIAL TERMS AND CONDITIONS OF THE MERGER AGREEMENT ARE SET FORTH BELOW
AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE COMPLETE TEXT OF THE
MERGER AGREEMENT.
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EFFECTIVE TIME
The Merger Agreement provides that the Merger will become effective at the
time Articles of Merger are duly accepted for filing with the Secretary of State
of the State of Nevada or at such later time as may be specified in the Articles
of Merger. The time at which the Merger will become effective is referred to
herein as the "Effective Time" or the "Effective Date." Such filing, together
with all other filings or recordings required by the NRS in connection with the
Merger, will be made as soon as practicable after the approval and adoption by
the stockholders of Rudy's of the Merger Agreement and the satisfaction, or to
the extent permitted under the Merger Agreement, waiver of all conditions to the
Merger contained in the Merger Agreement.
THE MERGER
At the Effective Time, Newco will be merged with and into Rudy's, at which
time the separate existence of Newco will cease and Rudy's will be the surviving
corporation (the "Surviving Corporation") and a wholly-owned subsidiary of
Benihana. From and after the Effective Time, the Surviving Corporation will
possess all the assets, rights, privileges, powers and franchises and be subject
to all of the limitations, restrictions, disabilities and duties of Rudy's and
Newco, as provided under Nevada law.
CONSIDERATION TO BE RECEIVED IN THE MERGER
At the Effective Time, each share of Rudy's Common Stock outstanding
immediately prior to the Effective Time will be converted into the right to
receive a minimum of $5.00 per share (the "Cash Consideration Per Share").
Notwithstanding the foregoing, persons who have properly asserted dissenters'
rights will be entitled to receive payment for shares in accordance with the
NRS. The Cash Consideration Per Share may be increased by an amount per share
(the "Adjustment Amount"), if any, calculated as the quotient of (X) the sum of
(i) the amount by which Rudy's net working capital (defined as the amount, if
any, by which Rudy's consolidated current assets exceeds Rudy's consolidated
current liabilities) as of the business day immediately preceding the Effective
Time, the "Computation Date") exceeds $1,937,127; plus (ii) all out-of-pocket
expenses paid or accrued by Rudy's directly or indirectly in connection with the
transactions contemplated by the Merger Agreement, including but not limited to,
all severance amounts payable by Rudy's under the Merger Agreement, legal,
accounting and investment banking fees, except to the extent such expenses were
capitalized by Rudy's as current assets; plus (iii) the amount of capital
expenditures incurred by Rudy's since April 13, 1997 (other than those
expenditures which have been capitalized by Rudy's as current assets); plus (iv)
50% of certain debt payments paid by Rudy's since April 13, 1997; divided by (Y)
the number of Rudy's shares of Common Stock outstanding at the Computation Date.
The Computation Date is the business day immediately preceding the Effective
Time. There is no limitation on the Adjustment Amount. Based on the operating
performance of Rudy's during the same period last year, the Cash Consideration
Per Share would have been increased approximately $.15 per share. Rudy's does
not anticipate that the increase, if any, will be materially different than the
$.15 per share. There can be no assurances that Rudy's operating performance
this year will be substantially similar to Rudy's last year's operating
performance.
SURRENDER OF SHARES AND PAYMENT
At the closing of the Merger, Benihana will deposit with First Union
National Bank of North Carolina, as Exchange Agent (the "Exchange Agent"), an
aggregate amount of the Cash Consideration Per Share to be paid to stockholders
of Rudy's promptly upon proper surrender of the stock certificate or
certificates representing such shares, together with a properly completed and
duly executed letter of transmittal letter to be used in such exchange.
STOCKHOLDERS OF RUDY'S ARE REQUESTED NOT TO SURRENDER THEIR CERTIFICATES FOR
EXCHANGE UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL AND INSTRUCTIONS FROM THE
EXCHANGE AGENT OR BENIHANA.
Each holder of shares of Rudy's Common Stock that has been converted into
the right to receive the Cash Consideration Per Share, upon surrender to the
Exchange Agent of a certificate or certificates
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representing such shares of Rudy's Common Stock, together with a properly
completed letter of transmittal, will be entitled to receive in exchange
therefor, the Cash Consideration Per Share which such holder has the right to
receive pursuant to the Merger Agreement, and the certificate or certificates
for shares of Rudy's Common Stock so surrendered shall be canceled. Until so
surrendered each such certificate will after the Effective Time, represent for
all purposes only the right to receive the Cash Consideration Per Share. After
the Effective Time, there will be no further registration of transfers of shares
of Rudy's Common Stock. If, after the Effective Time, certificates representing
shares of Rudy's Common Stock are presented for transfer, they will be canceled
and exchanged for the Cash Consideration Per Share pursuant to the terms of the
Merger Agreement.
Any amounts made available to the Exchange Agent pursuant to the Merger
Agreement for payment of the Cash Consideration Per Share that remain unclaimed
by the holders of shares of Rudy's Common Stock six months after the Effective
Time will, upon request be returned to Benihana, and any such holder who has not
exchanged his shares prior to that time will be entitled thereafter to look only
to Benihana to exchange such shares. Any amounts remaining unclaimed by holders
of shares of Rudy's Common Stock at the date when such amounts would otherwise
escheat to or become property of any governmental entity, will to the extent
permitted by applicable law, become the property of Benihana, free and clear of
any claims or interest of any person previously entitled thereto. NO INTEREST
WILL BE PAID WITH RESPECT TO THE CASH CONSIDERATION PER SHARE REGARDLESS OF WHEN
A STOCKHOLDER SURRENDERS HIS CERTIFICATES IN EXCHANGE FOR THE CASH CONSIDERATION
PER SHARE. For the rights of stockholders who dissent from the Merger, See "THE
MERGER -- DISSENTERS' RIGHTS."
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of each party to effect the Merger are subject
to the fulfillment at or prior to the closing of the Merger of the following
conditions any of which may be waived by either party:
Stockholder Approval. The Merger Agreement and the transactions
contemplated therein shall have been approved and adopted by a majority of
the voting power of Rudy's under applicable law.
No Injunctions or Restraints. No injunction, writ, preliminary or
temporary restraining order of any nature issued by a court of competent
jurisdiction directing that the Merger or any other transaction
contemplated in the Merger Agreement, not be consummated or imposing any
conditions on the consummation of the Merger or any transactions
contemplated under the Merger Agreement shall have been issued and remain
in effect at the Effective Time.
No Litigation. No litigation shall have been instituted seeking any
relief which, if granted, would have a material adverse effect on Rudy's or
which would seek to restrain the consummation of the Merger.
Performance of Obligations and Representations and Warranties of
Rudy's. Rudy's shall have performed in all material respects its
agreements contained in the Merger Agreement required to be performed on or
prior to the closing of the Merger and the representations and warranties
of Rudy's contained in the Merger Agreement shall be true and correct in
all respects on and as of the date made and on and as of the closing of the
Merger as if made at and as of such date, and Benihana shall have received
a certificate of the Chief Executive Officer and Chief Financial Officer of
Rudy's dated as of the Effective Date to that effect.
Performance of Obligations and Representations and Warranties of
Benihana and Newco. Benihana and Newco shall have performed in all material
respects their agreements contained in the Merger Agreement required to be
performed on or prior to the closing of the Merger and the representations
and warranties of Benihana and Newco contained in the Merger Agreement
shall be true and correct in all respects on and as of the date made and on
and as of the closing of the Merger as if made at and as of such date, and
Rudy's shall have received a certificate of the President and Chief
Financial Officer of Benihana dated as of the Effective Date to that
effect.
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Other Approvals and Consents. All governmental waivers, consents,
orders and approvals required for the consummation of the Merger and the
transactions contemplated in the Merger Agreement shall have been obtained
and be in effect at the Effective Time.
No Material Adverse Effect. As of the Effective Time there shall be
no condition, development or occurrence in respect of the assets, business,
financial condition or prospects of Rudy's which would constitute a
material adverse effect (as defined in the Merger Agreement) on Rudy's at
the Effective Time and Benihana shall have received a certificate of the
Chief Financial Officer of Rudy's dated as of the Effective Date to that
effect.
Legal Opinions. Rudy's shall have received an opinion from Dornbush
Mensch Mandelstam & Schaeffer, LLP counsel to Benihana and Newco, dated as
of the closing of the Merger, covering the due incorporation and
capitalization of Benihana and Newco and the binding nature of the Merger
Agreement. Benihana shall have received an opinion from Berman Wolfe &
Rennert, P.A. and from Kummer Kaempfer Bonner & Renshaw, both counsel to
Rudy's, dated as of the closing of the Merger, covering the due
incorporation and capitalization of Rudy's, the binding nature of the
Merger Agreement and the effectiveness of the Merger.
Dissenters' Rights. Holders of Rudy's shares of Common Stock
representing no more than 7.5% of the outstanding Rudy's shares of Common
Stock shall have duly submitted valid written requests for the payment of
the fair value of their Rudy's shares in accordance with applicable law.
Termination of Employment. Benihana shall have received duly executed
copies of letters of termination of employment for certain employees of
Rudy's, including Douglas M. Rudolph and Marie G. Peterson.
Fairness Opinion. Rudy's shall have received from Ladenburg a written
opinion, dated as of the date which this Proxy Statement is first
distributed to the stockholders of Rudy's, to the effect that the Cash
Consideration Per Share is fair, from a financial point of view, to Rudy's
stockholders, and such opinion shall not have been withdrawn.
Non-Competition Agreements. Benihana and Rudy's shall have entered
into a non-competition agreement with each of Douglas M. Rudolph and Marie
G. Peterson obligating, among other things, that neither Douglas M. Rudolph
nor Marie G. Peterson shall compete with the operations of Rudy's or
Benihana for a period of four years from the Effective Time.
REPRESENTATIONS AND WARRANTIES
The material representations and warranties contained in the Merger
Agreement of each of Benihana, Rudy's, Newco, Bayview and Douglas M. Rudolph
relate to, among other things (i) organization and qualification to do business;
(ii) capitalization; (iii) subsidiaries; (iv) authority to enter into the
Merger, non-contravention of laws or governing documents and regulatory
approvals; (v) reports and financial statements; (vi) absence of undisclosed
liabilities; (vii) absence of certain changes or events; (viii) litigation; (ix)
this Proxy Statement; (x) violations of law; (xi) compliance with agreements;
(xii) taxes; (xiii) leases; (xiv) employee benefit plans and ERISA matters; (xv)
labor controversies; (xvi) environmental matters; (xvii) title to assets;
(xviii) insurance; and (xix) brokers.
CONDUCT OF BUSINESS PENDING THE MERGER
During the period from the date of the Merger Agreement and prior to the
Effective Time or earlier termination of the Merger Agreement, unless Benihana
shall otherwise agree in writing, Rudy's shall, and shall cause its subsidiaries
to:
Ordinary Course. Conduct their respective businesses in the ordinary
and usual course of business and consistent with past practice.
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<PAGE> 27
Changes in Stock. Not (i) amend or propose to amend their respective
charter or by-laws, (ii) split, combine or reclassify their outstanding
capital stock or (iii) declare, set aside or pay any dividend or
distribution payable in cash, stock, property or otherwise.
Issuance of Securities. Not issue, sell, pledge or dispose of, any
additional shares of, or any options, warrants or rights of any kind to
acquire any shares of, their capital stock of any class or any debt or
equity securities convertible into or exchangeable for such capital stock.
Other Conduct. Not (i) incur or become contingently liable with
respect to any indebtedness for borrowed money other than (A) borrowings in
the ordinary course of business or (B) borrowings to refinance existing
indebtedness, (ii) redeem, purchase, acquire or offer to purchase or
acquire any shares of its capital stock or any options, warrants or rights
to acquire any of its capital stock or any security convertible into or
exchangeable for its capital stock, (iii) make any single capital
expenditure or commitment in excess of $50,000 for additions to property,
plant, equipment or intangible capital assets or make any capital
expenditure or commitments so that the aggregate expenditures and
commitments exceed $100,000, (iv) sell, pledge, dispose of or encumber any
assets or business other than sales in the ordinary course of business or
(vii) enter into any contract, agreement, commitment or arrangement with
respect to any of the foregoing.
Preservation of Goodwill. Use all reasonable efforts to preserve
intact its business organization and goodwill, keep available the services
of its present officers and key employees, and preserve the goodwill and
business relationships with customers and others having business
relationships with it and not engage in any action, directly or indirectly,
with the intent to adversely impact the transactions contemplated by the
Merger Agreement.
No Changes in Employment Arrangements. Not enter into or amend any
employment, severance, special pay arrangement with respect to termination
of employment or other similar arrangements or agreements with any
directors, officers or key employees, except as required by Section 8.1.12
of the Merger Agreement and in the ordinary course and consistent with past
practice.
No Changes in Compensation Arrangements. Not adopt, enter into or
amend any bonus, profit sharing, compensation, stock option, pension,
retirement, deferred compensation, healthcare, employment or other employee
benefit plan, agreement, trust, fund or arrangement for the benefit or
welfare of any employee or retiree, except as required by the Merger
Agreement or to comply with changes in applicable law.
Maintain Insurance. Maintain with financially responsible insurance
companies coverage on its assets and its business in such amounts and
against such risks and losses as are consistent with past practice.
ACQUISITION TRANSACTION
After the date of the Merger Agreement and prior to the Effective Time or
earlier termination of the Merger Agreement, Rudy's shall not directly or
indirectly initiate, solicit, negotiate, encourage, participate in discussions
or negotiations with, or provide any information to any person (other than
Benihana or Newco) concerning, or enter into any agreement providing for any
merger, sale of material assets, sale of shares of capital stock or similar
transaction involving Rudy's (any such transactions being referred to herein as
an "Acquisition Transaction").
Notwithstanding the provisions of the above paragraph, Rudy's may furnish
information and may participate in discussions or negotiations with, if required
to satisfy the fiduciary obligations of the Board of Directors of Rudy's persons
who solicit interest in Rudy's. Pursuant to the Merger Agreement, fiduciary
obligations shall arise if the Board of Directors believes, in good faith, after
consultation with its financial and legal advisors, that such unsolicited person
may make a bona fide proposal for a transaction materially more favorable to the
stockholders of Rudy's from a financial point of view than the transactions
contemplated under the Merger Agreement (the "Higher Offer"). In the event
Rudy's receives a Higher Offer or inquiry
18
<PAGE> 28
referred to above, the Board of Directors of Rudy's is obligated to communicate
to Benihana within one business day of receipt of the terms of any proposal
received, or any inquiry referred to above.
Effect of Acquisition Transaction. If the Merger is not consummated as a
result of Rudy's electing to enter into an Acquisition Transaction (including,
but not limited to, a permitted Acquisition Transaction) with any party other
than Benihana prior to the termination of the Merger Agreement, Rudy's shall pay
to Benihana upon consummation of such Acquisition Transaction an amount equal to
the greater of (i) Benihana's out-of-pocket fees and expenses incurred in
developing and negotiating the Merger Agreement and the Merger and (ii)
$1,000,000, which represents a good faith estimate of the cost and expenses
incurred by Benihana, together with the value of lost opportunities, in
developing the transactions contemplated by the Merger Agreement.
ADDITIONAL AGREEMENTS
Pursuant to the Merger Agreement, Rudy's, Benihana and Newco have made the
following additional agreements.
Access to Information. Rudy's shall afford to Benihana and Newco and their
respective accountants, counsel, financial advisors and other representatives
(the "Benihana Representatives") reasonable access during normal business hours
throughout the period prior to the earlier of the termination of the Merger
Agreement or the Effective Time to all of Rudy's records, books, contracts,
commitments, stockholder lists, files, working papers and drafts prepared by
accountants and any independent public accounting firms retained by Rudy's and
other documents pertaining to the business and operations of Rudy's and the
ownership of its properties and to undertake such other steps as Benihana
considers appropriate to familiarize itself with Rudy's. Benihana shall hold and
shall use reasonable best efforts to cause the Benihana Representatives to hold
in strict confidence all Confidential Information, as hereinafter defined,
furnished to Benihana, or Newco, as the case may be, in connection with the
transactions contemplated by the Merger Agreement.
In the event that the Merger Agreement is terminated in accordance with its
terms, Benihana shall promptly return to Rudy's all non-public written material
provided pursuant to the Merger Agreement and shall not retain any copies,
extracts or other reproductions in whole or in part of such written material. In
such event, all documents, memoranda, notes and other writings prepared by
Benihana based on the information in such material shall be destroyed (and
Benihana shall use its reasonable best efforts to cause the Benihana
Representatives to similarly destroy their documents, memoranda and notes), and
such destruction (and reasonable best efforts) shall be certified in writing by
an authorized officer supervising such destruction.
Stockholder Approval. Rudy's shall, as promptly as practicable, submit the
Merger Agreement and the transactions contemplated thereby for the approval of
its stockholders at a meeting of stockholders. Such meeting of stockholders
shall be held as soon as practicable following the date the Proxy Statement is
cleared for mailing by the U.S. Securities and Exchange Commission.
Expenses and Fees. All costs and expenses incurred in connection with the
Merger Agreement and the transactions contemplated thereby shall be paid by the
party incurring such expenses.
Public Statements. The parties shall consult with each other prior to
issuing any press release or any written public statement with respect to the
Merger Agreement or the transactions contemplated thereby and shall not issue
any such press release or written public statement prior to such consultation
unless required by law.
Indemnification. Pursuant to the Merger Agreement, Benihana has agreed to
guarantee the indemnification obligations of Rudy's to its officers and
directors for acts prior to the Effective Time, to the extent provided by the
Articles of Incorporation and By-laws of Rudy's in effect immediately prior to
the Effective Time and to the extent permitted by applicable law.
Article Twelve of Rudy's Articles of Incorporation ("Article Twelve")
provides that every director and officer of Rudy's shall be entitled to
indemnification by Rudy's against reasonable expenses and any liability paid or
incurred by such person in connection with any actual or threatened claim,
action, suit or proceeding,
19
<PAGE> 29
civil, criminal, administrative, investigative or other, whether brought by or
in the right of Rudy's or otherwise, by reason of such person being or having
been a director or officer of Rudy's or serving at the request of Rudy's as a
director, officer, employee, fiduciary or other representative of Rudy's or
another entity. However, no right to indemnification exists under Article Twelve
with respect to an action brought by a director or officer against Rudy's, other
than in a suit for indemnification provided thereunder. The indemnification
provided in Article Twelve includes the right to have expenses paid in advance
by Rudy's prior to final disposition of the action, as permitted by law. Such
indemnification shall be deemed to be a contractual right and shall not be
deemed exclusive of any other rights to which those seeking indemnification may
be entitled, including that Rudy's may purchase and maintain insurance to
protest itself and any person eligible for indemnification against any liability
or expenses asserted against or incurred by such person.
Section 8.1 of Article VIII of Rudy's By-laws ("By-laws Section 8.1")
provides that Rudy's shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action, or
suit or proceeding, whether civil, criminal, administrative or investigative by
reason of such person being or having been a director, officer, employee or
agent of Rudy's or is or was serving at the request of Rudy's as a director,
officer, employee or agent of another corporation or other enterprises against
expenses. Except as provided in the NRS, Rudy's shall not indemnify persons from
actions brought by or in the right of Rudy's; however, Rudy's shall indemnify to
the fullest extent permitted by NRS Section 78.751. The indemnification provided
in By-laws Section 8.1 shall not be deemed exclusive of any other rights to
which those seeking indemnification may be entitled.
Notwithstanding the provisions of Rudy's Articles and By-laws as described
above, Section 78.751 of the NRS requires Rudy's to indemnify a director,
officer, employee or agent of Rudy's, to the extent such director, officer,
employee or agent has been successful on the merits or otherwise in defense of a
proceeding, for all reasonable expenses incurred in the proceeding if the
director, officer, employee or agent was a party to the proceeding because he or
she was a director, officer, employee or agent of Rudy's. Further, NRS Section
78.751 provides that Rudy's may indemnify any person who was, is or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding by reason of that person's status or former status as a
director, officer, employee or agent of Rudy's, if such director, officer,
employee or agent acted in good faith and in a manner which the person
reasonably believed to be in and not opposed to the best interests of Rudy's
and, with respect to any criminal action or proceeding, the person had no
reasonable cause to believe the conduct was unlawful. The indemnification
provided under NRS Section 78.751, unless ordered by a court, may only be made
in accordance with a determination that indemnification is proper by either (a)
the stockholders; (b) the board of directors by majority vote of a quorum of
directors who were not parties to the act, suit or proceeding; or (c) if a
quorum of independent directors so orders or if a quorum of independent
directors cannot be obtained, independent legal counsel in a written opinion.
However, indemnification pursuant to NRS Section 78.751 may not be made to or on
behalf of (1) any director or officer if a final adjudication establishes that
such person's actions or omissions involved intentional misconduct, fraud or a
knowing violation of the law and was material to the cause of action or (2) any
director, officer, employee or agent who as adjudged by a court, after
exhaustive appeals, to be liable to the corporation or for amounts paid in
settlement to the corporation, unless the court determines that in view of all
the circumstances of the case, the person is fairly and reasonably entitled to
indemnity.
TERMINATION, AMENDMENT AND WAIVER
Termination. The Merger Agreement may be terminated (a) by the written
mutual written consent of Rudy's and Benihana; (b) by Rudy's, whether before or
after approval by the stockholders of Rudy's prior to the Effective Time, by
giving written notice to the other parties to the Merger Agreement, if there is
a continuing material breach by Benihana of any of the representations,
warranties, covenants or obligations of Benihana set forth in the Merger
Agreement, provided, however, that at the time of such termination, Rudy's is
not in material breach of any of its representations, warranties, covenants or
obligations under the Merger Agreement or if Rudy's is in such material breach,
Rudy's has not commenced to cure and is not then continuing to diligently pursue
the cure of such breach, provided, further, however, that Rudy's has a period of
20 days in which to cure such default; (c) by Rudy's, if prior to the Meeting,
the Board of Directors of Rudy's
20
<PAGE> 30
determines, solely due to its fiduciary obligations, that it will not recommend
to the Rudy's stockholders the approval of the Merger Agreement (or if such
recommendation is withdrawn) and shall have recommended a Higher Offer to the
stockholders of Rudy's; (d) by Benihana, whether before or after approval by the
stockholders of Rudy's prior to the Effective Time, by giving written notice to
the other parties to the Merger Agreement, if there is a continuing material
breach by Rudy's of any of the representations, warranties, covenants or
obligations of Rudy's set forth in the Merger Agreement, provided, however, that
at the time of such termination, Benihana is not in material breach of any of
its representations, warranties, covenants or obligations under the Merger
Agreement (or if Benihana is in such material breach, Benihana has not commenced
to cure and is not then continuing to diligently pursue the cure of such breach,
provided, further, however, that Benihana has a period of 20 days in which to
cure such default; (e) by either Rudy's or Benihana if the Merger is not
completed by January 31, 1998 (the "Final Date"), subject to the condition that
if the sole reason that the closing of the Merger has not taken place is the
failure of a third party to have taken any action required to be taken in order
to satisfy any party's obligation to consummate the Merger and each party has
taken all steps required under the Merger Agreement to cause such third party to
take such action, then either party may elect to extend the Final Date, to a
date no later than July 31, 1998.
Effect of Termination. In the event of termination of the Merger Agreement
by either Rudy's or Benihana as provided above, the Merger Agreement shall
forthwith become void and there shall be no further obligation on the part of
any of the parties to the Merger Agreement (except as set forth in parts of the
Merger Agreement which shall survive the termination) with respect to
obligations existing thereunder prior to the termination. If the Merger
Agreement is not consummated because Benihana breaches a material representation
or warranty or fails to perform a material covenant contained herein, and Rudy's
has not breached any material representation or warranty or failed to perform a
material covenant, and Rudy's chooses to terminate the Merger Agreement as a
direct result of such breach or failure, Benihana shall promptly pay to Rudy's
the sum of one million dollars ($1,000,000). Nothing in the Merger Agreement
relieves Benihana from liability in excess of the $1,000,000 amount for any
breach of the Merger Agreement. If the Merger Agreement is not consummated
because Rudy's breaches a material representation or warranty or fails to
perform a material covenant contained herein, and Benihana has not breached any
material representation or warranty or failed to perform a material covenant,
and Benihana chooses to terminate the Merger Agreement as a direct result of
such breach or failure, Rudy's shall be liable for any and all costs, expenses
or damages incurred or suffered by Benihana in connection with, or is in respect
of, the Merger Agreement. In the event the Merger Agreement is terminated by the
Board of Directors of Rudy's as a result of Rudy's consummating a transaction
related to a Higher Offer, Rudy's shall pay to Benihana a fee equal to the
greater of (i) Benihana's out-of-pocket fees and expenses incurred in developing
and negotiating the Merger Agreement and the Merger or (ii) $1,000,000, which
represents a good faith estimate of the cost and expenses incurred by Benihana,
together with the value of lost opportunities, in developing the transactions
contemplated by the Merger Agreement.
Amendment. The Merger Agreement may not be amended except by action taken
by the parties' respective Board of Directors or duly authorized committees
thereof and then only by an instrument in writing signed on behalf of each of
the parties hereto and in compliance with applicable law.
Waiver. At any time prior to the Effective Time, the parties to the Merger
Agreement may, among other things (a) extend the time for the performance of any
of the obligations or other acts of the other parties to the Merger Agreement;
(b) waive any inaccuracies in the representations and warranties contained in
the Merger Agreement or in any document delivered pursuant thereto; and (c)
waive compliance with any of the agreements or conditions contained in the
Merger Agreement. Any agreement on the part of a party to the Merger Agreement
to any such extension or waiver shall be valid if set forth in an instrument in
writing signed on behalf of such party. To the extent material provisions or
conditions are waived, Rudy's may be obligated to amend this Proxy Statement and
resolicit stockholders to the extent required by applicable law.
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<PAGE> 31
MARKET PRICE OF AND DIVIDENDS ON RUDY'S COMMON STOCK
Rudy's Common Stock is quoted on The Nasdaq SmallCap Market(SM) ("Nasdaq")
under the symbol "RUDY". From October 3, 1994 through July 3, 1996, Rudy's
Common Stock was traded on the OTC Bulletin Board under the symbol "RUDY." On
July 5, 1996, Rudy's Common Stock commenced trading on Nasdaq. The following
table shows (i) the reported high and low sales prices on Nasdaq (for quotes
commencing July 5, 1996); and (ii) the reported high and low bid quotations for
Rudy's Common Stock obtained from the OTC Bulletin Board (for quotes from
October 3, 1994 through July 3, 1996). The high and low bid prices for the
periods indicated are interdealer prices, without retail mark-up, mark-down or
commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
QUARTER
--------------------
BEGINNING ENDING HIGH LOW
--------- -------- ----- -----
<S> <C> <C> <C> <C>
Fiscal 1995:
First Quarter............................................ 10/3/94 12/25/94 $ .52 $ .31
Second Quarter........................................... 12/26/94 3/19/95 .44 .31
Third Quarter............................................ 3/20/95 6/11/95 .47 .44
Fourth Quarter........................................... 6/12/95 10/1/95 .75 .44
Fiscal 1996:
First Quarter............................................ 10/2/95 12/24/95 $2.69 $ .63
Second Quarter........................................... 12/25/95 3/17/96 2.38 1.75
Third Quarter............................................ 3/18/96 6/9/96 4.63 1.75
Fourth Quarter........................................... 6/10/96 7/3/96 6.13 4.50
Fourth Quarter........................................... 7/5/96 9/29/96 5.88 3.13
Fiscal 1997:
First Quarter............................................ 9/30/96 12/22/96 $3.75 $2.63
Second Quarter........................................... 12/23/96 3/16/97 4.88 3.00
Third Quarter............................................ 3/17/97 6/8/97 3.50 2.50
Fourth Quarter........................................... 6/9/97 9/28/97 4.81 2.63
</TABLE>
As of the Record Date, there were 316 holders of record of the Common Stock
of Rudy's. Rudy's believes the total number of beneficial holders of its Common
Stock is in excess of 500 as of such date. Rudy's policy is to retain all
available earnings for the development and growth of its business. Accordingly,
Rudy's has never paid any dividends nor does it currently contemplate the
payment of dividends within the foreseeable future.
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<PAGE> 32
BUSINESS OF RUDY'S
GENERAL
Rudy's through its wholly-owned subsidiaries, owns and operates nine
Japanese steak and seafood restaurants located throughout the eastern and
mid-eastern United States, six of which operate under the name Samurai and three
of which operate under the name Kyoto Japanese Steak and Seafood Restaurant.
Prior to February 1996 when Rudy's consummated the Kyoto Acquisition wherein it
acquired the three Kyoto Japanese Steak and Seafood Restaurants, Rudy's owned
and operated the six Samurai restaurants.
RESTAURANT OPERATIONS
Rudy's restaurants feature the "teppanyaki" style of Japanese cooking, in
which steak, chicken, shrimp and other seafood are prepared on a grill which
forms the focal point at the center of a large table seating from eight to ten
patrons. The decor of each restaurant features a traditional Japanese theme. The
restaurants range in size from approximately 5,000 to 10,000 square feet and
include a bar and lounge area designed to provide a casual and comfortable
atmosphere. Seating capacity ranges from 128 to 192 and averages 156 persons.
In addition to entrees prepared at the table, a variety of Japanese
appetizers and alcoholic and non-alcoholic beverages are available for purchase.
In addition, three restaurants have a "sushi" bar offering various types of raw
fish served either in the traditional manner or as "sashimi."
Restaurants are open for lunch and dinner. Dinner entrees range in price
from $12.50 to $26.95; the average dinner check is $20.50. The average luncheon
check is $10.50. Sales of alcoholic beverages represent approximately 14% of
restaurant sales.
Rudy's restaurant format includes several features which limit costs. The
"teppanyaki" table arrangement improves efficiency of service since most seats
at the table are occupied at the same time. Service is coordinated at the table
by the presiding chef so that meals begin and end simultaneously. Limited menu
choices, portion controlled servings and preparation of entrees at the table
minimize waste, contributing to savings in food costs. In addition, labor costs
are reduced by combining such functions as order taking, preparation and
serving.
Quality and uniformity at Rudy's restaurants are maintained through
training and supervision of personnel. Restaurant operations are under the
general supervision of Rudy's President and Chief Operating and Financial
Officer as well as the direct supervision of a Supervisor of Restaurant
Operations. Each restaurant has a head manager, assistant managers and head
chefs. The restaurants are operated in accordance with uniform specifications,
as set forth in operating manuals, relating to food and beverage preparation,
maintenance of premises and conduct of employees. Operational reviews are
conducted periodically to ensure adherence to standards of quality in food
preparation and customer service.
Each restaurant manager is responsible for the purchase and receipt of
restaurant supplies. Food is purchased from a minimum of two suppliers to
provide a reliable source of fresh food at competitive prices. Rudy's believes
that many alternative food suppliers are available.
Financial control is maintained through the use of automated data
processing, including centralized accounting and management reports. Sales
information, vendor invoices, payroll data and other operating information are
forwarded periodically to Rudy's headquarters for review and processing.
COMPETITION
The restaurant business is highly competitive and is affected by changes in
the public's taste and eating habits, local and national economic conditions
affecting spending habits and population and traffic patterns. While the
principal competitive factors in the industry are the quality and price of the
food products offered, name recognition, restaurant location, service and
attractiveness of facilities are also of importance.
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<PAGE> 33
Since the success of Rudy's restaurants is primarily dependent upon the
popularity of oriental food and the "teppanyaki" style of cooking in the
communities within which the restaurants are located, Rudy's relies heavily on
local newspaper and other forms of print media to promote its restaurants.
GOVERNMENT REGULATION
Rudy's is subject to Federal, state and local laws affecting the operation
of the restaurants, including zoning, health, sanitation and safety regulations
and alcoholic beverage licensing requirements. The suspension of a food service
or liquor license could cause an interruption of operations at the affected
restaurant.
Rudy's is also subject to the Federal Fair Labor Standards Act and state
and local labor regulations which govern minimum wage, overtime and other
working conditions. Accordingly, any change in such regulations, such as the
recently enacted change in the Federal minimum wage, may affect Rudy's results
of operations.
SERVICE MARKS
Rudy's has registered the service mark and related logo designs of
"Samurai" with the United States Patent and Trademark Office. The use of these
service marks, logo designs and trade names is one factor supporting Rudy's
competitive position in the industry. However, there are no assurances that
Rudy's will be able to exclusively utilize this trade name.
LEGAL PROCEEDINGS
Rudy's is subject to such legal proceedings and claims as may arise in the
ordinary course of its business that cover a wide range of matters, including
but not limited to such matters as workers compensation, general liability and
products liability claims. Rudy's carries comprehensive insurance to assist in
limiting the Rudy's exposure to financial loss as a result of such claims as may
arise in the normal course of business. However, Rudy's does not carry insurance
coverage to assist in the defense or settlement of those claims which may arise
in employment matters such as alleged harassment or discrimination. Although
Rudy's is not currently a party to any significant ongoing legal proceeding not
covered by existing insurance, because Rudy's is highly labor intensive there
are no assurances that such legal proceedings, should they arise, would not have
a significant adverse effect on Rudy's financial position, results of operations
and cash flows.
PROPERTIES
Since September 1996 Rudy's has owned the land and building in which its
Minneapolis, Minnesota Samurai restaurant is located. The balance of Rudy's
restaurant facilities are leased pursuant to long-term lease agreements. The
following table identifies certain information with respect to each of Rudy's
restaurants as of the date of this Proxy Statement.
<TABLE>
<CAPTION>
LEASE
LEASE ---------------------
LOCATION APPROXIMATE SIZE EXPIRATION DATE EXTENSION OPTIONS
- -------- ---------------- --------------- --------- ---------
(SQUARE FEET)
<S> <C> <C> <C> <C>
Miami, FL.................................... 7,500 2006 1 5-year +1-3-year
Washington, DC............................... 7,761 2006 2 5-year
Cincinnati, OH............................... 5,000 1997 None
Cleveland, OH................................ 10,392 2004 None
Pittsburgh, PA............................... 8,000 2001 3 5-year +1-3-year
Dearborn, MI................................. 8,200 2002 None
Farmington Hills, MI......................... 7,500 2016 2 5-year
Troy, MI..................................... 8,200 2016 2 5-year
</TABLE>
The aggregate minimum annual rental amounts payable by Rudy's under these
operating leases during fiscal year 1997 is approximately $918,000. Certain
leases also require additional rental payments based on restaurant sales as well
as real estate taxes, insurance, common area charges and other costs.
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<PAGE> 34
EMPLOYEES
Rudy's has approximately 390 employees of which 385 are employed in
restaurant operations and 5 are corporate management and office personnel. None
of Rudy's employees are covered by collective bargaining agreements.
EXECUTIVE COMPENSATION
Cash Compensation
The following sets forth certain information with respect to annual
compensation for all executive officers of Rudy's for fiscal years ended
September 29, 1996, October 1, 1995 and October 2, 1994:
<TABLE>
<CAPTION>
YEAR OPTIONS
NAME AND PRINCIPAL POSITION(S) HELD ENDED SALARY BONUS OTHER GRANTED
- ----------------------------------- ----- -------- ----- ------- -------
<S> <C> <C> <C> <C> <C>
Douglas M. Rudolph................................... 1996 $150,000 None $22,800 None
President, CEO, Secretary, 1995 150,000 None 22,800 None
Director 1994 150,000 None 22,800 None
Marie G. Peterson.................................... 1996 $ 95,000 None $35,600 None
VP, Treasurer, COO and 1995 84,000 None None None
CFO 1994 84,000 None None None
</TABLE>
Douglas M. Rudolph's other compensation includes an annual expense
allowance of $10,800 and annual Director's fees of $12,000. Marie G. Peterson's
other compensation represents cost of living wage adjustments due pursuant to
the terms of her employment agreement from 1991 through 1995.
The executive officers of Rudy's are provided with insurance coverage under
Rudy's group medical plan under the same terms and conditions as are available
to other salaried employees.
Douglas M. Rudolph renders services to Rudy's on a full time basis
personally and through his wholly-owned Florida corporation, Rudolph
Entertainment, Inc. ("REI"). These arrangements provide Douglas M. Rudolph a
total annual compensation of $150,000, reimbursement for certain expenses
incurred by him, and a possible annual incentive bonus of up to $100,000
annually as determined by Rudy's Board of Directors (the "Board"). Rudy's
believes that the terms of its existing arrangements with Douglas M. Rudolph are
no less favorable to Rudy's than similar arrangements which might have been
entered into with similarly qualified unrelated parties.
Marie G. Peterson renders services to Rudy's on a full time basis pursuant
to the terms of a written employment agreement dated February 1, 1997.
Each director (including employee directors) earns an annual fee of $12,000
for serving on the Board of Directors plus $1,000 per meeting attended. In
addition, Rudy's reimburses all directors for travel and other reasonable and
normal expenses incurred on behalf of Rudy's. Directors fees, all of which were
paid, totaled $36,000 in 1996 and 1995.
25
<PAGE> 35
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following sets forth information regarding the beneficial ownership of
Common Stock of Rudy's as of the date of this Proxy Statement by (i) each person
known by Rudy's to beneficially own beneficially more than five percent of the
outstanding Common Stock of Rudy's; (ii) each director of Rudy's; and (iii) each
of the executive officers of Rudy's; and (iv) all directors and executive
officers as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OWNED
- ------------------- ----------------------- -------
<S> <C> <C>
Douglas M. Rudolph.......................................... 2,090,600(2) 55.46%
212 Bal Bay Drive
Miami, FL 33154
Bayview Partners............................................ 450,000 11.95
2000 Bering Drive, Suite 150
Houston, TX 77057
Marie G. Peterson........................................... 40,000 1.06
2860 S.W. 85th Way
Davie, FL 33328
Peter M. Graham............................................. 100,000 2.66
15 Harrison Street
New York, NY 10013
Eli Boyer................................................... 1,000 *
7171 La Presa Drive
Los Angeles, CA 90068
All executive officers and directors as a group (4
persons).................................................. 2,231,600 59.27
</TABLE>
- ---------------
* Less than one percent.
(1) For purposes of this table, beneficial ownership is computed pursuant to
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Under the rules of the Commission, a person is deemed a
"beneficial owner" of a security if her or she has or shares the power to
vote or direct the voting of such security or the power to dispose of or
direct the disposition of such security. Accordingly, more than one person
may be deemed to be a beneficial owner of the same security. As of the date
hereof 3,765,000 shares of Common Stock of Rudy's were outstanding.
(2) Does not include (i) 11,500 shares owned by Judi Male, Douglas M. Rudolph's
sister, (ii) 8,500 shares owned by Richard Rudolph, Douglas M. Rudolph's
brother, or (iii) 12,900 shares owned by Muriel Rudolph, Douglas M.
Rudolph's mother, with respect to all of which shares Douglas M. Rudolph
disclaims beneficial ownership. Includes 4,500 shares owned by Bayview
Partners over which Douglas M. Rudolph may be deemed the beneficial owner.
Douglas M. Rudolph may be deemed a parent of Rudy's as that term is defined
under the Securities Act of 1933, as amended.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the terms of an agreement related to the acquisition of a
Rudy's subsidiary in 1985 between Rudy's and Douglas M. Rudolph, Rudy's owed to
Douglas M. Rudolph a total of $76,226 accruing interest at 7%. Rudy's was paid
in full as of October 13, 1997.
In August 1996 Rudy's loaned to Ms. Peterson $47,000. This loan bears
interest at 7% and is to be repaid bi-weekly, through September, 2000. As of the
date of this Proxy Statement, the amount due to Rudy's related to this loan is
approximately $37,000. Subsequent to the Merger these amounts will be repaid by
Ms. Peterson in bi-weekly installments through September, 2000 in accordance
with the terms of the loan.
Each director of Rudy's receives an annual fee of $12,000 plus $1,000 per
meeting attended. Director fees and costs totaled $36,000 in 1996 and 1995.
Peter M. Graham, a director of Rudy's is the President of Ladenburg.
Ladenburg has acted as financial
26
<PAGE> 36
advisor to Rudy's in connection with the Merger and has rendered the Opinion and
from time to time has rendered financial advisory services to Rudy's for which
it received compensation. Mr. Graham did not participate in the preparation of
the Opinion. For its services related to the Merger, including the preparation
and delivery of the Opinion, Ladenburg will be paid, in the aggregate, $250,000.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION OF RUDY'S
Rudy's fiscal year includes either 52 or 53 weeks consisting of thirteen
four-week accounting periods or twelve four-week accounting periods and one
five-week period ending on the Sunday closest to September 30 of each year.
Accordingly, the discussion below corresponds to the fiscal years ending
September 29, 1996 and October 1, 1995, respectively and the 12 and 36 week
periods (the third fiscal quarter) ended June 8, 1997 and June 9, 1996,
respectively.
THIRD QUARTER ENDED JUNE 8, 1997 VS. THIRD QUARTER ENDED JUNE 9, 1996
Business Overview
Rudy's consummated the Kyoto Acquisition in February 1996, thereby
increasing the number of its operating restaurants from 6 to 9. Since the
operations of the Kyoto restaurants have had a significant impact on Rudy's
operations, certain year-to-date data and discussion herein is presented as
same-restaurant to facilitate understanding of Rudy's current operations.
Excluding the effect of the Kyoto restaurants, the most significant factor
affecting earnings in fiscal 1997 is the difference in computing income tax
expense. As a result of earnings from the Kyoto restaurants, continuing earnings
from the Samurai operations and certain other factors, Rudy's recognized
$3,807,000 in tax benefits from certain of its NOL carryforwards at the end of
fiscal 1996. As a result, fiscal 1996 income tax expense in the accompanying
statements of operations is stated net of the tax benefits of NOL carryforwards,
whereas fiscal 1997 income tax expense excludes these tax benefits. Expected
income taxes payable total $27,500 in the third quarter 1997 and $128,000
year-to-date 1997. The difference between expected income taxes payable and
income tax expense included in the accompanying statements of operations,
$67,900 in the third quarter and $403,500 year-to-date, represents a reduction
in the $3,807,000 deferred tax asset recorded in 1996.
Results of Operations
Revenues. Revenues during the third quarter 1997 increased $112,200 to
$3,983,000 or approximately 2.9% as compared with revenues generated during the
third quarter 1996. This nominal increase was due to a modest price increase
introduced at Rudy's restaurants at the end of the second quarter 1997 combined
with an increase in customers ordering items from the full priced menu as
compared with the third quarter 1996. Revenues for the period commencing with
the fiscal year 1997 and ending June 8, 1997 ("Year to Date 1997") increased
$1,868,200 to $11,778,000 or approximately 18.8%, as compared to the period
commencing with fiscal year 1996 and ending June 9, 1996 ("Year to Date 1996"),
substantially all of which increase was due to revenues generated from the three
additional restaurants acquired in connection with the Kyoto Acquisition (as
defined below) in February 1996. Same-restaurant revenues (excluding the effect
of one restaurant closed for a portion of the year for renovation), increased
approximately 2.7% for the period Year to Date 1997 as compared with the period
Year to Date 1996.
Costs and Expenses Variable With Revenues
<TABLE>
<CAPTION>
PERCENT OF REVENUES
--------------------------
COSTS AND EXPENSES FY 1997 FY 1996 CHANGE
- ------------------ ------- ------- ------
<S> <C> <C> <C>
Third quarter:
Food, beverage and supplies............................... 27.4% 27.0% .4%
Labor and related costs................................... 22.0 22.8 (.8)
---- ---- ----
</TABLE>
27
<PAGE> 37
<TABLE>
<CAPTION>
PERCENT OF REVENUES
--------------------------
COSTS AND EXPENSES FY 1997 FY 1996 CHANGE
- ------------------ ------- ------- ------
<S> <C> <C> <C>
49.4% 49.8% (.4)%
==== ==== ====
Year-to-date:
Food, beverage and supplies................................. 27.5% 26.7% .8 %
Labor and related costs..................................... 22.4 23.0 (.06)
---- ---- ----
49.9% 49.7% .2 %
==== ==== ====
</TABLE>
The increase in food, beverage and supplies costs as a percentage of
revenues is primarily the result of an increase in the market price of meat,
chicken and seafood. The cost of meat, chicken and seafood varies with market
supply and demand and market prices. Labor costs as a percentage of revenues
declined slightly as a result of improved scheduling and a modest reduction in
the costs of fringe benefits.
Restaurant Operating Expenses. Restaurant operating expenses include
restaurant management and supervision, occupancy costs, repairs and maintenance,
utilities, advertising and property and liability insurance. These expenses
decreased $51,000 to $1,061,000 during the third quarter 1997 as compared to
$1,112,000 during the third quarter ended 1996. Restaurant operating expenses
increased on an absolute basis during the period Year to Date 1997 as compared
with the period Year to Date 1996 primarily due to the additional three
restaurants acquired in the Kyoto Acquisition. However, restaurant operating
expenses as a percentage of revenues declined .8% during the period Year to Date
1997 as compared to the period Year to Date 1996. Substantially all of the
improvement in these costs is the result of certain operating efficiencies
achieved and a reduction in occupancy costs made possible through the purchase
in September 1996 of the land and building upon which Rudy's Minneapolis,
Minnesota Samurai restaurant is located.
Administrative Expenses. Administrative expenses decreased $6,700 to
$168,000 during the third quarter 1997 compared to the third quarter 1996.
Administrative costs increased $21,600 to $486,000 during the period Year to
Date 1997 compared with the period Year to Date 1996 as a result of increased
professional fees and expenses associated with the administration of the Kyoto
restaurants, including, most significantly, expenses of a consulting and
non-compete agreement entered into in connection with the Kyoto Acquisition.
Interest Expense. Interest expense decreased $5,400 in the third quarter
ended June 8, 1997 as the principal amount of the debt incurred in connection
with the Kyoto Acquisition was reduced. Interest expense for the period Year to
Date 1997 was $70,100 as compared to $40,900 for the period Year to Date 1996
due to the debt incurred in February 1996 in connection with the Kyoto
Acquisition.
Substantially all of Rudy's restaurant facilities were built prior to the
enactment of Federal ADA regulations. The ADA includes certain requirements to
alter public facilities, including restaurants, as necessary to make facilities
accessible to and usable by individuals with disabilities. The cost of such
alterations could have a significant impact on Rudy's cash flow. Rudy's has
engaged certain architects and engineers to develop plans to implement those
alterations which are economically feasible.
Rudy's presently pays a significant portion of its employees in excess of
the Federal minimum wage and a large number of Rudy's employees are tipped
employees whose wages are subject to the Federal tip credit. Therefore, although
increased State and Federal minimum wage rates have an adverse impact on Rudy's
results of operations, such impact has not historically been significant.
Although Rudy's is not currently a party to any significant legal
proceedings, Rudy's is subject to such proceedings and claims as may arise in
the ordinary course of its business. To limit Rudy's exposure to financial loss
as a result of such claims, Rudy's carries certain comprehensive insurance.
Rudy's does not carry insurance which would assist in the defense or settlement
of those claims which may arise in employment related matters, such as claims as
may be made alleging harassment or discrimination.
FISCAL YEAR ENDED SEPTEMBER 29, 1996 VS. FISCAL YEAR ENDED OCTOBER 1, 1995
Business Overview
At September 29, 1996, Rudy's had tax net operating losses ("NOLS") and
general business tax credit carryforwards totaling approximately $12,300,000 and
$280,000, respectively. The NOLS are available to
28
<PAGE> 38
reduce future federal taxable income at varying times through 2007 and the
business tax credits are available to reduce Federal income taxes at varying
times through 2011.
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"), requires Rudy's to record a deferred tax asset for the
future tax benefits of the NOLS and business tax credits if realization of the
tax benefit is more likely than not. In 1996 Rudy's recorded an income tax
benefit of $3,807,000 as a reduction in current year tax expense, resulting in a
net income tax benefit of $3,662,000 in fiscal 1996.
Rudy's income before giving effect to the income tax benefit discussed
above, improved $772,000, $.20 per share in 1996 compared to 1995. Rudy's 1996
revenues, net income and earnings per share improved as a result of both an
increase in the number of restaurants operating during the year and reductions
in same-restaurant costs and expenses achieved primarily through a change in
Rudy's marketing strategy.
Business Acquisition. In February 1996, Rudy's acquired substantially all
of the assets and business operations of three Kyoto Japanese Steakhouse and
Seafood Restaurants in exchange for $547,600 cash and the delivery of a
promissory note in the principal amount of $1,253,200 (the "Kyoto Acquisition")
and other amounts for a Consulting and Agreement Not to Compete. The Kyoto
Acquisition was accounted for as a purchase and the results of operations of the
acquired restaurants have been included in Rudy's consolidated financial
statements since the date acquired.
Property Acquisition. In September 1996 Rudy's acquired the land and
improvements, consisting of a building of approximately 10,000 square feet upon
which its Minneapolis, Minnesota Samurai restaurant location operates in
exchange for $1,150,000 cash (the "Minneapolis Real Property Acquisition"). As a
result of the Minneapolis Real Property Acquisition, Rudy's has reduced its
expected annual operating expenses by approximately $123,000 per year, the
amount of annual lease payments due under the previous existing lease at that
location.
Federal, State and Local Regulations. Rudy's presently pays a significant
portion of its employees in excess of the Federal minimum wage. In addition, a
large number of Rudy's employees are tipped employees whose wages are subject to
the Federal tip credit. Therefore, changes in the Federal minimum wage have not
historically had as significant an impact on Rudy's results of operations and
cash flows as might otherwise be expected.
With the exception of the Miami Samurai restaurant location (rebuilt in
1993) and the Kyoto restaurant locations, Rudy's restaurant facilities were
built prior to the enactment of Federal regulations regarding equal opportunity
for individuals with disabilities, the Americans with Disabilities Act, "ADA".
The ADA includes certain requirements to alter public facilities, including
restaurants, as necessary to make facilities accessible to and useable by
individuals with disabilities. Rudy's began its modernization program in 1996
and at September 29, 1996 one of its restaurants was closed for a significant
renovation including those improvements necessary to comply with ADA
regulations.
Although Federal regulations consider the cost of alterations and the
overall financial resources of Rudy's in determining the nature and timing of
ADA compliance, the cost of such alterations could have a significant impact on
Rudy's cash flow. Rudy's will proceed with required alterations at it remaining
locations as soon as reasonably economically feasible.
Results of Operations
Revenues. Rudy's fiscal 1996 total revenues increased $3,575,000 to
$14,665,500, an increase of approximately 32.2% over 1995. Substantially all of
this increase is attributable to the addition of the Kyoto restaurants as
Samurai same-restaurant revenues remained substantially unchanged between years.
Management adopted a program in fiscal 1996 to reduce discounted meals
offered through coupons in order to better utilize facilities and limited
personnel during peak hours of operation. Although Samurai same-restaurant
revenues did not change substantially between years, management's decision to
reduce the availability of discounted meals resulted in a decline in fiscal 1996
customer traffic of 2.7%. At the same time,
29
<PAGE> 39
increased menu prices and the change in customer eating habits to more expensive
menu items resulted in an increase in average check of 3% when compared to
fiscal 1995. Due to the higher gross margin on full-priced items and other
economies realized, as more fully discussed below, Samurai same-restaurant
earnings from restaurant operations increased $365,000 or approximately 18% of
fiscal 1996 same-restaurant revenues as compared to 14.8% in fiscal 1995.
The average check at the Kyoto restaurants is significantly higher than the
average check at the Samurai restaurants primarily because the Kyoto restaurants
do not employ significant discounting. The average check at the Kyoto
restaurants increased approximately 2.8% and customer traffic increased
approximately 6.7% in 1996 compared to available information from the previous
year for the approximately eight months included in Rudy's operations.
Costs and expenses applicable to revenues. Costs and expenses applicable
to revenues decreased 3.7% to 50% of revenues in fiscal 1996, as compared to
53.7% in fiscal 1995 summarized as follows:
<TABLE>
<CAPTION>
IMPROVEMENT IN
----------------------
FOOD, BEVERAGE
AND SUPPLIES LABOR TOTAL
-------------- ----- -----
<S> <C> <C> <C>
Same Restaurant........................................... 2.5% .4% 2.9%
Kyoto..................................................... .1 .7 .8
---- ---- ----
2.6% 1.1% 3.7%
==== ==== ====
</TABLE>
Because of their higher average check, costs and expenses applicable to
revenues at the Kyoto restaurants are lower than those of the Samurai
restaurants which resulted in an overall .8% improvement in costs and expenses
variable with revenues. However, as shown, the most significant improvement was
realized through reduced same restaurant costs and expenses.
The cost of seafood, meat and chicken, the major components of Rudy's food,
beverage and supplies costs, varies with supply and demand and other market
conditions. Approximately 1% of the 2.5% improvement in same-restaurant costs is
the result of declining costs of seafood, which decreased approximately 7% in
1996, and meat and chicken costs which decreased approximately 5% in 1996. The
balance of the improvement in these costs is the result of the higher average
check discussed above.
The .4% improvement in same-restaurant labor and related benefit costs is
due entirely to the higher check average discussed above. Wage rates on a per
check basis increased slightly.
Expenses of restaurant operations: General operations. General operations
expense includes restaurant management and supervision, occupancy costs, repairs
and maintenance, utilities, advertising, and insurance. A substantial portion of
these expenses vary at least to some degree with revenues. These expenses
increased $1,039,000 to $4,291,000 in 1996, including expenses of $1,082,000
related to the Kyoto restaurant operations and a $43,000 decrease in expenses
related to Samurai same-restaurant operations. As a percent of revenues, general
operations expense remained unchanged at 29.3% of revenues in 1996 and 1995.
General operations expense at the Kyoto restaurants is approximately 2% higher
than at the Samurai restaurants due to higher occupancy costs.
Same-restaurant general operations costs declined $43,000 in 1996 compared
to 1995 primarily due to reductions in management labor achieved through the
installation of computerized sales systems, reductions in general liability
costs achieved through improved experience ratings and negotiated reductions in
credit card discount fees. Repairs and maintenance costs increased $38,000,
primarily due to costs to repair aging air conditioning and exhaust equipment;
occupancy costs increased approximately $19,000 due to higher rents incurred as
certain rent abatements negotiated in 1992 expired.
Corporate overhead: General and administrative expenses. General and
administrative expenses rose $98,000 to $614,600 in 1996 compared to 1995. This
increase is due to several factors, the most significant of which are
non-recurring expenses including 1) approximately $46,000 cost of living wage
adjustments due the chief operating and financial officer for the period 1991 to
present, 2) $25,000 related to audit and accounting fees associated with the
Kyoto operations and 3) $8,000 associated with relisting on NASDAQ. The balance
of the
30
<PAGE> 40
increase in these costs, $19,000, is due primarily to expenses related to the
general administration of the additional Kyoto restaurants.
Interest Expense. Interest expense increased $67,500 in 1996 compared to
1995. This increase is directly related to debt incurred with the Kyoto
Acquisition.
Fiscal 1995 Non-operating expense. Settlement costs and expenses. In May
1995, Rudy's Samurai subsidiary and certain employees of the Samurai were named
defendants in a lawsuit alleging discrimination under the Civil Rights Act of
1870, 42 U.S.C. 1981, as amended (1992 Supp). Although Rudy's believes that the
claims as set forth in the complaint were without merit, due to the prohibitive
costs of defending such allegations, in September 1995 Rudy's and plaintiff
entered into a Settlement Agreement wherein, in return for certain monetary
consideration, the plaintiff agreed to release all existing claims against
Rudy's and its employees. Pursuant to the terms of the Agreement, the complaint
was dismissed in September 1995. The costs of settlement, including legal fees
incurred, totaled approximately $50,000. Accordingly, Rudy's recorded a
nonrecurring charge of $50,000, included in the statements of operations as
non-operating expense in fiscal 1995.
Although Rudy's is not currently a party to any significant ongoing legal
proceedings, Rudy's is subject to such legal proceedings and claims as may arise
in the ordinary course of its business that cover a wide range of matters,
including but not limited to such matters as workers compensation, general
liability and products liability claims. Rudy's carries comprehensive insurance
to assist in limiting Rudy's exposure to financial loss as a result of
substantially all claims as may arise in the normal course of business. However,
Rudy's does not carry insurance coverage to assist in the defense or settlement
of those claims which may arise in employment matters such as alleged harassment
or discrimination. Although Rudy's is not currently a party to any significant
ongoing legal proceedings not covered by existing insurance, because Rudy's is
highly labor intensive there are no assurances that such legal proceedings,
should they arise, would not have a significant adverse effect on Rudy's
financial position, results of operations and cash flows.
Liquidity and Capital Resources
Net cash provided by operating activities through the third quarter ended
June 8, 1997 was $1,684,000 as compared to $1,597,200 during the third quarter
ended June 9, 1996. At June 8, 1997 cash and cash equivalents totaled $2,425,300
as compared to $1,199,400 at the end of fiscal 1996. At June 8, 1997 Rudy's had
a working capital surplus of $1,523,400 as compared to a working capital deficit
of $1,000 at September 29, 1996.
Net cash provided by operating activities was $2,175,000 in 1996 as
compared to $1,424,000 in 1995. Cash and cash equivalents totaled $1,199,000 at
the end of fiscal 1996 as compared to $1,477,000 at the end of 1995. At
September 29, 1996 Rudy's had a working capital deficit of $1,000 as compared to
a surplus of $808,000 at October 1, 1995. The Kyoto Acquisition and the
Minneapolis Real Property Acquisition and certain renovation and modernization
projects during 1996 were the primary factors contributing to the reduction in
cash and working capital at September 29, 1996.
Capital expenditures in 1996 totaled $1,966,000, primarily relating to
$547,600 cash expended in connection with the Kyoto Acquisition, $1,150,000 cash
expended in connection with the Minneapolis Real Property Acquisition and
$175,000 cash paid for renovation and modernization projects completed at
September 29, 1996.
APPROVAL OF ADJOURNMENT OR POSTPONEMENT OF SPECIAL MEETING
At the Special Meeting, Rudy's stockholders will be asked to approve the
adjournment or postponement of the Special Meeting in the event that such
adjournment or postponement is necessary in order to solicit additional votes
for the adoption and approval of the Merger Agreement and the Merger
contemplated thereby.
The Rudy's Board of Directors unanimously recommends that you vote FOR this
proposal.
31
<PAGE> 41
STOCKHOLDER PROPOSALS FOR ANNUAL MEETING
If the Merger is not consummated, it is presently anticipated that the next
Annual Meeting of Stockholders of Rudy's will be held on or about January 30,
1998. Any proposal of a stockholder to be presented at the Annual Meeting of
Stockholders in 1998 must be received by the Secretary of Rudy's at its
principal offices, prior to 5:00 p.m., Miami, Florida, on December 1, 1997, in
order to be considered for inclusion in Rudy's proxy materials relating to its
Annual Meeting of Stockholders. Any such proposal must be in writing and signed
by the stockholder. If the Merger is consummated, there will be no annual
meeting of Rudy's stockholders.
OTHER MATTERS
Management knows of no other matters that will be presented at the Special
Meeting. If any other matters arise at the Special Meeting, it is intended that
the shares represented by the proxies in the accompanying form will be voted in
accordance with the judgment of the persons named in the proxy.
By Order of the Board of Directors,
Douglas M. Rudolph
Chairman of the Board and Secretary
32
<PAGE> 42
RUDY'S RESTAURANT GROUP, INC.
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUARTERLY FINANCIAL STATEMENTS:
Consolidated Balance Sheets -- June 8, 1997 and September
29, 1996 (Unaudited)................................... F-2
Consolidated Statements of Operations -- Twelve weeks and
Thirty-six weeks ended June 8, 1997 and June 9, 1996
(Unaudited)............................................ F-3
Consolidated Statements of Cash Flows -- Thirty-six weeks
ended June 8, 1997 and June 9, 1996 (Unaudited)........ F-4
Notes to Consolidated Financial Statements (Unaudited).... F-5
ANNUAL FINANCIAL STATEMENTS:
Independent Auditors' Report.............................. F-6
Consolidated Balance Sheets -- September 29, 1996 and
October 1, 1995........................................ F-7
Consolidated Statements of Operations -- Years ended
September 29, 1996 and October 1, 1995................. F-8
Consolidated Statements of Stockholders' Equity -- Years
ended September 29, 1996 and October 1, 1996........... F-9
Consolidated Statements of Cash Flows -- Years ended
September 29, 1996 and October 1, 1995................. F-10
Notes to Consolidated Financial Statements................ F-11
</TABLE>
F-1
<PAGE> 43
RUDY'S RESTAURANT GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 8, SEPTEMBER 29,
1997 1996
----------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 2,425,271 $ 1,199,384
Accounts receivable and current portion of note
receivable............................................. 10,037 51,604
Inventories............................................... 236,143 225,414
Prepaid expenses.......................................... 126,542 91,078
----------- -----------
Total current assets.............................. 2,797,993 1,567,480
Land, Property and Equipment, net........................... 5,106,114 5,174,747
Goodwill, net of accumulated amortization of $371,031 at
June 8, 1997 and $334,418 at September 29, 1996........... 576,739 595,455
Other assets................................................ 4,068,042 4,535,739
----------- -----------
$12,548,888 $11,873,421
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of note payable and other long-term
debt................................................... $ 371,031 $ 352,023
Due to related party...................................... 76,226 110,152
Accounts payable and accrued expenses..................... 827,324 1,106,110
----------- -----------
Total current liabilities......................... 1,274,581 1,568,285
Note payable and other long-term debt, excluding current
maturities................................................ 785,263 1,065,909
----------- -----------
Total liabilities................................. 2,059,844 2,634,194
----------- -----------
Commitments and contingencies (Note 2)
Stockholders' Equity:
Preferred stock, $.01 par value; authorized 10,000,000
shares, none issued....................................
Common stock, $.01 par value; authorized 30,000,000
shares; 3,765,000 issued and outstanding............... 37,650 37,650
Paid-in capital........................................... 17,852,403 17,852,403
Accumulated (deficit)..................................... (7,401,009) (8,650,826)
----------- -----------
Total stockholders' equity........................ 10,489,044 9,239,227
----------- -----------
$12,548,888 $11,873,421
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 44
RUDY'S RESTAURANT GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED THIRTY-SIX WEEKS ENDED
--------------------------- ---------------------------
JUNE 8, 1997 JUNE 9, 1996 JUNE 8, 1997 JUNE 9, 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Total Revenues.............................. $ 3,982,648 $ 3,870,405 $11,777,869 $ 9,909,623
Costs and expenses variable with revenues... 1,967,344 1,929,190 5,875,701 4,920,864
Restaurant operating expenses............... 1,060,561 1,111,804 3,262,963 2,821,140
Depreciation and amortization............... 100,346 91,515 301,038 228,133
----------- ----------- ----------- -----------
Earnings from restaurant operations......... 854,397 737,896 2,338,167 1,939,486
General and administrative expenses......... 168,041 174,727 486,328 464,724
Interest expense............................ 20,575 25,992 70,111 40,854
Loss on retirement of assets................ -- -- 411 5,131
----------- ----------- ----------- -----------
Income before income taxes.................. 665,781 537,177 1,781,317 1,428,777
Income taxes................................ 95,400 46,900 531,500 125,000
----------- ----------- ----------- -----------
Net income........................ $ 570,381 $ 490,277 $ 1,249,817 $ 1,303,777
=========== =========== =========== ===========
Net income per common and common equivalent
share
Primary................................... $ .15 $ .13 $ .33 $ .35
=========== =========== =========== ===========
Fully Diluted............................. $ .15 $ .13 $ .33 $ .35
=========== =========== =========== ===========
Average number of common and common
equivalent shares
Primary................................... 3,765,000 3,765,000 3,765,000 3,762,416
=========== =========== =========== ===========
Fully Diluted............................. 3,765,000 3,765,000 3,765,000 3,763,000
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 45
RUDY'S RESTAURANT GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTY-SIX WEEKS ENDED
---------------------------
JUNE 8, 1997 JUNE 9, 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $1,249,817 $1,303,777
---------- ----------
Non-cash items:
Depreciation and amortization.......................... 381,356 275,594
Loss on retirement of assets........................... 411 5,131
Decrease in deferred tax assets........................ 403,500 --
Changes in assets and liabilities:
Increase in indebtedness to related parties............ 7,718 3,514
Decrease/(Increase) in accounts receivable............. 43,719 (15,423)
(Increase) in inventories.............................. (10,729) (57,763)
(Increase) in prepaid expenses......................... (35,464) (26,687)
(Decrease)/Increase in accounts payable and accrued
expenses.............................................. (356,287) 109,107
---------- ----------
Total adjustments...................................... 434,224 293,473
---------- ----------
Net cash provided by operating activities.............. 1,684,041 1,597,250
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (158,107) (507,707)
Purchased goodwill........................................ -- (90,774)
Purchases of other assets................................. (2,684) (191,500)
Principal received on note receivable from officer........ 5,919 --
---------- ----------
Net cash (used in) investing activities................... (154,872) (789,981)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... -- 31,250
Payments of indebtedness to related party................. (41,644) --
Principal payments under note payable and other long-term
debt................................................... (261,638) (87,799)
---------- ----------
Net cash (used in) financing activities................... (303,282) (56,549)
---------- ----------
Net Increase in Cash and Cash Equivalents................. 1,225,887 750,720
Cash and Cash Equivalents, September 29, 1996 and October
1, 1995, respectively.................................. 1,199,384 1,476,652
---------- ----------
Cash and Cash Equivalents, June 8, 1997 and June 9, 1996,
respectively........................................... $2,425,271 $2,227,372
========== ==========
SUPPLEMENTAL DISCLOSURE:
Non-cash transactions:
Liabilities assumed in acquisition of restaurants:
7% Promissory Note, $30,010 principal and interest
due monthly over four years......................... NONE $1,253,221
========== ==========
Non-compete and consulting agreement, discounted at
7%, $6,667 principal and interest due monthly over
five years.......................................... NONE $ 336,680
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 46
RUDY'S RESTAURANT GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: FINANCIAL STATEMENT PRESENTATION
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-QSB and do not include all of the
information and note disclosures required in annual financial statements. These
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's Form 10-KSB for the year ended September 29,
1996.
The accompanying financial statements have not been examined by independent
accountants in accordance with generally accepted auditing standards, but in the
opinion of management, such financial statements include all adjustments,
consisting of only normal recurring accruals, necessary to summarize fairly the
financial position of Rudy's Restaurant Group, Inc. and Subsidiaries (the
"Company") as of June 8, 1997 and the results of operations for the thirty-six
weeks ended June 8, 1997 and June 9, 1996. The results of operations for the
period ended June 8, 1997 are not necessarily indicative of the results to be
expected for the full year.
Business. Rudy's Restaurant Group, Inc. ("Rudy's"), is a Nevada
corporation which, through its wholly-owned subsidiaries, owns and operates nine
Japanese-style steak and seafood restaurants. Rudy's owns 100% of the stock of
The Samurai, Inc., Maxwell's International Inc. and Rudy's Sirloin Steakburgers,
Inc.
Income taxes. Income taxes are accounted for using the asset and liability
method. Under such method, deferred taxes are adjusted for tax rate changes as
they occur and deferred income tax assets and liabilities are computed for
differences between the financial reporting and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. An allowance is provided when
necessary to reduce net deferred tax assets to amounts that are more likely than
not to be realized.
The Company reduced its valuation allowance in fiscal 1996 and recorded
income tax benefits of $3,807,000 as a reduction in fiscal 1996 income tax
expense. Fiscal 1997 income tax expense includes adjustments to deferred tax
assets to reflect the realization of income tax benefits in fiscal 1997.
New Accounting Pronouncements. In 1995, the Financial Accounting Standards
board issued Statement No. 121 ("SFAS 121"), Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed of. SFAS 121 requires
that long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS 121 is effective for
fiscal year 1997. The Company adopted this statement as of September 30, 1996
and such adoption did not have a significant effect on the Company's financial
position and results of operations.
NOTE 2: SUBSEQUENT EVENT
On July 22, 1997 the Company entered into an Agreement and Plan of Merger
(the "Agreement") with Benihana, Inc. ("Benihana"). Dependent on various
conditions being satisfied, including, but not limited to, the Company's
shareholders consent to the transaction, the Company will be acquired by and
merged into Benihana. At the merger closing date each share of the Company's
Common Stock will be converted into a right to receive a minimum of $5.00 per
share. The price per share to be received by the Company's shareholders could
increase nominally if certain performance measures are achieved through the
effective date of the merger.
The Agreement may be canceled if the merger is not consummated by January
31, 1998, subject to an additional six month extension in certain circumstances.
F-5
<PAGE> 47
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Rudy's Restaurant Group, Inc.:
We have audited the accompanying consolidated balance sheets of Rudy's
Restaurant Group, Inc. and Subsidiaries (the "Company") as of September 29, 1996
and October 1, 1995, and the related consolidated statements of operations,
stockholders' equity, and cash flows for each of the two years in the period
ended September 29, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether these consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in these consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of September 29,
1996 and October 1, 1995, and the results of its operations and its cash flows
for each of the two years in the period ended September 29, 1996 in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
December 20, 1996
F-6
<PAGE> 48
RUDY'S RESTAURANT GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 29, 1996 AND OCTOBER 1, 1995
<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 1,199,384 $ 1,476,652
Accounts receivable (Notes 4 and 9)....................... 51,604 5,915
Inventories............................................... 225,414 162,685
Prepaid expenses.......................................... 91,078 107,924
----------- ------------
Total current assets.............................. 1,567,480 1,753,176
Land, Property and Equipment, net (Notes 2 and 3)........... 5,174,747 2,094,841
Goodwill, net of accumulated amortization of $334,418 at
September 29, 1996 and $309,441 at October 1, 1995........ 595,455 529,658
Other assets (Notes 4, 8 and 9)............................. 4,535,739 204,783
----------- ------------
$11,873,421 $ 4,582,458
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of note payable and other long-term
debt (Note 6).......................................... $ 352,023 $ --
Due to related parties (Note 9)........................... 110,152 105,076
Accounts payable and accrued expenses (Notes 5 and 8)..... 1,106,110 840,364
----------- ------------
Total current liabilities......................... 1,568,285 945,440
Note payable and other long-term debt, excluding current
maturities (Note 6)....................................... 1,065,909 --
----------- ------------
Total liabilities................................. 2,634,194 945,440
----------- ------------
Commitments and contingencies (Notes 3, 10)
Stockholders' Equity:
Preferred stock, $.01 par value; authorized 10,000,000
shares, none issued....................................
Common stock, $.01 par value; authorized 30,000,000
shares; issued and outstanding 3,765,000 shares and
3,520,000, respectively (Note 7)....................... 37,650 35,200
Paid-in capital............................................. 17,852,403 17,823,603
Accumulated (deficit)....................................... (8,650,826) (14,221,785)
----------- ------------
Total stockholders' equity........................ 9,239,227 3,637,018
----------- ------------
$11,873,421 $ 4,582,458
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 49
RUDY'S RESTAURANT GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 29, 1996 AND OCTOBER 1, 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Net sales................................................. $14,588,835 $11,052,603
Other income.............................................. 76,630 38,273
----------- -----------
Total revenues.................................... 14,665,465 11,090,876
Costs and expenses applicable to revenues:
Food, beverage and supplies............................... 3,941,042 3,267,129
Labor and related costs................................... 3,389,707 2,684,946
----------- -----------
Total costs and expenses applicable to revenues... 7,330,749 5,952,075
----------- -----------
Costs and expenses of restaurant operations:
General operations........................................ 4,290,606 3,251,503
Depreciation and amortization............................. 349,021 243,852
----------- -----------
Total costs and expenses of restaurant
operations...................................... 4,639,627 3,495,355
----------- -----------
Earnings from restaurant operations......................... 2,695,089 1,643,446
----------- -----------
Corporate overhead:
General and administrative expenses....................... 614,587 516,354
Depreciation and amortization............................. 87,168 32,685
Interest expense.......................................... 73,656 6,126
----------- -----------
Total corporate overhead.......................... 775,411 555,165
----------- -----------
Non-Operating expenses:
Settlement cost and expense (Note 10)..................... -- (50,000)
Loss on retirement of assets.............................. (10,719) (550)
----------- -----------
Total non-operating expenses...................... (10,719) (50,550)
----------- -----------
Income before income taxes.................................. 1,908,959 1,037,731
Income tax (benefit) expense (Note 8)....................... (3,662,000) 46,000
----------- -----------
Net Income........................................ $ 5,570,959 $ 991,731
=========== ===========
Primary earnings per share.................................. $ 1.48 $ .27
=========== ===========
Fully diluted earnings per share............................ $ 1.48 $ .26
=========== ===========
Weighted average number of common shares and common
equivalent shares outstanding
Primary................................................... 3,761,984 3,718,358
=========== ===========
Fully Diluted............................................. 3,761,984 3,734,660
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 50
RUDY'S RESTAURANT GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED SEPTEMBER 29, 1996 AND OCTOBER 1, 1995
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK STOCK-
------------------- PAID-IN ACCUMULATED HOLDERS'
NUMBER AMOUNT CAPITAL (DEFICIT) EQUITY
--------- ------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance October 2, 1994.............. 3,520,000 $35,200 $17,823,603 $(15,213,516) $2,645,287
Net Income................. -- -- -- 991,731 991,731
--------- ------- ----------- ------------ ----------
Balance October 1, 1995.............. 3,520,000 35,200 17,823,603 (14,221,785) 3,637,018
Proceeds from issuance of common
stock.............................. 245,000 2,450 28,800 -- 31,250
Net Income........................... -- -- -- 5,570,959 5,570,959
--------- ------- ----------- ------------ ----------
Balance September 29, 1996........... 3,765,000 $37,650 $17,852,403 $ (8,650,826) $9,239,227
========= ======= =========== ============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE> 51
RUDY'S RESTAURANT GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 29, 1996 AND OCTOBER 1, 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $5,570,959 $ 991,731
---------- ----------
Non-cash items:
Depreciation and amortization.......................... 436,189 276,536
Loss on retirement of assets........................... 10,719 550
Deferred tax benefit................................... (3,807,000) --
Changes in assets and liabilities (net of effect of
acquisition):
(Increase)/Decrease in accounts receivable................ (36,307) 2,198
(Increase) in inventories................................. (62,729) (9,463)
Decrease/(Increase) in prepaid expenses................... 16,845 (4,144)
Increase in accounts payable and accrued expenses......... 41,109 161,999
Increase in indebtedness to related parties............... 5,076 5,076
---------- ----------
Total adjustments................................. (3,396,098) 432,752
---------- ----------
Net cash provided by operating activities......... 2,174,861 1,424,483
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (1,418,447) (282,794)
Cash used in acquisition.................................. (547,600) --
Purchased goodwill........................................ (90,774) --
Note receivable advanced to officer....................... (47,000) --
Principal received on note receivable from officer........ 413 --
Purchase of other assets.................................. (208,002) (6,514)
---------- ----------
Net cash (used in) investing activities........... (2,311,410) (289,308)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 31,250 --
Principal payments under note payable and other long-term
debt................................................... (171,969) --
---------- ----------
Net cash (used in) financing activities........... (140,719) --
---------- ----------
Net (Decrease)/Increase in Cash and Cash Equivalents...... (277,268) 1,135,175
Cash and Cash Equivalents, Beginning of Year.............. 1,476,652 341,477
---------- ----------
Cash and Cash Equivalents, End of Year.................... $1,199,384 $1,476,652
========== ==========
Supplemental disclosures of cash flow information:
Cash paid for:
Interest............................................... $ 65,770 $ 6,000
========== ==========
Income taxes........................................... $ 182,086 $ 42,000
========== ==========
Non Cash Transactions:
Accrued and unpaid asset additions at year end......... $ 224,636 $ 16,300
========== ==========
Liabilities assumed in acquisition of restaurants:
7% Promissory Note..................................... $1,253,221
==========
Consulting and Agreement Not to Compete, discounted at
7%..................................................... $ 336,680
==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 52
RUDY'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business. Rudy's Restaurant Group, Inc. (the "Company"), is a
Nevada corporation which, through its wholly-owned subsidiaries, owns and
operates nine Japanese steak and seafood restaurants. The Company owns 100% of
the stock of The Samurai, Inc. ("The Samurai"), Maxwell's International Inc.
("Maxwell's") and Rudy's Sirloin SteakBurgers, Inc. ("Rudy's"). Rudy's is an
inactive corporation.
The Company's fiscal year includes either 52 or 53 weeks consisting of 13
four-week accounting periods or 12 four-week accounting periods and 1 five-week
accounting period, ending on the Sunday closest to September 30. Fiscal years
1996 and 1995 each include 52 weeks of operations.
Principles of Consolidation. The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. All material
intercompany transactions are eliminated in consolidation.
Cash Equivalents. The Company considers all highly liquid debt instruments
with an initial maturity of three months or less to be cash equivalents for
purposes of the statements of cash flows.
Inventories. Inventories, consisting primarily of food, beverages and
restaurant supplies, are stated at the lower of cost (first-in, first-out
method) or market.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Land, Property and Equipment. Land, property and equipment are stated at
cost. Depreciation and amortization are provided on a straight-line method over
the lesser of the estimated useful life of the asset or the remaining term of
the lease, as applicable.
Goodwill. The Company evaluates the propriety of goodwill, the excess of
the purchase value of net tangible assets of acquired businesses over recorded
value, and the related amortization policy periodically by review of many
factors including current operating trends, the value of intangibles held by the
Company such as trademarks and leasehold interests, and the current national
economy particularly as it relates to the Company's business plan and
operations. Absent evidence to the contrary the Company's policy is to amortize
goodwill using the straight-line method over fifteen (15) to forty (40) years.
Under the current policy goodwill will be fully amortized in the year 2021.
Earnings Per Share. Earnings per share is calculated using the weighted
average number of shares of common stock outstanding and common stock
equivalents if dilutive.
Income Taxes. Income taxes are accounted for using the asset and liability
method. Under such method, deferred taxes are adjusted for tax rate changes as
they occur and deferred income tax assets and liabilities are computed annually
for differences between the financial reporting and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. An allowance is provided when
necessary to reduce net deferred tax assets to amounts that are more likely than
not to be realized.
Fair Value of Financial Instruments. The carrying value of cash and cash
equivalents, accounts receivable and accounts payable approximate fair value due
to their short-term nature. The fair value of the note receivable from Company
officer (see Note 9), note payable and other long-term debt is based on
estimated cost of replacing these financial instruments at current interest
rates. The carrying value of the note
F-11
<PAGE> 53
RUDY'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
receivable from Company officer (see Note 9), note payable and other long-term
debt approximates the fair value of these financial instruments.
New Accounting Pronouncements. In 1995, the Financial Accounting Standards
board issued Statement No. 121 ("SFAS 121"), Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed of. SFAS 121 requires
that long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS 121 is effective for fiscal year 1997. Although management has
not yet completed the process of evaluation of the impact of adoption of this
statement on the Company's financial statements, the Company believes that the
adoption of this statement will not have a significant effect on the Company's
financial position and results of operations.
NOTE 2: LAND, PROPERTY AND EQUIPMENT AND ACQUISITIONS
Land, property and equipment consist of the following:
<TABLE>
<CAPTION>
USEFUL
1996 1995 LIVES
---------- ---------- ----------
<S> <C> <C> <C>
Land.............................................. $ 900,637 $ --
Building and Leasehold improvements............... 4,468,993 3,151,918 3-25 yrs
Restaurant equipment.............................. 1,971,890 1,573,427 3- 7 yrs
Office equipment.................................. 283,654 157,907 3- 7 yrs
Other............................................. 317,504 259,638 2- 7 yrs
---------- ----------
7,942,678 5,142,890
Accumulated depreciation and amortization......... 2,767,931 3,048,049
---------- ----------
$5,174,747 $2,094,841
========== ==========
</TABLE>
Business Acquisition. On February 5, 1996 the Company, through its
Maxwell's subsidiary, acquired substantially all of the assets and business
operations of three Japanese steak and seafood restaurants owned by Asian
Restaurants International, Inc. ("ARI") for a total of $2,200,800. The Company
paid $547,600 in cash, issued a 7% promissory note for $1,253,221 and entered
into a Consulting and Agreement Not to Compete with the owner of ARI calling for
payments totaling $400,000 to be paid over five years. The Consulting and
Agreement Not to Compete has been recorded at its discounted value, $336,680, in
the Company's consolidated financial statements as an other asset, to be
amortized over five (5) years, and long-term obligation. The acquisition has
been accounted for as a purchase and the results of operations of the three
restaurants acquired have been included in the accompanying consolidated
financial statements since the date acquired. The cost of the acquisition has
been allocated on the basis of the estimated fair market value of the assets
acquired and the liabilities assumed. This allocation resulted in goodwill of
approximately $91,000 which is being amortized over 15 years.
Substantially all of the assets acquired are held as collateral for the 7%
promissory note issued.
F-12
<PAGE> 54
RUDY'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following unaudited proforma consolidated results of operations give
effect to the acquisition as though it had occurred on October 3, 1994.
<TABLE>
<CAPTION>
SEPTEMBER 29, OCTOBER 1,
FISCAL YEARS ENDED 1996 1995
- ------------------ ------------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues.................................................... $16,517,000 $17,319,000
Net Income.................................................. 5,673,000 1,612,000
Net income per share:
Primary................................................... 1.51 .43
Fully diluted............................................. 1.51 .43
</TABLE>
The above unaudited proforma information is presented to provide the reader
with information about the continuing impact of this acquisition by showing how
it might have affected historical financial statements and is not necessarily
indicative of results of operations that would have occurred had the acquisition
been made on October 3, 1994 or of future results of operations of the Company.
Land, Property Acquisition. In September 1996, the Company, through its
Samurai subsidiary, acquired the land and improvements at one of the locations
the Company has leased and operated since 1980. The Company paid $1,150,000 in
cash to acquire this property.
NOTE 3: LEASES
The Company leases land, restaurant buildings and other facilities under
noncancellable operating leases expiring at varying times through 2016. Lease
agreements frequently include renewal options and require the Company to pay all
expenses related to the property. Certain leases include provisions for
contingent rentals based on a percent of sales. Future minimum lease payments
under noncancellable leases as of September 29, 1996 are as follows:
<TABLE>
<CAPTION>
OPERATING
FISCAL YEAR ENDING LEASES
- ------------------ -----------
<S> <C>
1997........................................................ $ 918,456
1998........................................................ 872,057
1999........................................................ 855,721
2000........................................................ 862,887
2001........................................................ 882,843
Thereafter, through 2016.................................... 7,245,141
-----------
$11,637,105
===========
</TABLE>
Rent expense is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
Minimum rentals............................................. $ 902,717 $648,485
Contingent rentals.......................................... 133,376 91,080
---------- --------
Total rent expense................................ $1,036,093 $739,565
========== ========
</TABLE>
F-13
<PAGE> 55
RUDY'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4: ACCOUNTS RECEIVABLE AND OTHER ASSETS
Accounts receivable include credit card, other miscellaneous receivables
and the current portion of note receivable from officer.
Other assets include the following:
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
Liquor licenses, net of accumulated amortization of $40,594
and $31,225 in 1996 and 1995, respectively................ $ 217,645 $ 71,534
Restaurant supplies......................................... 110,050 80,577
Note receivable from officer, net of current portion
$9,382.................................................... 37,205 --
Consulting and Agreement Not to Compete..................... 292,680 --
Net deferred tax assets..................................... 3,807,000 --
Deposits and other.......................................... 71,159 52,672
---------- --------
$4,535,739 $204,783
========== ========
</TABLE>
The note receivable from officer bears interest at 7%. Principal and
interest are due every two weeks through September, 2000.
NOTE 5: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---------- --------
<S> <C> <C>
Trade accounts payable...................................... $ 538,036 $372,409
Sales and property taxes.................................... 69,092 8,031
Accrued payroll and related costs........................... 310,769 226,064
Rent........................................................ 61,811 90,866
State and local income taxes................................ 4,427 39,367
Gift certificates payable................................... 37,775 23,130
Professional and other fees................................. 35,846 23,805
Insurance................................................... -- 39,634
Other....................................................... 48,354 17,058
---------- --------
$1,106,110 $840,364
========== ========
</TABLE>
NOTE 6: NOTE PAYABLE AND OTHER LONG-TERM DEBT
Note payable and other long-term debt include:
<TABLE>
<S> <C>
7% Promissory Note due ARI, $30,010 principal and interest
due monthly through March, 2000........................... $1,115,023
Consulting and Agreement Not-to-Compete, total due $400,000,
discounted using 7% interest rate, $6,667 principal and
interest due monthly through February, 2001............... 302,909
----------
Total long-term debt.............................. $1,417,932
Less current maturities..................................... 352,023
----------
Long-term debt excluding current maturities................. $1,065,909
==========
</TABLE>
Substantially all of the assets of the Kyoto restaurants are held as
collateral for the 7% promissory note due ARI.
F-14
<PAGE> 56
RUDY'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Interest expense, interest paid and accrued unpaid interest including
interest paid and/or due officers and directors (see Note 9) are:
<TABLE>
<CAPTION>
1996 1995
------- ------
<S> <C> <C>
Interest expense............................................ $73,656 $6,126
======= ======
Interest paid............................................... $65,770 $1,050
======= ======
Accrued unpaid interest other than to officers and
directors................................................. $ 7,886 $ --
======= ======
Interest payable to officers and directors.................. $10,152 $5,076
======= ======
Interest paid officers and directors........................ $ -- $ --
======= ======
</TABLE>
NOTE 7: CAPITAL STOCK
The Company's 1985 Employee Stock Option Plan, as amended (the "Plan")
provided that options to purchase up to 600,000 shares of the Company's common
stock may be granted. The Plan was designed so that either options intended to
satisfy the requirements of the Internal Revenue Code with respect to "Incentive
Stock Options" ("ISO's") or options that are not intended to satisfy such
requirements ("Non ISO's") may be granted. Exercise prices for the options
ranged from 100% to 110% of the fair market value of the Company's common stock,
with the option price dependent upon whether the option was qualified as an ISO
and whether the optionee had prior holdings in excess of 10% of the outstanding
common stock at the time of the grant. The following summarizes stock option
transactions for fiscal years ended 1996 and 1995:
<TABLE>
<S> <C> <C>
Outstanding and exercisable options at October 2, 1994...... 258,125 $ .10 - $4.63
Expired................................................... (13,125) $1.23 - $4.63
--------
Outstanding and exercisable options at October 1, 1995...... 245,000 $ .10 - $ .15
Expired................................................... --
Exercised................................................. (245,000) $ .10 - $ .15
--------
Outstanding and exercisable options at September 29, 1996... None
========
</TABLE>
The Plan terminated in May 1995 and all outstanding options were exercised
in December 1995.
NOTE 8: INCOME TAXES
At September 29, 1996, the Company and its Maxwell's subsidiary have tax
net operating losses ("NOLS") and general business tax credit carryforwards
totaling approximately $12,300,000 and $280,000, respectively. The NOLS are
available to reduce future federal taxable income at varying times through 2007
and the business tax credits are available to reduce Federal income taxes at
varying times through 2011.
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109") in 1994. SFAS 109 requires the
Company to record a deferred tax asset for the future tax benefits of NOLS and
business tax credits if realization of the tax benefit is more likely than not.
There was no cumulative effect of adoption of SFAS No. 109 in fiscal 1994 due to
a valuation allowance established to reflect uncertainties associated with
realization of tax benefits from the utilization of then existing tax loss
carryforwards and unused business tax credits.
In 1996, as a result of the acquisition of the Kyoto restaurants and
improvements in same-restaurant earnings which have continued for a number of
years, the Company now believes it is more likely than not that sufficient
levels of income will be achieved in the future to assure realization of NOLS.
Accordingly, in 1996 the Company reduced its valuation allowance by $4,289,300
and recorded an income tax benefit of $3,807,000 as a reduction in current year
tax expense.
F-15
<PAGE> 57
RUDY'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Company's deferred tax assets (liabilities)
as of September 29, 1996 and October 1, 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Tax benefits of net operating loss carryforwards.......... $ 4,179,000 $ 4,786,700
Business tax credit carryforwards......................... 280,400 193,300
Valuation allowance....................................... (510,700) (4,800,000)
----------- -----------
Net deferred tax assets........................... $ 3,948,700 $ 180,000
=========== ===========
Deferred tax liabilities:
Tax depreciation in excess of book........................ $ (112,000) $ (180,000)
Other timing differences.................................. (29,700) --
----------- -----------
Net deferred tax liabilities...................... (141,700) (180,000)
----------- -----------
Total net deferred tax assets..................... $ 3,807,000 $ --
=========== ===========
</TABLE>
Provision for income tax expense (benefit) includes the following:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
---------------------
1996 1995
----------- -------
<S> <C> <C>
Current:
State and local income taxes.............................. $ 108,900 $32,500
Federal income taxes...................................... 36,100 13,500
Deferred:
Change in net deferred taxes.............................. (3,807,000) --
----------- -------
$(3,662,000) $46,000
=========== =======
</TABLE>
The actual income tax rate for income differs from the expected statutory
Federal income tax rate of 34% as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------
1996 1995
----------- ---------
<S> <C> <C>
Expected Federal tax provision............................. $ 649,000 $ 352,800
Increases (decreases) in income taxes resulting from:
State and local income taxes, net of Federal tax
benefit............................................... 105,700 42,800
Differences in book/tax depreciation..................... 29,900 (6,800)
Book expenses taken as tax credits, net of Federal tax
cost.................................................. (52,500) (44,700)
Non-deductible items..................................... 9,100 8,800
Current year utilization of loss carryforwards........... (596,200) (306,900)
Change in net deferred taxes............................... (3,807,000) --
----------- ---------
$(3,662,000) $ 46,000
=========== =========
</TABLE>
At September 29, 1996 income taxes due currently and included in current
liabilities, net of estimated taxes paid, total $4,400.
NOTE 9: RELATED PARTY TRANSACTIONS AND GUARANTEES
Transactions with Majority Shareholder, Officer and Director. Guarantees.
Pursuant to the terms of an agreement related to the acquisition of the Rudy's
subsidiary in 1985 between the Company and Douglas
F-16
<PAGE> 58
RUDY'S RESTAURANT GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rudolph, a director, Chairman of the Board of Directors and President of the
Company ("Mr. Rudolph"), the Company owes Mr. Rudolph a total of $110,152,
including $72,712 accruing interest at 7%. The Company intends to reduce the
balance due Mr. Rudolph as cash flow permits. Accordingly, the balance due Mr.
Rudolph at September 29, 1996 has been classified as a current liability in the
financial statements.
Employment Agreement. The Company has an employment agreement with Mr.
Rudolph and a consulting agreement with a company wholly owned by Mr. Rudolph.
These agreements provide a total annual compensation of $150,000, a possible
incentive bonus up to $100,000 annually to be determined by the board of
directors, and reimbursements for certain expenses incurred. No bonus was
awarded in fiscal 1996 or 1995. Amounts paid or accrued under these agreements
and for continuing services rendered and expenses incurred totaled $160,800 in
1996 and 1995.
Advances to Officers and Directors. The Company's Employee Stock Option
Plan provided that monies required to exercise stock options may be advanced by
the Company. In December 1995 the Company advanced Mr. Rudolph and Marie
Peterson, the Company's Chief Operating and Financial Officer ("Ms. Peterson")
funds to exercise their then outstanding options.
In August 1996 the Company advanced Ms. Peterson $47,000. This advance is
evidenced by a note, bears interest at 7% and is to be repaid bi-weekly, through
September, 2000.
Other. Each director receives an annual fee of $12,000 plus $1,000 per
meeting attended. Director fees and costs totaled $36,000 in 1996 and 1995.
NOTE 10: LEGAL PROCEEDINGS, COMMITMENTS AND CONTINGENCIES
In May 1995 the Company's Samurai subsidiary and certain employees of The
Samurai were named defendants in a lawsuit alleging discrimination under the
Civil Rights Act of 1870, 42 U.S.C. 1981, as amended (1992 Supp).
Although the Company believed that the claims as set forth in the complaint
were without merit, due to the prohibitive costs of defending such allegations,
in September 1995 the Company entered into a Settlement Agreement wherein, in
return for certain monetary consideration, the plaintiff agreed to release all
existing claims against the Company and its employees. Pursuant to the terms of
the Agreement the complaint was dismissed in September 1995. The costs of
settlement, including legal fees incurred, totaled approximately $50,000.
Accordingly, the Company recorded a nonrecurring charge of $50,000, included in
the accompanying statements of operations of fiscal 1995 as non-operating
expense.
The Company is subject to such legal proceedings and claims as may arise in
the ordinary course of its business that cover a wide range of matters,
including but not limited to such matters as workers compensation, general
liability and products liability claims. The Company carries comprehensive
insurance to assist in limiting the Company's exposure to financial loss as a
result of such claims as may arise in the normal course of business. However,
the Company does not carry insurance coverage to assist in the defense or
settlement of those claims which may arise in employment matters such as alleged
harassment or discrimination. Although the Company is not currently a party to
any significant ongoing legal proceeding not covered by existing insurance,
there are no assurances that such legal proceedings, should they arise, would
not have a significant adverse effect on the Company's financial position.
F-17
<PAGE> 59
APPENDIX A
AGREEMENT
AND
PLAN OF MERGER
BY AND AMONG
BENIHANA INC.,
BENIHANA MERGER CORP.,
RUDY'S RESTAURANT GROUP, INC.,
BAYVIEW PARTNERS
AND
DOUGLAS M. RUDOLPH
DATED: JULY 22, 1997
A-1
<PAGE> 60
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <C> <S> <C>
1. DEFINITIONS......................................................... A-5
1.1 Defined Terms............................................... A-5
1.2 Other Definitional Provisions; Interpretation............... A-9
2. THE MERGER.......................................................... A-9
2.1 The Merger and Its Effect................................... A-9
2.2 Effective Time of the Merger................................ A-9
2.3 Articles of Incorporation and By-laws of Surviving
Corporation................................................. A-9
3. CONVERSION OF SHARES ON THE MERGER EFFECTIVE DATE................... A-9
3.1 Manner and Basis of Conversion.............................. A-9
3.2 Procedure for Conversion of Share Certificates.............. A-10
4. CLOSING............................................................. A-10
4.1 Time and Place.............................................. A-10
4.2 Delivery of Cash Consideration.............................. A-10
5. REPRESENTATIONS AND WARRANTIES OF RUDY'S............................ A-10
5.1 Corporate Organization of Rudy's............................ A-10
5.2 Subsidiaries................................................ A-11
5.3 Capitalization of Rudy's; Title to Shares................... A-11
5.4 Capitalization of Subsidiaries.............................. A-11
5.5 Authorization, Etc.......................................... A-12
5.6 No Violation................................................ A-12
5.7 Financial Statements........................................ A-12
5.8 No Undisclosed Liabilities; Etc............................. A-12
5.9 Absence of Certain Changes.................................. A-13
5.10 Title to Properties; Encumbrances........................... A-14
5.11 Leases...................................................... A-15
5.12 Restaurants; Liquor Licenses................................ A-15
5.13 Patents, Trademarks, Trade Names, Etc....................... A-16
5.14 Business Permits............................................ A-16
5.15 Tax Matters................................................. A-16
5.16 Transactions with Affiliates................................ A-18
5.17 Contracts and Commitments................................... A-18
5.18 Compliance with Contracts................................... A-18
5.19 Insurance................................................... A-19
5.20 Labor Relations............................................. A-19
5.21 Public Reports; Compliance.................................. A-19
5.22 Litigation.................................................. A-20
5.23 No Condemnation or Expropriation............................ A-20
5.24 Compliance with Law......................................... A-20
5.25 Environmental Protection.................................... A-21
5.26 Employee Benefit Plans...................................... A-22
5.27 Brokers and Finders......................................... A-23
5.28 Consents.................................................... A-23
5.29 Books and Records........................................... A-23
5.30 Fairness Opinion............................................ A-23
6. REPRESENTATIONS AND WARRANTIES OF PRINCIPAL SHAREHOLDERS............ A-24
6.1 Representations and Warranties of Rudolph................... A-24
6.2 Representations and Warranties of Bayview................... A-24
7. REPRESENTATIONS AND WARRANTIES OF BENIHANA AND NEWCO................ A-24
7.1 Corporate Organizations; Etc................................ A-24
7.2 Authorization, Etc.......................................... A-24
7.3 Warrant Shares.............................................. A-24
7.4 No Violation................................................ A-24
</TABLE>
A-2
<PAGE> 61
<TABLE>
<CAPTION>
PAGE
----
<C> <C> <S> <C>
7.5 Approvals of Governmental Authorities....................... A-25
7.6 Brokers and Finders......................................... A-25
7.7 Public Reports; Compliance.................................. A-25
7.8 The Class A Stock........................................... A-25
8. COVENANTS OF RUDY'S AND THE PRINCIPAL SHAREHOLDERS.................. A-25
A. COVENANTS OF RUDY'S......................................... A-25
8.1 Conduct of Business -- Negative Covenants................... A-25
8.2 Conduct of Business -- Affirmative Covenants................ A-27
8.3 Shareholders' Meeting; Proxy Statement...................... A-28
8.4 Access to Information and Personnel......................... A-28
8.5 Estoppel Certificates or Consents........................... A-29
8.6 Confidentiality............................................. A-29
8.7 No Solicitation............................................. A-29
8.8 Best Efforts................................................ A-29
8.9 Tax Returns; Section 338 Election........................... A-29
B. COVENANTS OF PRINCIPAL SHAREHOLDERS......................... A-30
8.10 Covenants of Principal Shareholders......................... A-30
9. COVENANTS OF BENIHANA AND NEWCO..................................... A-30
9.1 Confidentiality............................................. A-30
9.2 Best Efforts................................................ A-30
10. CONDITIONS TO CLOSING............................................... A-31
10.1 Conditions Precedent to the Performance of Benihana and
Newco....................................................... A-31
10.2 Conditions Precedent to Rudy's Performance.................. A-32
11. DELIVERIES AT CLOSING............................................... A-33
11.1 Rudy's Obligations.......................................... A-33
11.2 Obligations of Benihana and Newco........................... A-34
11.3 Filings..................................................... A-34
12. POST CLOSING MATTERS................................................ A-34
12.1 Offices of Rudy's........................................... A-34
13. TERMINATION......................................................... A-34
13.1 Termination................................................. A-34
13.2 Effect of Termination....................................... A-35
13.3 Procedure Upon Termination.................................. A-36
13.4 Survival.................................................... A-36
14. GUARANTY OF INDEMNIFICATION......................................... A-36
14.1 Guaranty.................................................... A-36
14.2 Procedure................................................... A-36
15. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES...................... A-36
16. MISCELLANEOUS....................................................... A-36
16.1 Expenses.................................................... A-36
16.2 Notices and Legal Process................................... A-37
16.3 Disclosure.................................................. A-37
16.4 Counterparts................................................ A-37
16.5 Waiver and Amendment........................................ A-37
16.6 Entire Agreement............................................ A-38
16.7 Binding Agreement........................................... A-38
16.8 Governing Law............................................... A-38
16.9 Submission to Jurisdiction.................................. A-38
16.10 Severability; Construction.................................. A-38
16.11 References to Dollars....................................... A-38
</TABLE>
A-3
<PAGE> 62
EXHIBIT LIST
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
8.1.12 -- Severance Letters
10.1.4 -- Rudy's Counsel Option
10.2.3 -- Benihana's Counsel Opinion
10.2.4 -- Non-Competition Agreement
10.2.5 -- Benihana Warrant
</TABLE>
SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
1.1 -- The Adjustment Amount
5.1.1 -- Foreign Qualification of Rudy's
5.1.2 -- Officers and Directors of Rudy's
5.2 -- Subsidiaries
5.6 -- No Violation
5.8 -- No Undisclosed Liabilities
5.9 -- Certain Changes
5.10.1 -- Owned Real Properties
5.11.1 -- Leases
5.12.1 -- Restaurants
5.12.2 -- Liquor Licenses
5.13.1 -- List of Patents, Trademarks, etc.
5.13.2 -- Licenses
5.13.3 -- Infringements
5.15.1 -- Taxes, Assessments and Deficiencies
5.15.2 -- States Where Returns Filed
5.15.3 -- NOL's
5.16.1 -- Transactions with Affiliates
5.17 -- Contracts and Commitments
5.19.1 -- Insurance Policies
5.19.2 -- Group Insurance Policies
5.20 -- Labor Matters
5.22 -- Litigation
5.26 -- Employee Benefit Plans
5.27 -- Brokers and Finders
5.28 -- Consents
8.1.12 -- Severance and Bonus Payments
10.1.6 -- Required Consents
</TABLE>
A-4
<PAGE> 63
AGREEMENT AND PLAN OF MERGER (the "Agreement") dated as of July 22, 1997 by
and among RUDY'S RESTAURANT GROUP, INC., a Nevada corporation ("Rudy's"),
DOUGLAS M. RUDOLPH ("Rudolph"), BAYVIEW PARTNERS, a general partnership
organized under the laws of Texas ("Bayview"), BENIHANA, INC., a Delaware
corporation ("Benihana") and BENIHANA MERGER CORP., a Nevada corporation and a
wholly-owned subsidiary of Benihana ("Newco"). Each of Rudy's and Bayview are
parties to the Agreement solely for purposes of the representations and
covenants set forth in Sections 6 and 8.10.
RECITALS:
A. The Boards of Directors of Rudy's and Benihana and the Board of
Directors and sole stockholder of Newco, respectively, deem it advisable and in
the best interests of Rudy's, Benihana, and Newco and their respective
stockholders that Benihana acquire the business and assets of Rudy's through the
merger (the "Merger") of Rudy's with Newco upon the terms and subject to the
conditions of this Agreement.
B. The Boards of Directors of Rudy's, Benihana and Newco, respectively, and
the stockholders of Newco have approved and adopted this Agreement.
Accordingly, the Parties hereto hereby agree as follows:
1. DEFINITIONS:
1.1 Defined Terms. As used in this Agreement, the following terms
have the following meanings:
"Adjustment Amount" shall have the meaning set forth on Schedule
1.1 hereto.
"Affiliate" means, as to any Person, a Person controlling,
controlled by or under common control with such Person.
"Agreement" means this Agreement and Plan of Merger, as amended,
supplemented or otherwise modified from time to time.
"Approvals" has the meaning set forth in Section 5.14.
"Articles of Merger" has the meaning set forth in Section 2.2.
"Balance Sheet Date" means March 16, 1997.
"Benihana Reports" means Benihana's Annual Reports on Form 10-K
filed pursuant to Section 13 or 15(d) of the Exchange Act for the
fiscal years ended March 26, 1995, March 31, 1996 and March 30, 1997
and all other registration statements and reports required to be or
otherwise filed by it since March 26, 1995 with the SEC pursuant to
the Securities Act or the Exchange Act.
"Cash Consideration" means the amount of $5.00 per share plus
the Adjustment Amount payable in cash as the consideration for the
Merger to holders of Rudy's Shares.
"Class A Stock" means the Class A Common Stock, par value $.10
per share, of Benihana.
"Closing" has the meaning set forth in Section 4.1.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time, and the regulations and rulings issued thereunder.
"Common Control Entity" has the meaning set forth in Section
5.26.1.
"Contracts" has the meaning set forth in Section 5.17.
"Contractual Obligation" means as to any Person, any provision
of any agreement, instrument or other undertaking to which such
Person is a party or by which it or any of its property is bound.
A-5
<PAGE> 64
"Effective Date" means the date upon which the Effective Time
occurs.
"Effective Time" means has the meaning set forth in Section 2.2.
"Employment Plans" has the meaning set forth in Section 5.26.1.
"Environmental Laws" means any and all federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees or requirements of any Governmental Authority
regulating, relating to or imposing liability or standards of conduct
concerning environmental protection matters, including without
limitation, Hazardous Materials, as now or may at any time hereafter
be in effect.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations and rulings
issued thereunder.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Exchange Agent" has the meaning set forth in Section 3.2.
"Fairness Opinion" has the meaning set forth in Section 5.30.
"Fiduciary Obligations" has the meaning set forth in Section
8.8.
"GAAP" means generally accepted accounting principles in the
United States of America in effect from time to time.
"Governmental Authority" means any nation, state, county, local
or other governmental authority or any political subdivision thereof
and any federal, state, county, local or foreign entity or body
exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Hazardous Materials" means any (i) "hazardous substance,"
"waste," "pollutants," or "contaminant" (as defined in Sections
101(14), (33) of the Comprehensive Environmental Response
Compensation and Liability Act ("CERCLA") or the regulations issued
pursuant to Section 102 of CERCLA and found at 40 C.F.R. sec. 302),
including any element, compound, mixture, solutions, or substance
that is or may be designated pursuant to Section 102 of CERCLA; (ii)
substance that is or may be designated pursuant to Section
311(b)(2)(A) of the Federal Water Pollution Control Act, as amended
(33 U.S.C. sec.sec. 1251, 1321(b)(2)(A) ("FWPCA"); (iii) hazardous
waste having the characteristics identified under or listed pursuant
to Section 3001 of the Resource Conservation and Recovery Act, as
amended (42 U.S.C. sec.sec. 6901, 6921) ("RCRA"); (iv) substance
containing petroleum, as that term is defined in Section 9001(8) of
RCRA; (v) toxic pollutant that is or may be listed under Section
307(a) of FWPCA; (vi) hazardous air pollutant that is or may be
listed under Section 112 of the Clean Air Act, as amended (42 U.S.C.
sec.sec. 7401, 7412); (vii) asbestos, asbestos-containing material,
or urea formaldehyde or material that contains it; and (viii) waste
oil and other petroleum products.
"Higher Offer" has the meaning set forth in Section 8.8.
"IRS" means the Internal Revenue Service.
"Leases" has the meaning set forth in Section 5.12
"Lien" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), or
preference, priority or other security interest or agreement or
preferential arrangement of any kind or nature whatsoever (including,
without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same economic
effect as any of the foregoing, and the filing of any financing
A-6
<PAGE> 65
statement under the Uniform Commercial Code or comparable law of any
jurisdiction in respect of any of the foregoing).
"Liquor License" has the meaning set forth in Section 5.12.
"Material Adverse Effect" means for a specified party, a
material adverse effect on (a) the business, operations, property,
condition, or prospects of the specified party and its Subsidiaries
taken as a whole, (b) the ability of the specified party to perform
its material obligations under this Agreement, or (c) the validity or
enforceability against the specified party of this Agreement or the
rights or remedies of any other party hereunder to such an extent
that such other party would be deprived of the practical realization
of the benefits contemplated by this Agreement to be derived by such
other party from this Agreement and the transactions expressly
referenced in this Agreement, including the exhibits to this
Agreement; provided, however, that the existence of a Material
Adverse Effect shall be deemed not to include (x) the adverse impact,
if any, of changes in laws, rules, regulations, interpretations or
other promulgations of any Governmental Authority, or changes in
GAAP, regulatory accounting requirements and market conditions
applicable to companies in the same line of business as the specified
party, or (y) the impact of the fees and expenses of all counsel,
accountants and financial advisors, and the other costs and expenses
reasonably incurred by the specified party, in connection with the
Shareholders' Meeting, this Agreement and the transactions referenced
in this Agreement and the exhibits to this Agreement.
"Merger" shall have the meaning set forth in Recital A.
"Multiemployer Plans" has the meaning set forth in Section
5.26.1.
"NASDAQ" means National Association of Securities Dealers, Inc.
Automated Quotation System.
"Nevada Law" means the Nevada Corporation Law including Chapters
78 and 92A of the Nevada Revised Statutes.
"NLRB" means the U.S. National Labor Relations Board.
"Owned Real Estate" has the meaning set forth in Section 5.10.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Pension Plan" has the meaning set forth in Section 5.27.1.
"Person" means an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust,
unincorporated association, joint venture, Governmental Authority or
other entity of whatever nature.
"Plans" has the meaning set forth in Section 5.27.1.
"Principal Shareholders" means each of Rudolph and Bayview;
"Principal Shareholder" means either of them.
"Proxy Statement" has the meaning set forth in Section 8.3.
"Requirement of Law" means as to any Person, any law, treaty,
rule or regulation or determination of an arbitrator or a court or
other Governmental Authority, in each case applicable to or binding
upon such Person or any of its property or to which such Person or
any of its property is subject.
"Restaurant" has the meaning set forth in Section 5.12.
"Rudy's" means Rudy's Restaurant Group, Inc., a Nevada
corporation, and its Subsidiaries, except where the context indicates
that reference is made to the parent company only.
"Rudy's Audited Financial Statements" has the meaning set forth
in Section 5.7.
A-7
<PAGE> 66
"Rudy's Reports" means Rudy's Annual Reports on Form 10-KSB
filed pursuant to Sections 13 or 15(d) of the Exchange Act for the
fiscal years ended October 2, 1994, October 1, 1995 and September 29,
1996, and all other registration statements and reports required to
be or otherwise filed by it since October 2, 1994 with the SEC
pursuant to the Securities Act or the Exchange Act.
"Rudy's Shares" means the issued and outstanding shares of
Rudy's Common Stock, par value $.01 per share.
"Rudy's Unaudited Financial Statements" has the meaning set
forth in Section 5.7.
"SEC" means the United States Securities and Exchange
Commission.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Shareholders' Meeting" means the special meeting of the
shareholders of Rudy's called pursuant to the provisions of Section
8.3 hereof to approve this Agreement and the Merger.
"Significant Employee" means as to any Person, "significant
employees" of such Person as that term is defined in Regulation S-K
of the Securities Act.
"Subsidiary" means any Person of which shares of stock or other
ownership interests having ordinary voting power (other than stock
having such power only by reason of the happening of a contingency)
to elect a majority of the board of directors or other managers of
such Person are at the time owned, or the management of which is
otherwise controlled, directly or indirectly through one or more
intermediaries, or both, by Rudy's. A Subsidiary shall include a
partnership which has Rudy's or a Subsidiary as a general partner of
such partnership.
"Surviving Corporation" means Rudy's, as the surviving
corporation of the Merger as provided by Section 2.1 hereof.
"Tangible Property" means as to any Person, the plant,
machinery, equipment, leasehold improvements, vehicles, and
structures of such Person and related capitalized items and other
tangible property material to the business of such Person. Tangible
Property shall not be deemed to include the personal property of
Rudolph referred to in Section 12.1.
"Taxes" shall mean all foreign, federal, state, county, local
and other taxes, levies, impositions, deductions, charges and
withholdings, including, without limitation, income or franchise
taxes or other taxes imposed on or with respect to net income or
capital gain, gross receipts, profits, sales, use, occupation, value
added, ad valorem, transfer, withholding, payroll, employment, excise
or property taxes, and shall include any interest, penalties or
additions thereto.
"Tax Returns and Statements" has the meaning set forth in
Section 5.15.1.
"Transmittal Letter" has the meaning set forth in Section 3.2.
"Unaudited Balance Sheet" means the unaudited consolidated
balance sheet of Rudy's and the Subsidiaries as at March 16, 1997
previously delivered to Benihana pursuant to Section 5.7.
"Warrant" shall mean the Warrant to purchase an aggregate of
200,000 shares of the Class A Stock of Benihana referred to in
Section 10.2.5.
"Warrant Shares" means the shares of Class A Stock issuable upon
a due exercise of the Warrant.
"Welfare Plan" has the meaning set forth in Section 5.26.1.
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1.2 Other Definitional Provisions; Interpretation.
1.2.1 Unless otherwise specified therein, all terms defined in
this Agreement shall have the defined meanings when used in any
certificate or other agreement, instrument or document made or
delivered pursuant hereto.
1.2.2 The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this
Agreement, and Section and Schedule references are to this Agreement
unless otherwise specified.
1.2.3 The headings in this Agreement are included for
convenience of reference only and shall not in any way affect the
meaning or interpretation of this Agreement.
1.2.4 The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such
terms.
2. THE MERGER.
2.1 The Merger and Its Effect. Subject to the terms and conditions
of this Agreement, at the Effective Time, Newco shall be merged with and
into Rudy's and Rudy's shall be the Surviving Corporation, in accordance
with this Agreement. Upon the effectiveness of the Merger: (a) the
separate corporate existence of Newco shall cease; (b) the Surviving
Corporation shall possess all of the rights, privileges, powers,
immunities, purposes and franchises, both public and private, of each of
Rudy's and Newco; (c) all real and personal property, tangible and
intangible, of every kind and description belonging to Rudy's and Newco
shall be vested in the Surviving Corporation without further act or
deed, and the title to any real estate or any interest therein vested in
either Rudy's or Newco shall not revert or in any way be impaired by
reason of the Merger; (d) the Surviving Corporation shall be liable for
all the obligations and liabilities of each of Rudy's and Newco and any
claim existing or action or proceeding pending by or against either
Rudy's or Newco may be enforced as if the Merger had not taken place;
and (e) neither the rights of creditors nor any Liens upon the property
of either Rudy's or Newco shall be impaired by the Merger.
2.2 Effective Time of the Merger. Upon the satisfaction or waiver
of the conditions set forth in Sections 10.1 and 10.2 and the Closing of
the Merger in accordance with Articles 4 and 11, the parties hereto
shall cause Articles of Merger meeting the requirements of Section
92A.200 of the Nevada Law (the "Articles of Merger") to be properly
executed and filed in accordance with the terms of this Agreement and
the applicable provisions of the Nevada Law. The Merger shall become
effective at the time of the filing of the Articles of Merger as
provided above, or at such later time as the parties hereto have
theretofore agreed upon and designated in such filings as the effective
time of the Merger (the "Effective Time").
2.3 Articles of Incorporation and By-laws of Surviving
Corporation. From and after the Effective Time, the Articles of
Incorporation and By-laws of Rudy's as in effect immediately prior to
the Effective Time shall be the Articles of Incorporation and By-laws of
the Surviving Corporation until further amended.
3. CONVERSION OF SHARES ON THE MERGER EFFECTIVE DATE:
3.1 Manner and Basis of Conversion. Pursuant to the Merger, the
manner and basis of converting the capital stock of each of Rudy's and
Newco into or for capital stock of the Surviving Corporation or the Cash
Consideration shall be as follows:
3.1.1 At the Effective Time each share of common stock of Newco
issued and outstanding immediately prior to the Effective Time shall
be converted into one (1) share of common stock of Rudy's as the
Surviving Corporation.
3.1.2 At the Effective Time each of the Rudy's Shares issued and
outstanding immediately prior to the Effective Time shall, by virtue
of the Merger and without any action on the
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part of the holder thereof, be converted into the right to receive an
amount equal to the Cash Consideration per share.
3.1.3 The Rudy's Shares to be converted into cash pursuant to
Section 3.1.2 are sometimes hereinafter referred to as the "Converted
Rudy's Shares."
3.2 Procedure for Conversion of Share Certificates. As promptly as
possible on or after the Effective Date, a letter of transmittal
("Transmittal Letter") and instructions will be mailed or otherwise made
available for use in surrendering to the First Union National Bank of
North Carolina or other agent appointed by Benihana (the "Exchange
Agent") stock certificates which immediately prior to the Effective Time
represented Converted Rudy's Shares. The Transmittal Letter will
authorize the Exchange Agent to do all things necessary to accomplish
the exchange of such stock certificates for the consideration therefor.
Each holder of record of Converted Rudy's Shares will be entitled to
receive, promptly upon proper surrender of the stock certificate or
certificates representing such shares to the Exchange Agent together
with a properly completed and duly executed Transmittal Letter, and
compliance with the terms of the Transmittal Letter, the Cash
Consideration. From and after the Effective Time and until so
surrendered, each certificate representing Converted Rudy's Shares shall
be deemed for all corporate purposes to evidence only the right to
receive, upon proper surrender together with a properly completed and
duly executed Transmittal Letter, the Cash Consideration.
4. CLOSING:
4.1 Time and Place. The Merger shall be consummated at a closing
(the "Closing") at the offices of Berman Wolfe & Rennert, P.A., 100
Southeast Second Street, Miami, Florida 33131, or at such other place as
may be agreed by the parties. The Closing shall take place at 10:00 a.m.
on a date that is as soon as practicable following the fulfillment or
waiver, in accordance with the terms of this Agreement, of all
conditions to the Closing but in no event later than January 31, 1998,
subject only to the provisions of Section 13.1.4. As promptly as
possible following the Closing, the Merger shall be consummated by the
filing of the Articles of Merger, as specified in Section 2.2.
4.2 Delivery of Cash Consideration. At the Closing, Benihana will
deliver an amount equal to the Cash Consideration per share multiplied
by the number of Rudy's Shares owned by the shareholders of Rudy's to
the Exchange Agent for delivery to the shareholders of Rudy's.
5. REPRESENTATIONS AND WARRANTIES OF RUDY'S:
In order to induce Benihana and Newco to enter into this Agreement and
to consummate the Merger and the other transactions contemplated herein
Rudy's makes each of the representations and warranties set forth in this
Article 5 as follows:
5.1 Corporate Organization of Rudy's.
5.1.1 Rudy's is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada and has
full corporate power and authority to carry on its business as it is
now being conducted and to own the properties and assets it now owns;
is duly qualified or licensed to do business as a foreign corporation
and is in good standing in the jurisdictions listed on Schedule
5.1.1, which are all the jurisdictions in which ownership or leasing
of property or the conduct of its business requires such
qualification, except where the failure to be so qualified or
licensed or to be in good standing would not have a Material Adverse
Effect. The copies of the Articles of Incorporation and By-Laws of
Rudy's heretofore delivered to Benihana are complete and correct
copies of such instruments as presently in effect.
5.1.2 Schedule 5.1.2 hereto sets forth the name, position and
total compensation of each officer and director of Rudy's and each
Subsidiary, and the name, position and total compensation for each
other employee of or consultant to Rudy's whose total compensation in
the fiscal year ended September 29, 1996 was, or in the current
fiscal year is expected to be, in excess of $60,000.
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5.2 Subsidiaries. Schedule 5.2 hereto sets forth the name and
state of incorporation of each direct and indirect Subsidiary of
Rudy's. Except as set forth on Schedule 5.2, Rudy's does not own,
directly or indirectly, or have any obligation to acquire, any
capital stock or other equity securities of any corporation, nor does
Rudy's have any direct or indirect equity or ownership investment, or
any obligation to incur such investment, in any corporation, limited
liability company, partnership, joint venture, trust or other
business, organization or entity. Each Subsidiary is a corporation
duly organized, validly existing and in good standing under the laws
of its respective state of incorporation set forth on Schedule 5.2
hereto and has full corporate power and authority to carry on its
business as it is now being conducted and to own the properties and
assets it now owns; is duly qualified or licensed to do business as a
foreign corporation in good standing in the jurisdictions listed on
Schedule 5.2, which are all the jurisdictions in which ownership or
leasing of property or the conduct of its business requires such
qualification, except where the failure to be so qualified or
licensed or to be in good standing would not have a Material Adverse
Effect. The copies of the Certificate of Incorporation or Articles of
Incorporation and By-Laws of each Subsidiary heretofore delivered to
Benihana are complete and correct copies of such instruments as
presently in effect.
5.3 Capitalization of Rudy's; Title to Shares.
5.3.1 The authorized capital stock of Rudy's consists of
30,000,000 shares of Common Stock, $.01 par value per share, of which
3,765,000 shares are issued and outstanding and 10,000,000 shares of
preferred stock, par value $.01, of which no shares are issued or
outstanding. There are no other shares of capital stock issued except
for shares of Common Stock held in treasury, if any. All of the
outstanding shares of Rudy's capital stock are validly issued, fully
paid and nonassessable. There are no outstanding (i) securities
convertible into or exchangeable for any of Rudy's capital stock;
(ii) options, warrants, calls or other rights (including conversion
rights, preemptive rights or stock appreciation rights) with respect
to the issued and outstanding stock of Rudy's, or to purchase or
subscribe to any class of authorized capital stock of Rudy's or
securities convertible into or exchangeable for capital stock of
Rudy's; or (iii) contracts, commitments, agreements, understandings
or arrangements of any kind relating to the issuance, sale, transfer,
and/or assignment of any shares of capital stock of Rudy's, any
convertible or exchangeable securities or any such options, warrants
or rights.
5.3.2 Rudolph is the owner, beneficially and of record, of
2,086,000 Rudy's Shares which constitute 55.4% of the issued and
outstanding Rudy's Shares as of the date hereof, Bayview is the
owner, beneficially and of record, of 450,000 Rudy's Shares which
constitute 12.0% of the issued and outstanding Rudy's Shares as of
the date hereof and each has good, valid and marketable title to such
Rudy's Shares free and clear of all liens, encumbrances, security
interests or claims, whatsoever, with full power and authority to
transfer and convey the same.
5.4 Capitalization of Subsidiaries. Rudy's is the record owner of
all issued and outstanding shares of capital stock of each Subsidiary
listed on Schedule 5.2 All issued and outstanding shares of capital
stock of each Subsidiary are equal in their rights, preferences and
privileges, validly issued, fully paid and nonassessable. There are,
with respect to each Subsidiary, no outstanding (a) securities
convertible into or exchangeable for any of the capital stock of such
Subsidiary; (b) options, warrants, calls or other rights (including
conversion rights, preemptive rights or stock appreciation rights) with
respect to the issued and outstanding stock of such Subsidiary, or to
purchase or subscribe to capital stock of or securities convertible into
or exchangeable for capital stock of such Subsidiary; (c) contracts,
commitments, agreements, understandings or arrangements of any kind
relating to the issuance, sale, transfer, and/or assignment of any
capital stock of such Subsidiary, any such convertible or exchangeable
securities, or any such options, warrants or rights; or (d) any shares
of capital stock of such Subsidiary pledged as collateral to secure any
agreement or obligation.
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5.5 Authorization, Etc. This Agreement has been duly and validly
authorized by all necessary corporate action of Rudy's (subject only to
the approval of the shareholders of Rudy's to this Agreement and the
Merger under Nevada Law) and has been duly and validly executed by
Rudy's, Bayview and Rudolph. Without limiting the generality of the
foregoing, Rudy's has full corporate power and authority to enter into
this Agreement, subject to such approval by the shareholders of Rudy's,
and to consummate the transactions contemplated hereby. This Agreement
is the legal, valid and binding obligation of Rudy's and, with respect
to Sections 6 and 8.10, of the Principal Shareholders enforceable
against Rudy's and the Principal Shareholders in accordance with its
terms, as applicable.
5.6 No Violation. Neither the execution, delivery or performance
of this Agreement nor the consummation of the transactions contemplated
hereby will violate any provision of the Certificate of Incorporation,
Articles of Incorporation or By-Laws or similar corporate documents of
Rudy's or any Subsidiary or will (a) violate, or be in conflict with, or
constitute a breach or default (or an event which, with the giving of
notice or lapse of time or both, would constitute a default) under, or
result in the termination of, or acceleration of the performance
required by, or cause the acceleration of the maturity of any debt or
obligation pursuant to, or result in the creation or imposition of any
security interest, lien or other encumbrance upon any property or assets
of Rudy's or any Subsidiary under any Contractual Obligation to which
Rudy's or any Subsidiary is a party or by which Rudy's or any Subsidiary
is bound, or to which the property of Rudy's or any Subsidiary is
subject, except where such violation, conflict, breach, default,
termination, acceleration, security interest, lien or other encumbrance
would not have a Material Adverse Effect; or (b) violate any statute or
law or any judgment, decree, order, regulation or rule of any court or
Governmental Authority to which Rudy's is subject, except where such
violation would not have a Material Adverse Effect.
5.7 Financial Statements. Rudy's has heretofore delivered to
Benihana: (a) consolidated balance sheets of Rudy's as at September 29,
1996, October 1, 1995, October 2, 1994, October 3, 1993 and September
27, 1992, together with consolidated statements of income, changes in
stockholders' equity and changes in financial position (or statements of
cash flow) for the years then ended (the "Rudy's Audited Financial
Statements"), all certified by Deloitte & Touche LLP, independent
certified public accountants, whose reports thereon are included
therein; and (b) the Unaudited Balance Sheet, and the unaudited
consolidated statements of income and cash flow for the six periods
ended March 16, 1997. Such consolidated balance sheets and notes thereto
are true, complete and accurate in all material respects and fairly
present in accordance with generally accepted accounting principles GAAP
the consolidated assets, liabilities and financial condition of Rudy's
as at the respective dates thereof, and all such consolidated statements
of income, changes in stockholders' equity and changes in financial
position (or statements of cash flow) and the notes thereto are true,
complete and accurate in all material respects and fairly present in
accordance with GAAP the results of operations for the periods therein
referred to. All of the foregoing financial statements were prepared in
accordance with GAAP consistently applied throughout the periods
involved (except in the case of the Unaudited Balance Sheet to the
extent subject to normal year end adjustments).
5.8 No Undisclosed Liabilities; Etc. Rudy's has no liabilities or
obligations of any nature (absolute, accrued, contingent or otherwise)
which were not properly reflected or adequately reserved against in
accordance with GAAP on the Unaudited Balance Sheet, except for
liabilities and obligations incurred in the ordinary course of business
and consistent with past practice since the date thereof and except as
set forth in this Agreement. The reserves reflected on the Unaudited
Balance Sheet are adequate, appropriate and reasonable in light of
historical practices.
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5.9 Absence of Certain Changes. Except as and to the extent set
forth on Schedule 5.9, or disclosed in a Rudy's Report, from the Balance
Sheet Date through the date hereof, Rudy's and its Subsidiaries have not
(except as contemplated by, or disclosed in, this Agreement):
5.9.1 amended any certificate or articles of incorporation or
by-laws or merged with or into or consolidated with any other Person,
subdivided or in any way reclassified any shares of its capital stock
or changed or agreed to change in any manner the rights of its
outstanding capital stock or, in any material manner, the character
of its business;
5.9.2 issued or sold or purchased any convertible securities, or
entered into any contracts or commitments to issue or sell or
purchase, any shares of its capital stock;
5.9.3 entered into or amended any material employment agreement,
entered into any agreement with any labor union or association
representing any material employee or entered into or amended any
material Plan; amended any certificate
5.9.4 incurred any liabilities or obligations (absolute,
accrued, contingent or otherwise) except nonmaterial items incurred
in the ordinary course of business and consistent with past practice
which do not exceed $25,000.00 individually, or $50,000.00 in the
aggregate, (counting obligations or liabilities arising from any
single transaction or a series of similar transactions, and all
periodic installments or payments under any lease or other agreement
providing for periodic installments or payments, as a single
obligation or liability), or increased, or experienced any change in
any assumptions underlying or methods of calculating, any bad debt,
contingency or other reserves not in accordance with GAAP or entered
into any lease or sublease of real property or exercised any purchase
options or rights of first refusal contained in any of the Leases (as
hereinafter defined) except in the ordinary course of business and
consistent with past practice;
5.9.5 paid, discharged or satisfied any material claim,
liabilities or obligations (absolute, accrued, contingent or
otherwise) other than the payment, discharge or satisfaction in the
ordinary course of business and consistent with past practice of
liabilities and obligations reflected on or reserved against on the
Unaudited Balance Sheet or incurred in the ordinary course of
business and consistent with past practice since the Balance Sheet
Date;
5.9.6 permitted or allowed any of its Owned Real Property, or
property demised under the Leases or assets (real, personal or mixed,
tangible or intangible) to be subjected to any mortgage, pledge,
lien, security interest, encumbrance, assignment, restriction or
charge of any kind, except for liens for current taxes not yet due;
5.9.7 written down the value of any inventory (including
write-downs by reason of shrinkage or mark-down) or written off as
uncollectible any notes or accounts receivable, except for immaterial
write-downs and write-offs in the ordinary course of business and
consistent with past practice;
5.9.8 cancelled any debts or waived any claims or rights
involving more than $5,000;
5.9.9 sold, transferred, abandoned or otherwise disposed of any
of its Owned Real Property, or any interest therein, or its other
properties or assets (real, personal or mixed, tangible or
intangible, or entered into any lease (as lessor or Lessee)) except
in the ordinary course of business and consistent with past practice;
5.9.10 disposed of or permitted to lapse (except by its own
terms) any rights to the use of any existing patent, trademark, trade
name or copyright, or disposed of or disclosed (except as necessary
in the conduct of its business) to any person, other than
representatives of Benihana, any trade secret, formula, process or
know-how not theretofore a matter of public knowledge;
5.9.11 granted or committed to grant any general increase in the
compensation of officers, directors or employees (including any such
increase pursuant to any bonus, pension, profit
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sharing or other plan or commitment) or any increases in the
compensation payable or to become payable to any officer, director or
employee, including payments or commitments to pay severance or
termination pay, except for increases granted in the ordinary course
of business consistent with past practices or pursuant to existing
agreements;
5.9.12 made any single capital expenditure or commitment in
excess of $50,000.00 for additions to property, plant, equipment or
intangible capital assets or made aggregate capital expenditures and
commitments in excess of $100,000.00 since the Balance Sheet Date for
additions to property, plant, equipment or intangible capital assets;
5.9.13 declared, paid or set aside for payment any dividend or
other distribution in respect of its capital stock (other than
"upstream" dividends from Subsidiaries) or redeemed, purchased or
otherwise acquired, directly or indirectly, any shares of capital
stock or other securities of Rudy's or a Subsidiary;
5.9.14 made any material change in any method of accounting or
accounting practice except as required by GAAP;
5.9.15 paid, distributed, loaned or advanced any amount to, or
sold, transferred or leased any properties or assets (real, personal
or mixed, tangible or intangible) to, or entered into any agreement
or arrangement with any Affiliates, officers or directors of Rudy's,
or any Affiliate or associate of any officers or directors of Rudy's
except for directors' fees, and compensation to officers at rates not
exceeding the rates of compensation in effect during the period ended
on the Balance Sheet Date;
5.9.16 entered into or amended any written contract or other
agreement pursuant to which it agrees to indemnify any party or to
refrain from competing with any party;
5.9.17 except for inventory, supplies or equipment acquired in
the ordinary course of business, made any acquisition of all or any
part of the assets, properties, capital stock or business of any
other entity which is material to Rudy's;
5.9.18 entered into any transaction other than in the ordinary
course of business; or
5.9.19 terminated, surrendered, cancelled or assigned any of its
properties demised under the Leases, or any part thereof, except in
the ordinary course of business consistent with past practice; or
5.9.20 agreed, whether in writing or otherwise, to take any
action described in this Section.
5.10 Title to Properties; Encumbrances. Rudy's has good, valid,
marketable and indefeasible fee simple title to all the properties and
assets which it purports to own, including, without limitation, all the
properties and assets reflected in the Unaudited Balance Sheet, and all
the properties and assets purchased by Rudy's since the date of the
Unaudited Balance Sheet. Schedule 5.10.1 hereto lists each and every
parcel of real property owned in fee by Rudy's (such real property is
referred to herein as "Owned Real Properties"). Properties and assets
reflected in the Unaudited Balance Sheet, including, without limitation,
the Owned Real Properties, are free and clear of all title defects or
objections, liens, mortgages, deeds of trust, claims, charges, security
interests or other encumbrances of any nature whatsoever, including,
without limitation, leases, subleases, rights of occupancy, deed
restrictions, chattel mortgages, conditional sales contracts, collateral
security arrangements and other title or interest retention
arrangements, and are not, in the case of the Owned Real Properties
subject to any rights of way, building use restrictions, exceptions,
variances or reservations of any nature whatsoever except, (a) liens
shown on the Unaudited Balance Sheet as securing specified liabilities
or obligations, with respect to which no material defaults exist, (b)
imperfections of title, covenants or restrictions, if any, none of which
are substantial in amount and which would not have a Material Adverse
Effect, (c) zoning or land use ordinances which would not have a
Material Adverse Effect and (d) liens for taxes not yet due and payable.
Rudy's is in actual possession of the Owned Real Properties. To the
knowledge of Rudy's, no portion of any of
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the improvements erected on the Owned Real Properties encroaches on
adjoining property or public streets and no portion of any of the Owned
Real Properties is, or has been, subjected to a special ad valorem tax
valuation such that a change in ownership or use (whether now existing
or in the future) has caused or will cause additional ad valorem taxes
to be imposed upon the Owned Real Properties.
5.11 Leases.
5.11.1 Schedule 5.11.1 hereto is an accurate and complete list
of all leases or rights of occupancy pursuant to which Rudy's and any
Subsidiary leases or subleases any real property or interest therein
or material personal property (the "Leases"). A true and correct copy
of each Lease has been delivered to Benihana together with all
amendments and modifications thereto, and all subordination,
non-disturbance and/or attornment agreements related thereto, and no
changes have been made thereto since the date of delivery. Each Lease
is valid and in full force and effect except where such invalidity or
ineffectiveness would not have a Material Adverse Effect. There are
no existing defaults under any provision of any Lease, and no event
has occurred which (with or without notice, lapse of time or both)
would constitute a default thereunder, where any such default would
have a Material Adverse Effect.
5.11.2 Rudy's is in actual possession of the properties demised
under the Leases and to the knowledge of Rudy's, has good and
indefeasible title to the leasehold estates conveyed under the Leases
free and clear of all title defects or objections, mortgages, liens,
claims, charges, security interests or other encumbrances of any
nature whatsoever, including, without limitation, leases, subleases,
rights of occupancy, chattel mortgages, conditional sales contracts,
deed restrictions, collateral security arrangements and other title
or interest retention arrangements, and are not, in the case of the
properties demised under the Leases subject to any rights of way,
building use restrictions, exceptions, variances, reservations or
limitations of any nature whatsoever except, (i) liens shown on the
Unaudited Balance Sheet as securing specific liabilities or
obligations with respect to which no material default exists, (ii)
imperfections of title, covenants or restrictions, if any, none of
which are substantial in amount or would have a Material Adverse
Effect, (iii) zoning or land use ordinances or which would not have a
Material Adverse Effect and (iv) liens for taxes not yet due and
payable. To the knowledge of Rudy's, no portion of any of the
improvements erected by and under the direction of Rudy's on the
properties demised under the Leases encroach on adjoining property or
public streets and no portion of any of the properties demised under
the Leases are, or have been, subjected to a special ad valorem tax
valuation such that a change in ownership or use (whether now
existing or in the future) has caused or will cause additional ad
valorem taxes to be imposed upon the properties demised under the
Leases.
5.11.3 The basic rent and all additional rent payable under the
Leases have been paid to date. To the knowledge of Rudy's, except as
set forth on Schedule 5.11.3, all work required to be performed under
the Leases by the landlords thereunder or by Rudy's has been
performed and to the extent that Rudy's is responsible for payment of
such work, has been fully paid for, whether directly to the
contractor performing such work or to such landlord as reimbursement
therefor except for items which Rudy's is disputing in good faith.
5.11.4 There have been no casualties which could result in the
termination of any Lease or the application of any buy-out provisions
contained in any Lease relative to damage by casualty.
5.12 Restaurants; Liquor Licenses. Schedule 5.12.1 hereto is a
complete and accurate list of each restaurant or other facility owned
and/or operated by Rudy's or any Subsidiary (the "Restaurants").
Schedule 5.12.2 is a complete and accurate list of all liquor licenses
held by Rudy's and the Subsidiaries in connection with the operation of
the Restaurants (the "Liquor Licenses"). Each of the Liquor Licenses is
presently in full force and effect, duly and validly issued and
appropriate and adequate for the conduct of operations at the Restaurant
for which it is issued to be in the manner conducted as of the date
hereof.
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5.13 Patents, Trademarks, Trade Names, Etc.
5.13.1 Schedule 5.13.1 sets forth:
(a) all patents held by Rudy's and each Subsidiary and all
reissues, divisions, continuations, continuations in part and
extensions thereof and all pending patent applications by Rudy's,
including, for each such patent, the serial or patent number,
filing and expiration date and title;
(b) all registered trademarks and service marks of Rudy's
and each Subsidiary and pending applications by Rudy's and each
Subsidiary to register trademarks, including, for each such
trademark, the registration or application number, filing and
expiration date, and mark, and all unregistered trademarks and
service marks used by Rudy's and/or any Subsidiary; and
(c) all registered copyrights of Rudy's and applications by
Rudy's and each Subsidiary for registration of copyrights,
including the registration number, and filing and expiration date
of each such copyright.
5.13.2 Schedule 5.13.2 identifies all licenses and other
contracts or commitments to which Rudy's and each Subsidiary is a
party (either as licensor or licensee) or otherwise subject relating
to patents, trademarks, service marks, trade names or copyrights (or
applications or registration as applicable for any thereof), trade
secrets or other proprietary know-how or technical assistance, and,
except as set forth on Schedule 5.13.2, no claims have been asserted
by any person to the use of any such patents, trademarks, trade
names, copyrights, technology, know-how or processes or challenging
or questioning the validity or effectiveness of any such license or
agreement, and Rudy's actually knows of any valid basis for any such
claim.
5.13.3 Except as set forth on Schedule 5.13.3, Rudy's and its
Subsidiaries have not (during the past five years), nor is Rudy's or
any Subsidiary the subject of any pending or, to the knowledge of
Rudy's, threatened, claim alleging that it has infringed upon any
patent, trademark, trade name or copyright or misappropriated or
misused any invention, trade secret or other proprietary information
entitled to legal protection. Other than as set forth on Schedule
5.13.3, Rudy's has not asserted any claim of infringement,
misappropriation or misuse within the past five (5) years.
5.14 Business Permits. Except for immaterial items, the failure of
which would not have a Material Adverse Effect, Rudy's has obtained all
approvals, authorizations, consents, licenses, franchises, orders,
certificates or other permits of all governmental or regulatory
agencies, whether federal, state, local or foreign (collectively, the
"Approvals") necessary to the operations of the business as presently
conducted, including, without limitation, the constructions,
alterations, operation, use and occupancy of the Owned Real Properties
or any part thereof, or the properties demised under the Leases or any
part thereof, or any of the improvements thereon, including, but not
limited to the certificates of occupancy or the local equivalents, if
any, and certificates relating to fire and health approval. All such
Approvals are in full force and effect and good standing, Rudy's is not
in material default under any Approval and there exists no basis for the
termination, suspension or revocation of any such Approvals.
5.15 Tax Matters.
5.15.1 Rudy's and each of the Subsidiaries files consolidated
federal income tax returns. Rudy's and each Subsidiary have (i) filed
or has caused to be filed all federal, foreign, state and local
franchise, income or other tax returns and statements which were
required to be filed prior to the date hereof (the "Tax Returns and
Statements") on a timely basis in accordance with the laws,
regulations and administrative requirements of the appropriate
Governmental Authorities except for such Tax Returns and Statements
of which the failure to file would not have a Material Adverse
Effect, and (ii) paid within the time and in the manner prescribed by
law all
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material amounts of Taxes (as defined below) shown on any Tax Returns
and Statements, due for all periods ending on or prior to the date
hereof. All Tax Returns and Statements were, when filed, and continue
to be, complete and accurate in all material respects, and there
exist no material inaccuracies in the Tax Returns and Statements.
Except as set forth on Schedule 5.15.1, no tax assessments or
deficiency has been made or proposed against Rudy's or any Subsidiary
nor has any notice been given of any actual or proposed assessment or
deficiency. Except as set forth on Schedule 5.15.1, the Tax Returns
and Statements are not presently the subject of any audit or other
administrative or court proceeding by any Governmental Authority. No
consents extending any applicable statute of limitations have been
filed and no Governmental Authority has made a written request for
such a consent. None of the matters disclosed on Schedule 5.15.1 have
had or could reasonably be anticipated to have a Material Adverse
Effect.
5.15.2 Rudy's and the Subsidiaries file Tax Returns and
Statements with respect to the income, capital gain, gross receipts
or profits earned by them in the states and localities listed on
Schedule 5.15.2 and in no other states or localities.
5.15.3 The net operating loss (as defined in Section 172 of the
Code) of Rudy's and the Subsidiaries on a consolidated basis for
federal income tax purposes as of September 29, 1997 is as set forth
on Schedule 5.15.3.
5.15.4 All taxes that Rudy's or the Subsidiaries were required
by law to withhold or collect have been duly withheld or collected
and, to the extent required, have been paid to the appropriate
Governmental Authority, except for those Taxes of which the failure
to withhold or collect would not have a Material Adverse Effect.
There are no liens with respect to Taxes upon any of the properties
or assets, real or personal, tangible or intangible, of Rudy's or the
Subsidiaries (except for Taxes not yet due) and except for liens
which would not have a Material Adverse Effect.
5.15.5 No consent to the application of Section 341(f)(2) of the
Code has been filed with respect to any assets acquired by Rudy's or
the Subsidiaries.
5.15.6 No property owned by Rudy's or the Subsidiaries is
property as to which an election was made under Section 168(f)(8) of
the Internal Revenue Code of 1954, as amended and in effect
immediately before the enactment of the Tax Reform Act of 1986, or is
"tax-exempt use property" within the meaning of Section 168(h)(1) of
the Code.
5.15.7 Rudy's and the Subsidiaries: (i) have not agreed to or
been required to make any adjustment pursuant to Section 481(a) of
the Code; (ii) have received no written notice that the Internal
Revenue Service has proposed any such adjustment or change in
accounting method; and (iii) do not have an application pending with
any Governmental Body requesting permission for any change in
accounting method.
5.15.8 None of Rudy's or any of the Subsidiaries has in effect
any tax elections under Section 108, 168, 338, 441, 471, 1017, 1033
or 4977 of the Code.
5.15.9 Rudy's and the Subsidiaries are not a party (other than
as an investor) to any industrial development bond.
5.15.10 During the previous two fiscal years Rudy's and the
Subsidiaries have not engaged in any exchange under which the gain
realized on such exchange was not recognized due to Section 1031 of
the Code.
5.15.11 No written claim has ever been received from any
Governmental Authority representing any jurisdiction in which Rudy's
or the Subsidiaries do not file Tax Returns that Rudy's or any of the
Subsidiaries are or may be subject to taxation by that jurisdiction.
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5.15.12 Rudy's and the Subsidiaries are not and have not been a
party to any tax sharing or similar agreement or arrangement.
5.15.13 Rudy's has provided Benihana with copies of: (i) all
material Tax Returns and Statement of or with respect to Rudy's and
the Subsidiaries for the period January 1, 1992 through the date
hereof; (ii) any written notices, protests, or closing agreements
relating to issues arising in any audit, litigation or similar
proceeding with respect to the liability for Taxes of Rudy's or the
Subsidiaries; (iii) any elections or disclosures filed by or on
behalf of Rudy's or the Subsidiaries with any taxing authority
(whether or not filed with any Tax Returns and Statements); and (iv)
any letter, rulings, determination letters or similar documents
issued by any taxing authority with respect to Rudy's or the
Subsidiaries.
5.15.14 Rudy's is not a U.S. Real Property Holding Corporation
within the meaning of Section 897(c)(2) of the Code.
5.16 Transactions with Affiliates. To the knowledge of Rudy's,
except as set forth on Schedule 5.16.1 hereto, no Affiliate, officer,
director or employee of Rudy's has any interest, directly or indirectly,
in any lease, lien, contract, license, encumbrance, loan or other
Agreement to which Rudy's or any Subsidiary is a party, or any interest
in any competitor, supplier or customer of Rudy's or any Subsidiary.
Except as set forth on Schedule 5.16.1 hereto, neither Rudy's nor any
Subsidiary is indebted, directly or indirectly, or to any Affiliate for
any liability or obligation, whether arising by reason of stock
ownership, contract, oral or written agreement or otherwise.
5.17 Contracts and Commitments. Schedule 5.17 hereto contains a
complete, current and correct list of all material contracts,
commitments, obligations or agreements of Rudy's and the Subsidiaries
(other than the Leases) whether written or oral (the "Contracts"). For
purposes of this Section 5.17 a contract which is "material" shall mean
a single contract, whether written or oral:
5.17.1 pursuant to which any party thereto is obligated to make
annual payments aggregating more than $50,000;
5.17.2 which constitutes an employment agreement or an agreement
with any union or member organization;
5.17.3 which is not subject to cancellation by Rudy's or a
Subsidiary, as the case may be, on not more than thirty (30) days
notice without material penalty;
5.17.4 which constitutes a purchase or sale contract or
commitment which continues for a period of more than twelve (12)
months;
5.17.5 which constitutes an agreement which restricts Rudy's or
any Subsidiary from carrying out its business anywhere in the world
or from competing with any other person;
5.17.6 which constitutes an agreement by Rudy's or any
Subsidiary with any Affiliate.
True, correct and complete copies of all written contracts
described in this Section 5.17 have been delivered to Benihana.
Neither Rudy's nor any Subsidiary is materially in default, nor does
Rudy's have any knowledge of any factual circumstances which can
reasonably be expected to give rise to a claim of default under any
contract, except for defaults which would not have a Material Adverse
Effect.
5.18 Compliance with Contracts. To the knowledge of Rudy's,
each of the Contracts and Leases is valid and in full force and
effect except when such invalidity or ineffectiveness would not have
a Material Adverse Effect. Neither Rudy's nor any Subsidiary is in
material default under any the Contracts or Leases and, to the
knowledge of Rudy's, no act or omission has occurred which, with
notice or lapse of time or both, would constitute a breach or default
under any term or provision of any such Contract or Lease and no
party is in breach or default under any of the Contracts or Leases,
and no act or omission has occurred by any party which, with notice
or lapse of time or both, would constitute such a breach or default
under any term or
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provision thereof except where such breach or default would not have
a Material Adverse Effect.
5.19 Insurance.
5.19.1 Schedule 5.19.1 contains an accurate and complete
description of all policies of fire, business interruption,
liability, worker's compensation and other forms of insurance owned
or held by Rudy's. All such policies are in full force and effect,
all premiums with respect thereto covering all periods up to and
including the date hereof have been paid, and no notice of
cancellation or termination has been received with respect to any
such policy. Such policies are sufficient for compliance with all
requirements of law and of all of the Contracts and Leases except
where any such non-compliance would not have a Material Adverse
Effect; provide adequate insurance coverage for the assets and
operations of Rudy's in light of current industry practice; will
remain in full force and effect through the respective dates set
forth on Schedule 5.19.1. Neither Rudy's nor any Subsidiary has been
unable to obtain any insurance with respect to its assets or
operations, nor has its coverage been limited by any insurance
carrier to which it has applied for any such insurance or with which
it has carried insurance during the last five (5) years.
5.19.2 Schedule 5.19.2 sets forth a true and complete list of
all group insurance programs in effect for employees of Rudy's and
the Subsidiaries. Rudy's and the Subsidiaries are not in default with
respect to any of its obligations with respect to any such group
insurance program except where such default would not have a Material
Adverse Effect.
5.20 Labor Relations. Except to the extent set forth on Schedule
5.20:
5.20.1 Rudy's and the Subsidiaries are in compliance with all
applicable laws respecting employment and employment practices
(including matters related to immigration or citizenship status),
terms and conditions of employment and wages and hours, and is not
engaged in any unfair labor practice except for such minor violations
that, individually or in the aggregate, would have no Material
Adverse Effect;
5.20.2 there is no unfair labor practice charge or complaint
against Rudy's or any Subsidiary pending before the NLRB;
5.20.3 there is no labor strike, dispute, slowdown or stoppage
actually pending or threatened against or affecting Rudy's or any
Subsidiary;
5.20.4 no representation question is pending before the NLRB
exists respecting the employees of Rudy's or any Subsidiary;
5.20.5 no grievance against Rudy's or any Subsidiary or the
conduct of its business, nor any arbitration proceeding arising out
of or under collective bargaining agreements is pending;
5.20.6 neither Rudy's nor any Subsidiary is a party to any
collective bargaining agreement; and
5.20.7 neither Rudy's nor any Subsidiary has experienced any
work stoppage or other labor difficulty since January 1, 1992.
5.21 Public Reports; Compliance.
5.21.1 Rudy's has heretofore delivered to Benihana true and
complete copies of the Rudy's Reports. Each of the Rudy's Reports
complied with all applicable rules and regulations of the Securities
Act or the Exchange Act, as the case may be, as of their respective
dates of filing. None of the Rudy's Reports contained any untrue
statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the
statements therein not misleading (in each case as of the respective
dates thereof).
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5.21.2 Rudy's Shares are registered under Section 12(g) of the
Exchange Act, are quoted in the NASDAQ, and Rudy's is currently
subject to the periodic reporting requirements of Section 13 or
Section 15(d) of the Exchange Act. Rudy's has filed and will file all
reports required to be filed by it pursuant to the Exchange Act and
the regulations promulgated thereunder through the date hereof and
the Closing. No such reports filed by Rudy's after the date hereof
and prior to the Effective Time will contain, and the Proxy Statement
will not 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 not misleading (in each case as
of the date filed).
5.22 Litigation. Except as set forth on Schedule 5.22 hereto:
5.22.1 there is no claim, action, suit or arbitration
proceeding, before any federal, state, municipal, foreign or other
court or governmental or administrative body or agency, or any
private arbitration tribunal or any investigation or inquiry before
any federal, state, municipal, foreign or other court or governmental
or administrative body now pending, relating to or affecting Rudy's
or any Subsidiary or any director, officer, agent or employee thereof
in his capacity as such, or the assets, properties or business of
Rudy's or any Subsidiary, or the transactions contemplated by this
Agreement, nor has Rudy's, any Subsidiary received written notice of
any threat to institute such a proceeding;
5.22.2 there is not in effect any order, judgment or decree of
any court or governmental or administrative body enjoining, barring,
suspending, prohibiting or otherwise limiting Rudy's or any
Subsidiary or any officer, director, employee or agent of Rudy's or
any Subsidiary from conducting or engaging in any aspect of its
business, or requiring Rudy's or any Subsidiary or any officer,
director, employee or agent of Rudy's or any Subsidiary to take
certain action with respect to any aspect of the its business which
could reasonably be anticipated to have a Material Adverse Effect;
and
5.22.3 neither Rudy's nor any Subsidiary is in violation of or
default under any order, judgment, writ, injunction or decree of any
court or regulatory authority except for such violations or defaults
as would not have a Material Adverse Effect.
5.22.4 None of the matters identified on Schedule 5.22 have had
or could reasonably be anticipated to have a Material Adverse Effect.
5.23 No Condemnation or Expropriation. Neither the Owned Real
Properties, or any portion thereof or the properties demised under the
Leases, or any portion thereof or any other assets of Rudy's and its
Subsidiaries is subject to any governmental decree or order to be sold
of which Rudy's has received notice or is being condemned, expropriated
or otherwise taken by any public authority with or without payment of
compensation therefor, nor, to the knowledge of Rudy's, has any such
condemnation, expropriation or taking been proposed.
5.24 Compliance with Law. Except to the extent any such
non-compliance or violation would not have a Material Adverse Effect,
the operations of Rudy's and each of the Subsidiaries have been
conducted in accordance with all applicable laws, regulations and other
requirements of all national governmental authorities, and of all
states, municipalities and other political subdivisions and agencies
thereof, having jurisdiction over Rudy's or any of its Subsidiaries,
including, without limitation, all such laws, regulations and
requirements relating to antitrust, consumer protection, equal
opportunity, discrimination on the basis of race, national origin, sex,
age, immigration, health, occupational safety, plant closing, pension,
requirements of any Board of Fire Underwriters or similar body,
building, zoning, subdivision matters, Environmental Laws or toxic waste
laws. During the past three (3) years, neither Rudy's nor any Subsidiary
has received any notification of any asserted present or past failure by
Rudy's or any Subsidiary to comply with such laws, rules or regulations.
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5.25 Environmental Protection.
5.25.1 None of the Owned Real Properties or the properties
demised under the Leases or real property previously owned or leased
by Rudy's (which shall mean Rudy's, the Subsidiaries and all
corporation or other business entities substantially all of the
capital stock or other interest of which, or all or substantially all
of the assets of which, Rudy's or Subsidiaries has acquired) has been
used at any time during which Rudy's owned or leased such real
property, or otherwise has been in possession or control of such real
property or leased property, and, to the knowledge of Rudy's, none of
the Owned Real Properties or the properties demised under the Lease
or the real property previously owned or leased by Rudy's was used at
any time prior to the time such company owned, leased, possessed or
controlled such real property or leased property (i) as a site for
the disposal or storage of Hazardous Materials, or (ii) so as (x) to
cause a material violation or (y) to give rise to a material removal
or restoration obligation or material liability for the costs of
removal or restoration by others or a material liability for damages
to others under, any Environmental Law or under the regulations of
any Governmental Authority having jurisdiction over any of such real
property. Each of Rudy's and the Subsidiaries have complied and are
in compliance with all applicable Environmental Laws except where
such non-compliance would not have a Material Adverse Effect.
5.25.2 Rudy's and each of the Subsidiaries have obtained and are
in compliance with (except where any such non-compliance would not
have a Material Adverse Effect) all environmental permits, licenses
and other authorizations which are required with respect to the
operation of its business, except for such permits, licenses and
other authorizations of which the failure to obtain would not have a
Material Adverse Effect. As to any such permit, license or other
authorization which has or is about to expire, Rudy's or its
respective Subsidiary has timely applied for renewal thereof under
Environmental Laws except where failure to renew would not have a
Material Adverse Effect.
5.25.3 There is no civil, criminal or administrative action,
suit, demand, claim, hearing, notice of violation, investigation,
proceeding, notice or demand letter pending or, to the knowledge of
Rudy's, threatened against Rudy's or any Subsidiary relating in any
way to the Environmental Laws or any regulation, code, plan, order,
decree, judgment, injunction, notice or demand letter issued,
entered, promulgated or approved thereunder.
5.25.4 No release, spill, seepage, leak or emission has occurred
on the Owned Real Property or to the knowledge of Rudy's, on the
properties demised under the Leases or on any real property
previously owned or leased by Rudy's during the time of Rudy's
ownership or possession.
5.25.5 There are no underground storage tanks located on any of
the Owned Real Properties, or on any of the properties demised under
the Leases, nor to the knowledge of Rudy's have there been any
underground storage tanks removed from any real property owned or
leased by any company during the period such real property was owned
or leased by Rudy's, except to the extent that such underground
storage tanks were removed in compliance with all applicable laws or
required by applicable laws, ordinances, rules and regulations, and,
to the extent such removal was performed upon notice and with the
approval of, and the inspection and confirmation of closure as to
such removal was performed by, all applicable governmental agencies
having jurisdiction.
5.25.6 Rudy's has delivered to Benihana true, correct and
complete copies or results of any reports inspections, safety
procedures, logs, data, contracts, invoices, studies or tests
initiated by Rudy's or landlords or by any Governmental Authority
which are in the possession of Rudy's pertaining to Hazardous
Materials, at any part of the Owned Real Properties or the properties
demised under the Lease or Rudy's with respect to the business, any
of Rudy's predecessors or concerning compliance with or liability
under Environmental Laws and other environmental matters in the
operation of the business and such properties.
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5.26 Employee Benefit Plans.
5.26.1 Schedule 5.26 hereto contains a complete list of "Plans"
consisting of each:
(a) "multiemployer pension plan," as defined in Section
3(37) of ERISA, to which Rudy's or any Subsidiary (or any entity
that is treated as a single employer with Rudy's or any
Subsidiary under Section 414(b), (c), (m) or (o) of the Code
("Common Control Entity") contributes or is required to
contribute, or with respect to which any of Rudy's, any
Subsidiary or a Common Control Entity has any liability (the
foregoing plans and any additional multiemployer pension plan to
which Rudy's, any Subsidiary or any Common Control Entity has
previously contributed or been required to contribute at any time
after September 25, 1980 (the "Multiemployer Plans");
(b) "employee welfare benefit plan," as defined in Section
3(l) of ERISA, sponsored or maintained by Rudy's, any Subsidiary
or any Common Control Entity, or to which Rudy's, any Subsidiary
or any Common Control Entity contributes or is required to
contribute, including each multiemployer welfare plan ("Welfare
Plan");
(c) "employee pension benefit plan," as defined in Section
3(2) of ERISA (other than a Multiemployer Plan), sponsored or
maintained by Rudy's, any Subsidiary or any Common Control Entity
or to which Rudy's, any Subsidiary or any Common Control Entity
contributes or is required to contribute ("Pension Plan"); and
(d) any other bonus, deferred or incentive compensation,
pension, profit-sharing, retirement, stock purchase, stock grant,
stock option, disability, sick pay, salary continuation,
cafeteria, flexible spending account, dependent care assistance,
or any other fringe benefit plan, arrangement or practices, other
than normal payroll practices and policies concerning holidays
and vacations, sponsored or maintained by Rudy's or any
Subsidiary, whether formal or informal (collectively, "Employment
Plans").
5.26.2 There are no "accumulated funding deficiencies," as
defined in Section 302(a)(2) of ERISA and Section 412 of the Code,
whether or not waived, with respect to any of the Pension Plans.
5.26.3 The Unaudited Balance Sheet reflects, to the extent
required by GAAP as consistently applied by Rudy's, an accrual of all
accrued but unpaid contributions to any Pension Plan, a Multiemployer
Plan, and an accrual of all amounts accrued but unpaid under the
Welfare Plans and the Employment Plans, all as of the Balance Sheet
Date.
5.26.4 Each Pension Plan and each related trust agreement,
annuity contract, or other funding instrument, is qualified and tax
exempt under the provisions of Sections 401(a) (or 403(a) as
appropriate) and 501(a) of the Internal Revenue Code ("Code"), and a
determination letter has been received from the Internal Revenue
Service as to such qualified status.
5.26.5 Each Pension Plan, Welfare Plan and Employment Plan
complies in all material respects with all applicable laws (including
to the extent applicable, without limitation, the Code and ERISA) and
is operated in accordance with its terms, except where such non-
compliance would have no Material Adverse Effect.
5.26.6 Each of Rudy's, any Subsidiary and any Common Control
Entity has paid all premiums (and interest charges and penalties for
late payment, if applicable), due heretofore to the PBGC with respect
to each Pension Plan. Except as described on Schedule 5.26, there has
been no "reportable event", as defined in Section 4043(b) of ERISA
and the PBGC regulations under that Section, with respect to any
Pension Plan as to which notice has not been waived under applicable
PBGC under PBGC regulations. No liability to the PBGC has been
incurred by Rudy's, any Subsidiary or any Common Control Entity, on
account of the termination of any Pension Plan. The PBGC has not
instituted proceedings to terminate any Pension Plan and to the
knowledge of Rudy's, there exists no condition or set of
circumstances
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which could reasonably be expected to present a significant risk of
the termination of any Pension Plan by the PBGC.
5.26.7 Except as set forth on Schedule 5.26, none of Rudy's, any
Subsidiary nor any Common Control Entity has withdrawn from a
Multiemployer Plan in a "complete withdrawal" or a "partial
withdrawal" as defined in Sections 4203 and 4205 of ERISA,
respectively.
5.26.8 True and complete copies of each of the following
documents have been delivered by Rudy's to Benihana: (i) each Welfare
Plan, each Pension Plan and each Multiemployer Plan, related trust
agreements, annuity contracts, or other funding instruments; (ii)
each Employment Plan and complete descriptions of any such plans that
are not in writing; (iii) the most recent determination letter issued
by the Internal Revenue Service with respect to each Pension Plan;
(iv) Annual Reports on Form 5500 Series required to be filed with any
governmental agency for each Welfare Plan and each Pension Plan for
the two most recent plan years; and (v) all actuarial reports
prepared for the last two available plan years for each Pension Plan.
5.26.9 Except as described on Schedule 5.26, neither Rudy's, any
Subsidiary nor any Welfare Plan or Employment Plan is obligated to
make any payment of post-retirement life, accidental death, medical
or disability insurance benefits of any type, excluding, for this
purpose, the provisions of any such benefit as a result of an
individual's exercise of his or her health care continuation rights
under the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended, to or with respect to any former employee of Rudy's or a
Subsidiary.
5.27 Brokers and Finders. Except as set forth on Schedule 5.27,
Rudy's is not a party to any agreement with any person that would
obligate Rudy's or any of the Subsidiaries to pay any brokerage fee,
commission, finder's fees or investment banking fee in connection with
the transactions contemplated by this Agreement.
5.28 Consents. Except as set forth in this Agreement, the
consummation of the transactions contemplated hereby in respect to
Rudy's and Principal Shareholders and the fulfillment of the terms of
this Agreement in respect of Rudy's and the Principal Shareholders do
not require the consent, approval, filing with, registration or release
of any governmental authority or any other Person including, without
limitation, any Person who is a party to a contract or a lease, except
for those approvals, consents, filings, registrations or releases the
failure of which to file or obtain would not have a Material Adverse
Effect.
5.29 Books and Records. Rudy's has maintained complete and correct
copies of: (a) the Articles or Certificate of Incorporation and by-laws
and other charter documents of Rudy's and each of the Subsidiaries and
all amendments thereto; (b) the stock records of Rudy's and each
Subsidiary; and (c) the minutes and other records of the meetings and
other proceedings of the shareholders and directors of Rudy's and each
Subsidiary are complete and current in all material respects.
5.30 Fairness Opinion. The Board of Directors of Rudy's has
received the written opinion (the "Fairness Opinion") of Ladenburg
Thalmann & Co., Inc. to the effect that the Cash Consideration is fair,
from a financial point of view, to the holders of the Rudy's Shares,
other than the Principal Shareholders. Benihana has been furnished with
a true and complete copy of the Fairness Opinion.
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6. REPRESENTATIONS AND WARRANTIES OF PRINCIPAL SHAREHOLDERS.
6.1 Representations and Warranties of Rudolph.
In order to induce Benihana and Newco to enter into this Agreement
and to consummate the Merger and the other transactions contemplated
herein, Rudolph represents and warrants as follows:
6.1.1 Rudolph is the owner, beneficially and of record, of
2,086,000 Rudy's Shares and Rudolph has good, valid and marketable
title to such Rudy's Shares free and clear of all liens,
encumbrances, security interests or claims whatsoever.
6.1.2 This Agreement has been duly and validly executed by
Rudolph as to the provisions of Sections 6 and 8.10. The provisions
of Sections 6 and 8.10 are the legal, valid and binding obligations
of Rudolph enforceable against Rudolph in accordance with their
terms.
6.1.3 Rudolph is acquiring the Warrant for investment and not
with a view to distribution of the Warrant or the Warrant Shares
without compliance with the registration provisions of the Securities
Act or the availability of an exemption therefrom.
6.2 Representations and Warranties of Bayview.
In order to induce Benihana and Newco to enter into this Agreement
and to consummate the Merger and the other transactions contemplated
herein, Bayview represents and warrants as follows:
6.2.1 Bayview is the owner, beneficially and of record, of
450,000 Rudy's Shares. Bayview has good, valid and marketable title
to such Shares free and clear of all liens, encumbrances, security
interests or claims whatsoever.
6.2.2 This Agreement has been duly and validly authorized and
executed by all necessary corporate action of Bayview as to the
provisions of Section 6 and 8.10. The provisions of Sections 6 and
8.10 are legal, valid and binding obligations of Bayview enforceable
against Bayview in accordance with their terms.
7. REPRESENTATIONS AND WARRANTIES OF BENIHANA AND NEWCO:
In order to induce Rudy's to enter into this Agreement and to
consummate the Merger and the other transactions contemplated herein,
Benihana and Newco represent and warrant to Rudy's as follows:
7.1 Corporate Organizations; Etc. Benihana and Newco are
corporations duly organized, validly existing and in good standing under
the laws of the States of Delaware and Nevada, respectively.
7.2 Authorization, Etc. This Agreement and each agreement,
document and instrument required to be delivered by Benihana at the
Closing, including, without limitation, the Warrant, have been duly and
validly authorized by all necessary corporate action of Benihana and
Newco, as the case may be. Benihana and Newco each have full corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. This Agreement is the valid and
binding agreement of Benihana and Newco enforceable against them in
accordance with its terms.
7.3 Warrant Shares. The Warrant Shares, when issued upon a due
exercise of the Warrant, will be fully paid, validly issued, duly
authorized and non-assessable shares of the Class A Stock of Benihana.
7.4 No Violation. Neither the execution, delivery or performance
of this Agreement nor the consummation of the transactions contemplated
hereby will violate any provision of the Certificate of Incorporation,
Articles of Incorporation or By-Laws or similar corporate documents of
Benihana or any subsidiary of Benihana or will (a) violate, or be in
conflict with, or constitute a breach or default (or an event which,
with the giving of notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or acceleration of the
performance required by, or
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cause the acceleration of the maturity of any debt or obligation
pursuant to, or result in the creation or imposition of any security
interest, lien or other encumbrance upon any property or assets of
Benihana or any subsidiary of Benihana under any Contractual Obligation
to which Benihana or any subsidiary of Benihana is a party or by which
Benihana or any subsidiary of Benihana is bound, or to which the
property of Benihana or any subsidiary of Benihana is subject, except
where such violation, conflict, breach, default, termination,
acceleration, security interest, lien or other encumbrance would not
have a Material Adverse Effect; or (b) violate any statute or law or any
judgment, decree, order, regulation or rule of any court or Governmental
Authority to which Benihana is subject, except where such violation
would not have a Material Adverse Effect.
7.5 Approvals of Governmental Authorities. No action, consent,
approval or authorization of or declaration, filing or registration with
any person or entity, including without limitation, any Governmental
Authority is required to be obtained or made by or on behalf of Benihana
or Newco in connection with the execution, delivery and performance by
Benihana and Newco of this Agreement or the consummation of the
transactions contemplated hereby in respect of Benihana and Newco.
7.6 Brokers and Finders. Neither Benihana nor Newco is a party to
any agreement with any person or entity which would obligate Rudy's, any
Subsidiary or the Principal Shareholders to pay any commission, finder's
fee, investment banking fee, or brokerage fee in connection with the
transactions contemplated by this Agreement.
7.7 Public Reports; Compliance. Benihana has heretofore delivered
to Rudy's true and complete copies of the Benihana Reports. Each of the
Benihana Reports complied with all applicable rules and regulations of
the Securities Act or the Exchange Act, as the case may be, as of their
respective dates of filing. None of the Benihana Reports contained any
untrue statement of a material fact or omitted to state any material
fact required to be stated therein or necessary in order to make the
statements therein not misleading (in each case as of the respective
dates thereof).
7.8 The Class A Stock. The Class A Stock and the Common Stock, par
value $.10 per share, of Benihana are registered under Section 12(g) of
the Exchange Act, are quoted on NASDAQ, and Benihana is currently
subject to the periodic reporting requirements of Section 13 or Section
15(c) of the Exchange Act. Benihana has filed and will file all reports
required to be filed by it pursuant to the Exchange Act and the
regulations promulgated thereunder through the date hereof and the
Closing.
8. COVENANTS OF RUDY'S AND THE PRINCIPAL SHAREHOLDERS.
A. Covenants of Rudy's
8.1 Conduct of Business -- Negative Covenants. From the date
hereof through the Effective Time and except as contemplated by this
Agreement, Rudy's and the Subsidiaries shall not, without the prior
written consent of Benihana, conduct the business of Rudy's and the
Subsidiaries other than in the ordinary course or commit or cause or
authorize any act or omission which deviates from the ordinary course of
business. Without limiting the generality of the foregoing, prior to the
Effective Time, none of the following shall occur without the prior
written consent of Benihana:
8.1.1 Rudy's and the Subsidiaries shall not institute any new
methods of purchase, sale, lease, management, accounting or operation
or engage in any transaction or activity, enter into any agreement or
make any commitment or amend any existing material agreement, except
in the ordinary course of business and consistent with past practice.
8.1.2 Rudy's and the Subsidiaries shall not change or amend
their articles or certificates of incorporation or by-laws or propose
any such change or amendment.
8.1.3 Rudy's and the Subsidiaries shall not offer, issue or sell
any shares of the capital stock or other securities (such term as
used in this subsection to include, without limitation, debt
securities) of Rudy's or any Subsidiary of any kind whatsoever,
acquire directly or indirectly, by redemption or otherwise, any such
capital stock, reclassify or split-up any such
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capital stock, declare or pay any dividends thereon in cash,
securities or other property, or make any other distribution with
respect thereto, or grant or enter into any stock options, warrants,
or other rights to acquire securities of Rudy's or any Subsidiary or
enter into any other contracts or commitments of any kind with
respect to the issuance of additional shares of capital stock or
other securities of Rudy's or any Subsidiary.
8.1.4 Rudy's and the Subsidiaries shall not borrow or agree to
borrow any funds or incur, or assume or become subject to, whether
directly or by way of guaranty or otherwise, any obligation or
liability (absolute or contingent), except in the ordinary court of
business consistent with past practices or pursuant to existing
credit arrangements copies of which have previously been furnished to
Benihana.
8.1.5 Rudy's and the Subsidiaries shall not pay, discharge,
waive, satisfy or compromise or adjust any claim, liability or
obligation (absolute, accrued, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice of liabilities or
obligations reflected or reserved against the Unaudited Balance Sheet
or incurred in the ordinary course of business and consistent with
past practice since the date of the Unaudited Balance Sheet.
8.1.6 Rudy's and the Subsidiaries shall not make any single
capital expenditure or commitment in excess of $50,000 for additions
to property, plant, equipment or intangible capital assets or make
any capital expenditure or commitments so that the aggregate of
capital expenditures and commitments do not exceed $100,000 since the
Balance Sheet Date for additions to property, plant, equipment or
intangible capital assets;
8.1.7 Rudy's and the Subsidiaries shall not prepay any
obligation having a fixed maturity of more than sixty (60) days from
the date such obligation was incurred.
8.1.8 Rudy's and the Subsidiaries shall not permit or allow any
of its property or assets (real, personal or mixed, tangible or
intangible) to be subjected to any mortgage, pledge, lien or
encumbrance, except in the ordinary course of business and consistent
with past practice or pursuant to existing credit arrangements which
have been disclosed to Benihana.
8.1.9 Rudy's and the Subsidiaries shall not write down the value
of any inventory (including write-downs by reason of shrinkage or
markdown) or write off as uncollectible any notes or accounts
receivable, except for immaterial write-downs of inventory or
accounts receivable in the ordinary course of business and consistent
with past practice.
8.1.10 Rudy's and the Subsidiaries shall not cancel any debts or
waive any claims or rights involving more than $1,000 or sell,
transfer, or otherwise dispose of any of its properties or assets,
except in the ordinary course of business and consistent with past
practice.
8.1.11 Rudy's and the Subsidiaries shall not dispose of any
rights to the use of any patent, trademark, trade name or copyright,
or dispose of or disclose to any person any trade secret, formula,
process or know-how not theretofore a matter of public knowledge
except where such disposition or disclosure would not have a Material
Adverse Effect.
8.1.12 Rudy's and the Subsidiaries shall not grant any increase
in the compensation of officers or general increase in the
compensation of employees (including any such increase pursuant to
any bonus, pension, profit sharing or other plan or commitment) or
any increase in the compensation payable or to become payable to any
officer or employee, except increases granted in the ordinary course
of business and reasonable increases to employees who are not
officers consistent with past practice and pursuant to existing
agreements. Notwithstanding the preceding or any other term or
condition hereof, Rudy's shall be entitled to expend or commit to
expend on or before the Effective Time, an amount not to exceed an
aggregate of $787,500 to be paid as severance payments or bonuses to
certain employees of Rudy's. Schedule 8.1.12 sets forth the names of
each employee with respect to whom such payments will be made and the
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respective amounts of each such payment. Rudy's shall cause each of
such employees (except any who have accepted an offer of continued
employment following the Effective Time from the Surviving
Corporation or Benihana) to deliver a letter (each a "Severance
Letter") to the Surviving Corporation at the Closing providing for
the terms as annexed hereto as Exhibit 8.1.12.
8.1.13 Rudy's and the Subsidiaries shall not sell, transfer,
surrender, terminate, sublease or lease any properties or assets to,
or enter into any agreement or arrangement with, any of their
officers or directors, except pursuant to existing arrangements with
such directors and officers relating to directors' fees and
compensation to officers.
8.1.14 Rudy's and the Subsidiaries shall not modify any
collective bargaining or other labor agreement to which they are a
party or by which it may be bound, except for immaterial
modifications in the ordinary course of business which are consistent
with past practice or required by applicable law.
8.1.15 Rudy's and the Subsidiaries shall not terminate any Plan
or withdraw from any Multiemployer Plan or fail to notify Benihana of
any "prohibited transaction", as such term is defined in Section 4975
of the Internal Revenue Code.
8.1.16 Rudy's and the Subsidiaries shall not enter into or
consent to any amendment of, or sublease with respect to the
properties demised under the Leases except in the ordinary course of
business and consistent with past practice.
8.1.17 Rudy's and the Subsidiaries shall not take any action, or
omit the taking of any action, which would cause any of the
representations or warranties made in Article 5 hereof to be or
become untrue or incorrect in any material respect as of the Closing
Date.
8.1.18 Rudy's and the Subsidiaries shall not agree or commit,
whether in writing or otherwise, to do any of the foregoing.
8.2 Conduct of Business -- Affirmative Covenants. Prior to the
Effective Time, Rudy's and each Subsidiary will conduct its business in
the ordinary course and consistent with past practice, except where the
failure to do so would not have a Material Adverse Effect. Without
limiting the generality of the foregoing, prior to the Effective Time
each of Rudy's and the Subsidiaries:
8.2.1 will maintain its good standing and qualification to do
business in all jurisdictions where it is required to be qualified to
do business, and all licenses, permits, franchises, rights and
privileges which are necessary for the conduct of the its business;
8.2.2 shall continue at its expense to maintain its property and
equipment in customary repair, order and working condition,
reasonable wear and use excepted, and keep in full force and effect
the Leases, except those which expire by their terms, and, if any
Leases expire by their own terms, renew the same if such renewal is
in the ordinary course of business and consistent with past custom
and practice;
8.2.3 shall duly comply with all laws, regulatory requirements
and agreements to which it is subject or by which it is bound;
8.2.4 shall maintain the current insurance upon its properties
and with respect to the conduct of its business;
8.2.5 shall pay and discharge, before the same shall become
delinquent, all Taxes imposed on it or against its income or profits
or any of its properties, and all other Liabilities which, if unpaid,
might become an encumbrance, except to the extent and so long as (i)
the same are being contested in good faith and by appropriate
proceedings, and (ii) it shall have set aside on its books reasonable
reserves with respect thereto under GAAP consistently applied;
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8.2.6 shall use commercially reasonable efforts to keep intact
its present business organizations, keep available the services of
its present officers, employees and agents and use commercially
reasonable efforts to preserve its present relationships with all
customers, clients, accounts, suppliers and other entities or persons
having business relationships with it, in each case in the ordinary
course of business or in a manner consistent with customary
historical practices or course of conduct;
8.2.7 shall furnish to Benihana for its examination (i) its
minute books containing all records required to be set forth of all
proceedings, consents, actions and meetings of the shareholders and
Board of Directors; (ii) all permits, orders, and consents issued by
any governmental authority with respect to Rudy's and such
Subsidiary, and all applications for such permits, orders, and
consents; and (iii) its stock transfer books setting forth all
transfers of any shares of capital stock;
8.2.8 shall maintain its books, records and accounts with
accuracy and consistently with past practices; and
8.2.9 shall comply with the requirements of any state, city or
local law, statute, ordinance, regulation or otherwise in any state,
city or locality in which any of the Owned Real Properties are
located and/or in which any of the properties demised under the
Leases are located, which law, statute, ordinance or regulation
imposes a transfer tax and/or filing requirement in connection with
the transactions contemplated hereby.
8.3 Shareholders' Meeting; Proxy Statement.
8.3.1 Promptly following the date hereof, Rudy's will prepare
and file with the SEC a proxy statement (the "Proxy Statement") for a
special meeting of the shareholders of Rudy's to be held pursuant to
Section 8.3.2. The Proxy Statement shall contain all information
required by Schedule 14A promulgated under the Exchange Act. Benihana
will cooperate with Rudy's in the preparation of the Proxy Statement,
including the furnishing of all information with respect to Benihana,
including financial statements, to the extent required to be included
in the Proxy Statement.
Rudy's covenants and warrants that at the time it is furnished
to the shareholders of Rudy's, the Proxy Statement shall not contain
any untrue statement of a material fact or omit to state any material
fact required to be stated therein in order to make the statements
therein not misleading. Such covenant shall not be deemed to apply to
information furnished in writing by Benihana specifically for
inclusion in the Proxy Statement.
8.3.2 At the earliest practicable date following the date that
the Proxy Statement has been cleared for mailing by the SEC, Rudy's
shall distribute the Proxy Statement to its shareholders giving
notice of the Shareholders' Meeting for the purposes of adopting this
Agreement and approving the Merger and soliciting proxies in favor
thereof. The Shareholders' Meeting shall be held as soon as
practicable (but in no event less than 30 or more than 60 days)
following the date that the Proxy Statement has been cleared for
mailing by the SEC.
8.4 Access to Information and Personnel. Subject to the
confidentiality obligations under Section 9.1 hereof, at reasonable
times before the Effective Time, Benihana, through its duly appointed
representatives and agents, during normal business hours and in a manner
which does not unduly interfere with the business operations of Rudy's
or any of the Subsidiaries, shall have the right to speak with,
interview and discuss the business and operations of Rudy's and the
Subsidiaries with the officers, employees, attorneys and agents of
Rudy's and the Subsidiaries and shall have the right to visit the
premises of Rudy's and the Subsidiaries, to examine, to the extent
permitted by law, any and all records, books, contracts, commitments,
shareholder lists, files, working papers and drafts prepared by
accountants and any independent public accounting firms retained by
Rudy's and the Subsidiaries and other documents pertaining to the
business and operations of Rudy's and the Subsidiaries and the ownership
of its properties and to undertake such other steps as Benihana
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considers appropriate to familiarize itself with Rudy's and the
Subsidiaries. All of such interviews, discussions and inspections shall
be coordinated reasonably in advance with the President of Rudy's.
8.5 Estoppel Certificates or Consents. Immediately upon its
execution of this Agreement, Rudy's shall exercise its best efforts to
obtain and deliver to Benihana at the Closing customary estoppel
certificates from landlords under the leases and, with respect to Leases
which require the consent of the landlord thereunder for the
transactions contemplated hereby, landlord consents (such consents not
to be conditioned on any increased rental, other payment, reduced term,
or other change of lease terms) in form and substance reasonably
satisfactory to Benihana.
8.6 Confidentiality. During the period before the Effective Time,
each of Rudy's and the Principal Shareholders severally covenants that
it shall not disclose or assist in the disclosure by any person or
entity, or use to the competitive detriment of Benihana, any
confidential or proprietary information regarding Benihana, except that
disclosure of such information may be made to their respective legal
counsel, accountants, financial advisors, investment bankers and their
other authorized agents and representatives, and to such persons only to
the extent required for activities directly related to the transactions
contemplated by this Agreement, or except to the extent that disclosure
is required by law or by a court of competent jurisdiction. Following
the Closing, the Principal Shareholders shall not disclose or acquiesce
in the disclosure by any person or entity (other than Rudy's), or use to
the competitive detriment of Benihana or Rudy's, any confidential or
proprietary information regarding Benihana or Rudy's.
8.7 No Solicitation. Neither the Principal Shareholders, their
representatives or agents, nor Rudy's not its officers, directors,
representatives or agents shall, directly or indirectly, solicit,
initiate or participate in discussions or negotiations with, or provide
any information to, any Person (other than Benihana or Newco)
concerning, or enter into any agreement providing for any merger, sale
of material assets, sale of shares of capital stock or similar
transactions involving Rudy's; provided that the Board of Directors of
Rudy's may furnish information and may participate in such discussion or
negotiations if required to satisfy the Fiduciary Obligations (as
hereinafter defined) of the Board of Directors of Rudy's. "Fiduciary
Obligations" shall arise if the Board of Directors believes, in good
faith, after consultation with its financial and legal advisors, that
such Person may make a bona fide proposal for a transaction materially
more favorable to the stockholders of Rudy's from a financial point of
view than the transactions contemplated hereby (a "Higher Offer"). The
Board of Directors will communicate to Benihana within one business day
of receipt the terms of any proposal received, or the fact that Rudy's
has received inquiry with respect to, any such transactions.
8.8 Best Efforts. So long as this Agreement remains in effect,
Rudy's and the Principal Shareholders shall use their best efforts to
cause the transactions contemplated herein to be consummated at the
earliest practicable date. Rudy's shall proceed as soon as practicable
in the procurement of permits, consents and approvals and in the taking
of any other action, and the satisfaction of all other requirements
prescribed by law or otherwise necessary for consummation of the
acquisition on the terms herein provided, and shall diligently prosecute
the same.
8.9 Tax Returns; Section 338 Election. For all periods ending on
or prior to the Effective Time, Rudy's shall file all Tax Returns and
Statements which are required by applicable law to be filed, all in a
manner consistent with past practices. In connection therewith, Rudy's
agrees that any decision as to whether to make an election under Section
338 of the Code (or any corresponding or similar provision under state
or local law) shall be made by Benihana in its sole discretion and
Rudy's will cooperate at Benihana's expense as requested in connection
with all such elections.
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B. Covenants of Principal Shareholders.
8.10 Covenants of Principal Shareholders.
8.10.1 Prior to the Effective Time, the Principal Shareholders
shall not, directly or indirectly, sell, transfer, pledge,
hypothecate, encumber or otherwise dispose or surrender possession
of, or enter into any contract or agreement for the sale, transfer or
other disposition of the Rudy Shares, except by will, intestacy or
otherwise by operation of law.
8.10.2 The Principal Shareholders shall not permit Rudy's or the
Subsidiaries to take any actions in contravention of Section 8.1.
8.10.3 The Principal Shareholders shall use their reasonable
efforts to cause Rudy's and the Subsidiaries to comply with the
covenants of Section 8.2.
8.10.4 At the Shareholders' Meeting, the Principal Shareholders
will vote, or cause to be voted, all of Rudy's Shares owned
beneficially by each of them in favor of approving the Merger and
this Agreement.
8.10.5 The Principal Shareholders shall comply with the
covenants set forth in Sections 8.6, 8.7 and 8.8 to the extent
applicable to them.
9. COVENANTS OF BENIHANA AND NEWCO:
9.1 Confidentiality. Prior to the Closing, Benihana and Newco
shall not disclose or acquiesce in the disclosure by any Person, or use
to the competitive detriment of Rudy's, any confidential or proprietary
information regarding Rudy's or its business or financial condition,
contained in any documents or otherwise furnished by or on behalf of
Rudy's or the Principal Shareholders, or otherwise learned by Benihana
or Newco as a result of participation in the transactions contemplated
hereby, to any Person except its legal counsel, accountants, financial
advisors, bankers, investment bankers and other authorized agents and
representatives, and to such persons only to the extent required for
activities directly related to the transactions contemplated by this
Agreement, including, without limitation, the financing of Benihana's
obligation hereunder. If the transaction contemplated by this Agreement
for any reason does not close, Benihana and Newco agree to, and shall
thereafter continue to, abide by the preceding provisions of this
Section 9.1 and in so doing, and without limitation, shall permanently
protect the confidentiality of all confidential or proprietary
information provided to it by Rudy's and return to Rudy's all written
information provided to Benihana and Newco by Rudy's, and also shall
return or, at Rudy's election, destroy all copies made of such written
information and submit its affidavit of its duly authorized officers
that all such written information and copies have been returned. In
addition, neither Benihana nor any subsidiary of Benihana will, without
the prior written consent of Rudy's, solicit or make an offer of
employment to any present employee of Rudy's for a period of 12 months
from the date of any termination of this Agreement without a Closing.
9.2 Best Efforts. So long as this Agreement remains in effect,
Benihana and Newco shall use their best efforts to cause the
transactions contemplated hereby to be consummated at the earliest
practicable date. Benihana and Newco shall proceed as soon as
practicable in the procurement of permits, consents and approvals
(including, without limitation, Liquor License applications or
transfers) and in the taking of any other action, and the satisfaction
of all other requirements prescribed by law or otherwise necessary for
consummation of the acquisition on the terms herein provided, and shall
diligently prosecute the same.
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10. CONDITIONS TO CLOSING.
10.1 Conditions Precedent to the Performance of Benihana and
Newco. The obligations of Benihana and Newco to consummate the
acquisition in accordance with this Agreement is subject to the
fulfillment of each of the following conditions, any of which may be
waived in writing by Benihana, in whole or in part, in its sole
discretion:
10.1.1 Compliance with this Agreement.
(a) Rudy's and the Principal Shareholders shall have
performed and satisfied in all material respects all covenants,
obligations, agreements and conditions required by this Agreement
to be performed and satisfied by each of them, on or prior to the
Effective Date;
(b) The representations and warranties contained in Articles
5 and 6 hereof shall be in all material respects true, correct
and complete as of the date when made and at and as of the
Effective Date as though such representations and warranties were
made at and as of such date, except for changes expressly
permitted or contemplated by the terms of this Agreement. For
purposes of this condition and the certificate required by
subsection (c) below, any decline in sales or net income of
Rudy's arising from operations in the ordinary course, consistent
with past practices and not resulting from a violation of any
covenant of Rudy's hereunder shall be deemed a change expressly
permitted or contemplated by the terms of this Agreement;
(c) Rudy's shall have delivered to Benihana a certificate
signed by its Chief Executive Officer and Chief Financial Officer
dated as of the Effective Date. Such certificate shall certify as
to the truth, completeness and correctness in all material
respects of each of the representations and warranties set forth
in Article 5 made by Rudy's and as to the fulfillment in all
material respects of the covenants set forth in Article 8A hereof
which are required by this Agreement to be performed and
satisfied by Rudy's on or before the Effective Date.
10.1.2 Approvals. All corporate action, including approval by
the shareholders of Rudy's at the Shareholders' Meeting, necessary
for Rudy's to approve the execution and delivery of this Agreement
and the consummation of the transactions contemplated by this
Agreement shall have been taken and not revoked by the Board of
Directors and shareholders of Rudy's, and Rudy's shall have delivered
to Benihana certified copies of resolutions of the Board of Directors
and shareholders of Rudy's evidencing such action.
10.1.3 No Material Adverse Effect. As of the Effective Date,
there shall have been no condition, development or occurrence in
respect of the assets, business, financial condition or prospects of
Rudy's and the Subsidiaries which would constitute a Material Adverse
Effect when compared to such condition as at the Balance Sheet Date,
other than any such condition, development or occurrence arising from
operations in the ordinary course and consistent with past practices
or course of conduct and which does not consist of or result from a
violation of any covenant of Rudy's hereunder, and, on the Effective
Date, Rudy's shall deliver a certificate to such effect signed by the
Chief Financial Officer of Rudy's.
10.1.4 Opinion of Counsel for Rudy's. Benihana shall have
received the legal opinion of counsel for Rudy's, including an
opinion of Nevada counsel, dated as of the Effective Date, which
opinion shall opine as to the items set forth on Exhibit 10.1.4,
subject to customary exceptions and qualifications (the "Rudy's
Counsel Opinion").
10.1.5 No Injunction. On the Effective Date, there shall be no
effective injunction, writ, preliminary or temporary restraining
order or order of any nature issued by a court of competent
jurisdiction directing that the transactions provided for herein or
any of them not be consum-
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mated as so provided or imposing any conditions on the consummation
of the transaction contemplated hereby that Benihana deems
unacceptable in its sole discretion.
10.1.6 Consents and Approvals. Benihana shall have received any
necessary approvals and consents from all third parties, including,
without limitation, the landlords under the Leases to the extent such
consent is required by the terms of the Leases, and the approval of
all relevant state authorities with respect to Newco's and Benihana's
acquisition of an interest in the Restaurants pursuant to the Merger,
and such approvals and consents shall not have expired or been
withdrawn as of the Effective Date. Each of such required consents is
set forth on Schedule 10.1.6 hereof.
10.1.7 No Litigation. As of the Effective Date, no writ,
action, investigation, inquiry, litigation or other proceeding
relating to or affecting Rudy's or any Subsidiary or any of their
respective directors, officers, employees or agents in their
capacities as such, the assets, properties or business of Rudy's or
the transactions contemplated by this Agreement shall have been
instituted seeking any relief which, if granted, would have a
Material Adverse Effect or challenging the legality of the Merger,
seeking to restrain the consummation thereof or seeking damages in
connection therewith.
10.1.8 Approval of Documentation. The form and substance of all
certificates, instruments, opinions, and other documents delivered to
Benihana under this Agreement shall be reasonably satisfactory in all
material respects to Benihana and its counsel.
10.1.9 Appraisal Rights. Holders of Rudy's Shares representing
no more than 7.5% of the outstanding Rudy's Shares shall have duly
submitted valid written requests for the payment of the fair value of
their Rudy's Shares in accordance with Section 92A.380 of the Nevada
Law.
10.1.10 Severance Letters. Benihana shall have received duly
executed copies of the Severance Letters referred to in Section
8.1.12.
10.1.11 Fairness Opinion. The Fairness Opinion shall have been
confirmed in writing by Ladenburg Thalmann & Co., Inc. as of the date
of mailing of the Proxy Statement.
10.1.12 Resignations. Each of the directors and officers of
Rudy's and the Subsidiaries immediately prior to the Effective Time
shall have resigned from all offices held by a written letter of
resignation, copies of which shall be delivered to Benihana at the
Closing.
10.2 Conditions Precedent to Rudy's Performance. The obligation of
Rudy's to consummate the Merger in accordance with this Agreement is
subject to the fulfillment of each of the following conditions, any of
which may be waived in writing by Rudy's, in whole or in part, in its
sole discretion:
10.2.1 Compliance with This Agreement.
(a) Benihana and Newco shall have performed and satisfied in
all material respects all covenants, obligations, agreements and
conditions required by this Agreement to be performed and
satisfied by Benihana and Newco on or prior to the Effective
Date;
(b) The representations and warranties of Benihana and Newco
contained in Article 7 hereof shall be true, correct and complete
in all material respects as of the date when made and at and as
of the Effective Date as though such representations and
warranties had been made on such date, except for changes
expressly permitted on contemplated by the terms of this
Agreement;
(c) Benihana shall have delivered to Rudy's a certificate,
signed by its President and its Chief Financial Officer, dated as
of the Effective Date, certifying as to the truth, completeness
and correctness in all material respects of each of the
representations and warranties set forth in Article 7 hereof and
the fulfillment in all material respects of each of the covenants
set forth in Article 9 hereof.
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10.2.2 Approvals. All corporate action by Benihana and Newco
necessary to approve the execution and delivery of this Agreement and
the consummation of the transactions contemplated by this Agreement
prior to the Effective Date shall have been taken and not revoked and
Benihana shall have delivered to Rudy's certified copies of
resolutions of the Board of Directors of Benihana and Newco
evidencing such actions.
10.2.3 Opinions of Counsel for Benihana. Rudy's shall have
received the opinion of Dornbush Mensch Mandelstam & Schaeffer, LLP,
counsel for Benihana and Newco, dated as of the Effective Date, and
addressed to Rudy's, which opinion shall opine as to the items set
forth on Exhibit 10.2.3, subject to customary exceptions and
qualifications (the "Benihana's Counsel Opinion").
10.2.4 Non-Competition Agreement. The Surviving Corporation and
Benihana shall have offered to enter into a Non-Competition Agreement
with each of Marie Peterson and Rudolph substantially in the form
annexed as Exhibit 10.2.4 hereto.
10.2.5 Warrant. Benihana shall have issued the Warrant to
Rudolph, providing for the right to purchase 200,000 shares of the
Class A Stock at a price of $8.00 per share and containing the
further terms and conditions, and in substantially the form, as
annexed hereto as Exhibit 10.2.5.
10.2.6 Fairness Opinion. The Fairness Opinion shall have been
confirmed in writing by Ladenburg Thalmann & Co., Inc. as of the date
of mailing of the Proxy Statement.
10.2.7 Approval of Documentation. The form and substance of all
certificates, instruments, opinions, and other documents delivered to
Rudy's under this Agreement shall be reasonably satisfactory in all
material respects to Rudy's and its counsel.
10.2.8 Absence of Legal Challenge to Merger. As of the
Effective Date, there shall be in effect no order, writ, injunction,
judgment or decree of any court or Governmental Authority in the
United States or any state or territory thereof, prohibiting the
consummation of the Merger or any of the other transactions specified
in or required by the terms of this Agreement, and there shall be no
action, suit or proceeding or pending before any court, Governmental
Authority or other body challenging the legality of the Merger or any
of the transactions specified in or required by the terms of this
Agreement, seeking to restrain their consummation or seeking damages
in connection therewith.
11. DELIVERIES AT CLOSING:
11.1 Rudy's Obligations. At the Closing, Rudy's shall deliver to
Benihana or as Benihana may designate:
11.1.1 the certificates required by Section 10.1.1 and 10.1.3
hereof;
11.1.2 Rudy's Counsel Opinion required by Section 10.1.4 hereof;
11.1.3 a true and complete copy of the letter from Ladenburg
Thalmann & Co., Inc. as to the Fairness Opinion required by Section
10.1.11 hereof;
11.1.4 the certified resolutions required by Section 10.1.2
hereof;
11.1.5 the duly executed resignations required by Section
10.1.12 hereof;
11.1.6 the duly executed consents required by Section 10.1.6;
and
11.1.7 the Severance Letters.
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11.2 Obligations of Benihana and Newco. At the Closing, and
against delivery of each of the items required to be delivered by Rudy's
under Section 11.1 above, Benihana and Newco shall deliver the
following.
11.2.1 the Certificate required under Section 10.2.1(c);
11.2.2 the certified resolutions required by Section 10.2.2;
11.2.3 Benihana's Counsel Opinion required by Section 10.2.3.
hereof;
11.2.4 The Non-Competition Agreement with Rudolph and Marie
Peterson required by Section 10.2.4;
11.2.5 The Warrant; and
11.2.6 The Cash Consideration will be delivered to the Exchange
Agent and the Escrow Agent as contemplated by Section 4.3 hereof.
11.3 Filings. Promptly upon the completion or waiver of the
conditions set forth in Article 10 hereof and the deliveries required by
Sections 11.1 and 11.2 hereof, the Surviving Corporation will cause the
Articles of Merger to be filed in Nevada, thereby consummating the
Merger.
12. POST CLOSING MATTERS:
12.1 Offices of Rudy's. Benihana shall cause the Surviving
Corporation to continue to maintain the executive offices of Rudy's
located at 11900 Biscayne Boulevard, Suite 806, Miami, Florida until the
expiration of the current lease on such offices in August, 1998. During
such period Benihana and the Surviving Corporation will permit Rudolph
and his affiliates to occupy such offices in accordance with their
present practices. Benihana and the Surviving Corporation also
acknowledge that the furniture, equipment and other personal items in
such offices are the personal property of Rudolph and may be removed
from such offices, at Rudolph's election.
13. TERMINATION:
13.1 Termination. This Agreement and the transactions contemplated
herein may be terminated and/or abandoned at any time before the
Closing:
13.1.1 By the written mutual consent of Rudy's and Benihana;
13.1.2 By Rudy's, by giving written notice to the other parties
to this Agreement, if there is a continuing material breach by
Benihana of any of the representations, warranties, covenants or
obligations of Benihana set forth herein; provided, however, that at
the time of such termination, Rudy's is not in material breach of any
of its representations, warranties, covenants or obligations
hereunder (or, if Rudy's is in such material breach, Rudy's has not
commenced to cure and is not then continuing to diligently pursue the
cure of such breach); provided further, however, that Benihana has a
period of 20 days in which to cure such default;
13.1.3 By Benihana by giving written notice to the other parties
to this Agreement, if there is a continuing material breach by Rudy's
or Principal Shareholders of any of the representations, warranties,
covenants or obligations of Rudy's or the Principal Shareholders, as
the case may be, set forth herein; provided, however, that at the
time of such termination, Benihana and Newco are not in material
breach of any of their representations, warranties, covenants or
obligations hereunder (or, if either is in such material breach,
Benihana or Newco, as the case may be, has not commenced to cure and
is not then continuing to diligently pursue the cure of such breach);
provided further, however, that Rudy's and the Principal Shareholders
have a period of 20 days in which to cure such default;
13.1.4 By either Benihana or Rudy's, if the Closing shall not
have taken place by January 31, 1998 (the "Final Date"), provided
that at the time of such termination the terminating party is not in
material breach of any of its representations, warranties, covenants
or
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obligations hereunder (or, if in such material breach, has not
commenced to cure and is not then continuing to diligently pursue the
cure of such breach). In addition, if, at the Final Date, the sole
reason that the Closing has not taken place is the failure of a third
party to have taken any action required to be taken in order to
satisfy any party's obligation to consummate the Merger (for example,
the issuing or transfer of a liquor license for a Restaurant) and
each party hereto has taken all steps required hereunder of such
party to cause such third party to take such action, then either
party may elect to extent the Final Date, effective upon notice to
the other party, to a date no later than July 31, 1998;
13.1.5 By Rudy's, subject to Section 13.2.3, if, prior to the
Shareholders Meeting, the Board of Directors of Rudy's determines,
solely due to its Fiduciary Obligations, that it will not recommend
the approval of this Agreement or the Merger by the Shareholders of
Rudy's (or if such recommendation is withdrawn) and shall have
recommended a Higher Offer to the shareholders of Rudy's.
13.2 Effect of Termination.
13.2.1 Wilful Breach By Rudy's or the Principal
Shareholders. If this Agreement is terminated by Benihana pursuant
to Sections 13.1.3 as the result of any wilful breach of any covenant
or agreement of Rudy's or the Principal Shareholders, then Rudy's
shall be fully liable for any and all costs, expenses or damages
incurred or suffered by the other party in connection with, or in
respect of, this Agreement and the transactions contemplated hereby
(including, without limitation, any commitment fees or other amounts
paid or payable by Benihana to any financing source or otherwise
incurred in connection with arranging for, soliciting or obtaining
any such financing).
13.2.2 Breach by Benihana or Newco. If this Agreement is
terminated by Rudy's pursuant to Section 13.1.2, then Benihana shall
promptly pay Rudy's the sum of $1,000,000, which represents a good
faith estimate of the cost and expenses incurred by Rudy's in
developing the transactions contemplated by this Agreement. Nothing
in this Section 13.2.2 shall relieve Benihana or Newco from any
liability for breach of this Agreement or limit the availability of
any remedy available to Rudy's provided for hereunder or by law.
13.2.3 Termination Because of Fiduciary Obligations. In the
event this Agreement is terminated by the Board of Directors of
Rudy's pursuant to Section 13.1.5, Rudy's agrees to pay Benihana a
fee equal to the greater of (i) Benihana's out-of-pocket fees and
expenses incurred in developing and negotiating this Agreement and
the transactions contemplated hereby and (ii) $1,000,000, which
represents a good faith estimate of the cost and expenses incurred by
Benihana, together with the value of lost opportunities, in
developing the transactions contemplated by this Agreement.
13.2.4 Other Terminations. If this Agreement is terminated as
permitted by Subsection 13.1.1, or otherwise pursuant to Section 13.1
and Subsections 13.2.1 , 13.2.2 and 13.2.3 are not applicable, such
termination shall be without liability of any party (or any
shareholder, director, employee, agent, consultant or representative
of such party) to any other party.
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13.3 Procedure Upon Termination. In the event of termination and
abandonment pursuant to this Article 13, written notice thereof shall
forthwith be given to the other party and the transactions contemplated
by this Agreement shall be terminated and/or abandoned, without further
action by any party. If the transactions contemplated by this Agreement
are terminated and/or abandoned as provided herein:
13.3.1 Each party will redeliver all documents, work papers and
other material of any other party relating to the transactions
contemplated hereby, whether so obtained before or after the
execution hereof, to the party furnishing the same; and
13.3.2 All confidential information received by any party hereto
with respect to the business of any other party or its subsidiaries
shall be treated in accordance with Sections 8.7 and 9.1 hereof.
13.4 Survival. The provisions of Sections 13.2 and 13.3 shall
survive termination of this Agreement.
14. GUARANTY OF INDEMNIFICATION:
14.1 Guaranty. From and after the Effective Time, Benihana hereby
unconditionally guarantees (the "Benihana Guarantee") the
indemnification obligations of Rudy's to its officers and directors
("Indemnified Persons") immediately prior to the Effective Time, to the
extent provided by the Articles of Incorporation and By-Laws of Rudy's
in effect immediately prior to the Effective Time and to the extent
permitted by the Nevada Law. Benihana hereby waives any requirement of
any Indemnified Person to pursue their rights hereunder directly against
Rudy's before proceeding against Benihana under the Benihana Guarantee
and waives all other requirements of notice or demand, except as set
forth in Section 14.2 hereof. This guarantee shall survive the Closing
until the expiration of the statute of limitations of Rudy's
indemnification obligations to the Indemnified Persons. Each Indemnified
Person shall be deemed a third party beneficiary of the Benihana
Guarantee.
14.2 Procedure. Any person seeking indemnification pursuant to the
Benihana Guarantee shall provide prompt notice to Benihana of the
assertion of any claim as to which such person may seek indemnification.
Benihana shall be entitled to assume the defense of any such matter with
counsel of it choice, who shall be reasonably acceptable to the
Indemnified Person. The Indemnified Person shall furnish reasonable
cooperation to Benihana and its counsel in the defense of any such
matter and may participate in such defense with its own counsel, at its
own expense. Notwithstanding the preceding, Benihana shall be obligated
to pay the reasonable fees and expenses of no more than one counsel for
an Indemnified Person, if Benihana receives a written opinion of counsel
for such Indemnified Person to the effect that there may exist defenses
to such Indemnified Person's potential liability which are different
from those available to Benihana or Rudy's or that there is a
significant possibility of a conflict of interest between such
Indemnified Person, on the one hand, and Benihana and Rudy's, on the
other, in connection with the defense of such matter.
15. NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES:
The respective representations and warranties of the parties
contained herein or in any certificates or other documents delivered
prior to or at the Effective Date shall not be deemed waived or
otherwise affected by any investigation made by any party hereto. The
representations and warranties contained herein shall not survive the
Closing. This Article 15 shall have no effect upon any other obligation
of the parties hereto, whether to be performed before or after the
Effective Date.
16. MISCELLANEOUS:
16.1 Expenses. Except as otherwise provided hereto, the parties
hereto shall each bear its own expenses in connection with the
transactions contemplated by this Agreement, including the fees of
attorneys, accountants, advisors, brokers, investment bankers and other
representatives and transfer taxes.
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16.2 Notices and Legal Process. All notices and other
communications and legal process shall be in writing and shall be
personally delivered, transmitted by telecopier, telex or cable, or
transmitted by postage prepaid, registered or certified mail with return
receipt requested or by recognized courier service, as elected by the
party giving such notice, addressed as follows:
(a) If to Rudy's or the Principal Shareholders:
Rudy's Restaurant Group, Inc.
11900 Biscayne Boulevard, Suite 806
Miami, Florida 33181
Attention: Mr. Douglas Rudolph
Fax: (305) 895-2881
With copies to:
Berman Wolfe & Rennert
100 Southeast Second Street, 35th Floor
Miami, Florida 33131
Attention: Charles J. Rennert, Esq.
Fax: (305) 373-6036
(b) If to Benihana, Newco or the Surviving Corporation:
Benihana Inc.
8685 Northwest 53rd Terrace
Miami, Florida 33166
Attention: Mr. Joel A. Schwartz
Fax: (305) 594-9492
With copies to:
Dornbush Mensch Mandelstam & Schaeffer, LLP
747 Third Avenue
New York, NY 10017
Attn: Darwin C. Dornbush, Esq.
Fax: (212) 753-7673
Notices shall be deemed to have been given, made and received only
when delivered (personally, by facsimile transmission or by courier
services such as FedEx, or by other messenger), addressed as set
forth above. Any party hereto may change its address for purpose
hereof by notice to the other parties hereto.
16.3 Disclosure. Each party shall provide the other a reasonable
opportunity for consultation with respect to the text of any press
release announcing the execution of this Agreement or the transactions
contemplated hereby.
16.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts
together shall constitute one and the same instrument.
16.5 Waiver and Amendment. The parties may by written instrument
extend the time for the performance of any of the obligations or other
acts of the other hereunder and may waive (i) any inaccuracies of the
other in the representations or warranties contained in this Agreement
or in any document delivered pursuant hereto, (ii) compliance with any
of the covenants, undertakings or agreements of the other, or
satisfaction of any of the conditions to its or their obligations,
contained in this Agreement or (iii) the performance (including
performance to the satisfaction of a party or its counsel) by the other
of any of its or their obligations set out herein. Any waiver, amendment
or supplement hereof shall be in writing.
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16.6 Entire Agreement. Unless otherwise specifically agreed in
writing, this Agreement and the Schedules and Exhibits hereto and the
other agreements anticipated hereby represent the entire understanding
of the parties with reference to the transactions set forth herein and
supersede all prior representations, warranties, understandings and
agreements heretofore made by the parties, and neither this Agreement
nor any provisions hereof may be amended, waived, modified or discharged
except by an Agreement in writing signed by the party against whom the
enforcement of any amendment, waiver, change or discharge is sought.
16.7 Binding Agreement. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns except that no party may assign or
transfer its rights or obligations under this Agreement without the
prior written consent of the other parties to this Agreement.
Notwithstanding the foregoing, Benihana and Newco may assign all or any
portion of its rights hereunder: as collateral security to one or more
Persons that provide the financing for the Merger.
16.8 Governing Law. The interpretation and enforceability of this
Agreement shall be governed by and construed in accordance with the
internal laws of the State of Florida without reference to the conflicts
of laws provisions thereof. The Merger shall comply with the Nevada Law.
16.9 Submission to Jurisdiction. The parties hereto hereby
irrevocably and unconditionally each:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement, or for recognition and
enforcement of any judgment in respect thereof, to the nonexclusive
general jurisdiction of the State of Florida and its courts and the
courts of the United States of America for the Southern District of
Florida located in Dade County;
(b) consents that any such action or proceeding may be brought
in such courts, and waives any objection that it may now or hereafter
have to the venue of any such action or proceeding in any such court
or that such action or proceeding was brought in an inconvenient
court and agrees not to plead or claim the same; and
(c) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall
limit the right to sue in any other jurisdiction.
16.10 Severability; Construction. In the event any provision
hereof is determined to be invalid or unenforceable, the remaining
provisions hereof shall be deemed severable therefrom and shall remain
in full force and effect. Words and phrases defined in the plural shall
also be used in the singular and vice versa and be construed in the
plural or singular as appropriate and apparent in the context used.
Unless otherwise specifically provided herein, accounting terms shall be
given and assigned their usual meaning and effect as defined or used in
GAAP.
16.11 References to Dollars. All references to "dollars" and "$"
shall mean United States dollars.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written:
BENIHANA INC.
By: /s/ JOEL A. SCHWARTZ
------------------------------------
Joel A. Schwartz
President
BENIHANA MERGER CORP.
By: /s/ JOEL A. SCHWARTZ
------------------------------------
Joel A. Schwartz
President
RUDY'S RESTAURANT GROUP, INC.
By: /s/ DOUGLAS M. RUDOLPH
------------------------------------
Douglas M. Rudolph
President
BAYVIEW PARTNERS*
By: /s/ WILLIAM VAN PELT, IV
------------------------------------
William Van Pelt, IV
Managing Partner
By: /s/ DOUGLAS M. RUDOLPH
------------------------------------
Douglas M. Rudolph*
- ---------------
* Solely for the purposes of Sections 6 and 8.10
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APPENDIX B
CHAPTER 92A:
MERGERS AND EXCHANGES OF INTEREST
RIGHTS OF DISSENTING OWNERS
<TABLE>
<S> <C> <S>
92A.300. -- Definitions.
92A.305. -- "Beneficial stockholder" defined.
92A.310. -- "Corporate action" defined.
92A.315. -- "Dissenter" defined.
92A.320. -- "Fair value" defined.
92A.325. -- "Stockholder" defined.
92A.330. -- "Stockholder of record" defined.
92A.335. -- "Subject corporation" defined.
92A.340. -- Computation of interest.
92A.350. -- Rights of dissenting partner of domestic limited
partnership.
92A.360. -- Rights of dissenting member of domestic limited-liability
company.
92A.370. -- Rights of dissenting member of domestic nonprofit
corporation.
92A.380. -- Right of stockholder to dissent from certain corporate
actions and to obtain payment for shares.
92A.390. -- Limitations on right of dissent: Stockholders of certain
classes or series; action of stockholders not required for
plan of merger.
92A.400. -- Limitations on right of dissent: Assertion as to portions
only to shares registered to stockholder; assertion by
beneficial stockholder.
92A.410. -- Notification of stockholders regarding right of dissent.
92A.420. -- Prerequisites to demand for payment for shares.
92A.430. -- Dissenter's notice: Delivery to stockholders entitled to
assert rights; contents.
92A.440. -- Demand for payment and deposit of certificates; retention of
rights of stockholder.
92A.450. -- Uncertificated shares: Authority to restrict transfer after
demand for payment; retention of rights of stockholder.
92A.460. -- Payment for shares: General requirements.
92A.470. -- Payment for shares: Shares acquired on or after date of
dissenter's notice.
92A.480. -- Dissenter's estimate of fair value: Notification of subject
corporation; demand for payment of estimate.
92A.490. -- Legal proceeding to determine fair value: Duties of subject
corporation; powers of court; rights of dissenter.
92A.500. -- Legal proceeding to determine fair value: Assessment of
costs and fees.
</TABLE>
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92A.300 -- Definitions.
As used in NRS 92A.300 to 92A.500, inclusive, unless the context otherwise
requires, the words and terms defined in NRS 92A.305 to 92A.335, inclusive, have
the meanings ascribed to them in those sections.
(Added to NRS by 1995, 2086)
92A.305 -- "Beneficial stockholder" defined.
"Beneficial stockholder" means a person who is a beneficial owner of shares
held in a voting trust or by a nominee as the stockholder of record.
(Added to NRS by 1995, 2087)
92A.310 -- "Corporate action" defined.
"Corporate action" means the action of a domestic corporation.
(Added to NRS by 1995, 2087)
92A.315 -- "Dissenter" defined.
"Dissenter" means a stockholder who is entitled to dissent from a domestic
corporation's action under NRS 92A.380 and who exercises that right when and in
the manner required by NRS 92A.410 to 92A.480, inclusive.
(Added to NRS by 1995, 2087)
92A.320 -- "Fair value" defined.
"Fair value," with respect to a dissenter's shares, means the value of the
shares immediately before the effectuation of the corporate action to which he
objects, excluding any appreciation or depreciation in anticipation of the
corporate action unless exclusion would be inequitable.
(Added to NRS by 1995, 2087)
92A.325 -- "Stockholder" defined.
"Stockholder" means a stockholder of record or a beneficial stockholder of
a domestic corporation.
(Added to NRS by 1995, 2087)
92A.330 -- "Stockholder of record" defined.
"Stockholder of record" means the person in whose name shares are
registered in the records of a domestic corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee's certificate on file
with the domestic corporation.
(Added to NRS by 1995, 2087)
92A.335 -- "Subject corporation" defined.
"Subject corporation" means the domestic corporation which is the issuer of
the shares held by a dissenter before the corporate action creating the
dissenter's rights becomes effective or the surviving or acquiring entity of
that issuer after the corporate action becomes effective.
(Added to NRS by 1995, 2087)
92A.340 -- Computation of interest.
Interest payable pursuant to NRS 92A.300 to 92A.500, inclusive, must be
computed from the effective date of the action until the date of payment, at the
average rate currently paid by the entity on its principal bank loans or, if it
has no bank loans, at a rate that is fair and equitable under all of the
circumstances.
(Added to NRS by 1995, 2087)
92A.350 -- Rights of dissenting partner of domestic limited partnership.
A partnership agreement of a domestic limited partnership or, unless
otherwise provided in the partnership agreement, an agreement of merger or
exchange, may provide that contractual rights with respect
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to the partnership interest of a dissenting general or limited partner of a
domestic limited partnership are available for any class or group of partnership
interests in connection with any merger or exchange in which the domestic
limited partnership is a constituent entity.
(Added to NRS by 1995, 2088)
92A.360 -- Rights of dissenting member of domestic limited-liability company.
The articles of organization or operating agreement of a domestic
limited-liability company or, unless otherwise provided in the articles of
organization or operating agreement, an agreement of merger or exchange, may
provide that contractual rights with respect to the interest of a dissenting
member are available in connection with any merger or exchange in which the
domestic limited-liability company is a constituent entity.
(Added to NRS by 1995, 2088)
92A.370 -- Rights of dissenting member of domestic nonprofit corporation.
1. Except as otherwise provided in subsection 2, and unless otherwise
provided in the articles or bylaws, any member of any constituent domestic
nonprofit corporation who voted against the merger may, without prior notice,
but within 30 days after the effective date of the merger, resign from
membership and is thereby excused from all contractual obligations to the
constituent or surviving corporations which did not occur before his resignation
and is thereby entitled to those rights, if any, which would have existed if
there had been no merger and the membership had been terminated or the member
had been expelled.
2. Unless otherwise provided in its articles of incorporation or bylaws, no
member of a domestic nonprofit corporation, including, but not limited to, a
cooperative corporation, which supplies services described in chapter 704 of NRS
to its members only, and no person who is a member of a domestic nonprofit
corporation as a condition of or by reason of the ownership of an interest in
real property, may resign and dissent pursuant to subsection 1.
(Added to NRS by 1995, 2088)
92A.380 -- Right of stockholder to dissent from certain corporate actions and to
obtain payment for shares.
1. Except as otherwise provided in NRS 92A.370 and 92A.390, a stockholder
is entitled to dissent from, and obtain payment of the fair value of his shares
in the event of any of the following corporate actions:
(a) Consummation of a plan of merger to which the domestic corporation
is a party:
(1) If approval by the stockholders is required for the merger by
NRS 92A.120 to 92A.160, inclusive, or the articles of incorporation and
he is entitled to vote on the merger; or
(2) If the domestic corporation is a subsidiary and is merged with
its parent under NRS 92A.180.
(b) Consummation of a plan of exchange to which the domestic
corporation is a party as the corporation whose subject owner's interests
will be acquired, if he is entitled to vote on the plan.
(c) Any corporate action taken pursuant to a vote of the stockholders
to the event that the articles of incorporation, bylaws or a resolution of
the board of directors provides that voting or nonvoting stockholders are
entitled to dissent and obtain payment for their shares.
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2. A stockholder who is entitled to dissent and obtain payment under NRS
92A.300 to 92A.500, inclusive, may not challenge the corporate action creating
his entitlement unless the action is unlawful or fraudulent with respect to him
or the domestic corporation.
(Added to NRS by 1995, 2087)
92A.390 -- Limitations on right of dissent: Stockholders of certain classes or
series; action of stockholders not required for plan of merger.
1. There is no right of dissent with respect to a plan of merger or
exchange in favor of stockholders of any class or series which, at the record
date fixed to determine the stockholders entitled to receive notice of and to
vote at the meeting at which the plan of merger or exchange is to be acted on,
were either listed on a national securities exchange, included in the national
market system by the National Association of Securities Dealers, Inc., or held
by at least 2,000 stockholders of record, unless:
(a) The articles of incorporation of the corporation issuing the
shares provide otherwise; or
(b) The holders of the class or series are required under the plan of
merger or exchange to accept for the shares anything except:
(1) Cash, owner's interests or owner's interests and cash in lieu
of fractional owner's interests of:
(I) The surviving or acquiring entity; or
(II) Any other entity which, at the effective date of the plan
of merger or exchange, were either listed on a national securities
exchange, included in the national market system by the National
Association of Securities Dealers, Inc., or held of record by a least
2,000 holders of owner's interests of record; or
(2) A combination of cash and owner's interests of the kind
described in sub-subparagraphs (I) and (II) of subparagraph (1) of
paragraph (b).
2. There is no right of dissent for any holders of stock of the surviving
domestic corporation if the plan of merger does not require action of the
stockholders of the surviving domestic corporation under NRS 92A.130.
(Added to NRS by 1995, 2088)
92A.400 -- Limitations on right of dissent: Assertion as to portions only to
shares registered to stockholder; assertion by beneficial
stockholder.
1. A stockholder of record may assert dissenter's rights as to fewer than
all of the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the subject corporation
in writing of the name and address of each person on whose behalf he asserts
dissenter's rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different stockholders.
2. A beneficial stockholder may assert dissenter's rights as to shares held
on his behalf only if:
(a) He submits to the subject corporation the written consent of the
stockholder of record to the dissent not later than the time the beneficial
stockholder asserts dissenter's rights; and
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(b) He does so with respect to all shares of which he is the
beneficial stockholder or over which he has power to direct the vote.
(Added to NRS by 1995, 2089)
92A.410 -- Notification of stockholders regarding right of dissent.
1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, the notice of the meeting must state that
stockholders are or may be entitled to assert dissenters' rights under NRS
92A.300 to 92A.500, inclusive, and be accompanied by a copy of those sections.
2. If the corporate action creating dissenters' rights is taken without a
vote of the stockholders, the domestic corporation shall notify in writing all
stockholders entitled to assert dissenters' rights that the action was taken and
send them the dissenter's notice described in NRS 92A.430.
(Added to NRS by 1995, 2089)
92A.420 -- Prerequisite to demand for payment for shares.
1. If a proposed corporate action creating dissenters' rights is submitted
to a vote at a stockholders' meeting, a stockholder who wishes to assert
dissenter's rights:
(a) Must deliver to the subject corporation, before the vote is taken,
written notice of his intent to demand payment for his shares if the
proposed action is effectuated; and
(b) Must not vote his shares in favor of the proposed action.
2. A stockholder who does not satisfy the requirements of subsection 1 is
not entitled to payment for his shares under this chapter.
(Added to NRS by 1995, 2089)
92A.430 -- Dissenter's notice: Delivery to stockholders entitled to assert
rights; contents.
1. If a proposed corporate action creating dissenters' rights is authorized
at a stockholders' meeting, the subject corporation shall deliver a written
dissenter's notice to all stockholders who satisfied the requirements to assert
those rights.
2. The dissenter's notice must be sent no later than 10 days after the
effectuation of the corporate action, and must:
(a) State where the demand for payment must be sent and where and when
certificates, if any, for shares must be deposited;
(b) Inform the holders of shares not represented by certificates to
what extent the transfer of the shares will be restricted after the demand
for payment is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to the news media or to the stockholders of the terms of
the proposed action and requires that the person asserting dissenter's
rights certify whether or not he acquired beneficial ownership of the
shares before that date;
(d) Set a date by which the subject corporation must receive the
demand for payment, which may not be less than 30 nor more than 60 days
after the date the notice is delivered; and
(e) Be accompanied by a copy of NRS 92A.300 to 92A.500, inclusive.
(Added to NRS by 1995, 2089)
92A.440 -- Demand for payment and deposit of certificates; retention of rights
of stockholder.
1. A stockholder to whom a dissenter's notice is sent must:
(a) Demand payment;
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(b) Certify whether he acquired beneficial ownership of the shares
before the date required to be set forth in the dissenter's notice for this
certification; and
(c) Deposit his certificates, if any, in accordance with the terms of
the notice.
2. The stockholder who demands payment and deposits his certificates, if
any, retains all other rights of a stockholder until those rights are canceled
or modified by the taking of the proposed corporate action.
3. The stockholder who does not demand payment or deposit his certificates
where required, each by the date set forth in the dissenter's notice, is not
entitled to payment for his shares under this chapter.
(Added to NRS by 1995, 2090)
92A.450 -- Uncertificated shares: Authority to restrict transfer after demand
for payment; retention of rights of stockholder.
1. The subject corporation may restrict the transfer of shares not
represented by a certificate from the date the demand for their payment is
received.
2. The person for whom dissenter's rights are asserted as to shares not
represented by a certificate retains all other rights of a stockholder until
those rights are canceled or modified by the taking of the proposed corporate
action.
(Added to NRS by 1995, 2090)
92A.460 -- Payment for shares: General requirements.
1. Except as otherwise provided in NRS 92A.470, within 30 days after
receipt of a demand for payment, the subject corporation shall pay each
dissenter who complied with NRS 92A.440 the amount the subject corporation
estimates to be the fair value of his shares, plus accrued interest. The
obligation of the subject corporation under this subsection may be enforced by
the district court:
(a) Of the county where the corporation's registered office is
located; or
(b) At the election of any dissenter residing or having its registered
office in this state, of the county where the dissenter resides or has its
registered office. The court shall dispose of the complaint promptly.
2. The payment must be accompanied by:
(a) The subject corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, a statement
of income for that year, a statement of changes in the stockholders' equity
for that year and the latest available interim financial statements, if
any;
(b) A statement of the subject corporation's estimate of the fair
value of the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's rights to demand payment under NRS
92A.480; and
(e) A copy of NRS 92A.300 to 92A.500, inclusive.
(Added to NRS by 1995, 2090)
92A.470 -- Payment for shares: Shares acquired on or after date of dissenter's
notice.
1. A subject corporation may elect to withhold payment from a dissenter
unless he was the beneficial owner of the shares before the date set forth in
the dissenter's notice as the date of the first announcement to the news media
or to the stockholders of the terms of the proposed action.
2. To the extent the subject corporation elects to withhold payment, after
taking the proposed action, it shall estimate the fair value of the shares, plus
accrued interest, and shall offer to pay this amount to each dissenter who
agrees to accept it in full satisfaction of his demand. The subject corporation
shall send with its offer a statement of its estimate of the fair value of the
shares, an explanation of how the interest was calculated, and a statement of
the dissenters' right to demand payment pursuant to NRS 92A.480.
(Added to NRS by 1995, 2091)
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92A.480 -- Dissenter's estimate of fair value: Notification of subject
corporation; demand for payment of estimate.
1. A dissenter may notify the subject corporation in writing of his own
estimate of the fair value of his shares and the amount of interest due, and
demand payment of his estimate, less any payment pursuant to NRS 92A.460, or
reject the offer pursuant to NRS 92A.470 and demand payment of the fair value of
his shares and interest due, if he believes that the amount paid pursuant to NRS
92A.460 or offered pursuant to NRS 92A.470 is less than the fair value of his
shares or that the interest due is incorrectly calculated.
2. A dissenter waives his right to demand payment pursuant to this section
unless he notifies the subject corporation of his demand in writing within 30
days after the subject corporation made or offered payment for his shares.
(Added to NRS by 1995, 2091)
92A.490 -- Legal proceeding to determine fair value: Duties of subject
corporation; powers of court; rights of dissenter.
1. If a demand for payment remains unsettled, the subject corporation shall
commence a proceeding within 60 days after receiving the demand and petition the
court to determine the fair value of the shares and accrued interest. If the
subject corporation does not commence the proceeding within the 60-day period,
it shall pay each dissenter whose demand remains unsettled the amount demanded.
2. A subject corporation shall commence the proceeding in the district
court of the county where its registered office is located. If the subject
corporation is a foreign entity without a resident agent in the state, it shall
commence the proceeding in the county where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
entity was located.
3. The subject corporation shall make all dissenters, whether or not
residents of Nevada, whose demands remain unsettled, parties to the proceeding
as in an action against their shares. All parties must be served with a copy of
the petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
4. The jurisdiction of the court in which the proceeding is commenced under
subsection 2 is plenary and exclusive. The court may appoint one or more persons
as appraisers to receive evidence and recommend a decision on the question of
fair value. The appraisers have the powers described in the order appointing
them, or any amendment thereto. The dissenters are entitled to the same
discovery rights as parties in other civil proceedings.
5. Each dissenter who is made a party to the proceeding is entitled to a
judgment:
(a) For the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the subject
corporation; or
(b) For the fair value, plus accrued interest, of his after-acquired
shares for which the subject corporation elected to withhold payment
pursuant to NRS 92A.470.
(Added to NRS by 1995, 2091)
92A.500 -- Legal proceeding to determine fair value: Assessment of costs and
fees.
1. The court in a proceeding to determine fair value shall determine all of
the costs of the proceeding, including the reasonable compensation and expenses
of any appraisers appointed by the court. The court shall assess the costs
against the subject corporation, except that the court may assess costs against
all or some of the dissenters, in amounts the court finds equitable, to the
extent the court finds the dissenters acted arbitrarily, vexatiously or not in
good faith in demanding payment.
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2. The court may also assess the fees and expenses of the counsel and
experts for the respective parties, in amounts the court finds equitable:
(a) Against the subject corporation and in favor of all dissenters if
the court finds the subject corporation did not substantially comply with
the requirements of NRS 92A.300 to 92A.500, inclusive; or
(b) Against either the subject corporation or a dissenter in favor of
any other party, if the court finds that the party against whom the fees
and expenses are assessed acted arbitrarily, vexatiously or not in good
faith with respect to the rights provided by NRS 92A.300 to 92A.500,
inclusive.
3. If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the subject corporation, the
court may award to those counsel reasonable fees to be paid out of the amounts
awarded to the dissenters who were benefited.
4. In a proceeding commenced pursuant to NRS 92A.460, the court may assess
the costs against the subject corporation, except that the court may assess
costs against all or some of the dissenters who are parties to the proceeding,
in amounts the court finds equitable, to the extent the court finds that such
parties did not act in good faith in instituting the proceeding.
5. This section does not preclude any party in a proceeding commenced
pursuant to NRS 92A.460 or 92A.490 from applying the provisions of N.R.C.P. 68
or NRS 17.115.
(Added to NRS by 1995, 2092)
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APPENDIX C
, 1997
The Board of Directors
Rudy's Restaurant Group, Inc.
11900 Biscayne Boulevard
Suite 806
Miami, Florida 33181
Gentlemen:
You have engaged us pursuant to the engagement letter, dated as of July 21,
1997, between Rudy's Restaurant Group, Inc. ("Rudy's" or the "Company") and
Ladenburg Thalmann & Co. Inc. ("Ladenburg"). Specifically, you have requested
our opinion as to whether or not the consideration to be paid to the
stockholders of the Company in connection with the possible sale of the Company
to Benihana Inc. (the "Transaction") is fair, from a financial point of view, to
the public stockholders of the Company other than Bayview Partners ("Bayview")
and Mr. Douglas M. Rudolph ("Mr. Rudolph").
The Agreement and Plan of Merger by and among Benihana, Benihana Merger
Corp., Rudy's, Bayview and Mr. Rudolph (the "Merger Agreement") dated July 22,
1997 provides that at the closing of the Transaction, Benihana will purchase all
of the Company's outstanding common stock for a minimum of $5.00 per share in
cash, plus the greater of zero or an adjustment based on the excess of net
working capital at the date of closing over a specified base amount.
In connection with rendering our opinion, we have reviewed such information
as we have deemed necessary or appropriate for the purpose of stating the
opinions expressed herein. We have reviewed information including, but not
limited to, the following: (i) the Merger Agreement governing the sale of Rudy's
to Benihana; (ii) audited financial statements for the three fiscal years ended
September 29, 1996, October 1, 1995 and October 1, 1994; (iii) unaudited
financial statements for the twenty-four weeks ended March 17, 1996 and March
16, 1997; (iv) projected financial statements as developed by Ladenburg and
reviewed by the Company; (v) the Executive Termination and Non-Competition
Agreement by and between Rudy's, Benihana and each of Mr. Rudolph and Marie
Peterson; (vi) the Warrant Agreement by and between Benihana and Mr. Rudolph;
(vii) Rudy's common stock price and trading history; and (viii) publicly
available market information regarding the industry, Rudy's and its competitors.
In addition, Ladenburg has had several conversations with management regarding
Rudy's, its competitors and the industry.
In rendering our opinion, we have assumed and relied upon the accuracy,
completeness and fairness, without assuming any responsibility for the
independent verification of, all financial and other information that was
available to us from public sources, that was provided to us by Rudy's, or that
was otherwise reviewed by us. We have not made or been provided with an
independent evaluation or appraisal of the assets or liabilities (contingent or
otherwise) of Rudy's, and we do not assume any responsibility for verifying any
of the information reviewed by us. Management did not have projected financial
statements of their own. We subsequently created a set of projections for the
Company that was reviewed by management. Our opinion is necessarily based upon
information available to us, and financial, stock market and other conditions
and circumstances existing and disclosed to us, as of the date hereof.
In conducting our investigation and analyses and in arriving at our opinion
expressed herein, we have taken into account such accepted financial and
investment banking procedures and considerations as we have deemed relevant,
including: (i) historical revenues, operating earnings, net income and
capitalization of the Company and certain other publicly held companies in
businesses we believe to be comparable to the Company's; (ii) acquisition
multiples that have historically been paid for other companies in businesses we
believe to be comparable to the Company's; (iii) projected revenues, operating
earnings and net income of the Company in discounted cash flow and debt capacity
analyses; (iv) the current financial and market position and results of
operations of the Company; and (v) the general condition of the securities
market.
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The Board of Directors
, 1997
Page 2
Ladenburg, as part of its investment banking services, is regularly engaged
in the valuation of businesses and securities in connection with mergers,
acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and valuations for estate, corporate or other
purposes. Ladenburg has been retained by the Board of Directors of Rudy's to
provide this opinion and has received fees and indemnification against certain
liabilities for the services rendered pursuant to this engagement. Ladenburg has
provided financial advisory services to Rudy's with respect to the Transaction.
In addition, Peter Graham, President of Ladenburg Thalmann & Co. Inc., is a
member of the Board of Directors of Rudy's and a stockholder of the Company.
In the ordinary course of business, we actively trade securities for our
own account and for the accounts of our customers and, accordingly, may at any
time hold a long or short position in the debt or equity securities of the
Company.
Based upon and subject to the foregoing, our experience as investment
bankers, our work as described above and other factors we deemed relevant, we
are of the opinion that, as of the date hereof, the Consideration to be paid in
the Transaction is fair, from a financial point of view, to the public
stockholders of the Company other than Bayview and Mr. Rudolph.
Very truly yours,
LADENBURG THALMANN & CO. INC.
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<PAGE> 108
RUDY'S RESTAURANT GROUP, INC.
11900 Biscayne Boulevard, Suite 806, Miami, Florida 33181
The undersigned stockholder hereby appoints Douglas M. Rudolph, proxy for
the undersigned, with full power of substitution, to appear and vote all of the
shares of Common Stock of Rudy's Restaurant Group, Inc., a Nevada corporation
("Rudy's"), which the undersigned would be entitled to vote if personally
present, and otherwise act with the same force and effect as the undersigned, at
the Special Meeting of Stockholders of Rudy's to be held at Rudy's executive
offices, 11900 Biscayne Boulevard, Suite 806, Miami, Florida 33181, on November
, 1997, at 9:00 A.M. and at any adjournments thereof, and to take action on
the proposal set forth below and any other business that may lawfully come
before the meeting.
Unless a contrary direction is indicated, this proxy will be voted "FOR" the
proposal set forth below. If specific instructions are indicated, this proxy
will be voted in accordance therewith. In his discretion, each proxy is
authorized to vote upon such other business as may properly come before the
meeting or any adjournments or postponements thereof. THE BOARD OF DIRECTORS
RECOMMENDS A VOTE FOR THE PROPOSAL SET FORTH BELOW. THIS PROXY IS BEING
SOLICITED BY THE BOARD OF DIRECTORS OF RUDY'S.
(1) To consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger dated July 22, 1997 by and among Rudy's, Benihana Inc., a
Delaware corporation ("Benihana"), Benihana Merger Corp., a Nevada corporation
and a wholly-owned subsidiary of Benihana ("Newco"), Bayview Partners, a general
partnership organized under the laws of the State of Texas, and Douglas M.
Rudolph (the "Merger Agreement"), and the merger contemplated thereby (the
"Merger"), pursuant to which Newco will be merged with and into Rudy's,
whereupon Rudy's will become a wholly-owned subsidiary of Benihana, and the
stockholders of Rudy's will receive the right to receive cash consideration of a
minimum of $5.00 per share (the "Cash Consideration Per Share"). The Cash
Consideration Per Share may be increased as provided in the Merger Agreement
based on the performance of Rudy's through the closing of the Merger. A copy of
the Merger Agreement is attached as Appendix A to, and is summarized in, the
accompanying Proxy Statement; and
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(continued and to be signed on reverse side)
(continued from other side)
(2) To consider and vote upon a proposal to approve the adjournment or
postponement of the Special Meeting of Stockholders of Rudy's in the event that
such adjournment or postponement is necessary in order to solicit additional
votes for the approval and adoption of the Merger Agreement and the Merger
contemplated thereby.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) In the discretion of the proxies, upon all other matters coming before
the meeting.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THE UNDERSIGNED HEREBY REVOKES ANY PROXIES HERETOFORE GIVEN TO VOTE OR ACT
IN RESPECT OF ANY SHARES OF STOCK OF RUDY'S AND ACKNOWLEDGES RECEIPT OF THE
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS. THIS PROXY IS REVOCABLE; HOWEVER, IT
WILL REMAIN VALID UNTIL CANCELED BY A WRITING DELIVERED TO RUDY'S. THE SHARES
REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED BY THE STOCKHOLDER. IF NO
DIRECTION IS GIVEN WHEN THE DULY EXECUTED PROXY IS RETURNED, SUCH SHARES WILL BE
VOTED "FOR" the approval and adoption of foregoing proposals.
PLEASE SIGN EXACTLY AS YOUR
NAME IS PRINTED ABOVE
Sign Here:
---------------------
Dated:
-------------------, 1997
WHEN SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR,
TRUSTEE, GUARDIAN, PARTNER OR
CORPORATE OFFICER, PLEASE SIGN
YOUR FULL TITLE AS SUCH. EACH
JOINT TENANT OR
TENANT-IN-COMMON SHOULD ALSO
SIGN.
PLEASE SIGN AND SEND IN YOUR PROXY IN THE ENCLOSED ENVELOPE PROMPTLY.
NO POSTAGE REQUIRED IF MAILED IN THE UNITED STATES.
