<PAGE>
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
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
TACO CABANA, INC.
------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: The proposed maximum aggregate
offering price was calculated as follows:
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[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>
[TACO CABANA, INC. LOGO]
November 14, 2000
Dear Stockholder:
You are cordially invited to attend a special meeting of stockholders of
Taco Cabana, Inc. to be held on Monday, December 18, 2000, at 10:00 a.m.,
Central Standard Time, at Taco Cabana's headquarters at 8918 Tesoro Drive, San
Antonio, Texas 78217.
At this important meeting, you will be asked to consider and vote upon the
merger of Taco Cabana with a subsidiary of Carrols Corporation, a Delaware
corporation. The accompanying notice of meeting and proxy statement explain
the proposed merger and provide specific information concerning the
stockholders' meeting. Please read these materials carefully. A copy of the
merger agreement is attached to the proxy statement as Appendix A. If the
transaction is completed, Taco Cabana stockholders will become entitled to
receive $9.04 per share in cash for each of their shares of Taco Cabana common
stock together with the associated stockholder rights distributed to the
stockholders in connection with Taco Cabana's stockholder rights agreement.
After the merger, Taco Cabana will be a wholly-owned subsidiary of Carrols.
YOUR BOARD OF DIRECTORS HAS APPROVED THE MERGER AND HAS DETERMINED THAT IT
IS FAIR TO, AND IN THE BEST INTERESTS OF, TACO CABANA STOCKHOLDERS.
ACCORDINGLY, YOUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL OF
THE MERGER AGREEMENT AND THE MERGER.
YOUR VOTE IS IMPORTANT. We cannot complete the transaction unless the
holders of a majority of the outstanding Taco Cabana shares vote to approve
the merger agreement and the merger. Whether or not you plan to attend the
special meeting, please sign and return your proxy as soon as possible in the
enclosed self-addressed envelope or take advantage of our telephone or
Internet voting procedures. If you fail to return the proxy card, vote by
telephone or Internet or vote in person at the special meeting, it will have
the same effect as a vote against the merger.
Sincerely,
/s/ Stephen V. Clark
Stephen V. Clark
Chief Executive Officer and
President
<PAGE>
(LOGO OF TACO CABANA, INC.)
8918 TESORO DRIVE, SUITE 200
SAN ANTONIO, TEXAS 78217
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 18, 2000
----------------
Notice is hereby given that a special meeting of stockholders of Taco
Cabana, Inc., a Delaware corporation, will be held on Monday, December 18,
2000 at 10:00 a.m., Central Standard Time, at Taco Cabana's headquarters at
8918 Tesoro Drive, San Antonio, Texas 78217 for the following purpose:
To consider and vote upon a proposal to approve the Agreement and Plan of
Merger, dated as of October 6, 2000, among Taco Cabana, Carrols Corporation,
and Spur Acquisition Corp., a wholly-owned subsidiary of Carrols formed for
the purpose of the merger, and to approve the merger contemplated by that
agreement under which Spur Acquisition Corp. will be merged with and into Taco
Cabana and stockholders of Taco Cabana will become entitled to receive $9.04
per share in cash for each of their shares of Taco Cabana common stock
together with the associated stockholder rights distributed to the
stockholders in connection with Taco Cabana's stockholder rights agreement.
After the merger, Taco Cabana will be a wholly-owned subsidiary of Carrols.
Only those persons who were holders of record of Taco Cabana common stock at
the close of business on the record date of November 8, 2000 are entitled to
notice of, and to vote at, the special meeting.
Approval of the merger agreement and the merger requires the affirmative
vote of the holders of a majority of the outstanding shares of Taco Cabana
common stock entitled to vote at the special meeting. THE BOARD OF DIRECTORS
OF TACO CABANA HAS APPROVED THE MERGER AGREEMENT AND THE MERGER AND HAS
DETERMINED THAT IT IS FAIR TO, AND IN THE BEST INTERESTS OF, TACO CABANA
STOCKHOLDERS. ACCORDINGLY, YOUR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" APPROVAL OF THE MERGER AGREEMENT AND THE MERGER.
Any stockholder who does not wish to accept $9.04 per share of Taco Cabana
common stock and who properly perfects the right to an appraisal under
Delaware law will have the right to have the fair value of his, her or its
shares determined by the Delaware Court of Chancery. A copy of the relevant
provisions of Delaware law is attached as Appendix C to the proxy statement.
This appraisal right is subject to a number of restrictions and technical
requirements described in the attached proxy statement, including the
requirements that a stockholder exercising his, her or its appraisal rights
must make a written demand for appraisal of his, her or its shares before the
taking of the vote on the merger at the special meeting and must not vote in
favor of the merger.
The merger agreement and the merger are explained in the accompanying proxy
statement, which you are urged to read carefully. A copy of the merger
agreement is attached as Appendix A to the proxy statement.
By Order of the Board of Directors,
/s/ David G. Lloyd
David G. Lloyd
Secretary
San Antonio, Texas
November 14, 2000
<PAGE>
[LOGO OF TACO CABANA, INC.]
8918 TESORO DRIVE, SUITE 200
SAN ANTONIO, TEXAS 78217
----------------
PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS
DECEMBER 18, 2000
----------------
This proxy statement is being furnished to holders of common stock of Taco
Cabana, Inc., a Delaware corporation, in connection with the solicitation of
proxies by Taco Cabana's board of directors for use at the special meeting of
Taco Cabana stockholders to be held at Taco Cabana's headquarters at 8918
Tesoro Drive, San Antonio, Texas 78217 on Monday, December 18, 2000 at 10:00
a.m., Central Standard Time. The special meeting has been called to consider
and vote upon a proposal to approve and adopt the Agreement and Plan of
Merger, dated as of October 6, 2000, among Taco Cabana, Carrols Corporation
and Spur Acquisition Corp., a wholly-owned subsidiary of Carrols formed for
the purpose of the merger. Pursuant to the merger agreement, Spur Acquisition
Corp. will be merged with and into Taco Cabana. As a result of the merger, the
separate corporate existence of Spur Acquisition Corp. will cease, and Taco
Cabana will continue as the surviving corporation and as a wholly-owned
subsidiary of Carrols. A copy of the merger agreement is attached to this
proxy statement as Appendix A.
Pursuant to the merger, each share of Taco Cabana common stock issued and
outstanding immediately prior to the effective time of the merger, together
with the associated stockholder rights distributed to the stockholders in
connection with Taco Cabana's stockholder rights agreement, will be converted
into the right to receive $9.04 in cash, without interest. Upon the effective
time of the merger, Taco Cabana stockholders will no longer have an interest
in Taco Cabana. The board of directors of Taco Cabana and its advisors
negotiated the $9.04 price per share and the other terms of the merger
agreement. The board of directors of Taco Cabana has determined that the
merger and the merger agreement are fair to and in the best interests of Taco
Cabana and its stockholders and unanimously recommends that the Taco Cabana
stockholders approve and adopt the merger agreement and the merger.
Approval of the merger agreement and the merger requires the affirmative
vote of a majority of the outstanding shares of Taco Cabana common stock
entitled to vote at the special meeting. A list of the stockholders of Taco
Cabana as of the close of business on November 8, 2000 will be available for
inspection during business hours for ten days prior to the special meeting at
Taco Cabana's principal executive offices located at 8918 Tesoro Drive, Suite
200, San Antonio, Texas 78217.
All shares of Taco Cabana common stock represented by properly executed
proxies received prior to or at the special meeting and not revoked will be
voted in accordance with the instructions indicated in such proxies. If no
instructions are indicated, such proxies will be voted FOR the approval and
adoption of the merger agreement. A Taco Cabana stockholder may revoke his,
her or its proxy at any time prior to its use by delivering to Taco Cabana's
corporate secretary a signed notice of revocation or a later-dated and signed
proxy or by attending the special meeting and voting in person.
Any stockholder who does not wish to accept $9.04 per share of Taco Cabana
common stock and who properly perfects the right to an appraisal under
Delaware law will have the right to have the fair value of his, her or its
shares determined by the Delaware Court of Chancery. A copy of the relevant
provisions of Delaware law is attached as Appendix C to the proxy statement.
This appraisal right is subject to a number of restrictions and technical
requirements described in the attached proxy statement, including the
requirements that a stockholder exercising his, her or its appraisal rights
must make a written demand for appraisal of his, her or its shares before the
taking of the vote at the special meeting and must not vote in favor of the
merger.
The board of directors of Taco Cabana knows of no additional matters that
will be presented for consideration at the special meeting. Execution of a
proxy, however, confers on the designated proxyholders discretionary authority
to vote the shares of Taco Cabana common stock covered thereby on such other
business, if any, that may properly come before the special meeting. This
proxy statement and the accompanying form of proxy are first being mailed to
Taco Cabana stockholders on or about November 15, 2000.
The date of this proxy statement is November 14, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY TERM SHEET........................................................ 1
QUESTIONS AND ANSWERS ABOUT THE MERGER.................................... 2
SUMMARY................................................................... 4
The Participants........................................................ 4
The Merger.............................................................. 4
The Stockholders' Meeting............................................... 8
Merger Financing........................................................ 8
TACO CABANA'S SELECTED HISTORICAL FINANCIAL DATA.......................... 9
MARKETS AND MARKET PRICE.................................................. 11
SPECIAL FACTORS........................................................... 12
The Participants........................................................ 12
Structure of the Merger................................................. 12
Merger Consideration.................................................... 12
Background of the Merger................................................ 13
Purpose and Reasons for the Merger; Recommendation of the Board of
Directors.............................................................. 16
Opinion of Financial Adviser............................................ 18
Treatment of Existing Stock Options..................................... 21
Merger Financing........................................................ 22
Material U.S. Federal Income Tax Consequences........................... 22
Accounting Treatment.................................................... 23
Regulatory Matters...................................................... 23
Additional Interests of Taco Cabana's Management........................ 24
Executive Officers and Directors of the Surviving Corporation........... 25
Consequences of the Merger; Plans for Taco Cabana After the Merger...... 25
Conduct of Taco Cabana's Business if the Merger is Not Completed........ 25
THE MERGER AGREEMENT...................................................... 26
The Merger.............................................................. 26
Completion of the Merger................................................ 26
Certificate of Incorporation, By-Laws, Directors, and Officers of the
Surviving Corporation.................................................. 26
Representations and Warranties.......................................... 26
Covenants............................................................... 27
Conditions to Completing the Merger..................................... 28
Termination of the Merger Agreement..................................... 29
Termination Fee and Expense Reimbursement............................... 30
THE SPECIAL MEETING....................................................... 30
General................................................................. 30
Record Date and Voting; Quorum.......................................... 31
Required Vote........................................................... 31
Proxies; Revocation..................................................... 31
Expenses of Proxy Solicitation.......................................... 32
Adjournments............................................................ 32
APPRAISAL RIGHTS.......................................................... 32
Filing Written Objection; No Voting in Favor of the Merger Proposal..... 33
Notice by Taco Cabana; Court Determination.............................. 34
PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT AND OTHERS....... 36
EXECUTIVE OFFICERS AND DIRECTORS OF TACO CABANA........................... 37
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION............... 38
WHERE YOU CAN FIND MORE INFORMATION....................................... 38
STOCKHOLDER PROPOSALS..................................................... 39
Appendix A: Agreement and Plan of Merger dated as of October 6, 2000
Appendix B: Opinion of Donaldson, Lufkin & Jenrette dated October 4, 2000
Appendix C: Statutory Provisions Regarding Appraisal Rights: Section 262
of the Delaware General Corporation Law
</TABLE>
i
<PAGE>
SUMMARY TERM SHEET
This Summary Term Sheet highlights selected information contained in this
proxy statement and may not contain all of the information that is important
to you. We urge you to read this entire proxy statement carefully, including
the appendices.
Stockholder Vote. You are being asked to approve the merger agreement and
the merger of Spur Acquisition Corp., a wholly-owned subsidiary of Carrols
Corporation, into Taco Cabana. The merger agreement must be approved by the
holders of a majority of the outstanding shares of Taco Cabana common stock.
See "The Special Meeting" beginning on page 30.
Payment. As a result of the merger, each share of Taco Cabana common stock,
together with the associated stockholder rights distributed to the
stockholders in connection with Taco Cabana's stockholder rights agreement,
will be converted into the right to receive $9.04 in cash, without interest or
other payment. You will not own any Taco Cabana common stock or any other
interest in Taco Cabana after completion of the merger. See "The Merger
Agreement" beginning on page 26.
Spur Acquisition Corp. Spur Acquisition Corp. is a newly formed Delaware
corporation that is wholly-owned by Carrols Corporation. See "Summary--The
Participants" beginning on page 4.
Tax Consequences. Generally, the merger will be taxable for U.S. federal
income tax purposes. You will recognize taxable gain or loss in the amount of
the difference between $9.04 and your adjusted tax basis for each share of
Taco Cabana common stock that you own, unless you are subject to the special
tax situations discussed in this proxy statement. See "Special Factors--
Material U.S. Federal Income Tax Consequences" beginning on page 22.
Conditions. Completion of the merger is subject to Taco Cabana stockholders'
approval as well as other conditions, including Carrols' obtaining the
necessary financing to complete the merger. Carrols has entered into a binding
commitment letter with The Chase Manhattan Bank and Chase Securities, Inc.
Under the commitment letter, Chase Manhattan has agreed, subject to certain
customary conditions, to underwrite all such financing. See "The Merger
Agreement--Conditions to Completing the Merger" beginning on page 28 and
"Special Factors--Merger Financing" beginning on page 22.
Appraisal Rights. If you do not wish to accept $9.04 per share of Taco
Cabana common stock, you may have the fair value of your shares determined by
the Delaware Chancery Court if you properly perfect your right to an appraisal
under Delaware law. Your appraisal right is subject to certain restrictions
and technical requirements which are described in the proxy statement. See
"Appraisal Rights" beginning on page 32.
After the Merger. Upon completion of the merger, Carrols will own all of the
capital stock of Taco Cabana, and Taco Cabana will be a wholly-owned
subsidiary of Carrols. See "Special Factors--The Participants" beginning on
page 12.
1
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: You will receive $9.04 in cash for each share of Taco Cabana common stock,
together with the associated stockholder rights distributed to the
stockholders in connection with Taco Cabana's stockholder rights
agreement, that you hold.
Q: WHAT KIND OF PREMIUM TO THE PRICE OF TACO CABANA STOCK IS IMPLIED BY THE
MERGER CONSIDERATION?
A: The merger consideration of $9.04 per share of Taco Cabana common stock,
together with the associated stockholder rights distributed to the
stockholders in connection with Taco Cabana's stockholder rights
agreement, represents a premium of approximately 117.5% over the closing
price of Taco Cabana common stock on October 5, 2000, the last trading day
preceding the announcement of the merger agreement. The closing price per
share of Taco Cabana common stock on November 10, 2000, the last trading
day practicable for which information was available prior to the date of
the first mailing of this proxy statement, was $8.625.
Q: WHAT WILL HAPPEN TO MY STOCK OPTIONS?
A: If you own options to purchase shares of Taco Cabana common stock from
Taco Cabana, the vesting date of any otherwise unexercisable options will
be accelerated and you may elect to exercise such stock options prior to
the effective date of the merger. In that case, the shares you acquire
upon exercise will be treated in the same way as other shares in the
merger. Alternatively, you will be entitled to receive, for each share
subject to an option, the excess of $9.04 over the exercise price per
share of that option, regardless of whether the option is fully vested.
The amount you will receive, however, will be reduced to the extent of any
federal and state income and payroll tax withholding that is due. Options
having an exercise price per share of $9.04 or more will be cancelled
without payment, and no options will survive the merger.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We expect that the approval of the merger agreement and the merger by Taco
Cabana's stockholders will be the last condition to completing the merger
and that the merger will be completed within two business days following
the meeting date.
Q: WHAT ARE THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO ME?
A: You generally will recognize gain or loss, as the case may be, with
respect to the receipt of cash in exchange for your shares of Taco Cabana
common stock.
Q: WHAT AM I BEING ASKED TO VOTE UPON?
A: You are being asked to vote to approve the merger agreement and the
merger. The merger agreement and the merger must be approved by the
affirmative vote of a majority of the outstanding shares of Taco Cabana
common stock.
Q: HOW DOES THE BOARD OF DIRECTORS OF TACO CABANA RECOMMEND THAT I VOTE?
A: The Taco Cabana board believes that the terms of the merger are fair to,
and in the best interests of, Taco Cabana stockholders and unanimously
recommends that stockholders vote "FOR" approval of the merger agreement
and the merger.
Q: WHO WILL OWN TACO CABANA AFTER THE MERGER?
A: As a result of the merger, Taco Cabana will become a privately-held
company owned by Carrols Corporation.
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Q: WHAT WILL HAPPEN TO THE MARKET FOR TACO CABANA'S COMMON STOCK AFTER THE
MERGER?
A: At the effective time of the merger, trading in Taco Cabana's common stock
on the Nasdaq National Market will cease. Price quotations for Taco
Cabana's common stock will no longer be available, and the registration of
Taco Cabana's common stock under the Securities Exchange Act of 1934 will
be terminated.
Q: WHO CAN VOTE?
A: Stockholders of record as of the close of business on the record date of
November 8, 2000 are entitled to vote at the stockholders' meeting. The
common stock of Taco Cabana is the only security of Taco Cabana entitled
to vote at the meeting, and each share of common stock is entitled to one
vote.
Q: HOW DO I VOTE?
A: All holders of record may vote by mail. Stockholders of record may vote in
person at the meeting or vote by proxy card, by telephone or by Internet.
Beneficial owners will receive instructions from their bank, broker, or
other nominee describing how to vote their shares. Beneficial owners can
vote by telephone or via the Internet if those options are offered by the
bank, broker, or other nominee.
Voting by Mail. Stockholders of record may sign, date, and mail their
proxies in the enclosed postage-paid envelope. If you sign, date, and mail
your proxy card without indicating how you want to vote, your proxy will
be voted FOR the merger proposal.
Voting by Telephone. Stockholders of record may vote by using the toll-
free number and following the instructions listed on the proxy card.
Voting via the Internet. Stockholders of record may vote via the Internet
as instructed on the proxy card.
Q: HOW MAY I CHANGE MY VOTE?
A: You may revoke your proxy any time before it is exercised at the meeting
by (1) notifying Taco Cabana's Corporate Secretary in writing or (2)
returning a later-dated proxy. If you hold your shares through a bank,
broker or other nominee, you should contact that firm to find out how to
change your vote.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. You will receive instructions for surrendering your stock certificates
in exchange for the cash payment in a separate mailing after the
stockholders' meeting.
Q: WHAT IF I OBJECT TO THE MERGER? AM I ENTITLED TO APPRAISAL RIGHTS?
A: Yes. Any stockholder who does not wish to accept $9.04 per share cash
consideration in the merger has the right under Delaware law to have his,
her or its shares appraised by the Delaware Chancery Court. Generally, in
order to exercise appraisal rights, among other things, you must NOT vote
in favor of the merger agreement, and you must make a written demand for
appraisal in compliance with Delaware law BEFORE the vote on the merger
agreement. Merely voting against the merger agreement will not preserve
your right of appraisal under Delaware law.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: If you have more questions about the merger or if you need additional
copies of this proxy statement or the enclosed proxy, you should contact:
Information Agent
Georgeson Shareholder Communications Inc.
17 State Street, 10th Floor
New York, New York 10004
Telephone Number: (800) 223-2064
You may also obtain additional information about Taco Cabana from the
documents it files with the Securities and Exchange Commission by following
the instructions in the section "Where You Can Find More Information"
beginning on page 38.
3
<PAGE>
SUMMARY
The following is a summary of material information contained in this proxy
statement. For more information, you should refer to the discussion in the
main body of this proxy statement along with the exhibits and the information
incorporated by reference. A copy of the merger agreement is attached as
Appendix A to this proxy statement and incorporated by reference. You should
refer to that agreement for a complete statement of the terms of the merger.
The Participants (page 12)
Taco Cabana, Inc.
Taco Cabana, Inc. pioneered the Mexican patio cafe concept with its first
restaurant in 1978 and, as of October 1, 2000 operates and franchises a total
of 126 such restaurants system-wide. Of these, Taco Cabana owns and operates
116 restaurants; franchisees own and operate the 10 remaining restaurants.
Taco Cabana's restaurants (including franchises) are located primarily in
Texas and are also located in Arizona, Georgia, Indiana, New Mexico and
Oklahoma. Shares of Taco Cabana common stock are listed on the Nasdaq National
Market under the symbol "TACO." Taco Cabana's corporate headquarters are
located at 8918 Tesoro Drive, Suite 200, San Antonio, Texas 78217, and its
telephone number is (210) 804-0990.
Carrols Corporation
Carrols Corporation is an operator of quick-service restaurants. Carrols is
one of the largest Burger King(R) franchisees in the United States and has
operated Burger King restaurants since 1976 and Pollo Tropical restaurants
since July 1998. As of October 1, 2000, Carrols operated 354 Burger King
restaurants located in 13 Northeastern, Midwestern and Southeastern states.
Carrols also owns and operates the Pollo Tropical(R) restaurant chain which at
October 1, 2000 included 46 company-owned restaurants in Florida and 22
franchised restaurants located in Puerto Rico and Ecuador. Pollo Tropical is a
regional quick-service restaurant chain operating under the names "Pollo
Tropical" and "Tropi-Grill" and featuring grilled marinated chicken and
authentic "made from scratch" side dishes. Carrols' corporate headquarters are
located at 968 James Street, Syracuse, New York 13203, and its telephone
number is (315) 424-0513.
Spur Acquisition Corp.
Spur Acquisition Corp. was incorporated in Delaware on October 5, 2000 for
the sole purpose of completing the merger. It has not carried on any
activities to date other than those incident to its formation, entering into
the merger agreement, and completion of the merger. Spur Acquisition Corp.'s
address is 968 James Street, Syracuse, New York 13203, and its telephone
number is (315) 424-0513.
The Merger (page 26)
Structure of the Merger (page 12)
The proposed transaction will be structured as a merger of Spur Acquisition
Corp. into Taco Cabana, with Taco Cabana being the surviving corporation and
becoming a wholly-owned subsidiary of Carrols.
What Taco Cabana Stockholders will Receive in the Merger (page 12)
Taco Cabana stockholders will receive $9.04 in cash for each share of Taco
Cabana common stock, together with the associated stockholder rights
distributed to the stockholders in connection with Taco Cabana's stockholder
rights agreement, that they hold.
4
<PAGE>
Recommendation of Taco Cabana's Board of Directors (page 16)
The Taco Cabana board of directors believes that the terms of the merger are
fair to, and in the best interests of, Taco Cabana and its stockholders and
unanimously recommends that stockholders vote "FOR" approval of the merger
agreement and the merger.
Opinion of Financial Adviser (page 18)
The board of directors of Taco Cabana received Donaldson, Lufkin &
Jenrette's oral opinion, delivered at the October 4, 2000 meeting of the board
of directors (which was also confirmed in writing), that, as of October 4,
2000 and based upon and subject to the matters stated in its opinion, the
$9.04 per share in cash to be received by Taco Cabana's stockholders in the
merger was fair, from a financial point of view, to those stockholders. THE
FULL TEXT OF DLJ'S WRITTEN OPINION, WHICH SETS FORTH THE ASSUMPTIONS MADE,
MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY DLJ, IS
ATTACHED AS APPENDIX B TO THIS PROXY STATEMENT. YOU ARE URGED TO, AND SHOULD,
READ THE OPINION OF DLJ CAREFULLY. In addition, the presentation of and the
factors considered by DLJ in delivering its fairness opinion, as discussed
under "Special Factors--Opinion of Financial Adviser," supported the board's
determination to recommend the merger to the stockholders of Taco Cabana.
Completion of the Merger (page 26)
The merger will be completed when a certificate of merger is filed with the
Secretary of State of the State of Delaware or at such later time as provided
in the certificate of merger in accordance with the Delaware General
Corporation Law. The parties anticipate that the certificate of merger will be
filed and the merger will be completed within two business days after the
special stockholders' meeting.
Regulatory Matters (page 24)
The merger is subject to the expiration and termination of the waiting
period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976; on
October 31, 2000, the FTC advised Taco Cabana that it had been granted early
termination of the waiting period for the merger under the HSR Act.
Conditions that Must Be Satisfied for the Merger to be Completed (page 28)
The completion of the merger depends on several conditions being satisfied
or waived, including, among others, the following:
. the approval of the merger agreement and the merger by holders of a
majority of the outstanding shares of Taco Cabana common stock;
. the financing for the merger shall have been made available; in this
regard, Carrols has received a binding written commitment from The Chase
Manhattan Bank, its current lead lender, to provide the funds necessary
to complete the merger; however, this commitment is subject to certain
customary conditions;
. the expiration or termination of the waiting period under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976; on October 31, 2000,
the FTC advised Taco Cabana that it had been granted early termination
of the waiting period for the merger under the HSR Act;
. the absence of any legal prohibition against the merger;
. the material accuracy of the representations and warranties of the
parties contained in the merger agreement and the material compliance
with the obligations of the parties to be performed under the merger
agreement; and
. obtaining the necessary landlord and other consents and approvals.
5
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Termination of the Merger Agreement (page 29)
The parties to the merger agreement may agree to terminate the merger
agreement by mutual consent at any time before completing the merger, even
after Taco Cabana's stockholders have approved the merger agreement and the
merger.
Either Carrols or Taco Cabana may terminate the merger agreement if:
. the merger is not completed by June 30, 2001, unless the party seeking
to terminate the agreement has caused the failure to complete the merger
by failing to fulfill its obligations under the merger agreement;
. any permanent injunction or action by any governmental entity preventing
the consummation of the merger shall have become final and non-
appealable;
. the other party shall have materially breached a representation,
warranty, covenant or agreement of that party contained in the merger
agreement;
. a representation or warranty of the other party shall have become untrue
such that the conditions that the representations and warranties of such
party or an obligation of such party would be incapable of being
satisfied by June 30, 2001;
. Taco Cabana's stockholders do not approve the merger agreement and the
merger at the stockholders' meeting.
In addition, Carrols may terminate the merger agreement if Taco Cabana's
board of directors:
. withdraws or adversely modifies its recommendation of the merger
agreement, the merger or any of the transactions contemplated by the
merger agreement;
. approves or recommends a competing transaction to the Taco Cabana
stockholders;
. continues discussions with a third party relating to a third-party
acquisition or business combination offer for more than 21 calendar days
after such offer is received; or
. does not reject a tender offer or exchange offer proposal by a third
party within 10 business days of its commencement or the date such
proposal is first publicly disclosed.
Termination Fee and Expense Reimbursement (page 30)
Taco Cabana has agreed to pay Carrols an amount equal to $4,500,000 plus
reimburse all of Carrols' expenses not to exceed $850,000 in the event the
merger agreement is terminated:
. due to a material breach by Taco Cabana of an agreement, representation
or warranty and Taco Cabana enters into a definitive agreement at any
time prior to or within twelve months after the date of the merger
agreement providing for an acquisition or a business combination at a
price per share greater than $9.04;
. because the Taco Cabana stockholders do not approve the merger agreement
and the merger at the special stockholders' meeting and at the time of
the special stockholders' meeting there exists an alternative proposal
for a business combination with an entity other than Carrols which
either (1) the Taco Cabana board of directors has not publicly opposed
or (2) is consummated or a definitive agreement relating to such
business combination is entered into at any time prior to or within
twelve months after the termination of the merger agreement;
. by Carrols upon the Taco Cabana board of directors withdrawing or
adversely modifying its recommendation of the merger agreement, the
merger, or any of the transactions contemplated by the merger agreement
or recommending a competing transaction providing for an acquisition or
business combination;
. by Carrols upon Taco Cabana's board of directors continuing discussions
relating to a third-party acquisition or business combination offer for
more than 21 calendar days after such offer is received; or
6
<PAGE>
. by Carrols upon Taco Cabana's board of directors failing to reject a
tender offer or exchange offer proposal by a third party within 10
business days of its commencement or the date such proposal is first
publicly disclosed.
Taco Cabana has agreed to pay Carrols' expenses, not to exceed $850,000, in
the event Carrols terminates the merger agreement due to Taco Cabana's
material breach of an agreement, representation or warranty, but Taco Cabana
does not enter into a definitive agreement within 12 months of the date of the
merger agreement for a business combination at a price per share greater than
$9.04.
Carrols has agreed to reimburse Taco Cabana for its expenses, not to exceed
$850,000, in the event the merger agreement is terminated solely as a result
of Carrols' inability to obtain financing due to its lenders refusing to
consummate the financing due to its or their assertion that a material adverse
change has occurred for any reason other than a material adverse change in or
affecting the business, operations, property, condition (financial or
otherwise) or prospects of Taco Cabana and its subsidiaries, taken as a whole.
Material U.S. Federal Income Tax Consequences (page 22)
Taco Cabana stockholders will generally recognize a gain or a loss with
respect to the receipt of cash in exchange for their shares of Taco Cabana
common stock. The amount of your gain or loss will be determined by the
difference between the cash you receive and your tax basis in your shares of
Taco Cabana common stock.
Appraisal Rights (page 32)
Any stockholder who does not wish to accept $9.04 per share cash
consideration in the merger has the right under Delaware law to have his, her
or its shares appraised by the Delaware Chancery Court. This right of
appraisal is subject to a number of restrictions and technical requirements.
Generally, in order to exercise appraisal rights, among other things:
. you must NOT vote in favor of the merger agreement and the merger; and
. you must make a written demand for appraisal in compliance with Delaware
law BEFORE the vote at the special meeting with respect to the merger
agreement and the merger.
Merely voting against the merger agreement will not preserve your right of
appraisal under Delaware law. Appendix C to this proxy statement contains the
Delaware statutory provision relating to your right of appraisal. Failure to
follow all of the steps required by this statutory provision will result in
the loss of your right of appraisal.
Additional Interests of Taco Cabana's Management (page 24)
In considering the recommendation of the board of directors, you should be
aware that certain of Taco Cabana's officers and directors have interests in
the merger or have certain relationships, including those referred to below,
that present or may present actual or potential, or the appearance of actual
or potential, conflicts of interest in connection with the merger, including:
. the interests of officers and directors who hold, in the aggregate,
154,401 shares of outstanding Taco Cabana common stock and stock options
to purchase approximately 924,506 shares of Taco Cabana common stock,
including stock options that will vest in connection with the merger,
entitling the holders to cash payments (to the extent such stock options
have an exercise price of less than $9.04 per share);
. the obligation of the surviving corporation to continue to provide
certain indemnification and related insurance coverage to directors and
officers of Taco Cabana following the merger; and
. the existence of severance agreements between Taco Cabana and certain of
its officers, which provide for severance payments in the event of
termination of these officers' employment by Taco Cabana.
7
<PAGE>
The board of directors was aware of these actual or potential conflicts of
interest and considered them along with other matters in approving the merger.
The Stockholders' Meeting (page 30)
Date, Time, Place, and Purpose of the Meeting (page 30)
Taco Cabana will hold a special meeting of stockholders on Monday, December
18, 2000 at 10:00 a.m., Central Standard Time at Taco Cabana's offices, 8918
Tesoro Drive, Suite 200, San Antonio, Texas. At the meeting, Taco Cabana
stockholders of record at the close of business on the record date of November
8, 2000 will be asked to approve the merger agreement and the merger. No other
business is expected to be conducted at the meeting.
Record Date and Outstanding Shares (page 31)
Only holders of record of Taco Cabana common stock at the close of business
on the record date are entitled to vote at the special meeting. As of that
time, there were 11,651,232 shares of Taco Cabana common stock outstanding and
entitled to vote, held by approximately 840 record holders.
Quorum (page 31)
The required quorum for the transaction of business at the special meeting
is a majority of the shares of Taco Cabana common stock outstanding on the
record date.
Required Vote (page 31)
The affirmative vote of a majority of the outstanding shares of Taco Cabana
common stock is required to approve the merger agreement and the merger. Each
stockholder is entitled to one vote per share. As of the record date,
approximately 1.3% of the outstanding shares entitled to vote were held by
Taco Cabana's directors, executive officers and their affiliates. All of our
directors and executive officers have indicated to us that they intend to vote
their shares in favor of the merger agreement and the merger.
Merger Financing (page 22)
The total amount of funds required to (1) fund the payment of the merger
consideration and the surrender of outstanding stock options (approximately
$110.2 million), (2) repay and/or fund Taco Cabana's existing indebtedness and
other obligations (approximately $42.0 million) and (3) pay the fees and
expenses in connection with the merger (approximately $6.4 million) is
estimated to be approximately $158.6 million.
Carrols has received a binding commitment from The Chase Manhattan Bank to
finance this transaction. This financing commitment is subject to certain
customary conditions.
8
<PAGE>
TACO CABANA'S SELECTED HISTORICAL FINANCIAL DATA
Taco Cabana's selected historical financial data presented below as of and
for the five fiscal years ended January 2, 2000 are derived from the financial
statements of Taco Cabana. The financial statements of Taco Cabana for each of
the fiscal years in the five-year period ended January 2, 2000 have been
audited. Data as of and for the 39-week periods ended October 3, 1999 and
October 1, 2000 have been derived from unaudited financial statements of Taco
Cabana. Interim operating results are not necessarily indicative of the
results that may be achieved for the entire year. The following selected
financial data should be read in conjunction with Taco Cabana's most recent
Annual Report on Form 10-K and Quarterly Report on Form 10-Q.
<TABLE>
<CAPTION>
Fiscal Year Ended 39 Weeks Ended
------------------------------------------------------ ------------------
Dec. 31, Dec. 29, Dec. 28, Jan. 3, Jan. 2, Oct. 3, Oct.1,
1995 1996 1997 1999 2000 1999 2000
---------- ---------- ---------- ---------- ---------- -------- --------
(52 Weeks) (52 Weeks) (52 Weeks) (53 Weeks) (52 Weeks)
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
REVENUES
Restaurant sales....... $137,191 $131,680 $131,857 $142,592 $159,241 $119,516 $129,704
Franchise fees and
royalty income........ 1,342 516 346 358 359 260 283
-------- -------- -------- -------- -------- -------- --------
Total revenues......... 138,533 132,196 132,203 142,950 159,600 119,776 129,987
COSTS AND EXPENSES:
Restaurant cost of
sales and operating
costs................. 115,195 107,703 110,440 114,111 126,571 94,780 103,250
General and
administrative........ 6,068 6,445 6,964 7,829 7,907 5,876 6,463
Depreciation,
amortization and
restaurant opening
costs................. 10,301 9,245 9,659 7,990 9,581 7,142 7,527
Special charges
(reversal)(1)......... 8,100 2,497 78,738 (2,665) -- -- --
Litigation
settlement(2)......... -- 3,400 -- -- -- -- --
Reserve for notes and
other receivables(3).. 3,500 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total costs and
expenses.............. 143,164 129,290 205,801 127,265 144,059 107,798 117,240
-------- -------- -------- -------- -------- -------- --------
INCOME (LOSS) FROM
OPERATIONS............. (4,631) 2,906 (73,598) 15,685 15,541 11,978 12,747
NON-OPERATING INCOME
(EXPENSE).............. (1,397) (1,348) (1,137) (1,951) (2,424) (1,702) (2,288)
-------- -------- -------- -------- -------- -------- --------
INCOME (LOSS) BEFORE
INCOME TAXES........... (6,028) 1,558 (74,735) 13,734 13,117 10,276 10,459
(PROVISION) BENEFIT FOR
INCOME TAXES........... 2,230 (854) 1,537 -- -- -- 7,290 (5)
-------- -------- -------- -------- -------- -------- --------
NET INCOME (LOSS)....... $ (3,798) $ 704 $(73,198) $ 13,734 $ 13,117 $ 10,276 $ 17,749
======== ======== ======== ======== ======== ======== ========
BASIC EARNINGS (LOSS)
PER SHARE(4)........... $ (0.24) $ 0.04 $ (4.78) $ 0.96 $ 0.99 $ 0.77 $ 1.52
======== ======== ======== ======== ======== ======== ========
DILUTED EARNINGS (LOSS)
PER SHARE(4)........... $ (0.24) $ 0.04 $ (4.78) $ 0.95 $ 0.97 $ 0.75 $ 1.51
======== ======== ======== ======== ======== ======== ========
Balance Sheet Data:
TOTAL ASSETS............ $148,578 $142,706 $ 76,260 $ 90,202 $101,005 $101,544 $117,441
LINE OF CREDIT, LONG-
TERM DEBT AND CAPITAL
LEASES, INCLUDING
CURRENT MATURITIES..... 19,290 13,668 19,323 30,324 39,908 31,207 43,363
STOCKHOLDERS' EQUITY.... 112,327 113,172 36,413 40,777 42,998 49,998 57,531
DIVIDENDS PER COMMON
SHARE.................. -- -- -- -- -- -- --
</TABLE>
--------
(1) Includes the charge related to the 1995 operations review of $8.1
million, the 1996 write-down of the Company's investment in a joint
venture and the accrual of related exit costs of $2.5 million, the 1997
charge for the write-down of impaired assets and the closure of seventeen
restaurants and the reversal of special charges in 1998.
9
<PAGE>
(2) Includes the 1996 litigation settlement for $3.4 million pre-tax.
(3) Reserve resulted from the 1995 operations review.
(4) The earnings per share amounts prior to 1997 have been restated as
required to comply with Statement of Financial Standards No. 128,
Earnings Per Share.
(5) Reflects the reversal of a valuation allowance established in 1997 on
Taco Cabana's net deferred tax asset, in the amount of $6.6 million.
Amount also includes the accrual of $700,000 for a refund of federal
income taxes.
We have not provided any pro forma data giving effect to the proposed
merger. We do not believe such information is material to you in evaluating
the merger proposal because:
. the proposed merger consideration is all cash; and
. if the proposed merger is completed, Taco Cabana common stock will cease
to be publicly traded and Taco Cabana will be a wholly-owned subsidiary
of Carrols.
10
<PAGE>
MARKETS AND MARKET PRICE
The common stock of Taco Cabana began trading on the Nasdaq National Market
on October 16, 1992, the effective date of Taco Cabana's initial public
offering, under the symbol "TACO."
The table below sets forth, for the periods indicated, the reported high and
low closing prices of Taco Cabana common stock, as reported on the Nasdaq
National Market:
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal Year Ending December 31, 2000
Quarter Ending December 31, 2000 (through November
10, 2000).......................................... $ 8 11/16 $4 5/32
Quarter Ended October 1, 2000....................... 6 23/32 4 5/16
Quarter Ended July 3, 2000.......................... 7 5 23/32
Quarter Ended April 2, 2000......................... 8 1/8 5 5/8
Fiscal Year Ended January 2, 2000
Quarter Ended January 2, 2000....................... $ 9 9/16 $7 7/16
Quarter Ended October 3, 1999....................... 10 3/4 7 7/8
Quarter Ended July 4, 1999.......................... 10 3/4 8 5/16
Quarter Ended April 4, 1999......................... 9 7/16 8
Fiscal Year Ended January 3, 1999
Quarter Ended January 3, 1999....................... $ 7 3/4 $4 7/8
Quarter Ended September 27, 1998.................... 6 5/8 4 7/8
Quarter Ended June 28, 1998......................... 7 1/8 5 3/4
Quarter Ended March 29, 1998........................ 7 1/16 4 7/16
</TABLE>
Set forth below are the low, high and closing sale prices of Taco Cabana
common stock on October 5, 2000 and November 10, 2000. October 5, 2000 was the
last full trading day before Taco Cabana and Carrols announced that they had
entered into the merger agreement. November 10, 2000 was the last trading day
practicable for which information was available prior to the date of the first
mailing of this proxy statement.
<TABLE>
<CAPTION>
Low High Close
--- ---- -----
<S> <C> <C> <C>
November 10, 2000.................................... $8 11/16 $8 19/32 $8 5/8
October 5, 2000...................................... 4 1/8 4 3/8 4 5/32
</TABLE>
We urge you to obtain a current market quotation for Taco Cabana common
stock before you vote or if you are considering changing your vote.
We have never declared or paid cash dividends on our common stock and do not
plan to pay any cash dividends in the foreseeable future. Our current credit
agreement limits our ability to pay dividends on our common stock. In
addition, under the merger agreement, we have agreed not to pay any cash
dividends or make any other distributions on our common stock before the
closing of the merger.
11
<PAGE>
SPECIAL FACTORS
The Participants
Taco Cabana, Inc.
Taco Cabana pioneered the Mexican patio cafe concept with its first
restaurant in 1978 and, as of October 1, 2000 operated and franchised a total
of 126 such restaurants system-wide. Of these, Taco Cabana owns and operates
116 restaurants. Franchisees own and operate the 10 remaining restaurants.
Taco Cabana's restaurants (including franchises) are located primarily in
Texas, and are also located in Arizona, Georgia, Indiana, New Mexico and
Oklahoma. Taco Cabana's corporate headquarters are located at 8918 Tesoro
Drive, Suite 200, San Antonio, Texas 78217, and its telephone number is (210)
804-0990.
Taco Cabana restaurants feature generous portions of fresh, premium quality
Tex-Mex and traditional Mexican style food at an exceptional value. The
restaurants provide interior, semi-enclosed and patio dining areas with a
festive Mexican theme. Menu items include flame-grilled beef and chicken
fajitas served on sizzling iron skillets, "Chicken Flameante"(TM) (a marinated
rotisserie chicken), quesadillas, traditional Mexican and American breakfasts,
other Tex-Mex dishes and fresh, hot flour tortillas. Unlike many of its
competitors, Taco Cabana makes most menu items fresh daily in each of its
restaurants.
A more detailed description of Taco Cabana's business is contained in its
most recent Annual Report on Form 10-K. Other information about Taco Cabana is
available at its Internet site www.tacocabana.com. The information on that
site is not incorporated by reference into this proxy statement or any of Taco
Cabana's filings with the SEC.
Carrols Corporation
Carrols Corporation is an operator of quick-service restaurants. Carrols is
one of the largest Burger King franchisees in the world and has operated
Burger King restaurants since 1976 and Pollo Tropical restaurants since July
1998. As of October 1, 2000, Carrols operated 354 Burger King restaurants
located in 13 Northeastern, Midwestern and Southeastern states. Carrols also
owns and operates the Pollo Tropical restaurant chain which at October 1, 2000
included 46 company-owned restaurants in Florida and 22 franchised restaurants
located in Puerto Rico and Ecuador. Pollo Tropical is a regional quick-service
restaurant chain operating under the names "Pollo Tropical" and "Tropi-Grill"
and featuring grilled marinated chicken and authentic "made from scratch" side
dishes. Carrols' corporate headquarters are located at 968 James Street,
Syracuse, New York 13203, and its telephone number is (315) 424-0513.
Spur Acquisition Corp.
Spur Acquisition Corp. was incorporated in Delaware on October 5, 2000, for
the sole purpose of completing the merger. It has not carried on any
activities to date other than those incident to its formation, entering into
the merger agreement and completion of the merger. Spur Acquisition Corp.'s
address is 968 James Street, Syracuse, New York 13203, and its telephone
number is (315) 424-0513.
Structure of the Merger
The proposed transaction will be structured as a merger of Spur Acquisition
Corp. into Taco Cabana. Taco Cabana will be the surviving corporation in the
merger and, upon completion of the merger, will be a wholly-owned subsidiary
of Carrols.
Merger Consideration
At the completion of the merger, Taco Cabana's stockholders will be entitled
to receive $9.04 in cash for each share of Taco Cabana common stock that they
own, together with the associated stockholder rights distributed to the
stockholders in connection with Taco Cabana's stockholder rights agreement.
12
<PAGE>
Background of the Merger
For the last several years the stock price of Taco Cabana's common stock has
languished. The average trading price of our common stock for the 12-month
period ended October 5, 2000 was approximately $6.59 per share. The average
stock price for our common stock for the five-year period ended October 5,
2000 was approximately $6.57 per share. On October 5, 2000, the last full
trading day before Taco Cabana and Carrols announced they had entered into the
merger agreement, the closing price of our common stock was $4.16 per share.
We believe that this is attributable to both industry factors and factors more
specifically related to Taco Cabana, including the following:
. in recent times the public equity markets have viewed many restaurant
companies with growing disfavor due in part to the disappointing
performance of several publicly-traded restaurant companies;
. a general lack of interest in many mature market sectors in favor of
higher growth industries, such as information technology and e-commerce;
. there has been decreased financial analyst coverage of, and
institutional investor interest in, our common stock as a result of the
relatively small size of Taco Cabana's market capitalization and the
relative lack of liquidity in the market for our common stock;
. in recent years restaurant stocks in general have underperformed the
broader market, as represented by the S&P 500 Index;
. our stock performance has compared unfavorably to that of certain other
restaurant companies, principally large capitalization companies and
those with perceived high-growth opportunities;
. we have not demonstrated an ability to successfully and consistently
expand the Taco Cabana chain outside the State of Texas; and
. our improvement in comparable-store-sales growth and profitability has
not been reflected in the price of our common stock.
Faced with this environment, we have attempted to increase stockholder value
in a number of ways, including the following, each of which appears to have
had only limited positive impact upon our stock price:
. our success in putting in place an experienced and professional
management team;
. our focus on improving the operations of and customer experience with
our existing restaurants, which focus has resulted in 11 consecutive
quarters of year-over-year comparable-store sales increases and
significant restaurant margin improvements;
. our efforts to implement cost controls and to close or dispose of a
number of unprofitable stores; and
. our implementation of a stock repurchase program, pursuant to which, as
of February 28, 2000, we had purchased a total of 4,450,000 shares of
common stock at an average purchase price of $6.52 per share and an
aggregate purchase price of approximately $29.0 million (no additional
shares have been repurchased since February 28, 2000).
Because of these continuing industry and company-specific factors and
because of the relative ineffectiveness of steps previously taken by us to
increase stockholder value, the board of directors in March 1999 met with DLJ
to discuss and explore additional ways of increasing stockholder value. The
alternatives discussed included:
. remain public and grow organically;
. remain public and utilize both organic expansion and acquisitions to
grow;
. go private through a leveraged buyout; and
. sell the company to a third party.
Based on these discussions, the board concluded that, given the continuing
weak market performance of Taco Cabana common stock and the expected
continuation of the factors discussed above regarding the industry,
13
<PAGE>
the stock market perception of the industry and the company, Taco Cabana
should explore a possible sale of the company as a way of maximizing
stockholder value. The board agreed to retain DLJ for this purpose subject to
the satisfactory negotiation and execution of an engagement letter. On May 12,
1999, the company executed an engagement letter with DLJ.
Under the terms of the engagement letter, Taco Cabana has paid DLJ a total
of approximately $65,000 to date and expects to pay an additional fee of
approximately $1.0 million, plus expenses, upon the closing of the merger. See
"--Opinion of Financial Adviser" for a discussion of the experience and
expertise of DLJ and of the compensation to be paid to DLJ under the
engagement letter.
In May and June 1999, Taco Cabana and DLJ identified 83 potential acquirers
of Taco Cabana, including both strategic buyers that were participants in, or
likely to be interested in entering, the restaurant industry, and financial
buyers that would likely view acquiring Taco Cabana as an attractive
investment. Taco Cabana and DLJ together identified potential acquirers which,
based on information available to them and their respective knowledge of the
industry, they believed had access to capital or were of a sufficient size to
be in a position to acquire Taco Cabana. Potential strategic buyers were
selected on the basis of possible synergies such a buyer might have with Taco
Cabana, and financial buyout firms were selected based on DLJ's belief that
they might have an interest in a potential transaction with Taco Cabana.
At Taco Cabana's direction, DLJ contacted each of the 83 potential acquirers
to ascertain its level of interest in pursuing a transaction with a company
that had the characteristics of Taco Cabana, without identifying Taco Cabana
by name. Follow-up phone calls were placed to solicit interest in a potential
transaction with such a company and to answer questions that potential buyers
might have. Many potential buyers decided not to pursue a transaction.
However, 30 of the potential acquirers, including Carrols, expressed an
interest in exploring a transaction with Taco Cabana. In May through July
1999, Taco Cabana entered into confidentiality and standstill agreements with
those 30 parties, including Carrols, and provided each of them with a copy of
a confidential information memorandum prepared by Taco Cabana and DLJ
containing information relating to Taco Cabana and a letter setting forth
bidding requirements and a deadline for the submission of written preliminary
indications of interest in acquiring Taco Cabana.
In June and July 1999, Taco Cabana received follow-up indications of
interest from two of the 30 parties that had received the descriptive
memorandum, including Carrols. These follow-up indications of interest ranged
in value from $10.00 to $12.00 per share. At the time these indications were
received, Taco Cabana common stock was trading within a range of approximately
$9.00 to $10.75. DLJ believes that after reviewing the descriptive memorandum,
many of the potential acquirers determined that they were not interested in a
transaction with Taco Cabana, but DLJ did not survey the parties who decided
not to pursue an acquisition. Based on the preliminary indications, the board
of directors authorized the company to invite Carrols and the other potential
acquirer to participate in a further due diligence review of the company.
Both Carrols and the other potential acquirer met separately in July 1999
with Taco Cabana's management and were provided with the opportunity to review
confidential due diligence materials in San Antonio, Texas. One potential
acquirer, Carrols, visited Taco Cabana's data room and conducted due
diligence.
On August 18, 1999, Taco Cabana's board met with representatives of DLJ to
review the status of the pending process. The board agreed to continue
negotiations with the interested parties, and decided to hold a status meeting
in September to receive an update.
On September 16, 1999, a telephonic meeting was held by Taco Cabana's board
to discuss the progress of the transaction. Representatives from DLJ stated
that neither Carrols nor the other potential acquirer submitted final bids.
Taco Cabana terminated its engagement of DLJ on September 16, 1999.
From September 16, 1999 until May 2000, Taco Cabana received no additional
proposals or indications of interest from any third party to acquire Taco
Cabana. In May 2000, Alan Vituli, Chairman and Chief Executive
14
<PAGE>
Officer of Carrols, contacted Richard Sherman, an outside director of Taco
Cabana's board, to reopen discussions regarding an acquisition of Taco Cabana.
Telephone conversations then ensued between these individuals, culminating in
a meeting between representatives of Taco Cabana's board and Mr. Vituli in
June 2000 to discuss Carrols' interest. Carrols' indication of pricing was
approximately $9 per share, conditional upon Carrols' receipt and positive
evaluation of certain information related to Taco Cabana and critical to
Carrols' interest in completing a merger. Separately, in July 2000, Mr.
Sherman was contacted by an interested party who had been working with members
of management to make a proposal to purchase the company. This party indicated
that it had financing commitments in place and could be in position to sign a
letter of intent immediately. The indicated price for such party's proposal
was approximately $7.50 per share. After some discussion, Taco Cabana's board
decided to provide further information to Carrols and to pursue the merger
proposed by Carrols.
Following the communication of Carrols' verbal proposal to Taco Cabana's
board and continuing through September 2000, representatives of Carrols, its
legal and financial advisers and its independent accountants and other
consultants conducted further due diligence on the company, including further
document review in San Antonio, Texas. Members of Carrols' management team
also met with Taco Cabana's management to discuss Taco Cabana's financial
performance, operations and business plan. During the period of these
discussions with Carrols and through October 6, 2000, Taco Cabana received no
additional acquisition inquiries or other communications from any other
potential acquirer.
On August 22, 2000, the board of directors of Taco Cabana met and decided to
negotiate a timeline for the potential signing of a merger agreement with
Carrols. The timeline called for all due diligence to be performed and a
merger agreement to be negotiated by the first week of October 2000. Taco
Cabana and Carrols agreed to this timeline. On September 13, 2000, the board
of Taco Cabana contacted DLJ to advise them of the pending transaction and to
request that they analyze the proposed transaction with a view to presenting
their opinion as to the fairness of the transaction from a financial point of
view. Taco Cabana reinstated its engagement with DLJ effective as of September
1, 2000.
On September 8, 2000, Carrols' board of directors authorized its management
to negotiate and enter into a definitive merger agreement which would be
conditional upon Chase funding under its commitment.
On September 15, 2000, Taco Cabana and its counsel, Akin, Gump, Strauss,
Hauer & Feld, L.L.P., received an initial draft of the merger agreement, which
was circulated to management and members of the board of directors. The board
authorized management and Akin, Gump to continue negotiations on the
outstanding issues relating to the proposed merger and also authorized DLJ to
continue preparation of a fairness opinion and their analysis of the financial
terms of the transaction for those purposes.
On October 2, 2000, at a telephonic meeting of Carrols' board, Carrols'
management reported to the board regarding the status of the negotiations and
the status of the Chase commitment letter, and the board confirmed its
decision to proceed with the transaction.
On October 4, 2000, the Taco Cabana board met again with all directors in
attendance, except for Rod Sands, whose prior business commitments made
participation impossible. DLJ and Akin, Gump updated the board of directors on
the status of negotiations and the proposed resolution of the remaining issues
regarding the merger agreement. Akin, Gump reviewed with the board the other
provisions of the most recent draft of the merger agreement that had
previously been distributed to the members of the board. The board discussed
the recent financial results and prospects of the company. The terms of
Carrols' proposed financing for the merger as set forth in the binding
commitment letter from Chase to Carrols were discussed in detail. DLJ made a
presentation to the board describing the financial aspects of the proposed
transaction and rendered to the board its opinion as to the fairness, from a
financial point of view, of the $9.04 per share cash consideration to be
received in the merger as contemplated by the merger agreement by the holders
of shares of Taco Cabana common stock.
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Also at its October 4, 2000 meeting, the Taco Cabana board approved an
amendment to the Taco Cabana stockholder rights plan to render the plan
inapplicable to the pending transaction. The amendment to the plan provided
that Carrols would not be deemed to be an "acquiring person" in connection
with the merger and that the rights plan would not be triggered as a result of
the merger.
Taco Cabana board members in attendance at the October 4, 2000 meeting
unanimously approved the merger agreement and the merger contemplated by the
merger agreement. Thereafter, representatives of Taco Cabana and of Carrols
continued to negotiate final terms of the merger agreement, achieving a
resolution consistent with both boards of directors' directions and
resolutions.
On the morning of October 6, 2000, Carrols and Taco Cabana executed the
merger agreement and, prior to the opening of the business day, publicly
announced that they had entered into the merger agreement.
Purpose and Reasons for the Merger; Recommendation of the Board of Directors
The full board of directors of Taco Cabana unanimously recommends that Taco
Cabana stockholders approve the merger agreement and the merger. Taco Cabana's
purpose for engaging in the merger is to allow Taco Cabana's stockholders to
realize the value of their investment in Taco Cabana in cash at a price that
represents a substantial premium to the market price of Taco Cabana common
stock before the public announcement of the signing of the merger agreement
with Carrols.
In considering whether to approve the merger agreement and the merger, the
board considered a number of factors that they believed supported their
recommendation, including:
(1) the fact that the merger will provide Taco Cabana stockholders a
substantial premium for their shares compared to the market price of our
common stock prevailing in the periods prior to the announcement of the
transaction, as set forth in the analysis of DLJ; the board adopted the
analysis of DLJ with respect to current and historical prices of Taco
Cabana common stock and considered the premium paid in relation to the
current and historical prices;
(2) the board's belief, after considering the possible alternatives to
the merger, the recent indication of interest from the third party that had
been working with members of Taco Cabana's management to structure a
proposal, and the auction process conducted by DLJ approximately one year
ago that canvassed the market of the most likely prospective purchasers,
that no other buyer would be likely to provide a superior value to the
stockholders;
(3) the risks and factors previously identified associated with remaining
an independent public company and the board's belief that a strategic buyer
such as Carrols would likely more highly value Taco Cabana's strong and
stable cash flow generation than would the public markets;
(4) the presentation of DLJ at the board meeting on October 4, 2000,
including the opinion of DLJ as to the fairness, from a financial point of
view, of the merger consideration to the holders of Taco Cabana common
stock. Taco Cabana stockholders are urged to read the DLJ opinion in its
entirety;
(5) the board's knowledge of Taco Cabana's business, operations, assets,
financial condition, operating results and prospects, which the board
considered in light of the premium offered under the terms of the merger
agreement;
(6) the limitations Taco Cabana suffered and could likely continue to
suffer as a public company, including its limited trading volume,
institutional sponsorship and diminishing research attention from analysts,
all of which adversely affect the trading market and the value of Taco
Cabana common stock;
(7) as discussed in this proxy statement under "Appraisal Rights," the
fact that Delaware law entitles Taco Cabana stockholders who do not vote in
favor of the merger and who file a written objection with Taco Cabana to
obtain the "fair value" of their shares, as determined by a court, if the
merger is completed;
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(8) the fact that the consideration to be received by Taco Cabana
stockholders in the merger will consist entirely of cash;
(9) the fact that the merger agreement, which prohibits Taco Cabana and
its directors, employees, representatives and agents from initiating or
soliciting any inquiries or the making of any proposal or offer with
respect to an acquisition proposal, engaging in negotiations concerning an
acquisition proposal, and providing any confidential information or data to
any person relating to an acquisition proposal, does permit Taco Cabana to
furnish information to, or to participate in discussions and negotiations
with, any person or entity that makes an unsolicited acquisition proposal
and to modify or withdraw its recommendation of the merger or recommend an
alternative acquisition proposal and terminate the merger agreement, if to
do otherwise would constitute a breach of its fiduciary duties to
stockholders under applicable law; although, as described above, the board
did not believe that a superior third-party proposal would be made;
(10) the board's belief that the merger agreement, including the
termination fee and reimbursement of out-of-pocket expenses payable to
Carrols if the merger agreement is terminated for any of the reasons
discussed in "The Merger Agreement--Termination Fee and Expense
Reimbursement" should not unduly discourage superior third-party offers and
that Taco Cabana, subject to certain conditions, may enter into a superior
definitive agreement with another party simultaneously with the termination
of the merger agreement upon reasonable notice to Carrols of its intent to
enter into such negotiations and superior definitive agreement;
(11) the likelihood of the consummation of the merger, the proposed
structure of the transaction and anticipated closing date of the merger,
and the ability of Carrols to secure financing for the transaction; and
(12) the board's concern that the debt and equity markets could
deteriorate further in the future, with the effect that the per-share price
offered to Taco Cabana's stockholders in the merger may not be available in
the foreseeable future.
The board of directors also considered a variety of risks and other
potentially negative factors concerning the merger. These included the
following:
(1) the obligation of Carrols to complete the merger is conditioned upon
financing being made available to Carrols; although Carrols has received a
binding commitment letter from The Chase Manhattan Bank and Chase
Securities, Inc. pursuant to which Chase Manhattan has agreed to finance
the merger, subject to certain customary conditions, the financing may not
be received by Carrols for reasons beyond the control of Taco Cabana or
Carrols; see "--Financing of the Merger" for a discussion of the proposed
financing and the funding conditions contained in the financing
commitments;
(2) that the cash consideration to be received by a stockholder will
generally be taxable to the stockholder in an amount equal to the excess of
$9.04 over the stockholder's tax basis in his or her shares of Taco Cabana
common stock; and
(3) following the merger, Taco Cabana stockholders will cease to
participate in any future earnings growth of Taco Cabana or benefit from
any increase in the value of the company.
In considering the merger, the board took into account DLJ's "Comparable
Company Trading Analysis," "Comparable Mergers and Acquisitions Transaction
Analysis," "Premiums Paid Analysis" and "Discounted Cash Flow Analysis" as
relevant measures to determine the going-concern value of Taco Cabana. The
board and DLJ did not attempt to determine the liquidation value of Taco
Cabana and gave little consideration to the book value of Taco Cabana (which
was $3.89 per share at July 2, 2000) because they believed that those measures
of asset value were not relevant to the market value of Taco Cabana's business
and would be considerably less than the merger consideration of $9.04 per Taco
Cabana share. While the board reviewed with DLJ its various financial analyses
and reviewed with officers of Taco Cabana its historical and projected
results, the board did not independently generate its own separate financial
analysis of the merger transaction.
After considering these factors, the board concluded that the positive
factors outweighed the negative factors. Because of the variety of factors
considered, the board did not find it practicable to, and did not make
specific assessments of, quantify or otherwise assign relative weights to the
specific factors considered in
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reaching its determination. In considering the factors described above,
individual members of the Taco Cabana board may have given different weight to
different factors. The board relied on the experience and expertise of DLJ for
quantitative analysis of the financial terms of the merger. See "--Opinion of
Financial Advisor." The determination was made after consideration of all of
the factors together.
THE BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND THE MERGER AND
HAS DETERMINED THAT IT IS FAIR TO, AND IN THE BEST INTERESTS OF, TACO CABANA'S
STOCKHOLDERS; ACCORDINGLY, THE BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" THE APPROVAL OF THE MERGER AGREEMENT AND THE MERGER.
Opinion of Financial Adviser to Taco Cabana
Taco Cabana asked DLJ, in its role as financial advisor to Taco Cabana, to
render an opinion to the Taco Cabana board of directors as to the fairness,
from a financial point of view, to the holders of Taco Cabana's common stock
of the consideration to be received by such holders in the merger.
On October 4, 2000, DLJ delivered to the board of directors its oral and
written opinion to the effect that, as of that date, based on and subject to
the assumptions, limitations and qualifications set forth in its written
opinion, the consideration to be received by the holders of Taco Cabana's
common stock in the merger was fair to such holders from a financial point of
view. The full text of DLJ's opinion is attached as Appendix B to this proxy
statement. YOU ARE URGED TO READ THE OPINION CAREFULLY IN ITS ENTIRETY.
DLJ's opinion does not address the relative merits of the merger and the
other business strategies being considered by Taco Cabana's board of
directors, nor does it address the board's decision to proceed with the
merger. DLJ's opinion does not constitute a recommendation to any stockholder
as to how such stockholder should vote on the proposed transaction.
Taco Cabana selected DLJ as its financial advisor because DLJ is an
internationally recognized investment banking firm that has substantial
experience providing strategic advisory services. DLJ was not retained as an
advisor or agent to the stockholders of Taco Cabana or any other person. As
part of its investment banking business, DLJ 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 corporate and other
purposes. Taco Cabana did not impose any restrictions or limitations upon DLJ
with respect to the investigations made or the procedures followed by DLJ in
rendering its opinion.
In arriving at its opinion, DLJ:
. reviewed the draft dated September 29, 2000 of the merger agreement and
assumed the final form of the merger agreement would not vary in any
respect material to DLJ's analysis;
. reviewed financial and other information that was publicly available or
furnished to DLJ by Taco Cabana, including information provided during
discussions with management of Taco Cabana. Included in the information
provided during discussions with management were certain financial
projections of Taco Cabana for the period beginning July 3, 2000 and
ending December 31, 2005 prepared by the management of Taco Cabana;
. compared certain financial and securities data of Taco Cabana with
various other companies whose securities are traded in public markets;
. reviewed the historical stock prices and trading volumes of the common
stock of Taco Cabana;
. reviewed prices and premiums paid in certain other business
combinations; and
. conducted such other financial studies, analyses and investigations and
considered such other factors as DLJ deemed appropriate for purposes of
its opinion.
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In rendering its opinion, DLJ relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available
to it from public sources, that was provided to it by Taco Cabana or its
representatives, or that DLJ otherwise reviewed. With respect to the financial
projections of Taco Cabana supplied to DLJ, DLJ relied on representations that
the projections were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of Taco Cabana
as to the future operating and financial performance of Taco Cabana. DLJ
expressed no opinion with respect to these financial projections or the
assumptions on which they were based. DLJ did not assume any responsibility
for making an independent evaluation or appraisal of any assets or liabilities
or for making any independent verification of any of the information reviewed
by DLJ. DLJ did rely as to certain legal matters on advice of counsel to Taco
Cabana. Since the September 1999 termination of the process of exploring a
sale of Taco Cabana, DLJ was not requested to, nor did DLJ solicit the
interest of any other party in acquiring Taco Cabana.
DLJ's opinion is necessarily based on economic, market, financial and other
conditions as they existed on, and on the information made available to DLJ as
of, the date of its opinion. It should be understood that, although subsequent
developments may affect the conclusion reached in its opinion, DLJ does not
have any obligation to update, revise or reaffirm its opinion.
Summary of Financial Analyses Performed by DLJ
The following is a summary of the financial analyses DLJ presented to the
Taco Cabana board of directors on October 4, 2000 in connection with the
preparation of DLJ's opinion. No company or transaction used in the analyses
described below is directly comparable to Taco Cabana or the contemplated
transaction. In addition, mathematical analysis such as determining the mean
or median is not in itself a meaningful method of using selected company or
transaction data. The analyses DLJ performed are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by these analyses. The information summarized in the
tables which follow should be read in conjunction with accompanying text.
Common Stock Trading History. DLJ examined the historical closing prices of
Taco Cabana common stock from October 2, 1998 to October 3, 2000. During such
period, Taco Cabana's common stock reached an intra-day 52-week high of $9.75
per share and an intra-day 52-week low of $4.13 per share.
Comparable Publicly Traded Company Analysis. DLJ analyzed the market values
and trading multiples of selected publicly traded quick-service restaurant
companies that DLJ believed were reasonably comparable to Taco Cabana. These
comparable companies consisted of:
. Checkers Drive-In Restaurants, Inc.;
. CKE Restaurants, Inc.;
. Jack in the Box Inc.;
. Nathan's Famous, Inc.;
. The Quizno's Corporation;
. Rubio's Restaurants, Inc.;
. Schlotzsky's, Inc.; and
. Sonic Corp.
In examining these comparable companies, DLJ calculated the enterprise value
of each company as a multiple of its respective: (i) LTM revenue, (ii) LTM
EBITDA and (iii) LTM EBIT. The enterprise value of a company is equal to the
value of its fully-diluted common equity plus debt and the liquidation value
of outstanding preferred stock, if any, minus cash and the value of certain
other assets, including minority interests in other entities. LTM means the
last twelve-month period for which financial data for the company at issue has
been reported. EBITDA means earnings before interest expense, taxes,
depreciation and amortization. EBIT means earnings before interest expense and
taxes. All historical data was derived from publicly available sources.
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DLJ's analysis of the comparable companies yielded the following multiple
ranges:
<TABLE>
<CAPTION>
Enterprise Value/
--------------------
LTM LTM LTM
Revenue EBITDA EBIT
------- ------ -----
<S> <C> <C> <C>
High.................................................. 2.5x 8.3x 32.8x
Low................................................... 0.4x 3.0x 4.4x
Average (excluding high and low)...................... 0.7x 6.2x 9.6x
</TABLE>
Based on an analysis of this data and Taco Cabana's historical operating
results for comparable periods, DLJ estimated a value per share of Taco Cabana
common stock ranging from $7.25 to $11.50, compared to the proposed price of
$9.04 per share of Taco Cabana common stock to be received in the merger.
Precedent Merger and Acquisition Transaction Analysis. DLJ reviewed selected
acquisitions involving companies in the restaurant industry that DLJ believed
are reasonably comparable to the merger. These transactions consisted of:
. Red Tail Ventures' acquisition of CKE Restaurants, Inc.'s Taco Bueno
Restaurants, Inc. division;
. Bruckman, Rosser, Sherrill & Co.'s acquisition of Prandium, Inc.'s El
Torito Restaurants, Inc. division;
. American Securities Capital Partners, L.P.'s acquisition of Advantica
Restaurant Group, Inc.'s El Pollo Loco, Inc. division;
. Members of the Sbarro family's acquisition of Sbarro, Inc.;
. Checkers Drive-In Restaurants, Inc.'s acquisition of Rally's Hamburgers,
Inc.;
. Nathan's Famous, Inc.'s acquisition of Miami Subs Corporation;
. Bruckman, Rosser, Sherrill & Co.'s acquisition of Au Bon Pain Co.'s Au
Bon Pain division;
. Carrols Corporation's acquisition of Pollo Tropical, Inc.;
. CKE Restaurants, Inc.'s acquisition of Flagstar Enterprises, Inc.
(Hardee's), a subsidiary of Advantica Restaurant Group, Inc.; and
. Cracken, Harkey, Street & Co., L.L.C.'s acquisition of El Chico
Restaurants, Inc.
In examining these acquisitions, DLJ calculated the enterprise value of the
acquired company implied by each of these transactions as a multiple of LTM
revenue and LTM EBITDA.
DLJ's analysis of these comparable acquisitions yielded the following
multiple ranges:
<TABLE>
<CAPTION>
Enterprise
Value/
--------------
LTM LTM
Revenue EBITDA
------- ------
<S> <C> <C>
High........................................................ 1.3x 7.5x
Low......................................................... 0.6x 4.9x
Median...................................................... 0.8x 5.9x
Average (excluding high and low)............................ 0.7x 6.0x
</TABLE>
Based on an analysis of this data and Taco Cabana's historical operating
results, DLJ estimated a value per share of Taco Cabana common stock ranging
from $7.25 to $11.50, compared to the proposed price of $9.04 per share of
Taco Cabana common stock to be received in the merger.
Premiums Paid Analysis. DLJ determined the premium over the common stock
trading prices for one day, one week and four weeks prior to the announcement
date in all merger and acquisition transactions of U.S. public companies
ranging from $100 million to $250 million in size announced between September
1, 1999 and October 2, 2000 in which the consideration paid by the acquiror
was all cash. DLJ obtained the premiums for
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these transactions from Securities Data Company. The adjusted average premiums
(average excluding the high and low) for the selected transactions over the
common stock trading prices for one day, one week and four weeks prior to the
announcement date were 36.2%, 41.5% and 51.0%, respectively. Applying the
above premiums to the closing price of Taco Cabana common stock on comparable
days, DLJ estimated a value per share of Taco Cabana common stock ranging from
$6.00 to $7.00, compared to the proposed price of $9.04 per share of Taco
Cabana common stock to be received in the merger.
Discounted Cash Flow Analysis. DLJ performed a DCF analysis of the projected
cash flows of Taco Cabana for the quarters ending September 30, 2000 and
December 31, 2000, and for the fiscal years ending December 31, 2001 through
December 31, 2005, using projections and assumptions provided by the
management of Taco Cabana. DCF means discounted cash flow. The DCFs for Taco
Cabana were estimated using discount rates ranging from 14.0% to 16.0%, based
on estimates by both DLJ and management of Taco Cabana related to the weighted
average costs of capital of Taco Cabana, and terminal multiples of estimated
EBITDA for Taco Cabana's fiscal year ending December 31, 2005 ranging from
5.0x to 7.0x. Based on this analysis, DLJ estimated a value per share of Taco
Cabana common stock ranging from $7.25 to $11.50, compared to the proposed
price of $9.04 per share of Taco Cabana common stock to be received in the
merger.
The summary set forth above does not purport to be a complete description of
the analyses performed by DLJ but describes, in summary form, the material
elements of the presentation that DLJ made to the Taco Cabana board on October
4, 2000 in connection with the preparation of DLJ's fairness opinion. The
preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant methods of financial analysis and the
application of these methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. DLJ
conducted each of the analyses in order to provide a different perspective on
the transaction and to add to the total mix of information available. DLJ did
not form a conclusion as to whether any individual analysis, considered in
isolation, supported or failed to support an opinion as to fairness from a
financial point of view. Rather, in reaching its conclusion, DLJ considered
the results of the analyses in light of each other and ultimately reached its
opinion based on the results of all analyses taken as a whole. DLJ did not
place any particular reliance or weight on any individual analysis, but
instead concluded that its analyses, taken as a whole, supported its
determination. Accordingly, notwithstanding the separate factors summarized
above, DLJ has indicated to Taco Cabana that it believes that its analyses
must be considered as a whole and that selecting portions of its analyses and
the factors considered by it, without considering all analyses and factors,
could create an incomplete view of the evaluation process underlying its
opinion. The analyses DLJ performed are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable
than suggested by these analyses.
Engagement Letter
Pursuant to the terms of an engagement agreement dated May 12, 1999, Taco
Cabana has agreed to pay a fee that is customary in transactions of this
nature, a substantial portion of which is contingent upon the consummation of
the merger. In addition, Taco Cabana agreed to reimburse DLJ, upon DLJ's
request from time to time, for all out-of-pocket expenses (including the
reasonable fees and expenses of counsel) DLJ incurred in connection with its
engagement thereunder and to indemnify DLJ and certain related persons against
certain liabilities in connection with its engagement, including liabilities
under U.S. federal securities laws. DLJ and Taco Cabana negotiated the terms
of the fee arrangement.
Other Relationships
In the ordinary course of business, DLJ and its affiliates may own or
actively trade the securities of Taco Cabana and Carrols for their own
accounts and for the accounts of their customers and, accordingly, may at any
time hold a long or short position in Taco Cabana or Carrols securities.
Treatment of Existing Stock Options
The merger agreement provides that each stock option outstanding immediately
prior to the completion of the merger, whether or not the option is then fully
vested, will become fully vested and the holder may elect to
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exercise the options prior to the effective date of the merger. In that case,
the shares acquired upon exercise will be treated in the same way as other
shares in the merger. If not exercised prior to the date of the merger, the
merger agreement provides that options will be cancelled in exchange for a
cash payment from Taco Cabana equal to the excess, if any, of $9.04 over the
per-share exercise price of each stock option. The amount received, however,
will be reduced to the extent of any federal and state income and payroll tax
withholding that is due. Stock options with an exercise price in excess of
$9.04 per share will be cancelled in the merger for no consideration, and no
stock options will survive the merger. As a result, we anticipate that stock
options representing an aggregate of approximately 1.6 million shares of our
common stock, at a weighted average exercise price of approximately $5.88 per
share, will, based on the $9.04 per share cash consideration, be exchanged for
a total cash payment of approximately $5.1 million.
Merger Financing
It is estimated that the total amount of funds necessary to consummate the
merger and pay related fees and expenses is approximately $116.6 million, as
follows:
. $105.1 million for the payment of the cash merger consideration to Taco
Cabana stockholders;
. $5.1 million for payments to Taco Cabana optionholders to terminate Taco
Cabana's outstanding stock options;
. $2.0 million for payment of Taco Cabana's estimated transaction fees and
expenses; and
. $4.4 million for payment of Carrols' estimated transaction fees and
expenses.
In addition, Carrols will replace or refinance Taco Cabana's outstanding
bank indebtedness following the completion of the merger, the outstanding
principal amount of which totaled approximately $42 million as of October 6,
2000.
Carrols will fund the merger, pay related fees and expenses and replace or
repay Taco Cabana's outstanding bank indebtedness through a debt financing
arranged by The Chase Manhattan Bank. Carrols has entered into a binding
commitment letter dated September 29, 2000 with The Chase Manhattan Bank and
Chase Securities, Inc. pursuant to which Chase Manhattan has agreed to provide
all such financing, and certain additional financing, to Carrols.
Pursuant to the terms of the binding commitment letter, Chase Manhattan has
agreed to lend up to $250 million to Carrols to finance the merger and pay
related fees and expenses, to replace or repay Taco Cabana's outstanding bank
indebtedness, to refinance existing bank indebtedness of Carrols and to be
used for Carrols' working capital, new store development, permitted
acquisitions and other general corporate purposes. Chase Manhattan's
obligation to provide the financing pursuant to the commitment letter is
subject to the preparation and execution of a definitive loan agreement and
related documents and certain other customary conditions, including the
following:
. there not occurring or becoming known to Chase Manhattan any material
adverse condition or material adverse change in or affecting the
business, operations, property, condition (financial or otherwise) or
prospects of Carrols, its subsidiaries and Taco Cabana, taken as a
whole;
. there not having occurred a material disruption of or a material adverse
change in financial, banking or capital market conditions that, in Chase
Manhattan's reasonable judgment, could materially impair the syndication
of the loan facility; and
. the execution on or before March 31, 2001 of definitive documentation
with respect to the loan facility satisfactory to Chase Manhattan and
its counsel.
Material U.S. Federal Income Tax Consequences
The following discussion summarizes the material U.S. federal income tax
consequences of the merger to holders of Taco Cabana common stock. The
discussion is based on the current provisions of the Internal Revenue
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Code of 1986, existing and proposed Treasury Regulations, interpretive rulings
of the Internal Revenue Service, and court decisions, all of which are subject
to change at any time, possibly with retroactive effect. Any such change could
affect the continuing accuracy of this discussion.
Holders of Taco Cabana common stock should be aware that this discussion
does not deal with all federal income tax considerations that may be relevant
to all stockholders in light of their particular circumstances or to
stockholders who are subject to special treatment under the Internal Revenue
Code; thus, for example, the discussion may not be applicable to insurance
companies, tax-exempt organizations, financial institutions, nonresident alien
individuals, or foreign entities. Other holders with special considerations
include holders that are subject to the alternative minimum tax provisions of
the Internal Revenue Code, that do not hold their shares of Taco Cabana common
stock as a capital asset, that acquired their shares in connection with stock
option plans or in other compensatory transactions, or that hold shares in a
hedging transaction or as part of a straddle or conversion transaction. In
addition, the following discussion does not address the tax consequences of
the merger under foreign, state, or local tax laws or the tax consequences of
transactions effectuated before or after, or concurrently with, the merger.
Nor does this discussion address the tax consequences of payments by Taco
Cabana to the holders of Taco Cabana stock options or other stock-based
awards.
Taco Cabana will not request a ruling from the Internal Revenue Service in
connection with the merger.
ACCORDINGLY, HOLDERS OF TACO CABANA COMMON STOCK OR STOCK OPTIONS ARE URGED
TO CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER IN THEIR PARTICULAR CIRCUMSTANCES.
Receipt of cash for shares of Taco Cabana common stock in the merger will be
a taxable transaction for U.S. federal income tax purposes. Consequently,
subject to the limitations and qualifications referred to in this section, the
merger generally will result in the following U.S. federal income tax
consequences to the holders of Taco Cabana common stock who hold that stock as
a capital asset:
1. A holder of Taco Cabana common stock who receives cash for his, her or
its common stock in the merger will generally recognize capital gain or
loss in an amount equal to the excess of the cash received by the holder
over the holder's tax basis in his, her or its shares of Taco Cabana common
stock.
2. The capital gain or loss will generally be long-term capital gain or
loss if the holder has held his, her or its Taco Cabana common stock for
more than one year.
3. A holder of Taco Cabana common stock who exercises his, her or its
appraisal rights and receives a cash payment for his, her or its stock
generally will recognize capital gain or loss measured by the difference
between the holder's tax basis in the stock and the amount of cash
received.
4. Certain noncorporate holders of Taco Cabana common stock may be
subject to backup withholding at a 31% rate on cash payments received in
exchange for Taco Cabana common stock, or received upon the exercise of
appraisal rights. Backup withholding generally will not apply, however, to
a holder who furnishes a correct taxpayer identification number and
certifies under penalties of perjury that the number is correct and that
he, she or it is not subject to backup withholding on the substitute Form
W-9 included in the letter of transmittal, or is otherwise exempt from
backup withholding.
THE PRECEDING DISCUSSION IS NOT A COMPLETE ANALYSIS OR DISCUSSION OF ALL
POTENTIAL TAX EFFECTS RELEVANT TO THE MERGER. HOLDERS OF TACO CABANA COMMON
STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISERS AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO THEM, INCLUDING TAX RETURN REPORTING
REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL, AND OTHER
TAX LAWS, AND THE EFFECTS OF ANY PROPOSED CHANGES IN THE TAX LAWS.
Accounting Treatment
Taco Cabana expects that Carrols will account for the merger as a "purchase"
in accordance with generally accepted accounting principles.
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Regulatory Matters
The merger is subject to the requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, which prevents specified transactions from being
completed until required information and materials are furnished to the
Antitrust Division of the Department of Justice and the Federal Trade
Commission and specified waiting periods are terminated or expire. Taco Cabana
and Carrols filed notification and report forms under the HSR Act with the FTC
on October 20, 2000. On October 31, 2000, the FTC advised Taco Cabana that it
had been granted early termination of the waiting period under the HSR Act.
At any time before or after the closing of the merger, even though the
waiting period has terminated, the FTC, the Antitrust Division or state
attorneys general could take any action under the antitrust laws they deem
necessary or desirable in the public interest, including seeking to enjoin the
closing of the merger.
Additional Interests of Taco Cabana's Management
In considering the recommendation of the board of directors, you should be
aware that some of Taco Cabana's officers and directors have interests in the
merger as employees and/or directors of Taco Cabana that are different from,
or in addition to, your interests as a Taco Cabana stockholder. These
interests include severance agreements, stock options and continuation as
executive officers of Taco Cabana and its subsidiaries. When making the
determination to approve and recommend approval of the merger to Taco Cabana
stockholders, the Taco Cabana board was aware of and took into consideration
these interests. To Taco Cabana's knowledge, the executive officers and
directors of Taco Cabana do not have any material interests in the merger,
apart from their interests as Taco Cabana stockholders, other than as
described below.
Treatment of Options. Some of our directors, officers and employees hold
options to acquire shares of our common stock under various stock option plans
or otherwise. In the merger, all such outstanding options will be cancelled in
exchange for a cash payment from Taco Cabana for each Taco Cabana share
subject to the option equal to the excess, if any, of $9.04 over the per-share
exercise price of the option.
In the aggregate, our directors and executive officers will receive
$3,006,376 in cash, before taxes and any withholding, in respect of their
stock options upon completion of the merger. The following table sets forth
the cash amounts, before taxes and any withholding, that each director and
executive officer of Taco Cabana will receive in respect of his or her stock
options upon completion of the merger.
<TABLE>
<CAPTION>
Payment
Upon
Name Completion
---- ----------
<S> <C>
Stephen V. Clark, Chief Executive Officer, President and
Director....................................................... $1,074,500
Cecil Schenker, Director........................................ 492,827
David Lloyd, Senior Vice President--Finance, CFO and Treasurer.. 393,500
Douglas Gammon, Senior VP--Human Resources & People
Development.................................................... 375,875
Richard Sherman, Director....................................... 358,490
William Nimmo, Director......................................... 122,348
Lionel Sosa, Director........................................... 110,978
Rodney Sands, Director.......................................... 77,858
</TABLE>
Indemnification and Insurance. Pursuant to the merger agreement, for six
years after the closing date of the merger, Taco Cabana will indemnify and
hold harmless the individuals who are officers and directors at the effective
time of the merger for acts or omissions occurring before the completion of
the merger to the extent provided under our articles of incorporation and by-
laws in effect on the date of the merger agreement. For six years after the
completion of the merger (or such shorter periods as Carrols maintains similar
policies for the benefit of its directors and officers), Taco Cabana will
provide officers' and directors' liability insurance for acts or omissions
occurring before the completion of the merger covering each such person
currently covered by our officers' and directors' liability insurance policy
on terms with respect to coverage and amount no less favorable than those in
effect on the date of the merger agreement; provided, that the cost of such
insurance does not exceed 150% of the average annual premiums currently paid
by us, but in such case will provide as much coverage as possible for such
amount.
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Severance Agreements. Three of Taco Cabana's executive officers and
directors have entered into severance agreements with Taco Cabana. These
agreements provide for severance payments in the event of termination of these
officers' employment by Taco Cabana. Stephen V. Clark, Chief Executive
Officer, President and Director, and David G. Lloyd, Senior Vice President--
Finance, Chief Financial Officer and Treasurer, will be entitled to receive,
upon termination by Taco Cabana for any reason other than for cause, 12 and 6
months severance pay, respectively, (or 18 and 9 months severance pay,
respectively, if terminated due to a change of control), based upon their
annual base compensation upon the date of termination. Douglas Gammon, Senior
Vice President--Human Resources and People Development, will be entitled to
receive twelve months severance pay in the event of a change of control, if he
elects within 60 days of such change of control to receive such severance
payment rather than to continue his employment.
Executive Officers and Directors of the Surviving Corporation
The directors of Taco Cabana upon the effective time of the merger will be
the directors of Spur Acquisition Corp., and they will remain directors until
the earlier of their resignation or removal or until their respective
successors are duly elected and qualified, as the case may be. After the
merger, the directors of Taco Cabana are expected to be Alan Vituli, Chairman
and Chief Executive Officer of Carrols, Daniel T. Accordino, President, Chief
Operating Officer and a director of Carrols, Nicholas A. Castaldo, President
and Chief Operating Officer of Carrols' Pollo Tropical division, and Stephen
V. Clark, Chief Executive Officer, President and Chief Operating Officer of
Taco Cabana.
Under the merger agreement, the executive officers of Spur Acquisition Corp.
immediately before the effective time of the merger will be the executive
officers of Taco Cabana after the merger. It is anticipated that Stephen V.
Clark, President and Chief Executive Officer of Taco Cabana, and other senior
members of Taco Cabana's management team, will continue to manage Taco
Cabana's business.
Consequences of the Merger; Plans for Taco Cabana After the Merger
As a result of the completion of the merger:
. all of the capital stock of Taco Cabana will be owned by Carrols;
. all current stockholders of Taco Cabana will not participate in Taco
Cabana's future earnings and growth;
. Carrols and its affiliates will have the opportunity to benefit from any
earnings and growth of Taco Cabana, and will bear the risk of any
decrease in Taco Cabana's value; and
. Taco Cabana common stock will no longer be traded on the Nasdaq National
Market, price quotations will no longer be available and the
registration of Taco Cabana common stock under the Exchange Act will be
terminated.
Following the completion of the merger, Carrols and its affiliates expect
that the business and operations of Taco Cabana will be continued
substantially as they are currently being conducted. The board of directors
and management of the surviving corporation will, however, continue to
evaluate Taco Cabana's business, operations, corporate structure and
organization and will make changes as they deem appropriate.
Conduct of Taco Cabana's Business if the Merger is Not Completed
If the merger is not completed, we intend to continue to operate our
business substantially in the manner it is operated today. From time to time,
we will evaluate and review Taco Cabana's business operations, properties,
dividend policy and capitalization, and make such changes as are deemed
appropriate, and continue to seek to identify strategic and financial
alternatives to maximize stockholder value.
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THE MERGER AGREEMENT
The following is a brief summary of the material provisions of the merger
agreement. Because this summary is not a complete description of the merger
agreement, we urge you to read the merger agreement in its entirety for a
complete description of the terms and conditions of the merger. We attach a
copy of the merger agreement to this proxy statement as Appendix A and
incorporate it by reference in this proxy statement.
The Merger
The merger agreement provides that Spur Acquisition Corp., a wholly-owned
subsidiary of Carrols, will merge with and into Taco Cabana. At the completion
of the merger, Spur Acquisition Corp. will cease to exist and Taco Cabana will
be the surviving corporation in the merger and will become a wholly-owned
subsidiary of Carrols.
Completion of the Merger
Unless the parties to the merger agreement agree otherwise, the closing of
the merger will take place after all of the conditions to the merger have been
fulfilled or waived. The merger will become effective upon the filing of
certificate of merger with the Secretary of State of the State of Delaware or
at a later time if so specified in the certificate of merger. Taco Cabana and
Carrols have agreed to have the certificate of merger filed as soon as
practicable after the stockholders' meeting.
Certificate of Incorporation, By-laws, Directors and Officers of the Surviving
Corporation
When the merger is completed,
. the certificate of incorporation of Spur Acquisition Corp. will become
the certificate of incorporation of the surviving corporation;
. the by-laws of Spur Acquisition Corp. will become the by-laws of the
surviving corporation;
. the directors of Spur Acquisition Corp. will become the directors of the
surviving corporation; and
. the officers of Spur Acquisition Corp. will become the officers of the
surviving corporation.
Representations and Warranties
The merger agreement contains various customary representations and
warranties by Taco Cabana, relating to, among other matters:
. its and its subsidiaries' organization, good standing, and
qualification;
. its capital structure;
. its corporate authority to enter into the contemplated transactions;
. non-violation of its governing instruments or material agreements;
. required governmental approvals of the merger;
. the accuracy of its filings with the SEC;
. absence of certain changes since January 2, 2000, the date of its last
audited balance sheet;
. absence of undisclosed litigation and liabilities;
. tax matters;
. its and its subsidiaries' owned and leased properties;
. its and its subsidiaries' material contracts;
. its and its subsidiaries' intellectual property;
. its and its subsidiaries' employee benefits plans;
. compliance with laws;
. franchise matters;
. inapplicability of any takeover statute or any anti-takeover provision
in its articles of incorporation or by-laws to the merger, including
under Taco Cabana's stockholder rights plan;
. votes required to approve the merger;
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. environmental matters; and
. labor matters.
The merger agreement also contains various representations and warranties by
Carrols and Spur Acquisition Corp., relating to, among other matters:
. their organization, good standing, and qualification;
. their corporate authority to enter into the contemplated transactions;
. the veracity and completeness of information provided by Carrols and
Spur Acquisition Corp. in connection with the preparation of this proxy
statement;
. that Spur Acquisition Corp. has engaged in no other business activities
and has conducted its operations only as contemplated by the merger
agreement; and
. the capability of Carrols to secure the financing for this transaction.
Please see Article III of the merger agreement for a full statement of the
representations and warranties of the parties. The representations and
warranties terminate upon the completion of the merger.
Covenants
Conduct of Taco Cabana's Business Before the Merger. Taco Cabana and its
subsidiaries are subject to restrictions on their business conduct and
operations until the merger is completed. Taco Cabana has agreed to conduct
its business only in the ordinary course and to use reasonable efforts to
preserve intact its business organization, to keep available the services of
its present officers and key employees, and to preserve its relationships with
persons having significant business dealings with it. Accordingly, Taco Cabana
has agreed with limited exceptions, and except to the extent the merger
agreement contemplates otherwise or with the prior written consent of Carrols,
that it will not take any of the following actions:
. splitting, combining, or reclassifying any of its capital stock,
declaring or paying any dividends or distributions, or redeeming its
stock;
. amending its organizational documents;
. issuing or authorizing any shares of capital stock or any securities
convertible into or exchangeable for shares of capital stock;
. acquiring any capital assets, making any capital expenditures outside of
its current operating plan, or purchasing any business;
. selling or leasing any material assets or properties;
. incurring indebtedness or making any guarantees of indebtedness of
another person;
. entering into any new, or amending any existing, franchise agreements;
. adopting or modifying any employee benefit plan or arrangement or
increasing employee compensation or benefits;
. entering into any collective bargaining agreement;
. making material changes to its accounting principles, methods, or
practices; or
. entering into material contracts.
No Solicitation of Acquisition Proposals. Taco Cabana has agreed that it
will not, and that it will not permit its directors, employees, agents, and
representatives to
. initiate or solicit any inquiries or the making of any proposal or offer
with respect to,
. engage in any negotiations concerning, or
. provide any confidential information or data to any person relating to
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a merger, reorganization, share exchange, or similar transaction, or a
purchase of a significant portion of the assets or any equity securities of,
it or any of its subsidiaries.
However, Taco Cabana may provide information in response to a request by a
person who has made an unsolicited bona fide written acquisition proposal if:
. to do otherwise would result in a breach of the directors' fiduciary
duties under applicable law;
. Taco Cabana notifies Carrols of the third-party offer and keeps Carrols
fully informed with respect to the third-party offer; and
. the third party enters into a confidentiality agreement with Taco Cabana
no less favorable to Taco Cabana than the confidentiality agreement
between Taco Cabana and Carrols.
Indemnification and Directors' and Officers' Insurance. The merger agreement
provides that, after the completion of the merger, the surviving corporation
will indemnify each present director and officer of Taco Cabana against any
costs, expenses (including reasonable attorneys' fees), judgments, or damages
incurred in connection with any claim, lawsuit, or other proceeding arising
out of matters existing or occurring at or before the completion of the
merger, to the fullest extent that Taco Cabana would have been permitted under
Delaware law and its certificate of incorporation or by-laws in effect on the
date of the merger agreement to indemnify any such person.
The surviving corporation is obligated either to maintain Taco Cabana's
existing directors' and officers' liability insurance or to obtain directors'
and officers' liability insurance that is substantially comparable to Taco
Cabana's existing insurance for a period of six years after the completion of
the merger, so long as the annual premium for such insurance would not exceed
150% of the annual premium in effect during the current year. However, if such
coverage cannot be maintained during the six-year period at a cost not in
excess of 150% of the premium in effect during the current year, then the
surviving corporation will obtain as much coverage as can be obtained at such
cost.
Amendment to Stockholder Rights Plan. Taco Cabana's board of directors has
taken all necessary action to render Taco Cabana's stockholder rights plan
inapplicable to the merger. To effect this result, the board of directors
approved an amendment to the Taco Cabana's stockholder rights agreement on
October 4, 2000, providing that Carrols would not be deemed to be an
"acquiring person" in connection with the merger and that the rights plan
would not be triggered as a result of the merger.
Please see Articles IV and V of the merger agreement for a full statement of
the covenants of the parties before and after the completion of the merger.
Conditions to Completing the Merger
Conditions to Each Party's Obligation. The respective obligation of each
party to complete the merger is subject to the satisfaction or waiver of the
following conditions:
. approval of the merger agreement and the merger by Taco Cabana
stockholders;
. all required filings with, or approvals by, governmental entities shall
have been made or received; and
. the absence of any legal prohibition against the merger.
Conditions to Carrols' Obligation. The obligation of Carrols to complete the
merger is subject to the satisfaction or waiver of the following conditions:
. the material accuracy of the representations and warranties of Taco
Cabana contained in the merger agreement;
. the material compliance with obligations to be performed by Taco Cabana
under the merger agreement;
. all required consents and approvals of landlords and other material
consents of third parties have been obtained;
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. the absence of any burdensome condition imposed by a governmental entity
which, in connection with its regulatory authority, imposes any
requirement on Carrols, the surviving corporation or their respective
subsidiaries that would render the transactions contemplated by the
merger agreement and the merger economically unfeasible;
. the absence of any material adverse change in Taco Cabana's and its
subsidiaries' businesses, taken as a whole;
. the absence of any legal prohibition against the merger or other
material litigation instituted by any governmental authority; and
. Carrols shall not have been unable to complete the merger and the other
transactions contemplated by the merger agreement by reason of
inadequate financing as a result of the lenders described in its
commitment letter with The Chase Manhattan Bank refusing to complete the
financing specified in the commitment letter pursuant to and in
accordance with the terms of the commitment letter by reason of the
lenders' assertion that the condition precedent contained in the
commitment letter regarding no material adverse changes has not been
fulfilled or satisfied.
Conditions to Taco Cabana's Obligation. The obligation of Taco Cabana to
complete the merger is subject to the satisfaction or waiver of the following
conditions:
. the material accuracy of the representations and warranties of Carrols
and Spur Acquisition Corp. contained in the merger agreement; and
. the material compliance by Carrols and Spur Acquisition Corp. of their
respective obligations to be performed under the merger agreement.
Please refer to Article VI of the merger agreement for a full statement of
the conditions to completing the merger.
Termination of the Merger Agreement
The parties to the merger agreement may agree to terminate the merger
agreement by mutual consent at any time before completing the merger, even
after Taco Cabana's stockholders have approved the merger agreement and the
merger.
Either Carrols or Taco Cabana may terminate the merger agreement if:
. the merger is not completed by June 30, 2001, unless the party seeking
to terminate the agreement has caused the failure to complete the merger
by failing to fulfill its obligations under the merger agreement;
. any permanent injunction or action by any governmental entity preventing
the consummation of the merger shall have become final and non
appealable;
. the other party shall have materially breached a representation,
warranty, covenant or agreement of that party contained in the merger
agreement;
. a representation or warranty of the other party shall have become untrue
such that the conditions that the representations and warranties of such
party or an obligation of such party would be incapable of being
satisfied by June 30, 2001; or
. Taco Cabana's stockholders do not approve the merger agreement and the
merger at the special stockholders' meeting.
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In addition, Carrols may terminate the merger agreement if Taco Cabana's
board of directors:
. withdraws or adversely modifies its recommendation of the merger
agreement, the merger or any of the transactions contemplated by the
merger agreement;
. approves or recommends a competing transaction to Taco Cabana's
stockholders;
. continues discussions relating to a third-party acquisition or other
business combination offer more than 21 calendar days after such offer
is received; or
. does not reject a tender offer or exchange offer proposal by a third
party within 10 business days of its commencement or the date such
proposal is first publicly disclosed.
Termination Fee and Expense Reimbursement
Taco Cabana has agreed to pay Carrols an amount equal to $4,500,000 plus all
of Carrols' expenses not to exceed $850,000 in the event the merger agreement
is terminated:
. due to a material breach by Taco Cabana of an agreement, representation
or warranty and Taco Cabana enters into a definitive agreement at any
time prior to or within the twelve months after the date of the merger
agreement providing for an acquisition or a business combination at a
price per share greater than $9.04;
. because the Taco Cabana stockholders do not approve the merger agreement
and the merger at the special stockholders' meeting and at the time of
the special stockholders' meeting there exists an alternative proposal
for a business combination with an entity other than Carrols which
either (1) the Taco Cabana board of directors has not publicly opposed
or (2) is consummated or a definitive agreement relating to such
business combination is entered into at any time prior to or within
twelve months after the termination of the merger agreement;
. by Carrols upon the Taco Cabana board of directors withdrawing or
adversely modifying its recommendation of the merger agreement, the
merger, or any of the transactions contemplated by the merger agreement
or recommending a competing transaction providing for an acquisition or
business combination;
. by Carrols upon Taco Cabana's board of directors continuing discussions
relating to a third-party acquisition or business combination offer more
than 21 calendar days after such offer is received; or
. by Carrols upon Taco Cabana's board of directors failing to reject a
tender offer or exchange offer proposal by a third party within 10
business days of its commencement or the date such proposal is first
publicly disclosed.
Taco Cabana has agreed to pay Carrols' expenses, not to exceed $850,000, in
the event Carrols terminates the merger agreement due to Taco Cabana's
material breach of an agreement, representation or warranty, but Taco Cabana
has not entered into a definitive agreement within 12 months of the date of
the merger agreement for a business combination at a price per share greater
than $9.04.
Carrols has agreed to reimburse Taco Cabana for its expenses, not to exceed
$850,000, in the event the merger agreement is terminated solely as a result
of Carrols' inability to obtain financing due to its lenders refusing to
consummate the financing due to its or their assertion that a material adverse
change has occurred for any reason other than a material adverse change in or
affecting the business, operations, property, condition (financial or
otherwise) or prospects of Taco Cabana and its subsidiaries, taken as a whole.
THE SPECIAL MEETING
General
This proxy statement is being furnished to Taco Cabana's stockholders as
part of the solicitation of proxies by Taco Cabana's board of directors for
use at a special meeting of stockholders to be held on Monday, December 18,
2000, at 10:00, a.m., Central Standard Time, at Taco Cabana's headquarters,
8918 Tesoro Drive,
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Suite 200, San Antonio, Texas. The purpose of the special meeting is for our
stockholders to consider and vote upon a proposal to approve the merger
agreement between Taco Cabana, Carrols, and Spur Acquisition Corp. and the
merger contemplated by the merger agreement.
Record Date and Voting; Quorum
The holders of record of Taco Cabana shares as of the close of business on
the record date of November 8, 2000 are entitled to receive notice of, and to
vote at, the special meeting. On that date, there were 11,651,232 shares of
Taco Cabana common stock outstanding held by 840 holders of record. The
presence of holders of a majority of the outstanding shares of Taco Cabana
common stock as of the record date on November 8, 2000, represented in person
or by proxy, will constitute a quorum for purposes of the special meeting. A
quorum is necessary to hold the special meeting. If a stockholder abstains
from voting on the merger agreement, then the shares held by that stockholder
will be deemed present at the meeting for purposes of determining a quorum. If
a broker returns a "non-vote" proxy, indicating a lack of authority to vote on
the merger, then the shares covered by such non-vote will be deemed present at
the special meeting for purposes of determining a quorum.
Required Vote
You are entitled to cast one vote at the special meeting for each share of
Taco Cabana common stock you held on November 8, 2000. Completion of the
merger requires the approval of the merger agreement by the affirmative vote
of the holders of a majority of the outstanding shares of Taco Cabana common
stock. You may vote your shares by voting your proxy or by appearing at the
special meeting and voting in person. Abstentions and broker "non-votes" will
have the same effect as a vote against the merger agreement and the merger.
All of our directors and executive officers have indicated to us that they
intend to vote their shares in favor of the merger agreement and the merger.
Proxies; Revocation
There are three ways to vote your proxy. Your telephone or Internet vote
authorizes the proxies to vote your shares in the same manner as if you mark,
sign and return your proxy card.
Vote by telephone, toll free--1-877-550-2480
Use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a
week. You will be prompted to enter your control number, which appears on the
enclosed proxy card. Follow the simple instructions the recorded voice
provides you.
Vote by Internet--http://www.computershare.com/us/proxy
Access the above Internet site to vote your proxy 24 hours a day, 7 days a
week. You will be prompted to enter your control number, which appears on the
enclosed proxy card, to create an electronic ballot.
Vote by mail
Mark, sign and date your proxy card and return it in the postage-paid
envelope provided.
IF YOU VOTE BY TELEPHONE OR INTERNET, PLEASE DO NOT MAIL YOUR PROXY CARD.
If you vote your shares of Taco Cabana common stock by signing and returning
a proxy card, your shares will be voted at the special meeting as you indicate
on the card. If no instructions are indicated on your signed proxy card, your
shares of Taco Cabana common stock will be voted "FOR" the approval of the
merger proposal.
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If your shares are held in "street name" by your broker, do not follow the
above voting instructions. Rather, your broker will provide you with separate
written instructions on voting your shares, and you should follow those
instructions.
You may revoke your proxy at any time before the proxy is voted at the
special meeting. A proxy may be revoked prior to the vote at the special
meeting by submitting a written revocation to the Secretary of Taco Cabana at
8918 Tesoro Drive, Suite 200, San Antonio, Texas 78217, or by submitting a new
proxy, in either case, dated after the date of the proxy that is being
revoked, or by again following the procedures for voting by telephone or the
Internet at a later time. However, simply attending the special meeting will
not revoke a proxy.
Expenses of Proxy Solicitation
All expenses incurred in connection with solicitation of the enclosed proxy
will be paid by Taco Cabana. Officers and employees of Taco Cabana may solicit
proxies by telephone or in person. However, they will not be paid amounts in
excess of their customary compensation for soliciting proxies. Taco Cabana
also will request that persons and entities holding shares in their names or
in the names of their nominees that are beneficially owned by others send
proxy materials to and obtain proxies from those beneficial owners, and will
reimburse those holders for their reasonable expenses in performing those
services. Taco Cabana has retained Georgeson Shareholder Communications Inc.
as solicitation agent and information agent to assist in the solicitation of
proxies, using the means referred to above, at an anticipated cost of $7,500,
plus reimbursement of out-of-pocket expenses.
Adjournments
Although it is not expected, the special meeting may be adjourned for the
purpose of soliciting additional proxies. Any adjournment of the special
meeting may be made without notice, other than by an announcement made at the
special meeting, by approval of the holders of a majority of the outstanding
shares of Taco Cabana common stock present in person or represented by proxy
at the special meeting, whether or not a quorum exists. Any proxies received
by Taco Cabana will be voted in favor of an adjournment of the special meeting
if the purpose of the adjournment is to provide additional time to solicit
votes to approve the merger agreement, unless the stockholder has voted
against the merger proposal. Thus, proxies voting against the merger will not
be used to vote for adjournment of the special meeting for the purpose of
providing additional time to solicit votes to approve the merger agreement and
the merger. Any adjournment or postponement of the special meeting for the
purpose of soliciting additional proxies will allow Taco Cabana stockholders
who have already sent in their proxies to revoke them at any time prior to
their use.
APPRAISAL RIGHTS
Under Section 262 of the Delaware General Corporation Law ("DGCL"), any
holder of common stock who does not wish to accept cash in the amount of $9.04
per share of Taco Cabana common stock may dissent from the merger and elect to
have the fair value of such stockholder's shares of common stock (exclusive of
any element of value arising from the accomplishment or expectation of the
merger) judicially determined and paid to such stockholder in cash, together
with a fair rate of interest, if any, provided that such stockholder complies
with the provisions of Section 262.
The following discussion is not a complete statement of the law pertaining
to appraisal rights under the DGCL, and is qualified in its entirety by the
full text of Section 262, which is provided in its entirety as Appendix C to
this proxy statement. All references in Section 262 and in this summary to a
"stockholder" are to the record holder of the shares of common stock as to
which appraisal rights are asserted. A person having a beneficial interest in
shares of common stock held of record in the name of another person, such as a
broker or nominee, must act promptly to cause the record holder to follow
properly the steps summarized below and in timely manner to perfect appraisal
rights.
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Under Section 262, where a proposed merger is to be submitted for approval
at a meeting of stockholders, as in the case of the special meeting, the
corporation, not less than 20 days prior to the meeting, must notify each of
its stockholders entitled to appraisal rights that such appraisal rights are
available and include in such notice a copy of Section 262. This proxy
statement will constitute such notice to the holders of common stock, and the
applicable statutory provisions of the DGCL are attached to this proxy
statement as Appendix C. Any stockholder who wishes to exercise such appraisal
rights or who wishes to preserve the right to do so should review carefully
the following discussion and Appendix C to this proxy statement. FAILURE TO
COMPLY WITH THE PROCEDURES SPECIFIED IN SECTION 262 TIMELY AND PROPERLY WILL
RESULT IN THE LOSS OF APPRAISAL RIGHTS. Moreover, because of the complexity of
the procedures for exercising the right to seek appraisal of the common stock,
Taco Cabana believes that stockholders who consider exercising such rights
should seek the advice of counsel.
Filing Written Objection; No Voting in Favor of the Merger
Any holder of common stock wishing to exercise the right to demand appraisal
under Section 262 of the DGCL must satisfy each of the following conditions:
. deliver to Taco Cabana a written demand for appraisal of such
stockholder's shares before the vote on the merger agreement at the
special meeting, which demand will be sufficient if it reasonably
informs Taco Cabana of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such holder's
shares;
. not vote the holder's shares of common stock in favor of the merger
agreement; a proxy that does not contain voting instructions will,
unless revoked, be voted in favor of the merger agreement; therefore, a
stockholder who votes by proxy and who wishes to exercise appraisal
rights must vote against the merger agreement or abstain from voting on
the merger agreement; and
. continuously hold such shares from the date of making the demand through
the effective time of the merger; a stockholder who is the record holder
of shares of common stock on the date the written demand for appraisal
is made but who thereafter transfers such shares prior to the effective
time of the merger will lose any right to appraisal in respect of such
shares.
Neither voting (in person or by proxy) against, abstaining from voting on or
failing to vote on the proposal to approve the merger agreement will
constitute a written demand for appraisal within the meaning of Section 262.
The written demand for appraisal must be in addition to and separate from any
such proxy or vote.
Only a holder of record of shares of common stock issued and outstanding
immediately prior to the effective time of the merger is entitled to assert
appraisal rights for the shares of common stock registered in that holder's
name. A demand for appraisal should
. be executed by or on behalf of the stockholder of record, fully and
correctly, as such stockholder's name appears on such stock
certificates;
. specify the stockholder's name and mailing address;
. specify the number of shares of common stock owned; and
. state that such stockholder intends thereby to demand appraisal of such
stockholder's common stock.
If the shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the demand should be made in that
capacity. If the shares are owned of record by more than one person as in a
joint tenancy or tenancy in common, the demand should be executed by or on
behalf of all owners. An authorized agent, including one or more joint owners,
may execute a demand for appraisal on behalf of a stockholder; however, the
agent must identify the record owner or owners and expressly disclose the fact
that, in executing the demand, the agent is acting as agent for such owner or
owners. A record holder such as a broker who holds shares as nominee for
several beneficial owners may exercise appraisal rights with respect to the
shares held for one or more beneficial owners while not exercising such rights
with respect to the shares held for
33
<PAGE>
one or more beneficial owners; in such case, the written demand should set
forth the number of shares as to which appraisal is sought, and where no
number of shares is expressly mentioned the demand will be presumed to cover
all shares held in the name of the record owner. Stockholders who hold their
shares in brokerage accounts or other nominee forms and who wish to exercise
appraisal rights are urged to consult their brokers to determine appropriate
procedures for the making of a demand for appraisal by such nominee.
A stockholder who elects to exercise appraisal rights pursuant to Section
262 should mail or deliver a written demand to: Taco Cabana, Inc., 8918 Tesoro
Drive, Suite 200, San Antonio, Texas 78217; Attention, David G. Lloyd,
Secretary.
Notice by Taco Cabana; Determination by the Court
Within ten days after the effective time of the merger, the surviving
corporation must send a notice as to the effectiveness of the merger to each
former stockholder of Taco Cabana who has made a written demand for appraisal
in accordance with Section 262 and who has not voted in favor of the merger
agreement. Within 120 days after the effective time of the merger, but not
thereafter, either the surviving corporation or any dissenting stockholder who
has complied with the requirements of Section 262 may file a petition in the
Delaware Chancery Court demanding a determination of the value of the shares
of common stock held by all dissenting stockholders. Taco Cabana is under no
obligation to and has no present intent to file a petition for appraisal, and
stockholders seeking to exercise appraisal rights should not assume that the
surviving corporation will file such a petition or that the surviving
corporation will initiate any negotiations with respect to the fair value of
such shares. Accordingly, stockholders who desire to have their shares
appraised should initiate any petitions necessary for the perfection of their
appraisal rights within the time periods and in the manner prescribed in
Section 262. Inasmuch as Taco Cabana has no obligation to file such a
petition, the failure of a stockholder to do so within the period specified
could nullify such stockholder's previous written demand for appraisal. In any
event, at any time within 60 days after the effective time of the merger (or
at any time thereafter with Taco Cabana's written consent), any stockholder
who has demanded appraisal has the right to withdraw the demand and to accept
the cash payment in the amount of $9.04 per share of Taco Cabana common stock.
Within 120 days after the effective time of the merger, any stockholder who
has complied with the provisions of Section 262 to that point in time will be
entitled to receive from the surviving corporation, upon written request, a
statement setting forth the aggregate number of shares not voted in favor of
the merger agreement and with respect to which demands for appraisal have been
received and the aggregate number of holders of such shares. The surviving
corporation must mail such statement to the stockholder within 10 days of
receipt of such request or within 10 days after expiration of the period for
delivery of demands for appraisal under Section 262, whichever is later.
A stockholder timely filing a petition for appraisal with the Court of
Chancery must deliver a copy to the surviving corporation, which will then be
obligated within 20 days to provide the Delaware Court of Chancery with a duly
verified list containing the names and addresses of all stockholders who have
demanded appraisal of their shares. After notice to such stockholders, the
Delaware Court of Chancery is empowered to conduct a hearing on the petition
to determine which stockholders are entitled to appraisal rights. The Delaware
Court of Chancery may require stockholders who have demanded an appraisal for
their shares and who hold stock represented by certificates to submit their
certificates to the Register in Chancery for notation thereon of the pendency
of the appraisal proceedings, and if any stockholder fails to comply with the
requirement, the Delaware Court of Chancery may dismiss the proceedings as to
that stockholder.
After determining the stockholders entitled to an appraisal, the Delaware
Court of Chancery will appraise the "fair value" of their shares, exclusive of
any element of value arising from the accomplishment or expectation of the
merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value. The costs of the action may be
determined by the Delaware Chancery Court and taxed upon the parties as the
Delaware Chancery Court deems equitable. Upon application of a dissenting
stockholder, the Delaware Chancery Court may also order that all or a portion
of the expenses incurred by any stockholder in
34
<PAGE>
connection with the appraisal proceeding, including, without limitation,
reasonable attorneys' fees and the fees and expenses of experts, be charged
pro rata against the value of all of the shares entitled to appraisal.
STOCKHOLDERS CONSIDERING SEEKING APPRAISAL SHOULD BE AWARE THAT THE FAIR VALUE
OF THEIR SHARES AS DETERMINED UNDER SECTION 262 COULD BE MORE THAN, THE SAME
AS OR LESS THAN THE AMOUNT OF $9.04 PER SHARE OF TACO CABANA COMMON STOCK
PURSUANT TO THE MERGER AGREEMENT THAT THEY WOULD RECEIVE IF THEY DID NOT SEEK
APPRAISAL OF THEIR SHARES. STOCKHOLDERS SHOULD ALSO BE AWARE THAT INVESTMENT
BANKING OPINIONS ARE NOT OPINIONS AS TO FAIR VALUE UNDER SECTION 262.
In determining fair value and, if applicable, a fair rate of interest, the
Delaware Chancery Court is to take into account all relevant factors. In
Weinberger v. UOP, Inc., the Delaware Supreme Court discussed the factors that
could be considered in determining fair value in an appraisal proceeding,
stating that "proof of value by any techniques or methods that are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered, and that "fair price obviously requires
consideration of all relevant factors involving the value of a company." The
Delaware Supreme Court stated that, in making this determination of fair
value, the court must consider market value, asset value, dividends, earnings
prospects, the nature of the enterprise and any other facts that could be
ascertained as of the date of the merger that throw any light on future
prospects of the merged corporation. The Delaware Supreme Court further stated
that "elements of future value, including the nature of the enterprise, that
are known or susceptible of proof as of the date of the merger and not the
product of speculation, may be considered." Section 262 provides that fair
value is to be "exclusive of any element of value arising from the
accomplishment or expectation of the merger."
Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the effective time of the merger, be entitled to
vote the shares subject to such demand for any purpose or be entitled to the
payment of dividends or other distributions on those shares (except dividends
or other distributions payable to holders of record of shares as of a record
date prior to the effective time of the merger).
Any stockholder may withdraw its demand for appraisal and accept cash in the
amount of $9.04 per share of Taco Cabana stock by delivering to the surviving
corporation a written withdrawal of such stockholder's demands for appraisal,
except that (1) any such attempt to withdraw made more than 60 days after the
effective time of the merger will require written approval of the surviving
corporation and (2) no appraisal proceeding in the Delaware Chancery Court
shall be dismissed as to any stockholder without the approval of the Delaware
Chancery Court, and such approval may be conditioned upon such terms as the
Delaware Chancery Court deems just. If the surviving corporation does not
approve a stockholder's request to withdraw a demand for appraisal when such
approval is required or if the Delaware Chancery Court does not approve the
dismissal of an appraisal proceeding, the stockholder would be entitled to
receive only the appraised value determined in any such appraisal proceeding,
which value could be lower than the value of $9.04 per share of Taco Cabana
common stock.
FAILURE TO COMPLY STRICTLY WITH ALL OF THE PROCEDURES SET FORTH IN SECTION
262 OF THE DGCL WILL RESULT IN THE LOSS OF A STOCKHOLDER'S STATUTORY APPRAISAL
RIGHTS. CONSEQUENTLY, ANY STOCKHOLDER WISHING TO EXERCISE APPRAISAL RIGHTS IS
URGED TO CONSULT LEGAL COUNSEL BEFORE ATTEMPTING TO EXERCISE SUCH RIGHTS.
35
<PAGE>
PRINCIPAL STOCKHOLDERS
AND STOCK OWNERSHIP OF MANAGEMENT AND OTHERS
The following table sets forth, as of October 6, 2000, the beneficial
ownership of our common stock by all of our directors and executive officers
and all stockholders beneficially owning in excess of five percent of our
outstanding shares. Unless otherwise indicated, the mailing address for each
person listed in the table is 8918 Tesoro Drive, Suite 200, San Antonio, Texas
78217.
<TABLE>
<CAPTION>
Shares
Beneficially
Owned
---------------
Name Number Percent
---- ------- -------
<S> <C> <C>
Stephen V. Clark(1)............................................. 253,063 2.1%
David G. Lloyd(2)............................................... 134,000 1.1%
Douglas Gammon(3)............................................... 60,000 *
William J. Nimmo(4)............................................. 32,029 *
Richard Sherman(5).............................................. 100,061 *
Cecil Schenker(6)............................................... 117,715 1.0%
Lionel Sosa(7).................................................. 24,827 *
Rod Sands(8).................................................... 112,212 *
Dimensional Fund Advisors, Inc.(9).............................. 957,064 7.8%
All directors and officers as a group (9 persons)(10)........... 848,907 6.9%
</TABLE>
--------
* Less than 1%.
(1) Includes 240,000 shares subject to presently exercisable options (or
those exercisable within 60 days). Excludes 60,000 shares issuable
pursuant to options which are not currently exercisable (or exercisable
within 60 days).
(2) Includes 120,000 shares subject to presently exercisable options (or
those exercisable within 60 days). Excludes 30,000 shares issuable
pursuant to options which are not currently exercisable (or exercisable
within 60 days).
(3) Includes 55,000 shares subject to presently exercisable options (or
those exercisable within 60 days). Excludes 45,000 shares issuable
pursuant to options which are not currently exercisable (or exercisable
within 60 days).
(4) Includes 24,000 shares subject to presently exercisable options (or
those exercisable within 60 days). Excludes 8,000 shares issuable
pursuant to options which are not currently exercisable (or exercisable
within 60 days).
(5) Includes 93,003 shares subject to presently exercisable options (or
those exercisable within 60 days). Excludes 3,000 shares issuable
pursuant to options which are not currently exercisable (or exercisable
within 60 days).
(6) Includes 113,503 shares subject to presently exercisable options (or
those exercisable within 60 days). Excludes 3,000 shares issuable
pursuant to options which are not currently exercisable (or exercisable
within 60 days).
(7) Includes 21,000 shares subject to presently exercisable options (or
those exercisable within 60 days). Excludes 8,000 shares issuable
pursuant to options which are not currently exercisable (or exercisable
within 60 days).
(8) Includes 13,000 shares subject to presently exercisable options (or
those exercisable within 60 days). Excludes 13,000 shares issuable
pursuant to options which are not currently exercisable (or exercisable
within 60 days).
(9) Based upon Schedule 13G, filed in February 2000, indicating beneficial
ownership, sole dispositive power and sole voting power as stated in the
table. Address: 1299 Ocean Avenue, 11th Floor, Santa Monica, CA 90401.
(10) Includes 694,506 shares subject to presently exercisable options (or
those exercisable within 60 days). Excludes 230,000 shares issuable
pursuant to options which are not currently exercisable (or exercisable
within 60 days).
36
<PAGE>
EXECUTIVE OFFICERS AND DIRECTORS OF TACO CABANA
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
Stephen V. Clark..................... Chief Executive Officer, President and
Director
Douglas Gammon....................... Senior Vice President--Human Resources and
People Development
David G. Lloyd....................... Senior Vice President--Finance, Chief
Financial Officer, Secretary and Treasurer
William J. Nimmo..................... Director
Rod Sands............................ Director
Cecil Schenker....................... Director
Richard Sherman...................... Director
Lionel Sosa.......................... Director
</TABLE>
Mr. Clark has served as Taco Cabana's Chief Executive Officer since November
1996, and as the President, Chief Operating Officer, and as a Director since
April 1995. Prior to that, Mr. Clark was with Church's Chicken, a division of
America's Favorite Chicken, for seventeen years with his final title having
been Senior Vice President and Concept General Manager. He also served on the
executive committee of America's Favorite Chicken and was on the Board of
Directors of Church's Operators Purchasing Association. In his final position
with America's Favorite Chicken, Mr. Clark was primarily responsible for the
day-to-day operations of over 1,100 company-owned and franchised units with
aggregate sales volume in excess of $600 million.
Mr. Gammon joined Taco Cabana in March 1997 as Senior Vice President--Human
Resources and People Development. From December 1989 to March 1997, Mr. Gammon
served as Vice President of Human Resources at Marriott's foodservice
division, which had over 15,000 employees in 50 states. Mr. Gammon has over 20
years of experience in the human resources and training fields as well as over
six years experience in restaurant operations. He was the past President for
the Council of Hotel and Restaurant Trainers.
Mr. Lloyd joined Taco Cabana in October 1994 as Vice President--Finance,
Chief Financial Officer, Secretary and Treasurer and was promoted to Senior
Vice President in May 1996. From August 1985 to October 1994, Mr. Lloyd served
in various capacities with Deloitte & Touche (the Company's independent
auditors), with his last position being Senior Audit Manager. Mr. Lloyd is a
certified public accountant.
Mr. Nimmo has served on Taco Cabana's board since November 1991. Since May
1997, Mr. Nimmo has been a Partner with Halpern, Denny & Co., a venture
capital firm in Boston, Massachusetts. Prior to that, Mr. Nimmo served as
Managing Director of Cornerstone Equity Investors, Inc., and its predecessor
firm, Prudential Equity Investors, Inc., since September 1989.
Mr. Sands has been a director on Taco Cabana's board since February 1998.
Since July 1997, Mr. Sands has served as the Managing Director of Silver
Brands, a private equity investment fund. Since 1999, Mr. Sands has also
served as Chief Operating Officer of Silver Ventures, a private public market
investment firm. Mr. Sands serves as the Chairman of the board of directors of
Desert Glory, Inc., and MarketFare Foods while also serving as member of the
board of directors of Nonni's Foods, and Benefit Planners, Inc. Mr. Sands also
serves on the Chase Bank of Texas--San Antonio Advisory Board.
Mr. Schenker has been a director on Taco Cabana's board since January 1992.
Mr. Schenker is a corporate securities attorney and is the managing partner of
the San Antonio, Texas office of the law firm of Akin, Gump, Strauss, Hauer &
Feld, L.L.P., of which Mr. Schenker has been a partner through his
professional corporation since January 1984. Akin, Gump has regularly
performed legal services for Taco Cabana.
37
<PAGE>
Mr. Sherman has been a director on Taco Cabana's board since November 1991.
Mr. Sherman is a private investor and retail consultant. Mr. Sherman served as
President and Chief Executive Officer of Rally's, Inc. from September 1987 to
January 1991. From August 1989 to January 1991, he also served as Chairman of
the Board of Rally's, Inc. From 1984 to 1987, Mr. Sherman was President and a
director of Church's Chicken, Inc. From 1971 to 1984, Mr. Sherman was Group
Executive Vice President and Director of Hardee's Food Systems, Inc. and its
parent, Imasco USA, Inc. Mr. Sherman currently serves as a director of Reed's
Jewelers, Inc., Papa John's International, Inc. and PJ America, Inc.
Mr. Sosa has been a director on Taco Cabana's board since August 1997. Mr.
Sosa has served as the Chief Executive Officer of KJS Marketing Agency since
January 1996. From 1994 to 1996 he served as Chairman of DMB&B/Americas, a
network of advertising agencies in the U.S. and Latin America. In 1980, Mr.
Sosa founded the agency of Sosa, Bromley, Aguilar, Noble & Associates, an
advertising agency specializing in Hispanic marketing in the U.S. Mr. Sosa
sold Sosa, Bromley, Aguilar, Noble & Associates in 1994. Mr. Sosa is currently
a Director of the Children's Television Workshop Network.
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING INFORMATION
This proxy statement includes and incorporates by reference statements that
are not historical facts. These forward-looking statements are based on our
current estimates and assumptions and, as such, involve uncertainty and risk.
Forward-looking statements include the information concerning our possible or
assumed future results of operations and also include those preceded or
followed by the words "anticipates," "believes," "estimates," "expects,"
"should," "could," "targets" and "may" or similar expressions.
The forward-looking statements are not guarantees of future performance, and
actual results may differ materially from those contemplated by such forward-
looking statements. In addition to the factors discussed elsewhere in this
proxy statement, including those discussed in "Special Factors--Background of
the Merger," other factors that could cause actual results to differ
materially include changes in the cost of food and labor, weather conditions,
health and regulatory developments and general economic conditions. In
addition, the ability of Taco Cabana to open new restaurants depends on a
number of factors, including its ability to find suitable locations and
negotiate acceptable leases and land purchases, its ability to attract and
retain qualified restaurant managers and the availability of capital. These
and other factors are discussed in the documents that we incorporate by
reference into this proxy statement.
Except to the extent required under the federal securities laws, Taco Cabana
does not intend to update or revise the forward-looking statements to reflect
circumstances arising after the date of the preparation of the forward-looking
statements.
WHERE YOU CAN FIND MORE INFORMATION
Taco Cabana files annual, quarterly, and current reports, proxy statements,
and other information with the SEC. You may read and copy any reports,
statements, or other information that Taco Cabana files at the SEC's public
reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the SEC at 1-800-SEC-0330 for further information on the public reference
room. Taco Cabana's public filings are also available to the public from
commercial document retrieval services and at the Internet site maintained by
the SEC at http://www.sec.gov.
If you would like to request documents from Taco Cabana, please do so at
least five business days before the date of the special meeting in order to
receive timely delivery of such documents prior to the special meeting. Taco
Cabana will send any document so requested to the requesting stockholder by
first-class mail or other
38
<PAGE>
equally prompt means within one day of receiving the request. Please address
your request for documents as follows:
TACO CABANA, INC.
8918 TESORO DRIVE, SUITE 200
SAN ANTONIO, TEXAS 78217
(210) 804-0990
Attention: Investor Relations
You should rely only on the information contained in this document to vote
your Taco Cabana shares at the special meeting. Taco Cabana has not authorized
anyone to provide you with information that is different from what is
contained in this document. This document is dated November 14, 2000. You
should not assume that the information contained in this document is accurate
as of any date other than that date, and the mailing of this document to
stockholders does not create any implication to the contrary.
STOCKHOLDER PROPOSALS
If the merger proposal is approved and the merger completed, you will no
longer own shares of Taco Cabana, and Taco Cabana will not solicit proxies for
an annual meeting in 2001. If the merger proposal is not approved, Taco Cabana
intends to conduct the next annual meeting of the stockholders in
approximately June 2001. If you want to have a stockholder proposal considered
for inclusion in the proxy statement for that meeting, you must submit the
proposal in writing to the Secretary of Taco Cabana at its principal executive
offices no later than March 1, 2001. Taco Cabana suggests that all such
proposals be sent by certified mail, return receipt requested.
39
<PAGE>
APPENDIX A
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF OCTOBER 6, 2000
AMONG
CARROLS CORPORATION,
SPUR ACQUISITION CORP.
AND
TACO CABANA, INC.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I THE MERGER.................................................. 1
1.1 The merger..................................................... 1
1.2 Closing........................................................ 1
1.3 Effective Time of the Merger................................... 1
1.4 Effects of the Merger.......................................... 1
1.5 Certificate of Incorporation; By-Laws.......................... 1
1.6 Directors; Officers............................................ 2
ARTICLE II CANCELLATION OF THE CAPITAL STOCK OF THE COMPANY AND PAYMENT
WITH RESPECT THERETO........................................ 2
2.1 Effect on Capital Stock........................................ 2
(a) Common Stock of Sub........................................ 2
(b) Cancellation of Treasury Stock and Parent-Owned Stock...... 2
(c) Cancellation of Company Common Stock and Payment with
Respect Thereto............................................. 2
(d) Appraisal Rights........................................... 2
2.2 Payment With Respect To Certificates........................... 3
(a) Payment Agent.............................................. 3
(b) Payment Procedures......................................... 3
(c) No Further Ownership Rights in Company Common Stock........ 3
(d) Termination of Payment Fund................................ 3
(e) No Liability............................................... 4
(f) Investment of Exchange Fund................................ 4
(g) Withholding Rights......................................... 4
(h) Associated Company Rights.................................. 4
2.3 Stock Options With Respect To Company Common Stock............. 4
ARTICLE III REPRESENTATIONS AND WARRANTIES............................ 5
3.1 Representations and Warranties of the Company.................. 5
(a) Organization, Standing and Power........................... 5
(b) Subsidiaries............................................... 5
(c) Capital Structure.......................................... 5
(d) Authority.................................................. 7
(e) SEC Documents.............................................. 7
(f) Information Supplied....................................... 8
(g) Absence of Certain Changes or Events....................... 8
(h) Compliance with Applicable Laws............................ 10
(i) Environmental.............................................. 10
(j) Litigation................................................. 11
(k) Taxes...................................................... 11
(l) Employee Benefit Plans..................................... 12
(m) Restaurants and Properties................................. 13
(n) Properties................................................. 14
(o) Labor Controversies........................................ 14
(p) Intellectual Property...................................... 14
(q) Change of Control Agreements............................... 15
(r) Contracts and Commitments.................................. 15
(s) Affiliated Transactions.................................... 17
(t) Insurance.................................................. 17
(u) Records.................................................... 17
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
(v) Section 203 of the DGCL.................................... 17
(w) Opinion of Financial Advisor............................... 17
(x) Franchise Matters.......................................... 17
(y) Disclosure................................................. 18
(z) Company Rights Agreement................................... 18
3.2 Representations and Warranties of Parent and Sub............... 18
(a) Organization, Standing and Power........................... 18
(b) Authority.................................................. 18
(c) Information Supplied....................................... 19
(d) Interim Operations of Sub.................................. 19
(e) Financial Capability....................................... 19
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS................... 19
4.1 Covenants of Company........................................... 19
(a) Ordinary Course............................................ 19
(b) Dividends; Changes in Stock................................ 20
(c) Issuance of Securities..................................... 20
(d) Governing Documents........................................ 20
(e) No Solicitations........................................... 20
(f) No Acquisitions............................................ 21
(g) No Dispositions............................................ 21
(h) Indebtedness............................................... 21
(i) Other Actions.............................................. 21
(j) Advice of Changes; Government Filings...................... 21
(k) Accounting Methods......................................... 22
(l) Benefit Plans.............................................. 22
(m) Tax Elections.............................................. 22
4.2 Covenants of Parent............................................ 22
(a) Other Actions.............................................. 22
(b) Government Filings......................................... 22
(c) Extraordinary Transactions................................. 23
ARTICLE V ADDITIONAL AGREEMENTS....................................... 23
5.1 Preparation of the Proxy Statement............................. 23
5.2 Stockholder Meeting............................................ 23
5.3 Legal Conditions to Merger..................................... 23
5.4 Access To Information.......................................... 24
5.5 Brokers or Finders............................................. 24
5.6 Indemnification; Directors' and Officers' Insurance............ 24
5.7 Shareholder Lists.............................................. 24
5.8 Shareholder Litigation......................................... 25
5.9 Communication To Employees..................................... 25
5.10 Environmental Matters.......................................... 25
ARTICLE VI CONDITIONS PRECEDENT........................................ 25
6.1 Conditions to Each Party's Obligation to Effect the Merger..... 25
(a) Stockholder Approval....................................... 25
(b) Other Approvals............................................ 25
(c) No Injunctions or Restraints; Illegality................... 25
6.2 Conditions to Obligations of Parent and Sub.................... 25
(a) Representations and Warranties............................. 25
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
(b) Performance of Obligations of Company..................... 26
(c) Consents Under Agreements................................. 26
(d) Burdensome Condition...................................... 26
(e) Material Adverse Effect................................... 26
(f) Proceedings............................................... 26
(g) Financing................................................. 26
6.3 Conditions to Obligations of Company.......................... 26
(a) Representations and Warranties............................ 26
(b) Performance of Obligations of Parent and Sub.............. 27
ARTICLE VII TERMINATION AND AMENDMENT................................. 27
7.1 Termination................................................... 27
7.2 Effect of Termination......................................... 28
7.3 Fees, Expenses and Other Payments............................. 28
7.4 Amendment..................................................... 29
7.5 Extension; Waiver............................................. 29
ARTICLE VIII GENERAL PROVISIONS....................................... 30
8.1 Nonsurvival of Representations, Warranties and Agreements..... 30
8.2 Notices....................................................... 30
8.3 Certain Definitions........................................... 30
8.4 Interpretation................................................ 31
8.5 Counterparts.................................................. 31
8.6 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership..................................................... 31
8.7 Governing Law................................................. 31
8.8 Severability; No Remedy In Certain Circumstances.............. 31
8.9 Publicity..................................................... 32
8.10 Assignment.................................................... 32
8.11 Adjustment.................................................... 32
8.12 Specific Performance.......................................... 32
</TABLE>
<TABLE>
<C> <S>
EXHIBIT A Certificate of Incorporation of Sub
EXHIBIT B By-Laws of Sub
</TABLE>
iii
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
Defined Term Page
------------ ----
<S> <C>
affiliate................................................................. 30
Agreement................................................................. 1
Balance Sheet............................................................. 8
beneficial ownership...................................................... 30
beneficially own.......................................................... 30
Business Combination...................................................... 29
Certificate of Merger..................................................... 1
Certificates.............................................................. 3
Closing................................................................... 1
Closing Date.............................................................. 1
Code...................................................................... 4
Commitment Letter......................................................... 19
Company................................................................... 1
Company Benefit Plans..................................................... 12
Company Common Stock...................................................... 2
Company Disclosure Letter................................................. 5
Company Preferred Stock................................................... 5
Company Rights............................................................ 6
Company SEC Documents..................................................... 8
Company Stock Options..................................................... 4
Company Stock Plans....................................................... 4
Competing Transaction..................................................... 21
Confidentiality Agreement................................................. 20
Consents.................................................................. 25
DGCL...................................................................... 1
Dissenting Shares......................................................... 2
Dissenting Stockholder.................................................... 2
Effective Time............................................................ 1
Environmental Audit....................................................... 25
Environmental Liability................................................... 10
Environmental Matters..................................................... 10
ERISA..................................................................... 12
ERISA Affiliate........................................................... 13
Expenses.................................................................. 28
Financing................................................................. 19
Franchise Agreements...................................................... 17
Franchised Leased Property................................................ 13
GAAP...................................................................... 8
Governmental Entity....................................................... 7
group..................................................................... 30
HSR Act................................................................... 7
HSR Filings............................................................... 7
Independent Advisor....................................................... 17
Intellectual Property Rights.............................................. 14
Leased Real Property...................................................... 13
Licensed Rights........................................................... 14
Litigation................................................................ 11
material.................................................................. 5
Material Adverse Effect................................................... 5
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
Defined Term Page
------------ ----
<S> <C>
Material Contracts........................................................ 15
merger.................................................................... 1
Merger Consideration...................................................... 2
Offer Consideration....................................................... 19
Option Consideration...................................................... 4
Owned Real Property....................................................... 13
Parent.................................................................... 1
Payment Agent............................................................. 3
Payment Fund.............................................................. 3
person.................................................................... 31
Proxy Statement........................................................... 23
Related Party............................................................. 10
Requisite Regulatory Approvals............................................ 25
Rights Agreement.......................................................... 6
SEC....................................................................... 7
Series A Preferred Stock.................................................. 6
Sub....................................................................... 1
subsidiary................................................................ 31
Surplus Leased Property................................................... 13
Surviving Corporation..................................................... 1
Tax Entity................................................................ 11
Tax Return................................................................ 11
Taxes..................................................................... 11
Vacant Surplus Property................................................... 13
Violation................................................................. 7
Voting Debt............................................................... 6
Year-End Financial Statements............................................. 8
</TABLE>
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AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of October 6,
2000, among Carrols Corporation, a Delaware corporation ("Parent"), Spur
Acquisition Corp., A Delaware corporation and a wholly-owned subsidiary of
Parent ("Sub"), and Taco Cabana, Inc., A Delaware corporation (the "Company").
RECITALS
A. Parent, Sub and the Company intend to effect a merger of Sub into the
Company (the "Merger") in accordance with this Agreement and the General
Corporation Law of the State of Delaware (the "DGCL"). Upon consummation of
the Merger, Sub will cease to exist and the Company will become a wholly-owned
subsidiary of Parent.
B. For accounting purposes, it is intended that the Merger be treated as a
"purchase."
C. This Agreement has been approved by the respective boards of directors of
Parent, Sub and the Company.
AGREEMENT
The parties to this Agreement hereby agree as follows:
ARTICLE I
The Merger
1.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the DGCL, Sub shall be merged with and
into the Company at the Effective Time. At the Effective Time, the separate
existence of Sub shall cease, and the Company shall continue as the surviving
corporation (the "Surviving Corporation") and shall continue under the name
"Taco Cabana, Inc."
1.2 Closing. Unless this Agreement shall have been terminated pursuant to
Section 7.1 and subject to the satisfaction or waiver of the conditions set
forth in Article VI, the closing of the Merger (the "Closing") will take place
as promptly as practicable (and in any event within two business days)
following satisfaction or waiver of the conditions set forth in Article VI
(the "Closing Date"), at 10:00 a.m., New York City time, at the offices of
Rosenman & Colin LLP, 575 Madison Avenue, New York, New York 10022, unless
another date, time or place is agreed to in writing by the parties hereto.
1.3 Effective Time of the Merger. As soon as practicable following the
satisfaction or waiver of the conditions set forth in Article VI, Sub shall
file a certificate of merger conforming to the requirements of Subchapter IX
of the DGCL (the "Certificate of Merger") with the Secretary of State of the
State of Delaware and make all other filings or recordings required by the
DGCL in connection with the Merger. The Merger shall become effective at such
time as the Certificate of Merger is duly filed with the Secretary of State of
the State of Delaware, or such other time thereafter as is provided in the
Certificate of Merger in accordance with the DGCL (the "Effective Time").
1.4 Effects of the Merger. The Merger shall have the effects set forth in
this Agreement and in the applicable provisions of the DGCL.
1.5 Certificate of Incorporation; By-Laws. (a) The certificate of
incorporation of Sub which is attached as Exhibit A hereto, as in effect
immediately prior to the Effective Time, shall be the certificate of
incorporation of the Surviving Corporation until thereafter changed or amended
as provided therein or by applicable law; provided that Article I of the
certificate of incorporation of the Surviving Corporation shall be amended by
the Certificate of Merger to read as follows: "The name of the corporation is:
Taco Cabana, Inc."
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(b) The by-laws of Sub which are attached as Exhibit B hereto shall be the
by-laws of the Surviving Corporation until thereafter changed or amended as
provided therein or by applicable law.
1.6 Directors; Officers. (a) The directors of Sub at the Effective Time
shall be the directors of the Surviving Corporation, until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
(b) The officers of Sub at the Effective Time shall be the officers of the
Surviving Corporation, until the earlier of their resignation or removal or
until their respective successors are duly elected and qualified, as the case
may be.
ARTICLE II
Cancellation of the Capital Stock of the
Company and Payment with Respect Thereto
2.1 Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of
capital stock of the Company or any shares of capital stock of Parent or Sub:
(a) Common Stock of Sub. Each share of common stock, par value $.0l per
share, of Sub issued and outstanding immediately prior to the Effective
Time shall be converted into one share of common stock, par value $.0l per
share, of the Surviving Corporation and shall be the only issued and
outstanding capital stock of the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. Each share of
common stock of the Company, par value $.0l per share ("Company Common
Stock"), that is owned by the Company or by any subsidiary of the Company,
together with the associated Company Rights, and each share of Company
Common Stock that is owned by Parent, Sub or any other subsidiary of
Parent, together with the associated Company Rights, shall automatically be
cancelled and retired and shall cease to exist, and no Merger Consideration
or other consideration shall be delivered or payable with respect thereto.
(c) Cancellation of Company Common Stock and Payment with Respect
Thereto. Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares to be cancelled
in accordance with Section 2.1(b) and Dissenting Shares), together with the
associated Company Rights, shall be converted into the right to receive
$9.04, payable, without interest, to the holder of such shares, upon
surrender, in the manner provided in Section 2.2, of the certificate(s)
that formerly evidenced such shares (the "Merger Consideration"). As of the
Effective Time, all such shares of Company Common Stock, together with the
associated Company Rights, shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each
holder of a certificate previously representing any such shares shall cease
to have any rights with respect thereto, except the right to receive the
Merger Consideration, as applicable.
(d) Appraisal Rights. Notwithstanding anything in this Agreement to the
contrary, to the extent provided by the DGCL, Parent will not make any
payment of Merger Consideration with respect to Company Common Stock held
by any person (a "Dissenting Stockholder") who elects to demand appraisal
of his shares and duly and timely complies with all the provisions of the
DGCL concerning the right of holders of Company Common Stock to require
appraisal of their shares ("Dissenting Shares"), but such Dissenting
Stockholders shall have the right to receive such consideration as may be
determined to be due such Dissenting Stockholders pursuant to the laws of
the State of Delaware. If, after the Effective Time, a Dissenting
Stockholder withdraws his demand for appraisal or fails to perfect or
otherwise loses his right of appraisal, in any case pursuant to the DGCL,
his shares will be deemed to be converted as of the Effective Time into the
right to receive the Merger Consideration pursuant to Section 2.1(c). The
Company will give
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Parent (i) prompt notice of any demands for appraisal of Dissenting Shares
received by the Company and (ii) the opportunity to participate in and
direct all negotiations and proceedings with respect to any such demands.
The Company will not, without the prior written consent of Parent, make any
payment with respect to, or enter into any negotiations or discussions or a
binding settlement agreement or make an offer, written or oral, to settle,
any such demands.
2.2 Payment with Respect to Certificates.
(a) Payment Agent. As of the Effective Time, Parent shall deposit, or shall
cause to be deposited, with a bank or trust company designated by Parent (the
"Payment Agent"), for the benefit of the holders of shares of Company Common
Stock, for payment in accordance with this Article II through the Payment
Agent, the Merger Consideration to be paid in respect of all shares of Company
Common Stock (other than shares representing Dissenting Shares or shares to be
cancelled in accordance with Section 2.1(b)) (such funds deposited with the
Payment Agent, the "Payment Fund").
(b) Payment Procedures. As soon as reasonably practicable after the
Effective Time, the Payment Agent shall mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Company Common Stock (the "Certificates")
whose shares were cancelled in the Merger pursuant to Section 2.1(c) the
following documents: (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon delivery of the Certificates to the Payment Agent and
shall be in such form and have such other provisions as Parent may reasonably
specify); and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for payment with respect thereto. Upon surrender of a
Certificate for cancellation to the Payment Agent together with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled
to receive in exchange therefor the Merger Consideration payable with respect
to the shares represented by such Certificate pursuant to the provisions of
this Article II, and the Certificate so surrendered shall forthwith be
cancelled. In the event that a holder has lost or misplaced a Certificate, an
affidavit of loss thereof (together with an appropriate indemnity and/or bond
if Parent so requires by notice in writing to the holder of such Certificate)
satisfactory in form and substance to the Company's transfer agent and the
Payment Agent shall accompany such letter of transmittal in lieu of the
applicable Certificate. In the event of a transfer of ownership of Company
Common Stock which is not registered in the transfer records of the Company,
payment of the applicable Merger Consideration may be made to a transferee if
the Certificate representing such Company Common Stock is presented to the
Payment Agent, accompanied by all documents required to evidence and effect
such transfer and by evidence that any applicable stock transfer taxes have
been paid. Until surrendered as contemplated by this Section 2.2, each
Certificate shall be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the Merger Consideration with
respect thereto as contemplated by this Section 2.2. No interest shall accrue
or be paid to any beneficial owner of shares of Company Common Stock or any
holder of any Certificate with respect to the Merger Consideration payable
upon the surrender of any Certificate.
(c) No Further Ownership Rights in Company Common Stock. The Merger
Consideration paid with respect to the cancellation of Company Common Stock in
accordance with the terms hereof shall be deemed to have been paid in full
satisfaction of all rights pertaining to such shares of Company Common Stock,
and there shall be no further registration of transfers on the stock transfer
books of the Surviving Corporation of the shares of Company Common Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be cancelled and exchanged as provided in this Article
II, subject to applicable law in the case of Dissenting Shares.
(d) Termination of Payment Fund. Any portion of the Payment Fund which
remains undistributed to the stockholders of the Company for six months after
the Effective Time shall be delivered to Parent, upon demand, and any
stockholders of the Company who have not theretofore complied with this
Article II shall thereafter look only to Parent for payment of their claim for
the Merger Consideration.
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<PAGE>
(e) No Liability. If any Certificates shall not have been surrendered prior
to five (5) years after the Effective Time (or immediately prior to such
earlier date on which the Merger Consideration in respect of such certificate
would otherwise escheat to or become the property of any Governmental Entity
(as defined in Section 3.1(d)(iii)), any cash or other property payable in
respect of such Certificate shall, to the extent permitted by applicable law,
become the property of the Surviving Corporation, free and clear of all claims
or interest of any person previously entitled thereto. Notwithstanding the
foregoing, none of the Surviving Corporation, Parent or the Payment Agent
shall be liable to any holder of a Certificate or the shares represented
thereby for any Merger Consideration delivered in respect of such Certificate
or the shares represented thereby to a public official pursuant to any
abandoned property, escheat or other similar law.
(f) Investment of Exchange Fund. The Payment Agent shall invest any cash
included in the Payment Fund as directed by Parent. Any interest or other
income resulting from such investments shall be paid to Parent. The Parent
shall replace any net losses incurred by the Payment Fund as a result of
investments made pursuant to this Section 2.2(f).
(g) Withholding Rights. Parent or the Payment Agent shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any holder of Certificates or the shares of Company Common Stock
represented thereby such amounts (if any) as Parent or the Payment Agent is
required to deduct and withhold with respect to the making of such payment
under the Internal Revenue Code of 1986, as amended (the "Code"), or any
provision of state, local or foreign tax law. To the extent that amounts are
so withheld by Parent or the Payment Agent, such withheld amounts shall be
treated for all purposes of this Agreement as having been paid to the holder
of the shares of Company Common Stock in respect of which such deduction and
withholding was made by Parent or the Payment Agent.
(h) Associated Company Rights. References in Article II of this Agreement to
Company Common Stock shall include, unless the context requires otherwise, the
associated Company Rights.
2.3 Stock Options with Respect to Company Common Stock. (a) The Company
shall take all actions necessary pursuant to the Company's 1990 Stock Option
Plan, the Company's 1994 Stock Option Plan and the Company's 2000 Stock
Ownership Plan (collectively, the "Company Stock Plans"), and the terms and
provisions of any outstanding options to acquire shares of Company Common
Stock not issued under any Company Stock Plan, to cause the following: (i) all
outstanding options to acquire shares of Company Common Stock granted under
the Company Stock Plans or otherwise (the "Company Stock Options") shall be
exercisable in full immediately prior to the Effective Time, and (ii) all
Company Stock Options that are not exercised prior to the Effective Time will
terminate and expire as of the Effective Time. The Company shall give written
notice to the holders of all Company Stock Options of the foregoing, which
written notice shall include an offer to pay such holder at the Effective
Time, in exchange for the cancellation of such holder's Company Stock Options
at the Effective Time, an amount in cash determined by multiplying (A) the
excess, if any, of the Merger Consideration over the applicable exercise price
per share of the Company Stock Option by (B) the number of Shares such holder
could have purchased had such holder exercised such Company Stock Option in
full immediately prior to the Effective Time (such amount, the "Option
Consideration"), and each such Company Stock Option shall thereafter be
canceled. All actions required to be taken pursuant to this Section 2.3(a)
with respect to Company Stock Options has been, or prior to the Effective Time
will be, taken by the Company.
(b) Promptly after the Effective Time, the Surviving Corporations shall
cause to be mailed to each holder of Company Stock Options a check payable to
such holder in an amount equal to the Option Consideration payable with
respect to all Company Stock Options held by such holder.
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<PAGE>
ARTICLE III
Representations and Warranties
3.1 Representations and Warranties of the Company. The Company represents
and warrants to Parent and Sub that, except as specifically disclosed in the
letter dated the date hereof and delivered by the Company to Parent
simultaneously with the execution and delivery of this Agreement (the "Company
Disclosure Letter"):
(a) Organization, Standing and Power. Each of the Company and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has all
requisite power and authority and all necessary governmental approvals to
own, lease and operate its properties and assets and to conduct its
business as it is now being conducted and is duly qualified and in good
standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties and assets makes
such qualification necessary, other than in such jurisdictions where the
failure so to qualify would not, individually or in the aggregate, have a
Material Adverse Effect on the Company. As used in this Agreement, (i) any
reference to any event, change or effect being "material" with respect to
any entity means an event, change or effect which is material in relation
to the condition (financial or otherwise), properties, assets, liabilities,
businesses or operations of such entity and its subsidiaries taken as a
whole, and (ii) the term "Material Adverse Effect" means, with respect to
the Company or Parent, any change, event or effect shall have occurred or
been threatened that, when taken together with all other adverse changes,
events or effects that have occurred or been threatened would or would
reasonably be expected to (a) be materially adverse to the business,
assets, properties, results of operations or condition (financial or
otherwise) of such party and its subsidiaries taken as a whole, or (b)
prevent or materially delay the consummation of the Merger. The Company has
made available to Parent true and complete copies of its certificate of
incorporation and by-laws and the certificate of incorporation and by-laws
(or equivalent organizational documents) of each subsidiary of the Company,
each as amended to date. Such certificates of incorporation, by-laws or
equivalent organizational documents are in full force and effect, and
neither the Company nor any subsidiary of the Company is in violation of
any provision of its certificate of incorporation, by-laws or equivalent
organizational documents.
(b) Subsidiaries. The Company owns, directly or indirectly, all of the
outstanding capital stock or other equity interests in each of its
subsidiaries free and clear of any claim, lien, encumbrance, security
interest or agreement with respect thereto. The Company Disclosure Letter
sets forth a complete list of the Company's subsidiaries. Other than the
capital stock or other interests held by the Company in such subsidiaries,
neither the Company nor any such subsidiary owns any direct or indirect
equity interest in any person, domestic or foreign. All of the outstanding
shares of capital stock in each of its corporate subsidiaries are duly
authorized, validly issued, fully paid and nonassessable and were issued
free of preemptive rights and in compliance with applicable securities laws
and regulations. All of the outstanding partnership interests in each of
its partnership subsidiaries are validly existing, nonassessable and were
issued in compliance with applicable securities laws and regulations, and
all capital contributions required with respect to such partnership
interests have been made in full. There are no irrevocable proxies or
similar obligations with respect to such capital stock or partnership
interests of such subsidiaries and no equity securities or other interests
of any of its subsidiaries are or may become required to be issued or
purchased by reason of any options, warrants, rights to subscribe to, puts,
calls or commitments of any character whatsoever relating to, or securities
or rights convertible into or exchangeable for, shares of any capital stock
or any other equity interest of any such subsidiary, and there are no
agreements, contracts, commitments, understandings or arrangements by which
any such subsidiary is bound to issue additional shares of its capital
stock or other equity interests, or options, warrants or rights to purchase
or acquire any additional shares of its capital stock or other equity
interests or securities convertible into or exchangeable for such shares or
other equity interests.
(c) Capital Structure. (i) The authorized capital stock of the Company
consists of 30,000,000 shares of Company Common Stock and 2,500,000 shares
of Preferred Stock of the Company, par value $1.00 per share (the "Company
Preferred Stock"), of which 100,000 shares have been designated Series A
Junior
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<PAGE>
Preferred Stock (the "Series A Preferred Stock"). At the close of business
on October 3, 2000, (A) 11,625,232 shares of Company Common Stock were
outstanding, (B) no shares of Company Common Stock were reserved for
issuance upon the exercise of outstanding warrants, (C) 1,550,975 Company
Stock Options were outstanding pursuant to the Company Stock Plans, each
such option entitling the holder thereof to purchase one share of Company
Common Stock, (D) 114,506 Company Stock Options were outstanding other than
pursuant to the Company Stock Plans, each such option entitling the holder
thereof to purchase one share of Company Common Stock, (E) 1,665,481 shares
of Company Common Stock are authorized and reserved for issuance upon the
exercise of outstanding Company Stock Options, (F) 1,865,000 shares of
Company Common Stock were held by the Company in its treasury or by its
subsidiaries, (G) no shares of Company Preferred Stock, including Series A
Preferred Stock, were issued or outstanding, and (H) 100,000 shares of
Series A Preferred Stock have been reserved for issuance upon exercise of
the rights (the "Company Rights") distributed to the holders of Company
Common Stock pursuant to the Rights Agreement dated as of June 9, 1995
between the Company and Society National Bank, in Dallas, Texas, as Rights
Agent (the "Rights Agreement"). The Company Disclosure Letter sets forth a
true and complete list of the outstanding Company Stock Options, including
the exercise prices and vesting schedules therefor.
(ii) No bonds, debentures, notes or other indebtedness having the right
to vote (or convertible into or exercisable for securities having the right
to vote) on any matters on which stockholders may vote ("Voting Debt") of
the Company are issued or outstanding.
(iii) All outstanding shares of Company capital stock are validly issued,
fully paid and nonassessable and free of preemptive rights and were issued
in compliance with applicable securities laws and regulations. All shares
of Company Common Stock subject to issuance upon the exercise of Company
Stock Options, upon issuance on the terms and conditions specified in the
instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable and free of preemptive rights
and will be issued in compliance with applicable securities laws and
regulations.
(iv) Except for this Agreement, the Rights Agreement, the Company Rights,
the Company Stock Plans and the Company Stock Options, there are no
options, warrants, calls, rights, convertible securities, subscriptions,
stock appreciation rights, phantom stock plans or stock equivalents, or
other rights, commitments or agreements of any character to which the
Company or any subsidiary of the Company is a party or by which it is bound
obligating the Company or any subsidiary of the Company to issue, deliver
or sell, or cause to be issued, delivered or sold, additional shares of
capital stock or any Voting Debt of the Company or of any subsidiary of the
Company or obligating the Company or any subsidiary of the Company to
grant, extend or enter into any such option, warrant, call, right,
commitment or agreement. After the Effective Time, there will be no option,
warrant, call, right or agreement obligating the Company or any subsidiary
of the Company to issue, deliver or sell, or cause to be issued, delivered
or sold, any shares of capital stock or any Voting Debt of the Company or
any subsidiary of the Company, or obligating the Company or any subsidiary
of the Company to grant, extend or enter into any such option, warrant,
call, right or agreement. The execution, delivery and performance by the
Company of this Agreement and the consummation of the Merger and the other
transactions contemplated hereby will not obligate the Company to issue, or
result in the issuance of, any capital stock of the Company pursuant to the
Rights Agreement or any other agreement or arrangement, except for the
acceleration of vesting and potential exercise of Company Stock Options
contemplated by Section 2.3. There are no outstanding contractual
obligations of the Company or any of its subsidiaries to repurchase, redeem
or otherwise acquire any shares of capital stock of the Company or any of
its subsidiaries.
(v) Since July 2, 2000, the Company and each of its subsidiaries has not
(A) issued, permitted to be issued or entered into any obligation to issue,
any shares of capital stock, or securities exercisable for or convertible
into shares of capital stock, of the Company or any of its subsidiaries,
other than pursuant to and as required by the terms of any Company Stock
Options that were issued and outstanding on such date; (B) repurchased,
redeemed or otherwise acquired, directly or indirectly through one or more
of its subsidiaries, any shares of capital stock of the Company or any of
its subsidiaries; (C) declared, set aside,
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<PAGE>
made or paid to the stockholders of the Company dividends or other
distributions on the outstanding shares of capital stock of the Company; or
(D) split, combined or reclassified any of its shares of capital stock of
the Company or any of its subsidiaries.
(d) Authority. (i) The Company has all requisite corporate power and
authority to enter into this Agreement and, subject to approval by the
stockholders of the Company, to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of the Company, other than such
approval by the stockholders of the Company. This Agreement has been duly
executed and delivered by the Company and constitutes a valid and binding
obligation of the Company enforceable in accordance with its terms, except
as affected by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally and general equitable principles (whether
considered in a proceeding in equity or at law). The affirmative vote of
holders of a majority of the outstanding shares of Company Common Stock
entitled to vote at a duly called and held meeting of stockholders is the
only vote of the Company's stockholders necessary to approve this
Agreement, the Merger and the other transactions contemplated by this
Agreement. At a meeting duly called and held on October 4, the Company's
Board of Directors adopted resolutions approving this Agreement and the
Merger, determining that the terms of the Merger are fair, from a financial
point of view, to, and in the best interests of, the Company's stockholders
and recommending that the Company's stockholders approve and adopt this
Agreement.
(ii) Subject to compliance with the applicable requirements of the
Exchange Act, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), and the filing of the Certificate of Merger as
contemplated by Section 1.1, the execution and delivery of this Agreement
and the Certificate of Merger, the consummation of the transactions
contemplated hereby and thereby, and compliance of the Company with any of
the provisions hereof or thereof will not breach, constitute an ultra vires
act under, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or the loss of
a material benefit under, or the creation of a lien, pledge, security
interest, charge or other encumbrance on assets (any such breach, ultra
vires act, violation, default, right of termination, cancellation,
acceleration loss or creation, a "Violation") pursuant to, (x) any
provision of the certificate of incorporation or by-laws of the Company or
the governing instruments of any subsidiary of the Company or (y) subject
to obtaining or making the consents, approvals, orders, authorizations,
registrations, declarations and filings referred to in paragraph (iii)
below or in the Company Disclosure Letter, any loan or credit agreement,
note, mortgage, indenture, lease, Company Benefit Plan or other agreement,
obligation, instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to
the Company or any subsidiary of the Company or their respective properties
or assets except Violations under clause (y) which would not have a
Material Adverse Effect on the Company.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission
or other governmental authority or instrumentality, domestic or foreign (a
"Governmental Entity"), is required by or with respect to the Company or
any subsidiary of the Company in connection with the execution and delivery
of this Agreement and the Certificate of Merger by the Company, the
consummation by the Company of the transactions contemplated hereby and
thereby, and compliance of the Company with any of the provisions hereof or
thereof, the failure to obtain which would have a Material Adverse Effect
on the Company, except for (A) the filing with the Securities and Exchange
Commission (the "SEC") of (1) a Proxy Statement in definitive form relating
to the meeting of the Company's stockholders to be held in connection with
the Merger and (2) such other filings under the Exchange Act as may be
required in connection with this Agreement and the transactions
contemplated hereby, (B) the filing of the Certificate of Merger as
contemplated by Section 1.1 and appropriate documents with the relevant
authorities of states in which the Company is qualified to do business, (C)
filings pursuant to the rules of the Nasdaq National Market, and (D)
filings (the "HSR Filings") under the HSR Act.
(e) SEC Documents. The Company has made available to Parent a true and
complete copy of each report, schedule, registration statement and
definitive proxy statement filed by the Company with the SEC
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since December 28, 1997 (as such documents have since the time of their
filing been amended, the "Company SEC Documents"), which are all the
documents (other than preliminary material) that the Company was required
to file with the SEC since such date. As of their respective dates, (i) the
Company SEC Documents complied in all material respects with the
requirements of the Securities Act of 1933, as amended (the "Securities
Act") or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Company SEC Documents,
and (ii) none of the Company SEC Documents contained any untrue statement
of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the Company SEC Documents (including,
without limitation, the audited balance sheet and related statements of
operations, stockholders' equity and cash flows of the Company and its
subsidiaries for the fiscal year ended January 2, 2000, as audited by
Deloitte & Touche LLP (such balance sheet and related statements are
referred to hereinafter as the "Year-End Financial Statements"), and the
unaudited financial statements of the Company and its subsidiaries for the
fiscal quarters ended April 2, 2000 and July 2, 2000, including the balance
sheet of the Company and its subsidiaries dated July 2, 2000 (the "Balance
Sheet")) complied in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto or, in
the case of the unaudited statements, as permitted by Form 10-Q of the SEC)
and fairly present the consolidated financial position of the Company and
its consolidated subsidiaries as at the dates thereof and the consolidated
results of their operations, stockholders' equity and cash flows for the
periods then ended in accordance with GAAP. As of July 2, 2000, neither the
Company nor any of its subsidiaries had any liabilities or obligations of
any nature, whether or not accrued, contingent or otherwise, that would be
required by GAAP to be reflected on a consolidated balance sheet of the
Company and its subsidiaries (including the notes thereto) and which were
not reflected on the Balance Sheet. Since July 2, 2000, except as and to
the extent set forth in the Company SEC Documents and except for
liabilities or obligations incurred in the ordinary course of business
consistent with past practice and of substantially the same character, type
and magnitude as incurred in the past, neither the Company nor any of its
subsidiaries has incurred any liabilities of any nature, whether or not
accrued, contingent or otherwise, that would have a Material Adverse Effect
on the Company, or would be required by GAAP to be reflected on a
consolidated balance sheet of the Company and its subsidiaries (including
the notes thereto). All material agreements, contracts and other documents
required to be filed as exhibits to any of the Company SEC Documents have
been so filed. No subsidiary of the Company is required to file any form,
report or other document with the SEC.
(f) Information Supplied. None of the information included or
incorporated by reference in the Proxy Statement (other than information
concerning Parent or Sub provided in writing by Parent or Sub or their
counsel specifically for inclusion or incorporation by reference therein)
will, at the date of mailing to stockholders of the Company and at the time
of the meeting of stockholders to be held in connection with the Merger,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The Proxy Statement (except for information
concerning Parent or Sub provided in writing by Parent or Sub or their
counsel specifically for inclusion or incorporation by reference therein)
will comply as to form in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder.
(g) Absence of Certain Changes or Events. Except as contemplated by this
Agreement or as disclosed in the Company Disclosure Letter or in the
Company SEC Documents, since January 2, 2000, the Company and its
subsidiaries have conducted their respective businesses only in the
ordinary course and consistent with prior practice and there has not been:
(i) any event, occurrence, fact, condition, change, development or
effect that has had or could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the
Company;
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(ii) any event which, if it had taken place following the execution
of this Agreement, would not have been permitted by Section 4.1(b),
(c), (d), (f), (g), (h), (l) or (m) without the prior consent of
Parent,
(iii) any condition, event or occurrence which could reasonably be
expected to prevent, hinder or materially delay the ability of the
Company to consummate the transactions contemplated by this Agreement;
(iv) any material change in accounting methods, principles or
practices (or any disagreement with the Company's independent public
accountants with respect to such methods or practices) employed by the
Company or any material change in depreciation or amortization policies
or rates applicable to the Company or any of its subsidiaries;
(v) any incurrence of any material liabilities or obligations of any
nature (whether accrued, absolute, contingent or otherwise) not
incurred in the ordinary course of business consistent with past
practice and of substantially the same character, type and magnitude as
incurred in the past, or any other failure by the Company or any of its
subsidiaries to conduct its business in the ordinary course consistent
with past practice;
(vi) any change in the financial condition, capitalization, assets,
liabilities or net worth of the Company, except changes in the ordinary
course of business consistent with past practice and of substantially
the same character, type and magnitude as incurred in the past, none of
which changes, individually or in the aggregate, has had or will have a
Material Adverse Effect on the Company;
(vii) any material damage, destruction or loss, whether or not
covered by insurance, adversely affecting the properties or business of
the Company or its subsidiaries, or any material deterioration in the
operating condition of the Company's or its subsidiaries' assets;
(viii) any mortgage, pledge or subjection to lien, charge or
encumbrance of any kind of any of the Company's or its subsidiaries'
assets, tangible or intangible (other than pursuant to after-acquired
property clauses in security agreements related to indebtedness
existing as of January 2, 2000);
(ix) any strike, walkout, labor trouble (other than routine
individual grievances or complaints) or, to the extent that such event
has had or could reasonably be expected to have a Material Adverse
Effect on the Company, any other new or continued event, development or
condition of any character relating to the labor relations of the
Company or its subsidiaries;
(x) any increase in the salaries or other compensation payable or to
become payable to, or any advance (excluding advances for ordinary
business expenses) or loan to, any officer, director, employee or
stockholder of the Company or its subsidiaries (except increases made
in the ordinary course of business and consistent with past practice),
or any increase in, or any addition to, other benefits (including
without limitation any bonus, profit-sharing, pension or other plan) to
which any of the Company's or its subsidiaries' officers, directors,
employees or stockholders may be entitled, or any payments to any
pension, retirement, profit-sharing, bonus or similar plan except
payments in the ordinary course of business and consistent with past
practice made pursuant to the employee benefit plans described in the
Company Disclosure Letter, or any other payment of any kind to or on
behalf of any such officer, director, employee or stockholder other
than payment of base compensation and reimbursement for reasonable
business expenses in the ordinary course of business;
(xi) any material adverse change or, to the knowledge of the Company,
any threat of any material adverse change in the Company's or any of
its subsidiaries' relations with, or any loss or threat of loss of, any
of the Company's or any of its subsidiaries' important suppliers,
distributors or employees;
(xii) any write-offs as uncollectible of any notes or accounts
receivable of the Company or any of its subsidiaries or write-downs of
the value of any assets or inventory by the Company or any of its
subsidiaries other than in immaterial amounts or in the ordinary course
of business consistent with past practice and of substantially the same
character, type and magnitude as incurred in the past;
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(xiii) any payment, loan or advance of any amount to or in respect
of, or the sale, transfer or lease of any properties or assets (whether
real, personal or mixed, tangible or intangible) to, or entering into
of any agreement, arrangement or transaction with, any Related Party,
except for (i) directors' fees and (ii) compensation to the officers
and employees of the Company and its subsidiaries at rates not
exceeding the rates of compensation disclosed in the Company Disclosure
Letter (as used herein, a "Related Party" means the Company, any of its
subsidiaries, any of the officers or directors of the Company or any of
its subsidiaries, any affiliate of the Company or any of its
subsidiaries or any of their respective officers or directors, or any
business or entity controlled, directly or indirectly, by the Company
or any of its subsidiaries);
(xiv) any disposition of or failure to keep in effect any rights in,
to or for the use of, any patent, trademark, service mark, trade name
or copyright, or any disclosure to any person not either an employee,
franchisee or other person subject to a duty of confidentiality with
respect thereto, or other disposal of any trade secret, process or
know-how;
(xv) any disposition of or failure to keep in effect any right in, to
or for the use of any franchise, right, license, permit or other
authorization of the Company or any of its subsidiaries;
(xvi) any transaction, agreement or event outside the ordinary course
of the Company's or its subsidiaries' business or inconsistent with
past practice or not of substantially the same character, type or
magnitude as incurred in the past.
(h) Compliance with Applicable Laws. The Company and its subsidiaries
have been operated at all times in compliance with all applicable laws and
regulations, and are not in default or violation of any notes, bonds,
mortgages, indentures, contracts, agreements, leases, licenses, permits,
franchises, or other instruments or obligations to which the Company or any
of its subsidiaries is a party or by which any of their property or assets
is bound, except where any such noncompliance, conflicts, defaults or
violations would not have a Material Adverse Effect on the Company. As of
the date hereof, no investigation by any Governmental Entity with respect
to the Company or any of its subsidiaries is pending or, to the Company's
best knowledge, threatened. The Company or one of its subsidiaries
possesses a valid license or licenses to sell and serve alcoholic beverages
in each restaurant operated by the Company and any of its subsidiaries, and
the validity of such licenses and the ability to sell and serve alcoholic
beverages in each such restaurant as currently permitted shall not be
affected by the Merger.
(i) Environmental. Except for any matters which, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse
Effect on the Company, (i) the Company and each of its subsidiaries is and
at all times has been in compliance with all applicable laws relating to
Environmental Matters; (ii) the Company and each of its subsidiaries has
obtained, and is in compliance with, all permits, licenses or approvals
required by applicable laws for the use, storage, treatment,
transportation, release, emission and disposal of raw materials, by-
products, wastes and other substances, including, without limitation,
hazardous substances and wastes, used or produced by or otherwise relating
to the operations of any of them; and (iii) there are no past or present
events, conditions, activities or practices that would prevent compliance
or continued compliance with any law or give rise to any Environmental
Liability. There are no claims either by any Governmental Entity or any
third party pending, or to the Company's knowledge, threatened, against the
Company or any of its subsidiaries arising from any Environmental Matter.
As used in this Agreement, the term "Environmental Matters" means any
matter arising out of or relating to pollution or protection of the
environment, human safety or health, or sanitation, including, without
limitation, matters relating to food preparation and handling, emissions,
discharges, releases, exposures, or threatened releases of pollutants,
contaminants, or hazardous or toxic materials or wastes including petroleum
and its fractions, radiation, polychlorinated byphenols, biohazards and all
toxic agents of whatever type or nature into ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants or hazardous or toxic materials or
wastes including petroleum and its fractions, radiation, biohazards and all
toxic agents of whatever type or nature. "Environmental Liability" means
any
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liability or obligation arising under any law or under any other theory of
law or equity (including, without limitation, any liability for personal
injury, property damage or remediation) arising from or relating to any
Environmental Matters.
(j) Litigation. There are no material claims, actions, suits or legal or
administrative arbitrations or other proceedings or investigations
("Litigation") pending against the Company or any of its subsidiaries, or,
to the Company's knowledge, threatened against or affecting the Company or
any of its subsidiaries, or to which the Company or any of its subsidiaries
is a party, before or by any Federal, foreign, state, local or other
governmental or non-governmental department, commission, board, bureau,
agency, court or other instrumentality, or by any private person or entity.
There are no existing or, to the best knowledge of the Company, threatened
material orders, judgments or decrees of any court or other Governmental
Entity which specifically apply to the Company, any of its subsidiaries or
any of their respective properties or assets.
(k) Taxes. (i) Each Tax Entity has timely filed all Tax Returns required
to be filed by any of them (subject to permitted extensions). All such Tax
Returns are true, correct and complete when filed, except for such
instances which individually or in the aggregate could not have a Material
Adverse Effect on the Company. All Taxes of each Tax Entity which are (i)
shown as due on such Tax Returns, (ii) otherwise due and payable or (iii)
claimed or asserted by any taxing authority to be due, have been paid,
except for those Taxes being contested in good faith and for which adequate
reserves have been established in the financial statements included in the
Company SEC Documents in accordance with GAAP. The Company does not know of
any proposed or threatened Tax claims or assessments which, if upheld,
could individually or in the aggregate have a Material Adverse Effect on
the Company. Each Tax Entity has withheld and paid over to the relevant
taxing authority all Taxes required to have been withheld and paid in
connection with payments to employees, independent contractors, creditors,
shareholders or other third parties, except for such Taxes which
individually or in the aggregate could not have a Material Adverse Effect
on the Company. No material deficiencies for any Taxes have been proposed,
asserted or assessed against any Tax Entity that are not adequately
reserved for, no audit of any Tax Return of any Tax Entity is being
conducted by a tax authority, and no extension of the statute of
limitations on the assessment of any taxes has been granted to any Tax
Entity and is currently in effect. For purposes of this Agreement, (a)
"Tax" (and, with correlative meaning, "Taxes") means any federal, state,
local or foreign income, gross receipts, property, sales, use, license,
excise, franchise, employment, payroll, premium, withholding, alternative
or added minimum, ad valorem, transfer or excise tax, or any other tax,
custom, duty, governmental fee or other like assessment or charge of any
kind whatsoever, together with any interest or penalty, imposed by any
Governmental Entity; (b) "Tax Return" means any return, report or similar
statement required to be filed with respect to any Tax (including any
attached schedules), including, without limitation, any information return,
claim for refund, amended return or declaration of estimated Tax; and (c)
"Tax Entity" means the Company, each of the Company's subsidiaries, and
each consolidated, combined, unitary or similar group of which the Company
or any of its subsidiaries is now, or within the preceding eight (8) years
has been, a member.
(ii) No Tax Entity has executed any closing agreement pursuant to Section
7121 of the Code or any predecessor provisions thereof, or any similar
provision of foreign, state or local law, or has any ruling request pending
with any tax authority. There are no tax certiorari proceedings currently
pending, tax abatements currently in effect or proposed materially
increased tax assessments of which any Tax Entity has been notified or has
knowledge in the context of such Tax Entity's real estate assets. No assets
of any Tax Entity constitutes tax-exempt financed property or tax-exempt
use property within the meaning of Section 168 of the Code, and no assets
of any Tax Entity are subject to a lease, safe-harbor lease, or other
arrangement as a result of which any Tax Entity is not treated as the owner
for federal income tax purposes. No Tax Entity has filed a consent pursuant
to Section 341(f) of the Code or agreed to have Section 341(f)(2) of the
Code apply to any disposition of a "subsection (f) asset" (as such term is
defined in Section 341(f)(4) of the Code). No Tax Entity (i) is required or
has agreed to make any adjustments pursuant to Section 481(a) of the Code
or any similar provision of foreign, state or local law by reason of a
change in accounting method initiated by it or any other relevant party,
(ii) has knowledge that any tax authority has proposed any such adjustment
or change in accounting method, and/or (iii) has an application pending
with any tax
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authority requesting permission for any changes in accounting methods that
relate to the business or assets of any Tax Entity. No Tax Entity is a
party to any contract, agreement, plan or arrangement covering any periods
that, individually or collectively, could give rise to any amount not being
deductible by reason of Section 280G of the Code. The Company and each of
its subsidiaries are not, have not been within the preceding eight (8)
years, own no interest in, and have never owned an interest in, "S
corporations" within the meaning of Section 1361(a)(1) of the Code,
"qualified subchapter S subsidiaries" within the meaning of Section
1361(b)(3)(B) of the Code, "personal holding companies" within the meaning
of Section 542 of the Code, "controlled foreign corporations" within the
meaning of Section 957 of the Code, "foreign personal holding companies"
within the meaning of Section 552 of the Code, "passive foreign investment
companies" within the meaning of Section 1296 of the Code, "foreign
investment companies" within the meaning of Section 1246 of the Code, an
"FSC" within the meaning of Section 922 of the Code, or a "DISC" or "Former
DISC" within the meaning of Section 992 of the Code. No Tax Entity has
made, been party to, or been the subject of, any elections under Sections
108, 168, 338, 441, 472, 1017, 1033 or 4977 of the Code. No Tax Entity has
entered into any transfer pricing agreements with any tax authority. No
assets of any Tax Entity are held in an arrangement for which partnership
Tax Returns are being filed or are required to be filed. No Tax Entity has
availed itself of any Tax amnesty or similar relief in any taxing
jurisdiction. None of Parent or any of its subsidiaries will be required to
withhold tax under Section 1445 of the Code with respect to any
consideration paid pursuant to this Agreement.
(l) Employee Benefit Plans. All employee benefit plans, compensation
arrangements and other benefit arrangements covering employees of the
Company or any of its subsidiaries (the "Company Benefit Plans") and all
employee agreements providing compensation, severance or other benefits to
any employee or former employee of the Company or any of its subsidiaries
which are not disclosed in the Company SEC Documents and which exceed
$50,000 per annum are set forth in the Company Disclosure Letter. True and
complete copies of the Company Benefit Plans have been made available to
Parent. To the extent applicable, the Company Benefit Plans comply in all
material respects with the requirements of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and the Code, and any Company
Benefit Plan intended to be qualified under Section 401(a) of the Code has
received a determination letter and, to the knowledge of the Company,
continues to satisfy the requirements for such qualification. Neither the
Company nor any of its subsidiaries nor any ERISA Affiliate of the Company
maintains, contributes to or is obligated to contribute to or has
maintained or contributed or been obligated to contribute to in the past
six (6) years to any benefit plan which is covered by Title IV of ERISA or
Section 412 of the Code or a "multi-employer plan" within the meaning of
Section 3(37) of ERISA or Section 4001(a)(3) of the Code. No Company
Benefit Plan nor the Company nor any subsidiary has incurred any liability
or penalty under Section 4975 of the Code or Section 502(i) of ERISA or, to
the knowledge of the Company, engaged in any transaction that would
reasonably be expected to result in any such liability or penalty. Each
Company Benefit Plan has been maintained and administered in compliance
with its terms and with ERISA and the Code to the extent applicable
thereto, except for such non-compliance which individually or in the
aggregate would not have a Material Adverse Effect on the Company. There is
no pending or, to the knowledge of the Company, anticipated, Litigation
against or otherwise involving any of the Company Benefit Plans and no
Litigation (excluding claims for benefits incurred in the ordinary course
of Company Benefit Plan activities) has been brought against or with
respect to any such Company Benefit Plan. All contributions required to be
made as of the date hereof to the Company Benefit Plans have been made or
provided for. Except as described in the Company SEC Documents or as
required by law, neither the Company nor any of its subsidiaries maintains
or contributes to any plan or arrangement which provides or has any
liability to provide life insurance or medical or other employee welfare
benefits to any employee or former employee upon his retirement or
termination of employment, and neither the Company nor any of its
subsidiaries has ever represented, promised or contracted (whether in oral
or written form) to any employee or former employee that such benefits
would be provided. No Company Benefit Plan is under investigation or audit
by either the United States Department of Labor or the Internal Revenue
Service. Except as provided for in this Agreement, the execution of, and
performance of the transactions contemplated in, this Agreement will not
(either alone or upon the occurrence of any additional or subsequent
events) constitute an event under
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any benefit plan, policy, arrangement or agreement or any trust or loan
that will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with
respect to any employee. No payment or benefit which will or may be made by
the Company, any of its subsidiaries or Parent with respect to any employee
of the Company or any of its subsidiaries will constitute an "excess
parachute payment" within the meaning of Section 280G(b)(1) of the Code.
For purposes of this Agreement "ERISA Affiliate" means any business or
entity which is a member of the same "controlled group of corporations,"
under "common control" or an "affiliated service group" with the Company
within the meaning of Sections 414(b), (c) or (m) of the Code, as required
to be aggregated with the Company under Section 414(o) of the Code, or is
under "common control" with the Company, within the meaning of Section
4001(a)(14) of ERISA, or any regulations promulgated or proposed under any
of the foregoing Sections.
(m) Restaurants and Properties.
(i) The Company operates 116 restaurants at the locations listed in
the Company Disclosure Letter.
(ii) The Company Disclosure Letter lists by address and lessor all
leases and subleases (including those denominated as "licenses") of
real property entered into by the Company or any of its subsidiaries as
lessee (the "Leased Real Property"). The Company Disclosure Letter
lists by address all real property owned by the Company or any of its
subsidiaries (the "Owned Real Property").
(iii) The Company Disclosure Letter lists by address and lessee all
leases and subleases (including those denominated as "licenses") of
real property entered into by the Company or any of its subsidiaries as
lessor with a franchisee as lessee (the "Franchised Leased Property").
The Company Disclosure Letter lists by address and lessee all leases
and subleases (including those denominated as "licenses") of real
property entered into by the Company or any of its subsidiaries as
lessor with a non-franchisee as lessee (the "Surplus Leased Property").
The Company Disclosure Letter lists by address and lessor (if
applicable) all property leased (or "licensed") or owned by the Company
or any of its subsidiaries where it neither operates a restaurant nor
leases the property to a third party (the "Vacant Surplus Property").
(iv) None of the Company or its subsidiaries is in default in any
material respect under any leases under which it is the tenant of real
or personal property. All leases with respect to the Leased Real
Property, the Franchised Leased Property, the Surplus Leased Property
and the Vacant Surplus Property are valid and binding obligations of
the Company or one of its subsidiaries, as the case may be, and are
enforceable by and against the Company or one of its subsidiaries, as
the case may be, in accordance with their terms. To the knowledge of
the Company, all such leases are valid, binding and enforceable against
the other parties thereto in accordance with their terms and are in
full force and no party to such leases has given any notice of default
with respect thereto which remains outstanding.
(v) The Company has provided or made available to Parent true and
correct copies of all leases and subleases described in this section,
together with any amendments, modifications or supplements thereto. The
Company has provided or made available to Parent true and correct
copies of all title insurance policies owned by the Company relating to
Owned Real Property and leaseholds owned by the Company or any of its
subsidiaries. The premiums for such title insurance policies have been
paid in full.
(vi) The construction, use and operation of the Leased and Owned Real
Property conforms to all applicable building, zoning, fire and life
safety, subdivision, and other laws, ordinances, regulations, codes,
permits, licenses and to any and all certificates, restrictions and
conditions affecting title, except for such non-conformance as could
not have a material adverse effect on the Company's' or its
subsidiaries' ownership, use or operation of the relevant property.
(vii) The Company has not received any written notice or order by any
Governmental Entity with respect to the Leased or Owned Real Property
which (i) relates to the violation of building, safety, fire
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or other ordinances or regulations, (ii) claims any defect or
deficiency, or (iii) requests the performance of any repairs or
alterations.
(viii) There is no pending or, to the knowledge of the Company,
threatened or contemplated, condemnation, expropriation, eminent domain
or similar proceeding affecting all or any portion of any of the Leased
or Owned Real Property.
(ix) There are no special assessments for public improvements or
otherwise now affecting the Leased Real Property or Owned Real Property
nor does the Company know of (i) any such pending or threatened
assessment affecting the Leased Real Property or Owned Real Property or
(ii) any contemplated improvements affecting the Leased Real Property
or Owned Real Property that may result in special assessments affecting
the Leased Real Property or Owned Real Property.
(n) Properties. The Company or its subsidiaries has good title and, in
the case of Owned Real Property, good and marketable fee simple title, to
its properties and assets, including the properties and assets reflected in
the Balance Sheet or acquired after July 2, 2000 (other than assets
disposed of since July 2, 2000 in the ordinary course of business
consistent with past practice and of substantially the same character, type
and magnitude as assets disposed of in the past), in each case free and
clear of all title defects, liens, claims, charges, encumbrances and
restrictions, except for (i) liens, encumbrances or restrictions which
secure indebtedness which is properly reflected in the Balance Sheet; (ii)
liens for Taxes accrued but not yet payable; (iii) liens arising as a
matter of law in the ordinary course of business with respect to
obligations incurred after July 2, 2000, provided that the obligations
secured by such liens are not delinquent; and (iv) such title defects,
liens, encumbrances and restrictions, if any, as individually or in the
aggregate would not have a Material Adverse Effect on the Company. None of
the Company's or its subsidiaries' properties or assets is owned jointly
with any other person, nor does any other person have any option to acquire
the same. The Company and each of its subsidiaries either own, or have
valid leasehold interests in, and are in possession of, all properties and
assets used by them in the conduct of their business and each such lease is
valid without material default thereunder by the lessee or, to the
Company's knowledge, by the lessor. Neither the Company nor any of its
subsidiaries has any legal obligation, absolute or contingent, to any other
person to sell or otherwise dispose of any interest in any of the
restaurants owned or operated by the Company or any of its subsidiaries, or
to sell or dispose of any of their other respective assets with an
individual value of $25,000 or an aggregate value in excess of $100,000.
(o) Labor Controversies. Neither the Company nor any of its subsidiaries
is a party to, or bound by, any collective bargaining agreement or other
contracts or understanding with a labor union or labor organization. Except
for such matters which, individually or in the aggregate, would not have a
Material Adverse Effect on the Company, there is no (i) unfair labor
practice, labor dispute (other than routine individual grievances or
complaints) or labor arbitration proceeding pending or, to the knowledge of
the Company, threatened, against the Company or any of its subsidiaries
relating to their business, (ii) to the knowledge of the Company, activity
or proceeding by a labor union or representative thereof to organize any
employees of the Company or any of its subsidiaries, or (iii) lockouts,
strikes, slowdowns, work stoppages or, to the knowledge of the Company,
threats thereof by or with respect to such employees.
(p) Intellectual Property. The Company Disclosure Letter sets forth a
true and complete list and description of (a) all United States and foreign
patents, trademarks, trade names, service marks, copyrights and
applications therefor owned by the Company and its subsidiaries (the
foregoing, together with the Company's trade dress and trade secrets
(including secret recipes and formulae), the "Intellectual Property
Rights") and (b) all United States and foreign patents, trademarks, trade
names, service marks, copyrights and applications therefor licensed to the
Company or any of its subsidiaries (the foregoing, together with any rights
in trade dress or trade secrets (including secret recipes and formulae)
licensed to the Company or any of its subsidiaries, the "Licensed Rights").
(1) (i) The Intellectual Property Rights are free and clear of any
liens, claims or encumbrances and are not subject to any license
(royalty bearing or royalty-free) or any other arrangement requiring
any payment to any person nor the obligation to grant rights to any
person in exchange, except for
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Franchise Agreements disclosed pursuant to the Company Disclosure
Letter; (ii) the Licensed Rights are free and clear of any liens,
claims, encumbrances, royalties or other obligations other than such
terms, conditions and restrictions as are contained in the document
granting such license; (iii) the Intellectual Property Rights and the
Licensed Rights are all those rights necessary to the conduct of the
business of each of the Company, its subsidiaries and the Company's and
its subsidiaries' franchisees as presently conducted or as currently
contemplated to be conducted; and (iv) neither the Intellectual
Property Rights nor the Licensed Rights nor the exploitation by the
Company and its subsidiaries thereof shall infringe upon any right of
any third party, including, without limitation, any rights under the
laws respecting patents, trademarks, copyrights or trade secrets.
(2) The validity of the Intellectual Property Rights and title
thereto, and the validity of the Licensed Rights: (i) have not been
questioned in any prior Litigation against or involving the Company or
any of its subsidiaries; (ii) are not being questioned in any pending
Litigation against or involving the Company or any of its subsidiaries;
and (iii) to the knowledge of the Company, are not the subject(s) of
any threatened or proposed Litigation.
(3) The business of each of the Company, its subsidiaries and, to the
knowledge of the Company, the Company's and its subsidiaries'
franchisees, as presently conducted, does not conflict with and has not
been alleged to conflict with any patents, trademarks, trade names,
service marks, copyrights or other intellectual property rights of
others.
(4) The consummation of the transactions contemplated hereby will not
result in the loss or impairment of any of the Intellectual Property
Rights or any of the Licensed Rights.
(5) The Company or its subsidiaries have filed all certificates,
affidavits and other documents, and taken all other actions necessary
to retain their respective title to all their respective trademarks,
service marks, patents and other Intellectual Property Rights and
Licensed Rights.
(6) Since its respective organization, each of the Company and its
subsidiaries has taken reasonable security measures to protect the
secrecy, confidentiality and value of its respective trade secrets,
including know-how, negative know-how, formulas, patterns,
compilations, programs, devices, methods, techniques, processes,
inventions, designs, computer programs, and technical data and all
information that derives independent economic value, actual or
potential, from not being generally known or known by competitors.
The Company does not know of any use by others of any of the Intellectual
Property Rights or the Licensed Rights material to the business of the
Company, its subsidiaries or the Company's and its subsidiaries'
franchisees, each as presently conducted.
(q) Change of Control Agreements. Except as set forth in the Company SEC
Documents filed prior to the date hereof, neither the execution and
delivery of this Agreement nor the consummation of the Merger or the other
transactions contemplated by this Agreement, will (either alone or in
conjunction with any other event) result in, cause the accelerated vesting
or delivery of (except as contemplated by Section 2.3), or increase the
amount or value of, any payment or benefit to any director, officer or
employee of the Company, and, without limiting the generality of the
foregoing, no amount paid or payable by the Company in connection with the
Merger or the other transactions contemplated by this Agreement (either
solely as a result thereof or as a result of such transactions in
conjunction with any other event) will be an "excess parachute payment"
within the meaning of Section 280G of the Code.
(r) Contracts and Commitments. All material contracts of the Company or
its subsidiaries have been included in the Company SEC Documents, except
for those contracts not required to be filed pursuant to the rules and
regulations of the SEC. Except as listed in the Company Disclosure Letter,
neither the Company nor any of its subsidiaries is a party to or bound by
any lease, contract or commitment, oral or written, formal or informal, of
the following types (each such contract, together with the material
contracts required to be filed in the Company SEC documents, the "Material
Contracts"):
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(i) mortgages, indentures, security agreements or other agreements
and instruments relating to the borrowing of money, the extension of
credit or the granting of liens or encumbrances, or any guaranty of any
of the foregoing;
(ii) employment and consulting agreements providing for payment in
excess of $25,000 per annum;
(iii) union or other collective bargaining agreements;
(iv) powers of attorney;
(v) sales agency, broker, manufacturer's representative and
distributorship agreements or other distribution or commission
arrangements;
(vi) licenses of patent, trademark and other intellectual property
rights (except for Franchise Agreements and Licensed Intellectual
Property identified elsewhere herein);
(vii) agreements, orders or commitments for the purchase of services,
raw materials, supplies or finished products from any one supplier for
an amount in excess of $100,000;
(viii) contracts or options relating to the sale of any asset with a
book value in excess of $100,000, other than sales of inventory in the
ordinary course of business;
(ix) bonus, profit-sharing, compensation, stock option, pension,
retirement, deferred compensation, accrued vacation pay, group
insurance, welfare agreements or other plans, agreements, trusts or
arrangements for the benefit of employees, officers or directors of the
Company or any of its subsidiaries;
(x) agreements or commitments for capital expenditures in excess of
$100,000;
(xi) partnership or joint venture agreements;
(xii) agreements requiring the consent of any party thereto to the
consummation of the transactions contemplated hereby;
(xiii) agreements, contracts or commitments for any charitable or
political contribution, except as to charitable contributions not in
excess of $1000 in the case of any individual commitment or $5000 in
the aggregate;
(xiv) agreements, contracts, commitments or arrangements relating to
any liquor license of any restaurant operated by the Company or any of
its subsidiaries; and
(xv) other agreements, contracts and commitments which are material
to the business of the Company or its subsidiaries or which involve
payments or receipts of more than $100,000 in any single year, or which
were entered into other than in the ordinary and usual course of
business consistent with past practice and of substantially the same
character, type and magnitude as incurred in the past.
All Material Contracts are valid and binding obligations of the Company
and/or its subsidiaries (as the case may be) and are enforceable against
the Company and/or its subsidiaries, as the case may be, in accordance with
their terms. The Company has made available true, correct and complete
copies of all Material Contracts to Parent. All Material Contracts have not
been modified or amended except as disclosed in the Company Disclosure
Letter and there are no other contracts and commitments which were material
to the Company or its subsidiaries and their businesses which have lapsed
in the last twelve months and which have not been replaced by a comparable
contract. The Company and each of its subsidiaries has performed all
obligations required to be performed by them, have been paid all amounts
required to be paid by them and are not in default in any material respect
under any Material Contract and no event has occurred thereunder in each
case which, with the lapse of time or the giving of notice or both, would
constitute such a default. To the knowledge of the Company: (i) all
Material Contracts are valid, binding and enforceable against the other
parties thereto in accordance with their terms, and are in full force and
effect; (ii) all parties to Material Contracts (other than the Company)
have complied with the provisions thereof and have performed all
obligations required to be performed by each of them to date; (iii) no such
party is in default under any of the terms thereof, and (iv) no event has
occurred that with the passage of time or the giving of
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notice or both would constitute a default by any party (other than the
Company) under any provision thereof except, in each case, for such non-
compliance or default which will not have a Material Adverse Effect on the
Company.
(s) Affiliated Transactions. All transactions between the Company or any
of its subsidiaries, on the one hand, and any officer, director or holder
of in excess of five percent (5%) of the Company Common Stock, or any
affiliate of any of them, have been disclosed in the Company SEC Documents
or the Company Disclosure Letter. Except as disclosed in the Company SEC
Documents, no officer, director or holder of in excess of five percent (5%)
of Company Common Stock has any material interest in (i) any assets,
including, without limitation, any intellectual property, used or held for
use in the business of the Company and its subsidiaries or (ii) any
creditor, supplier or franchisee of the Company or any or its subsidiaries.
(t) Insurance. The Company and each of its subsidiaries are adequately
insured in such amounts and against such risks as are usually insured
against by persons operating in the businesses in which the Company and its
subsidiaries operate, and all policies relating to such insurance are in
full force and effect. All products liability and general liability
policies maintained by or for the benefit of the Company or its
subsidiaries have been "occurrence" policies and not "claims made"
policies.
(u) Records. The respective corporate record books of or relating to the
Company and each of its Significant Subsidiaries made available to Parent
by the Company contain accurate and substantially complete records of (x)
all material corporate actions of the respective stockholders and directors
(and committees thereof) of the Company and its subsidiaries and (y) the
certificate of incorporation, by-laws and/or other governing instruments of
the Company and its Significant Subsidiaries.
(ii) The books and records of the Company and its subsidiaries are
substantially complete and correct.
(v) Section 203 of the DGCL. The Board of Directors of the Company has
approved the Merger and this Agreement, and such approval is sufficient to
render inapplicable to the Merger and this Agreement, and the transactions
contemplated by this Agreement, the provisions of Section 203 of the DGCL.
No other state takeover statute or similar statute or regulation applies or
purports to apply to the Merger, this Agreement or the transactions
contemplated by this Agreement. No provision of the certificate of
incorporation, by-laws and/or other governing instruments of the Company or
any of its subsidiaries would restrict or impair the ability of Parent to
vote, or otherwise to exercise the rights of a stockholder with respect to,
shares of the Company and any of its subsidiaries that may be acquired or
controlled by Parent.
(w) Opinion of Financial Advisor. The Company has received the opinion of
Donaldson, Lufkin & Jenrette (the "Independent Advisor") dated October 4,
2000 to the effect that, as of such date, the consideration to be received
by the stockholders of the Company pursuant to this Agreement is fair to
such stockholders from a financial point of view, a signed copy of which
opinion has been delivered to Parent.
(x) Franchise Matters. The Company Disclosure Letter contains a list of
the agreements whereby the Company or its subsidiaries has granted
development, franchise or license rights to operate Taco Cabana
restaurants, except for agreements which have expired or been terminated
(the "Franchise Agreements"). The Franchise Agreements are binding and
enforceable against the other parties thereto in accordance with their
terms, and are in full force and effect. The Company and each of its
subsidiaries is in compliance with all applicable laws governing the
offering of franchises. All of the Franchise Agreements are valid and
binding obligations of the Company or its subsidiaries, as the case may be,
and are enforceable against the Company or its subsidiaries, as the case
may be, in accordance with their terms. None of the Franchise Agreements
have been amended or modified except as disclosed in the Company Disclosure
Letter. The Company or its subsidiaries, as the case may be, has performed
all obligations required to be performed by it under the Franchise
Agreements, and the Company is not in default in any material respect under
any Franchise Agreement and no event has occurred thereunder in each case
which, with the lapse of time or the giving of notice or both, would
constitute such default. All parties to the Franchise Agreements (other
than the Company or its subsidiaries, as the case may be) have complied in
all material respects with the provisions thereof and have performed in all
material respects all obligations required to be performed by each of them
to date; and, except as disclosed in the Company Disclosure Letter, no such
party is in default or has ever been in default under any of the material
terms thereof and no event has occurred that with the
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passage of time or the giving of notice or both would constitute a default
by any such party under any material provision thereof. Except as set forth
in the Company Disclosure Letter, there are no claims, actions, suits,
arbitrations, controversies, investigations or proceedings pending, or to
the knowledge of the Company, threatened or contemplated, against or
affecting the Company or any of its subsidiaries in connection with the
Franchise Agreements.
(y) Disclosure. No representation, warranty or covenant made by the
Company in this Agreement, any Exhibits or the Company Disclosure Letter
contains an untrue statement of a material fact or omits to state a
material fact required to be stated herein or therein or necessary to make
the statements contained herein or therein, in light of the circumstances
under which they were made, not misleading.
(z) Company Rights Agreement. The Company has delivered to Parent a true
and correct copy of the Rights Agreement as in effect as of the execution
and delivery of this Agreement. The board of directors of the Company has
amended the Rights Agreement in accordance with its terms to render it
inapplicable to the transactions contemplated by this Agreement. Neither
Parent nor Sub shall be deemed to be an "Acquiring Person" (as defined in
the Rights Agreement) and the "Distribution Date" (as defined in the Rights
Agreement) shall not be deemed to occur and the Company Rights will not
separate from the Company Common Stock as a result of the Company entering
into this Agreement or consummating the Merger and/or the other
transactions contemplated by this Agreement. Neither Parent, the Surviving
Corporation nor any of Parent's subsidiaries will have any obligations
under the Company Rights or the Rights Agreement and the holders of the
Company Rights will have no rights under the Company Rights or the Rights
Agreement as a result of the Company entering into this Agreement or the
consummation of the Merger and/or the other transactions contemplated by
this Agreement.
3.2 Representations and Warranties of Parent and Sub. Parent and Sub jointly
and severally represent and warrant to the Company as follows:
(a) Organization, Standing and Power. Each of Parent and Sub is a
corporation, duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, has all requisite power
and authority and all necessary governmental approvals to own, lease and
operate its properties and to carry on its business as it is now being
conducted, and is duly qualified and in good standing to do business in
each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification necessary, other than in
such jurisdictions where the failure so to qualify would not, individually
or in the aggregate, have a Material Adverse Effect on Parent.
(b) Authority. (i) Parent and Sub have all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent or Sub,
as the case may be. This Agreement has been duly executed and delivered by
Parent and Sub and constitutes a valid and binding obligation of Parent or
Sub, as the case may be, enforceable in accordance with its terms, except
as affected by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or affecting
creditors' rights generally and general equitable principles (whether
considered in a proceeding in equity or at law).
(ii) Subject to compliance with the applicable requirements of the
Exchange Act, the HSR Act and the filing of the Certificate of Merger, the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not result in any Violation pursuant
to (x) any provision of the certificate of incorporation or by-laws of
Parent, the certificate of incorporation or by-laws of Sub, or the
governing instruments of any other subsidiary of Parent or (y) except as
disclosed in the letter dated the date hereof and delivered by Parent to
the Company simultaneously with the execution and delivery of this
Agreement (the "Parent Disclosure Letter") and subject to obtaining or
making the consents, approvals, orders, authorizations, registrations,
declarations and filings referred to in paragraph (iii) below or in the
Parent Disclosure Letter, any loan or credit agreement, note, mortgage,
indenture, lease, benefit plan or other agreement, obligation, instrument,
permit, concession, franchise, license, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Parent, Sub or any other
subsidiary of Parent or their
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respective properties or assets except Violations under clause (y) above
which do not or would not have a Material Adverse Effect on Parent.
(iii) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or with
respect to Parent, Sub or any other subsidiary of Parent in connection with
the execution and delivery of this Agreement by Parent and Sub, the
consummation by Parent or Sub, as the case may be, of the transactions
contemplated hereby, and compliance by Parent and Sub with any of the
provisions hereof, the failure to obtain which would have a Material
Adverse Effect on Parent, except for (A) such filings under the Exchange
Act as may be required in connection with this Agreement and the
transactions contemplated hereby, (B) the filing of the Certificate of
Merger as contemplated by Section 1.1 and appropriate documents with the
relevant authorities of states in which Parent and Sub are qualified to do
business, and (C) the HSR Filings.
(c) Information Supplied. None of the information concerning Parent or
Sub provided by or on behalf of Parent or Sub specifically for inclusion or
incorporation by reference in the Proxy Statement will, at the date of
mailing to stockholders and at the times of the meetings of stockholders to
be held in connection with the Merger, contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(d) Interim Operations of Sub. Sub was incorporated on October 5, 2000,
has engaged in no other business activities and has conducted its
operations only as contemplated hereby.
(e) Financial Capability. Parent has previously delivered to the Company
a true and complete copy of a commitment letter, dated September 29, 2000
(the "Commitment Letter"), addressed to Parent from Chase Bank of Texas,
N.A., Parent's debt financing source, for the aggregate amount of up to
$250 million of bank financing (the "Financing") for, among other things,
the funds necessary to fund the Merger (the "Offer Consideration"). Parent
has no reason to believe that the conditions to the Financing will not be
satisfied or waived. The Financing and Parent's available funds will be
sufficient to fund the Offer Consideration.
ARTICLE IV
Covenants Relating to Conduct of Business
4.1 Covenants of Company. During the period from the date of this Agreement
and continuing until the Effective Time, the Company agrees as to itself and
its subsidiaries that (except as expressly contemplated or permitted by this
Agreement or to the extent that Parent shall otherwise consent in writing):
(a) Ordinary Course. The Company and its subsidiaries shall carry on
their respective businesses in the usual, regular and ordinary course and
use commercially reasonable efforts to preserve intact their present
business organizations, maintain their rights and franchises and preserve
their relationships with employees, officers, customers, suppliers and
others having business dealings with them. The Company and its subsidiaries
shall maintain in force all insurance policies and Consents with respect to
the Company and its subsidiaries and shall maintain all assets and
properties of the Company and its subsidiaries in customary repair, order
and condition, reasonable wear and tear excepted. The Company shall not,
nor shall it permit any of its subsidiaries to, (i) enter into any new
material line of business or (ii) incur or commit to any significant
capital expenditures or any obligations or liabilities other than capital
expenditures and obligations or liabilities incurred or committed to as
disclosed in the Company Disclosure Letter. The Company and its
subsidiaries will comply with all applicable laws and regulations wherever
its business is conducted, including without limitation the timely filing
of all reports, forms or other documents with the SEC required pursuant to
the Securities Act or the Exchange Act, except where such noncompliance
would not have a Material Adverse Effect on the Company. The Company and
its subsidiaries shall not enter into any new Franchise Agreements. The
Company and its subsidiaries shall not amend or modify any existing
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Franchise Agreements or the nature of its relationship with their
franchisees, or agree to do either of the foregoing.
(b) Dividends; Changes in Stock. The Company shall not, nor shall it
permit any of its subsidiaries to, nor shall the Company propose to, (i)
declare or pay any dividends on or make other distributions in respect of
any of its capital stock, other than cash dividends payable by a subsidiary
of the Company to the Company or one of its subsidiaries, (ii) split,
combine or reclassify any of its capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or (iii) repurchase,
redeem or otherwise acquire, or permit any subsidiary to purchase or
otherwise acquire any shares of its capital stock or any securities
convertible into or exercisable for any shares of its capital stock.
(c) Issuance of Securities. The Company shall not, nor shall it permit
any of its subsidiaries to, issue, deliver or sell, or authorize or propose
the issuance, delivery or sale of, any shares of its capital stock of any
class, any Voting Debt or any securities convertible into or exercisable
for (including any stock appreciation rights, phantom stock plans or stock
equivalents), or any rights, warrants or options to acquire, any such
shares or Voting Debt, or enter into any agreement with respect to any of
the foregoing, other than issuances of Company Common Stock pursuant to
exercises of Company Stock Options or Company Common Stock awards to
directors listed in the Company Disclosure Letter.
(d) Governing Documents. The Company shall not amend or propose to amend,
nor shall it permit any of its subsidiaries to amend, their respective
certificates of incorporation, by-laws or other governing instruments.
(e) No Solicitations. The Company shall not, nor shall it permit any of
its subsidiaries to, directly or indirectly, through any officer, director,
employee or agent, initiate, solicit or knowingly encourage (including by
way of furnishing information or assistance), or take any other action to
facilitate knowingly, any inquiries or the making of any proposal that
constitutes, or would reasonably be expected to lead to, any Competing
Transaction, or enter into or maintain or continue discussions or negotiate
with any person in furtherance of such inquiries or to obtain a Competing
Transaction, or agree to or endorse any Competing Transaction, or authorize
or permit any of the officers, directors or employees of the Company or any
of its subsidiaries or any investment banker, financial advisor, attorney,
accountant or other representative retained by the Company or any of its
subsidiaries to take any such action. The Company shall notify Parent in
writing (as promptly as practicable) if any written or oral request for
information or proposal relating to a Competing Transaction is made and
shall keep Parent promptly advised of all such requests and proposals, and
shall provide a copy of any written proposals or requests and a summary of
all oral proposals or requests. Nothing contained in this Section 4.1(e)
shall prohibit the Company from (i) furnishing information to, or entering
into discussions or negotiations with, any person that makes an unsolicited
written, bona fide proposal to acquire it pursuant to a merger,
consolidation, share exchange, business combination, tender or exchange
offer or other similar transaction, if, (A) the failure to take such action
would be inconsistent with the Board of Directors' fiduciary duties to the
Company's stockholders under applicable law, and (B) prior to furnishing
such information to, or entering into discussions or negotiations with,
such person, the Company (x) provides reasonable notice to Parent to the
effect that it is furnishing information to, or entering into discussions
or negotiations with, such person and (y) receives from such person an
executed confidentiality agreement no less favorable to the Company than
the Confidentiality Agreement between Parent and the Independent Advisor,
on behalf of the Company, dated June 4, 1999 (the "Confidentiality
Agreement"), (ii) complying with Rule 14d-9 or Rule 14e-2 promulgated under
the Exchange Act with regard to a tender or exchange offer, or (iii)
failing to make or withdrawing or modifying its recommendation referred to
in Section 5.2, or recommending an unsolicited, bona fide proposal to
acquire the Company pursuant to a merger, consolidation, share exchange,
business combination, tender or exchange offer or other similar
transaction, following the receipt of such a proposal, if the failure to
take such action would be inconsistent with the Board of Directors'
fiduciary duties to the Company's stockholders under applicable law. In
addition, if the Company proposes to enter into an agreement with respect
to any Competing Transaction, it shall concurrently with entering into such
agreement pay, or cause
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to be paid, to Parent any amounts due to Parent from the Company pursuant
to Section 7.3. As used in this Agreement, "Competing Transaction" shall
mean any of the following (other than the transactions contemplated by this
Agreement) involving the Company or any of its subsidiaries: (i) any
merger, consolidation, share exchange, exchange offer, business
combination, recapitalization, liquidation, dissolution or other similar
transaction involving such person; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of assets representing 20%
or more of the total assets of such person and its subsidiaries, in a
single transaction or series of transactions; (iii) any tender offer or
exchange offer for 20% or more of the outstanding shares of capital stock
of such person or the filing of a registration statement under the
Securities Act in connection therewith; (iv) any person or group having
acquired beneficial ownership of 15% or more of the outstanding shares of
capital stock of such person with respect to Company Common Stock); or (v)
any public announcement of a proposal, plan or intention to do any of the
foregoing or any agreement to engage in any of the foregoing.
(f) No Acquisitions. The Company shall not, nor shall it permit any of
its subsidiaries to, (i) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial equity interest in or a
substantial portion of the assets of, or by any other manner, any business
or any corporation, limited liability company, partnership, association or
other business organization or division thereof or (ii) otherwise acquire
or agree to acquire any assets which, in the case of this clause (ii), are
material, individually or in the aggregate, to the Company, except with
respect to the development of planned new restaurants as described in the
Company Disclosure Letter.
(g) No Dispositions. The Company shall not, nor shall it permit any of
its subsidiaries to, sell, lease, encumber or otherwise dispose of, or
agree to sell, lease, encumber or otherwise dispose of any of its assets
(including capital stock of subsidiaries), except as disclosed in the
Company Disclosure Letter and for dispositions in the ordinary course of
business consistent with past practice and of substantially the same
character, type and magnitude as dispositions in the past.
(h) Indebtedness. The Company shall not, nor shall it permit any of its
subsidiaries to, (i) incur any indebtedness for borrowed money or guarantee
any such indebtedness or issue or sell any debt securities or warrants or
rights to acquire any long-term debt securities of the Company or any of
its subsidiaries or guarantee any long-term debt securities of others or
enter into or amend any contract, agreement, commitment or arrangement with
respect to any of the foregoing, other than (x) in replacement for existing
or maturing debt, (y) indebtedness of any subsidiary of the Company to the
Company or to another subsidiary of the Company or (z) other borrowing
under existing lines of credit in the ordinary course of business
consistent with prior practice and of substantially the same character,
type and magnitude as borrowings made in the past or (ii) make any loans,
advances or capital contributions to any person.
(i) Other Actions. The Company shall not, nor shall it permit any of its
subsidiaries to, take any action that would, or might reasonably be
expected to, result in any of its representations and warranties set forth
in this Agreement being or becoming untrue in any material respect, or in
any of the conditions to the Merger set forth in Article VI not being
satisfied, or which would adversely affect the ability of any of them to
obtain any of the Requisite Regulatory Approvals without imposition of a
condition or restriction of the type referred to in Section 6.2(d) and the
Company shall, in the event of, or promptly after the occurrence of, or
promptly after obtaining knowledge of the occurrence of or the impending or
threatened occurrence of, any fact or event which would cause or constitute
a breach of any of the representations and warranties set forth in this
Agreement, the non-satisfaction of any of the conditions to the Merger set
forth in Article VI or the failure to obtain the Requisite Regulatory
Approvals, in each case at any time after the date hereof and through the
Closing Date, give detailed notice thereof to Parent, and the Company shall
use its best efforts to prevent or promptly to remedy such breach, non-
satisfaction or failure, as the case may be.
(j) Advice of Changes; Government Filings. The Company shall confer on a
regular basis with Parent, report on operational matters and promptly
advise Parent, orally and in writing, of any material change or event or
any change or event which would cause or constitute a material breach of
any of the representations, warranties or covenants of the Company
contained herein. The Company shall file all reports required to be filed
by the Company with the SEC between the date of this Agreement and the
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Effective Time and shall deliver to Parent copies of all such reports
promptly after the same are filed. The Company shall cooperate with Parent
in determining whether any filings are required to be made with, or
consents required to be obtained from, or fees or expenses required to be
paid to, any third party or Governmental Entity prior to the Effective Time
in connection with this Agreement or the transactions contemplated hereby,
and shall cooperate in making any such filings promptly and in seeking to
obtain timely any such consents and, subject to Parent's approval, paying
any such fees or expenses. The Company shall promptly provide Parent with
copies of all other filings made by the Company with any state or Federal
Governmental Entity (excluding the HSR Filing) in connection with this
Agreement, the Merger or the other transactions contemplated hereby.
(k) Accounting Methods. The Company shall not change its methods of
accounting in effect at July 2, 2000, except as required by changes in GAAP
as concurred in by the Company's independent auditors.
(l) Benefit Plans. During the period from the date of this Agreement and
continuing until the Effective Time, the Company agrees as to itself and
its subsidiaries that it will not, without the prior written consent of
Parent, except as set forth in the Company Disclosure Letter, (i) enter
into, adopt, amend (except as may be required by law) or terminate any
Company Benefit Plan or any other employee benefit plan or any agreement,
arrangement, plan or policy between the Company or any of its subsidiaries,
on the one hand, and one or more of its or their directors or officers, on
the other hand, (ii) except for normal increases in the ordinary course of
business consistent with past practice and of substantially the same
character, type and magnitude as increases in the past that, in the
aggregate, do not result in a material increase in benefits or compensation
expense to the Company or any of its subsidiaries, increase in any manner
the compensation or fringe benefits of any director, officer or employee or
pay any benefit not required by any plan and arrangement as in effect as of
the date hereof (including, without limitation, the granting of stock
options, stock appreciation rights, restricted stock, restricted stock
units or performance units or shares) or enter into any contract,
agreement, commitment or arrangement to do any of the foregoing or (iii)
enter into or renew any contract, agreement, commitment or arrangement
providing for the payment to any director, officer or employee of the
Company or any of its subsidiaries of compensation or benefits contingent,
or the terms of which are materially altered, upon the occurrence of any of
the transactions contemplated by this Agreement.
(m) Tax Elections. Except in the ordinary course of business and
consistent with past practice and of substantially the same character, type
and magnitude as elections made in the past, the Company shall not make any
material tax election or settle or compromise any material federal, state,
local or foreign income tax claim or liability or amend any previously
filed tax return in any respect.
4.2 Covenants of Parent. Except as expressly contemplated by this Agreement,
after the date hereof and prior to the Effective Time, without the prior
written consent of the Company:
(a) Other Actions. Neither Parent nor Sub shall, nor shall it permit any
of their respective subsidiaries to, take any action that would, or might
reasonably be expected to, result in any of its representations and
warranties set forth in this Agreement being or becoming untrue in any
material respect, or in any of the conditions to the Merger set forth in
Article VI not being satisfied, or which would adversely affect the ability
of any of them to obtain any of the Requisite Regulatory Approvals without
imposition of a condition or restriction of the type referred to in Section
6.2(d).
(b) Government Filings. The Parent shall cooperate with the Company in
determining whether any filings are required to be made with, or consents
required to be obtained from, any third party or Governmental Entity prior
to the Effective Time in connection with this Agreement or the transactions
contemplated hereby, and shall cooperate in making any such filings
promptly and in seeking to obtain timely any such consents. The Parent
shall promptly provide the Company with copies of all other filings made by
the Parent with any state or Federal Governmental Entity (excluding the HSR
Filings) in connection with this Agreement, the Merger or the other
transactions contemplated hereby.
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(c) Extraordinary Transactions. Parent shall not, nor shall it permit any
of its subsidiaries to, knowingly enter into or consummate any
extraordinary transaction or agreement, which would have a Material Adverse
Effect on Parent.
ARTICLE V
Additional Agreements
5.1 Preparation of the Proxy Statement The Company shall as promptly as
practicable prepare and file a proxy or information statement relating to
Company stockholders' meeting to be held in connection with the approval of
the Merger (together with all amendments, supplements and exhibits thereto,
the "Proxy Statement") with the SEC and will use its best efforts to respond
to the comments of the SEC and to cause the Proxy Statement to be mailed to
the Company's stockholders at the earliest practical time. The Company will
notify Parent promptly of the receipt of any comments from the SEC or its
staff and of any request by the SEC or its staff for amendments or supplements
to the Proxy Statement or for additional information and will supply Parent
with copies of all correspondence between the Company or any of its
representatives, on the one hand, and the SEC or its staff, on the other hand,
with respect to the Proxy Statement or the Merger. If at any time prior to the
stockholders' meeting there shall occur any event that should be set forth in
an amendment or supplement to the Proxy Statement, the Company will promptly
prepare and mail to its stockholders such an amendment or supplement. The
Company will not mail any Proxy Statement, or any amendment or supplement
thereto, to which Parent reasonably objects. The Company hereby consents to
the inclusion in the Proxy Statement of the recommendation of the Board of
Directors of the Company described in Section 5.2, subject to any
modification, amendment or withdrawal thereof, and represents that the
Independent Advisor has, subject to the terms of its engagement letter with
the Company, consented to the inclusion of references to its opinion in the
Proxy Statement.
5.2 Stockholder Meeting. The Company shall call a meeting of its
stockholders to be held as promptly as practicable for the purpose of voting
upon the approval of this Agreement, the Merger and the other transactions
contemplated hereby. The Company will, through its Board of Directors,
recommend to its stockholders approval of such matters, unless the taking of
such action would be inconsistent with the Board of Directors' fiduciary
duties to stockholders under applicable laws. The Company shall, at the
direction of Parent, solicit from Company stockholders entitled to vote at the
Company stockholders' meeting proxies in favor of such approval and shall take
all other action necessary or, in the judgment of Parent, helpful to secure
the vote or consent of such holders required by the DGCL or this Agreement to
effect the Merger. The Company shall coordinate and cooperate with Parent with
respect to the timing of such meeting.
5.3 Legal Conditions to Merger. Each of the Company and Parent shall, and
shall cause its subsidiaries to, use all reasonable efforts (i) to take, or
cause to be taken, all actions necessary to comply promptly with all legal
requirements which may be imposed on such party or its subsidiaries with
respect to the Merger and to consummate the transactions contemplated by this
Agreement, subject to the appropriate vote of stockholders of the Company
described in Section 6.1 (a), and (ii) to obtain (and to cooperate with the
other party to obtain) any consent, authorization, order or approval of, or
any exemption by, any Governmental Entity and of any other public or private
third party which is required to be obtained or made by such party or any of
its subsidiaries in connection with the Merger and the transactions
contemplated by this Agreement; provided, however, that a party shall not be
obligated to take any action pursuant to the foregoing if the taking of such
action or such compliance or the obtaining of such consent, authorization,
order, approval or exemption is likely, in such party's reasonable opinion,
(x) to be materially burdensome to such party and its subsidiaries taken as a
whole or to impact in a materially adverse manner the economic or business
benefits of the transactions contemplated by this Agreement so as to render
uneconomic the consummation of the Merger or (y) in the case of the Company,
to result in the imposition of a condition or restriction on the Company, the
Surviving Corporation or any of their respective subsidiaries of the type
referred to in Section 6.2(d). Each of the Company and Parent will promptly
cooperate
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with and furnish information to the other in connection with any such burden
suffered by, or requirement imposed upon, any of them or any of their
subsidiaries in connection with the foregoing.
5.4 Access to Information. Upon reasonable notice, the Company and each of
its subsidiaries shall afford to the officers, employees, accountants, counsel
and other representatives of Parent, access, during normal business hours
during the period prior to the Effective Time, to all its properties, books,
commitments and records and, during such period, each of the Company and its
subsidiaries shall make available to Parent (a) a copy of each report,
schedule, registration statement and other document filed or received by it
during such period pursuant to the requirements of Federal securities laws and
(b) all other information concerning its business, properties and personnel as
Parent may reasonably request. The parties will hold any such information
which is nonpublic in confidence to the extent required by, and in accordance
with, the provisions of the Confidentiality Agreement. No investigation by
either Parent or the Company shall affect the representations and warranties
of the other, except to the extent such representations and warranties are by
their terms qualified by disclosures made to such first party.
5.5 Brokers or Finders. Except as disclosed to the other party prior to the
date hereof, each of Parent and the Company represents, as to itself, its
subsidiaries and its affiliates, that no agent, broker, investment banker,
financial advisor or other firm or person is or will be entitled to any
broker's or finder's fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement, except the
Independent Advisor, whose fees and expenses will be paid by the Company in
accordance with the Company's agreement with such firm (a copy of which has
been delivered by the Company to Parent prior to the date of this Agreement),
and each party agrees to indemnify the other party and hold the other party
harmless from and against any and all claims, liabilities or obligations with
respect to any other fees, commissions or expenses asserted by any person on
the basis of any act or statement alleged to have been made by such first
party or its affiliates.
5.6 Indemnification; Directors' and Officers' Insurance.
(a) As of the Effective Time, the certificate of incorporation of the
Surviving Corporation shall contain provisions no less favorable with respect
to indemnification than are set forth in the certification of incorporation of
the Company, which provisions shall not be amended, repealed or otherwise
modified for a period of six years from the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who at the
Effective Time were directors, officers or employees of the Company. Parent
and Company agree that the directors, officers and employees of the Company
covered thereby are intended to be third party beneficiaries under this
Section 5.6 and shall have the right to enforce the obligations of the
Surviving Corporation and the Parent.
(b) The Surviving Corporation shall maintain in effect for six years (or
such shorter period as Parent maintains similar policies for the benefit of
its directors and officers) from the Effective Time the current policies of
the directors' and officers' liability insurance maintained by the Company
(provided that the Surviving Corporation may substitute therefor policies of
at least the same coverage containing terms and conditions which are not
materially less advantageous) with respect to matters occurring prior to the
Effective Time to the extent available; provided, however, that Parent and the
Surviving Corporation shall not be required to pay an annual premium for such
insurance in excess of 150% of the annual premium currently paid by the
Company for such insurance, but in such case shall purchase as much such
coverage as possible for such amount.
5.7 Shareholder Lists. The Company shall promptly upon request of Parent, or
shall cause its transfer agent to promptly, furnish Parent with mailing labels
containing the names and addresses of all record holders of Company Common
Stock and with security position listings of Company Common Stock held in
stock depositories, each as of the most recent practicable date, together with
all other available listings and computer files containing names, addresses
and security position listings of record holders and beneficial owners of
Company Common Stock. The Company shall furnish Parent with such additional
information, including, without limitation, updated listings and computer
files of stockholders, mailing labels and security position listings, and such
other assistance as Parent or its agents may reasonably request.
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5.8 Shareholder Litigation. The Company shall give Parent the opportunity to
participate in the defense or settlement of any shareholder litigation against
the Company and its directors relating to the transactions contemplated by
this Agreement; provided, however, that no such settlement shall be agreed to
without Company's and Parent's consent, which shall not be unreasonably
withheld.
5.9 Communication to Employees. The Company and Parent will cooperate with
each other with respect to, and endeavor in good faith to agree in advance
upon the method and content of, all written or oral communications or
disclosure to employees of the Company or any of its subsidiaries with respect
to the Merger and any other transactions contemplated by this Agreement. Upon
reasonable notice, the Company shall provide Parent access to the Company's
and its subsidiaries' employees and facilities.
5.10 Environmental Matters. The Company shall cooperate with Parent and take
or cause to be taken all actions necessary to complete any questionnaires or
surveys which Parent or its lenders may require in connection with
Environmental Matters relating to the Company, any of its subsidiaries or any
of their respective properties or assets. Parent shall have the right, if
required by its lenders, to cause an independent environmental consultant
chosen by it at its sole discretion, to inspect, audit, and test any of the
Company's or its subsidiaries' premises for the existence of any and all
Environmental Liabilities and any and all violations of laws related to
Environmental Matters (the "Environmental Audit") and to deliver a report
describing the findings and conclusions of the Environmental Audit. The scope,
sequence, and timing of the Environmental Audit shall be at the sole
discretion of Parent, and the Environmental Audit may be commenced at any time
on or after the date hereof.
ARTICLE VI
Conditions Precedent
6.1 Conditions to Each Party's Obligation To Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to
the satisfaction prior to the Closing Date of the following conditions:
(a) Stockholder Approval. This Agreement shall have been approved and
adopted by the affirmative vote of the holders of a majority of the
outstanding shares of Company Common Stock entitled to vote thereon.
(b) Other Approvals. All authorizations, consents, orders or approvals
of, or declarations or filings with, and all expirations or early
terminations of waiting periods imposed by, any Governmental Entity (all
the foregoing, "Consents") which are necessary for the consummation of the
Merger shall have been filed, occurred or been obtained (all such permits,
approvals, filings and consents and the lapse of all such waiting periods
being referred to as the "Requisite Regulatory Approvals") and all such
Requisite Regulatory Approvals shall be in full force and effect, including
without limitation, with respect to any liquor licenses or permits.
(c) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger shall be in effect, nor shall any
proceeding by any Governmental Entity seeking any of the foregoing be
pending. There shall not be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal.
6.2 Conditions to Obligations of Parent and Sub. The obligations of Parent
and Sub to effect the Merger are subject to the satisfaction of the following
conditions unless waived by Parent and Sub:
(a) Representations and Warranties. The representations and warranties of
the Company set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as
of the Closing Date as though made on and as of the Closing Date, and
Parent shall have received a certificate signed on behalf of
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the Company by the President and Chief Executive Officer of the Company,
and by the Chief Financial Officer of the Company to such effect.
(b) Performance of Obligations of Company. The Company shall have
performed and complied in all material respects with all obligations
required to be performed or complied with by it under this Agreement at or
prior to the Closing Date, and Parent shall have received a certificate
signed on behalf of the Company by the President and Chief Executive
Officer of the Company and by the Chief Financial Officer of the Company to
such effect.
(c) Consents Under Agreements. The Company shall have obtained the
consent or approval of (i) the landlords or lessors whose consent or
approval shall be required in order to permit the succession by the
Surviving Corporation or its subsidiaries pursuant to the Merger to any
obligation, right or interest of the Company or any of its subsidiaries
under the real property leases set forth in Section 6.2(c) of the Parent
Disclosure Letter and (ii) except for those consents or approvals for which
failure to obtain such consents or approvals could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on
the Company, each person (other than the Requisite Regulatory Approvals or
with respect to any real property leases set forth in Section 6.2(c) of the
Parent Disclosure Letter) whose consent or approval shall be required in
order to permit the succession by the Surviving Corporation pursuant to the
Merger to any obligation, right or interest of the Company or any
subsidiary of the Company under any loan or credit agreement, note,
mortgage, indenture, lease, license or other agreement or instrument (other
than the consent of International Bank of Commerce with respect to the
Sixth Amended Loan Agreement dated as of March 10, 2000, the Fifth Amended
Revolving Loan Agreement dated as of March 10, 2000 and associated real
estate lien notes and mortgages to which the Company is a party).
(d) Burdensome Condition. There shall not be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, by any Governmental Entity which, in connection
with the grant of a Requisite Regulatory Approval, imposes any requirement
upon Parent, the Surviving Corporation or their respective subsidiaries
which would so materially adversely impact the economic or business
benefits of the transactions contemplated by this Agreement as to render
uneconomic the consummation of the Merger, or which would require Parent or
any of its subsidiaries to dispose of any asset which is material to Parent
prior to the Effective Time.
(e) Material Adverse Effect. Since the date of this Agreement, there
shall not have occurred a Material Adverse Effect with respect to the
Company and no facts or circumstances arising after the date of this
Agreement shall have occurred which, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect with respect
to the Company.
(f) Proceedings. All proceedings to be taken on the part of the Company
in connection with the transactions contemplated by this Agreement and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Parent, and Parent shall have received copies of all such
documents and other evidences as Parent may reasonably request in order to
establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
(g) Financing. Parent shall not have been unable to consummate the Merger
and the other transactions contemplated by this Agreement by reason of
inadequate financing as a result of the lenders described in the Commitment
Letter refusing to consummate the financing specified therein pursuant to
and in accordance with the terms thereof by reason of their assertion that
the condition precedent regarding no material adverse changes contained
therein has not been fulfilled or satisfied.
6.3 Conditions to Obligations of Company. The obligation of the Company to
effect the Merger is subject to the satisfaction of the following conditions
unless waived by the Company:
(a) Representations and Warranties. The representations and warranties of
Parent and Sub set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as
of the Closing Date as though made on and as of the Closing Date, and the
Company shall have received a certificate signed on behalf of Parent by the
Chairman and Chief Executive Officer of Parent, or a Corporate Vice
President of
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Parent, and by the Senior Vice President and Chief Financial Officer of
Parent or the Corporate Vice President and Treasurer of Parent to such
effect.
(b) Performance of Obligations of Parent and Sub. Parent and Sub shall
have performed and complied in all material respects with all obligations
required to be performed by them under this Agreement at or prior to the
Closing Date, and the Company shall have received a certificate signed on
behalf of Parent by the President and Chief Executive Officer of Parent or
a Corporate Vice President of Parent, and by the Senior Vice President and
Chief Financial Officer of Parent or the Corporate Vice President and
Treasurer of Parent to such effect; provided, however, that the performance
and compliance of Parent and its subsidiaries with Section 4.2(c) shall not
be a condition precedent to the obligation of the Company to effect the
Merger unless the lenders described in the Commitment Letter refuse to
consummate the financing specified therein on the grounds that the
condition precedent regarding no material adverse changes relating to
Parent and its subsidiaries, taken as a whole, contained in the Commitment
Letter was not fulfilled or satisfied as a result of Parent or any of its
subsidiaries entering into an extraordinary transaction prohibited under
Section 4.2(c).
ARTICLE VII
Termination and Amendment
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the matters presented in
connection with the Merger by the stockholders of the Company:
(a) by mutual consent of Parent and the Company in a written instrument,
whether or not the Merger has been approved by the stockholders of the
Company;
(b) by Parent, upon a material breach of any representation, warranty,
covenant or agreement on the part of the Company set forth in this
Agreement, or if any representation or warranty of the Company shall have
become untrue such that the conditions set forth in Section 6.2(a) or
Section 6.2(b), as the case may be, would be incapable of being satisfied
by June 30, 2001;
(c) by the Company, upon a material breach of any representation,
warranty, covenant or agreement on the part of Parent or Sub set forth in
this Agreement, or if any representation or warranty of Parent or Sub shall
have become untrue such that the conditions set forth in Section 6.3(a) or
Section 6.3(b), as the case may be, would be incapable of being satisfied
by June 30, 2001;
(d) by either Parent or the Company, if any permanent injunction or
action by any Governmental Entity preventing the consummation of the Merger
shall have become final and nonappealable;
(e) by either Parent or the Company if the Merger shall not have been
consummated on or prior to June 30, 2001 (or such later date as may be
agreed to in writing by the Company and Parent) (other than due to the
failure of the party seeking to terminate this Agreement to perform its
obligations under this Agreement required to be performed at or prior to
the Effective Time);
(f) by either Parent or the Company, if any approval of the stockholders
of the Company required for the consummation of the Merger shall not have
been obtained by reason of the failure to obtain the required vote at a
duly held meeting of stockholders or at any adjournment thereof;
(g) by Parent, if the Board of Directors of the Company shall have (i)
withdrawn, modified or changed its approval or recommendation of this
Agreement, the Merger or any of the other transactions contemplated herein
in any manner which is adverse to Parent or Sub or shall have resolved to
do the foregoing; or (ii) approved or have recommended to the stockholders
of the Company a Competing Transaction or shall have resolved to do the
foregoing;
(h) by Parent, if (i) the Company shall have exercised a right specified
in clause (i) of the third sentence of Section 4.1(e) with respect to any
transaction referred to therein and shall, directly or through agents or
representatives, continue discussions with any third party concerning such
transaction for more
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than 21 calendar days after the date of receipt of such Competing
Transaction, or (ii) (x) a tender offer or exchange offer or a proposal by
a third party to acquire the Company pursuant to a merger, consolidation,
share exchange, business combination, tender or exchange offer or similar
transaction shall have been commenced or publicly proposed which contains a
proposal as to price (without regard to the specificity of such price
proposal) and (y) the Company shall not have rejected such proposal within
10 business days of its commencement or the date such proposal first
becomes publicly disclosed, if sooner.
(i) The right of any party hereto to terminate this Agreement pursuant to
this Section 7.1 shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any party hereto,
any person controlling any such party or any of their respective officers
or directors, whether prior to or after the execution of this Agreement.
7.2 Effect of Termination. In the event of termination of this Agreement and
abandonment of the Merger by either the Company or Parent as provided in
Section 7.1, this Agreement shall forthwith terminate and there shall be no
liability or obligation on the part of Parent, Sub or the Company or their
respective officers or directors except with respect to the penultimate
sentence of Section 5.4 and Sections 5.5 and 7.3; provided, however, that,
subject to the provisions of Section 8.8, nothing herein shall relieve any
party of liability for any breach hereof.
7.3 Fees, Expenses and Other Payments. (a) Except as otherwise provided in
this Section 7.3, whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby (including, without limitation, fees and disbursements of
counsel, financial advisors and accountants) shall be borne solely and
entirely by the party which has incurred such costs and expenses (with respect
to such party, its "Expenses").
(b) The Company agrees that if this Agreement shall be terminated pursuant
to:
(i) Section 7.1(b) and (x) such termination is the result of material
breach of any covenant, agreement, representation or warranty contained
herein and (y) at any time during the period commencing on the date hereof
and ending twelve months after the date of termination of this Agreement, a
Business Combination (as defined in Section 7.3(e)) involving the Company
shall have occurred or the Company shall have entered into a definitive
agreement providing for such a Business Combination, which Business
Combination contains a proposal as to the price per share which is in
excess of the Merger Consideration;
(ii) Section 7.1(f) because the Agreement, the Merger and the other
transactions contemplated hereby shall fail to receive the requisite vote
for approval and adoption by the stockholders of the Company at a meeting
of the stockholders of the Company called to vote thereon, and at the time
of such meeting there shall exist a proposal with respect to a Business
Combination with respect to the Company which either (x) the Board of
Directors of the Company has not publicly opposed or (y) is consummated, or
a definitive agreement with respect to which is entered into, at any time
during the period commencing on the date hereof and ending twelve months
after the date of termination of this Agreement; or
(iii) Section 7.1(g) or Section 7.1(h);
then in each such event the Company shall pay to Parent an amount equal to
$4,500,000, plus all of Parent's Expenses not to exceed $850,000.
(c) The Company agrees that if this Agreement shall be terminated pursuant
to Section 7.1(b), then the Company shall pay to Parent an amount equal to
Parent's Expenses not to exceed $850,000; provided that the Company shall not
be obligated to make any payment pursuant to this Section 7.3(c) if the
Company shall be obligated to make a payment to Parent pursuant to Section
7.3(b).
(d) Parent agrees that if this Agreement shall be terminated solely as a
result of the non-satisfaction or non-fulfillment of the condition set forth
in Section 6.2(g) due to the lenders described in the Commitment Letter
asserting that the condition precedent regarding no material adverse changes
contained in the Commitment Letter was not fulfilled or satisfied for any
reason other than a material adverse change in or affecting the business,
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operations, property, condition (financial or otherwise) or prospects of the
Company and its subsidiaries, taken as a whole, then Parent shall pay to the
Company an amount equal to the Company's Expenses not to exceed $850,000.
(e) Any payment required to be made pursuant to Section 7.3(b), Section
7.3(c) or Section 7.3(d) shall be made as promptly as practicable but not
later than five business days after termination of this Agreement and shall be
made by wire transfer of immediately available funds to an account designated
by Parent, except that any payment to be made as the result of an event
described in Section 7.3(b)(i) or clause (y) of Section 7.3(b)(ii) shall be
made as promptly as practicable but not later than five business days after
the occurrence of the Business Combination or the execution of the definitive
agreement providing for a Business Combination.
(f) For purposes of this Section 7.3, the term "Business Combination" shall
mean any of the following involving the Company: (i) any merger,
consolidation, share exchange, business combination or similar transaction;
(ii) any sale, lease, exchange, transfer or other disposition of 20% or more
of the assets of the Company and its subsidiaries, taken as a whole, in a
single transaction or series of transactions, or (iii) the acquisition by a
person or any group of beneficial ownership of 20% or more of the capital
stock of the Company whether by tender offer or exchange offer or otherwise.
7.4 Amendment. This Agreement may be amended by the parties hereto, by
action taken or authorized by their respective Boards of Directors, at any
time before or after approval of the matters presented in connection with the
Merger by the stockholders of the Company or of Parent, but, after any such
approval, no amendment shall be made which by law requires further approval by
such stockholders without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
7.5 Extension; Waiver. At any time prior to the Effective Time, the parties
hereto, by action taken or authorized by their respective Board of Directors,
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (ii) waive
any inaccuracies in the representations and warranties contained herein or in
any document delivered pursuant hereto and (iii) waive compliance with any of
the agreements or conditions contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth
in a written instrument signed on behalf of such party.
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ARTICLE VIII
General Provisions
8.1 Nonsurvival of Representations, Warranties and Agreements. None of the
representations, warranties, covenants and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the
Effective Time, except for the agreements contained in Sections 2.1, 2.2, 2.3,
4.2(a), 5.6, 5.8, 7.3 and Article VIII.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to Parent or Sub, to:
Carrols Corporation
968 James Street
Syracuse, NY 13203
Attention: Joseph A. Zirkman, Esq.
Facsimile: (315) 475-9616
With a copy to:
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022-2585
Attention: Wayne A. Wald, Esq.
Facsimile: (212) 940-8776
(b) if to the Company, to:
Taco Cabana, Inc.
8918 Tesoro Dr.
San Antonio, TX 78217
Attention: Chief Executive Officer
Facsimile: (210) 280-0616
With a copy to:
Akin Gump Strauss Hauer & Feld, L.L.P.
300 Convent Street, Suite 1500
San Antonio, TX 78205
Attention: Cecil Schenker, Esq.
Facsimile: (210) 224-2035
8.3 Certain Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person;
(b) "beneficially own" or "beneficial ownership" with respect to any
securities, means having "beneficial ownership" of such securities in
accordance with the provisions of Rule 13d-3 under the Exchange Act. Without
duplicative counting of the same securities by the same holder, securities
beneficially owned by a person include securities beneficially owned by all
other persons with whom such person would constitute a group;
(c) "group" means two or more persons acting together for the purpose of
acquiring, holding, voting or disposing of any securities, which persons would
be required to file a Schedule 13D or Schedule 13G with the
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SEC as a "person" within the meaning of Section 13(d)(3) of the Exchange Act
if such persons beneficially owned a sufficient amount of such securities to
require such a filing under the Exchange Act;
(d) "person" means an individual, corporation, limited liability company,
partnership, joint venture, association, trust, unincorporated organization or
other legal entity;
(e) a "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more
of the equity interests of which) is owned directly or indirectly by such
first person; and
(f) Any accounting term that is used in the context of describing or
referring to an accounting concept and that is not specifically defined herein
shall be construed in accordance with GAAP as applied in the preparation of
the financial statements of the Company included in the Company SEC Documents
(including, without limitation, the Year-End Financial Statements and the
Balance Sheet).
8.4 Interpretation. When a reference is made in this Agreement to Sections
or Exhibits, such reference shall be to a Section of or Exhibit to this
Agreement unless otherwise indicated. The recitals hereto constitute an
integral part of this Agreement. The table of contents and headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement. Whenever the words
"include", "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation". The phrase "made
available" in this Agreement shall mean that the information referred to has
been made available if requested by the party to whom such information is to
be made available. The phrases "the date of this Agreement", "the date hereof"
and terms of similar import, unless the context otherwise requires, shall be
deemed to refer to October 6, 2000.
8.5 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each
of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
8.6 Entire Agreement; No Third Party Beneficiaries; Rights of
Ownership. This Agreement (including the documents and the instruments
referred to herein) (a) constitutes the entire agreement and supersedes all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof; provided that the Confidentiality
Agreement shall survive the execution and delivery of this Agreement, and (b)
except as provided in Sections 2.2, 2.3 and 5.6, is not intended to confer
upon any person other than the parties hereto any rights or remedies
hereunder. The parties hereby acknowledge that, except as hereinafter agreed
to in writing, no party shall have the right to acquire or shall be deemed to
have acquired shares of common stock of the other party pursuant to the Merger
until consummation thereof.
8.7 Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, except to the extent
Delaware law shall govern the Merger, without regard to any applicable
conflicts of law provisions thereof.
8.8 Severability; No Remedy in Certain Circumstances. Any term or provision
of this Agreement that is invalid or unenforceable in any situation in any
jurisdiction shall not affect the validity or enforceability of the remaining
terms and provisions hereof or the validity or enforceability of the offending
term or provision in any other situation or in any other jurisdiction. If the
final judgment of a court of competent jurisdiction declares that any term or
provision hereof is invalid or unenforceable, the parties agree that the court
making the determination of invalidity or unenforceability shall have the
power to reduce the scope, duration, or area of the term or provision, to
delete specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified
after the expiration
A-31
<PAGE>
of the time within which the judgment may be appealed unless the foregoing
inconsistent action or the failure to take an action constitutes a material
breach of this Agreement or makes this Agreement impossible to perform, in
which case this Agreement shall terminate pursuant to Article VII hereof.
Except as otherwise contemplated by this Agreement, to the extent that a party
hereto took an action inconsistent herewith or failed to take action
consistent herewith or required hereby pursuant to an order or judgment of a
court or other competent authority, such party shall incur no liability or
obligation unless such party did not in good faith seek to resist or object to
the imposition or entering of such order or judgment.
8.9 Publicity. Except as otherwise required by law or the rules of the
Nasdaq National Market, so long as this Agreement is in effect, neither the
Company nor Parent shall, or shall permit any of its subsidiaries to, issue or
cause the publication of any press release or other public announcement with
respect to the transactions contemplated by this Agreement without the consent
of the other party, which consent shall not be unreasonably withheld.
8.10 Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the
other parties. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
8.11 Adjustment. All dollar amounts and share numbers set forth herein,
including without limitation the Merger Consideration, shall be subject to
equitable adjustment in the event of any stock split, stock dividend, reverse
stock split or similar event affecting the Company Common Stock, between the
date of this Agreement and the Effective Time, to the extent appropriate.
8.12 Specific Performance. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction
or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of
applicable jurisdiction, this being in addition to any other remedy to which
they are entitled at law or in equity. In addition, each of the parties hereto
(i) consents to submit such party to the personal jurisdiction of any Federal
court located in the State of New York or any New York state court in the
event any dispute arises out of this Agreement or any of the transactions
contemplated hereby, (ii) agrees that such party will not attempt to deny or
defeat such personal jurisdiction by motion or other request for leave from
any such court, (iii) agrees that such party will not bring any action
relating to this Agreement or any of the transactions contemplated hereby in
any court other than a Federal court sitting in the state of New York or a New
York state court and (iv) waives any right to trial by jury with respect to
any claim or proceeding related to or arising out of this Agreement or any of
the transactions contemplated hereby.
A-32
<PAGE>
In Witness Whereof, Parent, Sub and the Company have caused this Agreement,
to be signed by their respective officers thereunto duly authorized, all as of
October 6, 2000.
Carrols Corporation
/s/ Joseph Zirkman
_____________________________________
Name: Joseph Zirkman
Title:Vice President
Spur Acquisition Corp.
/s/ Joseph Zirkman
_____________________________________
Name: Joseph Zirkman
Title:Vice President
Taco Cabana, Inc.
/s/ Stephen V. Clark
_____________________________________
Name: Stephen V. Clark
Title:President and CEO
A-33
<PAGE>
APPENDIX B
DLJ FAIRNESS OPINION
October 4, 2000
Board of Directors
Taco Cabana, Inc.
8918 Tesoro Drive, Suite 200
San Antonio, TX 78217
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to the stockholders of Taco Cabana, Inc. (the "Company") of the
consideration to be received by such stockholders pursuant to the terms of the
Agreement and Plan of Merger, to be dated as of or about October 6, 2000 (the
"Agreement"), by and among Carrols Corporation ("Carrols"), the Company and
Spur Acquisition Corp., a wholly-owned subsidiary of Carrols ("Sub"), pursuant
to which Sub will be merged (the "Merger") with and into the Company.
Pursuant to the Agreement, each share of common stock of the Company will be
converted into the right to receive $9.04 per share in cash.
In arriving at our opinion, we have reviewed the draft dated September 29,
2000 of the Agreement. We also have reviewed financial and other information
that was publicly available or furnished to us by the Company, including
information provided during discussions with management of the Company.
Included in the information provided during discussions with management were
certain financial projections of the Company for the period beginning July 3,
2000 and ending December 31, 2005 prepared by the management of the Company.
In addition, we have compared certain financial and securities data of the
Company with various other companies whose securities are traded in public
markets, reviewed the historical stock prices and trading volumes of the
common stock of the Company, reviewed prices and premiums paid in certain
other business combinations and conducted such other financial studies,
analyses and investigations and considered such other factors as we deemed
appropriate for purposes of this opinion.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available
to us from public sources, that was provided to us by the Company or its
representatives, or that was otherwise reviewed by us. With respect to the
financial projections supplied to us, we have assumed that they have been
reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of the Company as to the future
operating and financial performance of the Company. We have not assumed any
responsibility for making an independent evaluation or appraisal of any assets
or liabilities or for making any independent verification of any of the
information reviewed by us. We have relied as to certain legal matters on
advice of counsel to the Company. We were not recently requested to, nor did
we recently, solicit the interest of any other party in acquiring the Company.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as
of, the date of this letter. It should be understood that, although subsequent
developments may affect the conclusion reached in this opinion, we do not have
any obligation to update, revise or reaffirm this opinion. Our opinion does
not address the relative merits of the Merger and the other business
strategies being considered by the Company's Board of Directors, nor does it
address the Board's decision to proceed with the Merger. Our opinion does not
constitute a recommendation to any stockholder as to how such stockholder
should vote on the proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), 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 corporate and other purposes.
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Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the consideration to be received by the stockholders of
the Company pursuant to the Agreement is fair to such stockholders from a
financial point of view.
Very truly yours,
Donaldson, Lufkin & Jenrette
Securities Corporation
/s/ Kelly K. Masuda
By: _________________________________
Kelly K. Masuda
Senior Vice President
B-2
<PAGE>
APPENDIX C
STATUTORY PROVISION REGARDING APPRAISAL RIGHTS:
Section 262 of the Delaware General Corporation Law
(S) 262. Appraisal rights.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing pursuant
to (S) 228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to (S) 251 (other than a merger effected pursuant to
(S) 251(g) of this title), (S) 252, (S) 254, (S) 257, (S) 258, (S) 263 or
(S) 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of (S) 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
(S)(S) 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under (S) 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
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<PAGE>
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsection (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall
notify each stockholder of each constituent corporation who has complied
with this subsection and has not voted in favor of or consented to the
merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to (S) 228 or
(S) 253 of this title, each consitutent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constitutent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constitutent corporation shall send a second notice before
the effective date of the merger or consolidation notifying each of the
holders of any class or series of stock of such constitutent corporation
that are entitled to appraisal rights of the effective date of the merger
or consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constitutent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
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<PAGE>
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger
or consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting
from the consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after such stockholder's written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal
under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted such stockholder's
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that such
stockholder is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated
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<PAGE>
stock forthwith, and the case of holders of shares represented by certificates
upon the surrender to the corporation of the certificates representing such
stock. The Court's decree may be enforced as other decrees in the Court of
Chancery may be enforced, whether such surviving or resulting corporation be a
corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of such stockholder's demand for an appraisal and an acceptance of the merger
or consolidation, either within 60 days after the effective date of the merger
or consolidation as provided in subsection (e) of this section or thereafter
with the written approval of the corporation, then the right of such
stockholder to an appraisal shall cease. Notwithstanding the foregoing, no
appraisal proceeding in the Court of Chancery shall be dismissed as to any
stockholder without the approval of the Court, and such approval may be
conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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<PAGE>
Taco Cabana, Inc.
--------------------------------------------------------------------------------
--------------
CONTROL NUMBER
--------------
Instructions for Voting Your Proxy
Taco Cabana, Inc. is now offering shareholders of record three alternative ways
of voting your proxies:
. By Telephone (using a touch tone telephone)
. Through the Internet (using a browser)
. By Mail (traditional method)
Your telephone or Internet vote authorizes the named proxies to vote your shares
in the same manner as if you had returned your proxy card. We encourage you to
use these cost effective and convenient ways of voting, 24 hours a day, 7 days a
week.
----------------
TELEPHONE VOTING Available only until 11:00 a.m. Eastern time on December
---------------- 17, 2000
. This method of voting is available for residents of the U.S. and Canada
. On a touch tone telephone, call TOLL FREE 1-877-550-2480 24 hours a day, 7
days a week
. You will be asked to enter ONLY the CONTROL NUMBER shown above
. Have your proxy card ready, then follow the prerecorded instructions
. Your vote will be confirmed and cast as you directed
---------------
INTERNET VOTING Available only until 11:00 a.m. Eastern time on December
--------------- 17, 2000
. Visit the Internet voting Website at http://www.computershare.com/us/proxy
-------------------------------------
. Enter the CONTROL NUMBER shown above and follow the instructions on your
screen
. You will incur only your usual Internet charges
--------------
VOTING BY MAIL
--------------
. Simply mark, sign and date your proxy card and return it in the postage-
paid envelope
. If you are voting by telephone or the Internet, please do not mail your
proxy card
TO VOTE BY MAIL, PLEASE DETACH PROXY CARD HERE
--------------------------------------------------------------------------------
PROXY
TACO CABANA, INC.
This Proxy is Solicited on Behalf of the Board of Directors
for the Special Meeting of Stockholders on December 18, 2000
The undersigned hereby appoints STEPHEN V. CLARK and DAVID G. LLOYD, and
each of them, with full power of substitution, as proxies to vote on behalf of
the undersigned all shares which the undersigned may be entitled to vote at the
Special Meeting of Stockholders of Taco Cabana, Inc. to be held at the offices
of Taco Cabana, 8918 Tesoro Drive, Suite 200, San Antonio, Texas at 10:00 a.m.
Central Standard Time on December 18, 2000 and at any adjournments
thereof, with all powers the undersigned would possess if personally present,
upon the matters set forth in the Notice of Special Meeting and Proxy Statement,
as directed on the reverse side hereof.
Any proxy heretofore given by the undersigned with respect to such shares
is hereby revoked. Receipt of the Notice of Special Meeting and Proxy Statement
is hereby acknowledged.
(Important - To be signed and dated on reverse side)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 1.
<PAGE>
Please mark vote in
the following manner //
using dark ink only
This proxy will voted as specified. If no specification is made, it will be
voted for the proposal. The proxies are authorized to vote in their discretion
with respect to other matters which may properly come before the meeting.
1. To approve the Agreement and Plan of Merger among Taco Cabana, Inc., Carrols
Corporation and Spur Acquisition Corp., dated as of October 6, 2000, and to
approve the merger contemplated thereby pursuant to which Spur Acquisition
Corp. will be merged with and into Taco Cabana and stockholders of Taco
Cabana will become entitled to receive $9.04 per share in cash for their
shares of Taco Cabana common stock.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
DATE: , 2000
---------------------
---------------------------------
---------------------------------
SIGNATURE(S)
IMPORTANT: Please mark, date and sign
exactly as name appears hereon,
including designation as executor,
trustee, etc. if applicable. A
corporation must sign in its name by
the President or other authorized
officer. All co-owners must sign.
