<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 8, 1996.
REGISTRATION NO. 333-
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
LANDRY'S SEAFOOD RESTAURANTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 5812 76-0405386
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NO.)
OF INCORPORATION OR CLASSIFICATION CODE NO.)
ORGANIZATION)
1400 POST OAK BLVD., SUITE 1010, HOUSTON, TEXAS 77056
(713) 850-1010
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
TILMAN J. FERTITTA
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
1400 POST OAK BLVD., SUITE 1010
HOUSTON, TEXAS 77056
(713) 850-1010
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
ARTHUR S. BERNER, ESQ. STEVEN L. SCHEINTHAL, PHILIP B. SCHWARTZ, ESQ.
WINSTEAD SECHREST & ESQ. AKERMAN, SENTERFITT &
MINICK P.C. GENERAL COUNSEL EIDSON, P.A.
910 TRAVIS STREET, SUITE LANDRY'S SEAFOOD SUNTRUST INTERNATIONAL
1700 RESTAURANTS, INC. CENTER
HOUSTON, TEXAS 77002 1400 POST OAK BOULEVARD 28TH FLOOR
(713) 650-2729 SUITE 1010 ONE SOUTHEAST THIRD
HOUSTON, TEXAS 77056 AVENUE
(713) 850-1010 MIAMI, FLORIDA 33131
--------------- (305) 982-5604
Approximate date of commencement of proposed sale to the public: AS SOON AS
PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE AND ALL OTHER
CONDITIONS TO THE ACQUISITION OF THE ASSETS OF BAYPORT RESTAURANT GROUP, INC.
PURSUANT TO THE MERGER AGREEMENT DESCRIBED IN THE ENCLOSED PROXY
STATEMENT/PROSPECTUS HAVE BEEN SATISFIED OR WAIVED.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, please check the following box: [_]
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED MAXIMUM
OFFERING PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE PER AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(/1/) UNIT PRICE(/2/) FEE(/2/)
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<S> <C> <C> <C> <C>
Common Stock
$.01 par value................. 2,735,000 Not Applicable $60,170,080 $20,748.28
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</TABLE>
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(1) This Registration Statement relates to common stock, $0.01 par value per
share, of the Registrant to be received by holders of shares of common
stock, $0.01 par value per share, of Bayport Restaurant Group, Inc. as
described in the enclosed Proxy Statement/Prospectus.
(2) Pursuant to Rule 457(c) and (f)(1), the registration fee was computed on
the basis of the average of the high and low price reported for the Common
Stock on the Nasdaq National Market on May 6, 1996.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
LANDRY'S SEAFOOD RESTAURANT, INC.
FORM S-4
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
LOCATION IN
FORM S-4 ITEM PROXY STATEMENT/ PROSPECTUS
------------- ---------------------------
<C> <S> <C>
A. INFORMATION ABOUT THE TRANSAC-
TION
a. Forepart of Registration
Statement and Outside Front
Cover Page of Prospectus..... Outside Front Cover Page
b. Inside Front and Outside Back
Cover Pages of
Prospectus................... Available Information; Incorporation of
Certain Documents by Reference; Table of
Contents
c. Risk Factors, Ratio of Earn-
ings to Fixed Charges and
Other Information............ Summary; Risk Factors
d. Terms of the Transaction...... Summary; Background of the Merger; The
Merger; Description of Landry's Capital
Stock
e. Pro Forma Financial Informa-
tion......................... Summary; Landry's--Selected Historical and
Pro Forma Financial Data
f. Material Contacts with the
Company Being
Acquired..................... Summary; Background of the Merger
g. Additional Information Re-
quired for Reoffering by Per-
sons and Parties Deemed To Be
Underwriters................. Not Applicable
h. Interests of Named Experts and
Counsel...................... Experts; Legal Matters
i. Disclosure of Commission Posi-
tion on Indemnification for
Securities Act Liabilities... Inapplicable
B. INFORMATION ABOUT THE REGIS-
TRANT
j. Information with Respect to
S-3 Registrants.............. Available Information; Incorporation of
Certain Documents by Reference; Landry's
k. Incorporation of Certain In-
formation by
Reference.................... Incorporation of Certain Documents by
Reference
l. Information with Respect to
S-2 or S-3 Registrants....... Inapplicable
m. Incorporation of Certain In-
formation by Reference....... Inapplicable
n. Information with Respect to
Registrants Other than S-2 or
S-3 Registrants.............. Inapplicable
C. INFORMATION ABOUT THE COMPANY
BEING ACQUIRED
o. Information with Respect to
S-3 Companies................ Inapplciable
p. Information with Respect to
S-2 or S-3
Companies.................... Inapplicable
q. Information with Respect to
Companies Other than S-2 or
S-3 Companies................ Summary; Bayport
</TABLE>
<PAGE>
LANDRY'S SEAFOOD RESTAURANT, INC.
FORM S-4
CROSS-REFERENCE SHEET PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
LOCATION IN
FORM S-4 ITEM PROXY STATEMENT/PROSPECTUS
------------- --------------------------
<C> <S> <C>
D. VOTING AND MANAGEMENT
INFORMATION
r. Information if Proxies, Consents
or Authorizations Are to be
Solicited...................... Outside Front Cover Page; Summary; Voting
and Proxies; The Merger; Bayport--
Management; Bayport--Stock Ownership of
Management and Principal Stockholders
s. Information if Proxies, Consents
or Authorizations Are Not to be
Solicited, or in an Exchange
Offer.......................... Inapplicable
</TABLE>
<PAGE>
BAYPORT RESTAURANT GROUP, INC.
4000 HOLLYWOOD BOULEVARD
HOLLYWOOD, FLORIDA 33021
(954) 967-6700
, 1996
Dear Fellow Shareholders:
You are cordially invited to attend a Special Meeting (the "Meeting") of the
Shareholders of Bayport Restaurant Group, Inc. ("Bayport") to be held on the
day of , 1996 at A.M. (EDT) at .
At the Meeting, holders of Bayport's outstanding common stock, $.001 par
value per share (the "Bayport Common Stock"), and holders of Bayport's
outstanding Class B Convertible Preferred Stock, $.01 par value per share (the
"Bayport Preferred Stock"), will be asked to consider and vote upon a proposal
to approve an Agreement and Plan of Merger (the "Merger Agreement") among
Landry's Seafood Restaurants, Inc. ("Landry's"), Landry's Acquisition, Inc., a
wholly-owned subsidiary of Landry's, and Bayport, with respect to the merger
of Landry's Acquisition, Inc. with and into Bayport, as provided for in the
Merger Agreement (the "Merger"). A copy of the Merger Agreement appears as
Annex 1 to the Proxy Statement/Prospectus.
Under the terms of the Merger Agreement, Landry's will issue at the closing
of the Merger (the "Closing") to the holders of the Bayport Common Stock an
aggregate number of shares of Landry's common stock, $.01 par value per share
("Landry's Common Stock") which is equal to .2105 (the "Exchange Ratio")
multiplied by the number of outstanding shares of Bayport Common Stock,
subject to certain adjustments as discussed in the accompanying Notice of
Special Meeting of Shareholders and Proxy Statement/Prospectus. Based on
9,655,599 shares of Bayport Common Stock issued and outstanding on May 6,
1996, Landry's will issue approximately 2,032,503 shares of Landry's Common
Stock, subject to adjustment, to the holders of shares of the Bayport Common
Stock upon the Closing. Cash will be paid in lieu of fractional shares of
Landry's Common Stock.
Additionally, under the terms of the Merger Agreement, Landry's will issue
at the Closing to the holders of the Bayport Preferred Stock, the number of
shares of Landry's Class A Convertible Preferred Stock, $.01 par value per
share ("Landry's Preferred Stock"), which is equal to the number of shares of
Landry's Common Stock which would have been issued at the Closing to the
holders of the Bayport Preferred Stock had they converted their Bayport
Preferred Stock into Bayport Common Stock immediately prior to the Closing.
Each share of Landry's Preferred Stock will be convertible into shares of
Landry's Common Stock on a one-for-one basis and will be substantially
identical in all other respects to the Bayport Preferred Stock. Based on
2,136,499 shares of Bayport Preferred Stock issued and outstanding on May 6,
1996, Landry's will issue approximately 112,433 shares of Landry's Preferred
Stock subject to adjustment, to the holders of the Bayport Preferred Stock at
the Closing. Cash will be paid in lieu of fractional shares of Landry's
Preferred Stock.
Alex. Brown & Sons Incorporated ("Alex. Brown"), Bayport's financial
advisor, has rendered an opinion that as of the date of the Proxy
Statement/Prospectus, the consideration to be received by the holders of the
Bayport Common Stock and the Bayport Preferred Stock pursuant to the Merger
Agreement is fair from a financial point of view to such holders. A copy of
such opinion, which sets forth the assumptions made, procedures followed,
matters considered and limitations on the review undertaken by Alex. Brown
appears as Annex "B" to the accompanying Proxy Statement/Prospectus.
You should read carefully the accompanying Notice of Special Meeting of
Shareholders and the Proxy Statement/Prospectus for details regarding the
Merger and for additional related information.
<PAGE>
THE BOARD OF DIRECTORS OF BAYPORT HAS ADOPTED THE MERGER AGREEMENT,
DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS OF BAYPORT AND ITS
SHAREHOLDERS, AND RECOMMENDS THAT THE SHAREHOLDERS OF BAYPORT VOTE FOR THE
APPROVAL OF THE MERGER AGREEMENT. MEMBER OF THE BOARD OF DIRECTORS OWN
SHARES OF BAYPORT COMMON STOCK AND SHARES OF BAYPORT PREFERRED STOCK AND
EACH MEMBER HAS INDICATED HIS INTENTION TO VOTE FOR APPROVAL OF THE MERGER
AGREEMENT.
The affirmative vote of a majority of the outstanding shares of Bayport
Common Stock and Bayport Preferred Stock (each voting as a separate voting
group) is necessary to approve the Merger Agreement.
I look forward to meeting with those shareholders who are able to be present
at the Special Meeting; however, whether or not you plan to attend the Special
Meeting, please complete, sign and date the enclosed proxy card and return it
promptly in the enclosed postage-paid envelope. If you attend the Special
Meeting, you may vote in person if you wish, even though you have previously
returned your proxy card. Your prompt cooperation will be greatly appreciated.
Please do not send your stock certificates with your proxy card. If the
Merger Agreement is approved by Bayport's shareholders and the Merger is
consummated, you will receive a transmittal form and instructions for the
surrender and exchange of your shares.
Thank you for your cooperation.
Sincerely,
David J. Connor
Chairman and Chief Executive Officer
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD.
2
<PAGE>
BAYPORT RESTAURANT GROUP, INC.
4000 HOLLYWOOD BOULEVARD
HOLLYWOOD, FLORIDA 33021
(954) 967-6700
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
, 1996
----------------
TO THE SHAREHOLDERS OF BAYPORT RESTAURANT GROUP, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of the Shareholders (the
"Meeting") of Bayport Restaurant Group, Inc., a Florida corporation
("Bayport"), will be held on , , , 1996, at
o'clock a.m., (EDT), at , for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger, dated as of April 18, 1996, among Landry's Seafood
Restaurants, Inc., a Delaware corporation ("Landry's"), Landry's
Acquisition, Inc., a Florida corporation and a wholly-owned subsidiary
of Landry's, and Bayport, and the Plan of Merger annexed thereto
(collectively, the "Merger Agreement"), as described more completely in
the accompanying Proxy Statement/Prospectus and in the Merger Agreement
which is annexed thereto as Annex "A".
2. To transact such other business as may properly come before the Meeting
or at any adjournments or postponements thereof.
Pursuant to Bayport's Bylaws, the Board of Directors has fixed the close of
business on , 1996, (the "Record Date") as the record date for
the determination of shareholders entitled to notice of and to vote at the
Meeting and at any adjournments or postponements thereof.
The affirmative vote of a majority of the outstanding shares of each of
Bayport's common stock, $.001 par value per share (the "Bayport Common
Stock"), and Bayport's Class B Convertible Preferred Stock, $.01 par value per
share (the "Bayport Preferred Stock"), voting as separate voting groups, is
necessary to approve the Merger Agreement.
Holders of Bayport Common Stock will not be entitled to dissenters' rights
as a result of the Merger. Under Florida law, dissenters' rights are
unavailable to the holders of the Bayport Common Stock because the Bayport
Common Stock was, on the Record Date, designated and quoted for trading as a
Nasdaq National Market security and because, on the Record Date there were
more than 2,000 holders of record of Bayport Common Stock.
Holders of Bayport Preferred Stock have the right under Florida law to
dissent from the proposal referred to in Item 1 above. In order to exercise
this right, a dissenting holder of Bayport Preferred Stock, among other
things, must file a written objection with Bayport prior to the taking of a
vote at the Meeting and must vote against or abstain from voting on the
proposal at the Meeting. Reference is made to "Appraisal Rights" and Annex "D"
to the Proxy Statement/Prospectus, which sets forth the procedure for
dissenting and effecting appraisal rights.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT
YOU PLAN TO BE PRESENT AT THE MEETING, PLEASE SIGN AND DATE THE ENCLOSED PROXY
AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH DOES NOT REQUIRE POSTAGE IF
MAILED IN THE UNITED STATES. YOUR PROXY MAY BE REVOKED AT ANY TIME BEFORE IT
IS VOTED BY SIGNING AND RETURNING A LATER DATED PROXY WITH RESPECT TO THE SAME
SHARES, BY FILING WITH THE SECRETARY OF BAYPORT A WRITTEN REVOCATION BEARING A
LATER DATE, OR BY ATTENDING AND VOTING AT THE SPECIAL MEETING.
BY ORDER OF THE BOARD OF DIRECTORS,
Ruth Stack, Secretary
Hollywood, Florida
, 1996
<PAGE>
SUBJECT TO COMPLETION DATED MAY 8, 1996
PROXY STATEMENT
BAYPORT RESTAURANT GROUP, INC.
-----------
PROSPECTUS
LANDRY'S SEAFOOD RESTAURANTS, INC.
This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") is being
furnished to shareholders of Bayport Restaurant Group, Inc., a Florida
corporation ("Bayport"), in connection with the solicitation of proxies
("Proxy" or "Proxies") by the Board of Directors of Bayport for use in
connection with the Special Meeting of Shareholders of Bayport to be held on
, 1996 and at any adjournments or postponements thereof (the
"Meeting").
At the Meeting, Bayport's shareholders will consider and vote upon a proposal
to approve and adopt an Agreement and Plan of Merger, dated as of April 18,
1996, by and among Landry's Seafood Restaurants, Inc., a Delaware corporation
("Landry's"), Landry's Acquisition, Inc., a Florida corporation and a wholly-
owned subsidiary of Landry's ("Sub"), and Bayport, and the Plan of Merger
annexed thereto (collectively the "Merger Agreement"). Pursuant to the merger
(the "Merger") contemplated by the Merger Agreement, Sub is to be merged with
and into Bayport, and Bayport is to become a wholly-owned subsidiary of
Landry's. The manner and basis of converting shares of Bayport common stock,
$.001 par value per share ("Bayport Common Stock"), and shares of Bayport Class
B Convertible Preferred Stock, $.01 par value per share ("Bayport Preferred
Stock"), into shares of Landry's common stock, $.01 par value per share
("Landry's Common Stock"), and shares of Landry's Class A Convertible Preferred
Stock, $.01 par value per share ("Landry's Preferred Stock"), are described
more fully below and are set forth in the Merger Agreement which is annexed
hereto.
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY SHAREHOLDERS OF BAYPORT IN VOTING UPON A PROPOSAL TO APPROVE AND
ADOPT THE MERGER AGREEMENT.
Landry's has filed a Registration Statement on Form S-4, including this Proxy
Statement/Prospectus and other information (together with all amendments and
exhibits, referred to as the "Registration Statement") with the Securities and
Exchange Commission (the "Commission") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the shares of Landry's Common
Stock that will be issued in connection with the Merger. This Proxy
Statement/Prospectus constitutes the Prospectus of Landry's filed as part of
the Registration Statement. All information contained in this Proxy
Statement/Prospectus concerning Landry's has been provided by Landry's. All
information contained in the Proxy Statement/Prospectus concerning Bayport has
been provided by Bayport.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS . ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The Proxy Statement/Prospectus and the accompanying Notice of Special Meeting
of Shareholders and Proxy are first being mailed to the shareholders of Bayport
on or about , 1996. A shareholder of Bayport who has given a
Proxy may revoke it at any time prior to its exercise by filing with the
Secretary of Bayport an instrument of revocation or a duly executed proxy
bearing a later date, or by attending the Meeting and voting in person.
Attendance at the Meeting will not, in and of itself, constitute revocation of
a Proxy.
Shareholders of Bayport are urged to read and carefully consider the
information contained in this Proxy Statement/Prospectus and the Annexes
attached hereto.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS , 1996.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ Information contained herein is subject to completion or amendment. A +
+ registration statement relating to these securities has been filed with +
+ the Securities and Exchange Commission. These securities may not be sold nor +
+ may offers to buy be accepted prior to the time the registration statement +
+ becomes effective. This Proxy Statement/Prospectus shall not constitute +
+ an offer to sell or the solicitation of an offer to buy nor shall there +
+ be any sale of these securities in any State in which such offer, +
+ solicitation or sale would be unlawful prior to registration or +
+ qualification under the securities laws of any such State. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information...................................................... 3
Incorporation of Certain Documents by Reference............................ 3
Summary.................................................................... 4
Comparative per Share Data................................................. 13
Comparative Market Data.................................................... 14
Risk Factors............................................................... 15
The Meeting................................................................ 20
The Merger................................................................. 21
Opinion of Bayport's Financial Advisor..................................... 31
Opinion of Landry's Financial Advisor...................................... 32
The Merger Agreement....................................................... 36
Comparative Rights of Shareholders......................................... 44
Description of Landry's Capital Stock...................................... 47
Landry's Business.......................................................... 48
Landry's Management........................................................ 54
Landry's Principal Stockholders............................................ 56
Landry's Management's Discussion .......................................... 60
Bayport's Business......................................................... 64
Bayport's Management's Discussion.......................................... 72
Interim Funding Arrangement................................................ 75
Bayport"s Security Ownership of Certain Beneficial Owners and Management... 77
Bayport's Certain Relationships and Related Transactions................... 78
Appraisal Rights........................................................... 79
Legal Matters.............................................................. 80
Experts.................................................................... 81
1996 Annual Meeting of Shareholders........................................ 81
Index to Financial Statements.............................................. F-1
Bayport Consolidated Financial Statements.................................. F-3
Landry's Consolidated Financial Statements................................. F-21
Annex
A.Agreement and Plan of Merger............................................. A-1
B.Opinion of Alex. Brown & Sons Incorporated............................... B-1
C.Opinion of Montgomery Securities......................................... C-1
D.Florida Statutes (S)607.1301 et seq...................................... D-1
</TABLE>
2
<PAGE>
AVAILABLE INFORMATION
Landry's and Bayport are subject to the informational reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and,
in accordance therewith, file reports, proxy statements and other information
with the Commission. Such reports, proxy statements and other information are
available for inspection and copying at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the regional offices of the Commission,
located at Suite 1300, 7 World Trade Center, New York, New York 10048 and
Suite 1400, Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such materials can also be obtained by mail from the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition, such
material can be inspected at the offices of the National Association of
Securities Dealers, 1935 K Street, N.W., Washington, D.C. 20006.
Landry's has filed a Registration Statement on Form S-4 with the Commission
under the Securities Act with respect to the Landry's Common Stock that will
be issued in connection with the Merger. This Proxy Statement/Prospectus does
not contain all of the information set forth in the Registration Statement and
the exhibits thereto, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. Statements contained in this
Proxy Statement/Prospectus or in any document incorporated in this Proxy
Statement/Prospectus by reference as to the contents of any contract or other
document referred to herein or therein are not necessarily complete, and in
each circumstance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement or documents
incorporated in this Proxy Statement/Prospectus. Each such statement is
qualified in all respects by such reference. The Registration Statement and
any amendments thereto, including exhibits filed as a part thereof, are
available for inspection and copying as set forth above.
No person is authorized to give any information or to make any
representation in connection with the solicitation of proxies or the offering
of securities made hereby other than those contained in this Proxy
Statement/Prospectus or in the documents incorporated herein by reference and,
if given and made, such information or representation must not be relied upon
as having been authorized by Landry's or Bayport. This Proxy
Statement/Prospectus does not constitute an offer to sell, or a solicitation
of an offer to buy, any securities, or the solicitation of a proxy, in any
jurisdiction, to any person to whom it is not lawful to make any such offer or
solicitation in such jurisdiction. Neither the delivery of this Proxy
Statement/Prospectus nor the issuance of securities made hereunder shall,
under any circumstances, create an implication that there has been no change
in the affairs of Landry's or Bayport since the date hereof or that the
information in this Proxy Statement/Prospectus or in any documents
incorporated herein by reference is correct as of any time subsequent to its
date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by Landry's pursuant to
the Exchange Act are incorporated by reference in this Proxy
Statement/Prospectus: (i) Landry's Annual Report on Form 10-K for the year
ended December 31, 1995; (ii) Landry's Current Report on Form 8-K, dated April
24, 1996; and (iii) the description of Landry's Common Stock contained in
Landry's Registration Statement on Form 8-A.
In addition, all documents filed by Landry's with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof
and prior to the date of the Meeting shall be deemed to be incorporated by
reference herein and shall be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated by reference
herein or contained in this Proxy Statement/Prospectus shall be deemed to be
modified or superseded for purposes of this Proxy Statement/Prospectus to the
extent that a statement contained herein (or in any other subsequently filed
document which also is incorporated by reference herein) modifies or
supersedes such statement. Any statement so modified or superseded shall not
be deemed to constitute a part of this Proxy Statement/Prospectus, except as
so modified or superseded.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH DOCUMENTS
(OTHER THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY
INCORPORATED BY REFERENCE) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON,
INCLUDING ANY BENEFICIAL OWNER TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS
DELIVERED, ON WRITTEN OR ORAL REQUEST TO LANDRY'S SEAFOOD RESTAURANTS, INC.,
1400 POST OAK BLVD., HOUSTON, TEXAS 77056, TELEPHONE NUMBER 713-850-1010;
ATTENTION: STEVEN L. SCHEINTHAL, VICE PRESIDENT--ADMINISTRATION AND SECRETARY.
IN ORDER TO ENSURE DELIVERY OF THE DOCUMENTS PRIOR TO THE MEETING, REQUESTS
SHOULD BE MADE BY , 1996.
3
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere or
incorporated by reference in this Proxy Statement/Prospectus. Reference is made
to, and this Summary is qualified in its entirety by, the more detailed
information contained or incorporated by reference in the Proxy
Statement/Prospectus and the Annexed attached hereto. Bayport's shareholders
are urged to read and carefully consider the Proxy Statement/Prospectus and the
Annexes attached hereto. All share and per share data relating to Landry's in
the Proxy Statement/Prospectus reflects the effect of a 2-for-1 stock split in
the form of a stock dividend of Landry's Common Stock in June 1995.
PARTIES TO THE MERGER
Landry's
Landry's operates 46 full-service, mid-priced, casual dining seafood
restaurants in 15 states, primarily under the names "Landry's Seafood
House(R)," "Willie G's(R)" and "Joe's Crab Shacksm." Landry's management
believes that its restaurants appeal to a broad range of customers by offering
generous portions of fresh seafood and excellent service in a high energy
environment at an attractive price-value relationship.
Landry's restaurants feature a wide variety of broiled, grilled and fried
seafood items including red snapper, shrimp, crawfish, lump crabmeat, lobster,
soft shell crabs, oysters, scallops, flounder, and other traditional seafood
items, many with a choice of Landry's signature toppings. The restaurants are
generally open for lunch and dinner and offer full liquor service. Sales of
alcoholic beverages accounted for approximately 17% of Landry's revenues in
1995. The "Landry's Seafood House" restaurants feature a prototype look that is
readily identified by a large theater-style marquee over the entrance and by a
distinctive brick and wood facade creating the feeling of a traditional old
seafood house restaurant. Landry's restaurants average approximately 9,100
square feet in size. All of Landry's restaurants operate with very similar
philosophies, management policies and practices, training and control
practices, purchasing, and menu selections. Landry's management believes its
restaurants enjoy a high level of repeat business and customer loyalty due to
high food quality, comfortable atmosphere, and friendly, efficient service.
For the 12-month period ended December 31, 1995, the 24 Landry's restaurants
opened prior to January l, 1995, generated average restaurant revenues of
approximately $3,005,000, average restaurant cash flow of approximately
$660,000 (or 21.9% of revenues), and average restaurant operating income after
depreciation and amortization of approximately $540,000 (or 18.0% of revenues).
Landry's management believes its commitment to its customers and employees is
important to its long-term success. In addition to serving quality seafood at
affordable prices in attractive locations, Landry's achieves customer
satisfaction through prompt, efficient service, low table-to-waitstaff ratios,
and an attentive management staff. Landry's promotes a sense of personal
commitment from its employees through a monthly cash bonus program based on
achievement of restaurant specific performance objectives, and a stock option
plan which includes general, floor, and kitchen managers.
The executive headquarters and principal office of Landry's are located at
1400 Post Oak Boulevard, Suite 1010, Houston, Texas 77056. Its telephone number
is (713) 850-1010.
The Sub was incorporated in April 1996 and has conducted no business
operations since the date of incorporation except in connection with the
transactions contemplated by the Merger Agreement. The Sub has the same
principal office, address and telephone number as Landry's.
Bayport
Bayport operates 17 full-service restaurants under the name "The Crab House"
and currently has four additional Crab House restaurants under construction.
Bayport also operates five take-away seafood restaurants
4
<PAGE>
under the name "Capt. Crab's Take-Away" and a seafood processing plant.
Bayport's Crab House restaurants are located primarily in Florida, with
additional locations in Georgia, Mississippi, South Carolina and Illinois. The
Crab House restaurants currently under construction are located in New York,
Tennessee and Maryland. See "Bayport's Business."
Bayport's headquarters are located at 4000 Hollywood Blvd., Suite 695-S,
Hollywood, Florida 33021. Its telephone number is (954) 967-6700.
THE MEETING
Date, Time and Place of Meeting
The Meeting will be held on , , 1996 at o'clock
a.m., (EDT), at . At the Meeting, Bayport's shareholders will
be asked to approve and adopt the Merger Agreement.
Record Date and Outstanding Shares Entitled to Vote
Only holders of record of Bayport Common Stock and Bayport Preferred Stock at
the close of business on , 1996 (the "Record Date") are entitled to
notice of and to vote at the Meeting. As of the close of business on the Record
Date, there were shares of Bayport Common Stock and shares of
Bayport Preferred Stock outstanding. The holders of the Bayport Common Stock
and the holders of the Bayport Preferred Stock will vote as separate voting
groups on the Merger, with each share being entitled to one vote. The presence,
in person or by proxy, of the holders of record of a majority of the issued and
outstanding shares of Bayport Common Stock and of the holders of record of a
majority of the issued and outstanding shares of Bayport Preferred Stock on the
Record Date are necessary to constitute a quorum for the transaction of
business at the Meeting.
Voting of Proxies
The Proxy accompanying this Proxy Statement/Prospectus is solicited on behalf
of Bayport's Board of Directors for use at the Meeting. Bayport's shareholders
are requested to complete, date and sign the accompanying Proxy and promptly
return it in the enclosed envelope (which requires no postage if mailed in the
United States) to Bayport's transfer agent. The Proxy permits each Bayport
shareholder to specify that shares be voted "FOR" or "AGAINST" (or "ABSTAIN"
from) the approval and adoption of the Merger Agreement. If properly executed
and returned, such Proxy will be voted in accordance with the choice specified.
Where a signed Proxy is returned, but no choice specified, the applicable
shares will be voted for approval and adoption of the Merger Agreement. A Proxy
may be revoked at any time before its exercise by filing with the Secretary of
Bayport an instrument of revocation or a duly executed proxy bearing a later
date, or by attendance at the Meeting and electing to vote in person.
Attendance at the Meeting will not, in and of itself, constitute revocation of
a Proxy.
Votes Required
Approval and adoption of the Merger Agreement requires the affirmative vote
of the holders of a majority of (i) the shares of Bayport Common Stock
outstanding on the Record Date, and (ii) the shares of Bayport Preferred Stock
outstanding on the Record Date. As of the Record Date, Bayport's directors and
officers as a group, beneficially owned shares or % of the
outstanding Bayport Common Stock and shares or % of the outstanding
Bayport Preferred Stock entitled to vote at the Meeting. All directors and
officers of Bayport have indicated that they will vote FOR the approval and
adoption of the Merger Agreement.
5
<PAGE>
Solicitation of Proxies and Expenses
Bayport will bear the cost of the solicitation of Proxies from its
shareholders. In addition to solicitation by mail, the directors, officers and
employees of Bayport may solicit Proxies from Bayport's shareholders by
telephone, telegram, telecopy, letter or in person. Bayport will request
brokers, custodians, nominees and other record holders to forward copies of
this Proxy Statement/Prospectus, Proxies and other soliciting materials to
persons for whom they hold shares of Bayport Common Stock and Bayport Preferred
Stock and to request authority for the exercise of Proxies. In such cases,
Bayport, upon request of the record holders, will reimburse such holders for
their reasonable expenses.
THE MERGER
The following summary is qualified in its entirety by reference to the more
detailed discussion of the Merger which appears under the caption "The Merger"
and to the full text of the Merger Agreement which is attached hereto as Annex
"A" and is incorporated herein by reference. Capitalized terms not defined
herein are defined in the Merger Agreement.
Structure of the Merger
Pursuant to the Merger Agreement, Sub will be merged with and into Bayport,
each issued and outstanding share of Bayport Common Stock and Bayport Preferred
Stock will be converted into the right to receive Landry's Common Stock and
Landry's Preferred Stock, respectively (and payment of cash in lieu of
fractional shares) as described below, and each outstanding share of Sub's
common stock will be converted into one share of Bayport Common Stock, as a
result of which Bayport, as the surviving corporation of the Merger, will
become a wholly-owned subsidiary of Landry's. The officers and directors of Sub
(each of whom are officers of Landry's) will become the officers and directors
of the surviving corporation following the Merger.
Merger Consideration
Under the terms of the Merger Agreement, Landry's will issue to the holders
of Bayport Common Stock an aggregate number of shares of Landry's Common Stock
which is equal to .2105 (the "Exchange Ratio"), subject to adjustment,
multiplied by the number of outstanding shares of Bayport Common Stock. Based
on 9,655,599 shares of Bayport Common Stock issued and outstanding on May 6,
1996, Landry's will issue approximately 2,032,503 shares of Landry's Common
Stock, subject to such adjustment, to the holders of outstanding shares of
Bayport Common Stock. Cash will be paid in lieu of fractional shares of
Landry's Common Stock.
Shares of Bayport Preferred Stock are currently convertible into shares of
Bayport Common Stock at a ratio of four shares of Bayport Preferred Stock for
one share of Bayport Common Stock. Under the terms of the Merger Agreement,
outstanding shares of Bayport Preferred Stock shall be converted into an
aggregate number of shares of Landry's Preferred Stock which is equal to their
shares of Bayport Preferred Stock multiplied by the Exchange Ratio, as
adjusted, and divided by four. After the Merger, shares of Landry's Preferred
Stock will be convertible into shares of Landry's Common Stock on a one-for-one
basis, subject to certain anti-dilution adjustments. Other terms of the
Landry's Preferred Stock will be substantially identical to the terms of the
existing Bayport Preferred Stock. Based on 2,136,499 shares of Bayport
Preferred Stock issued and outstanding on May 6, 1996, Landry's will issue
approximately 112,433 shares of Landry's Preferred Stock, subject to certain
adjustments described below, to the holders of shares of Bayport Preferred
Stock. Cash will be paid in lieu of fractional shares of Landry's Preferred
Stock.
The Exchange Ratio is subject to adjustment in the event the Average Market
Price (equal to the average of the daily closing prices of a share of Landry's
Common Stock on the Nasdaq National Market as reported in The Wall Street
Journal for the five consecutive trading days that end on the second trading
day prior to the Closing
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<PAGE>
Date (i) exceeds $22 per share, in which case the Exchange Ratio shall be
adjusted downward to equal $4.63 divided by the Average Market Price to account
for the increase in the share price of Landry's Common Stock; or (ii) is less
than $15 per share, in which case the Exchange Ratio shall be adjusted upward
to equal $3.16 divided by the Average Market Price to account for the decrease
in the share price of Landry's Common Stock. On the Record Date, the Average
Market Price was $ . If such Average Market Price was the same on the
Closing Date, the Exchange Ratio would be .
In addition, the Exchange Ratio is subject to a downward adjustment in the
event that Bayport's costs of completing construction of four restaurants
presently under construction exceed $13.0 million (the "Projected Construction
Costs") and/or if the pre-opening costs associated with such restaurants exceed
$1.65 million (the "Projected Pre-opening Costs"). As of this date, Bayport has
estimated that its Projected Construction Costs with respect to these four
restaurants will be approximately $14.0 to $15.0 million and that its Projected
Pre-opening Costs relating to these four restaurants will be approximately
$1.65 million. The final determination of the Projected Construction Costs and
the Projected Pre-opening Costs will be made shortly before the closing of the
Merger (the "Closing"), at a time when the four restaurants are expected to be
open or significantly closer to completion than they are today. By way of
example, assuming the Exchange Ratio was .2105, prior to any adjustment for any
such excess costs, if the overage of the Projected Construction Costs and/or
the Projected Pre-opening Costs were to exceed their respective estimates by an
aggregate of $1.0 million, the Exchange Ratio would be reduced to .2060 (.2016
if such overage was $2.0 million).
A VOTE TO APPROVE AND ADOPT THE MERGER AGREEMENT BY BAYPORT'S SHAREHOLDERS
WILL BE DEEMED APPROVAL OF THE EXCHANGE RATIO AND ANY ADJUSTMENTS THERETO.
At the Closing, outstanding options and warrants to purchase shares of
Bayport Common Stock will be converted into the right to purchase that number
of shares of Landry's Common Stock as the holder of such would have been
entitled to receive had they exercised such options or warrants immediately
prior to the Closing. As of May 6, 1996, there were outstanding options to
purchase 2,111,500 shares of Bayport Common Stock and warrants to purchase
691,566 shares of Bayport Common Stock. Additionally, options to purchase
shares of Bayport Common Stock issued pursuant to Bayport's 1993 and 1995 Stock
Option Plans (which will be converted into options to purchase shares of
Landry's Common Stock, as described above) will, in accordance with the terms
of such plans, immediately vest at the closing of the Merger. All other options
and warrants will continue to vest in accordance with the vesting schedules
contained in the agreements evidencing such options and warrants.
Opinion of Financial Advisors
Alex. Brown & Sons Incorporated ("Alex. Brown") is acting as a financial
advisor to Bayport in connection with the Merger and has rendered an opinion to
Bayport's Board of Directors that the consideration to be received by the
holders of Bayport Common Stock and Bayport Preferred Stock pursuant to the
Merger Agreement is fair to the holders thereof from a financial point of view.
The full text of the opinion of Alex. Brown is set forth as Annex B to the
Proxy Statement/Prospectus. Upon the completion of the Merger, Alex. Brown will
receive certain fees for its role as financial advisor to Bayport in the
transaction. Thomas Hitchner, a director of Bayport, is a principal of Alex.
Brown. See "Opinion of Bayport's Financial Advisor," "The Merger--Interests of
Certain Persons in the Merger" and Annex B.
Montgomery Securities, acting as financial advisor to Landry's in connection
with the Merger, has rendered an opinion to Landry's Board of Directors to the
effect that the Exchange Ratio to be paid by Landry's in the Merger is fair to
Landry's, from a financial point of view, as of April 16, 1996. The full text
of this opinion is set forth as Annex C to the Proxy Statement/ Prospectus. See
"Opinion of Landry's Financial Advisor."
7
<PAGE>
Recommendation of the Bayport Board of Directors
Bayport's Board of Directors has adopted the Merger Agreement, authorized the
Merger and the transactions contemplated in the Merger Agreement, and has
determined that the Merger is in the best interest of, and is on terms that are
fair to, Bayport and Bayport's shareholders. Bayport's Board of Directors
recommends approval and adoption of the Merger Agreement by Bayport's
shareholders. In reaching its decision to adopt the Merger Agreement and
recommend the Merger, Bayport's Board considered a number of factors. See "The
Merger--Background of the Merger" and "Reasons for the Merger" and "--Interests
of Certain Persons in the Merger."
Contract Termination and Consulting Payments to Certain Bayport Executive
Officers
In connection with the Merger, Landry's will terminate the existing
employment agreements of David J. Connor and William D. Korenbaum, Bayport's
Chairman and Chief Executive Officer, and President, respectively. At the
Closing, in return for the termination of their agreements, Messrs. Connor and
Korenbaum will receive payments of $1.8 million and $1.3 million, respectively.
Additionally, Messrs. Connor and Korenbaum will, subject to certain conditions,
each receive fees of $240,000 over the two-year period following the Merger in
return for consulting services and in return for the execution of a three-year
covenant not to become involved in a seafood restaurant business in the United
States without the prior written consent of Landry's. See "The Merger--
Interests of Certain Persons in the Merger."
Subsequent to the Merger, and in addition to receiving the amounts described
above, Mr. Korenbaum will be employed by Landry's at will, for which, assuming
continued employment, he will receive a monthly salary of $14,583 and options
to purchase 100,000 shares of Landry's Common Stock vesting equally over a
three-year period. The exercise price of such options will be the price of a
share of Landry's Common Stock on the date of Closing, and the first
installment will vest on the termination of Mr. Korenbaum's employment if such
termination is prior to the scheduled vesting date for such installment. Mr.
Korenbaum's employment with Landry's will be terminable at will by either
party.
Risk Factors
The consummation of the Merger and related transactions and an investment in
shares of Landry's Common Stock and Landry's Preferred Stock each involve
certain risks. Accordingly, shareholders of Bayport should carefully consider
the information set forth under the caption "Risk Factors." Further,
shareholders of Bayport should carefully review "Risk Factors--Impact on
Bayport if the Merger is not Consummated" for information regarding the adverse
impact on Bayport's operations, financial condition and results of operations
if the Merger is not consummated, including the impact on Bayport if this
transaction is not consummated.
Certain Federal Income Tax Consequences
The obligation of Bayport to consummate the Merger is conditioned upon
receipt by Bayport and Landry's of an opinion from Akerman, Senterfitt &
Eidson, P.A., counsel to Bayport, to the effect that, for federal income tax
purposes, the Merger will constitute a tax-free reorganization within the
meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code
of 1986, as amended (the "Code"). If, as anticipated, the Merger qualifies as a
tax-free reorganization, among other things, no gain or loss would be
recognized by Bayport's shareholders as a result of the Merger, except gain or
loss recognized on the receipt of cash in lieu of fractional shares. The Merger
Agreement does not require the parties to obtain a ruling from the Internal
Revenue Service as to the tax consequences of the Merger. Bayport's
shareholders are urged to consult their own tax advisors regarding the
particular tax consequences of the Merger to them.
Federal Securities Laws Consequences
The Landry's Common Stock issuable in connection with the Merger and the
Landry's Common Stock issuable upon the conversion of the Landry's Preferred
Stock issuable in connection with the Merger will be registered under the
Securities Act. Accordingly, there will be no restrictions upon the resale or
transfer of such
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<PAGE>
shares by Bayport's shareholders who are not deemed to be "affiliates" of
Bayport, as such term is used in Rule 145 under the Securities Act of 1933, as
amended (the "Securities Act"). With respect to those shareholders who may be
deemed to be affiliates of Bayport, Rule 144 and Rule 145 under the Securities
Act place certain restrictions on the transfer of Landry's Common Stock and
Landry's Preferred Stock which may be received by them pursuant to the Merger.
Accounting Treatment
Both Landry's and Bayport believe that the Merger will qualify as a pooling-
of-interests for accounting and financial reporting purposes, and have been so
advised by their respective independent public accountants. Consummation of the
Merger is conditioned upon the receipt by Landry's and Bayport of a letter from
Landry's independent public accountant stating that Landry's is eligible to be
a party to a merger accounted for by the pooling-of-interests method of
accounting and that based on their knowledge of the transactions contemplated
by the Merger Agreement and inquiries into the affairs of Bayport, they are not
aware of any matters which prohibit the use of pooling-of-interests accounting
in connection with the Merger, and the further receipt by Landry's and Bayport
of a letter from Grant Thornton LLP, Bayport's independent accountants, that
based on their knowledge of the transactions contemplated by the Merger
Agreement, and inquiries into the affairs of Bayport, they are not aware of any
matters which prohibit the use of pooling-of-interests accounting in connection
with the Merger. Landry's and Bayport have each received such letters which
will be updated at the Closing Date. See "The Merger Agreement--Conditions
Precedent" and "The Merger--Accounting Treatment."
Effects of the Merger on Rights of Shareholders
As a result of the Merger, Bayport's shareholders will become shareholders of
Landry's. Bayport is organized under the laws of Florida while Landry's is
organized under the laws of Delaware. For a summary comparison of the material
differences between the corporate law of the State of Florida and the corporate
law of the State of Delaware, see "Comparative Rights of Shareholders."
Regulatory Approval
The obligations of Landry's and Bayport to consummate the Merger are subject
to the expiration of the waiting period applicable to the consummation of the
Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act") and the rules promulgated thereunder. Landry's and Bayport expect to file
the Pre-Merger Notifications under the HSR Act with the Federal Trade
Commission and the Antitrust Division of the U.S. Department of Justice. The
required waiting period under the HSR Act will expire at 11:59 p.m. thirty days
after such filing, unless: (1) extended by request for additional
documentation; or (2) terminated earlier upon request by Landry's and Bayport.
Landry's and Bayport have requested such early termination. See "The Merger
Agreement--Conditions Precedent" and "The Merger--Regulatory Approval."
No Solicitation
Under the terms of the Merger Agreement, Bayport is prohibited from, directly
or indirectly, soliciting or encouraging the initiation of any inquiries,
proposals or offers regarding any acquisition, merger, takeover bid or sale of
all or substantially all of its assets. However, if Bayport's Board of
Directors determines that it would be consistent with its fiduciary
responsibilities to approve or recommend an unsolicited proposal which it deems
superior to the Merger (the "Superior Proposal"), then Bayport shall be
entitled to enter into the Superior Proposal and terminate the Merger
Agreement. In such event, Bayport will be obligated to pay the Termination Fee
described below and Landry's will acquire ownership of certain designated
Bayport restaurants collateralizing a loan from Landry's to Bayport. See
"Interim Funding Arrangement."
Termination of the Merger
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the consummation of the Merger: (i) by the mutual consent of the
Boards of Directors of Bayport and Landry's; (ii) by the Board of Directors of
either Bayport or Landry's if there has been a material breach by the other of
any
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representation or warranty in the Merger Agreement or of any covenant in the
Merger Agreement which has not, or cannot be, cured within 15 days after
written notice thereof; (iii) by the Board of Directors of either Bayport or
Landry's if the conditions to closing set forth in the Merger Agreement are not
met or waived by December 31, 1996, or the Merger has not occurred by such date
(except that neither Bayport nor Landry's shall be entitled to terminate if
such party is in willful and material violation of the Merger Agreement); (iv)
by the Board of Directors of either Bayport or Landry's if the required
approval of the shareholders of Bayport shall not have been obtained; or (v) if
a governmental authority shall have issued a final and non-appealable order or
ruling enjoining, restraining or otherwise prohibiting the Merger.
Termination Fee
In the event the Merger Agreement is terminated by Bayport as a result of
entering into a Superior Proposal or because of Bayport's failure to satisfy
certain of the closing conditions set forth in the Merger Agreement, then
Landry's shall be entitled to receive from Bayport a cash fee payable six
months after such termination (the "Termination Fee") in an amount equal to
2.5% of (i) the product of the closing price of a share of Landry's Common
Stock on the date of such termination multiplied by the number of shares of
Landry's Common Stock which would have been issued or reserved for issuance if
the Merger had been consummated; plus (ii) the amount of Bayport's debt on the
date of such termination ((i) plus (ii) above is hereinafter, the "Deal
Value"). In addition, all expenses, including legal, accounting and tax
expenses, incurred by Landry's in connection with the Merger Agreement (the
"Expenses") would also be payable as part of the Termination Fee. If the Merger
Agreement is terminated by Landry's because of Bayport's inability to obtain
approval of the Merger by its shareholders or because of the existence of a
material adverse change in Bayport, the Termination Fee shall be equal to 1.5%
of the Deal Value plus the Expenses. See also "Interim Funding Arrangement" for
a discussion of the impact of entering into a Superior Proposal on the Loan (as
defined below).
INTERIM FUNDING ARRANGEMENT
On April 18, 1996, Bayport entered into a loan agreement (the "Loan
Agreement") with Landry's, pursuant to which Landry's agreed to loan Bayport up
to $11.0 million (the "Loan") to be used to finance the continued construction
of Bayport's restaurants under construction located in Chelsea Piers and Great
Neck, New York; Nashville, Tennessee; and Baltimore, Maryland. Outstanding
indebtedness under the Loan Agreement bears interest at the prime rate, as
published in The Wall Street Journal, plus 2%. Interest under the Loan
Agreement is payable monthly. Assuming the necessary documentation has been
delivered in connection with each of the Collateralized Properties (as defined
below), the full amount of the Loan will be made available to Bayport, whether
or not the transactions contemplated by the Merger Agreement are consummated.
The Loan is intended to be secured by collateral assignments of Bayport's
leasehold interests on, and all other assets of, certain of its restaurants in
Nashville, Tennessee; Great Neck, New York; Chicago, Illinois; and Myrtle
Beach, South Carolina (the "Collateralized Properties"). However, the initial
portion of the Collateralized Properties will be Bayport's leasehold interest
on, and other assets of, its restaurant located in Jupiter, Florida. Such
property will be released as collateral if certain of the other Collateralized
Properties are substituted therefor. The aggregate advances available under the
Loan Agreement are based on the delivery of the necessary documentation for
each of the Collateralized Properties to Landry's. Currently, the Jupiter
leasehold and restaurant has been collaterally assigned to Landry's, resulting
in the availability of $2.5 million under the Loan Agreement.
Pursuant to the Loan Agreement, if the Merger Agreement is terminated for any
reason (other than the receipt of a Superior Proposal), Bayport will have the
opportunity to repay the loan amount for 120 days, during which time Landry's
has agreed to take no action against Bayport. If Bayport has not repaid any of
the
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principal balance of the Loan, together with accrued but unpaid interest at the
end of such period, Landry's will be required to acquire and Bayport will be
obligated to convey, in full consideration and repayment of the then
outstanding Loan amount, the Collateral and, in connection therewith, Landry's
will be obligated to pay to the lenders under Bayport's revolving credit and
term loan facility, an amount equal to the unfunded balance of the Loan, less
accrued but unpaid interest thereon, certain fees and expenses and the unfunded
advances that would otherwise be required to be made with respect to two
Bayport restaurants currently under construction (the "Bayport Collateral
Payment Amount"). Pursuant to the Merger Agreement, if the Merger Agreement is
terminated by Bayport because of the receipt of a Superior Proposal, Landry's
will be required to immediately acquire the Collateral by paying the Bayport
Collateral Payment Amount. See "Landry's Management's Discussion--Liquidity and
Capital Resources."
In connection with the Loan Agreement, The First National Bank of Boston (as
agent), The First National Bank of Boston and Capital Bank (collectively, the
"Lenders") have agreed to waive certain covenants, events of default and
termination fees under their revolving credit and term loan agreement (the
"Credit Agreement") with Bayport, unless and until the Merger Agreement is
terminated. Further, the Lenders have agreed to assign the collateral
assignment documentation relating to the Nashville and Jupiter restaurants to
Landry's and to permit the placement of liens on certain of Bayport's other
assets. The collateral assignment documentation relating to the Jupiter
restaurant will be reassigned by Landry's to the Lenders upon Landry's receipt
of the collateral assignment documentation relating to Bayport's two Myrtle
Beach restaurants.
LANDRY'S SECURITIES OUTSTANDING
At this date, and without accounting for the issuance of shares of Landry's
Common Stock and Landry's Preferred Stock in the Merger, there are 18,204,220
shares of Landry's Common Stock issued and outstanding and options
outstanding to purchase an equal number of additional shares of Landry's Common
Stock.
On April 30, 1996, Landry's filed a registration statement to offer and sell
4.5 million shares of Landry's Common Stock (500,000 of which are being sold by
a selling stockholder). Additionally, Landry's and such selling stockholder
granted the underwriters of the offering an option to purchase up to an
additional 675,000 shares of Landry's Common Stock to cover over-allotments, if
any.
The net proceeds to Landry's from the sale of the 4.0 million shares of
Landry's Common Stock offered by Landry's are estimated to be $85.5 million
($100.0 million if the over-allotment option granted to the underwriters
effecting the sale is fully exercised and provided for solely by Landry's)
assuming a public offering price of $22.50 per share (the closing price of
Landry's Common Stock on April 24, 1996). Landry's intends to use the net
proceeds to finance the development or acquisition of additional restaurants
and for general corporate purposes. The proposed public offering is not
contingent upon the Merger being consummated. If the Merger is consummated,
Landry's currently anticipates utilizing approximately $18.0 million of the
proceeds to repay the outstanding amounts owed by Bayport under the Credit
Agreement (the "Revolving Loans"). The Revolving Loans bear per annum interest
at a bank's base rate plus one-half percent for approximately $16.0 million and
at the prime rate published by The Wall Street Journal plus 1% for the
remaining $2.0 million. The Revolving Loans terminate on December 14, 2001, and
are secured by substantially all of the assets of Bayport. The Revolving Loans
were incurred to fund Bayport's working capital requirements in connection with
Bayport's restaurant expansion program. In addition, if the Merger is
consummated, Landry's will utilize approximately (i) $1.3 million to repay a
note due to a related party of Bayport which is payable in monthly installments
of $7,861 and a final payment of $951,195 in April 1999, and which bears
interest at 1.5% over a designated bank's prime rate; (ii) $.5 million for
additional mortgage prepayments on an existing Bayport restaurant location; and
(iii) up to $11.0 million to repay amounts drawn on Landry's line of credit
which will be utilized to fund the Loan.
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SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Landry's and Pro-Forma
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
PRO FORMA
1991 1992 1993 1994 1995 1995(1)
------- ------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues.................... $19,500 $22,435 $34,241 $62,527 $104,017 $157,620
Operating income............ 2,371 3,073 4,346 7,885 12,950 15,445
Income before income taxes
and extraordinary gain..... 2,093 3,090 4,289 8,806 14,843 16,994
Provision for income
taxes(2)(3)................ 867 1,112 1,544 3,126 5,259 5,946
Income before extraordinary
gain....................... 1,226 1,978 2,745 5,680 9,584 11,048
Extraordinary gain(4)....... 507 313 -- -- -- --
Net income(3)(4)............ $ 1,733 $ 2,291 $ 2,745 $ 5,680 $ 9,584 $ 11,048
======= ======= ======= ======= ======== ========
Net income before
extraordinary gain per
share(3)(4)................ $ 0.23 $ 0.28 $ 0.40 $ 0.55 $ 0.57
Extraordinary gain per
share(4)................... 0.03 -- -- -- --
------- ------- ------- -------- --------
Net income per share(3)(4).. $ 0.26 $ 0.28 $ 0.40 $ 0.55 $ 0.57
======= ======= ======= ======== ========
Weighted average number of
common shares and common
share equivalents
outstanding(5)............. 8,794 9,862 14,126 17,320 19,526
</TABLE>
Bayport
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------
12/30/91 12/28/92 12/27/93 12/26/94 12/25/95
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues.......................... $23,005 $20,833 $26,994 $38,490 $53,678
Operating Income (Loss)........... (2,329) 1,049 1,264 1,333 2,151
Net Income (Loss)................. (2,329) 873 1,365 939 1,464
</TABLE>
- --------
(1) Gives pro forma effect to the Merger for the year ended December 31, 1995
assuming the Merger had been consummated at the beginning of the period.
See "Unaudited Pro Forma Condensed Combined Financial Statements."
(2) See Notes 1 and 3 of Notes to the Landry's Consolidated Financial
Statements.
(3) Gives effect in 1992 and 1993 to the pro forma provision for federal and
state income taxes as a C corporation on the combined income of Landry's,
at an effective tax rate of 36%, as a result of the consummation of the
initial public offering of Common Stock by Landry's in August 1993 (the
"Initial Public Offering"), which resulted in the termination of the S
corporation status of certain subsidiaries of Landry's, as if Landry's was
subject to federal income taxes for the entire periods.
(4) Gives effect to the pro forma recording in 1992 of an extraordinary gain of
$489,133 ($313,000 net of pro forma income taxes) related to the repayment
of debt at a discount effective November 20, 1992. During 1991, Landry's
recognized an extraordinary gain of $506,665 as a result of the tax benefit
from the use of net operating loss carryforwards.
(5) See Note 8 of Notes to the Landry's Consolidated Financial Statements.
12
<PAGE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
LANDRY'S BAYPORT
12/31/95 12/25/95 PRO FORMA(1)
-------- -------- ------------
<S> <C> <C> <C>
Working Capital................................. $ 8,521 $ 2,758 $11,278
Total Assets.................................... 140,001 47,865 187,865
Short Term Notes and Current Portion of Long
Term Notes and other Obligations............... 299 2,378 2,677
Long Term Notes and other Obligations, non
current........................................ 368 15,836 16,204
Stockholders' Equity............................ 122,210 22,580 144,790
</TABLE>
- --------
(1) Gives effect to the Merger as if it had been consummated at December 31,
1995.
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Landry's
and Bayport and combined per share data on an unaudited pro forma basis, based
on the assumption that the Merger occurred at the beginning of the earliest
period presented and was accounted for as a pooling-of-interests. The pro forma
comparative per share data gives effect to the Merger at an assumed Exchange
Ratio of .2105. The pro forma comparative per share data does not purport to
represent what Landry's financial position or results of operations would
actually have been had the Merger occurred at the beginning of the earliest
period presented or to project Landry's financial position or results of
operations for any future date or period. This data should be read in
conjunction with the unaudited pro forma condensed combined financial
statements included elsewhere herein and the separate historical financial
statements and notes thereto of Landry's and Bayport included elsewhere in this
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
HISTORICAL--LANDRY'S
Net Income--fully diluted.................................... $ .28 $ .40 $ .55
Dividends (1)................................................ .71 -- --
Book Value................................................... 1.59 4.19 6.77
HISTORICAL--BAYPORT
Net Income--fully diluted.................................... $ .18 $ .09 $ .14
Dividends.................................................... -- -- --
Book Value................................................... 1.99 2.08 2.22
PRO FORMA COMBINED
Net Income--fully diluted.................................... $ .36 $ .41 $ .57
Book Value (2)............................................... -- -- 7.17
</TABLE>
- --------
(1) Represents Sub-chapter S distributions of predecessor subsidiaries.
(2) No pro forma balance sheet prepared for 1994 or 1993.
13
<PAGE>
COMPARATIVE MARKET DATA
Landry's Common Stock is traded on Nasdaq National Market under the symbol
"LDRY" and the Bayport Common Stock is traded on Nasdaq National Market under
the symbol "PORT". The following table sets forth, for the calendar quarters
indicated, the high and low sales prices per share reported on the Nasdaq
National Market for Landry's Common Stock, Bayport Common Stock and the
equivalent pro forma value of one share of Bayport Common Stock calculated by
multiplying the sales price of one share of Landry's Common Stock on the dates
listed by the Exchange Ratio that would be in effect if the Average Market
Price were equal to such closing sales price.
<TABLE>
<CAPTION>
BAYPORT
LANDRY'S BAYPORT PRO FORMA
COMMON STOCK COMMON STOCK EQUIVALENT
------------- ------------- -----------
HIGH LOW HIGH LOW HIGH LOW
------ ------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
1994:
First Quarter........................... $13.75 $10.50 $5.125 $3.875 $3.16 $3.16
Second Quarter.......................... 13.00 8.63 5.125 3.75 3.16 3.16
Third Quarter........................... 12.75 8.75 4.25 3.00 3.16 3.16
Fourth Quarter.......................... 15.38 10.13 4.25 2.625 3.22 3.16
1995:
First Quarter........................... $15.75 $12.75 $4.063 $2.875 $3.32 $3.16
Second Quarter.......................... 22.25 14.88 4.625 3.75 4.63 3.16
Third Quarter........................... 22.00 16.00 5.125 4.25 4.63 3.37
Fourth Quarter.......................... 18.25 12.50 4.875 3.125 3.84 3.16
1996:
First Quarter........................... $19.75 $14.00 $ 4.25 $ 3.50 $4.16 $3.16
Second Quarter (through May 7).......... 25.50 17.50 4.125 3.438 4.63 3.68
</TABLE>
On April 18, 1996, the last trading day prior to the public announcement of
the Merger, the closing sale prices per share of the Landry's Common Stock and
the Bayport Common Stock as reported on the Nasdaq National Market were $21.00
and $4.00, respectively. On May 7, 1996, the closing sale prices per share of
the Landry's Common Stock and the Bayport Common Stock as reported on the
Nasdaq National Market were $20.50 and $3.719, respectively. No cash dividends
have been paid on the Landry's Common Stock or the Bayport Common Stock since
their respective initial public offerings. Landry's does not anticipate paying
cash dividends in the foreseeable future.
The listing on the Nasdaq National Market of the shares of Landry's Common
Stock issuable in connection with the Merger is a condition to the consummation
of the Merger.
As of the Record Date, there were approximately 155 record holders of
Landry's Common Stock, 6,600 record holders of Bayport Common Stock and 27
record holders of Bayport Preferred Stock.
SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR LANDRY'S
COMMON STOCK AND BAYPORT COMMON STOCK. NO ASSURANCE CAN BE GIVEN AS TO THE
MARKET PRICE OF LANDRY'S COMMON STOCK AFTER THE MERGER.
14
<PAGE>
RISK FACTORS
In addition to the other information contained in this Proxy
Statement/Prospectus, the following factors should be considered carefully
before voting upon the Merger proposal.
RISK ASSOCIATED WITH THE MERGER
Uncertainty as to Future Financial Results. Landry's and Bayport believe
that the Merger will offer opportunities for long-term efficiencies in
operations that should positively affect future operating results of the
combined operations of Landry's and Bayport. However, the combined company
will be more complex and diverse than Landry's or Bayport individually, and
the combination and continued operation of their distinct business operations
will present difficult challenges for Landry's management, due to the
increased time and resources required in the management effort. While
management and the Board of Directors of Landry's believe that the combination
can be effected in a manner which will realize the value of the two companies,
management has no experience in combinations of this size. See "Landry's
Management's Discussion."
Following the Merger, in order to maintain and increase profitability, the
combined company will need to successfully integrate and streamline
overlapping functions. Landry's and Bayport have different systems and
procedures in many operational areas which must be rationalized and
integrated. There can be no assurance that integration will be successfully
accomplished. The difficulties of such integration may be increased by the
necessity of coordinating geographically separate organizations. The
integration of certain operations following the Merger will require the
dedication of management resources which may temporarily distract attention
from the day-to-day business of the combined company. Failure to effectively
accomplish the integration of the two companies' operations could have an
adverse effect on Landry's results of operations and financial condition.
Merger Expenses. Transaction costs relating to the negotiation of,
preparation for, and consummation of the Merger and the anticipated
combination of certain operations of Landry's and Bayport are expected to
result in a one-time charge to Landry's earnings. Although it will not be
feasible to determine the actual amount of the charge until the operational
and transaction plans are completed, management of Landry's believes that the
charge will be between $8.0 million and $10.0 million before taxes, although
such amount may be increased by unanticipated additional costs or expenses
incurred in connection with, or caused by, the Merger. This charge, the actual
amount of which will be based, in part, on future developments arising from
the change of control of Bayport, is expected to include the estimated costs
associated with workforce reductions, contractual payment obligations and
other restructuring activities, fees and expenses payable to financial
advisors, legal fees and other transaction expenses related to the Merger.
While the exact timing of this charge cannot be determined at this time,
management of Landry's anticipates that this charge to earnings will be
recorded primarily in the quarter in which the Merger is consummated (expected
to be the third quarter of 1996). In addition, there can be no assurance that
Landry's will not incur additional charges in subsequent quarters to reflect
costs associated with the Merger and the integration of Landry's and Bayport's
operations.
Shares Eligible for Public Sale. Sales of substantial amounts of Landry's
Common Stock in the public market after the consummation of the Merger could
adversely affect prevailing market prices. The approximately 2,030,000 shares
of Landry's Common Stock (assuming an Exchange Ratio of .2105) to be issued in
the Merger will be eligible for immediate sale in the public market, subject
to certain limitations under the Securities Act applicable to affiliates of
Bayport. In addition, approximately 444,000 shares of Landry's Common Stock
issuable upon the exercise of Bayport Options (as hereinafter defined),
approximately 146,000 shares of Landry's Common Stock issuable upon exercise
of Bayport Warrants (as hereinafter defined) and approximately 112,000 shares
of Landry's Common Stock issuable upon conversion of the Bayport Preferred
Stock, in each case assuming an Exchange Ratio of .2105, are anticipated to be
eligible for sale pursuant to Registration Statements on Forms S-3 and S-8
following the Merger. Pursuant to the Merger Agreement, if the Average Market
Price is less than $15 per share, the number of shares of Landry's Common
Stock issuable pursuant to the Merger, and therefore the number of shares of
Landry's Common Stock that may be immediately sold in the public market, would
be increased.
15
<PAGE>
Closing. The Closing is subject to the conditions contained in the Merger
Agreement. Many of these conditions are beyond the control of Landry's and
Bayport. Although Landry's and Bayport believe that such conditions will be
satisfied or waived, there can be no assurance that the Closing will occur.
The Closing is subject to the satisfaction of certain significant conditions,
including, among others, approval by the stockholders of Bayport, the receipt
by Landry's and Bayport of an opinion from their independent public
accountants with respect to certain matters relating to the availability of
pooling-of-interests accounting treatment for the Merger, the receipt of
regulatory approval under the HSR Act and the absence of any material adverse
change in the business, results of operations or financial condition of either
Landry's or Bayport. In addition, the Merger Agreement may be terminated by
either party if the Closing does not occur by December 31, 1996.
Impact on Bayport if the Merger is not Consummated. The termination of the
Merger Agreement may have a material and adverse impact on Bayport's
operations, financial position and results of operations. If the Merger
Agreement is terminated, Bayport will be obligated to repay the Loan within
120 days after the termination date of the Merger Agreement and if Bayport is
unable to repay the Loan, Landry's will acquire the five restaurants
collateralizing the Loan in full satisfaction of the Loan. Additionally, in
the event that the Merger Agreement is terminated, Bayport might become
obligated to pay the Termination Fee. See "The Merger--No Solicitation;
Termination Fee" and "Interim Funding Arrangement."
If the Merger Agreement is terminated, Bayport intends to seek alternative
financing to repay the Loan and to continue to pursue its restaurant expansion
program. There can be no assurance that funding will be available and no
funding is presently committed. In addition to having four restaurants under
construction, which are being funded with the proceeds of the Loan, Bayport is
also obligated on leases for three additional restaurant sites as to which
construction of a restaurant has not yet started and, as of the date of the
Proxy Statement/Prospectus, Bayport does not presently have funds committed to
build restaurants on these sites. If required financing cannot be obtained,
Bayport will likely lose the five restaurants collateralizing the Loan to
Landry's in full payment of the Loan and will be unable to continue its
restaurant expansion program. Additionally, Bayport will have to obtain the
funds required to pay the Termination Fee, to the extent that it becomes due.
To the extent that Bayport is not able to obtain funding for all of these
purposes, it will likely have a material adverse effect on Bayport's
operations, results of operations and financial position. See "Bayport's
Management's Discussion--Liquidity and Capital Resources."
RISKS ASSOCIATED WITH LANDRY'S OPERATIONS
Growth. Landry's has pursued an accelerated expansion strategy since 1990.
Landry's originally planned to open approximately 26 restaurants during 1995
and 1996. Of the 26 Landry's restaurants planned for 1995 and 1996, as of
February 6, 1996, 22 had been opened. Landry's current development plan is to
have open approximately 75 restaurants by December 31, 1997 (excluding
restaurants that may be acquired pursuant to the Merger), of which nine
restaurants were under construction as of February 6, 1996. There can be no
assurance that the new and acquired restaurants will perform in accordance
with Landry's management's expectations, or that Landry's will not encounter
unanticipated problems or liabilities in connection with the new restaurants.
Many of its new restaurants will be in geographic markets in which Landry's
has limited or no previous operating experience. There can be no assurance
that Landry's will be successful in opening the number of restaurants
anticipated in a timely manner, or that, if opened, those restaurants will be
operated profitably. Further, there can be no assurance that the Bayport
restaurants and other operations proposed to be acquired by Landry's pursuant
to the Merger can be operated profitably by Landry's.
Landry's ability to expand the number of its restaurants will depend upon a
number of factors, including the selection and availability of suitable
restaurant sites, the negotiation of acceptable lease or purchase terms, the
securing of required governmental permits and approvals, the adequate
supervision of construction, the hiring, training, and retaining of skilled
management and other personnel, the availability of adequate financing,
general economic conditions, and other factors, many of which are beyond the
control of Landry's. Landry's approach to opening new restaurants has been to
control its required investment by developing its own in-house construction
and development capabilities as general contractor and to lease a substantial
number of its restaurant
16
<PAGE>
sites. Landry's currently anticipates that it will continue to purchase in fee
a number of its new restaurant locations, which are expected to be more costly
than leased locations. In view of its planned growth, increased competition for
sites and inherent uncertainties of construction costs, there can be no
assurance that Landry's required net investment for leased or fee owned units
will not be higher in the future. See "Landry's Business--Expansion Strategy"
and "--Unit Economics."
Since 1989, Landry's has experienced rapid growth in revenues, restaurant
level profit, and net income. In view of its limited operating history,
Landry's remains vulnerable to a variety of business risks generally associated
with young, rapidly growing companies. Failure to continue to upgrade operating
and financial controls and systems or unexpected difficulties encountered
during expansion could adversely affect Landry's business, financial condition,
and results of operation. Although Landry's believes that its systems and
controls are adequate to address its current needs, there can be no assurance
that such systems and controls will be adequate to sustain future growth.
business, financial condition, and results of operation. Although Landry's
believes that its systems and controls are adequate to address its current
needs, there can be no assurance that such systems and controls will be
adequate to sustain future growth.
Limited Operating History. A significant number of Landry's restaurants have
been open for less than two years. Consequently, the earnings achieved to date
by such restaurants may not be indicative of future operating results.
Geographic Concentration. Of Landry's existing and planned restaurants,
including the Bayport restaurants, a majority are concentrated in the southern
half of the United States. Giving effect to the Merger, as of February 6, 1996,
37 restaurants would have been located in Texas and Florida. See "Landry's
Business--Restaurant Locations" and "Bayport's Business." Accordingly, Landry's
results of operations may be adversely affected by economic conditions in those
regions and other geographic areas into which Landry's may expand. Also, given
Landry's present geographic concentration, adverse publicity relating to
Landry's restaurants could have a more pronounced adverse effect on Landry's
overall sales than might be the case if Landry's restaurants were more broadly
dispersed. In addition, in view of the location of many of Landry's existing
and planned restaurants in the Gulf Coast area from Texas to Florida, Landry's
is particularly susceptible to damage caused by hurricanes or other severe
weather conditions. While Landry's maintains business interruption insurance,
there can be no assurance that if a severe hurricane or other natural disaster
should affect Landry's geographical areas of operations, Landry's would be able
to maintain its current level of operations or profitability.
Seafood Supply and Quality. In the recent past, certain types of seafood have
experienced fluctuations in supply availability. Landry's has in the past
utilized several seafood suppliers and has not experienced any difficulty in
obtaining adequate supplies of fresh seafood on a timely basis. In addition,
some types of seafood have been subject to adverse publicity due to certain
levels of contamination at their source, which can adversely affect both supply
and market demand. Landry's maintains an in-house inspection program for its
seafood purchases and in the past has not experienced any detriment from
contaminated seafood. However, Landry's can make no assurances that in the
future either seafood contamination or inadequate supplies of seafood might not
have a significant and materially adverse effect on Landry's operations and
profitability.
Changes in Food and Other Costs. Landry's profitability is dependent on its
ability to anticipate and react to increases in food, labor, employee benefits,
and similar costs over which Landry's has limited or no control. Specifically,
Landry's dependence on frequent deliveries of fresh seafood and produce
subjects it to the risk of possible shortages or interruptions in supply caused
by adverse weather or other conditions which could adversely affect the
availability and cost of such items. Landry's business may also be affected by
inflation. In the past, management has been able to anticipate and avoid any
adverse effect on Landry's profitability from increasing costs through its
purchasing practices and menu price adjustments, but there can be no assurance
that it will be able to do so in the future.
Restaurant Industry and Competition. The restaurant industry is affected by
changes in consumer tastes and by national, regional, and local economic
conditions and demographic trends. The performance of individual restaurants
may be affected by factors such as traffic patterns, demographic
considerations, and the type, number, and location of competing restaurants.
The restaurant industry is intensely competitive based on the type and
17
<PAGE>
quality of food offered, location, and other factors. Landry's has many well
established competitors with substantially greater financial resources and
longer histories of operation than Landry's, including competitors already
established in regions into which Landry's is planning to expand, as well as
competitors planning to expand in the same regions. Landry's faces competition
from mid-priced, full-service, casual dining restaurants offering seafood and
other types and varieties of cuisine. Landry's competitors include national,
regional, and local chains as well as local owner-operated restaurants.
Landry's also competes with other restaurants and retail establishments for
sites.
Dependence on Chief Executive Officer and Other Employees. Landry's believes
that the development of its business has been, and will continue to be,
dependent on Tilman J. Fertitta, the Chief Executive Officer, President, and
Chairman of the Board of Landry's, and other key executive employees. The loss
of Mr. Fertitta's services could have a material adverse effect upon Landry's
business and development, and there can be no assurance that an adequate
replacement could be found for Mr. Fertitta in the event of his unavailability.
Mr. Fertitta has entered into an Employment Agreement with Landry's expiring
December 31, 1996, subject to renewal. Landry's continued growth will also
depend on its ability to attract and retain additional skilled management
personnel. See "Landry's Management."
Control by Management and Principal Stockholder. Mr. Fertitta, the principal
stockholder of Landry's, beneficially owns, in the aggregate, approximately
25.3% of the outstanding Landry's Common Stock. As a result he may have
significant ability to influence the election of the Board of Directors of
Landry's and the direction of the affairs of Landry's. See "Landry's
Management" and "--Principal Stockholders."
Government Regulation. The restaurant industry is subject to extensive state
and local government regulation relating to the sale of food and alcoholic
beverages and to sanitation, public health, fire and building codes.
Termination of the liquor license for any restaurant would adversely affect the
revenues of that restaurant. Restaurant operating costs are also affected by
other government actions that are beyond Landry's control, including workers'
compensation insurance rates, and unemployment and other taxes. At the federal
level, there are proposals under consideration to increase the minimum hourly
wage requirements. These and other initiatives could adversely affect Landry's
as well as the restaurant industry in general. Difficulties or failures in
obtaining required licensing or other regulatory approvals could delay or
prevent the opening of a new restaurant. Although seafood is not currently
subject to a comprehensive nationwide program of inspection by the Food and
Drug Administration ("FDA"), the FDA has in the past proposed such a program
for inspection of seafood suppliers and processors, but not retail sellers such
as restaurants. If such a program were to be implemented, Landry's seafood
costs could increase due to the increased expense to seafood suppliers and
processors in complying with such a program. The suspension of, or inability to
renew, a license could interrupt operations at an existing restaurant, and the
inability to retain or renew such licenses would adversely affect the
operations of such restaurant.
Tax Liabilities. The State of Texas currently imposes a franchise tax on each
corporation that is organized or does business in the State of Texas at a rate,
in general, of 4.5% of such entity's reported federal taxable income. A portion
of Landry's revenues are utilized to pay licensing and management fees to
certain of Landry's subsidiaries. The income received by certain of these
subsidiaries is not subject to Texas franchise tax under current state law.
However, there can be no assurance that the state of Texas might not attempt to
enact legislation or assert positions which would attempt to assess additional
franchise tax payments on Landry's operations. In the event of any assessment,
Landry's income and results of operations could be affected up to the amount of
the tax imposed.
Workers' Compensation. Like a large number of companies operating in Texas,
including many restaurant companies, Landry's does not subscribe to the
workers' compensation insurance program in Texas. As such, Landry's employees
have the right to sue Landry's for negligence, and Landry's may not assert
contributory negligence and certain other defenses. In addition, employees
might be able to recover compensatory and punitive damages in such actions that
would not be available to them if Landry's subscribed to the workers'
compensation insurance program in Texas. However, Landry's maintains excess
employer's occupational injury
18
<PAGE>
insurance to cover large losses. Prior to 1989, Landry's subscribed to the
workers' compensation insurance program. Since 1989, Landry's has had a limited
number of lawsuits by employees in connection with workers' compensation claims
and the results of such lawsuits, individually and collectively, have not had a
material adverse effect upon Landry's results of operations.
STOCK PRICE VOLATILITY
Landry's Common Stock has been traded on the Nasdaq National Market since its
initial public offering, and the market price of Landry's Common Stock has
risen substantially since such time. In the future, the market price of
Landry's Common Stock could fluctuate substantially due to a variety of
factors, including quarterly operating results of Landry's or other restaurant
companies, changes in general conditions in the economy, the financial markets
or the restaurant industry, natural disasters, or other developments affecting
Landry's or its competitors. In addition, in recent years the stock market has
experienced extreme price and volume fluctuations. This volatility has had a
significant effect on the market prices of securities issued by many companies
for reasons unrelated to the operating performance of these companies.
RISKS ASSOCIATED WITH FORWARD LOOKING STATEMENTS
This Proxy Statement/Prospectus contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act, and Section 21E of the
Exchange Act, which are intended to be covered by the safe harbors created
thereby. Investors are cautioned that all forward-looking statements involve
risks and uncertainty, including without limitation, the ability of Landry's to
continue its accelerated expansion strategy (including the consummation of the
Merger), changes in costs of food, labor, and employee benefits, the ability of
Landry's to continue to acquire prime locations at acceptable lease or purchase
terms, as well as general market conditions, competition, and pricing. Although
Landry's believes that the assumptions underlying the forward-looking
statements contained herein are reasonable, any of the assumptions could be
inaccurate, and therefore, there can be no assurance that the forward-looking
statements included in this Proxy Statement/Prospectus will prove to be
accurate. In light of the significant uncertainties inherent in the forward-
looking statements included herein, the inclusion of such information should
not be regarded as a representation by Landry's or any other person that the
objectives and plans of Landry's will be achieved.
19
<PAGE>
THE MEETING
MATTERS TO BE CONSIDERED AT THE MEETING
At the Meeting, holders of Bayport Common Stock and Bayport Preferred Stock
will consider and vote upon a proposal to approve and adopt the Merger
Agreement.
BAYPORT'S BOARD OF DIRECTORS HAS APPROVED THE MERGER AGREEMENT AND THE
MERGER AND RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR THE APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT.
RECORD DATE; SHARES ENTITLED TO VOTE; QUORUM
Bayport has established , 1996 as the Record Date for the determination
of the shareholders entitled to notice and to vote at the Meeting. Only
holders of record of Bayport Common Stock and Bayport Preferred Stock at the
close of business on the Record Date will be entitled to receive notice of and
to vote at the Meeting. On the Record Date there were shares of Bayport
Common Stock outstanding and shares of Bayport Preferred Stock
outstanding. Each such share is entitled to one vote. A majority of the
outstanding shares of Bayport Common Stock and a majority of the outstanding
shares of Bayport Preferred Stock on the Record Date must be represented in
person or by proxy at the Meeting in order for a quorum to be present and
business to be transacted at the Meeting. Abstentions will have the effect of
a vote against the Merger, as will the failure of holders of Bayport Common
Stock or Bayport Preferred Stock to sign and return a proxy. In connection
with the Merger, holders of Bayport Preferred Stock will be entitled to demand
appraisal rights under the Florida Business Corporation Act subject to
satisfaction by such stockholders of the conditions for perfection of such
appraisal rights established thereunder. See "Appraisal Rights."
VOTES REQUIRED
Approval and adoption of the Merger Agreement will require the affirmative
vote of the holders of a majority of the outstanding shares of Bayport Common
Stock on the Record Date and the affirmative vote of the holders of a majority
of the outstanding shares of Bayport Preferred Stock on the Record Date.
As of the Record Date, Bayport's directors, executive officers and
affiliates were the beneficial owners of shares of Bayport Common
Stock or approximately % of the then outstanding shares of Bayport Common
Stock and shares or % of the outstanding Bayport Preferred Stock. See
"Bayport's Security Ownership of Certain Beneficial Owners and Management" for
information regarding persons known to Bayport to be the beneficial owners of
more than five percent of the issued and outstanding shares of Bayport Common
Stock and Bayport Preferred Stock.
VOTING OF PROXIES
Shares of Bayport Common Stock and Bayport Preferred Stock represented by
properly executed Proxies, received at or prior to the Meeting, will be voted
in the manner specified in the Proxies by the holders of such shares. Properly
executed Proxies which do not contain voting instructions will be voted FOR
approval and adoption of the Merger Agreement. Any shareholder of Bayport who
abstains from voting and all broker non-votes will be counted for purposes of
determining whether a quorum exists. An abstention or broker non-vote has the
same effect as a vote against the Merger.
If any other matters are properly presented for consideration at the
Meeting, the persons named in the Proxy and acting thereunder will have
discretion to vote on such matters in accordance with their judgment.
REVOCABILITY OF PROXIES
The grant of a Proxy does not preclude a shareholder from voting in person
or otherwise revoking a Proxy. Attendance at the Meeting will not in and of
itself constitute revocation of a Proxy. A Proxy may be revoked at
20
<PAGE>
any time before its exercise by filing with the Secretary of Bayport, 4000
Hollywood Boulevard, Suite 695-S, Hollywood, Florida 32021, an instrument of
revocation or a duly executed proxy bearing a later date, or by attendance at
the Meeting and voting in person.
SOLICITATION OF PROXIES
Bayport will bear the cost of the solicitation of Proxies from its
shareholders. In addition to solicitation by mail, directors, officers and
employees of Bayport may solicit Proxies from shareholders by telephone,
telecopy or telegram or in person. Such persons soliciting Proxies will not be
additionally compensated, but will be reimbursed for reasonable out-of-pocket
expenses incurred in connection with such solicitation. Bayport will reimburse
brokerage firms, nominees, fiduciaries and other custodians for the cost of
forwarding solicitation materials to the beneficial owners of shares held of
record by them.
SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
FOLLOWING THE EFFECTIVE DATE OF THE MERGER, BAYPORT'S SHAREHOLDERS WILL BE
PROVIDED WITH INSTRUCTIONS AND A LETTER OF TRANSMITTAL RELATING TO THE
EXCHANGE OF THEIR STOCK CERTIFICATES.
THE MERGER
The terms of the Merger are set forth in the Merger Agreement which is
attached to this Proxy Statement/Prospectus as Annex 1 and incorporated herein
by reference. The description of the Merger Agreement contained in the Proxy
Statement/Prospectus does not purport to be complete and is qualified in its
entirety by reference to the Merger Agreement. All shareholders are urged to
read the Merger Agreement in its entirety.
GENERAL DESCRIPTION
The Merger Agreement provides for a business combination between Landry's
and Bayport in which a wholly-owned subsidiary of Landry's would be merged
with and into Bayport in a transaction intended to qualify as a tax-free
reorganization for federal income tax purposes and as a pooling-of-interests
for accounting purposes. As a result of the Merger, Bayport will become a
wholly-owned subsidiary of Landry's.
EFFECTIVE DATE OF THE MERGER
The Merger will become effective (the "Effective Date") upon the filing of
Articles of Merger (the "Articles of Merger") with the Florida Department of
State. The Articles of Merger will be filed as promptly as practicable after
the approval by Bayport's shareholders has been obtained and all other
conditions to the Merger have been satisfied or waived. It is presently
expected that the Merger will be consummated during the third quarter of 1996,
or as soon thereafter as such conditions are satisfied.
BACKGROUND OF THE MERGER
The terms and conditions of the Merger were determined through arm's-length
negotiations between the managements and Boards of Directors of Landry's and
Bayport. In determining the definitive terms of the Merger Agreement, numerous
factors were considered by the Boards of Directors of Landry's and Bayport.
See "Reasons for the Merger" below. The following is a brief discussion of
those negotiations and certain related events.
In October 1995, representatives of Bayport, Alex. Brown and Landry's met at
a restaurant industry conference. Shortly, thereafter, after Landry's executed
a confidentiality agreement, Landry's was provided with information regarding
Bayport and expressed an interest in acquiring Bayport. At the time, the
management of Bayport determined not to proceed further with the negotiations
and discussions were terminated.
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In the fall of 1995, Bayport's management and Board had determined that in
order for it to continue its restaurant expansion program, it would need to
raise additional equity capital and that it should proceed to raise that
capital and continue as an independent company. In order to obtain the capital
required for its restaurant expansion program, Bayport entered into an
agreement with an investment banking firm, which firm agreed to use its best
efforts to locate the necessary funding. At the time, Bayport was assured by
this investment banking firm that the funding would be available to Bayport by
no later than the end of February 1996. On the assumption that the required
funding would be available on or before that date, Bayport actively continued
its restaurant expansion program during the fall and winter of 1995 and into
the winter of 1996.
By March 1996, Bayport required the additional funding to meet its current
construction draws relating to its restaurants then under construction and had
received term sheets from two potential funding sources, each of which had
expressed an interest in investing in Bayport subject to the completion of due
diligence and the execution of definitive documents. In each such case, the
proposals called for an investment in Bayport in return for subordinated debt
of Bayport convertible into Bayport Common Stock at a significant discount to
the then market price of the Bayport Common Stock. Bayport's management
believed that the completion of either of these financing proposals would be
extremely dilutive to Bayport's existing shareholders. They also believed that
it would take between 30 and 90 days to complete these financing transactions
possibly placing Bayport in a position in which it would likely not be able to
meet its current obligations to pay the construction costs of new restaurants
as they came due.
Additionally, Bayport's management and Board of Directors were aware that
Bayport's restaurant expansion program would likely require additional capital
and that in all likelihood additional funds would have to be raised in the
next 12-18 months to repay debt and for continued restaurant expansion. Based
upon Bayport's projected earnings per share over that period and due to the
factors set forth above, Bayport's management was concerned that there was a
reasonable likelihood that the price of Bayport Common Stock would not
increase significantly during this period, and that further infusions of
equity would continue to significantly dilute the interest of Bayport's
existing shareholders.
Based upon these factors, Bayport's management concluded that a merger with
Landry's, and the possibility that the combined entity would perform better
than an independent Bayport, was a more viable option.
On February 29, 1996, representatives of Bayport, Landry's and Landry's
financial advisors met to discuss possible terms of an acquisition of Bayport
by Landry's. On or about March 5, 1996, Landry's forwarded a letter to Bayport
indicating a continuing interest in pursuing a transaction and suggesting a
stock-for-stock merger to be accounted for on a pooling-of-interests basis.
On or about March 13, 1996, Bayport's management met with representatives of
Landry's to discuss further the possibility of a business combination.
Possible purchase prices were discussed, payable in shares of Landry's Common
Stock, but no definitive agreement was reached. Thereafter, during the last
week of March 1996, representatives of Landry's met with representatives of
Bayport at Bayport's offices in Hollywood, Florida. At that time, initial due
diligence was conducted by Landry's legal, accounting and financial advisors.
Discussions also continued regarding a possible price arrangement.
On or about March 25, 1996, Bayport received a term sheet from Landry's. The
exchange ratio proposed in the term sheet was .2777 shares of Landry's Common
Stock for each share of Bayport Common Stock. Bayport's Board met on March 26,
1996 to consider the offer and directed management to proceed to negotiate
definitive merger agreements with Landry's.
During the first week of April, Landry's conducted an extensive due
diligence on Bayport. As part of its due diligence investigation, Landry's
reviewed Bayport's current financial position in connection with construction
of four restaurants and Bayport's projections for the restaurants to be opened
during 1996 and 1997. Landry's management took a more conservative view of
these projections than the view being taken by Bayport's management. Landry's
also recognized that as part of the proposed transaction, it would have to
guarantee Bayport's repayment of loans which Bayport would need to obtain in
order to meet its current obligations relating to its restaurant expansion
program (something not previously contemplated by Landry's). Landry's
concluded that as a result of having to guarantee this loan, it would have to
bear the risk of being a creditor of Bayport if the Merger was not completed.
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Based upon these factors, Landry's revised their offer downward. Landry's
revised proposal was that they acquire Bayport on a share-for-share exchange
ratio of .2222 shares of Landry's Common Stock for each share of Bayport
Common Stock outstanding, as well as Landry's assumption of all of the
obligations under the Bayport Preferred Stock, the Bayport Options and the
Bayport Warrants.
When this revised offer was communicated to Bayport, its management
discussed the new proposal with members of Bayport's Board. Although a Board
meeting was not held to consider the revised offer, it was the determination
of Bayport's management, after consultation with members of its Board, that
the revised proposal continued to be a better alternative for Bayport's
shareholders than completing a financing on the terms available.
Commencing on or about April 8, 1996, representatives of Bayport, their
legal and financial advisors, met continuously with representatives of
Landry's, their legal and financial advisors, to conduct due diligence, to
negotiate the terms of the Merger and to prepare a definitive agreement and
plan of merger. Representatives of Bayport and Landry's also met with
Bayport's lenders and negotiated the terms of the Loan. At that time, it was
determined that Landry's would fund the Loans to Bayport, as opposed to
guaranteeing their repayment.
After significant discussions, and in view of these factors, as well as the
current price of Landry's Common Stock, Landry's requested initially that the
Exchange Ratio be adjusted to .2105 and thereafter, required a further
adjustment if the price of Landry's Common Stock exceeded $22 per share. In
light of this request, Bayport requested that a floor be placed on the
Exchange Ratio, and thereafter it was agreed that there would be an adjustment
in the Exchange Ratio if the price of Landry's Common Stock went below $15 per
share. Landry's also requested that there be an adjustment in the Exchange
Ratio if the estimated costs to complete the four Bayport restaurants
currently under construction, and, calculated separately, certain pre-opening
costs relating to such designated restaurants, exceeded the amount stipulated
by the parties.
Landry's also committed to provide Bayport with the $11.0 million of interim
funding required so that Bayport could meet its obligations to pay restaurant
construction costs relating to the four restaurants currently under
construction. Landry's is obligated to loan such funds to Bayport even if the
Merger Agreement is terminated. See "Interim Funding Arrangement."
At a meeting on April 16, 1996, the Board of Directors of Landry's approved
the Merger Agreement and the Loan. At a meeting on April 18, 1996, the Board
of Directors of Bayport met to consider the proposed terms of the Merger and a
draft of the Merger Agreement, as well as the proposed interim funding
arrangement. At that time, the Board of Directors gave approval to the Merger
and the Loan and authorized Bayport's senior management to negotiate the final
terms of the Merger and the Loan and to execute and deliver the definitive
Merger Agreement and Loan Agreement on behalf of Bayport. In making each of
their respective decisions, the Boards of Directors received opinions of their
financial advisors as to the fairness of the transaction from a financial
point of view.
The Merger Agreement and the Loan Agreement were thereafter executed and
delivered on April 18, 1996. The Merger and the Loan were publicly announced
on April 19, 1996.
REASONS FOR THE MERGER
Joint Reasons for the Merger
Based on their respective experiences and internal analyses of the current
environment of the restaurant industry, Landry's and Bayport's Boards of
Directors have concluded that there is an excellent opportunity for a well-
capitalized seafood restaurant company to grow significantly in future years.
Although there are only a few casual dining seafood restaurant companies
operating in the United States, the Landry's and Bayport Boards believe that
the Merger is an optimal way to accomplish the goal of the combined entity
becoming a national seafood restaurant operator. Economies of scale in
purchasing, consumer research and other marketing activities, real estate and
construction, etc. can contribute to operating efficiencies. Taking advantage
of these economies
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of scale while maintaining the integrity of each individual concept will
maximize the success of the combined entity. The Boards also believe that a
large, multi-concept, seafood restaurant company will be able to more easily
attract and retain highly qualified management and restaurant employees,
because larger and more diverse and complex operations result in a larger
number and greater variety of management positions, thus affording more
opportunity for employee advancement. The Boards also believe that the casual
dining niche will continue to be the most attractive part of the full service
restaurant industry and that a merged Landry's and Bayport will create a
company that will be poised to take advantage of increasing trends toward
casual seafood dining.
The respective Boards believe that the following strategic objectives will
be met by the combination.
(1) Increasing the number and geographical diversity of the restaurant
operations by each company through the creation of a combined company which
will operate in a more diverse geographic area and attract a more diverse
clientele.
(2) Strengthening the management and restaurant operations of both companies
by taking advantage of the skills and experience of each company which are not
shared by the other.
(3) Leveraging the size of the combined company to achieve efficiencies and
economies of scale in purchasing, marketing, real estate development and
capital formation.
Landry's Reasons for the Merger
At a meeting held on April 16, 1996, Landry's Board of Directors determined
that the Merger was advisable and in the best interest of Landry's
stockholders and approved the Merger Agreement. Landry's Board of Directors
believes that the Merger provides an opportunity to create a more diversified
restaurant company in the casual dining industry and of sufficient size to be
one of the major companies in the seafood restaurant business.
In approving the Merger, Landry's Board of Directors considered the joint
reasons discussed above and a number of others facts including:
(1) The Merger will create a combined company that should help achieve the
strategic goals established by Landry's to benefit from anticipated trends in
the restaurant industry.
(2) The complementary business of Landry's and Bayport including their
respective operating philosophies (such as strong customer focus, heavy
investment in employee and management training, and striving to improve unit
economics in their restaurants) will provide significant opportunities for
growth by the combined company.
(3) The Merger is expected to be treated as a pooling-of-interests
transaction for accounting purposes, as a result of which no goodwill will be
recognized.
(4) Bayport's operating history, reputation for quality food and service,
and experienced loyal management team are attractive to Landry's.
(5) The financial and operational resources of the combined company will
afford the opportunity for the acceleration of Landry's development of new
geographic markets.
(6) The opinion of Montgomery Securities that as of April 16, 1996, the
Exchange Ratio to be paid by Landry's in the Merger was fair, from a financial
point of view, to Landry's.
The Landry's board believes that the Merger will not change the nature of
the business in which stockholders have invested, but will provide for that
investment to be in a larger, more efficient, more competitive enterprise than
either Landry's or Bayport, as separate companies, prior to the Merger. By
combining with another restaurant company with a similar focus on seafood,
customer satisfaction, and a commitment to growth, Landry's is remaining true
to its ideals and the interests of its stockholders, customers and employees.
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In evaluating the acceptability of the proposed number of shares of Landry's
Common Stock to be issued in the Merger, Landry's Board of Directors
considered (1) the terms of the Merger Agreement; (2) that the number of
shares had been negotiated at arms-length between senior management and
certain directors of both companies and their respective advisors; and (3) the
fairness opinion of Montgomery Securities.
Landry's Board of Directors also considered a number of potentially negative
factors in its deliberations concerning the Merger including (1) the charges
typically expected to be incurred in connection with the Merger, primarily in
the quarter the Merger closes; (2) the risk that the market price of Landry's
Common Stock may be adversely affected by the public announcement of the
Merger; (3) the risks involved in the integration of the two companies; (4)
the risk that the anticipated benefits of the Merger might not be fully
realized; (5) the risks associated with the possibility of material adverse
changes to Bayport's business; and (6) the possibility that the Merger might
not be consummated and the corresponding potential adverse effect of such a
result on the market price of Landry's Common Stock. In the view of Landry's
Board of Directors these considerations were not sufficient, either
individually or collectively, to outweigh the potential advantages of the
Merger.
In view of the wide variety of factors, both positive and negative,
considered by Landry's Board of Directors Landry's Board of Directors did not
find it practicable to quantify or otherwise assign relative weights to the
specific factors considered.
Bayport's Reasons for the Merger and Board Recommendations
At a meeting held on April 18, 1996, the Bayport Board determined that the
Merger was advisable and in the best interest of the Bayport shareholders and
approved the Merger Agreement. In reaching its conclusion to approve the
Merger Agreement and to recommend adoption of the Merger Agreement by the
Bayport shareholders, the Bayport Board considered the previously prescribed
joint reasons and a number of other factors, including, without limitation,
the following:
(1) The arms-length negotiation with Landry's, which resulted in the
agreement by Landry's to acquire all outstanding Bayport Common Stock, Bayport
Preferred Stock and to assume outstanding warrants and options in exchange for
Landry's Common Stock which presented approximately a 10.5% premium (assuming
an Exchange Ratio of .2105 shares) over the closing price for the Bayport
Common Stock immediately prior to the announcement of the Merger Agreement;
(2) The historical and current financial conditions, results of operations,
prospects and businesses of Bayport and Landry's before and after giving
effect to the Merger;
(3) Current market conditions, historical market prices, and trading
information for both the Bayport Common Stock and the Landry's Common Stock
and the expectation that the substantially higher average daily trading volume
of Landry's Common Stock will create better liquidity of investment for
Bayport's shareholders;
(4) The structure of the Merger, which provides that the Bayport
shareholders will receive an equity interest in a larger, more diversified
restaurant company with a stronger balance sheet and cash flow and with depth
of management personnel and training resources;
(5) The expectation that the Merger will afford the Bayport shareholders the
opportunity to receive Landry's Common Stock in a tax-free transaction;
(6) The relative probability of completion, attractiveness and timing of
various other financing alternatives available to Bayport and the belief that
being part of Landry's was more likely to provide greater value to Bayport's
shareholders than remaining independent;
(7) The expectation that the Merger will be beneficial to the employees of
Bayport;
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(8) The expectation that the public offering which Landry's proposes to make
prior to the consummation of the Merger will allow Landry's to have available
the capital required to continue the growth of the combined entity through
1997;
(9) The opinion of Alex. Brown that as of the date of the Merger Agreement,
the consideration to be received by the Bayport shareholders in the Merger was
fair, from a financial point of view, to such shareholders (in considering the
opinion of Alex. Brown, the Bayport Board was aware of, among other things,
the terms of Alex. Brown's engagement by Bayport and the fees payable to Alex.
Brown thereunder; see "Opinion of Bayport's Financial Advisor");
(10) The expectation that the complementary businesses of Landry's and
Bayport, including their respective operating philosophies and diverse
concepts, will provide significant growth opportunities after consummation of
the Merger; and
(11) The belief that Landry's experienced and loyal management team,
reputation in the restaurant industry and investment community, and history of
profitable operations while maintaining a high growth rate will be beneficial
to the shareholders of Bayport.
Bayport's Board also considered a number of potentially negative factors in
its deliberations concerning the Merger, including: (i) the loss of control
over the future operations of Bayport following the Merger; (ii) the risk,
prior to or following consummation of the Merger, that the trading price of
Landry's Common Stock could drop below its level at the time the Merger was
negotiated; and (iii) the potential commercial repercussions to Bayport in the
event the Merger was not consummated, including, but not limited to, the need
to locate and obtain new capital within 120 days after the termination of the
Merger Agreement in order to repay the Loan and the possible payment of the
Termination Fee.
Bayport's Board of Directors also considered the fact that no auction
process had been conducted with respect to a potential sale of Bayport.
However, the Board was aware, after consultation with Alex. Brown, that two
other large restaurant companies had previously been contacted by Alex. Brown
about the possibility of acquiring Bayport and neither had expressed an
interest in making such an acquisition. The Bayport Board of Directors also
received indications from Alex. Brown that a merger with Landry's, from a
financial perspective, would be beneficial to Bayport and its shareholders.
Based on all these factors and notwithstanding the fact that no auction was
conducted, the Board of Directors determined that the Merger was in the best
interests of Bayport and its shareholders, as it would provide Bayport's
shareholders with the opportunity to continue to participate in an entity
strengthened through a business combination with Landry's.
Bayport's Board of Directors was also aware that the provisions of the
Merger Agreement prohibiting Bayport from soliciting acquisition proposals or,
subject to the Board's fiduciary duties to Bayport's shareholders, negotiating
with a potential acquiror of Bayport, including the provisions for the payment
of the Termination Fee, could be a deterrent to other parties who might be
interested in a business combination with Bayport. However, Landry's required
such provisions as a condition to executing the Merger Agreement.
In view of the wide variety of factors considered in connection with its
evaluations of the Merger Agreement, the Bayport Board did not find it
practicable to, and did not, quantify or otherwise attempt to assign relative
weights to specific factors considered in reaching its determination. Rather,
the Bayport Board viewed its position and recommendations as being based on
the totality of the information presented to and considered by it. Individual
members of the Bayport Board may have given different weight to different
factors.
THE BAYPORT BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS IN THE BEST
INTEREST OF THE BAYPORT SHAREHOLDERS AND RECOMMENDS THAT THE BAYPORT
SHAREHOLDERS VOTE FOR THE MERGER.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of Bayport's Board of Directors with
respect to the Merger Agreement and the transactions contemplated thereby,
shareholders should be aware that certain members of the management and the
Board of Directors of Bayport have certain interests in the Merger in addition
to the interests of Bayport's shareholders generally.
Termination of Employment Agreements. Under their existing employment
agreements with Bayport, upon a change of control of Bayport, both Mr. Connor,
the Chairman and Chief Executive Officer of Bayport, and Mr. Korenbaum, the
President, Chief Operating and Financial Officer and Treasurer of Bayport, are
entitled to terminate their employment with Bayport and receive, in addition
to their annual salary through the date of termination, the greater of (i) the
sum of $1.5 million (in the case of Mr. Connor) and $1.0 million (in the case
of Mr. Korenbaum), or (ii) the aggregate balance remaining under their
employment agreement, without having to fulfill their obligations or perform
their duties thereunder. Further, in the event of a change of control, all
unvested stock options and bonus payments previously paid and granted to each
of Messrs. Connor and Korenbaum immediately vest.
In conjunction with the execution of the Merger Agreement, Landry's entered
into a Contract Termination/Consulting Agreement with Mr. Connor, (the "Connor
Agreement"). Under the Connor Agreement, Landry's has agreed, upon the
consummation of the Merger, to pay Mr. Connor $1.8 million in consideration
for a release by Mr. Connor of any entitlements under his existing employment
agreement with Bayport. Further, subsequent to the Closing, Mr. Connor will
provide consulting services to Landry's for which he will be paid a consulting
fee of $10,000 per month for a period of two years from the Closing Date,
subject to certain conditions. For a period of three years following the
Effective Date, Mr. Connor has agreed that he will not be involved in the
seafood restaurant business in the United States in any manner.
Landry's has also entered into a Contract Termination Agreement with Mr.
Korenbaum (the "Korenbaum Agreement"). Under the Korenbaum Agreement, Landry's
has agreed, upon consummation of the Merger, to pay Mr. Korenbaum $1.3 million
in consideration for a release by Mr. Korenbaum of any entitlements under his
existing employment agreement with Bayport. Further, subsequent to the
Closing, Mr. Korenbaum will provide consulting services to Landry's for which
he will receive $10,000 per month for a period of two years following the
Closing Date, subject to certain conditions. For a period of three years
following the Effective Date, Mr. Korenbaum has agreed that he will not be
involved in the seafood restaurant business in the United States in any
manner.
Additionally, subsequent to the Closing, Mr. Korenbaum will become an at-
will employee of Landry's at a monthly salary of $14,583 and will receive
options to purchase 100,000 shares of Landry's Common Stock vesting equally
over a three-year period. The exercise price will be the price of a share of
Landry's Common Stock on the Closing, and the first installment will vest on
the termination of Mr. Korenbaum's employment if such termination is prior to
the scheduled vesting date of such installment. Mr. Korenbaum's employment
with Landry's is terminable at will by either party.
Acceleration of Options. At the Closing, all outstanding options and
warrants to purchase shares of Bayport Common Stock will be converted into the
right to purchase that number of shares of Landry's Common Stock as the holder
of such would have been entitled to receive had they exercised such options or
warrants prior to consummation of the Merger. All options to purchase shares
of Bayport Common Stock issued pursuant to Bayport's 1993 and 1995 Stock
Option Plans (which will be converted into options to purchase shares of
Landry's Common Stock, as described above) will, in accordance with the terms
of the plans, immediately vest at the Closing. All other options and warrants
to purchase shares of Bayport Common Stock will continue to vest in accordance
with the vesting schedules contained in the agreements evidencing such options
and warrants.
Interest of Director. Thomas Hitchner, a director of Bayport, is a principal
of Alex. Brown, the financial advisor to Bayport in connection with the
Merger. Upon the completion of the Merger, Alex. Brown will receive certain
fees, as more particularly set forth in "Opinion of Bayport's Financial
Advisor." Alex. Brown is also the holder of a warrant to purchase 267,336
shares of Bayport Common Stock at an exercise price of $3.81 per share.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes certain federal income tax
considerations relevant to Bayport and Bayport's shareholders relating to the
Merger. This discussion does not deal with all federal income tax
considerations that may be relevant to particular Bayport shareholders in
light of their particular circumstances, such as dealers in securities,
shareholders who do not hold their Bayport Common Stock as capital assets,
foreign persons, tax exempt entities or persons who acquired their shares in
compensatory transactions. Furthermore, no foreign, state or local tax
considerations are addressed herein. ACCORDINGLY, BAYPORT'S SHAREHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF
THE MERGER TO THEM, INCLUDING THE APPLICABILITY OF FEDERAL, STATE, LOCAL AND
FOREIGN TAX LAWS.
In the opinion of Akerman, Senterfitt & Eidson, P.A., counsel to Bayport,
the material tax consequences to Bayport and Bayport's shareholders of the
Merger are:
Nature of the Merger. The Merger should constitute a reorganization as
defined in Section 368(a)(1)(A) of the Code if carried out in the manner set
forth in the Merger Agreement.
Consequences to Landry's, Sub and Bayport. No gain or loss will be
recognized by Landry's, the Sub or Bayport upon Landry's issuance of Landry's
Common Stock and Landry's Preferred Stock in exchange for Bayport Common Stock
and Bayport Preferred Stock and the transfer by operation of law of Sub's
assets and liabilities to Bayport upon consummation of the Merger.
Consequences to Bayport's Shareholders. No gain or loss will be recognized
by Bayport's shareholders upon their receipt in the Merger of Landry's Common
Stock and Landry's Preferred Stock (except to the extent of cash received in
lieu of a fractional share of Landry's Common Stock or Landry's Preferred
Stock).
The aggregate tax basis of Landry's Common Stock or Landry's Preferred
Stock, as the case may be, received in the Merger (including any fractional
share deemed received) will be the same as the aggregate tax basis of Bayport
Common Stock or Bayport Preferred Stock, as the case may be, surrendered in
exchange therefor, reduced by any amount of basis allocable to fractional
share interests for which cash is received.
The holding period, for federal income tax purposes, of each share of
Landry's Common Stock or Landry's Preferred Stock, as the case may be,
received by each of Bayport's shareholders in the Merger will include the
period during which Bayport shareholder held his or her Bayport securities
surrendered in exchange therefor, provided that Bayport Common Stock or
Bayport Preferred Stock is held as a capital asset at the time of the Merger.
Cash payments in lieu of a fractional share should be treated as if a
fractional share of Landry's Common Stock or Landry's Preferred Stock, as the
case may be, had been issued in the Merger and then redeemed by Landry's. A
shareholder receiving such cash should generally recognize gain or loss upon
such payment equal to the difference (if any) between the amount of cash
received and such shareholder's basis in the fractional share.
Even if the Merger qualifies as a reorganization, a recipient of shares of
Landry's Common Stock or Landry's Preferred Stock, as the case may be, could
recognize income to the extent that such shares were considered by the Service
to be received in exchange for consideration other than Bayport Common Stock
or Bayport Preferred Stock, such as dividends accrued on such Bayport Common
Stock or Bayport Preferred Stock. All or a portion of such income may be
taxable as ordinary income.
Limitations on Opinion and Discussion. The opinion of Akerman, Senterfitt &
Eidson, P.A. will not bind the Service and the Service is, therefore, not
precluded from successfully asserting a contrary opinion. In addition, as
noted earlier, the tax opinion is subject to certain assumptions, including,
but not limited to, the truth and accuracy of certain representations made by
Landry's and Bayport. Of particular importance are certain assumptions and
representations relating to the Code's "continuity of interest" requirement.
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In order to satisfy the continuity of interest requirement, Bayport's
shareholders must not, pursuant to a plan or intent existing at or prior to
the Effective Date, dispose of or transfer an aggregate amount of (i) their
Bayport Common Stock or Bayport Preferred Stock in anticipation of the Merger;
and (ii) Landry's Common Stock or Landry's Preferred Stock to be received in
the Merger (including, for this purpose, fractional shares of Landry's Common
Stock or Landry's Preferred Stock which are treated as if redeemed for cash)
(collectively, "Planned Dispositions"), such that Bayport's shareholders, as a
group, would no longer have a meaningful continuity of equity interest in
Bayport's business being conducted by Landry's after the Merger. Bayport's
shareholders will generally be regarded as having a meaningful continuity of
equity interest as long as the number of shares of Landry's Common Stock or
Landry's Preferred Stock received in the Merger less the number of shares
subject to Planned Dispositions (if any) represents, in the aggregate, a
continuing interest through stock ownership in Landry's that is equal in
value, as of the Effective Date, to more than 50% of the value of all of the
formerly outstanding Bayport Common Stock and Bayport Preferred Stock as of
the same date.
No party to the Merger has requested a ruling from the Service with respect
to the federal income tax consequences of the Merger. Bayport's shareholders
should be aware that the opinion rendered by Akerman, Senterfitt & Eidson,
P.A. will not be binding on the Service and that there can be no assurance
that future legislative, judicial or administrative changes or interpretations
will not adversely affect the accuracy of the statements and conclusions set
forth herein. Any such changes or interpretations could be applied retroactive
and could affect the tax consequences of the Merger.
A successful challenge by the Service to the tax-free reorganization status
of the Merger (as a result of a failure of the continuity of interest
requirement or otherwise) would result in Bayport's shareholders recognizing
taxable gain or loss with respect to each share of Bayport Common Stock and
Bayport Preferred Stock surrendered equal to the difference between the
shareholder's basis in such share and the fair market value, as of the
Effective Date, of the Landry's Common Stock or Landry's Preferred Stock, as
the case may be, and any cash in lieu of fractional shares received in
exchange therefor. In such event, a shareholder's aggregate basis in Landry's
Common Stock or Landry's Preferred Stock so received would equal its fair
market value at the Effective Date and the holding period for such stock would
begin on the day after the Effective Date.
FEDERAL SECURITIES LAWS CONSEQUENCES
The Landry's Common Stock issuable in connection with the Merger and the
Landry's Common Stock issuable upon conversion of the Landry's Preferred Stock
issuable in connection with the Merger has been registered under the
Securities Act. Accordingly, there will be no restrictions upon the resale or
transfer of such shares by Bayport's shareholders, except for those
shareholders who are deemed to be "affiliates" of Bayport as such term is used
in either Rule 144 and Rule 145 under the Securities Act.
With respect to those shareholders who may be deemed to be affiliates of
Bayport, Rule 144 and Rule 145 place certain restrictions on the transfer of
the shares of Landry's Common Stock and Landry's Preferred Stock which may be
received by them pursuant to the Merger. Persons who may be deemed to be
affiliates of Bayport generally include individuals who, or entities which,
directly or indirectly, control, are controlled by or are under common control
with Bayport and may include certain officers and directors of Bayport as well
as principal shareholders of Bayport. This Proxy Statement/Prospectus does not
cover resales of Landry's Common Stock received by any person who may be
deemed to be an affiliate of Bayport.
REGULATORY APPROVAL
Certain acquisition transactions such as the Merger are reviewed by the
Antitrust Division of the Department of Justice (the "Antitrust Division") or
the Federal Trade Commission (the "FTC") to determine whether such
transactions comply with applicable antitrust laws. Under the provisions of
the HSR Act, the Merger could not be consummated until certain information has
been furnished to the Antitrust Division and the FTC and certain waiting
period requirements of the HSR Act have been satisfied. Information will be
filed with the Antitrust
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Division and the FTC under the HSR Act by Landry's and Bayport. The required
waiting period under the HSR Act will expire at 11:59 p.m. thirty days after
such filing, unless extended by request from the FTC for additional
information or documentary material or unless early termination of the waiting
period is granted. Landry's and Bayport have each requested early termination
of the waiting period. At any time before or after consummation of the Merger,
the Antitrust Division or the FTC could take such action under the antitrust
laws as it deems necessary or desirable in the public interest, including
seeking to enjoin the consummation of the Merger or seeking the divestiture of
substantial assets of Landry's or Bayport. Based upon discussions that
Landry's and Bayport have had with the FTC, there can be no assurance that
additional information or documentary material will not be requested. At any
time before or after the Effective Time, and notwithstanding that the HSR Act
waiting period has expired, any state could take such action under the
antitrust laws as it deems necessary or desirable. Such action could include
seeking to enjoin the consummation of the Merger or seeking divestiture of
businesses of Landry's or Bayport by Landry's. Private parties may also seek
to take legal action under the antitrust laws under certain circumstances.
ACCOUNTING TREATMENT
Landry's and Bayport believe that the Merger will qualify as a pooling-of-
interests for accounting and financial reporting purposes, and have been so
advised by their respective independent public accountants. Consummation of
the Merger is conditioned upon, among other things, the receipt of a letter by
Landry's and Bayport of a letter from Landry's independent public accountant
stating that Landry's is eligible to be a party to a merger accounted for by
the pooling-of-interests method of accounting and that based on their
knowledge of the transactions contemplated by the Merger Agreement and
inquiries into the affairs of Bayport, they are not aware of any matters which
prohibit the use of pooling-of-interests accounting in connection with the
Merger, and the further receipt by Landry's and Bayport of a letter from Grant
Thornton LLP, Bayport's independent accountants, that Bayport qualifies as an
entity that may be party to a business combination for which the pooling-of-
interests method of accounting would be available. Landry's and Bayport have
each received such letters.
Under this method of accounting, the assets and liabilities of Landry's and
Bayport will be combined based on the respective carrying values of the
accounts in the historical financial statements of each entity. Results of
operations of the combined company will include income of Landry's and Bayport
for the entire fiscal period in which the combination occurs and the
historical results of operations of the separate companies for fiscal years
prior to the Merger will be combined and reported as the results of operations
of the combined company.
It is anticipated that upon consummation of the Merger, the fiscal year of
the consolidated company will be the calendar year. Accordingly, historical
statements of the consolidated company will include the financial information
of Bayport on a calendar basis (although Bayport previously reported its
financial information as of the last Monday of each calendar year).
DELISTING; EXCHANGE ACT REGISTRATION
Following completion of the Merger, it is expected that the Bayport Common
Stock will cease being traded on the Nasdaq National Market and that Bayport's
registration under the Exchange Act will be terminated. Accordingly, Bayport
will no longer be required to file periodic reports with the Commission.
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OPINION OF BAYPORT'S FINANCIAL ADVISOR
Alex. Brown was engaged by Bayport pursuant to an engagement letter dated
March 27, 1996 (the "Engagement Letter") to act as its financial advisor in
connection with the Merger. In connection with such engagement, Bayport
requested Alex. Brown to render an opinion as to the fairness, from a
financial point of view, of the Exchange Ratio to Bayport's shareholders.
Alex. Brown is an internationally recognized investment banking firm and, as
a customary part of its investment banking activities, is regularly engaged in
the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, private placements, and valuations
for estate, corporate and other purposes. Alex. Brown has previously rendered
investment banking services to Bayport, including acting as agent for
Bayport's 1993 private placement of shares of Bayport Preferred Stock. In
connection with rendering these services, Alex. Brown received as part of its
compensation, and continues to hold, warrants to purchase 267,336 shares of
Bayport Common Stock at a price of $3.81 per share. In addition, an employee
of Alex. Brown is a member of Bayport's Board of Directors. Alex. Brown
regularly publishes research reports regarding the restaurant industry and the
businesses and securities of publicly-owned companies in that industry.
Bayport's Board of Directors selected Alex. Brown as its financial advisor
because of Alex. Brown's expertise reputation and familiarity with the
restaurant industry, and because of Alex. Brown's familiarity with Bayport.
Pursuant to the terms of the Engagement Letter, Alex. Brown will, upon
consummation of the Merger, be entitled to aggregate fees from Bayport of
$750,000, of which $200,000 became payable upon delivery of the April 18, 1996
opinion described herein by Alex. Brown. Bayport has also agreed to indemnify
Alex. Brown against certain liabilities, including liabilities under the
federal securities laws, and, if the Merger is not consummated, to reimburse
Alex. Brown for reasonable expenses incurred by Alex. Brown, including
reasonable fees and disbursements of Alex. Brown's counsel (provided that such
expenses shall not exceed $40,000).
On April 18, 1996, in connection with the evaluation of the Merger by
Bayport's Board of Directors, Alex. Brown made a presentation to Bayport's
Board of Directors with respect to the Merger. In addition, Alex. Brown
rendered its oral opinion, subsequently confirmed in writing, that, as of the
date of such opinion, and subject to certain assumptions, factors and
limitations set forth in such written opinion as described below, the Exchange
Ratio was fair, from a financial point of view. In connection with this
presentation, Bayport's Board of Directors reviewed written materials
analyzing the Merger, which had been distributed by Alex. Brown. Alex. Brown
confirmed its April 18, 1996 oral opinion by the delivery of its written
opinion of the same date, and subsequently confirmed and brought forward in
writing its opinion to May , 1996.
THE FULL TEXT OF THE MAY , 1996 CONFIRMING WRITTEN OPINION OF ALEX. BROWN,
WHICH SETS FORTH THE ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED, OTHER
MATTERS CONSIDERED AND THE LIMITATIONS ON THE REVIEW UNDERTAKEN IN ARRIVING AT
SUCH OPINION, IS INCLUDED AS ANNEX "B" TO THIS PROXY STATEMENT/PROSPECTUS. THE
APRIL 18, 1996 OPINION WAS SUBSTANTIALLY THE SAME AS THE OPINION INCLUDED
HEREWITH. BAYPORT SHAREHOLDERS ARE URGED TO READ SUCH OPINION CAREFULLY IN ITS
ENTIRETY. THE SUMMARY OF THE OPINION OF ALEX. BROWN SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF SUCH OPINION.
Alex. Brown's opinion addresses only the fairness, from a financial point of
view, to the shareholders of Bayport of the Exchange Ratio and does not
constitute a recommendation to any Bayport shareholder as to how to vote with
respect to the Merger.
Alex. Brown advised Bayport with respect to elements of the negotiations
between Bayport and Landry's pursuant to which the Exchange Ratio was
determined, but the final Exchange Ratio was determined through arm's-length
negotiations between Bayport and Landry's and was not determined by Alex.
Brown. Alex. Brown did make limited inquiries to seek interest from other
potential acquirors with respect to the acquisition of Bayport or any of its
constituent businesses as an alternative to the Merger; however, none of such
parties expressed interest in pursuing such a transaction.
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In rendering its opinion, Alex. Brown reviewed certain financial information
concerning Bayport and Landry's and certain internal financial and other
information with respect to the business, operations and prospects of each of
Bayport and Landry's furnished by the respective managements of Bayport and
Landry's to Alex. Brown. Alex. Brown also held discussions with members of the
senior management of each of Landry's and Bayport regarding the business and
prospects of their respective companies. In addition Alex. Brown (a) reviewed
the reported price and trading activity for Bayport Common Stock and Landry's
Common Stock; (b) compared certain financial and stock market information for
Bayport and Landry's with similar information for certain selected companies
whose securities are publicly traded; (c) reviewed the financial terms of
certain business combinations which it deemed relevant in whole or in part to
the Merger; and (d) performed such other studies and analyses and considered
such other factors as it deemed appropriate for the purpose of rendering the
opinion. Alex. Brown also reviewed the Merger Agreement. Alex. Brown also
discussed with management of Bayport and considered the anticipated adverse
effect on Bayport which Bayport believes would occur if Bayport were not to
effect the Merger as a result of, among other things, Bayport's current
liquidity shortfall.
In connection with its review, Alex. Brown assumed and relied upon the
accuracy and completeness of the financial and other information used by it in
arriving at its opinion, without independent verification, and Alex. Brown did
not assume any responsibility to independently verify any of such information.
Alex. Brown further relied upon the assurances of the respective managements
of Landry's and Bayport that such managements were not aware of any facts that
would make such information inaccurate or misleading in any material respect.
Alex. Brown also relied upon the statements and information provided by
Landry's and Bayport managements concerning the business, operations and
strategic benefits and implications of the Merger. With respect to the
information relating to the prospects of Bayport and Landry's provided to
Alex. Brown by the managements of Landry's and Bayport, Alex. Brown assumed
that such information was reasonably prepared on bases reflecting the best
available estimates and judgments of such managements as to the likely future
financial performance of Bayport and Landry's. Alex. Brown expressed no view
as to such information or the assumptions on which it was based. In arriving
at its opinion, Alex. Brown conducted limited physical inspections of certain
properties and facilities of Landry's and Bayport, but did not conduct
physical inspections of most of such properties or facilities, and did not
make or obtain, or assume any responsibility for making or obtaining, any
evaluation or appraisals of the assets or liabilities of Landry's or Bayport.
Alex. Brown's opinion was based upon market, economic and other conditions as
they existed and could be evaluated as of the date thereof. Alex. Brown's
opinion does not constitute an opinion or imply any conclusion as to the
likely trading range for Landry's Common Stock following consummation of the
Merger. Alex. Brown's opinion also does not address Bayport's underlying
business decision to effect the Merger or constitute a recommendation to any
Bayport shareholder as to how to vote with respect to the Merger.
In connection with its presentation to Bayport's Board of Directors on April
18, 1996 and its opinion of the same date, Alex. Brown performed certain
financial and comparative analyses, including those described below. The
preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances, and therefore
such an opinion is not readily susceptible to summary description.
Furthermore, in arriving at its fairness opinion, Alex. Brown did not
attribute any particular weight to any analysis or factor considered by it,
but rather made qualitative judgments as to the significance and relevance of
each analysis and factor. Accordingly, Alex. Brown believes that its analyses
must be considered as a whole and that considering any portions of such
analyses and of the factors considered, without considering all analyses and
factors, could create a misleading or incomplete view of the process
underlying the opinion. In its analyses, Alex. Brown made numerous assumptions
with respect to industry performance, general business and economic conditions
and other matters, many of which are beyond the control of Landry's and
Bayport. Any estimates contained in Alex. Brown's analyses are not necessarily
indicative of actual values or predictive of future results or values, which
may be significantly more or less favorable than as set forth therein.
In connection with the delivery of its written opinion dated April 18, 1996,
Alex. Brown utilized substantially the same types of analysis as it utilized
in providing its oral opinion.
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Analysis of Selected Publicly Traded Companies. Alex. Brown reviewed
selected financial data of Bayport and Landry's with certain data from
selected publicly traded companies engaged in the restaurant business.
Specifically, Alex. Brown separated companies into two groups -- companies
with less than $200 million adjusted market capitalization (Chart House,
Cooker, O'Charley's, Quantum, and Uno Restaurants Corp.; referred to
collectively as the "Smaller Companies"), and companies with greater than $200
million adjusted market capitalization (Applebee's International, Brinker
International, Cheesecake Factory, Cracker Barrel, Darden, Lone Star
Steakhouse, and Outback Steakhouse; referred to collectively as the "Larger
Companies"). Alex. Brown reviewed the companies within each group with regards
to (a) equity market value, (b) adjusted market value (equity market value
plus long term debt less cash and equivalents), (c) projected growth rates and
(d) operating performance and book value. Within each group, Alex. Brown also
calculated ratios on a latest twelve month ("LTM") trailing basis, including
adjusted market value as a multiple of revenues, earnings before interest,
taxes, depreciation and amortization ("EBITDA") and earnings before interest
and taxes ("EBIT") and stock price as a multiple of book value and earnings
per share ("EPS") and for projected calendar year 1996 EPS and 1997 EPS
estimates derived from available research reports.
Within the group of Smaller Companies, an analysis of the multiples of
adjusted market value to revenues yielded multiples of 1.0x and 3.3x for
Bayport (stand-alone) and Landry's, respectively, a transaction multiple of
1.2x for Bayport based on an exchange ratio of .2105 and a $20 share price for
Landry's Common Stock and multiples ranging from 0.6x to 0.9x, with a mean of
0.7x for the group, excluding Cooker. An analysis of the multiples of adjusted
market value to EBITDA yielded multiples of 13.8x and 18.8x for Bayport
(stand-alone) and Landry's, respectively, a transaction multiple of 15.9x for
Bayport based on an exchange ratio of .2105 and a $20 share price for Landry's
Common Stock and multiples ranging from 4.9x to 10.9x, with a mean of 7.3x for
the group, excluding Quantum. An analysis of the multiples of adjusted market
value to EBIT yielded multiples of 21.3x and 26.9x for Bayport (stand-alone)
and Landry's, respectively, a transaction multiple of 24.5x for Bayport based
on an exchange ratio of .2105 and a $20 share price for Landry's Common Stock
and multiples ranging from 9.7x to 16.4x, with a mean of 12.6x for the group,
excluding Quantum. An analysis of the multiples of stock price to EPS yielded
multiples of 24.6x and 36.4x for Bayport (stand-alone) and Landry's,
respectively, a transaction multiple of 30.1x for Bayport based on an exchange
ratio of .2105 and a $20 share price for Landry's Common Stock and multiples
ranging from 14.0x to 25.2x, with a mean of 19.6x for the group, excluding
Quantum. An analysis of the multiples of stock price to book value yielded
multiples of 1.5x and 3.0x for Bayport (stand-alone) and Landry's,
respectively, a transaction multiple of 1.9x for Bayport based on an exchange
ratio of .2105 and a $20 share price for Landry's Common Stock and multiples
ranging from 0.7x to 2.8x, with a mean of 1.7x for the group, excluding
Quantum. An analysis of the multiples of stock price to estimated 1996 EPS
yielded multiples of 13.2x and 28.2x for Bayport (stand-alone) and Landry's,
respectively, a transaction multiple of 16.2x using available research reports
for Bayport and based on an exchange ratio of .2105 and a $20 share price for
Landry's Common Stock and multiples ranging from 9.2x to 18.7x, with a mean of
14.3x for the group. An analysis of the multiples of stock price to estimated
1997 EPS yielded multiples of 8.4x and 22.0x for Bayport (stand-alone) and
Landry's, respectively, a transaction multiple that was not meaningful for
Bayport based on an exchange ratio of .2105 and a $20 share price for Landry's
Common Stock and multiples ranging from 7.7x to 14.0x, with a mean of 10.8x
for the group.
Within the group of Larger Companies, an analysis of the multiples of
adjusted market value to revenues yielded multiples of 1.0x and 3.3x for
Bayport (stand-alone) and Landry's, respectively, a transaction multiple of
1.2x for Bayport based on an exchange ratio of .2105 and a $20 share price for
Landry's Common Stock and multiples ranging from 1.2x to 4.0x, with a mean of
2.4x for the group, excluding Darden. An analysis of the multiples of adjusted
market value to EBITDA yielded multiples of 13.8x and 18.8x for Bayport
(stand-alone) and Landry's, respectively, a transaction multiple of 15.9x for
Bayport based on an exchange ratio of .2105 and a $20 share price for Landry's
Common Stock and multiples ranging from 8.4x to 17.5x, with a mean of 13.2x
for the group, excluding Darden. An analysis of the multiples of adjusted
market value to EBIT yielded multiples of 21.4x and 26.9x for Bayport (stand-
alone) and Landry's, respectively, a transaction multiple of 24.5x for Bayport
based on an exchange ratio of .2105 and a $20 share price for Landry's Common
Stock and multiples ranging from 13.3x to 27.4x, with a mean of 18.1x for the
group, excluding Darden. An analysis of the multiples
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of stock price to EPS yielded multiples of 24.6x and 36.4x for Bayport (stand-
alone) and Landry's, respectively, a transaction multiple of 30.1x for Bayport
based on an exchange ratio of .2105 and a $20 share price for Landry's Common
Stock and multiples ranging from 20.0x to 34.6x, with a mean of 27.6x for the
group, excluding Darden. An analysis of the multiples of stock price to book
value yielded multiples of 1.5x and 3.0x for Bayport (stand-alone) and
Landry's, respectively, a transaction multiple of 1.9x for Bayport based on an
exchange ratio of .2105 and a $20 share price for Landry's Common Stock and
multiples ranging from 2.4x to 4.4x, with a mean of 3.5x for the group,
excluding Darden and Outback Steakhouse. An analysis of the multiples of stock
price to estimated 1996 EPS yielded multiples of 13.2x and 28.2x for Bayport
(stand-alone) and Landry's, respectively, a transaction multiple of 16.2x for
Bayport based on an exchange ratio of .2105 and a $20 share price for Landry's
Common Stock and multiples ranging from 17.2x to 27.8x, with a mean of 22.4x
for the group, excluding Darden. An analysis of the multiples of stock price
to estimated 1997 EPS yielded multiples of 8.4x and 22.0x for Bayport (stand-
alone) and Landry's, respectively, a transaction multiple that was not
meaningful for Bayport based on an exchange ratio of .2105 and a $20 share
price for Landry's Common Stock and multiples ranging from 15.2x to 20.3x,
with a mean of 17.9x for the group, excluding Darden.
Analysis of Selected Merger Transactions. Alex. Brown reviewed selected
financial data, including (where available) equity purchase price as a
multiple of LTM net income and book value, and aggregate purchase price
(equity purchase price adjusted for long term debt) as a multiple of LTM
revenue, LTM EBITDA and LTM EBIT, for seven selected transactions. Alex. Brown
selected these transactions, which included both stock and cash transactions,
because they involved companies in the restaurant industry. Additionally,
Alex. Brown considered, but excluded, twelve other merger and acquisitions
transactions in the restaurant industry because (a) sufficient financial data
with respect to the transaction was not available, (b) the transaction size
was not appropriate or (c) the size of the target company was not appropriate.
Alex. Brown reviewed the range of multiples and noted that the multiple of
aggregate purchase price to LTM revenue was 1.2x for Bayport (based on an
exchange ratio of .2105 and a $20 share price for Landry's Common Stock) and
ranged from 0.6x to 1.9x, with a mean of 1.3x for the selected transactions;
the multiple of aggregate purchase price to LTM EBITDA was 15.9x for Bayport
(based on an exchange ratio of .2105 and a $20 share price for Landry's Common
Stock) and ranged from 6.0x to 16.0x with a mean of 9.9x for the selected
transactions; the multiple of aggregate purchase price to LTM EBIT was 24.5x
for Bayport (based on an exchange ratio of .2105 and a $20 share price for
Landry's Common Stock) and ranged from 8.7x to 22.9x (excluding two
transactions), with a mean of 15.1x for the selected transactions (excluding
such transactions); the multiple of equity purchase price to LTM net income
was 30.1x for Bayport (based on an exchange ratio of .2105 and a $20 share
price for Landry's Common Stock) and ranged from 10.6x to 38.1x, with a mean
of 24.3x for the selected transactions; and the multiple of equity purchase
price to book value was 1.9x for Bayport (based on an exchange ratio of .2105
and a $20 share price for Landry's Common Stock) and ranged from 1.0x to 5.1x
(excluding one transaction), with a mean of 2.8x for the selected transactions
(excluding such transaction).
Discounted Cashflow Analysis. Alex. Brown performed a discounted cashflow
analysis for Bayport on a standalone basis, based on five year projections
using financial information provided by management and assuming Bayport's
ability to raise $10 million through the sale of between 3.33 million and 5.0
million additional shares of Bayport Common Stock. Alex. Brown calculated the
terminal values at the end of five year period by applying multiples ranging
from 6.5 to 7.5 times to the terminal year's projected EBITDA. These terminal
multiples reflected Alex. Brown's judgment as to an appropriate range, based
on its assessment of the trading multiples of LTM EBITDA for the selected
companies. The cashflow streams and terminal values were then discounted using
discount rates, based on Alex. Brown's judgement, ranging from 13% to 15%.
This analysis resulted in a range of per share values for Bayport of $2.17 to
$3.35.
Pro Forma Contribution Analysis. Alex. Brown analyzed the contribution of
each of Landry's and Bayport to the pro forma 1995 operating results and
projected pro forma 1996 operating results of a combined Landry's and Bayport.
Specifically, Alex. Brown calculated that Bayport would have contributed 34.0%
of pro forma 1995 revenues, 17.7% of pro forma 1995 EBITDA, 16.6% of pro forma
1995 EBIT and 13.2% of pro forma 1995 net income. For projected 1996, Alex.
Brown calculated that Bayport would contribute 33.9% of pro forma revenues,
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16.1% of pro forma EBITDA, 15.5% of pro forma EBIT and 7.1% of pro forma net
income. Alex. Brown then calculated that the shares of Landry's Common Stock
received by Bayport's shareholders pursuant to the Merger Agreement would
represent 13.0% of the pro forma ownership of Bayport and Landry's on a
combined basis.
Historical Price and Volume Analysis. Alex. Brown also reviewed the daily
closing price and volume of Bayport Common Stock and Landry's Common Stock
during the period from January 1, 1993 through April 12, 1996. Alex. Brown
noted that the trading price of Bayport Common Stock had fallen during the
several months immediately prior to April 12, 1996, and was nearing the lowest
trading price that Bayport had seen over the last three years. Conversely,
Alex. Brown noted that Landry's Common Stock had risen during the preceding
several months immediately prior to April 12, 1996, and was nearing its all-
time highest trading price. Alex. Brown also noted that since August 1994,
Bayport Common Stock had underperformed Landry's Common Stock, the Standard &
Poors 500 index and the index of all common stocks quoted on the National
Association of Securities Dealers, Inc. Automated Quotation System.
Premium Analysis. Alex. Brown analyzed the premium of the Merger price
(assuming a .2105 exchange ratio and $20 Landry's Common Stock price) to the
market price per share of Bayport Common Stock at various days from April 12,
1995. Alex. Brown noted that the Merger price represented a 22.4% premium to
the market price per share on April 12, 1996, a 14.1% premium to the market
price per share one week earlier and a 16.0% premium to the market price per
share one month earlier. Alex. Brown noted that the average premiums paid, or
to be paid, in announced merger and acquisition transactions in 1995 and 1996
were 28.0%, 32.1%, and 38.8%, respectively, to the target's market price one
day prior to announcement, one week prior to announcement and one month prior
to announcement, respectively, (27.1%, 30.9% and 40.4%, respectively, when
reviewing solely stock transactions).
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OPINION OF LANDRY'S FINANCIAL ADVISOR
Pursuant to an engagement letter dated March 25, 1996, Landry's retained
Montgomery Securities ("Montgomery") to act as its financial advisor in
connection with the consideration by Landry's of the Merger. Montgomery is a
nationally recognized firm and, as part of its investment banking activities,
is regularly engaged in the valuation of businesses and their securities in
connection with merger transactions and other types of acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other
purposes. Landry's selected Montgomery as its financial advisor on the basis
of Montgomery's experience and expertise in transactions similar to the
Merger, its reputation in the restaurant and investment communities and its
existing investment banking relationship with Landry's.
On April 16, 1996, Montgomery delivered its oral opinion, subsequently
confirmed in writing as of that date, that the consideration to be paid by
Landry's in the Merger is fair to Landry's, from a financial point of view, as
of that date. The amount of such consideration was determined pursuant to
negotiations between Landry's and Bayport and not pursuant to recommendations
of Montgomery. No limitations were imposed by Landry's on Montgomery with
respect to the investigations made or procedures followed in rendering its
opinion.
THE FULL TEXT OF MONTGOMERY'S WRITTEN OPINION TO LANDRY'S IS ATTACHED HERETO
AS ANNEX "C" AND IS INCORPORATED HEREIN BY REFERENCE. THE FOLLOWING SUMMARY OF
MONTGOMERY'S OPINION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
TEXT OF THE OPINION. MONTGOMERY'S OPINION IS DIRECTED TO THE BOARD OF
DIRECTORS OF LANDRY'S AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
STOCKHOLDER OF LANDRY'S OR AS TO HOW SUCH SHAREHOLDER SHOULD VOTE WITH RESPECT
TO THE MERGER. IN FURNISHING ITS OPINION, MONTGOMERY DID NOT ADMIT THAT IT IS
AN EXPERT WITHIN THE MEANING OF THE TERM "EXPERT" AS USED IN THE SECURITIES
ACT, OR THAT ITS OPINION CONSTITUTES A REPORT OR VALUATION WITHIN THE MEANING
OF SECTION 11 OF THE SECURITIES ACT, AND STATEMENTS TO SUCH EFFECT ARE
INCLUDED IN THE TEXT OF MONTGOMERY'S WRITTEN OPINION.
In connection with its opinion, Montgomery, among other things: (i) reviewed
publicly available financial and other data with respect to Bayport and
Landry's, including the consolidated financial statements for recent years and
interim periods to December 31, 1995 and certain other relevant financial and
operating data relating to Bayport and Landry's made available to Montgomery
from published sources and from the internal records of Bayport and Landry's;
(ii) reviewed the Merger Agreement; (iii) reviewed certain publicly available
information concerning the trading of, and the trading market for, the Bayport
Common Stock and Landry's Common Stock; (iv) compared Bayport and Landry's
from a financial point of view with certain other companies in the restaurant
industry which Montgomery deemed to be relevant; (v) considered the financial
terms, to the extent publicly available, of selected recent business
combinations of companies in the restaurant industry which Montgomery deemed
to be comparable, in whole or in part, to the Merger; (vi) reviewed and
discussed with representatives of the management of Bayport and Landry's
certain information of a business and financial nature regarding Bayport and
Landry's, furnished to Montgomery by them, including financial forecasts and
related assumptions of Bayport and Landry's; (vii) made inquiries regarding
and discussed the Merger and the Merger Agreement and other matters related
thereto with Landry's counsel; and (viii) performed such other analyses and
examinations as Montgomery deemed appropriate.
In connection with its review, Montgomery did not assume any obligation
independently to verify the foregoing information and relied on such
information being accurate and complete in all material respects. With respect
to the financial forecasts for Bayport and Landry's provided to Montgomery by
their respective managements, Montgomery assumed for purposes of its opinion,
with the consent of Landry's, that the forecasts have been reasonably prepared
on bases reflecting the best available estimates and judgments of their
respective managements at the time of preparation as to the future financial
performance of Bayport and Landry's and that they provide a reasonable basis
upon which Montgomery can form its opinion. Neither Landry's nor Bayport
publicly discloses internal management forecasts of the type provided to
Montgomery by their respective managements in connection with Montgomery's
review of the Merger. Such forecasts were not prepared with a view toward
public disclosure. In addition, such forecasts were based upon numerous
variables and assumptions
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<PAGE>
that are inherently uncertain, including, without limitation, factors related
to general economic and competitive conditions. Accordingly, actual results
could vary significantly from those set forth in such forecasts. Montgomery
has assumed no liability for such forecasts. Montgomery also assumed that
there have been no material changes in Bayport's or Landry's assets, financial
condition, results of operations, business or prospects since the respective
dates of their last financial statements made available to Montgomery.
Montgomery relied on advice of counsel and independent accountants to Landry's
as to all legal and financial reporting matters with respect to Landry's, the
Merger and the Merger Agreement. Montgomery assumed that the Merger will be
consummated in a manner that complies in all respects with the applicable
provisions of the Securities Act, the Exchange Act and all other applicable
federal and state statutes, rules and regulations. In addition, Montgomery did
not assume responsibility for making an independent evaluation, appraisal or
physical inspection of any of the assets or liabilities (contingent or
otherwise) of Bayport or Landry's, nor was Montgomery furnished with any such
appraisals. Finally, Montgomery's opinion is based on economic, monetary and
market and other conditions as in effect on, and the information made
available to Montgomery as of, April 16, 1996. Accordingly, although
subsequent developments may affect Montgomery's opinion, Montgomery did not
assume any obligation to update, revise or reaffirm its opinion.
Montgomery also assumed, with Landry's consent, that the Merger will be
consummated in accordance with the terms described in the Merger Agreement,
without any further amendments thereto, and without waiver by Landry's of any
of the conditions to its obligations thereunder.
Set forth below is a brief summary of the report presented by Montgomery to
Landry's Board of Directors on April 16, 1996 in connection with its opinion.
COMPARABLE COMPANY ANALYSIS. Using public and other available information,
Montgomery calculated the imputed per share value of Bayport's common stock
based on the multiples of 1995 earnings before interest, taxes, depreciation
and amortization ("EBITDA"), 1995 earnings before interest and taxes ("EBIT"),
and 1996 run rate EBITDA at which the following nine publicly traded
restaurant companies were trading on April 12, 1996: Applebee's; Apple South;
Cheesecake Factory; Landry's; Lone Star Steakhouse; Outback Steakhouse;
Brinker International; Cracker Barrel; and Quantum Restaurant Group. The April
12, 1996 stock prices of the above companies reflected the following mean
multiples: 13.9x 1995 EBIDTA; 20.2x 1995 EBIT; and 11.1x 1996 run rate EBITDA.
Montgomery applied the foregoing mean multiples to the applicable statistics
for Bayport, made applicable adjustments to reflect Bayport's net debt
(defined as debt minus cash) at December 31, 1995, and applied a control
premium to the resulting totals. This analysis indicated an imputed equity
value (defined as aggregate value minus net debt) of Bayport of between $43.8
million and $76.5 million, or between $4.30 and $7.51 per share.
COMPARABLE TRANSACTIONS ANALYSIS. Montgomery reviewed the consideration paid
in the following acquisitions of comparable restaurant companies that have
been announced since 1992 (target/acquiror): Brinker International (Grady's
Division)/Quality Dining, Inc.; DF&R Restaurants/Apple South; Marcus
Corp./Apple South; Innovative Restaurant Concepts/Applebee's'; Pub Ventures of
New England/Applebee's; On The Border Cafes/Brinker International; St. Louis
Bread Co./Au Bon Pain Co., Inc.; Chevy's/PepsiCo, Inc.; and Uno Restaurant
Corp./Morrison Restaurants, Inc. Montgomery analyzed the consideration in such
transactions as a multiple of the target companies' revenues and EBITDA for
the latest twelve months ("LTM Revenues" and "LTM EBITDA"). Such analysis
yielded mean and median multiples of 1.4x and 1.3x LTM Revenues and 12.5x and
12.4x LTM EBITDA. Montgomery then applied the foregoing multiples to Bayport's
revenues and EBITDA for 1995, and subtracted Bayport's net debt as of December
31, 1995. This analysis indicated an imputed equity value of Bayport of
between $43.1 million and $58.5 million, or between $4.23 and $5.75 per share.
PREMIUMS PAID ANALYSIS. Montgomery reviewed the consideration paid in the
following thirty-two acquisitions of between $30 and $150 million that have
occurred since 1994 and were accounted for by the acquiror as a pooling-of-
interests (target/acquiror): On The Border Cafes Inc./Brinker International;
Radiation Systems, Inc./COMSAT Corp.; Interspec Inc./Advanced Technology Labs;
FoxMeyer Corp./National Intergroup
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Inc.; Hi-Tech Pharmacal Co. Inc./Circa Pharmaceuticals Inc.; Serving Software
Inc./HBO & Co.; SuperMac Technology Inc./Radius Inc.;Sunward Technologies
Inc./Read-Rite Corp.; Gates/FA Distributing Inc./Arrow Electronics Inc.;
Babbages/Software Etc Stores Inc.; ReLife Inc./HealthSouth Rehabilitation;
Glycomed Inc./Ligand Pharmaceutical Inc.; Petstuff Inc./PetSmart Inc.;
Wavefront Technologies Inc./Silicon Graphics Inc.; Schwitzer Inc./Kuhlman
Corp.; Trinzic Corp./PLATINUM Technology Inc.; Mid-South Insurance Co./Coastal
Healthcare Group Inc.; Cabot Medical Corp./Circon Corp.; Data Switch
Corp./General Signal Corp.; Insituform Mid-America Inc./Insituform
Technologies Inc.; MedChem Products Inc./CR Bard Inc.; Saber Software
Inc./McAfee Associates Inc.; CII Financial Inc./Sierra Health Services Inc.;
Bolle America Inc./Benson Eyecare Corp.; Helian Health Group Inc./TheraTx
Inc.; American Electronic Components/Echlin Inc.; Facelifters Home Systems
Inc./AMRE Inc.; Pacific Rehab & Sports Medicine/Horizon.CMS Healthcare Corp.;
Firefox Communications Inc./FTP Software Inc.; TGV Software Inc./Cisco Systems
Inc.; DiMark Inc./Harte-Hanks Communications Inc.; and Medical Innovations
Inc./Horizon/CMS Healthcare Corp. Landry's has advised Montgomery that it
intends to account for the Merger as a pooling-of-interests.
Montgomery calculated the premiums paid in the foregoing transactions over
the applicable stock price of the target company one day, one week and four
weeks prior to the announcement of the acquisition offer, and then calculated
the mean and median of those premiums. Montgomery then applied the median
premiums so derived to Bayport's closing stock prices on April 12, 1996
($3.44), April 5, 1996 ($3.69) and March 15, 1996 ($3.63), which were,
respectively, the trading days one week, two weeks and five weeks prior to the
announcement of the Merger. This analysis indicated an imputed equity value of
Bayport of between $43.4 million and $52.3 million, or between $4.26 and $5.14
per share.
No other company or transaction used in the comparable transactions analysis
or the premiums paid analysis as a comparison is identical to Bayport or the
Merger. Accordingly, an analysis of the results of the foregoing is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies and other factors that could affect the public trading value of the
companies to which Bayport and the Merger are being compared.
DISCOUNTED CASH FLOW ANALYSIS. Montgomery applied a discounted cash flow
analysis of Bayport's financial forecasts for 1996 through 2000 prepared on
the basis of assumptions from Bayport's and Landry's management, as adjusted
by certain cost savings that Landry's management has advised Montgomery it
expects to realize as a result of the Merger. In conducting such analysis,
Montgomery assumed that Bayport would perform in accordance with such
forecasts and that such expected cost savings would be realized. First,
Montgomery calculated the estimated future streams of free cash flows that
Bayport would produce through 2000. Second, Montgomery estimated Bayport's
aggregate value at the end of 2000 by applying multiples ranging from 9.0x to
11.0x to Bayport's estimated EBITDA in 2000. Such cash flow streams and
aggregate values were discounted to present values using discount rates
ranging from 21.0% to 23.0%, chosen to reflect different assumptions regarding
Landry's cost of capital, and such present values were then reduced by
Bayport's net debt as of December 31, 1995. This analysis indicated an imputed
equity value of Bayport of between $41.4 million and $63.9 million, or between
$4.07 and $6.28 per share.
While the foregoing summary describes all analyses and examinations that
Montgomery deems material to its opinion, it is not a comprehensive
description of all analyses and examinations actually conducted by Montgomery.
The preparation of a fairness opinion necessarily is not susceptible to
partial analysis or summary description. Montgomery believes that its analyses
and the summary set forth above must be considered as a whole and that
selecting portions of its analyses and of the factors considered, without
considering all analyses and factors, would create an incomplete view of the
process underlying the analyses set forth in its presentation to Landry's.
Accordingly, the ranges of valuations resulting from any particular analysis
described above should not be taken to be Montgomery's view of the actual
value of Bayport.
In performing its analyses, Montgomery made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, many of which are beyond the control of Landry's and Bayport.
The analyses performed by Montgomery are not necessarily indicative of actual
values or actual
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<PAGE>
future results, which may be significantly more or less favorable than those
suggested by such analyses. Such analyses were prepared solely as part of
Montgomery's analysis of the fairness of the Merger to Landry's and were
provided to Landry's in connection with the delivery of Montgomery's opinion.
The analyses do not purport to be appraisals or to reflect the prices at which
a company might actually be sold or the prices at which any securities may
trade at any time in the future. Montgomery used in its analyses various
projections of future performance prepared by the managements of Landry's and
Bayport. The projections are based on numerous variables and assumptions which
are inherently unpredictable and must be considered not certain of occurrence
as projected. Accordingly, actual results could vary significantly from those
set forth in such projections.
As described above, Montgomery's opinion and presentation to Landry's were
among the many factors taken into consideration by Landry's in making its
determination to approve the Merger.
Pursuant to a letter agreement dated March 25, 1996, as amended, (the
"Engagement Letter"), Landry's engaged Montgomery to act as its financial
advisor in connection with the Merger. The Engagement Letter provides for
Landry's to pay Montgomery a fee equal to 3.0% of the first $10 million of the
total consideration paid in the Merger (the "Consideration"), 2.0% of the
second $10 million of Consideration, and 1.0% of any Consideration in excess
of $20 million. The fee is not conditioned on the outcome of Montgomery's
opinion or whether or not such opinion was deemed to be favorable for any
party's purposes. Landry's became obligated to pay $100,000 of the fee upon
delivery of Montgomery's opinion, and will be obligated to pay the remainder
of the fee on the earlier to occur of (i) consummation of the Merger and (ii)
June 30, 1997. Prior to its amendment, the Engagement Letter provided that the
remainder of Montgomery's fee would be paid contingent upon consummation of
the Merger. The Engagement Letter also calls for Landry's to reimburse
Montgomery for its reasonable out-of-pocket expenses in excess of $15,000.
Pursuant to a separate letter agreement, Landry's has agreed to indemnify
Montgomery, its affiliates, and their respective partners, directors,
officers, agents, consultants, employees and controlling persons against
certain liabilities, including liabilities under the federal securities laws.
In the ordinary course of its business, Montgomery actively trades the
equity securities of Landry's for its own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities. Montgomery also has acted as an underwriter in connection
with offerings of securities of Landry's and performed various investment
banking services for Landry's.
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<PAGE>
THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, a copy of which is attached as Annex A to the Proxy
Statement/Prospectus and is incorporated herein by reference. The description
of the Merger Agreement contained in the Proxy Statement/Prospectus does not
purport to be complete and is qualified in its entirety by reference to the
Merger Agreement. All shareholders are urged to read the Merger Agreement in
its entirety.
GENERAL
The Boards of Directors of Landry's and Bayport, meeting separately, each
authorized the execution and performance of the Merger Agreement.
EFFECTIVE TIME; EFFECT OF MERGER
If the Merger Agreement is approved and adopted by the requisite vote of the
shareholders of Bayport, and all other conditions to the obligations of the
parties to consummate the Merger are satisfied or waived, the Merger will
become effective upon the appropriate filings being delivered to the
Department of State of the State of Florida (the "Effective Time"). The
Effective Time is expected to occur by , 1996 (the "Effective
Date"). As of the Effective Time, the Sub will be merged with and into
Bayport, with Bayport continuing as the surviving corporation and a wholly-
owned subsidiary of Landry's. The separate corporate existence of the Sub will
terminate upon consummation of the Merger, and each share of common stock of
the Sub shall be converted into one share of Bayport Common Stock (as the
surviving corporation). In addition, Landry's will issue to the holders of
Bayport Common Stock the number of shares of Landry's Common Stock which is
equal to the Exchange Ratio multiplied by the number of outstanding shares of
Bayport Common Stock, subject to adjustment. In addition, outstanding shares
of Bayport Preferred Stock shall be converted into the number of shares of
Landry's Preferred Stock which is equal to the Exchange Ratio, as adjusted,
and divided by four, multiplied by the number of outstanding shares of Bayport
Preferred Stock. After the Merger, shares of Landry's Preferred Stock will
convert into shares of Landry's Common Stock on a one-for-one basis, subject
to certain anti-dilution adjustments.
CLOSING DATE
The Closing will take place, assuming satisfaction or waiver of each of the
conditions set forth in the Merger Agreement, on a date to be mutually agreed
upon between the parties, which shall be no earlier than (i) at Landry's sole
discretion thirty-one Business Days after the receipt by Landry's of the
proceeds of an underwritten public offering including any additional proceeds
that might be received as a result of sales to cover over-allotments of
Landry's Common Stock of at least 3,500,000 shares, and (ii) the satisfaction
of the conditions set forth in the Merger Agreement, or if no date has been
agreed to, on any date specified by one party to the other upon five days'
notice following satisfaction of the conditions set forth in clauses (i) and
(ii) above; provided that the limitation set forth in clause (i) if not
earlier satisfied shall be deemed satisfied as of December 21, 1996, whether
or not it is actually completed. The date on which the Closing takes place is
referred to as the Closing Date.
ARTICLES OF MERGER
Following the Closing, Sub and Bayport will cause Articles of Merger to be
prepared, executed, delivered and filed with the Florida Department of State,
upon which the Merger will become effective.
CONVERSION OF SHARES
Under the terms of the Merger Agreement, Landry's will issue to the holders
of Bayport Common Stock the number of shares of Landry's Common Stock which is
equal to the Exchange Ratio multiplied by the number of outstanding shares of
Bayport Common Stock, subject to certain adjustments discussed below.
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<PAGE>
Based on 9,655,599 shares of Bayport Common Stock issued and outstanding on
May 6, 1996, Landry's will issue 2,032,503 shares of Landry's Common Stock,
subject to certain adjustments discussed below, to the holders of shares of
Bayport Common Stock. Cash will be paid in lieu of fractional shares of
Landry's Common Stock.
Shares of Bayport Preferred Stock are currently convertible into shares of
Bayport Common Stock at a ratio of four shares of Bayport Preferred Stock for
one share of Bayport Common Stock. Under the terms of the Merger Agreement,
outstanding shares of Bayport Preferred Stock shall be converted into the
number of shares of Landry's Preferred Stock which is equal to the Exchange
Ratio, as adjusted, and divided by four multiplied by the number of
outstanding shares of Bayport Preferred Stock. After the Merger, shares of
Landry's Preferred Stock will be convertible into shares of Landry's Common
Stock on a one-for-one basis. All other terms of the Landry's Preferred Stock
will be substantially identical to the terms of the Bayport Preferred Stock.
Based on 2,136,499 shares of Bayport Preferred Stock issued and outstanding on
May 6, 1996, Landry's will issue 112,433 shares of Landry's Preferred Stock
(each convertible into one share of Landry's Common Stock), subject to the
adjustments described below, to the holders of shares of Bayport Preferred
Stock.
The Exchange Ratio is subject to adjustment in the event the average of the
daily closing prices of a share of Landry's Common Stock on the Nasdaq
National Market as reported in The Wall Street Journal for the five
consecutive trading days that end on the second trading day prior to the
Closing Date (i) exceeds $22 per share, in which case the Exchange Ratio shall
be adjusted downward to equal $4.63 divided by the Average Market Price to
account for the increase in the share price of Landry's Common Stock; or (ii)
is less than $15 per share, in which case the Exchange Ratio shall be adjusted
upward to equal $3.16 divided by the Average Market Price to account for the
decrease in the share price of Landry's Common Stock. On the Record Date, the
Average Market Price was $ . If such Average Market Price was the same on
the Closing Date, the Exchange Ratio would be .
In addition, the Exchange Ratio is subject to a downward adjustment in the
event that Bayport's costs of completing construction of four restaurants
presently under construction exceed $13.0 million (the "Projected Construction
Costs") and/or if the pre-opening costs associated with such restaurants
exceed $1.65 million (the "Projected Pre-opening Costs"). In such event, the
Exchange Ratio will be adjusted to be equal to (i) if the Average Market Price
is between $15.00 and $22.00; an amount equal to .2105 minus the product of
(a) .0526 and (b) a ratio of such excess cost divided by the outstanding
Bayport Common Stock and Bayport Preferred Stock; (ii) if the Aggregate Market
Price is greater than $22.00, an amount equal to the quotient of (a) $4.63
minus the fraction determined by dividing such excess cost by the outstanding
Bayport Common Stock and Bayport Preferred Stock and (b) the Average Market
Price; and (iii) if the Average Market Price is less than $15.00, an amount
equal to the quotient of (a) $3.16 minus the fraction determined by dividing
such excess cost by the outstanding Bayport Common Stock and Bayport Preferred
Stock and (b) the Average Market Price.
As of this date, Bayport has estimated that its Projected Construction Costs
with respect to these four restaurants will be approximately $14.0 to $15.0
million and that its Projected Pre-opening Costs relating to these four
restaurants will be approximately $1.65 million. The final determination of
the Projected Construction Costs and the Projected Pre-opening Costs will be
made shortly before the Closing, at a time when the four restaurants are
expected to be open or significantly closer to completion. By way of example,
if the combined overage of the Projected Construction Costs and the Projected
Pre-opening Costs were to exceed their respective estimates by an aggregate of
$1.0 million, the Exchange Ratio would be reduced to .2060 (.2016 if the
combined overage was $2.0 million).
A VOTE TO APPROVE AND ADOPT THE MERGER AGREEMENT BY BAYPORT'S SHAREHOLDERS
WILL BE DEEMED APPROVAL OF THE EXCHANGE RATIO AND ANY ADJUSTMENTS THERETO.
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EXCHANGE OF SHARES
After the Effective Time, each record holder at the Effective Time of a
certificate or certificates theretofore representing shares of issued and
outstanding Bayport Common Stock and/or Bayport Preferred Stock will be
entitled, upon the surrender of such certificate or certificates to American
Stock Transfer & Trust Company (the "Exchange Agent"), promptly to receive in
exchange therefor a certificate or certificates representing the number of
whole shares of Landry's Common Stock and/or Landry's Preferred Stock into
which the shares of Bayport Common Stock and/or Bayport Preferred Stock
previously represented by the certificate or certificates so surrendered shall
have been automatically converted. From and after the Effective Time, until
surrendered, each certificate theretofore representing shares of Bayport
Common Stock and/or Bayport Preferred Stock will be deemed for all corporate
purposes, other than payment of dividends, to evidence the ownership of the
number of whole shares of Landry's Common Stock and/or Landry's Preferred
Stock into which such shares of Bayport Common Stock and/or Bayport Preferred
Stock shall have been converted. Unless and until any such certificates shall
be so surrendered, the holder of such certificates will not be entitled to
receive payment of any dividends on such shares of Landry's Common Stock
and/or Landry's Preferred Stock payable to the holders thereof after the
Effective Time. Upon the surrender of certificates previously representing
shares of Bayport Common Stock and/or Bayport Preferred Stock, the holder
thereof will receive certificates representing the number of whole shares of
Landry's Common Stock and/or Landry's Preferred Stock to which such holder
shall be entitled and the amount of any dividends or other distributions that
shall have been payable to holders of record of Landry's Common Stock and/or
Landry's Preferred Stock on or after the Effective Time with respect to such
shares of Landry's Common Stock and/or Landry's Preferred Stock, without
interest. Any dividends payable to holders of record of Landry's Common Stock
and/or Landry's Preferred Stock as of any record date prior to the Effective
Time will not be payable to holders of certificates previously representing
Bayport Common Stock and/or Bayport Preferred Stock.
No fractional shares of Landry's Common Stock or Landry's Preferred Stock
will be issued upon consummation of the Merger. In lieu thereof, each Bayport
shareholder who would otherwise be entitled to a fractional share will be paid
an amount of cash, without interest, equal to the value of such fractional
share.
STOCK OPTIONS AND WARRANTS
There are presently outstanding the following options and warrants to
purchase shares of Bayport Common Stock (the "Bayport Options" and the
"Bayport Warrants"):
<TABLE>
<CAPTION>
OUTSTANDING EXERCISE PRICE
----------- --------------
<S> <C> <C>
1993 Stock Option Plan........................ 163,750 $3.00 to $5.87
1995 Stock Option Plan........................ 437,500 $3.13 to $4.50
Other Stock Options........................... 1,510,250 $1.36 to $5.87
Series B Warrants............................. 363,605 $2.00
Series C Warrants............................. 60,625 $1.00
Alex. Brown Warrants.......................... 267,336 $3.81
</TABLE>
Under the Merger Agreement, each of such options will become an option to
purchase a number of whole shares of Landry's Common Stock equal to the number
of shares of Bayport Common Stock into which such Bayport Option is
exercisable immediately prior to the Effective Date multiplied by the Exchange
Ratio at an option exercise price determined by dividing the exercise price of
such option immediately prior to the Effective Date by the Exchange Ratio. In
accordance with Bayport's 1993 and 1995 Stock Option Plans, each Bayport
Option granted under either of such plans, whether or not then exercisable,
will automatically become fully vested and immediately exercisable upon
consummation of the Merger. Bayport Options granted under Bayport's 1985 Stock
Option Plan and Bayport Options granted outside of a Bayport plan will not
become fully vested and immediately exercisable upon consummation of the
Merger and will vest in accordance with their original terms. As of the
Effective Time, the provisions of Bayport's stock option plans providing for
issuance or grant of any of Bayport Common Stock will be deleted. The options
previously granted will remain subject to Bayport's stock
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option plans, with all actions to be taken under such plans by Bayport's Board
of Directors or a committee thereof, after the Effective Date, to be taken by
Landry's Board of Directors or a committee thereof.
At the Effective Date, Bayport Warrants will become warrants to purchase
Landry's Common Stock. Bayport Warrants will be assumed in accordance with
their terms and conditions. Each Bayport Warrant will, from and after the
Effective Date, evidence the right to purchase a number of shares of Landry's
Common Stock equal to the number of shares of Bayport Common Stock into which
such Bayport Warrant is exercisable immediately prior to the Effective Date
multiplied by the Exchange Ratio at an exercise price determined by dividing
the exercise price of such Bayport Warrant immediately prior to the Effective
Date by the Exchange Ratio. Landry's has agreed to register the shares of
Landry's Common Stock issuable upon exercise of the Bayport Warrants.
EXCHANGE AGENT
Landry's has authorized the Exchange Agent to exchange stock certificates
representing Bayport Common Stock and Bayport Preferred Stock, for stock
certificates representing Landry's Common Stock and Landry's Preferred Stock
and to pay cash in lieu of fractional shares that would otherwise be issued.
Promptly after the Effective Date, Landry's will reserve and make available to
the Exchange Agent certificates representing the number of whole shares of
Landry's Common Stock and Landry's Preferred Stock which the Exchange Agent
will, pursuant to irrevocable instructions received from Landry's, deliver to
holders of Bayport Common Stock and Bayport Preferred Stock.
As soon as practicable after the Effective Date, the Exchange Agent will
mail and otherwise make available to each record holder of Bayport Common
Stock or Bayport Preferred Stock who, as of the Effective Date, was a holder
of an outstanding certificate representing Bayport Common Stock or Bayport
Preferred Stock, a form of letter of transmittal (the "Letter of Transmittal")
and instructions for use in effecting the surrender of the certificates for
exchange and payment. Delivery will be effected and risk of loss and title to
the certificates will pass only upon proper delivery of the certificates
representing Bayport Common Stock or Bayport Preferred Stock. Upon surrender
to the Exchange Agent of a certificate, together with a duly executed Letter
of Transmittal, the holder of such certificate will be entitled to receive in
exchange therefor (i) one or more certificates as requested by the holder
representing that number of whole shares of Landry's Common Stock or Landry's
Preferred Stock, as the case may be, to which such holder will have become
entitled; and (ii) as to any fractional share of Landry's Common Stock or
Landry's Preferred Stock, as the case may be, a check representing such cash
equivalent. No interest will be paid or accrued on the cash payable upon
surrender of certificates.
Landry's will pay transfer or other taxes required by reason of the issuance
of a certificate representing shares of Landry's Common Stock or Landry's
Preferred Stock provided that such certificate is issued in the name of the
person in whose name the certificate surrendered in exchange therefor is
registered. The person surrendering such certificate shall pay any transfer or
other tax if the obligation to pay such tax under applicable law is solely
that of the shareholder or if payment of any such tax by Landry's otherwise
would cause the Merger to fail to qualify as a tax-free reorganization under
the Code. If any portion of the consideration to be received pursuant to the
Merger upon exchange of a certificate representing Bayport Common Stock or
Bayport Preferred Stock (whether a certificate representing shares of Landry's
Common Stock or Landry's Preferred Stock, as the case may be, or a check
representing cash for a fractional share) is to be issued or paid to a person
other than the person in whose name the certificate surrendered in exchange
therefor is registered, it will be a condition of such issuance and payment
that the certificate so surrendered be properly endorsed or otherwise be in
proper form for transfer and that the person requesting such exchange pay in
advance any transfer or other taxes required by reason of the issuance of a
certificate representing shares of Landry's Common Stock or Landry's Preferred
Stock, as the case may be, to such other person, or establish to the
satisfaction of the Exchange Agent that such tax has been paid or that no such
tax is applicable.
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In the case of any lost, mislaid, stolen or destroyed certificates, the
holder thereof may be required to deliver to Landry's a bond in such
reasonable sum as Landry's may direct as indemnity against any claim that may
be made against the Exchange Agent or Landry's with respect to the certificate
alleged to have been lost, mislaid, stolen or destroyed.
SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
FOLLOWING THE EFFECTIVE DATE OF THE MERGER, BAYPORT'S SHAREHOLDERS WILL BE
PROVIDED WITH A LETTER OF TRANSMITTAL AND INSTRUCTIONS RELATING TO THE
EXCHANGE OF THEIR STOCK CERTIFICATES.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties. The
representations and warranties of Landry's, with exceptions, relate to, among
other things: (a) Landry's and the Sub's organization and good standing; (b)
Landry's and the Sub's capitalization; (c) the due authorization by Landry's
and the Sub, and binding effect on each, of the Merger Agreement; (d) Landry's
and the Sub's general corporate power and authority; (e) the absence of
restrictions and conflicts with the Merger Agreement; (f) Landry's reports
filed with the Commission; (g) Landry's financial statements and records; (h)
there being no change since December 31, 1995, with respect to Landry's
corporate structure, governing documents, licensing or permitting necessary
for the operation of its business, employment arrangements or outstanding
securities (with certain exceptions); (i) that Landry's is in full compliance
with environmental laws and possesses all necessary permits; (j) Landry's
eligibility for pooling-of-interests accounting treatment; (k) employee
matters; (l) employee benefit plans; (m) litigation; (n) there being no
required vote of the Landry's stockholders for approval of the Merger
Agreement; (o) that Landry's employed no brokers or finders in connection with
the contemplated transactions except for Montgomery Securities; (p) Landry's
related party transactions; (q) Landry's compliance with laws; (r) tax
matters; (s) contracts; (t) properties and leases; and (u) the accuracy of the
information furnished to Bayport.
The representations and warranties of Bayport, with exceptions, relate to,
among other things: (a) Bayport's organization and good standing; (b) its
capitalization; (c) the due authorization by it and binding effect on it of
the Merger Agreement; (d) Bayport's corporate power and authority; (e) the
absence of restrictions and conflicts with the Merger Agreement; (f) Bayport's
reports filed with the Commission; (g) Bayport's financial statements and
records; (h) there being no material undisclosed liabilities; (i) the absence
of certain changes with respect to Bayport since December 25, 1995, including
the absence of any material adverse change in Bayport's business, corporate
structure, indebtedness, capital expenditures, accounting principles or
outstanding securities; (j) Bayport's tax returns and payment of taxes; (k)
properties and leases; (l) the condition of Bayport's assets; (m) Bayport's
intellectual properties; (n) Bayport's contracts; (o) Bayport's licenses and
permits; (p) Bayport's compliance with laws; (q) Bayport's insurance; (r)
environmental compliance; (s) Bayport's employee benefit plans; (t) Bayport's
labor relations; (u) that the affirmative votes of a majority of Bayport's
outstanding shares of Bayport Common Stock and Bayport Preferred Stock are the
only votes required to approve the Merger Agreement; (v) outstanding
litigation; (w) transactions with related parties; (x) Bayport's employees;
(y) that no finder was utilized in connection with the contemplated
transaction other than Alex. Brown; and (z) the accuracy of the information
furnished to Landry's.
CERTAIN COVENANTS
Each of Landry's and Bayport have agreed, among other things, to use its
best efforts to: (a) proceed promptly to make or give the necessary
applications, notices, requests and filings in order to obtain the HSR Act
approvals; (b) cooperate with the other and use its reasonable best efforts
to: (i) receive all necessary and appropriate consents of third parties to the
Merger Agreement, (ii) satisfy all requirements prescribed by law, and (iii)
effect the Merger at the earliest practicable date; (c) cooperate with the
other in the preparation of the Registration Statement and Proxy
Statement/Prospectus; and (d) use its reasonable best efforts to preserve the
goodwill of employees, contractors, bankers and others having business
relationships with it. In connection therewith, each party has agreed that it
shall not, without the prior written consent of the other: (a) with certain
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exceptions, issue shares of capital stock; (b) amend organizational documents;
(c) pledge or encumber capital stock; (d) fail to maintain books and records;
(e) take action which would prevent pooling-of-interests accounting treatment;
(f) materially decrease average restaurant inventory; (g) violate applicable
laws that would have a material adverse effect; (h) commit or omit to do any
act which act or omission would cause a breach of any covenant contained in
the Merger Agreement or cause any representation or warranty to become untrue;
or (i) fail to make adequate provisions for the payment of all taxes and other
assessments.
CONDITIONS PRECEDENT
The respective obligations of Landry's and Bayport to consummate the Merger
are subject to the fulfillment of several conditions, including among others,
that:
(a) the Merger Agreement will have been approved and adopted by the
affirmative vote of the holders of a majority of all of the outstanding shares
of Bayport Common Stock and Bayport Preferred Stock;
(b) the Landry's Common Stock issuable pursuant to the Merger and pursuant
to the conversion of the Bayport Preferred Stock and upon the exercise of the
Bayport Options and Bayport Warrants will have been authorized for listing on
the Nasdaq National Market, subject to official notice of issuance;
(c) the Registration Statement of which this Proxy Statement/Prospectus is a
part will have become effective and no stop order will have been issued by the
Commission or any other governmental authority suspending the effectiveness of
the Registration Statement or preventing or suspending the use thereof or any
related prospectus;
(d) no action or proceeding before any court or administrative agency, by
any governmental agency or any other person will have been instituted or
threatened challenging or otherwise relating to the Merger; and
(e) Landry's shall have executed and delivered a consulting agreement
providing for certain consulting services to be performed by David J. Connor.
Except as may be waived by Landry's, the obligation of Landry's to
consummate the transactions contemplated by the Merger Agreement is subject to
the satisfaction of the following conditions, among others:
(a) the representations and warranties of Bayport will then be true and
correct, with limited exceptions, in all material respects, and Bayport will
have performed and complied in all material respects with all agreements and
conditions required by the Merger Agreement to be performed or complied with
by Bayport prior to or on the Closing Date;
(b) there shall not have occurred any event or circumstance resulting in a
material adverse effect with respect to Bayport from the date of the Merger
Agreement to the Closing Date;
(c) the waiting periods (and any extensions thereof) applicable to the
Merger under the HSR Act shall have been terminated or shall have expired and
no condition shall have been imposed on Bayport or Landry's to obtain such
termination that would require the divestiture of any of either of such
party's assets or otherwise have a material adverse effect on such party;
(d) all governmental and other third-party consents and approvals, if any,
necessary to permit the consummation of the transactions contemplated by the
Merger Agreement or to permit the continued operation of the business of
Bayport in substantially the same manner after the Closing Date as before,
will have been received;
(e) the receipt by Landry's of the required certificates from certain
executive officers of Bayport;
(f) Bayport will have delivered to Landry's the required "good standing"
certificates from the appropriate governmental authorities;
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(g) the receipt by Landry's of an opinion or confirmation thereof of its
independent public accountants that, based on their knowledge of the
transactions contemplated by the Merger Agreement and inquiries into the
affairs of Bayport, they are not aware of any matters which prohibit the use
of pooling-of-interests accounting in connection with the Merger;
(h) Landry's shall have received a letter from Montgomery Securities, in
form and substance satisfactory to Landry's, to the effect that any payments
to be paid by Landry's is fair to Landry's and to Landry's stockholders from a
financial point of view, and such opinion shall not have been withdrawn prior
to the Closing Date;
(i) Landry's shall have received from Winstead Sechrest & Minick P.C.,
counsel to Landry's, an opinion to the effect that the Merger and the
transactions contemplated thereby will constitute a reorganization under
Section 368 of the Code;
(j) Landry's shall have received from Akerman, Senterfitt & Eidson, P.A.,
counsel to Bayport, an opinion in form and substance satisfactory to Landry's;
(k) Bayport shall have filed with the Commission its Quarterly Report on
Form 10-Q for the fiscal quarter ending March 25, 1996 and its Annual Report
on Form 10-K/A;
(l) Bayport shall have been released from leases for Bayport's restaurant
locations at Gulfport and Biloxi, Mississippi and shall have received an
amount equal to Bayport's unamortized hard construction costs, unamortized
FF&E and small wares offset by any monies due for rent;
(m) Landry's shall have received non-compete and non-solicitation agreements
from certain executive officers of Bayport; and
(n) all of Bayport's loans to its officers, employees, shareholders or
directors shall have been fully paid, other than loans to employees for
relocating and computer purchases made in the ordinary course of business.
Except as may be waived by Bayport, the obligation of Bayport to consummate
the transactions contemplated by the Merger Agreement is subject, in addition
to the conditions described elsewhere in this Proxy Statement/Prospectus, to
the satisfaction of the following conditions, among others:
(a) the representations and warranties of Landry's will then be true and
correct, with limited exceptions, in all material respects, and Landry's will
have performed and complied in all material respects with all agreements and
conditions required by the Merger Agreement to be performed or complied with
by Landry's prior to or on the Closing Date;
(b) there shall have not occurred any event or circumstance resulting in a
material adverse effect with respect to Landry's from the date of the Merger
Agreement to the Closing Date;
(c) the waiting periods (and any extensions thereof) applicable to the
Merger under the HSR Act shall have been terminated or shall have expired;
(d) all governmental and other third-party consents and approvals, if any,
necessary to permit the consummation of the transactions contemplated by the
Merger Agreement will have been received;
(e) the receipt by Bayport of the required certificates from certain
executive officers of Landry's;
(f) Landry's will have delivered to Bayport the required "good standing"
certificates from the appropriate governmental authorities;
(g) the receipt by Bayport of an opinion or confirmation thereof of its
independent accountants that Bayport qualifies as an entity that may be party
to a business combination for which the pooling-of-interests method of
accounting would be available;
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(h) Bayport shall have received a letter from Alex. Brown in form and
substance satisfactory to Bayport, to the effect that the aggregate
consideration be paid by Landry's is fair to Bayport's shareholders from a
financial point of view, and such opinion shall not have been withdrawn prior
to the Closing Date;
(i) the receipt by Bayport of an opinion from Akerman, Senterfitt & Eidson,
P.A. to the effect that the Merger and the transactions contemplated thereby
will constitute a reorganization under Section 368 of the Code; and
(j) the receipt by Bayport of opinions from Winstead Sechrest & Minick P.C.,
counsel for Landry's, in form and substance satisfactory to Bayport.
TERMINATION
The Merger Agreement provides that it may be terminated and the Merger may
be abandoned at any time on or before its effect time:
(a) by mutual consent of Landry's and Bayport;
(b) by either party if there has been a material breach by the other party
of any representation or warranty set forth in the Merger Agreement or of any
covenant contained in the Merger Agreement, which failure, if capable of cure,
is not cured within 15 days after the giving of written notice thereof to the
breaching party;
(c) by either party if the transactions contemplated by the Merger Agreement
have not been consummated by December 31, 1996, or the conditions for closing
have not been met or waived by such date, provided, that neither party shall
be entitled to terminate under this clause if it is in willful and material
violation of any representations, warranties or covenants contained in the
Merger Agreement;
(d) if any governmental authority shall have issued a final order
permanently enjoining the transaction contemplated by the Merger Agreement; or
(e) by either party if the required vote of Bayport's shareholders is not
obtained.
NO SOLICITATION; TERMINATION FEE
Under the terms of the Merger Agreement, Bayport is prohibited from,
directly or indirectly, soliciting or encouraging the initiation of any
inquiries, proposals or offers regarding any acquisition, merger, takeover bid
or sale of all or substantially all of its assets. However, if Bayport's Board
of Directors determines that it would be consistent with its fiduciary
responsibilities to approve or recommend an unsolicited proposal which it
deems superior to the Merger (the "Superior Proposal"), then Bayport shall be
entitled to enter into the Superior Proposal and terminate the Merger
Agreement upon payment to Landry's of the Termination Fee described below.
In the event the Merger Agreement is terminated by Bayport as a result of
entering into a Superior Proposal or because of Bayport's failure to satisfy
certain of the closing conditions set forth in the Merger Agreement, then
Landry's shall be entitled to receive from Bayport, a cash fee payable six
months after such termination (the "Termination Fee") in an amount equal to
2.5% of (i) the product of the closing price of a share of Landry's Common
Stock on the date of such termination multiplied by the number of shares of
Landry's Common Stock which would have been issued or reserved for issuance if
the Merger had been consummated; plus (ii) any of Bayport's debt on the date
of such termination ((i) plus (ii) above, is hereinafter, the "Deal Value").
In addition, all expenses, including legal, accounting and tax expenses,
incurred by Landry's in connection with the Merger Agreement (the "Expenses")
would also be payable as part of the Termination Fee. If the Merger Agreement
is terminated by Landry's because of Bayport's inability to obtain approval of
the Merger by its shareholders or because of the existence of a material
adverse change in the financial condition, results of operations, business or
prospects of Bayport, the Termination Fee shall be equal to 1.5% of the Deal
Value plus the Expenses. See also "Interim Funding Arrangement" for a
discussion of the ramifications on the repayment of the Loan of accepting a
Superior Proposal.
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EXPENSES
Each of Landry's and Bayport will pay its own expenses (including, without
limitation, financial, legal and tax advice) incurred in connection with the
Merger Agreement and the transactions contemplated thereby.
COMPARATIVE RIGHTS OF SHAREHOLDERS
Upon consummation of the Merger, holders of Bayport Common Stock and Bayport
Preferred Stock will become holders of Landry's Common Stock and Landry's
Preferred Stock and the rights of former Bayport shareholders will be governed
by Landry's Certificate of Incorporation, as amended ("Certificate of
Incorporation"), Landry's Bylaws and the Delaware General Corporation Law
("DGCL").
Shareholders should note the following significant differences between the
DGCL and the Florida Business Corporation Act (the "FBCA") as they affect the
rights of shareholders. The following comparison of the DGCL and Landry's
Certificate of Incorporation and Bylaws, on the one hand, and the FBCA and
Bayport's Articles of Incorporation and Bylaws, on the other, is not intended
to be complete and is qualified in its entirety by reference to Landry's
Certificate of Incorporation and Bylaws and Bayport's Articles of
Incorporation and Bylaws. Copies of Landry's Certificate of Incorporation and
Bylaws are available for inspection at the offices of Landry's and copies will
be sent to the holders of Bayport Common Stock and Bayport Preferred Stock
upon request. Copies of Bayport's Articles of Incorporation and Bylaws are
available for inspection at the offices of Bayport and copies will be sent to
the holders of Bayport Common Stock and Bayport Preferred Stock upon request.
DISTRIBUTIONS TO SHAREHOLDERS
A Delaware corporation may pay dividends out of surplus or, if there is no
surplus, out of net profits for the fiscal year in which declared or for the
preceding fiscal year. A Florida corporation may make distributions to
shareholders as long as, after giving effect to such distribution, the
corporation will be able to pay its debts as they become due in the usual
course of business and the corporation's total assets will not be less than
the sum of its total liabilities plus (unless the articles of incorporation
permit otherwise) the amount that would be needed, if the corporation were to
be dissolved at the time of the distribution, to satisfy the preferential
rights upon dissolution of shareholders whose preferential rights are superior
to those receiving the distribution.
DISSENTERS' RIGHTS
The DGCL provides that dissenting shareholders who follow prescribed
statutory procedures are entitled to appraisal rights in the case of a merger
of a corporation, except that such rights are not provided when (i) no vote of
the shareholders is required for the merger; or (ii) shares of the corporation
are listed on a national securities exchange, traded on the Nasdaq National
Market or held by more than 2,000 shareholders and are to be exchanged solely
for shares of stock of the corporation surviving or resulting from such merger
or consolidation or solely for shares of stock of another corporation which
are listed on a national securities exchange or held by more than 2,000
shareholders.
The FBCA provides appraisal rights in connection with (i) a merger, except
that such rights are not provided when (a) no vote of the shareholders is
required for the merger or (b) shares of the corporation are listed on a
national securities exchange, traded on the Nasdaq National Market, or held of
record by not fewer than 2,000 shareholders; (ii) a sale of substantially all
the assets of a corporation (with similar restrictions as provided under the
DGCL for mergers); (iii) amendments to the articles of incorporation that may
adversely affect the rights or preferences of shareholders; and (iv) a Control
Share Acquisition (as described below).
STATE TAKEOVER LAWS
Section 203 of the DGCL prohibits a publicly held Delaware corporation from
engaging, under certain circumstances, in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person becomes an interested stockholder unless (i)
prior to the date at
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which the stockholder became an interested stockholder, the board of directors
approved either the business combination or the transaction in which the
person becomes an interested stockholder; (ii) the stockholder acquires more
than 85% of the outstanding voting stock of the corporation (excluding shares
held by directors who are officers or held in certain employee stock plans)
upon consummation of the transaction in which the stockholder becomes an
interested stockholder; or (iii) the business combination is approved by the
board of directors and by at least 66 2/3% of the outstanding voting stock of
the corporation (excluding shares held by the interested stockholder) at a
meeting of stockholders (and not by written consent) held on or subsequent to
the date such stockholder became an interested stockholder. An "interested
stockholder" is a person who, together with affiliates and associates, owns
(or at any time within the prior three years did own) 15% or more of the
corporation's voting stock. Section 203 defines a "business combination" to
include, without limitation, mergers, consolidations, stock sales and asset-
based transactions and other transactions resulting in a financial benefit to
the interested stockholder.
Section 607.0901 of the FBCA, informally known as the "Fair Price Statute,"
provides that the approval of the holders of two-thirds of the voting shares
of a Bayport, other than the shares owned by an Interested Shareholder (as
hereinafter defined) would be required in order to effectuate certain
transactions, including without limitation a merger, sale of assets, sale of
shares and reclassification of securities involving a corporation and an
Interested Shareholder (an "Affiliated Transaction"). An "Interested
Shareholder" is defined under the FBCA as beneficial owner of more than 10% of
the voting shares outstanding. The foregoing special voting requirement is in
addition to the vote required by any other provision of the FBCA or a
corporation's articles of incorporation.
The special voting requirement does not apply in any of the following four
circumstances: (i) the Affiliated Transaction is approved by a majority of the
corporation's disinterested directors; (ii) the Interested Shareholder has
beneficially owned 80% of the corporation's voting shares for five years;
(iii) the Interested Shareholder beneficially owns 90% of the corporation's
voting shares; or (iv) all of the following conditions are met: (A) the cash
and fair value of other consideration to be paid per share to all holders of
voting shares equals the highest per share price calculated pursuant to
various methods set forth in Section 607.0901 of the FBCA, (B) the
consideration to be paid in the Affiliated Transaction is in the same form as
previously paid by the Interested Shareholder, and (C) during the portion of
the three years preceding the announcement date that the Interested
Shareholder has been an Interested Shareholder, except as approved by a
majority of the disinterested directors, there shall have been no default in
payment of preferred stock dividends, no decrease in common stock dividends,
no increase in the voting shares owned by the Interested Shareholder, and no
benefit to the Interested Shareholder from loans, guaranties or other
financial assistance or tax advantages provided by the corporation.
A corporation may "opt out" of the provisions of Section 607.0901 by
electing to do so in its original articles of incorporation or by adopting an
amendment to its articles of incorporation or bylaws opting out and having
such amendment approved by the holders of a majority of the voting shares not
held by the Interested Shareholder, its affiliates or associates. The
amendment will not be effective until 18 months after such vote, and will not
apply to any Affiliated Transaction with someone who is an Interested
Shareholder on or prior to the effective date of the amendment. Bayport has
not opted out of the provisions of Section 607.0901.
A person who inadvertently becomes an Interested Shareholder (for example,
as a result of a corporation's repurchase of some of its share) may promptly
divest himself of enough stock to fall below the 10% threshold so that no
special vote would apply to a transaction with that shareholder, so long as
such person has not otherwise been an Interested Shareholder within the five
years preceding the first public announcement of the transaction.
Section 607.0902 of the FBCA, informally known as the "Florida Acquisition
Statute," provides that the voting rights to be accorded Control Shares (as
defined below) of a Florida corporation that has (i) 100 or more shareholders,
(ii) its principal place of business, its principal office, or substantial
assets in Florida, and (iii) either (A) more than 10% of its shareholders
residing in Florida, (B) more than 10% of its shares owned by Florida
residents, or (C) 1,000 shareholders residing in Florida, must be approved by
a majority of each class of voting
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securities of the corporation, excluding those share held by interested
persons, before the Control Shares will be granted any voting rights.
"Control Shares" are defined in the FBCA to be shares acquired in a Control
Share Acquisition (as defined below) that, when added to all other shares of
the issuing corporation owned by such person, would entitle such person to
exercise, either directly or indirectly, voting power within any of the
following ranges: (a) 20% or more but less than 33% of all voting power of the
corporation's voting securities, (b) 33% or more but less than a majority of
all voting power of the corporation's voting securities, or (c) a majority or
more of all of the voting power or the corporation's voting securities. A
"Control Share Acquisition" is defined in the FBCA as an acquisition, either
directly or indirectly, by any person of ownership of, or the power to direct
the exercise of voting power with respect to, outstanding Control Shares.
Section 607.0902 also states that, if provided in the articles of
incorporation or bylaws of a corporation prior to their acquisition, Control
Shares may be redeemed by the corporation for fair value in certain
circumstances. Finally, unless otherwise provided in a corporation's articles
of incorporation or bylaws prior to a Control Share Acquisition, in the event
Control Shares are accorded full voting rights and the acquiring person has
acquired Control Shares with a majority or more of all voting power, all
shareholders shall have dissenters' rights.
Section 607.0902 further provides that, in certain circumstances, an
acquisition of shares that otherwise would be governed by its provisions does
not constitute a Control Share Acquisition. Among such circumstances are
acquisitions of shares approved by the corporation's board of directors and
mergers effected in compliance with the applicable provisions of the FBCA, if
the corporation is a party to the agreement of merger.
LIMITATION ON DIRECTOR'S LIABILITY
In accordance with the DGCL, Landry's Certificate of Incorporation provides
that the directors of Landry's shall not be personally liable to Landry's or
its stockholders for monetary damages for breach of fiduciary duty as a
director except (i) for any breach of the director's duty of loyalty to
Landry's and its stockholders; (ii) for acts or omission not in good faith or
which involve intentional misconduct, or knowing violations of law; (iii)
under Section 174 of the DGCL, which relates to unlawful payments of dividends
and unlawful stock repurchases and redemptions; or (iv) for any transaction
from which the director derived an improper personal benefit. This provisions
does not eliminate a director's fiduciary duties; it merely eliminates the
possibility of damage awards against a director personally which may be
occasioned by certain unintentional breaches (including situations that may
involve grossly negligent business decisions) by the director of those duties.
The provision has no effect on the availability of equitable remedies, such as
injunctive relief or rescission, which might be necessitated by a director's
breach of his or her fiduciary duties. However, equitable remedies may not be
available as a practical matter where transactions (such as merger
transactions) have already been consummated. The inclusion of this provision
in Landry's Certificate of Incorporation may have the effect of reducing the
likelihood of derivative litigation against directors, and may discourage or
deter stockholders or management from bringing a lawsuit against directors for
breach of their duty of care, even though such an action, if successful, might
otherwise have benefited Landry's and its stockholders.
The FBCA provides that directors of a corporation will not be personally
liable for monetary damages for breach of their fiduciary duty as directors,
except in certain specified circumstances. Those circumstances involve either:
(i) a violation of the criminal law; (ii) a transaction from which the
director derived an improper personal benefit; (iii) an unlawful payment of a
dividend or unlawful stock repurchase or redemption; (iv) in a derivative
proceeding or one by or in the right of a shareholder, conscious disregard for
the best interest of the corporation or willful misconduct; or (v) in a
proceeding by or in the right of someone other than the corporation or a
shareholder, recklessness or an act or omission that was committed in bad
faith, with malicious purpose or in a manner exhibiting wanton and willful
disregard of human rights, safety or property.
CALLING A SPECIAL MEETING OF SHAREHOLDERS
Under the DGCL, a special meeting of stockholders can be called by the
corporation's Board of Directors or by such person or persons as may be
authorized by the corporation's certificate of incorporation or bylaws.
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Landry's Certificate of Incorporation does not authorize any person to call a
special meeting of stockholders. Landry's Bylaws, however, provide that a
special meeting may be called by the president or the Board, or the holders of
not less than 10% of all shares entitled to vote at the meeting.
The FBCA provides that a special meeting of shareholders can be called by
(i) a corporation's Board of Directors; (ii) the persons authorized by the
articles of incorporation or bylaws; or (iii) the holders of not less than 10%
of all votes entitled to be cast on any issue to be considered at the proposed
special meeting. A corporation's articles of incorporation can require a
higher percentage of votes, up to a maximum of 50% to call a special meeting
of shareholders. Bayport's Articles of Incorporation do not include any such
provision.
AMENDMENTS TO BYLAWS
Under the DGCL, directors can amend the bylaws of a corporation only if such
right is expressly conferred upon the directors in its certificate of
incorporation. Landry's Certificate of Incorporation provides its directors
with such authority.
Under the FBCA, a corporation's board of directors may amend or repeal the
bylaws unless such power is expressly reserved to the shareholders in the
articles of incorporation or the FBCA or the shareholders expressly provide,
in amending or repealing all or any part of the bylaws, that the board of
directors may not amend or repeal the affected bylaws.
MERGER WITH SUBSIDIARY
Under DGCL, a parent corporation may merge into itself, without shareholder
approval, a subsidiary of which it owns at least 90% of the outstanding shares
of each class of stock.
The FBCA permits such a merger of a subsidiary without shareholder approval
if 80% of each class of stock of the subsidiary is owned by the parent
corporation.
DESCRIPTION OF LANDRY'S CAPITAL STOCK
Landry's is authorized to issue up to 30,000,000 shares of common stock,
$.01 par value per share, 18,204,220 shares of which were issued and
outstanding at April 15, 1996 and 2,000,000 shares of Preferred Stock, $.01
par value per share, none of which were outstanding as of the date hereof.
Additionally, Landry's has filed a registration statement to sell an
additional 4,000,000 shares.
LANDRY'S COMMON STOCK
Holders of Landry's Common Stock are entitled to vote per share on all
matters to be voted upon by the shareholders generally, including the election
of directors. The holders of Landry's Common Stock are entitled to receive
such dividends as may be declared from time to time by the Board of Directors
out of funds legally available therefore and, in the event of liquidation,
dissolution or winding-up of Landry's, to share ratably in all assets
remaining after payment of liabilities. The holders of Landry's Common Stock
have no preemptive or conversion rights and are not subject to further calls
or assessments by Landry's. There are no redemption or sinking fund provisions
applicable to the Landry's Common Stock.
LANDRY'S PREFERRED STOCK
Landry's Preferred Stock may be issued from time to time in one or more
series as determined by the Board of Directors. The Board of Directors is
authorized to issue the shares of Landry's Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and
the
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number of shares constituting any series and the designation of such series,
without further vote or action by the shareholders. The issuance of such
Landry's Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of Landry's without further action by the
shareholders and may adversely affect the voting and other rights of the
holders of Landry's Common Stock, including the loss of voting control to
others.
LANDRY'S PREFERRED STOCK
Holders of shares of Landry's Preferred Stock may convert such shares, at
any time, into an equal number of shares of Landry's Common Stock. Holders of
Landry's Preferred Stock are entitled to one vote for each share of Landry's
Common Stock that such holder would be entitled upon conversion of shares of
Landry's Preferred Stock and are entitled to receive such dividends as may be
declared from time to time by the Board of Directors, out of funds legally
available for such purpose. Each share of Landry's Preferred Stock will be
automatically converted into one share of Landry's Common Stock upon the
earlier of (i) the date on which the share price of Landry's Common Stock on
the Nasdaq National Market average $40.73 for 20 consecutive trading days; or
(ii) August 19, 1998.
LANDRY'S BUSINESS
GENERAL
Landry's owns and operates full-service, mid-priced, casual dining, seafood
restaurants located in fifteen states, under the names "Landry's Seafood
House," "Willie G's" and "Joe's Crab Shack." As of February 6, 1996, Landry's
operated 46 restaurants including 35 Landry's Seafood Houses, nine Joe's Crab
Shacks and two Willie G's. Management believes that Landry's restaurants
appeal to a broad range of customers by offering generous portions of fresh
seafood and excellent service in a high energy environment at an attractive
price-value relationship. The first Landry's Seafood House restaurant opened
in 1980 and the first Willie G's opened in 1981. In 1988, Mr. Tilman J.
Fertitta acquired sole ownership of these restaurants. The first Joe's Crab
Shack was acquired by Landry's in 1994. Following his 1988 acquisition, Mr.
Fertitta instituted: (i) new financial, accounting and reporting systems; (ii)
financial incentives for employees; (iii) a system for training, supervising
and retaining employees; (iv) a program for hiring top management personnel;
(v) a site selection and growth strategy; and (vi) an operating philosophy
emphasizing customer service and quality control. As a result of the
implementation of these programs, profitability increased substantially, and
Landry's commenced an expansion program.
RESTAURANT CONCEPTS AND STRATEGY
Landry's management believes that the relatively small number of national
and regional chain restaurants competing in the seafood segment of the
restaurant industry, as compared to other restaurant segments, provides
Landry's a significant opportunity to capitalize on its high energy, casual
dining seafood restaurant concepts.
The key elements of Landry's restaurant concepts and strategy include the
following:
Variety and Value. Landry's restaurants provide customers an attractive
price-value relationship by serving generous portions of fresh, high quality
seafood at moderate prices. The restaurants feature a wide variety of seafood
items complemented by unique side dishes, salads, garlic bread, appetizers,
and desserts presented in a visually appealing manner.
Commitment to Customer Satisfaction. Landry's is committed to providing its
customers prompt, friendly, efficient service, keeping table-to-waitstaff
ratios low, and staffing each restaurant with an experienced management team
to ensure attentive customer service and consistent food quality. Through the
use of comment cards and a 1-800 telephone number, senior management receives
valuable feedback from customers and, through prompt responses, demonstrates a
continuing interest in customer satisfaction.
52
<PAGE>
Distinctive Design and Decor and Casual Atmosphere . Each restaurant concept
has a similar appearance and a flexible design which can accommodate a wide
variety of available sites. For Landry's Seafood House, Landry's has developed
a prototype look that is readily identified by a large theater-style marquee
over the entrance and by a distinctive brick and wood facade creating the
feeling of a traditional old seafood house restaurant. Joe's Crab Shack is
designed to appear like an old fishing camp with a wood facade, tin roof, and
a raised deck outside. A casual, energetic dining atmosphere is created for
all of Landry's restaurants through the design and decor of the dining areas,
which generally display vibrant, colorful murals reflecting the restaurant's
location or regional area. In many locations, the restaurants provide outdoor
patio service for a more casual, open-air dining experience and often feature
waterfront views.
High Profile Restaurant Locations. Landry's site selection strategy is to
locate its restaurants in markets which provide a balanced mix of tourist,
convention, business, and residential clientele. A variety of factors are
analyzed in the site selection process, including local market demographics,
site visibility, aesthetics (including waterfront views) and accessibility and
proximity to significant generators of potential customers such as major
retail centers, office complexes, hotel concentrations, convention centers,
historical areas and entertainment facilities (stadiums, arenas, theaters,
etc.). Landry's management believes that this strategy results in a high
volume of new and repeat customers and provides Landry's with increased name
recognition in new markets. Landry's current restaurants are located in areas
that satisfy Landry's site selection strategy.
Commitment to Attracting and Retaining Quality Employees. By providing
extensive training and attractive compensation, Landry's fosters a strong
corporate culture and encourages a sense of personal commitment from its
employees. Landry's has a monthly cash bonus program establishing performance
goals on a restaurant-by-restaurant basis for each restaurant's management
team pursuant to which management believes restaurant managers typically earn
bonuses equal to between 15% and 25% of their total cash compensation.
Landry's has historically utilized a program of extensive background checks
for prospective management employees (including criminal checks, credit checks
and drug screening). Landry's management believes its policies have resulted
in a low rate of management-level employee turnover.
EXPANSION STRATEGY
Landry's plans to continue expanding principally through the opening of new
restaurants. From time-to-time, Landry's will evaluate the conversion or
strategic acquisition of existing restaurants. Other than the Merger
Agreement, Landry's has no present understandings or agreements to acquire any
restaurant concepts. During the next several years, Landry's plans to focus
expansion efforts primarily in the southern half of the United States,
although Landry's will review situations that might arise in major cities
outside of this area. Second locations in a market are likely only when
management believes the area can effectively support another quality seafood
restaurant. Landry's believes that the taste, variety, and perceived health
advantages of seafood, support Landry's decision to concentrate its expansion
efforts on quality seafood restaurants in strategically targeted markets.
Landry's originally planned to open approximately 26 restaurants during 1995
and 1996. Of the 26 Landry's restaurants planned for 1995 and 1996, as of
February 6, 1996, 22 had been opened. Landry's current development plan is to
have open approximately 75 restaurants by December 31, 1997 (excluding
restaurants that may be acquired pursuant to the Merger), of which nine
restaurants were under construction as of February 6, 1996. If the Merger is
not consummated Landry's anticipates further accelerating its expansion plans.
Landry's main emphasis will be to open Landry's Seafood House and Joe's Crab
Shacks restaurants, and, if the Merger is consummated, Crab House restaurants.
Willie G's restaurants may be opened in areas where another company restaurant
is operating and which Landry's management believes can accommodate another
quality seafood restaurant, or where management believes the demographics
better suit this concept. The number of restaurants actually opened will vary
depending upon, among other things, Landry's ability to locate suitable
restaurant sites, Landry's ability to obtain satisfactory lease or purchase
arrangements for its restaurant locations, the availability of funds to
construct and open such restaurants, Landry's ability to obtain on a timely
basis all
53
<PAGE>
necessary governmental permits to construct and operate such restaurants,
Landry's ability to adequately manage the construction or conversion of such
restaurants, Landry's ability to hire, train and retain skilled management and
other restaurant personnel, general economic conditions. See "Risk Factors--
Growth" and "Risk Factors--Risks Associated with the Merger."
Landry's has designated a team of employees that is responsible for opening
new locations, including the hiring and training of kitchen personnel and
other individuals who will serve as hosts, waiters, floor managers and
bartenders. Currently, eight to 10 assistant general managers are trained and
ready to be promoted to general managers, which will allow experienced general
managers to be transferred to new locations, and approximately 40 to 50
employees are currently participating in Landry's management training program.
UNIT ECONOMICS
For the 12-month period ended December 31, 1995, the 24 Landry's restaurants
opened prior to January 1, 1995 generated average restaurant revenues of
approximately $3,005,000, average restaurant cash flow of approximately
$660,000 (or 21.9% of revenues), and average restaurant operating income after
depreciation and amortization of approximately $540,000 (or 18.0% of
revenues). Historically, Landry's has leased a substantial number of its
restaurants sites to minimize the costs of opening a new restaurant. However,
Landry's has purchased a number of its restaurant locations. Landry's approach
to opening new restaurants has been to control its required investment by
using landlord development allowances and by using its own in-house
construction capabilities as a general contractor to build-out or renovate its
new restaurant sites. Excluding real estate costs and pre-opening expenses,
the average cash investment to open new restaurants in 1995 was approximately
$2.6 million per unit. However, the average cash investment for the last seven
restaurants opened by Landry's was approximately $2.3 million. In the future,
Landry's expects that its average investment for unit opened will be further
reduced due primarily to an overall reduction of the average unit size from
those opened from the beginning of 1995 through February 6, 1996. Landry's
currently anticipates that it will continue to purchase a number of its new
restaurant locations, which are expected to be more costly than leased
locations.
RESTAURANT LOCATIONS
The following table provides information with respect to the location of
each of Landry's existing restaurants as of February 6, 1996:
<TABLE>
<CAPTION>
NUMBER
OF
LOCATION UNITS
-------- ------
<S> <C>
Arizona............................................................ 1
Arkansas........................................................... 1
California......................................................... 1
Colorado........................................................... 2
Florida............................................................ 4
Louisiana.......................................................... 3
Mississippi........................................................ 1
Missouri........................................................... 2
Nevada............................................................. 1
New Mexico......................................................... 1
Ohio............................................................... 1
Oklahoma........................................................... 2
South Carolina..................................................... 2
Tennessee.......................................................... 1
Texas.............................................................. 23
---
Total............................................................ 46
===
</TABLE>
54
<PAGE>
MENU
Landry's restaurants offer a wide variety of high quality, broiled, grilled,
and fried seafood items at moderate prices, including red snapper, shrimp,
crawfish, lump crabmeat, lobster, oysters, scallops, flounder, and other
traditional seafood items, many with a choice of unique seasonings, stuffings
and toppings. Landry's restaurants' menus also include a wide variety of
seafood appetizers, salads, soups and side dishes. In order to provide an
alternative to seafood items, Landry's restaurants also offer Certified Angus
beef, fowl, pastas, and other American food entrees. Landry's restaurants also
feature a unique selection of desserts made fresh on a daily basis at each
location. Each Landry's Seafood House offers complimentary salad and garlic
bread with each entree, as well as certain lunch specials and lower priced
children's entrees.
All of Landry's restaurants emphasize a complete dining experience, and,
accordingly, full liquor service is available. Alcoholic beverages are
primarily served to complement meals, with sales of alcoholic beverages
accounting for 17% of Landry's revenues in 1995. Landry's restaurants
generally serve both lunch and dinner. The average dinner entree menu price
for Landry's restaurants is between $11 and $13, excluding menu entree items
which are priced daily "at market," based on cost and availability to Landry's
restaurants. At certain of Landry's restaurants there is a separate lunch menu
with reduced prices on selected entrees.
MANAGEMENT AND EMPLOYEES
Landry's policy is to staff its restaurants with management that has
significant experience in the restaurant industry. Landry's believes its
strong team-oriented culture helps it attract and retain highly motivated
employees who provide customers with a level of service superior to that
normally found in other restaurants. Landry's trains its kitchen employees and
waitstaff to take great pride in preparing and serving food in accordance with
the strict standards established by Landry's. Restaurant managers and staff
are trained to be courteous and attentive to customer needs, and the managers,
in particular, are instructed to visit each table. Senior corporate management
holds monthly group meetings with restaurant general managers to discuss
individual restaurant performance and customer comments. Moreover, Landry's
requires general managers to hold regular staff meetings at their individual
restaurants. Compliance with Landry's quality requirements is monitored
through periodic on-site visits and formal periodic inspections by the
regional manager and supervisory personnel from Landry's corporate offices.
The management staff of a typical Company restaurant consists of a five-
person management team (one general manager, two kitchen managers, and two
floor managers) with the general manager having overall responsibility for
restaurant operations. The general managers typically have been promoted after
training in all areas of restaurant level management within Landry's. The
kitchen managers in each restaurant supervise kitchen operations, which allows
the general managers to spend most of their time in the dining area of the
restaurant supervising the staff and providing service to customers. Each
restaurant management team is eligible to receive monthly incentive bonuses
subject to achievement of operating performance objectives specifically
tailored for such restaurant for each monthly period. Management believes
these employees typically earn bonuses equal to between 15% and 25% of their
total cash compensation under this program. In addition, general managers,
kitchen managers and floor managers, are entitled to participate in Landry's
stock option plans.
Landry's has historically spent considerable effort in screening prospective
employees and training and developing employees, allowing it to promote from
within. Landry's requires each employee to participate in a formal training
program that utilizes departmental training manuals, examinations and a
scheduled evaluation process. Newly hired waitstaff are required to spend from
five to 10 days in training before they serve customers. Landry's has
historically utilized a program of extensive background checks for prospective
management employees (including criminal checks, credit checks, and drug
screening). Landry's management believes that its policies have resulted in a
very low rate of management-level employee turnover. Management training
encompasses three general areas: (i) all service positions; (ii) management
accounting, personnel management, and dining room and bar operations; and
(iii) kitchen management, which entails food preparation and quality controls,
cost controls, training, ordering and receiving, and sanitation operations.
Management training
55
<PAGE>
customarily lasts eight to 12 weeks, depending upon the trainee's prior
experience and performance relative to Landry's objectives. As Landry's
expands, it will need to hire additional management personnel and its
continued success will depend in large part on its ability to attract, train,
and retain quality management employees. As Landry's grows, it plans to
increase the number of regional managers, and to have each regional manager
responsible for a limited number of restaurants within those geographic
regions. Landry's plans to promote experienced restaurant level management
personnel to serve as future regional managers as well as hire needed
personnel from outside Landry's.
As of February 6, 1996, Landry's employed approximately 4,300 persons, of
whom approximately 280 were restaurant managers or manager-trainees,
approximately 112 were corporate and administrative, and the rest were hourly.
Each restaurant employs an average of approximately 80 to 100 people,
depending on seasonal needs. Landry's considers its employees to be high
quality and believes that its management level employee turnover rate is low.
None of Landry's employees is covered by a collective bargaining agreement.
Landry's considers its relationship with employees to be good.
CUSTOMER SATISFACTION
Landry's is committed to providing its customers prompt, friendly, efficient
service, keeping table-to-waitstaff ratios low and staffing each restaurant
with an experienced management team to ensure attentive customer service and
consistent food quality. Through the use of comment cards and a 1-800
telephone number, senior management receives valuable feedback from customers
and through prompt responses demonstrates a continuing interest in customer
satisfaction. Landry's emphasizes availability of the items on its menu and,
if an item is in short supply, restaurant level management is expected to use
its initiative to procure the item immediately.
PURCHASING
Landry's strives to obtain consistent quality items at competitive prices
from reliable sources. Landry's continually researches and surveys various
products in an effort to obtain the highest quality products possible and to
be responsive to changing customer tastes. In order to maximize operating
efficiencies and to provide the freshest ingredients for its food products
while obtaining the lowest possible prices for the required quality, each
restaurant's management team determines the daily quantities of food items
needed and orders such quantities from major suppliers at prices often
negotiated directly with Landry's corporate office.
Landry's currently uses many distributors for obtaining its seafood products
in order to maintain the freshness and quality required by Landry's, all of
which are available on short notice from qualified suppliers. For non-seafood
items, Landry's generally uses one national distributor in order to achieve
certain cost efficiencies, but such items are available on short notice from
alternative qualified suppliers. Landry's has not experienced any significant
delays in receiving its food and beverage inventories, restaurant supplies or
equipment.
ADVERTISING AND MARKETING
Landry's employs a marketing strategy that utilizes frequent, high profile
advertising in order to attract new customers and establish a high level of
name recognition. Landry's relies primarily on word-of-mouth publicity,
billboards with distinctive graphics, travel and hospitality magazines and
print advertising. Landry's uses multiple billboards on highways leading to
its restaurants to direct potential customers from the highways to the
restaurants, as well as to build name recognition within each market.
Additionally, many of the restaurants offer facilities for banquets, meetings
and private parties. Landry's advertising expenditures for 1995 were
approximately 1.0% of revenues.
56
<PAGE>
RESTAURANT REPORTING
Financial controls are maintained through management of an accounting and
management information system that is implemented at the restaurant level.
Administrative and management staff prepare daily reports of cash, deposits,
sales, sales mix, labor, and customer counts. Physical inventories of food,
beverage and supply items are taken weekly. Weekly and monthly costs of sales
and profit and loss statements are compiled by Landry's accounting department
and provided to the regional managers for analysis and comparison to Landry's
budgets. Landry's closely monitors sales, costs of sales, labor and restaurant
trends. Weekly sales data is used by management to detect trends from location
to location and negative trends are immediately investigated and remedied
where possible. Landry's purchases food carefully and, through tight controls,
keeps food and beverage waste and theft to a minimum. Landry's management
believes that its current systems are adequate for its planned expansion.
RESTAURANT SECURITY
Landry's takes precautions to protect individual restaurant locations
against theft, robbery and other breaches of security through security
procedures and sophisticated alarm and surveillance systems. A component of
Landry's emphasis on restaurant security is the employment of a licensed peace
officer as Director of Security. The Director of Security, who reports
directly to the corporate office, supervises the installation and operation of
individual restaurant security systems and performs monthly security
inspections at each restaurant to monitor compliance with Landry's policies
relating to theft prevention, employee related security issues and restaurant
facility protection. As a result of Landry's program, it has experienced no
material security problem in its operations.
COMPETITION
The restaurant industry is intensely competitive with respect to price,
service, the type and quality of food offered, location and other factors.
Landry's has many well established competitors, both seafood and non-seafood,
with substantially greater financial resources and a longer history of
operations than Landry's. Landry's competes with both locally-owned seafood
and non-seafood restaurants, as well as national and regional seafood and non-
seafood restaurant chains, some of which may be better established in Landry's
existing and future markets. In particular, Red Lobster, a national seafood
restaurant chain, operates over 600 seafood restaurants nationwide, many of
which operate in Landry's existing and potential markets. Landry's also
competes with other restaurant and retail establishments for sites. Changes in
customer tastes, economic conditions, demographic trends and the location and
number of, and type of food served by, competing restaurants could adversely
affect Landry's business as could the unavailability of experienced management
and hourly employees. Landry's management believes its restaurants enjoy a
high level of repeat business and customer loyalty due to high food quality,
comfortable atmosphere, and friendly efficient service.
57
<PAGE>
LANDRY'S MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The directors and executive officers of Landry's and their ages are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Tilman J. Fertitta............... 38 Chairman of the Board, President and Chief
Executive Officer
E.A. Jaksa, Jr................... 49 Executive Vice President, Chief Operating
Officer,
and Director
Steven L. Scheinthal............. 34 Vice President of Administration, General
Counsel,
Secretary, and Director
Paul S. West..................... 37 Vice President of Finance, Chief Financial
Officer
and Director
Richard E. Ervin................. 40 Vice President of Restaurant Operations
Sarah A. Veach................... 36 Controller of Restaurant Operations
James E. Masucci(1).............. 63 Director
Joe Max Taylor(1)................ 63 Director
</TABLE>
- --------
(1) Member of Audit and Compensation Committees.
The principal occupations and positions for the past five years of each of
the Directors and Executive Officers of Landry's are as follows:
Mr. Fertitta has served as President and Chief Executive Officer of Landry's
since 1987. In 1988, he became the controlling shareholder and assumed full
responsibility for all of Landry's operations. Prior to serving as President
and Chief Executive Officer of Landry's, Mr. Fertitta devoted his full time to
the control and operation of a hospitality and development company. Mr.
Fertitta is a director of the Mobil Cotton Bowl, an advisory director of the
Houston Rockets National Basketball Association team and serves on the boards
of the Variety Club, Houston Livestock Show and Rodeo, Crohn's and Colitis
Foundation, the Better Business Bureau of Houston, and the Childress
Foundation.
Mr. Jaksa has served as the Executive Vice President and Chief Operating
Officer of Landry's since 1988. His primary responsibility is new site
selection, lease negotiations and restaurant construction and development.
Before joining Landry's, Mr. Jaksa served as President of Richmark Bancshares
in Houston, Texas for five years. Mr. Jaksa is a licensed real estate broker
in Texas and has owned and operated his own real estate firm and construction
company.
Mr. Scheinthal has served as Vice President of Administration, General
Counsel and Secretary to Landry's since September 1992. He devotes a
substantial amount of time to lease and contract negotiations and is primarily
responsible for Landry's compliance with all federal, state and local
ordinances. Prior to joining Landry's, he was a partner in the law firm of
Stumpf & Falgout in Houston, Texas. Mr. Scheinthal represented Landry's for
approximately five years before joining Landry's. He has been licensed to
practice law in the state of Texas since November 1984.
Mr. West has served as Vice President of Finance and Chief Financial Officer
of Landry's since June 1993. Prior to joining Landry's, Mr. West was a senior
manager at Deloitte & Touche and a leader of their Restaurant/Entertainment
Advisors Group in Dallas, Texas. He was responsible for numerous restaurant
audits and performed the annual restaurant industry operations survey and
study on behalf of the National Restaurant Association and many state
restaurant associations. Mr. West had been engaged in public accounting and
auditing since 1981, and a certified public accountant since 1983.
58
<PAGE>
Mr. Ervin has served as Vice President of Restaurant Operations since 1991.
Prior to that time, he was the Vice-President of Internal Controls and
Director of Beverage Operations. He has 15 years of experience in high volume,
multi-unit food and beverage operations. His experience includes new
restaurant development and employee training programs.
Ms. Veach has served as Controller of Restaurant Operations since January
1990. Prior to joining Landry's in 1989 as an accountant, she worked as
controller for American General Investment Corp. and as a tax associate for
the accounting firm of Coopers & Lybrand.
Mr. Masucci has been employed by Capital Cities/ABC since 1956. He presently
serves as President and General Manager of KTRK-TV, an owned station of
Capital Cities/ABC in Houston, Texas, a position he has held since August
1990. Prior to serving as President, Mr. Masucci served in various executive
positions with KTRK and has served as Division Vice President and Vice
President of the Broadcast Division of Capital Cities/ABC.
Mr. Taylor is a director and member of the Executive Committee of American
National Insurance Company, a publicly traded insurance company. He also
serves on the Board of Commonwealth Life and Accident Insurance, and is
President of Moody Gardens, Inc. which operates a public resort and
entertainment facility in Galveston, Texas. Mr. Taylor is also the chief law
enforcement administrator for Galveston County, Texas and serves on the
Galveston County Pre-Trial Board as well as the Board of Directors of
Harbourview Care Center.
59
<PAGE>
LANDRY'S PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Landry's Common Stock by (a) each person known to Landry's owning
beneficially more than five percent of the outstanding shares of Landry's
Common Stock, (b) each director of Landry's, and (c) all officers and
directors of Landry's as a group. Each stockholder has sole voting and
investment power with respect to the shares beneficially owned. The
percentages set forth herein do not take into account Landry's Common Stock to
be issued pursuant to the Merger. Unless otherwise noted, the address of each
person listed below is c/o Landry's.
<TABLE>
<CAPTION>
NUMBER PERCENT
--------- -------
<S> <C> <C>
Tilman J. Fertitta(2)................................... 4,800,000 26.1%
E.A. Jaksa, Jr.(2)...................................... 72,500 (1)
Steven L. Scheinthal(2)................................. 28,500 (1)
Paul S. West............................................ 44,500 (1)
James E. Masucci(2)..................................... 4,000 (1)
Joe Max Taylor.......................................... -0- --
Putnam Investments, Inc. (3)............................ 2,384,430 13.1%
The TCW Group, Inc.(4).................................. 924,100 5.1%
Wellington Management Company(5)........................ 993,200 5.5%
All officers and directors as a group (10 persons)(2)... 4,959,500 26.8%
</TABLE>
- --------
(1) Less than 1%.
(2) Includes 200,000, 72,500, 27,500 and 4,000 shares which are subject to
options that are or become exercisable within 60 days for Messrs.
Fertitta, Jaksa, Scheinthal and Masucci, respectively.
(3) Landry's has been informed by Putnam Investments, Inc. ("Putnam") that
certain Putnam investment managers (together with their parent
corporations, Putnam and Marsh & McLennan Companies), are considered
"beneficial owners" in the aggregate of 2,384,430 shares, or 13.1%, of
Landry's Common Stock. Such shares were acquired for investment purposes
by such investment managers for certain of their advisory clients. The
information set forth in this table has been provided to Landry's by
Putnam as reported on its Schedule 13-G filed with the Commission.
Putnam's address is One Post Office Square, 10th Floor, Boston,
Massachusetts 02109.
(4) Based on a Schedule 13G filed in February 1996, The TCW Group, Inc.
("TCW") is considered "beneficial owner" in the aggregate of 924,100
shares or 5.1% of Landry's Common Stock, although no Landry's Common Stock
is held directly by TCW. TCW's address is 865 South Figueroa Street, Los
Angeles, California 90017.
(5) Based on Schedule 13G filed in February 1996, 993,200 shares or 5.5% of
Landry's Common Stock is owned by various investment advisory clients of
Wellington Management Company ("WMC") which is deemed beneficial owner of
shares only by virtue of direct or indirect investment and/or voting
discretion it possesses pursuant to the provisions of investment advisory
agreements with such clients. WMC's address is 75 State Street, Boston,
Massachusetts 02109.
60
<PAGE>
LANDRY'S SELECTED CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated financial information presented below for, and as
of the end of, each of the years in the five-year period ended December 31,
1995, is derived from the consolidated financial statements of Landry's. The
consolidated financial statements have been audited by Arthur Andersen LLP,
independent public accountants. The following selected consolidated financial
information should be read in conjunction with Landry's consolidated financial
statements and related notes and with "Landry's Management's Discussion"
included elsewhere herein, or incorporated by reference.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1991 1992 1993 1994 1995
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues......................... $19,500 $22,435 $34,241 $62,527 $104,017
Operating costs and expenses:
Cost of sales.................. 6,120 6,852 10,459 19,273 31,631
Restaurant labor............... 4,831 5,519 8,593 15,717 26,717
Other restaurant operating
expenses...................... 4,644 5,136 7,788 13,980 22,571
Depreciation and amortization.. 499 630 1,194 2,891 5,513
General and administrative
expenses...................... 1,035 1,225 1,861 2,781 4,635
------- ------- ------- ------- --------
Total operating costs and
expenses.................... 17,129 19,362 29,895 54,642 91,067
------- ------- ------- ------- --------
Operating income................. 2,371 3,073 4,346 7,885 12,950
Other (income) expense:
Interest (income) expense,
net........................... 206 276 187 (960) (1,948)
Other, net..................... 72 (293) (130) 39 55
------- ------- ------- ------- --------
Total other (income) expense,
net......................... 278 (17) 57 (921) (1,893)
Income before income taxes and
extraordinary gain.............. 2,093 3,090 4,289 8,806 14,843
Provision for income taxes (pro
forma in 1992 and 1993)(1)...... 867 1,112 1,544 3,126 5,259
------- ------- ------- ------- --------
Income before extraordinary
gain............................ 1,226 1,978 2,745 5,680 9,584
Extraordinary gain (pro forma in
1992)(2)........................ 507 313 -- -- --
------- ------- ------- ------- --------
Net income(3).................... $ 1,733 $ 2,291 $ 2,745 $ 5,680 $ 9,584
======= ======= ======= ======= ========
Net income before extraordinary
gain per share (pro forma
in 1992 and 1993)(3)............ $ 0.23 $ 0.28 $ 0.40 $ 0.55
Extraordinary gain per share (pro
forma in 1992)(2)............... 0.03 -- -- --
------- ------- ------- --------
Net income per share (pro forma
in 1992 and 1993)(3)............ $ 0.26 $ 0.28 $ 0.40 $ 0.55
======= ======= ======= ========
Weighted average number of common
shares and common shares
equivalents outstanding (pro
forma in 1992 and 1993)(4)...... 8,794 9,862 14,126 17,320
BALANCE SHEET DATA (AT END OF
PERIOD)
Working capital (deficit)........ ($1,922) ($1,472) $ 3,661 $14,877 $ 8,521
Total assets..................... 7,105 10,449 24,921 71,141 140,001
Short-term notes payable and
current portion of long-term
notes and other obligations..... 2,089 2,375 669 271 299
Long-term notes and other
obligations, noncurrent......... 1,677 1,731 1,793 716 368
Stockholders' equity............. 845 3,385 18,422 61,959 122,210
</TABLE>
- -------
(1) Income taxes for 1992 and 1993 reflect a pro forma provision for income
taxes as a C corporation. See Notes 1 and 3 of Notes to the Consolidated
Financial Statements.
(2) During 1992, Landry's recorded an extraordinary gain of $489,133 ($313,000
net of pro forma income tax) related to the repayment of debt at a
discount effective November 20, 1992. During 1991, Landry's recognized an
extraordinary gain of $506,665 as a result of the tax benefit from the use
of net operating loss carryforwards.
(3) Reflects pro forma net income and extraordinary gain per share in 1992 and
1993 after a pro forma provision for income taxes. See Notes 1 and 3 of
Notes to the Consolidated Financial Statements.
(4) See Note 8 of the Notes to the Consolidated Financial Statements.
61
<PAGE>
LANDRY'S MANAGEMENT'S DISCUSSION
INTRODUCTION
A reduced income tax provision was made in 1993 as discussed in the Notes to
Landry's Consolidated Financial Statements, incorporated herein by reference.
For comparative purposes, pro forma income taxes are reflected as if Landry's
and all of its corporate subsidiaries were C corporations.
Landry's operations may be impacted by changes in federal tax and other
governmental policies which affect the deductibility of business and
entertainment expenses and levels of disposable income. The Revenue
Reconciliation Act of 1993 included matters which could impact the restaurant
business and Landry's operations. These included a reduction in the business
tax deduction available for restaurant meals, as well as an increase in the
tax rate for individuals, with a greater increase for those persons who are in
the higher income bracket and, therefore, could reasonably be expected to eat
in Landry's restaurants on a more frequent basis. Landry's can make no
prediction as to the ultimate effect of the Revenue Reconciliation Act of 1993
on Landry's business and operations; however, Landry's does not believe the
Revenue Reconciliation Act of 1993 will significantly affect its on-going
business. Additionally, on-going proposals mandating medical and parental
leave benefits, requiring employers to provide health insurance to part-time
employees and increases in the federal or certain states' minimum wage will,
if enacted, increase Landry's employee costs.
If the Merger is consummated, Landry's would recognize a one-time charge
that it believes will be approximately $8.0 million to $10.0 million. This
charge would be recorded in the quarter in which the Merger is consummated.
The actual expenses would be significant for such quarter. In addition,
Landry's restaurant base would increase significantly through the acquisition
of the Bayport restaurants pursuant to the Merger. Such restaurants have
materially different profit margins, costs to construct, costs of sales as
percentages of restaurant sales, operating expenses, and other restaurant
performance factors than Landry's restaurants. Landry's would attempt to
reduce construction and operating costs of the Bayport restaurants without
reducing the quality of their service or food. However, there can be no
assurances that Landry's would be able to operate the Bayport restaurants in a
manner that is different from the way such restaurants are currently being
constructed and operated. As a result, Landry's profit margin, cost to
construct, cost of sales as percentages of restaurant sales, operating
expenses and other restaurant performance factors may be materially different
than Landry's on a stand-alone basis and the margins reflected on a pro forma
basis herein.
RECENT RESULTS
Based on preliminary reports, Landry's estimates that the earnings for the
three months ended March 31, 1996 will be approximately $0.17 per share, a 42%
increase over $0.12 for the first quarter of 1995. First quarter revenues were
$34.8 million, a 69% increase over revenues of $20.6 million in the first
quarter of 1995.
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RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to total revenues
of certain income statement data, for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Revenues............................................. 100.0% 100.0% 100.0%
Operating costs and expenses:
Cost of sales...................................... 30.5 30.8 30.4
Restaurant labor................................... 25.1 25.1 25.7
Other restaurant operating expenses................ 22.8 22.4 21.7
Depreciation and amortization...................... 3.5 4.6 5.3
General and administrative expenses ............... 5.4 4.4 4.5
----- ----- -----
Total operating costs and expenses............... 87.3 87.3 87.6
Operating income..................................... 12.7 12.7 12.4
Other (income) expense:
Interest (income) expense, net....................... 0.5 (1.5) (1.8)
Other, net......................................... (0.3) 0.1 --
----- ----- -----
Total other (income) expense, net................ 0.2 (1.4) (1.8)
----- ----- -----
Income before income taxes........................... 12.5 14.1 14.2
Provision for income taxes (pro forma for 1993)...... 4.5 5.0 5.0
----- ----- -----
Net income........................................... 8.0% 9.1% 9.2%
===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
Revenues increased $41,490,529, or 66.4%, from $62,526,965 to $104,017,494
in 1995, compared to 1994. The increase in revenues was attributable to
revenues from new restaurant openings, and there was a nominal change in the
revenues from units opened prior to 1994. Several of Landry's restaurants
opened during 1994 and 1995 opened at initial volumes in excess of Landry's
average unit volumes. Subsequently, however, Landry's has experienced a
moderation of their initial unit volumes.
As a primary result of increased revenues, cost of sales increased
$12,358,208, or 64.1%, from $19,273,349 to $31,631,557 in 1995, compared to
1994. Cost of sales as a percentage of revenues for 1995 decreased 0.4% from
30.8% in 1994 to 30.4%. The decrease in cost of sales as a percentage of
revenues reflects favorable product prices, particularly lower shrimp prices,
and better management controls in 1995.
Restaurant labor expenses increased $11,000,232, or 70.0%, from $15,716,557
to $26,716,789 in 1995, compared to 1994. Restaurant labor expenses as a
percentage of revenues increased 0.6% from 25.1% to 25.7%. The increase in
labor expenses resulted primarily from new restaurant openings and the hiring
of management and kitchen personnel required to support Landry's expansion.
The increase in labor expenses as a percentage of revenues reflects a
combination of competitive pressures in the restaurant industry, generally
higher labor costs for units outside of the State of Texas, higher restaurant
management bonuses, and a greater vesting of employee benefits due to
seniority.
Other restaurant operating expenses increased $8,591,191 or 61.5%, from
$13,979,699 to $22,570,890 in 1995 compared to 1994 as a result of increased
revenues and the opening of new restaurants. Such expenses decreased as a
percentage of revenues from 22.4% to 21.7% primarily due to revenue growth
exceeding the increase in other restaurant operating expenses, and reductions
in rent expense, as a percentage of revenues due to more owned restaurant
locations, and reductions in insurance and advertising expenses.
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Depreciation and amortization expenses increased $2,622,310, or 90.7%, from
$2,891,125 to $5,513,435 in 1995 compared to 1994. The increase was primarily
due to the addition of restaurants and purchases of equipment.
General and administrative expenses increased $1,853,910 or 66.7%, from
$2,781,302 to $4,635,212 and remained relatively flat as a percentage of
revenues. The dollar increase resulted primarily from increased office
personnel, salaries and travel to support Landry's expansion.
Net interest income increased by $988,778 from $959,676 to $1,948,454 in
1995 compared to 1994. The increase resulted primarily from Landry's
investment of excess cash in interest bearing securities subsequent to
Landry's public stock offerings.
Provision for income taxes increased by $2,133,273 from $3,125,962 to
$5,259,235 in 1995 primarily due to the change in Landry's pre-tax income. The
effective income tax rates as a percentage of income before income taxes
remained relatively flat at 35%.
Landry's anticipates that the effective income tax rates for 1996 will
increase to approximately 36% from the 1995 effective tax rates due to a
higher effective federal rate of 35% in 1996 as compared to approximately 34%
in 1995, and as a result of higher state income taxes.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR ENDED DECEMBER 31, 1993
Revenues increased $28,285,466, or 82.6%, from $34,241,499 to $62,526,965 in
1994, compared to 1993. Of this increase, approximately $26,000,000 was
attributable to revenues from restaurants which opened since the beginning of
1993. The balance of the increase resulted primarily from an approximate 5%
increase in comparable restaurant revenues.
As a primary result of increased revenues, cost of sales increased
$8,813,919, or 84.3%, from $10,459,430 to $19,273,349 in 1994, compared to
1993. Cost of sales as a percentage of revenues for 1994 remained relatively
flat as the percentage increased 0.3% to 30.8% from 30.5% in the prior year.
The increase in cost of sales as a percentage of revenues reflects primarily
the effect of an increased number of new restaurant openings that typically
incur higher initial cost of sales.
Restaurant labor expenses increased $7,123,333, or 82.9%, from $8,593,224 to
$15,716,557 in 1994, compared to 1993. Restaurant labor expenses remained flat
as a percentage of revenues at 25.1%, as increases in restaurant labor
expenses were offset by increases in revenues.
Other restaurant operating expenses increased $6,191,317, or 79.5%, from
$7,788,382 to $13,979,699 in 1994, compared to 1993 as a result of increased
revenues and the opening of new restaurants since December 31, 1993. Such
expenses decreased as a percentage of revenues from 22.8% to 22.4% primarily
due to strong revenue growth exceeding the increase in other restaurant
operating expenses.
Depreciation and amortization expenses increased $1,697,352, or 142.2%, from
$1,193,773 to $2,891,125 in 1994, compared to 1993. The increase was primarily
due to the addition of restaurants and purchases of equipment.
General and administrative expenses increased $920,369, or 49.5%, from
$1,860,933 to $2,781,302 in 1994, compared to 1993, but decreased as a
percentage of revenues to 4.4% from 5.4%. The dollar increase resulted
primarily from increased office personnel, salaries and travel to support
Landry's expansion plans, and incremental professional fees and related costs
of being a publicly owned company. The percentage of revenues decrease in 1994
was attributable to revenue growth exceeding the increase in general and
administrative expenses.
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Net interest (income) expense changed by $1,147,020, from $187,344 of net
interest expense in 1993 to ($959,676) of net interest income in 1994. The
change resulted primarily from Landry's reduction of outstanding debt and
investment of excess cash in interest bearing securities subsequent to
Landry's public stock offerings.
Other (income) expense, net changed by $169,211, from ($130,130) of net
other income to $39,081 of net other expense in 1994 compared to 1993. This
change was primarily attributable to a reduction in miscellaneous income
recorded in 1994.
Income taxes increased $1,582,087, from $1,543,875 pro forma income taxes in
1993 to $3,125,962 income taxes in 1994 due to the increase in Landry's
income. The effective income tax rates as a percentage of income before taxes
remained relatively flat. Subsequent to Landry's August 1993 initial public
offering, Landry's consolidated income became subject to federal corporate
income taxes. However, the income tax liability for the year ended December
31, 1994, was partially offset by an approximate $400,000 credit attributable
to an income tax deduction available to Landry's as a result of the exercise
of certain stock options in March 1994.
LIQUIDITY AND CAPITAL RESOURCES
Landry's does not have significant receivables or inventory and receives
trade credit based upon negotiated terms in purchasing food and supplies. In
connection with its initial public offering, Landry's received $17,122,745 in
net proceeds in August 1993. In March 1994, Landry's received $37,457,255 from
a second common stock offering and the exercise of certain stock options, and
in April 1995, Landry's received approximately $50,000,000 from a third common
stock offering. Historically, Landry's has leased many of its restaurant
locations and pursued a strategy of controlled growth, financing its expansion
principally from proceeds from common stock offerings, operating cash flow and
to a lesser extent, borrowings. In 1993, 1994 and 1995, Landry's spent
$10,237,787, $31,908,332, and $71,332,802 respectively, on capital
expenditures, which was funded in part out of cash flows from operations of
$5,115,841, $9,813,944 and $18,719,141, respectively, plus borrowings in 1993
of $1,212,767 and from proceeds of the common stock offerings. Payments on
notes payable and other long-term obligations amounted to $3,536,256,
$1,474,745 and $320,109 for 1993, 1994 and 1995, respectively.
Landry's originally planned to open approximately 26 restaurants during 1995
and 1996. Of the 26 Landry's restaurants planned for 1995 and 1996, as of
February 6, 1996, 22 had been opened. Landry's current development plan is to
have open approximately 75 restaurants by December 31, 1997 (excluding
restaurants that may be acquired pursuant to the Merger), of which nine
restaurants were under construction as of February 6, 1996. If the Merger is
not consummated Landry's anticipates further accelerating its expansion plans.
Excluding real estate costs and pre-opening expenses, the average cash
investment to open Landry's new restaurants in 1995 was approximately $2.6
million. However, the average cash investment for the last seven restaurants
opened by Landry's was $2.3 million. Landry's expects that its average
investment for units opened in the future will be further reduced due
primarily to an overall reduction of the average unit size from those opened
from the beginning of 1995 through February 6, 1996. However, individual unit
investment costs could vary from Landry's management's expectations due to a
variety of factors. Moreover, average unit investment costs are dependent upon
many factors including competition for sites, location, construction costs,
unit size and the mix of conversions, build-to-suit and leased locations.
Landry's currently anticipates that it will continue to purchase a portion of
its new restaurant locations, which are expected to be more costly than leased
locations. Landry's believes that existing cash balances, the proceeds from
its offering of 4,500,000 shares of Landry's Common Stock, cash generated from
operations and potential financing sources will be sufficient to satisfy
Landry's working capital and capital expenditure requirements through 1997,
including working capital and capital expenditure requirements resulting from
the consummation of the Merger.
Landry's has a $25 million line of credit which is subject to renewal in May
1997. Landry's had no funds borrowed under the line of credit as of March 31,
1996.
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On April 18, 1996, Landry's entered into a loan agreement with Bayport (the
"Loan Agreement") pursuant to which Landry's agreed to loan to Bayport up to
$11.0 million (the "Bayport Loan") to be used by Bayport to finance the
continued construction of four Crab House restaurants. The first Bayport Loan
advance in the aggregate amount of $1.5 million was made on April 22, 1996.
Subsequent advances in varying amounts, will be made on or about the fifteenth
day of each month beginning in May, subject to the satisfaction of certain
conditions contained in the Loan Agreement. Landry's expects to borrow funds
under its line of credit to fund the Bayport Loan. The Bayport Loan is secured
by collateral, including certain existing restaurants of Bayport and certain
restaurants currently being constructed by Bayport (the "Collateral").
Landry's has the right to convert the Bayport Loan into ownership of the
Collateral if the Merger is not consummated under certain circumstances by
paying Bayport the remaining balance under the Bayport Loan. See "Interim
Funding Agreement."
SEASONALITY AND QUARTERLY RESULTS
Landry's business is seasonal in nature, with revenues and, to a greater
degree, operating profits being lower in the first and fourth quarters than in
other quarters due to Landry's reduced winter volumes. To a degree, Landry's
anticipates some moderation in revenues from the initial volumes of units
opened in the first and fourth quarters. The timing of unit openings can and
will affect quarterly results.
IMPACT OF INFLATION
Landry's management does not believe inflation has had a significant effect
on Landry's operations during the past several years. Management believes
Landry's has historically been able to pass on increased costs through menu
price increases, but there can be no assurance that it will be able to do so
in the future. Future increases in land and construction costs could adversely
affect Landry's ability to expand.
BAYPORT'S BUSINESS
Bayport's business is principally the operation of casual full-service
seafood restaurants. As of this date, Bayport operates 17 full-service
restaurants under the name "The Crab House" and has four additional full-
service restaurants under construction. Bayport has also entered into leases
for an additional three restaurant sites. Additionally, Bayport operates five
take-away seafood restaurants and a seafood processing plant.
FULL SERVICE CRAB HOUSE RESTAURANTS
Concepts and Strategy. Bayport's full-service restaurants feature a broad
assortment of crab, shrimp and fresh-fish entrees and all but three of which
also offer a distinctive seafood salad bar. The restaurants range in size from
4,500 square feet to 13,000 square feet and operate in both tourist markets
and densely populated areas with upper middle income demographics. Bayport's
current restaurants have capacities ranging from 200 to 400 seats.
Bayport's full-service restaurant strategy is to attract a large, broad and
loyal base of affluent customers by: (i) selecting locations in shopping and
tourist areas frequented by upper middle income individuals and families; (ii)
featuring higher quality seafood through disciplined procurement standards and
skilled preparation; (iii) achieving high value for the customer by offering
quality at moderate prices; (iv) providing a casual dining atmosphere that is
clean, tasteful and comfortable, with attentive service; and (v) hiring,
retaining and motivating experienced restaurant management by rewarding
general managers with cash bonuses for achieving financial and quality
standards, and with significant stock options for long term commitment and
loyalty.
Menu. The Crab House menu features a selection of shellfish appetizers;
chowders; blue, king, snow and stone crab specialties; a variety of fresh fish
fillets hand-cut from whole fish; lobster and shrimp; and seafood pastas. In
addition, all but three of Bayport's Crab House restaurants feature a salad
and seafood raw bar. The
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seafood raw bar is a signature item, with freshly shucked oysters and clams,
cold steamed shrimp, mussels and assorted fresh vegetables and salads.
Atmosphere. The Crab House is conducive to casual dining. Its decor has a
simple, clean nautical motif, with generous use of varnished wood wainscoting,
high ceilings, exposed wooden beams, colorful ceramic tile, and gentle
lighting. The design objective is to create a light, airy, comfortable space.
As a signature design statement, brown paper is used instead of linen table
cloths highlighting the casual nature of the restaurant and its origins as a
simple crab house. Crab House guests come dressed in a mixture of attire, with
both Bermuda shorts and business suits well represented.
Clientele. The Crab House restaurants are located in shopping and tourist
areas frequented by upper middle income individuals and families, and in other
densely populated areas. The decor, quality of food, and attentiveness of
service personnel are meant to appeal to a clientele that has moderately high
income, but enjoys a relaxed atmosphere and good value. The clientele is a
broad, balanced mixture of families, couples in their 30's and over, and
business people.
Restaurant Locations
As of this date, Bayport operates 17 full-service Crab House restaurants.
The location and year opened of the existing restaurants is as follows:
<TABLE>
<CAPTION>
YEAR
LOCATION OPENED
-------- ------
<S> <C>
Florida
Miami.............................................................. 1976
Lauderhill......................................................... 1986
Orlando I.......................................................... 1989
Orlando II......................................................... 1993
Boca Raton......................................................... 1994
Key West*.......................................................... 1994
Plantation......................................................... 1995
Palm Beach/Singer Island*.......................................... 1995
Aventura........................................................... 1996
Jupiter............................................................ 1996
South Carolina
Myrtle Beach I..................................................... 1994
Myrtle Beach II.................................................... 1995
Mississippi
Biloxi*............................................................ 1995
Gulfport, MS*...................................................... 1995
Illinois
Chicago............................................................ 1995
Georgia
Smyrna............................................................. 1985
Atlanta............................................................ 1988
</TABLE>
- --------
* Bayport's restaurants in Biloxi and Gulfport, Mississippi and in Key West
and Palm Beach/Singer Island, Florida are in hotels. In addition to their
regular dining room and lounge services, these restaurants provide complete
food and beverage service for each of the related hotels, including banquets
and room service. If the Merger is consummated, Bayport's Mississippi
restaurants may be sold.
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Additionally, Bayport presently is constructing four restaurants, one in New
York (Chelsea Piers), New York, one in Baltimore, Maryland, one in Nashville,
Tennessee, and one in Great Neck New York. The first three restaurants are
expected to be opened during the second quarter of 1996 and the last
restaurant is expected to be opened during the third quarter of 1996. Bayport
has also leased restaurant sites in Fairfax, Virginia, Edgewater, New Jersey
and Bethesda, Maryland, but has not yet commenced construction of restaurants
on those sites. See "Bayport's Management's Discussion" for information
regarding the capital required to fund the continued development of Bayport's
restaurant chain.
Restaurant Management Selection and Incentives
Bayport believes that its success and ability to maintain high standards is
heavily dependent upon proper selection and motivation of restaurant general
managers. The compensation package for general managers is designed to provide
short-term cash rewards and longer term stock rewards.
The competition for qualified personnel in the restaurant industry is
intense and, accordingly, there can be no assurance that Bayport will be able
to retain or hire necessary personnel.
Management and Employees
The management staff of a typical full-service Crab House restaurant
consists of a general manager, an assistant general manager, a kitchen
manager, and one or more assistant managers. Each Crab House restaurant
employs approximately 70 to 125 hourly employees, many of whom work part time.
The general manager of each full-service restaurant carries primary
responsibility for the day-to-day operations of his or her restaurant and is
required to abide by Bayport-established operating standards.
Bayport requires its full-service restaurant general managers, and its
assistant managers and kitchen managers, to have significant experience in the
restaurant industry. Bayport has established an extensive training program for
all new restaurant managers, which emphasizes Bayport's operating strategy,
procedures and standards. Managers are required to have experience in all
aspects of the operations of Bayport's restaurants, with particular emphasis
on kitchen operations, because of Bayport's focus on quality.
Restaurant general managers, as well as Bayport's senior management
responsible for operations and training, are responsible for selecting and
training employees for each restaurant. Ongoing training remains the
responsibility of the restaurant general manager. Bayport utilizes written
reviews and physical observation to evaluate each employee's performance.
These reviews place special emphasis on the consistency and quality of food
preparation and service.
Advertising and Marketing
Bayport uses print media, billboards, direct mail and selected radio and
cable television advertising in particular markets where it is cost effective.
Two different marketing strategies have evolved for Bayport's two distinct
customer bases: tourist/convention and local resident. To cater to the tourist
and convention markets, Bayport advertises in tourist publications and
promotes relationships with hotel concierges and tour operators. In addition,
customers in its tourist market locations are able to pick from special menus
that are available in five languages. The local resident is reached primarily
through spots on local radio programs, newspaper advertisements and billboard
advertisements. Bayport budgets between two and one-half and three percent of
each restaurant's sales for advertising and promotion.
Purchasing
Bayport's ability to maintain consistent quality throughout its chain of
restaurants depends upon the ability to acquire food products and related
items from reliable sources. Many of Bayport's seafood menu items,
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including shrimp, scallops, snow and king crabs, are commodity items and are
generally shipped frozen throughout the restaurant industry. All of the non-
frozen seafood items served by Bayport's restaurants are served fresh and are
easily available either locally or though air transport from other parts of
the country.
To maintain quality and to maximize value, Bayport contracts centrally for
purchases of frozen seafood, including blue crabs purchased from Bayport's
seafood processing operation. See "Seafood Processing Operation" below.
Seafood purchases are made based upon strict quality standards. Bayport's
purchasing policy is quality driven and not price driven.
Frozen seafood is distributed to individual restaurants by distributors
under contract with Bayport based on orders placed by the individual
restaurants with the distributor. Individual restaurants also place orders
directly with these same distributors for dry goods, other food products,
paper products and chemicals. In addition, restaurants place orders directly
with one or more suppliers designated by Bayport for other food, including
produce and fresh fish.
Food products in Bayport's restaurants are regularly checked for quality and
compliance with Bayport standards. Bayport has not had, and does not presently
anticipate having, any difficulty in continuing to obtain an adequate quantity
and quality of food products and other supplies. Bayport believes that the
food products and supplies used by Bayport in its restaurants are available
from more than one supplier at competitive prices.
Restaurant Reporting
Each restaurant has a stand-alone point of sale accounting system. Each
restaurant staff prepares daily cash and other reports regarding sales,
inventory, sales mix, labor costs and customer counts. Restaurants also
prepare weekly profit and loss statements and inventory counts. All reports
are forwarded weekly to senior management for analysis.
Competition
The restaurant business is highly competitive and Bayport competes with
numerous other restaurants and food service operations, many of which possess
greater financial resources and more experienced personnel and management than
does Bayport, and many of which are better established in the markets where
Bayport's restaurants are or may be located. The quality of the food served in
relation to its price and public reputation are important factors in food
service competition. Additionally, the restaurant business is often affected
by changes in consumer tastes, national, regional or local economic
conditions, demographic trends, traffic patterns and the type, number and
location of competing restaurants. Further, factors such as inflation,
increased food, labor and benefit costs and the lack of experienced management
and hourly employees may adversely affect the restaurant industry in general
and Bayport's restaurants in particular.
TAKE-AWAY RESTAURANTS
Bayport presently operates five carry-out restaurants, under the name "Capt.
Crab's Take-Away," which feature garlic crabs, steamed crabs and other seafood
entrees served with a selection of side dishes. Three of the restaurants are
located in Florida and two are in the Baltimore, MD/Washington, D.C. area. The
Florida restaurants are approximately 1,500 to 2,000 square feet, with drive-
thru pick-up windows, and little or no interior seating. The two Baltimore,
MD/Washington, D.C. restaurants are approximately 3,000 square feet and offer
approximately 40 to 45 seats.
SEAFOOD PROCESSING OPERATION
To ensure that it has adequate supply of blue crab products to meet customer
demand, Bayport processes and markets blue crab products through a wholly-
owned subsidiary, which operates a processing plant in North Carolina. Blue
crabs are found in the Atlantic Ocean and its tributaries, the Gulf of Mexico,
and in the waters of Africa, Central America, Mexico and South America.
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This operation produces, on a seasonal basis, fresh crab meat, pasteurized
crab meat, frozen whole blue crabs and crab clusters. Bayport cooks, chills
and picks crab meat and cooks and freezes whole blue crabs and crab clusters.
The crab meat is canned and pasteurized or sold fresh or vacuum packed and
frozen. Bayport accounted for approximately 22 percent and 24 percent,
respectively, of its subsidiaries' sales during the 1995 and 1994 fiscal
years. Bayport markets the balance of its production under the "Ocean Blue
Gourmet" and "Crystal Coast Gourmet" brands.
GOVERNMENT REGULATION
The restaurant business is subject to extensive federal, state and local
regulation relating to the development and operation of restaurants, including
laws and regulations relating to building and zoning requirements, preparation
and sale of food, health and sanitation and laws governing Bayport's
relationship with its employees, including minimum wage requirements,
unemployment taxes and sales taxes, overtime and working conditions and
citizenship requirements. The failure to obtain or retain required licenses,
or a substantial increase in the minimum wage rate, could adversely affect the
operations of Bayport's restaurants.
In addition, Bayport's operations are subject to federal, state and local
regulations with respect to environmental and safety matters, including
regulations concerning discharges into air and water and regulations under the
Federal Occupational Safety and Health Act. To the best of Bayport's knowledge
and belief, Bayport is not engaged in any activity which constitutes a health,
safety or environmental hazard or which could be the subject or grounds upon
which any governmental agency could require the taking of certain remedial
action by Bayport. These regulations have historically been subject to
frequent change by regulatory authorities, and Bayport is unable to predict
the future impact, if any, of such regulations on the capital expenditures,
earnings and competitive position of Bayport. These laws and regulations, in
Bayport's opinion, have not to date materially affected its operations.
EMPLOYEES
As of March 1, 1996, Bayport employed approximately 2,140 service and
management personnel in its restaurants and 44 management and administrative
personnel in its corporate office. Bayport also employs approximately 70
persons, the majority of whom are seasonal, in its seafood processing
operations and also hires seasonally approximately 50 persons from Mexico to
work in its plant. Bayport believes that its relationship with its employees
is good. None of Bayport's employees are covered by a collective bargaining
agreement.
TRADEMARKS
Bayport has trademarked and service marked the name, design and logo used in
its "Crab House Seafood" and "Capt. Crab's Take-Away" restaurants. Bayport
believes that its service marks and trademarks have significant value and are
an important element in the marketing of its restaurants. Bayport is aware of
names and marks similar to the service mark of Bayport used by other persons
in certain geographic areas. However, Bayport believes that such uses will not
adversely affect Bayport. Bayport's policy is to pursue registration of its
marks whenever possible and to oppose vigorously any infringement of its
marks.
PROPERTIES
Bayport's executive offices consist of approximately 10,000 square feet in
the Presidential Circle office building in Hollywood, Florida. Bayport pays
approximately $260,000 in annual rent for its headquarters facility. Bayport's
lease for its headquarters facility expires in 1997.
With the exception of the facilities housing Bayport's take-away restaurants
in Miami, Carol City and Sunrise, Florida, and one of Bayport's full-service
restaurants in Orlando, which are owned by Bayport, all of the restaurant
facilities operated by Bayport are leased. Bayport's leases on its restaurant
properties expire between 2002 and 2019. See Note H to Notes to Bayport's
Consolidated Financial Statements.
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The seafood processing plant operated by Bayport's seafood processing
subsidiary is located in South Creek, Beaufort County, North Carolina. In
December 1992, this subsidiary entered into a five year lease agreement for
the plant. This lease may be extended by the subsidiary, at its option, for a
maximum of fifteen years. The plant is located along a waterway, allowing the
subsidiary access to local crab fishermen.
The processing plant has crab meat picking, processing and cryogenic
freezing operations. The plant has 8,000 square feet available for processing,
including a room consisting of 2,000 square feet designated for crab meat
picking. In addition, the plant has 2,000 square feet available for frozen
product storage and 1,500 square feet of office space. The plant's interior
has been designed to facilitate the efficient and orderly flow of product from
selection of live crabs for purchase to processing and/or cryogenic freezing
to packing, storage and shipping.
71
<PAGE>
BAYPORT'S SELECTED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated financial information presented below for, and as
of the end of, each of the years in the five-year period ended December 25,
1995, is derived from the consolidated financial statements of Bayport. The
consolidated financial statements have been audited by Grant Thornton LLP,
independent public accountants. The following selected consolidated financial
information should be read in conjunction with Bayport's consolidated
financial statements and related notes and with "Bayport's Management's
Discussion" included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------
12/30/91 12/28/92 12/27/93 12/26/94 12/25/95
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues
Restaurant sales................ $20,272 $18,241 $23,800 $33,735 $45,719
Processing plant sales.......... 2,715 1,859 2,626 4,511 7,884
Interest and other.............. 18 733 568 244 75
------- ------- ------- ------- -------
Total Revenue................. 23,005 20,833 26,994 38,490 53,678
Cost and expenses
Cost of sales................... 7,497 6,568 8,299 12,151 16,347
Payroll and related expenses.... 5,422 4,716 5,998 8,269 11,878
Other operating expenses........ 2,202 2,454 4,122 5,596 6,454
Occupancy and related expenses.. 2,574 2,267 2,097 2,740 3,704
Processing plant cost of sales
and operating expenses......... 3,002 1,890 2,625 4,444 7,812
Restructuring costs............. 1,838 -- -- -- --
Restaurant opening expenses..... 91 25 81 287 903
General and Administrative...... 2,128 1,597 2,295 3,381 4,009
Interest expense................ 565 267 213 40 429
Loss on sale of fixed assets.... 15 -- -- -- --
Net loss on investment
securities..................... -- -- -- 249 (9)
------- ------- ------- ------- -------
Total costs and expenses...... 25,334 19,784 25,730 37,157 51,528
------- ------- ------- ------- -------
Earnings (loss) before income
taxes, minority interest and
cumulative effect of
accounting change............ (2,329) 1,049 1,264 1,333 2,151
Provision for income taxes....... -- -- -- 394 687
------- ------- ------- ------- -------
Earnings (loss) before
minority interest and
cumulative effect of
accounting change............ (2,329) 1,049 1,264 939 1,464
Minority interest in net earnings
of subsidiary................... -- 176 122 -- --
------- ------- ------- ------- -------
Earnings (loss) before
cumulative effect of
accounting change............ (2,329) 873 1,142 939 1,464
Cumulative effect of accounting
change.......................... -- -- 223 -- --
------- ------- ------- ------- -------
NET EARNINGS (LOSS)........... $(2,329) $ 873 $ 1,365 $ 939 $ 1,464
======= ======= ======= ======= =======
Earnings (loss) per common share
Earnings (loss) before
cumulative effect of accounting
change......................... $ (.56) $ .17 $ .15 $ .09 $ .14
Cumulative effect of accounting
change......................... -- -- .03 -- --
------- ------- ------- ------- -------
Net earnings (loss)........... $ (.56) $ .17 $ .18 $ .09 $ .14
======= ======= ======= ======= =======
Weighted average number of
sharesoutstanding............... 4,221 5,160 7,428 10,434 10,479
======= ======= ======= ======= =======
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
AT
--------------------------------------------
12/30/91 12/28/92 12/27/93 12/26/94 12/25/95
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current Assets.................. $1,339 2,995 $ 7,374 $10,715 11,416
Property, plant and equipment... 5,879 6,046 8,843 16,346 34,011
Other assets.................... 1,613 905 7,201 1,465 2,438
Total assets.................... 8,831 9,946 23,418 28,526 47,865
Current liabilities............. 3,667 2,970 2,152 2,634 8,659
Long-term obligations........... 3,298 3,008 1,260 4,885 16,625
Stockholders' equity............ 1,866 3,968 20,006 21,007 22,581
Book value per common share(1).. $ .45 $ .77 $ 1.99 $ 2.08 $ 2.22
Common and Common Equivalent
Shares Outstanding(1).......... 4,221 5,160 10,037 10,079 10,174
</TABLE>
- --------
(1) Assumes that all shares of Bayport Preferred Stock had been fully converted
into shares of Bayport Common Stock.
73
<PAGE>
BAYPORT'S MANAGEMENT'S DISCUSSION
The financial information included herein should be read in conjunction with
Bayport's Consolidated Financial Statements, including the Notes thereto,
appearing elsewhere in this Proxy Statement/Prospectus.
RESULTS OF OPERATIONS
Fiscal Year 1995 vs. 1994
Total revenues for 1995 were $53,677,809, representing an increase of 39.5%
over total revenues of $38,490,144 for 1994. The increase in total revenues
from 1994 to 1995 is attributable to the opening of five new Crab House and
two new Capt. Crab's Take-Away restaurants during 1995, a full year of sales
from the three Crab House restaurants opened during 1994 and a 7% increase in
same store sales for restaurants open during both 1994 and 1995. Additionally,
sales increased by 74.8% from 1994 to 1995 at Bayport's seafood processing
plant, from $4,511,097 for 1994 to $7,883,637 for 1995. This increase resulted
from availability of certain crab products imported by the subsidiary and
increased sales as result of this product availability.
Costs of sales as a percentage of restaurant sales declined slightly from
1994 to 1995, from 36.0% for 1994 to 35.8% for 1995. This reduction results
from the steps taken by Bayport during 1995 to combat rising seafood costs
through minor modifications to the menu at Bayport's Crab House restaurants.
Bayport believes that costs of sales as a percentage of restaurant sales will
continue to be stable, or may decline slightly during 1996, as a result of
these changes and as a result of current reductions in the cost of seafood
products. Seafood commodity costs fluctuate on a regular basis and the trends
currently being experienced may not continue in the future.
Operating expenses (consisting primarily of payroll, occupancy and other
operating expenses) increased by $5,431,222, or 32.7%, from 1994 to 1995. The
increase is primarily attributable to the operating costs associated with the
five new Crab House and two Capt. Crab's Take-Away restaurants opened during
1995. Operating expenses, as a percentage of restaurant sales, decreased to
48.2% for 1995, compared to 49.2% for 1994.
Restaurant opening expenses increased significantly during 1995 to $903,313,
compared to $286,635 for 1994. The increase is due, in part, to the opening of
five Crab House and two Capt. Crab's Take-Away restaurants during 1995 and, in
part, to the restaurant opening expenses for the two Crab House restaurants
opened during the latter part of 1994. Restaurant opening expenses can be
expected to continue to increase during 1996 as Bayport's opens additional
restaurants. See "Bayport's Business."
General & Administrative ("G&A") expenses for 1995 were $4,008,975, an 18.6%
increase over G&A expenses of $3,381,316 for 1994. G&A, as a percentage of
total revenues, was 7.5% for 1995, compared to 8.8% for 1994. The increase in
G&A resulted primarily from costs associated with Bayport's restaurant
expansion program, including costs associated with increased personnel at
Bayport's corporate office and the addition during 1995 of a regional manager
level within Bayport's Crab House restaurant operation.
Interest expense for 1995 was $428,808, an increase of $388,947 over
interest expense of $39,861 incurred during 1994. Interest expense increased
as a result of borrowings during 1995 to fund Bayport's restaurant expansion
program. During 1994, in connection with its restaurant expansion program,
Bayport fully utilized the proceeds of its 1993 private placement and began
borrowing a significant amount to pay expenses relating to its restaurant
expansion program.
During 1994, Bayport incurred a one-time net loss of approximately $240,000
as a result of the write down and subsequent disposition of Bayport's interest
in an intermediate term bond mutual fund. No comparable loss was incurred
during 1995.
As a result of the factors described above, earnings before income taxes
increased by 61.3% to $2,150,619 for 1995, compared to $1,333,520 for 1994.
74
<PAGE>
In 1993, Bayport's net operating losses for financial reporting purposes,
were utilized to eliminate the taxes that would otherwise be payable. In 1994,
the remaining net operating losses, and certain excess FICA credits, were
utilized to reduce Bayport's effective tax rate to 30%. No such net operating
losses were available in 1995, so the effective rate increased to 32%.
Bayport's effective tax rate is not expected to be materially different in
1996.
As a result of the factors described above, net earnings increased by 55.8%,
from $939,825 ($.09 per share) for 1994 to $1,464,003 ($.14 per share) for
1995.
Fiscal Year 1994 vs. 1993
Total revenues for 1994 were $38,490,144, representing an increase of 42.6%
over total revenues of $26,994,415 for 1993. The increase in total revenues
from 1993 to 1994 was attributable to same store sales increases during 1994
of 9%, the opening of three additional full service restaurants during 1994
and the opening of one additional full service restaurant during the last
quarter of 1993.
Cost of sales as a percentage of restaurant sales increased slightly, from
34.9% for 1993 to 36.0% for 1994, primarily as a result of increased seafood
commodity costs.
Operating expenses (consisting primarily of payroll, occupancy and other
operating expenses) were $16,605,251 for 1994, an increase of 35.9% over 1993
operating expenses of $12,216,424. Operating expenses as a percentage of
restaurant sales declined slightly, from 51.3% in 1993 to 49.2% in 1994,
principally as a result of increased restaurant sales at existing restaurant
locations. The actual increase in operating expenses resulted from costs
associated with the operation of three additional full service restaurants
opened during 1994 and a full years operation of one full service restaurant
opened during the fourth quarter of 1993.
G & A expenses for 1994 were $3,381,316, a 47.3% increase over G & A
expenses of $2,295,134 for 1993. The actual increase in G & A expenses
resulted principally from the increase in personnel required to implement
Bayport's restaurant expansion program.
Restaurant opening expenses for 1994 increased to $286,635, a 254.8%
increase over restaurant opening expenses of $80,794 for 1993. This increase
resulted from the opening of one full service restaurant during the fourth
quarter of 1993 and three full service restaurants during 1994.
During 1994, Bayport incurred a one-time net loss of approximately $240,000
as the result of the sale of Bayport's interest in an intermediate term bond
mutual fund. No such comparable loss was recorded during 1993.
As a result of the above described factors, earnings before income taxes,
minority interest and cumulative effect of accounting change increased by 5%,
from $1,265,129 for 1993 (4.6% of total revenue) to $1,333,520 for 1994 (3.5%
of total revenue).
Minority interest in net earnings of subsidiary was $121,765 for 1993. In
August 1993, Bayport acquired this minority interest.
Effective December 29, 1992, Bayport changed its method of accounting for
income taxes as a result of the adoption of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("FAS 109"). As a result of
the adoption of FAS 109, Bayport recorded income of $223,295 during 1993 as
the cumulative effect of accounting changes. No such comparable gain was
recorded during 1994.
Since Bayport was utilizing net operating losses against 1993 income, no
provision for income taxes was accrued during 1993. For 1994, Bayport accrued
a provision for income taxes of $393,695.
After accounting for the matters described above, net earnings decreased by
$426,834 from $1,366,659 for 1993 ($.18 per share) to $939,825 for 1994 ($.09
per share).
75
<PAGE>
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Bayport's current ratio at December 25, 1995 was approximately 1.3 to 1,
compared to approximately 4.07 to 1 at December 26, 1994 and 3.4 to 1 at
December 27, 1993. The decrease from 1994 to 1995 results principally from the
use of Bayport's resources in connection with Bayport's restaurant expansion
program.
The increase in account receivables from 1994 to 1995 resulted principally
from increased sales activity in Bayport's seafood processing subsidiary. The
increase in inventory from 1994 to 1995 is primarily due to substantial
increases in sales at Bayport's seafood processing subsidiary, requiring that
Bayport maintain a larger inventory, and substantially higher inventory
required to service Bayport's restaurant operations. Bayport operated 20
restaurants at the end of 1995, compared to 13 restaurants at the end of 1994.
Additionally, two full service restaurants have been opened to date during the
first quarter of 1996.
The increase in property, plant and equipment and other assets from 1994 to
1995 principally results from the new restaurants opened during 1995 and the
construction in progress of several new restaurants to be opened during 1996.
The increase in accounts payable was primarily due to construction in
progress of new restaurants under construction at the end of 1995 compared to
the end of 1994, as well the buildup of inventory resulting from the increase
in the number of restaurants in Bayport's restaurant chain.
In 1995, cash provided by operating activities totaled $1,587,185, up from
$431,266 in 1994. Major sources of funds were net earnings of $1,464,003 and
non-cash provisions for depreciation and amortization. Cash used in investing
activities was $13,575,664, primarily as a result of fixed asset additions in
connection with the opening of new restaurants. Cash was provided by financing
activities in the amount of $12,656,983, primarily as a result of new
borrowings. Investing and financing activities were much higher in 1995 than
in 1994 as a result of the new restaurants opened in 1995.
Effective December 14, 1994, Bayport and each of its wholly-owned
subsidiaries (the "Subsidiaries") entered into a Revolving Credit and Term
Loan Agreement (the "Credit Agreement") with The First National Bank of
Boston, as Agent, and with the First National Bank of Boston and Capital Bank,
as "Lenders." In accordance with the Credit Agreement, the Lenders granted to
Bayport a credit facility in the amount of $14.0 million. The credit facility
is for a term of seven years and is structured in two parts: (i) for the first
three years, the facility is structured as a revolving loan; (ii) at the end
of three years, so long as Bayport is not then in default under the Credit
Agreement, Bayport may convert the amount then due and payable to the Lenders
into a term loan payable in quarterly principal installments over an
additional four year period. For all purposes hereunder, "Loans" shall refer
collectively to the revolving and term loan portion of this credit facility.
Bayport pays interest on the Loans at the Bank's "Base Rate", as announced
from time to time, plus one-half percent (.5%). Interest is payable monthly.
Bayport is also obligated to pay the following fees to the Lenders: (i) a
commitment fee equal to 3/8 of one percent on the unused portion of the
revolving loan; and (ii) a fee for early termination of the revolving portion
of the credit facility. Bayport is presently in violation of certain covenants
contained in the Credit Agreement, but has received a waiver of these
covenants through 1996.
In June 1995, Bayport entered into an agreement to cap at 14% interest on a
$7.0 million portion of the debt due to the Lenders until January 31, 1998.
Bayport paid a fee of $14,000 in connection with this agreement.
In February 1996, the Lenders and Bayport entered into an Amendment to the
Credit Agreement (the "Amendment"), increasing the credit facility from $14.0
million to $16.0 million under the same terms and conditions as the Credit
Agreement. As of March 18, 1996, $15,698,506 was outstanding under the Credit
Agreement, as amended by the Amendment.
Additionally, on December 15, 1995, Bayport and each of its wholly-owned
subsidiaries, and Capital Bank entered into a Revolving Credit Agreement
whereby Capital Bank agreed to advance up to $2.0 million to Bayport, as
determined by a borrowing base of 80% of inventory at Bayport's central
warehouse located in
76
<PAGE>
Jacksonville, Florida. The unpaid balance bears interest at the rate of 1%
over the prime rate as set forth from time to time in The Wall Street Journal
and is payable monthly. As of March 18, 1996, $2.0 million was outstanding
under this facility.
Bayport believes that if the Merger is not completed, it will need
approximately $16.0 million to complete its 1996 expansion program, which
includes up to $11.0 million being loaned to Bayport in the Loan. Based on the
availability of financing, Bayport would determine whether to continue the
expansion program in 1997. The failure to obtain the required funds would
likely cause Bayport to lose the five restaurants collateralizing the Loan and
to have to curtail its restaurant expansion program. Bayport is also currently
obligated on leases for three restaurant sites as to which it has not yet
commenced construction of new restaurants. Bayport has entered into the Loan
Agreement with Landry's, the proceeds of which are being used to fund
construction costs relating to the four Crab House restaurants which are
currently under construction. If the Merger is not completed, Bayport will
have 120 days to obtain refinancing of the funds borrowed from Landry's. If
funding cannot be obtained, Landry's has the right to convert the Loan into
the ownership of the four restaurants which collateralize the Loan. See
"Interim Funding Arrangement." Additionally, if the Merger were not to be
completed, Bayport might become obligated to pay the Termination Fee, which
would be due six months after the termination of the Merger.
Bayport believes that in connection with obtaining required capital, it
would likely have to sell equity securities of Bayport (or debt securities
convertible into equity securities of Bayport). Issuances of securities would
likely be at substantial discounts to current market and would likely
substantially dilute the interest of Bayport's existing equity holders. If
capital cannot be obtained in this manner, Bayport will seek alternative types
of financing, such as build-to-suits, sale leaseback, or joint ventures. There
can be no assurance that any financing will be available to Bayport. No
funding has been committed at this date. The failure to obtain the required
funding would likely have a material adverse effect on Bayport's operations,
financial position and results of operations.
INTERIM FUNDING ARRANGEMENT
On April 18, 1996, Bayport entered into the Loan Agreement with Landry's,
pursuant to which Landry's agreed to loan Bayport up to $11.0 million to be
used to finance the continued construction of restaurants located in Chelsea
Piers and Great Neck, New York; Nashville, Tennessee; and Baltimore, Maryland
pending consummation of the Merger. Outstanding indebtedness under the Loan
Agreement bears interest at the prime rate, as published in The Wall Street
Journal, plus 2%. Interest under the Loan Agreement is payable monthly.
Landry's is obligated to make the full amount of the Loan whether or not the
transactions contemplated by the Merger Agreement are consummated.
The Loan is intended to be secured by collateral assignments of Bayport's
leasehold interests on, and all other assets of the Collateralized Properties.
However, the initial portion of the Collateralized Properties will be
Bayport's leasehold interest on, and other assets at, its restaurant located
in Jupiter, Florida. Such property will be released as collateral if certain
of the Collateralized Properties are substituted therefor. The aggregate
advances available under the Loan Agreement are based on the delivery of the
necessary documentation for each of the Collateralized Properties to Landry's.
Currently, the Jupiter leasehold and restaurant has been collaterally assigned
to Landry's, resulting in the availability of $2.5 million under the Loan
Agreement.
Pursuant to the Loan Agreement, if the Merger is not consummated, Bayport
will have the opportunity to repay indebtedness under the Loan Agreement for a
period of 120 days from the date the Merger Agreement is terminated, during
which time Landry's has agreed to take no action against Bayport so long as
Bayport continues to pay interest monthly. At the end of such period, if
Bayport has not repaid such indebtedness, Bayport will be entitled to convey
and Landry's will be obligated to take the Collateralized Properties in full
consideration of repayment of such indebtedness. The Merger Agreement provides
that, in the event Bayport terminates the Merger Agreement because of
Bayport's receipt of a Superior Proposal, Landry's will automatically obtain
ownership of the Collateralized Properties, for an amount equal to $11.0
million, less (i) any amounts previously provided by Landry's to Bayport; (ii)
certain designated fees, costs and expenses; and (iii) the cost to complete
the construction of certain of the restaurants under construction making up a
portion of the Collateralized Properties.
77
<PAGE>
In connection with the Loan Agreement, the Lenders have agreed to waive
certain covenants, events of default and termination fees under their
Revolving Credit and Term Loan Facility with Bayport, unless and until the
Merger Agreement is terminated. Further, the Lenders have agreed to assign the
collateral assignment documentation relating to the Nashville and Jupiter
restaurants to Landry's and to permit the placement of liens on certain of
Bayport's other assets. The collateral assignment documentation relating to
the Jupiter restaurant will be reassigned by Landry's to the Lenders upon
Landry's receipt of the collateral assignment documentation relating to the
two Myrtle Beach restaurants.
78
<PAGE>
BAYPORT'S SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 2, 1996 with
respect to any person (including any "group" as that term is used in Item 403
of Regulation S-K) who is known to Bayport to be the beneficial owner of more
than 5% of Bayport Common Stock and Bayport Preferred Stock, with respect to
certain of Bayport's Directors and each of Bayport's executive officers and
with respect to Bayport's executive officers and Directors as a group. Unless
otherwise indicated, the respective holders of shares reflected in the table
have sole voting and investment power with respect thereto and own their
respective shares directly. Except as noted, the address of each beneficial
owner is c/o Bayport.
<TABLE>
<CAPTION>
AMOUNT OF AMOUNT OF AND APPROXIMATE
AND NATURE APPROXIMATE NATURE PERCENT OF
OF PERCENT OF OF BENEFICIAL CLASS OF
BENEFICIAL CLASS OF OWNERSHIP BAYPORT
OWNERSHIP OF BAYPORT OF PREFERRED PREFERRED
NAME OF BENEFICIAL OWNER COMMON STOCK COMMON STOCK(1) STOCK STOCK(1)
- ------------------------ ------------ --------------- ------------- -----------
<S> <C> <C> <C> <C>
Albert A. Clapps........ 151,533(2) 1.5 -- *
David J. Connor......... 412,311(3) 4.0 -- *
Arthur H. Kaplan........ 538,861(4) 5.4 -- *
William D. Korenbaum.... 447,000(5) 4.4 -- *
Aloysius D. Rossi....... 124,842(6) 1.2 -- *
Martin Rudolph.......... 66,642(7) * -- *
Robert Stetson.......... 33,625(8) * -- *
Thomas R. Hitchner...... 25,980(9) * -- *
Dennis Snuszka.......... 104,250(10) 1.0 -- *
Officers and Directors
of Bayport as a Group
(9 Persons)............ 1,962,185(11) 18.1 -- *
Robert Fleming, Inc.
1285 Avenue of the
Americas 16th Floor
New York, N.Y. 10009.... 560,624(12) 5.6 1,099,099(12) 47.9
Howard E. Rachofsky..... -- * 210,000 9.1
</TABLE>
- --------
* Less than 1%
(1) Based on 10,078,374 shares outstanding, plus, as to each person, the
exercise of their currently exercisable options and options becoming
exercisable within the next 60 days.
(2) Includes 25,000 shares which may be acquired on the exercise of currently
exercisable options. Does not includes 3,000 shares which may be acquired
upon the exercise of options which are not yet exercisable or to become
exercisable within 60 days after the date hereof.
(3) Includes 253,750 shares which may be acquired upon the exercise of
currently exercisable options. Does not includes 400,000 shares which may
be acquired upon the exercise of options which are not yet exercisable or
to become exercisable within 60 days after the date hereof, although such
shares will become immediately exercisable upon consummation of the
Merger.
(4) Includes shares beneficially owned by the Hirsh Family Trust (the
"Trust"). Mr. Kaplan serves as one of three trustees of the Trust and, as
such, under federal securities laws shares the power to vote and dispose
of securities held by the Trust. Mr. Kaplan otherwise disclaims beneficial
ownership over securities owned by the Trust. Includes 58,000 shares which
may be acquired on the exercise of currently exercisable options. Does not
include 22,500 shares which may be acquired upon the exercise of options
which are not yet exercisable or to become exercisable within 60 days
after the date hereof.
(5) Includes 241,250 shares which may be acquired upon the exercise of
currently exercisable options. Does not include 360,000 shares which may
be acquired upon the exercise of options which are not yet exercisable or
to become exercisable within 60 days after the date hereof, although such
shares will become immediately exercisable upon consummation of the
Merger.
79
<PAGE>
(6) Includes 24,500 shares which may be acquired upon the exercise of
currently exercisable options or options which will become exercisable
within the next 60 days. Does not include 3,000 shares which may be
acquired upon the exercise of options which are not yet exercisable or to
become exercisable within 60 days after the date hereof.
(7) Includes 27,500 shares which may be acquired upon the exercise of
currently exercisable options or options which will become exercisable
within the next 60 days. Does not include 3,000 shares which may be
acquired upon the exercise of options which are not yet exercisable or to
become exercisable within 60 days after the date hereof.
(8) Includes 18,000 shares which may be acquired upon the exercise of
currently exercisable options or options which will become exercisable
within the next 60 days. Does not include 4,500 shares which may be
acquired upon the exercise of options which are not yet exercisable or to
become exercisable within 60 days after the date hereof.
(9) Includes 13,000 shares which may be acquired upon the exercise of
currently exercisable options or options which will become exercisable
within the next 60 days. Does not include 4,500 shares which may be
acquired upon exercise of options which are not yet exercisable or to
become exercisable within 60 days after the date hereof.
(10) Includes 25,000 shares which may be acquired upon the exercise of
currently exercisable options. Does not include 45,000 shares which may
be acquired upon exercise of options which are not yet exercisable or to
become exercisable within 60 days after the date hereof.
(11) See Notes 1 through 10.
(12) Information obtained from the Schedule 13G filed on February 14, 1996.
BAYPORT'S CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MESSRS. CLAPPS AND ROSSI
Fast Food Properties II ("FFP") is the owner of the facilities housing
Bayport's Miami restaurant, including the fixtures therein. FFP sub-leases the
land and leases the facilities and fixtures to Bayport at an annual rental of
$220,000, plus 8.5% of annual sales of the Miami restaurant in excess of
$3,900,000. Bayport was the direct lessee under the ground lease until it
assigned its interests in the ground lease to FFP in January 1992. During the
first quarter of 1996 and for the 1995 fiscal year, the rent paid or payable
by Bayport under the FFP Lease was approximately $55,108 and $220,434,
respectively. Messrs. Clapps and Rossi are among the limited partners of FFP.
The lease on the facilities expires in 2017.
Bayport believes that its arrangement with FFP is on terms no less favorable
to Bayport than could have been obtained from unaffiliated third parties.
LOANS TO MESSRS. KORENBAUM AND CONNOR
Mr. Korenbaum owes approximately $297,036 to Bayport which he borrowed
pursuant to the provisions of his employment agreement with Bayport (to
exercise certain stock options). This loan is evidenced by three promissory
notes which mature on June 30, 1997. These notes bear interest at a rate of 7%
per annum.
Mr. Connor owes approximately $179,000 to Bayport. These loans are evidenced
by (i) a $125,000 principal amount promissory note which matures on April 11,
1998 and bears interest at a rate of prime plus 1/2% per annum; and (ii) a
$53,928 principal amount promissory note which matures on April 10, 1997 and
bears interest at a rate of 7% per annum.
80
<PAGE>
These loans will be repaid by Messrs. Korenbaum and Connor at the closing of
the Merger. See "The Merger--Interests of Certain Persons in the Merger."
TRANSACTIONS WITH U.S. RESTAURANT PROPERTIES MASTER L. P.
U.S. Restaurant Properties Master L.P. ("U.S. Restaurant") is the owner of
the facilities housing Bayport's Jupiter, Florida restaurant. On January 1,
1996, Bayport began paying rent of $30,000 per month on such facility. Robert
Stetson, a director of Bayport, is the President-CEO and a director of QSV
Properties, Inc., the managing general partner of U.S. Restaurant.
Bayport believes that the arrangement with U.S. Restaurant is on terms no
less favorable to Bayport than could have been obtained from unaffiliated
third parties.
APPRAISAL RIGHTS
Florida law accords the holders of the Bayport Preferred Stock the right to
dissent from the Merger. Holders of Bayport Common Stock do not have the right
to dissent from the Merger as Florida law does not provide for such rights
where shares are traded on the Nasdaq National Market or held of record by not
fewer than 2,000 shareholders, both of which apply to Bayport Common Stock.
A holder of Bayport Preferred Stock may dissent from the Merger (the
"Dissenting Stockholder") and receive in cash the fair value, as of the day
prior to the Meeting, of the Bayport Preferred Stock held by such holder
pursuant to Sections 607.1301, 607.1302 and 607.1320 of the Florida Business
Corporation Act (the "Florida Dissent Provisions").
Under the Florida Dissent Provisions, a Dissenting Shareholder may dissent
from the Merger by complying with the following procedures: (i) the Dissenting
Shareholder must filed with Bayport prior to the Meeting, written notice of
the intent to demand payment for the shares of Bayport Preferred Stock; (ii)
the Dissenting Shareholder must refrain from voting in favor of the Merger
Agreement; (iii) within 10 days after the date of the Meeting, Bayport shall
give written notice of approval of the Merger Agreement by the holders of the
majority of the shares of Bayport Common Stock and Bayport Preferred Stock to
such Dissenting Shareholder; and (iv) within 20 days after the Dissenting
Shareholder receives such notice of authorization, the Dissenting Shareholder
shall file with Bayport a notice of election and a demand for payment of the
fair value of the shares of Bayport Preferred Stock. Any Dissenting
Shareholder filing an election to dissent shall deposit the certificates for
certificated shares of Bayport Preferred Stock with Bayport simultaneously
with the filing of the election to dissent. A holder of Bayport Preferred
Stock may dissent as to less than all of the shares of Bayport Preferred Stock
held and in such event, will be treated as two separate holders of Bayport
Preferred Stock. Once Bayport offers to pay the Dissenting Shareholder, the
notice of election cannot be withdrawn except with the consent of Bayport.
However, the right of a Dissenting Shareholder to be paid the fair value of
the shares shall cease if (i) the demand is withdrawn, (ii) the proposed
Merger is abandoned, (iii) no demand or petition for determination of fair
value is filed with the appropriate court within the time provided by law, or
(iv) a court of competent jurisdiction determines that such holder of Bayport
Preferred Stock is not entitled to the relief provided by the Florida Dissent
Provisions.
Submission of a proxy or a vote against the proposed Merger does not
constitute a notice of intent to demand payment under the Florida Dissent
Provisions.
Within 10 days after the later of the expiration of the period in which the
Dissenting Shareholder may file a notice of election to dissent or the Closing
Date, Bayport is required to make a written offer to each Dissenting
Shareholder to purchase the shares of Bayport Preferred Stock at a price
deemed by Bayport to be the fair value of such shares. If, within 30 days
after the making of such offer, any holder accepts the same, payment therefor
shall be made within 90 days after the later of the date such offer was made
or the consummation of the Merger.
81
<PAGE>
However, if, within such 30-day period, Bayport and the Dissenting Shareholder
are unable to agree with respect to a price, then Bayport, within 30 days
after receipt of written demand from such Dissenting Shareholder given within
60 days after the Closing Date, shall, or at its election within such period
may, file an action in a court of competent jurisdiction in Broward County,
Florida requesting that the fair value of the shares of Bayport Preferred
Stock be found and determined. If Bayport fails to institute such proceedings,
any Dissenting Shareholder may do so in the name of Bayport. In such
proceeding, the court may, if it so elects, appoint one or more persons as
appraisers to receive evidence and recommend a decision on the question of
fair value. Bayport shall pay each Dissenting Shareholder the amount found to
be due within 10 days after final determination of the proceedings. Upon
payment of such judgment, the Dissenting Shareholder will cease to have any
interest in the shares.
Any judgment rendered in any dissent proceeding may, at the discretion of
the court, include any allowance for interest at such rate as the court may
deem fair and equitable. The cost and expenses of any such dissent proceeding
shall be determined by the court and shall be assessed against Bayport, but
all or any part of such costs and expenses may be apportioned and assessed
against the Dissenting Shareholders, in such amount as the court deems
equitable, if the court determines that Bayport made an offer to the
Dissenting Shareholders and the failure to accept such offer was arbitrary,
vexatious or not in good faith. The expenses awarded by the court shall
include compensation for reasonable expenses of any appraiser but shall not
include the fees and expenses of counsel or experts employed by any party. If
the fair value of the shares of Bayport Preferred Stock as determined by the
proceeding, materially exceeds the amount which Bayport initially offered to
pay, or if no offer was made, the court, in its discretion, may award to any
Dissenting Shareholder who is a party to the proceeding such sum as the court
may determine to be reasonable compensation for any attorney or expert
employed by the Dissenting Shareholder in the proceeding.
The foregoing discussion only summarizes certain provisions of the Florida
Dissent Provisions. Bayport Preferred Shareholders are urged to review such
provisions in their entirety which are included as Annex 3 to this Proxy
Statement/Prospectus. Any Bayport Preferred Shareholder who intends to dissent
from the Merger should review the text of the Florida Dissent Provisions
carefully and also should consult with his or her attorney. Any Bayport
Preferred Shareholder who fails to strictly follow the procedures set forth in
such statutes will forfeit dissenters' rights.
ACCORDINGLY, BAYPORT PREFERRED SHAREHOLDERS WHO ARE NOT SATISFIED WITH THE
CONSIDERATION TO BE PAID IN THE MERGER MAY EXERCISE THEIR DISSENTERS' RIGHTS
OF APPRAISAL AND BE PAID CASH FOR THEIR SHARES OF BAYPORT PREFERRED STOCK.
LEGAL MATTERS
The validity of the issuance of the shares of Landry's Common Stock being
offered hereby will be passed upon for Landry's by Winstead Sechrest & Minick
P.C., Houston, Texas, which firm has acted as counsel to Landry's in
connection with the Merger. The federal income tax consequences of the Merger
and certain other matters will be passed upon for Bayport by Akerman,
Senterfitt & Eidson, P.A., Miami, Florida.
82
<PAGE>
EXPERTS
The consolidated financial statements and schedules of Landry's as of
December 31, 1994 and 1995 and for each of the years in the three-year period
ended December 31, 1995 included in this Proxy Statement/Prospectus and in the
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto in
reliance upon the authority of said firm as experts in accounting and auditing
and in giving said reports.
The consolidated financial statements of Bayport at December 25, 1995 and
December 26, 1994 and for each of the three years in the period ended December
25, 1995, included in the Proxy Statement/Prospectus, which is referred and
made a part of this Proxy Statement/Prospectus and the Registration Statement
of Landry's have been audited by Grant Thornton LLP, independent public
accountants, which report is included herein, and upon the authority of said
firm as experts in accounting and auditing.
1996 ANNUAL MEETING OF SHAREHOLDERS
If the Merger is not consummated, Bayport will hold its 1996 Annual Meeting
of Shareholders as soon after the termination of the Merger Agreement as is
practicable.
BY ORDER OF THE BOARD OF DIRECTORS
Ruth Stack, Secretary
Hollywood, Florida
, 1996
83
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Bayport's Consolidated Financial Statements
<TABLE>
<S> <C>
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets for the two years ended December 25, 1995
and December 26, 1994.................................................. F-3
Consolidated Statements of Earnings for the three years in the period
ended December 25, 1995................................................ F-4
Consolidated Statement of Stockholders' Equity for the three years in
the period ended
December 25, 1995...................................................... F-5
Consolidated Statements of Cash Flows for the three years in the period
ended
December 25, 1995...................................................... F-6
Notes to Consolidated Financial Statements.............................. F-8
Landry's Consolidated Financial Statements
Report of Independent Public Accountants................................ F-20
Consolidated Balance Sheets............................................. F-21
Consolidated Statements of Income....................................... F-22
Consolidated Statements of Stockholders' Equity......................... F-23
Consolidated Statements of Cash Flows................................... F-24
Notes to the Consolidated Financial Statements.......................... F-25
Unaudited Pro Forma Condensed Combined Financial Statements
Unaudited Pro Forma Condensed Combined Balance Sheet.................... F-33
Unaudited Pro Forma Condensed Combined Statements of Operations......... F-33
Notes to Unaudited Pro Forma Condensed Combined Financial Statements.... F-34
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Bayport Restaurant Group, Inc.
We have audited the accompanying consolidated balance sheets of Bayport
Restaurant Group, Inc. and Subsidiaries as of December 25, 1995 and December
26, 1994 and the related consolidated statements of earnings, stockholders'
equity and cash flows for each of the three years in the period ended December
25, 1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Bayport
Restaurant Group, Inc. and Subsidiaries as of December 25, 1995 and December
26, 1994, and the consolidated results of their operations and their
consolidated cash flows for each of the three years in the period ended
December 25, 1995, in conformity with generally accepted accounting
principles.
Grant Thornton LLP
Miami, Florida
March 8, 1996
F-2
<PAGE>
BAYPORT RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 25, 1995 AND DECEMBER 26, 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
------ ------------ -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents......................... $ 1,073,017 $ 404,513
Certificates of deposit........................... 300,000 --
Securities available for sale, at market (Notes A
and B)........................................... -- 5,205,557
Accounts receivable--trade, net of allowance for
doubtful accounts of $13,000 and $70,000 on
December 25, 1995 and December 26, 1994,
respectively..................................... 1,918,081 1,452,789
Inventories (Note A).............................. 5,461,381 2,847,324
Prepaid expenses and other current assets......... 735,648 586,912
Deferred pre-opening costs, net (Note A).......... 1,928,078 217,980
------------ -----------
Total current assets............................ 11,416,205 10,715,075
PROPERTY, PLANT AND EQUIPMENT--AT COST, less
accumulated depreciation (Notes A and C)........... 34,010,527 16,346,073
OTHER ASSETS
Certificates of deposit (Note A).................. -- 300,000
Note receivable................................... 125,000 --
Goodwill, net (Note A)............................ 100,026 105,911
Deposits.......................................... 525,698 254,187
Other, net........................................ 1,687,351 804,952
------------ -----------
2,438,075 1,465,050
------------ -----------
$ 47,864,807 $28,526,198
============ ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term obligations (Note
D)............................................... $ 2,283,576 $ 489,368
Due to related party (Notes D and F).............. 94,332 94,332
Accounts payable.................................. 5,521,837 1,215,739
Income taxes payable (Note I)..................... -- 29,150
Accrued liabilities (Note E)...................... 759,042 805,544
------------ -----------
Total current liabilities....................... 8,658,787 2,634,133
DEFERRED INCOME TAXES (Notes A and I)............... 789,307 107,250
LONG-TERM OBLIGATIONS (Note D)...................... 14,680,446 3,520,449
DUE TO RELATED PARTY (Notes D and F)................ 1,155,586 1,257,779
COMMITMENTS AND CONTINGENCIES (Notes G and H)....... -- --
STOCKHOLDERS' EQUITY (Notes A, G, and H)
Preferred stock, authorized 15,000,000 shares at
$.01 par value; Series A Convertible Preferred
Stock, 0 shares issued and outstanding in 1995
and 1994; Series B Convertible Preferred Stock,
2,293,999 and 2,700,055 shares, respectively,
issued and outstanding in 1995 and 1994.......... 22,940 27,001
Common stock--authorized 50,000,000 shares of
$.001 par value; issued and outstanding 9,600,568
shares in 1995 and 9,403,722 in 1994............. 9,602 9,404
Paid-in capital................................... 22,113,189 21,941,526
Retained earnings (accumulated deficit)........... 819,719 (644,284)
Net unrealized losses on investment in marketable
securities....................................... -- (55,191)
Notes receivable from officers (Note J)........... (384,769) (271,869)
------------ -----------
Total stockholders' equity...................... 22,580,681 21,006,587
------------ -----------
$ 47,864,807 $28,526,198
============ ===========
</TABLE>
F-3
<PAGE>
BAYPORT RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 25, 1995, DECEMBER 26, 1994 AND DECEMBER 27, 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Restaurant sales........................ $45,719,186 $33,735,307 $23,799,997
Processing plant sales.................. 7,883,637 4,511,097 2,625,961
Interest and other...................... 74,986 243,740 568,457
----------- ----------- -----------
Total revenues........................ 53,677,809 38,490,144 26,994,415
COST AND EXPENSES
Cost of sales........................... 16,346,607 12,150,640 8,299,384
Payroll and related expenses............ 11,878,029 8,269,479 5,997,628
Other operating expenses................ 6,454,309 5,596,002 4,122,028
Occupancy and related expenses.......... 3,704,135 2,739,770 2,096,768
Processing plant cost of sales and
operating expenses..................... 7,812,463 4,444,153 2,625,038
Restaurant opening expenses (Note A).... 903,313 286,635 80,794
General and administrative.............. 4,008,975 3,381,316 2,295,134
Interest expense........................ 428,808 39,861 212,512
Net (gain) loss on investment securities
(Notes A and B)........................ (9,449) 248,768 --
Minority interest in net earnings of
subsidiary............................. -- -- 121,765
----------- ----------- -----------
Total costs and expenses.............. 51,527,190 37,156,624 25,851,051
----------- ----------- -----------
Earnings before income taxes and
cumulative effect of accounting
change............................... 2,150,619 1,333,520 1,143,364
Provision for income taxes (Note I)....... 686,616 393,695 --
----------- ----------- -----------
Earnings before cumulative effect of
accounting change...................... 1,464,003 939,825 1,143,364
Cumulative effect of accounting change.... -- -- 223,295
----------- ----------- -----------
NET EARNINGS.......................... $ 1,464,003 $ 939,825 $ 1,366,659
=========== =========== ===========
Earnings per common share (Note A)
Earnings before cumulative effect of
accounting change...................... $ .14 $ .09 $ .15
Cumulative effect of accounting change.. -- -- .03
----------- ----------- -----------
Net earnings.......................... $ .14 $ .09 $ .18
=========== =========== ===========
Weighted average number of shares
outstanding (Note A)..................... 10,478,711 10,434,240 7,427,614
=========== =========== ===========
</TABLE>
F-4
<PAGE>
BAYPORT RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 25, 1995, DECEMBER 26, 1994 AND DECEMBER 27, 1993
<TABLE>
<CAPTION>
PREFERRED STOCK
-------------------------------------
SERIES B
SERIES A COMMON STOCK
<CAPTION> ---------------- -------------------
NET UNREALIZED
PAID-IN ACCUMULATED MARKETABLE RECEIVABLE LOSSES ON
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT SECURITIES
-------- ------ ---------- ------- --------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 28,
1992............ 500,000 $5,000 -- $ -- 4,883,672 $4,884 $ 7,057,748 $(2,950,768) $ --
Proceeds from
issuance of
Series B
convertible
preferred stock
and common
stock........... -- -- 15,000,000 150,000 406,875 407 13,977,218 -- --
Exercise of
Series A
warrants (Note
H).............. -- -- -- 525,000 525 1,049,475 -- --
Repurchase of
20% interest in
restaurant...... -- -- -- -- -- -- (896,886) -- --
Conversion of
Series A and B
convertible
preferred stock. (500,000) (5,000) (7,795,727) (77,957) 2,073,932 2,074 80,883 -- --
Conversion of
note payable.... -- -- -- -- 210,000 210 419,790 -- --
Exercise of
stock options
(Note H)........ -- -- -- -- 11,500 11 12,268 -- --
Issuance of
notes receivable
from officers
for exercise of
stock options... -- -- -- -- 125,000 125 154,875 -- --
Repayment of
notes receivable
from officers... -- -- -- -- -- -- -- -- --
Increase in
valuation
allowance for
net unrealized
losses on
marketable
securities...... -- -- -- -- -- -- -- -- (101,166)
Net earnings.... -- -- -- -- -- -- -- 1,366,659 --
-------- ------ ---------- ------- --------- ------ ----------- ----------- --------
Balance at
December 27,
1993............ -- -- 7,204,273 72,043 8,235,979 8,236 21,855,371 (1,584,109) (101,166)
Conversion of
Series B
convertible
preferred stock. -- -- (4,504,218) (45,042) 1,126,055 1,126 43,916 -- --
Exercise of
stock options
(Note H)........ -- -- -- -- 22,750 23 23,508 -- --
Issuance of
notes receivable
from officer for
exercise of
stock options... -- -- -- -- 18,750 19 18,731 -- --
Renewal of note
receivable from
officer......... -- -- -- -- -- -- -- -- --
Change in
valuation
allowance for
net unrealized
losses on
marketable
securities...... -- -- -- -- -- -- -- -- 101,166
Cumulative
effect of change
in method of
accounting for
securities
designated as
available for
sale............ -- -- -- -- -- -- -- -- (55,191)
Net earnings.... -- -- -- -- -- -- -- 939,825 --
-------- ------ ---------- ------- --------- ------ ----------- ----------- --------
Balance at
December 26,
1994............ -- -- 2,700,055 27,001 9,403,534 9,404 21,941,526 (644,284) (55,191)
Conversion of
Series B
convertible
preferred stock. -- -- (406,056) (4,061) 101,514 102 3,959 -- --
Exercise of
stock options
and warrants
(Note H)........ -- -- -- -- 36,770 37 54,863 -- --
Issuance of
notes receivable
from officer for
exercise of
stock options
(Note J)........ -- -- -- -- 58,750 59 112,841 -- --
Change in
valuation
allowance for
net unrealized
losses on
marketable
securities...... -- -- -- -- -- -- -- -- 55,191
Net earnings.... -- -- -- -- -- -- -- 1,464,003 --
-------- ------ ---------- ------- --------- ------ ----------- ----------- --------
Balance at
December 25,
1995............ -- $ -- 2,293,999 $22,940 9,600,568 $9,602 $22,113,189 $ 819,719 $ --
======== ====== ========== ======= ========= ====== =========== =========== ========
NOTES
FROM OFFICERS TOTAL
------------- ------------
<S> <C> <C>
Balance at
December 28,
1992............ $(149,144) $ 3,967,720
Proceeds from
issuance of
Series B
convertible
preferred stock
and common
stock........... -- 14,127,625
Exercise of
Series A
warrants (Note
H).............. -- 1,050,000
Repurchase of
20% interest in
restaurant...... -- (896,886)
Conversion of
Series A and B
convertible
preferred stock. -- --
Conversion of
note payable.... -- 420,000
Exercise of
stock options
(Note H)........ -- 12,279
Issuance of
notes receivable
from officers
for exercise of
stock options... (155,000) --
Repayment of
notes receivable
from officers... 59,610 59,610
Increase in
valuation
allowance for
net unrealized
losses on
marketable
securities...... -- (101,166)
Net earnings.... -- 1,366,659
------------- ------------
Balance at
December 27,
1993............ (244,534) 20,005,841
Conversion of
Series B
convertible
preferred stock. -- --
Exercise of
stock options
(Note H)........ -- 23,531
Issuance of
notes receivable
from officer for
exercise of
stock options... (18,750) --
Renewal of note
receivable from
officer......... (8,585) (8,585)
Change in
valuation
allowance for
net unrealized
losses on
marketable
securities...... -- 101,166
Cumulative
effect of change
in method of
accounting for
securities
designated as
available for
sale............ -- (55,191)
Net earnings.... -- 939,825
------------- ------------
Balance at
December 26,
1994............ (271,869) 21,006,587
Conversion of
Series B
convertible
preferred stock. -- --
Exercise of
stock options
and warrants
(Note H)........ -- 54,900
Issuance of
notes receivable
from officer for
exercise of
stock options
(Note J)........ (112,900) --
Change in
valuation
allowance for
net unrealized
losses on
marketable
securities...... -- 55,191
Net earnings.... -- 1,464,003
------------- ------------
Balance at
December 25,
1995............ $(384,769) $22,580,681
============= ============
</TABLE>
F-5
<PAGE>
BAYPORT RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 25, 1995, DECEMBER 26, 1994 AND DECEMBER 27, 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings........................... $ 1,464,003 $ 939,825 $ 1,366,659
Adjustments to reconcile net earnings
to net cash provided by operating
activities Cumulative effect of
accounting change..................... -- -- (223,295)
Minority interest in earnings of
subsidiary............................ -- -- 121,765
Depreciation of property, plant and
equipment............................. 1,270,666 857,354 583,573
Amortization of intangible assets...... 129,852 24,952 5,884
(Gain) loss on securities.............. (9,449) 248,768 --
Premium amortization................... 36,703 86,368 --
Provision for losses on accounts
receivable............................ (57,000) 11,000 2,500
Change in assets and liabilities:
(Increase) in accounts receivable.... (408,292) (894,599) (483,378)
Decrease in insurance proceeds
receivable.......................... -- -- 413,579
(Increase) in inventories............ (2,614,057) (246,881) (1,345,910)
(Increase) in prepaid expenses and
other current assets................ (148,736) (398,148) (134,470)
(Increase) in deferred pre-opening
costs............................... (1,710,098) (139,383) (50,557)
(Increase) in note receivable........ (125,000) -- --
Decrease in deferred tax asset....... -- 257,295 --
(Decrease) increase in income taxes
payable............................. (29,150) (4,850) 34,000
Increase in deferred tax liability... 682,057 107,250 --
(Decrease) increase in accounts
payable and accrued expenses........ 4,259,596 129,951 (294,910)
(Increase) in deposits and other
assets.............................. (1,153,910) (547,636) (186,559)
----------- ---------- -----------
Net cash provided by (used in)
operating activities.............. 1,587,185 431,266 (191,119)
Cash flows from investing activities
Purchase of securities................. -- (58,021) (8,876,462)
Proceeds from maturity of securities... 1,500,000 1,300,000 --
Proceeds from sale of securities....... 3,696,108 1,510,609 --
Purchase of 20% interest in Orlando.... -- -- (1,050,000)
Additions to property, plant and
equipment............................. (18,771,772) (5,484,786) (3,383,835)
----------- ---------- -----------
Net cash used in investing
activities........................ (13,575,664) (2,732,198) (13,310,297)
Cash flows from financing activities
Borrowings under line of credit........ 15,829,106 2,628,397 --
Principal repayments of short-term
debt.................................. -- -- (494,252)
Principal borrowings of long-term
obligations........................... -- -- 1,100,000
Proceeds from exercise of stock
options............................... 43,430 23,531 12,279
Net proceeds from issuance of stock.... -- -- 14,127,624
Dividends paid to minority stockholder. -- -- (147,685)
Proceeds from exercise of warrants..... 11,540 -- 1,050,000
Repayment of notes receivable from
officers.............................. -- -- 59,610
Principal payments of long-term
obligations........................... (3,227,093) (1,041,030) (2,280,892)
----------- ---------- -----------
Net cash provided by financing
activities.......................... 12,656,983 1,610,898 13,426,684
----------- ---------- -----------
</TABLE>
(continued)
F-6
<PAGE>
BAYPORT RESTAURANT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
YEARS ENDED DECEMBER 25, 1995, DECEMBER 26, 1994, AND DECEMBER 27, 1993
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
(Decrease) increase in cash and cash
equivalents............................... $ 668,504 $ (690,034) $ (74,732)
Cash and cash equivalents at beginning of
year...................................... 404,513 1,094,547 1,169,279
---------- ---------- ----------
Cash and cash equivalents at end of year... $1,073,017 $ 404,513 $1,094,547
========== ========== ==========
Supplemental cash flow data:
Cash paid for interest..................... $ 785,000 $ 222,000 $ 226,350
========== ========== ==========
Cash paid for income taxes................. $ 135,400 $ 34,000 $ --
========== ========== ==========
Non-cash investing and financing
activities:
Issuance of promissory note totaling
$250,000 for lease acquisition in 1995.
Issuance of promissory and mortgage notes
totaling $1,825,000 for purchase of
building, leasehold improvements and
certain equipment.
Reduction in amounts due to related party
of approximately $420,000 for a
promissory note converted into 210,000
shares of common stock in 1993.
</TABLE>
F-7
<PAGE>
BAYPORT RESTAURANT GROUP, INC. SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1995, DECEMBER 26, 1994 AND DECEMBER 27, 1993
Bayport Restaurant Group, Inc. (Bayport) and its subsidiaries (collectively,
the "Company") own and operate full service seafood restaurants under the name
"The Crab House Seafood Restaurant" and take-out seafood restaurants under the
name "Capt. Crab's Take-Away". At December 25, 1995, the Company operates
fifteen full service restaurants and five take-away restaurants. The Company
also operates a seafood processing plant.
NOTE A--SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. Intercompany balances and transactions are
eliminated in consolidation.
Fiscal Year
The Company's fiscal year ends on the last Monday in December. The years
ending December 25, 1995, December 26, 1994 and December 27, 1993 consisted of
52 weeks.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three
months or less, when purchased, to be cash equivalents.
Use of Estimates
In preparing the Company's financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Securities Available for Sale
In accordance with Statement of Financial Accounting Standards No. 115
("SFAS No. 115") securities available for sale are carried at fair value
(market value), inclusive of unrealized gains and/or losses, and net of
discount accretion and premium amortization computed using the level yield
method. Net unrealized gains and losses are reflected as a separate component
of stockholders' equity. Securities are designated as held for investment or
available for sale at the time of purchase.
Stock Options
Options granted under the Company's Stock Option Plans are accounted for
under APB Opinion 25, "Accounting for Stock Issued to Employees" and related
interpretations. In November 1995, the Financial Accounting Standards Board
issued Statement No. 123, "Accounting for Stock-Based Compensation" (SFAS
123), which will require additional proforma disclosures for companies that
will continue to account for employee stock options under the intrinsic value
method specified in APB 25. The Company plans to continue to apply APB 25 and
the only effect of adopting SFAS 123 in 1996 will be the new disclosure
requirement.
(continued)
F-8
<PAGE>
BAYPORT RESTAURANT GROUP, INC. SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 25, 1995, DECEMBER 26, 1994 AND DECEMBER 27, 1993
NOTE A--SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)
Inventories
Inventories consist of frozen processed seafood (finished goods) at the
processing plant and restaurant inventory which is comprised of various food
and beverage items. Inventory is stated at the lower of cost or market. Cost
is determined using the first-in, first-out (FIFO) method. Inventory at the
processing plant was $1,828,674 and $1,109,227 at December 25, 1995 and
December 26, 1994, respectively. Restaurant inventory was $3,632,707 and
$1,738,097 at December 25, 1995 and December 26, 1994, respectively.
Property and Equipment
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets, including capitalized interest, to operations over their
estimated service lives utilizing straight-line and accelerated methods.
Leasehold improvements are depreciated on a straight-line basis over the
shorter of the term of the lease, including options, or the life of the asset.
Leased property under capital leases is depreciated on a straight-line basis
over the basic term of the lease unless ownership reverts to the Company at
the end of the lease, in which case the property is depreciated over its
estimated useful life. For income tax purposes, property and equipment is
depreciated utilizing accelerated methods.
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." This Statement had no impact on the Company's
results of operations or financial position upon adoption in January 1996.
Deferred Pre-Opening Costs
Restaurant pre-opening costs consisting of salaries and other direct costs
incidental to the opening of the Company's restaurants are deferred and
amortized over a one year period following the completion of the restaurant's
opening.
Goodwill
The excess of the Company's cost over the net assets of the business
acquired is being amortized by the straight-line method over 20 years.
On an ongoing basis, management reviews the valuation and amortization of
goodwill. As part of this review, the Company estimates the value and future
benefits of the net income generated by the related subsidiary to determine
that no impairment has occurred.
Intangible Assets
Intangible assets, other than goodwill, have been included in the caption
other assets in the accompanying consolidated financial statements. Intangible
assets primarily consist of deferred loan costs, trademarks, and liquor
licenses which are being amortized on a straight-line basis over periods
ranging from three to forty years. Intangible assets were $356,131 and
$246,878 at December 25, 1995 and December 26, 1994, respectively, and the
related accumulated amortization was $28,679 and $24,952, respectively.
The remaining portion of other assets on the balance sheet consists
primarily of restaurant china, glassware, and utensils. Replacements of these
items are charged to expense as incurred.
(continued)
F-9
<PAGE>
BAYPORT RESTAURANT GROUP, INC. SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 25, 1995, DECEMBER 26, 1994 AND DECEMBER 27, 1993
NOTE A--SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)
Income Taxes
Income taxes are provided based on earnings reported for tax return purposes
in addition to a provision for deferred income taxes. Deferred income taxes
are provided in order to reflect the tax consequences in future years of
differences between the financial statement and tax basis of assets and
liabilities at each year end.
Cost of Sales of Securities
Costs incurred by the Company in connection with the sale of equity
securities are charged to paid-in capital.
Employee Benefit Plan
The Company established in fiscal 1993 a contributory 401(K) plan to which
the Company makes certain matching contributions based upon the level of its
employees' contributions. The amount charged to earnings in fiscal 1995, 1994
and 1993 were insignificant. The Company does not provide any health or other
benefits to retirees.
Reclassifications
Certain prior period amounts within the accompanying consolidated financial
statements have been reclassified in order to conform with the current year
presentation.
Earnings Per Share
Earnings per share is computed based upon the weighted average number of
common shares outstanding during the applicable period. Stock options,
warrants, and convertible preferred stock are considered common stock
equivalents unless their inclusion would be antidilutive.
NOTE B--SECURITIES
Pursuant to the provisions of SFAS No. 115, securities designated as
available for sale are carried at fair value (market value) with the resultant
value appreciation or depreciation from amortized cost reflected as an
addition to, or deduction from, stockholders' equity. In 1994, the Company's
securities were comprised of mutual funds and corporate bonds. On December 26,
1994, the Company wrote-down, through a charge to earnings of approximately
$240,000, its mutual fund investment which was considered to be permanently
impaired since it was sold on December 28, 1994. At December 26, 1994, the
Company's corporate bond securities had gross unrealized losses of $55,121.
(continued)
F-10
<PAGE>
BAYPORT RESTAURANT GROUP, INC. SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 25, 1995, DECEMBER 26, 1994 AND DECEMBER 27, 1993
NOTE C--PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Buildings......................................... $ 3,483,311 $ 3,266,007
Leasehold improvements............................ 17,181,596 6,947,174
Leasehold acquisition............................. 1,570,000 1,570,000
Equipment and furniture........................... 8,879,874 5,546,467
----------- -----------
31,114,781 17,329,648
Less accumulated depreciation and amortization.... 4,638,619 3,381,504
----------- -----------
26,476,162 13,948,144
Construction in progress.......................... 6,936,900 1,800,465
Land.............................................. 597,465 597,464
----------- -----------
$34,010,527 $16,346,073
=========== ===========
</TABLE>
The Company has capitalized interest relating to construction in progress of
approximately $357,000 and $105,000 in 1995 and 1994, respectively.
NOTE D--LONG-TERM OBLIGATIONS
<TABLE>
<CAPTION>
1995 1994
------------ ----------
<S> <C> <C>
Line of credit (1) (2)........................... $ 15,829,106 $2,628,397
Mortgages payable (3)............................ 1,843,584 2,073,531
Other loans (4).................................. 541,251 660,000
------------ ----------
18,213,941 5,361,928
Less current maturities.......................... 2,377,909 583,700
------------ ----------
15,836,032 4,778,228
Less due to related party (Note F)............... 1,155,586 1,257,779
------------ ----------
$ 14,680,446 $3,520,449
============ ==========
</TABLE>
- --------
(1) In December 1994, the Company entered into revolving credit arrangement
with a financial institution under which the Company has a $14,000,000
line of credit, which was increased to $16,000,000 in February 1996,
available for restaurant expansion and general corporate needs. The line
bears interest at the lender's prime rate plus .5% (9% as of December 25,
1995) and converts to a term note on December 31, 1997, requiring all
outstanding amounts are to be repaid, with interest, in 16 quarterly
installments, commencing March 31, 1998. Beginning December 1995, the
Company must pay a commitment fee equal to .375% of the average unused
portion of the line. The Company entered into a protected interest rate
agreement for a premium paid of approximately $14,000 during June 1995.
The agreement caps the rate at 14% for $7 million of the Bank of Boston
line of credit until January 31, 1998. The premium is being amortized over
the related life of the agreement. The loan is collateralized by
substantially all of the assets of the Company. In addition, the loan
agreement includes certain restrictive covenants, as defined, which
prohibit the payment of dividends and contain, restrictions relating to
the maintenance of minimum levels of tangible net worth, and other
financial ratios. The Company is in violation of certain financial
covenants. The Company has received a waiver of these covenants, as of
December 25, 1995, from the bank.
(continued)
F-11
<PAGE>
BAYPORT RESTAURANT GROUP, INC. SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 25, 1995, DECEMBER 26, 1994 AND DECEMBER 27, 1993
NOTE D--LONG-TERM OBLIGATIONS--(CONTINUED)
(2) In December 1995, the Company entered into a revolving credit agreement
under which the Company has a $2,000,000 revolving line of credit
available for working capital needs. The line bears interest at prime plus
1% (9.5% as of December 25, 1995) and is due on demand. The revolving
credit facility provides for a borrowing base not to exceed 80% of the
qualified inventory as defined. The line of credit expires in 2002. The
loan agreement is collateralized by the inventory maintained in the
Company's central warehouse under an intercreditor agreement. In addition,
the loan agreement includes certain restrictive covenants as defined,
which prohibit the payment of dividends and contains restrictions relating
to the maintenance of minimum levels of tangible net worth and other
financial ratios.
(3) Included in mortgages payable at December 26, 1994 is a note payable of
$1,352,111 to a partnership controlled by a shareholder (see Note G). The
note requires monthly principal payments of approximately $7,800 plus
interest at the rate of prime plus 1.5% (10% as of December 25, 1995)
through April 1999, at which time the remaining principal balance and
unpaid interest is due. The note is collateralized by the restaurant
facility purchased with the note. Mortgage notes payable also includes
notes which require combined monthly payments of approximately $11,600
plus interest at prime plus 1% (9.5% as of December 25, 1995). The notes
are collateralized by certain real property and mature in January 2000.
(4) In November 1993, the Company purchased leasehold improvements and certain
equipment for a restaurant which was opened in March 1994. The purchase
price was $785,000, for which the Company issued a promissory note for
$400,000 and paid the balance of the purchase price in cash. The
promissory note is collateralized by the assets of the restaurant. The
note bears interest at the prime rate (8.5% as of December 25, 1995) and
requires equal quarterly principal payments of $20,000 plus interest over
the next five years.
Also, during 1994, the Company executed two promissory notes for the
purchase of leasehold improvements and certain equipment for a restaurant
opened in May 1994. The promissory notes are collateralized by the assets
of the restaurant. One of the notes required monthly interest payments of
8% with the entire principal balance of $200,000 paid in January 1995. The
other promissory note bears interest equal to the prime rate plus 1% (9.5%
as of December 25, 1995) and matures in September 1996. This note requires
monthly principal payments of $14,000 during the months of May through
September.
The maturities of long-term obligations at December 25, 1995 are
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
-------------------
<S> <C>
1996...................................................... $ 2,377,909
1997...................................................... 323,770
1998...................................................... 3,781,883
1999...................................................... 4,575,378
2000...................................................... 3,506,263
2001 and thereafter....................................... 3,648,738
-----------
18,213,941
Less current maturities..................................... 2,377,909
-----------
$15,836,032
===========
</TABLE>
(continued)
F-12
<PAGE>
BAYPORT RESTAURANT GROUP, INC. SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 25, 1995, DECEMBER 26, 1994 AND DECEMBER 27, 1993
NOTE E--ACCRUED LIABILITIES
Accrued liabilities consist of the following terms:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Payroll................................................. $395,975 $347,532
Sales tax............................................... 76,408 7,063
Other accruals.......................................... 286,659 450,949
-------- --------
$759,042 $805,544
======== ========
</TABLE>
NOTE F--RELATED PARTY TRANSACTIONS
In November 1992, the Company leased a building under an operating lease as
well as restaurant equipment for a new restaurant from a partnership
controlled by a shareholder. This partnership also leased equipment to the
Company for use in an existing restaurant. The equipment leases were treated
as capital leases for financial statement purposes. In April 1994, the Company
purchased the related equipment from the partnership for $601,576, which
represented the unpaid principal balance on the leases. The Company also
purchased the aforementioned building and ground lease from the partnership
for $1,615,000. The Company issued a purchase money mortgage note of
$1,415,000 to the partnership (see Note D) and paid the balance of the
purchase price in cash. The balance of the mortgage note is included in the
caption(s) "due to related parties" at December 26, 1994. Rent of
approximately $131,000 and $523,000 was paid under these leases in 1994 and
1993, respectively.
The facility which houses one of the Company's restaurants is subleased from
a partnership controlled by a shareholder. The total rent paid under this
sublease for the periods ending December 25, 1995, December 26, 1994 and
December 27, 1993 was approximately $352,684, $283,708 and $234,762,
respectively. A portion of the Company's assets are pledged to collateralize
the obligation to pay rent under this lease.
One of the directors of the Company is a partner in a law firm utilized for
certain legal work in 1995, 1994 and 1993. Total fees paid to the firm were
approximately $105,000, $35,300 and $32,800 in 1995, 1994 and 1993,
respectively.
In 1994, pursuant to Bayport's request, a seafood processing plant,
controlled by an officer of the Company's subsidiary, CryoTech Industries of
North Carolina, Inc., purchased excess live crab from Bayport and then sold
processed and packaged pasteurized crab meat to the Company for distribution
and re-sale. The Company's purchases from and sales to this related company
amounted to $164,420 and $94,902, respectively.
In December 1995, the Company leased a restaurant site in Jupiter, Florida
that required the Company to pay a down payment of $1,140,000, and a rental
payment of $360,000 annually over 20 years. The lessor is a company controlled
by a director of Bayport.
NOTE G--COMMITMENTS AND CONTINGENCIES
Leases
The Company conducts a portion of its operations and maintains its
administrative offices in leased facilities. The following is a schedule by
years of approximate minimum rental payments under such operating leases which
expire at various dates through 2038. Certain leases provide for the Company
to pay its proportionate share of increases in real estate taxes, additional
rental based upon increases in the Consumer Price Index as well as amounts
based upon a percentage of sales in excess of specified amounts. Rent expense
for the periods ending December 25, 1995, December 26, 1994 and December 27,
1993, was approximately $2,355,740, $2,061,190 and $1,626,130, respectively.
(continued)
F-13
<PAGE>
BAYPORT RESTAURANT GROUP, INC. SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 25, 1995, DECEMBER 26, 1994 AND DECEMBER 27, 1993
NOTE G--COMMITMENTS AND CONTINGENCIES--(CONTINUED)
Minimum payments under non-cancelable operating leases are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER
- --------------------
<S> <C>
1996........................................................... $ 4,819,498
1997........................................................... 5,460,892
1998........................................................... 5,443,838
1999........................................................... 5,455,213
2000........................................................... 5,516,992
2001 and thereafter............................................ 81,593,008
------------
Total.......................................................... $108,289,441
============
</TABLE>
The Company has entered into additional operating lease agreements for new
restaurants to be opened during 1996, and it is likely that additional leases
will be executed in 1996.
In connection with the opening of the new Crab House restaurants and Take-
Aways, the Company has entered into contracts for the purchase and/or
construction of certain leasehold improvements, equipment and furniture for
the restaurant. At December 25, 1995, the Company had an obligation of
approximately $6,300,000 remaining on these contracts. Also, the Company will
likely enter into additional commitments for construction and the purchase of
equipment for other new restaurants.
Employment Agreements
The Company has employment agreements with its key officers which provide
for certain levels of base compensation, bonuses, stock options and noncompete
covenants. The agreements expire in 1999 unless renewed prior to that date.
Litigation
In the normal course of business, the Company is subject to various
litigation. In the opinion of management, the ultimate resolution of the
litigation will not have a material effect on the financial statements.
(continued)
F-14
<PAGE>
BAYPORT RESTAURANT GROUP, INC. SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 25, 1995, DECEMBER 26, 1994 AND DECEMBER 27, 1993
NOTE H--STOCK OPTIONS AND WARRANTS
The Company has two Incentive Stock Option Plans under which options to
purchase an aggregate of 325,000 shares of common stock are authorized.
In addition, various non-qualified options have been granted to key
employees. During 1995, employment agreements granted certain officers 950,000
options. Further information on the non-qualified and qualified options is
provided in the tables below.
Non-Qualified Options
<TABLE>
<CAPTION>
NUMBER OF OPTION
SHARES PRICE AMOUNT
--------- ------------ ----------
<S> <C> <C> <C>
Outstanding at December 29, 1992............ 245,000 $1.00--$3.00 $ 329,750
Exercised................................... (125,000) $1.24 (155,000)
Granted..................................... 446,250 $3.36--$5.87 2,005,675
--------- ----------
Outstanding at December 27, 1993............ 566,250 $1.00--$5.87 2,180,425
Cancelled or expired........................ (25,000) $5.00 (125,000)
Exercised................................... (18,750) $1.00 (18,750)
Granted..................................... 40,000 $4.12--$6.12 204,800
--------- ----------
Outstanding at December 26, 1994............ 562,500 $1.00--$6.12 2,241,475
Cancelled or expired........................ -- --
Exercised................................... (74,750) $1.00--$3.36 (134,660)
Granted..................................... 1,020,500 $3.13--$4.25 4,048,665
--------- ----------
Outstanding at December 25, 1995............ 1,508,250 $6,155,480
========= ==========
</TABLE>
The option price is at least equal to the market value at the date of the
grant. The options are generally exercisable over a three-year period. Options
for 591,750 shares were exercisable at December 25, 1995.
(continued)
F-15
<PAGE>
BAYPORT RESTAURANT GROUP, INC. SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 25, 1995, DECEMBER 26, 1994 AND DECEMBER 27, 1993
NOTE H--STOCK OPTIONS AND WARRANTS--(CONTINUED)
Qualified Options
Under the provisions of the Incentive Stock Option Plan, the option price
must be equal to, or in excess of, the market value of the stock on the date
of the grant. Options are generally exercisable in equal annual installments
over a period of two to three years. At December 25, 1995, 81,000 of these
options were exercisable.
<TABLE>
<CAPTION>
NUMBER OF OPTION
SHARES PRICE AMOUNT
--------- ------------ ----------
<S> <C> <C> <C>
Outstanding at December 29, 1992...... 93,750 $0.80--$3.00 $ 134,850
Cancelled or expired.................. (8,500) $1.00--$1.52 (11,620)
Exercised............................. (11,500) $0.80--$1.52 (12,280)
Granted............................... 130,000 $4.25--$6.87 719,450
------- ----------
Outstanding at December 27, 1993...... 203,750 $1.00--$6.87 830,400
Cancelled or expired.................. (13,500) $1.52--$4.62 (32,145)
Exercised............................. (22,750) $1.00--$1.52 (23,530)
Granted............................... 83,750 $3.06--$4.19 321,275
------- ----------
Outstanding at December 26, 1994...... 251,250 $1.00--$6.87 1,096,000
Cancelled or expired.................. (45,000) $5.12--$6.87 (223,875)
Exercised............................. (15,000) $1.12--$1.76 (21,600)
Granted............................... 422,500 $3.00--$4.50 1,758,990
------- ----------
Outstanding at December 25, 1995...... 613,750 $2,609,515
======= ==========
</TABLE>
Warrants
In January 1992, the Company issued warrants to BPLP to purchase an
aggregate of 962,500 shares of common stock at an average price of $1.92 per
share. During 1993, BPLP exercised one of these warrants to purchase 525,000
shares of common stock for a total of $1,050,000. The proceeds of this
exercise were used by the Company to repurchase the 20% minority interest in
the Orlando restaurant as required by the warrant agreement. The remaining
warrants are exercisable through January 2002 and have an average price of
$1.86 per share.
NOTE I--INCOME TAXES
As of December 26, 1994, Bayport Restaurant Group, Inc. has net operating
loss and FICA tip credit carryforwards for federal income tax purposes of
approximately $4,234,000 and $137,000, respectively, which are available to
offset taxable income and income taxes, if any, through the year 2010. The
Company has utilized its net operating loss carryforward in 1994 to offset the
taxes that otherwise would be payable.
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Current
Federal............................................... $ -- $ --
State................................................. 4,559 25,400
-------- --------
4,559 25,400
Deferred
Federal............................................... 682,057 368,295
State................................................. -- --
-------- --------
682,057 368,295
-------- --------
Total................................................. $686,616 $393,695
======== ========
</TABLE>
(continued)
F-16
<PAGE>
BAYPORT RESTAURANT GROUP, INC. SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 25, 1995, DECEMBER 26, 1994 AND DECEMBER 27, 1993
NOTE I--INCOME TAXES--(CONTINUED)
Reconciliation of the federal statutory income tax rate to the effective
income tax rate is as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Tax expense at statutory rate......................... $731,210 $453,305
State income taxes net of federal tax benefit......... 3,009 16,764
Tax credits........................................... (77,030) (40,001)
Utilization of net operating losses................... -- (96,705)
Other................................................. 29,427 60,332
-------- --------
Total provision................................... $686,616 $393,695
======== ========
</TABLE>
Deferred tax liabilities (assets) consist of the following:
<TABLE>
<CAPTION>
1995 1994
---------- --------
<S> <C> <C>
Deferred liabilities
Excess of book over tax basis of property, plant
and equipment..................................... $1,809,393 $460,487
Excess of book over tax basis of deferred pre-
opening costs..................................... 594,359 --
Other.............................................. 167,392 151,107
---------- --------
2,571,144 611,594
Deferred assets
AMT and excess FICA credits carryforwards.......... 172,580 77,750
Net operating loss carryforward.................... 1,439,427 258,400
Other.............................................. 169,830 168,194
---------- --------
1,781,837 504,344
---------- --------
Total.............................................. $ 789,307 $107,250
========== ========
</TABLE>
The Company adopted Statement of Financial Accounting Standards No. 109
(SFAS 109), "Accounting for Income Taxes" on December 29, 1992, which changed
the Company's method of accounting for income taxes to an asset and liability
approach. The cumulative effect of this change in method of accounting for
income taxes at December 29, 1992, was a benefit of $223,295 (net of valuation
allowance of $468,289). The cumulative effect adjustment primarily consists of
the recognition of the tax benefit associated with the Company's net operating
loss carryforward.
NOTE J--NOTES RECEIVABLE FROM OFFICERS
During fiscal 1995, four officers of the Company exercised stock options
previously granted to them. The officers executed promissory notes payable to
the Company as consideration based upon the terms of the grants. Notes
receivable due at December 25, 1995, represent promissory notes for these
stock options and a loan receivable from an officer. These notes bear interest
between 7% to 10% per annum. The stock option notes are collateralized by the
common stock issued under the exercise of the options. The total amount of
these notes is reflected as a reduction of total stockholders' equity.
(continued)
F-17
<PAGE>
BAYPORT RESTAURANT GROUP, INC. SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 25, 1995, DECEMBER 26, 1994 AND DECEMBER 27, 1993
NOTE K--BUSINESS SEGMENT INFORMATION
The Company's business segments in 1995, 1994 and 1993 were restaurant
operations and seafood processing. A summary by business segments of sales,
operating earnings, identifiable assets, depreciation, amortization, and
capital expenditures for 1995, 1994 and 1993 follows. Sales and transfers to
other segments of the business are made at an approximate market price. Assets
not allocated to segments consist principally of cash, miscellaneous
receivables, and certain fixed assets.
<TABLE>
<CAPTION>
DECEMBER 25, 1995
----------------------------------------------------
SEAFOOD
RESTAURANT PROCESSING GENERAL
OPERATIONS PLANT CORPORATE ELIMINATIONS TOTAL
---------- ---------- --------- ------------ -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Sales and transfers
To unaffiliated
customers............. $45,719 $7,884 $ -- $ -- $53,603
To other segments...... -- 2,275 -- (2,275) --
------- ------ ------- ------ -------
45,719 10,159 -- (2,275) 53,603
Operating earnings..... 6,473 32 -- -- 6,505
Interest income and
other revenues........ 75 -- -- -- 75
General corporate
expenses.............. (2,626) -- (1,374) -- (4,000)
Interest expense....... (429) -- -- -- (429)
------- ------ ------- ------ -------
Earnings before income
taxes................. $ 3,493 $ 32 $(1,374) $ -- $ 2,151
======= ====== ======= ====== =======
Assets................. $29,882 $3,608 $14,893 $ (518) $47,865
======= ====== ======= ====== =======
Depreciation and
amortization.......... $ 1,251 $ 120 $ 30 $ -- $ 1,401
======= ====== ======= ====== =======
Capital expenditures... $18,481 $ 102 $ 189 $ -- $18,772
======= ====== ======= ====== =======
<CAPTION>
DECEMBER 26, 1994
----------------------------------------------------
SEAFOOD
RESTAURANT PROCESSING GENERAL
OPERATIONS PLANT CORPORATE ELIMINATIONS TOTAL
---------- ---------- --------- ------------ -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Sales and transfers
To unaffiliated
customers............. $33,735 $4,511 $ -- $ -- $38,246
To other segments...... -- 1,456 -- (1,456) --
------- ------ ------- ------ -------
33,735 5,967 -- (1,456) 38,246
Operating earnings..... 4,693 79 -- (12) 4,760
Interest income and
other revenues........ 244 -- -- -- 244
General corporate
expenses.............. (2,000) -- (1,630) -- (3,630)
Interest expense....... (40) -- -- -- (40)
------- ------ ------- ------ -------
Earnings before income
taxes................. $ 2,897 $ 79 $(1,630) $ (12) $ 1,334
======= ====== ======= ====== =======
Assets................. $15,796 $3,004 $10,523 $ (797) $28,526
======= ====== ======= ====== =======
Depreciation and
amortization.......... $ 726 $ 108 $ 23 $ -- $ 857
======= ====== ======= ====== =======
Capital expenditures... $ 5,118 $ 139 $ 228 $ -- $ 5,485
======= ====== ======= ====== =======
</TABLE>
(continued)
F-18
<PAGE>
BAYPORT RESTAURANT GROUP, INC. SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 25, 1995, DECEMBER 26, 1994 AND DECEMBER 27, 1993
NOTE K--BUSINESS SEGMENT INFORMATION--(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 27, 1993
----------------------------------------------------
SEAFOOD
RESTAURANT PROCESSING GENERAL
OPERATIONS PLANT CORPORATE ELIMINATIONS TOTAL
---------- ---------- --------- ------------ -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C>
Sales and transfers
To unaffiliated
customers............. $23,800 $2,626 $ -- $ -- $26,426
To other segments...... -- 874 -- (874) --
------- ------ ------- ----- -------
23,800 3,500 -- (874) 26,426
Operating earnings....... 3,204 45 -- (44) 3,205
Interest income and other
revenues................ 568 -- -- -- 568
General corporate
expenses................ (1,344) -- (1,073) -- (2,417)
Interest expense......... (194) (19) -- -- (213)
------- ------ ------- ----- -------
Earnings before income
taxes and cumulative
effect of accounting
change.................. $ 2,234 $ 26 $(1,073) $ (44) $ 1,143
======= ====== ======= ===== =======
Assets................... $ 8,062 $2,890 $13,373 $(907) $23,418
======= ====== ======= ===== =======
Depreciation and
amortization............ $ 468 $ 106 $ 10 $ -- $ 584
======= ====== ======= ===== =======
Capital expenditures..... $ 3,265 $ 82 $ 37 $ -- $ 3,384
======= ====== ======= ===== =======
</TABLE>
F-19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Landry's Seafood Restaurants, Inc.:
We have audited the accompanying consolidated balance sheets of Landry's
Seafood Restaurants, Inc. (a Delaware corporation) as of December 31, 1995 and
1994, and the related consolidated statements of income, stockholders' equity
and cash flows for each of three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Landry's Seafood
Restaurants, Inc., as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Houston, Texas
February 8, 1996
F-20
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
ASSETS 1995 1994
------ ------------ -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................... $ 16,628,704 $19,502,075
Accounts receivable-trade and other................. 1,162,099 507,210
Inventory........................................... 2,780,931 647,741
Other current assets................................ 3,146,626 2,292,417
------------ -----------
Total current assets.............................. 23,718,360 22,949,443
------------ -----------
PROPERTY AND EQUIPMENT, net........................... 111,569,804 43,814,022
GOODWILL, net of amortization of $849,000 and $716,000
in 1995 and 1994, respectively....................... 3,205,094 3,337,891
OTHER ASSETS, net..................................... 1,508,105 1,039,804
------------ -----------
Total assets...................................... $140,001,363 $71,141,160
============ ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable.................................... $ 11,176,551 $ 4,129,880
Accrued liabilities................................. 3,721,325 2,557,087
Income taxes payable................................ -- 1,114,166
Current portion of long-term notes and other
obligations........................................ 299,222 271,421
------------ -----------
Total current liabilities......................... 15,197,098 8,072,554
------------ -----------
LONG-TERM NOTES AND OTHER OBLIGATIONS, NON-CURRENT.... 368,349 716,258
DEFERRED INCOME TAXES AND OTHER LIABILITIES........... 2,226,046 393,033
------------ -----------
Total liabilities................................. 17,791,493 9,181,845
------------ -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 per value, 2,000,000 shares
authorized, non outstanding........................
Common stock, $0.01 per value, 30,000,000 shares
authorized, 18,050,520 and 14,790,000 issued and
outstanding, respectively.......................... 180,505 147,900
Additional paid-in capital.......................... 106,242,850 55,608,578
Retained earnings................................... 15,786,515 6,202,837
------------ -----------
Total stockholders' equity........................ 122,209,870 61,959,315
------------ -----------
Total liabilities and stockholders' equity........ $140,001,363 $71,141,160
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
REVENUES............................... $104,017,494 $62,526,965 $34,241,499
------------ ----------- -----------
OPERATING COSTS AND EXPENSES
Cost of sales........................ 31,631,557 19,273,349 10,459,430
Restaurant labor..................... 26,716,789 15,716,557 8,593,224
Other restaurant operating expenses.. 22,570,890 13,979,699 7,788,382
Depreciation and amortization........ 5,513,435 2,891,125 1,193,773
General and administration expenses.. 4,635,212 2,781,302 1,860,933
------------ ----------- -----------
Total operating costs and expenses. 91,067,883 54,642,032 29,895,742
------------ ----------- -----------
OPERATING INCOME....................... 12,949,611 7,884,933 4,345,757
OTHER (INCOME) EXPENSE:
Interest (income) expense, net....... (1,948,454) (959,676) 187,344
Other, net........................... 55,152 39,081 (130,130)
------------ ----------- -----------
(1,893,302) (920,595) 57,214
------------ ----------- -----------
INCOME BEFORE INCOME TAXES............. 14,842,913 8,805,528 4,288,543
PROVISION FOR INCOME TAXES............. 5,259,235 3,125,962 452,860
------------ ----------- -----------
NET INCOME............................. $ 9,583,678 $ 5,679,566 $ 3,835,683
============ =========== ===========
PRO FORMA INFORMATION:
Income before income taxes........... $ 4,288,543
Provision for income taxes........... 1,543,875
-----------
Net income......................... $ 2,744,668
===========
NET INCOME PER COMMON SHARE............ $ 0.55 $ 0.40 $ 0.28
============ =========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES AND COMMON SHARE EQUIVALENTS
OUTSTANDING........................... 17,320,000 14,126,000 9,862,522
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1,
1993................... 8,400,000 $ 84,000 $ 826,572 $ 2,473,997 $ 3,384,569
Net income............ -- -- -- 3,835,683 3,835,683
Dividends and
distributions........ -- -- (134,094) (5,786,409) (5,920,503)
Insurance of common
stock,
net of offering
costs................ 3,200,000 32,000 17,090,745 -- 17,122,745
---------- -------- ------------ ----------- ------------
BALANCE, December 31,
1993................... 11,600,000 116,000 17,783,223 523,271 18,422,494
Net income............ -- -- -- 5,679,566 5,679,566
Issuance of common
stock, net of
offering costs....... 3,190,000 31,900 37,825,355 -- 37,857,255
---------- -------- ------------ ----------- ------------
BALANCE, December 31,
1994................... 14,790,000 147,900 55,608,578 6,202,837 61,959,315
---------- -------- ------------ ----------- ------------
Net income............ -- -- -- 9,583,678 9,583,678
Issuance of common
stock, net of
offering costs....... 3,168,500 31,685 49,919,762 -- 49,951,447
Exercises of Stock
Options
and income tax
benefit.............. 92,020 920 714,510 -- 715,430
---------- -------- ------------ ----------- ------------
BALANCE, December 31,
1995................... 18,050,520 $180,505 $106,242,850 $15,786,515 $122,209,870
========== ======== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income............................ $ 9,583,678 $ 5,679,566 $ 3,835,683
----------- ----------- -----------
Adjustments to reconcile net income to
net cash provided by operating
activities.............................
Depreciation and amortization......... 5,513,435 2,891,125 1,193,773
Change in current assets and
liabilities:
(Increase) decrease in trade and other
receivables.......................... (654,889) (354,591) 9,182
(Increase) decrease in inventory...... (2,133,190) (291,263) (188,359)
(Increase) decrease in other assets... (2,754,402) (2,669,085) (811,871)
Increase (decrease) in accounts
payable
and accrued and other liabilities.... 9,164,509 4,558,192 1,077,433
----------- ----------- -----------
Total adjustments..................... 9,135,463 4,134,378 1,280,158
----------- ----------- -----------
Net cash provided by operating
activities......................... 18,719,141 9,813,944 5,115,841
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions...... (71,332,802) (32,117,055) (9,361,070)
Other................................. (451,596) (850,000) (905,000)
----------- ----------- -----------
Net cash used in investing
activities......................... (71,784,398) (32,967,055) (10,266,070)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from sale of common
stock................................ 49,968,756 36,317,255 17,122,745
Proceeds from exercise of stock
options.............................. 543,239 1,140,000 --
Borrowings of notes payable and other
long-term obligations................ -- -- 1,212,767
Payments on notes payable and other
long-term
obligations.......................... (320,109) (1,474,745) (3,536,256)
Net receipts (advances) received
related to
receivable from Mr. Fertitta......... -- -- 1,179,952
Dividends and distributions............. -- -- (5,920,503)
----------- ----------- -----------
Net cash provided by financing
activities......................... 50,191,886 35,982,510 10,058,705
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH......... (2,873,371) 12,829,399 4,908,476
CASH AT BEGINNING OF YEAR............... 19,502,075 6,672,676 1,764,200
----------- ----------- -----------
CASH AT END OF YEAR..................... $16,628,704 $19,502,075 $ 6,672,676
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the period for
Interest.............................. $ 87,723 $ 116,041 $ 298,995
Income taxes.......................... 5,268,907 1,337,701 196,805
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.PRINCIPLES OF CONSOLIDATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The accompanying financial statements include the consolidated accounts of
Landry's Seafood Restaurants, Inc., a Delaware holding company (the "Company")
and its wholly owned subsidiaries and partnership as of and for the years
ended December 31, 1995 and 1994. The Company owns and operates seafood
restaurants primarily under the trade names Landry's Seafood House and Joe's
Crab Shack. All significant intercompany accounts and transactions have been
eliminated in consolidation.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out method) or
market and consist primarily of food and beverages.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for major renewals
and betterments are capitalized while maintenance and repairs are expensed as
incurred.
The Company computes depreciation on the straight-line method. The estimated
lives used in computing depreciation are as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements.............. 10-30
Furniture, fixtures and equipment....... 5-10
Leasehold improvements.................. Shorter of 30 years or lease term
</TABLE>
PRE-OPENING COSTS
The direct and incremental costs incurred in connection with the
commencement of each restaurant's operations, substantially comprised of
training-related costs, are capitalized as pre-opening costs. Amounts
capitalized are being amortized using the straight-line method over 12 months
and are included in other current assets on the consolidated balance sheets.
Pre-opening costs, net of amortization, as of December 31, 1995 and 1994, were
approximately $1,700,000 and $1,200,000, respectively.
DEVELOPMENT COSTS
Certain direct costs are capitalized in conjunction with site selection for
planned future restaurants and for acquiring restaurant properties. Direct and
certain indirect costs are capitalized in conjunction with constructing new
restaurants. These costs are included in property and equipment in the
accompanying consolidated balance sheets and are amortized over the life of
the related building and leasehold interest. Costs related to abandoned site
selections and general site selection costs which cannot be identified with
specific restaurants are charged to operations.
GOODWILL AND NON-COMPETE AGREEMENTS
Goodwill and non-compete agreements are amortized over 30 years and 15 years
(or the life of the related agreement), respectively. These amounts are
included in goodwill and other assets in the accompanying consolidated balance
sheets, respectively.
F-25
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
EARNINGS PER SHARE
Net income per share has been computed by dividing net income by the
weighted average common and common share equivalents outstanding, if material.
Common stock equivalent shares, which relate to stock options, are included in
the weighted average using the treasury stock method when the effect is
material and dilutive. Fully diluted earnings per share for 1995, 1994 and
1993 are not presented as the dilutive effect is not material.
CASH FLOW REPORTING
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with original maturities of three
months or less to be cash equivalents.
During 1995, 1994 and 1993, the Company entered into notes payable
aggregating $-0-, $150,000, and $680,000, respectively, in connection with the
purchase of restaurant locations and certain restaurant equipment which are
excluded from the investing and financing activities on the consolidated
statements of cash flow.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period.
Actual results may differ from those estimates.
2.ACCRUED LIABILITIES:
Accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
---------- ----------
<S> <C> <C>
Payroll and related costs.......................... $ 813,747 $ 838,575
Taxes, other than payroll and income taxes......... 1,298,875 626,700
Deferred income taxes.............................. 200,000 400,000
Other.............................................. 1,408,703 691,812
---------- ----------
$3,721,325 $2,557,087
========== ==========
</TABLE>
3.INCOME TAXES:
Prior to 1993, the Company and certain subsidiaries maintained an S
Corporation status. Subsequent to a reorganization in August 1993, the S
Corporation status was terminated and the Company and certain subsidiaries
became subject to federal income taxes.
Also, effective January 1, 1992, the C corporations adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under
this method, deferred tax liabilities and assets are measured based on
temporary differences between the financial statement carrying amounts and the
tax bases of the assets and liabilities using enacted tax rates.
F-26
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
An analysis of the provision for income taxes for the years ended December
31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Current income taxes................................ $3,641,202 $2,625,962
Deferred income taxes............................... 1,618,033 500,000
---------- ----------
Total............................................. $5,259,235 $3,125,962
========== ==========
</TABLE>
Deferred income tax liabilities as of December 31, 1995 and 1994 are
comprised of the following:
<TABLE>
<CAPTION>
1995 1994
---------- --------
<S> <C> <C>
Current:
Pre-opening costs and other current items........... $ 200,000 $400,000
========== ========
Non-current:
Property, plant and equipment and other assets...... $2,200,000 $400,000
========== ========
</TABLE>
The Company's effective tax rate differs from the federal statutory rate as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1995 1994 1993
---- ---- -----
<S> <C> <C> <C>
Statutory rate........................................ 34.0% 34.0% 34.0%
Taxes borne directly by stockholders and partners..... -- -- (25.7)
FICA credit on tips and targeted job credit........... (2.4) (2.1) --
Goodwill amortization................................. 0.2 0.3 0.3
Other (including state taxes)......................... 3.6 3.3 2.0
----- ---- -----
35.4% 35.5% 10.6%
===== ==== =====
</TABLE>
4.PROPERTY AND EQUIPMENT:
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
------------ -----------
<S> <C> <C>
Land.......................................... $ 17,439,989 $ 9,033,785
Buildings and improvements.................... 17,650,272 8,315,855
Furniture, fixtures and equipment............. 26,550,963 11,162,545
Leasehold improvements........................ 45,637,782 16,515,000
Construction in progress...................... 11,094,681 2,013,700
------------ -----------
118,373,687 47,040,885
Less--accumulated depreciation and
amortization................................. (6,803,883) (3,226,863)
------------ -----------
Property and equipment, net................. $111,569,804 $43,814,022
============ ===========
</TABLE>
F-27
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5.DEBT:
LINE OF CREDIT
The Company has a $25 million unsecured line of credit (prior to May 1995
the available amount was $10 million) from a bank which matures in May 1997,
and is available for expansion and other general corporate purposes. The terms
of the line of credit require periodic or monthly interest payments; interest
on borrowings at the bank's reference rate, as defined, or an Offshore Rate
plus 3/4%, as defined; and compliance with various covenants by the Company
including the maintenance of tangible net worth, as defined, of $90 million.
As of 12/31/95, the Company had no funds borrowed under the line of credit.
LONG-TERM NOTES AND OTHER OBLIGATIONS
Long-term notes and other obligations include the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
-------- --------
<S> <C> <C>
Notes payable--
Note payable to a company; secured by a restaurant;
bearing interest at 13%; due in monthly installments
through June 2001; subject to prepayment penalty........ $425,208 $473,935
Other notes.............................................. 140,968 276,977
-------- --------
Total notes payable...................................... 566,176 750,912
-------- --------
Other obligations--
Obligations to former owners and their affiliates;
assumed by the Company from Mr. Fertitta; bearing
interest ranging from 6% to 8%; due in monthly
installments through December 1997...................... 66,395 166,767
Other...................................................... 35,000 70,000
-------- --------
667,571 987,679
Less--Current portion of long-term notes and other
obligations............................................... (299,222) (271,421)
-------- --------
Long-term notes and other obligations, net of current
portion................................................... $368,349 $716,258
======== ========
</TABLE>
The annual maturities of long-term notes and other long-term obligations at
December 31, 1995, are as follows:
<TABLE>
<S> <C>
1996........................................................... $299,222
1997........................................................... 159,844
1998........................................................... 71,819
1999........................................................... 81,732
2000........................................................... 54,954
--------
$667,571
========
</TABLE>
Interest (income) expense, net includes the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
----------- ---------- --------
<S> <C> <C> <C>
Interest expense....................... $ 107,724 $ 111,815 $306,724
Interest income........................ (2,056,178) (1,071,491) (119,380)
----------- ---------- --------
$(1,948,454) $ (959,676) $187,344
=========== ========== ========
</TABLE>
F-28
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6.COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
The Company has entered into lease commitments, some of which are guaranteed
by the Chief Executive Officer for restaurant facilities as well as certain
fixtures, equipment and leasehold improvements. Under most of the facility
lease agreements, the Company pays taxes, insurance and maintenance costs in
addition to the lease payments. Certain facility leases also provide for
additional contingent rentals based on a percentage of sales in excess of a
minimum amount. Rental expense under operating leases was approximately
$5,088,000, $3,866,000, and $2,093,000 during 1995, 1994, and 1993, including
percentage rental expense of $1,030,000, $945,000, and $513,000, respectively.
The aggregate amounts of minimum operating lease commitments maturing in
each of the five years subsequent to and thereafter at December 31, 1995, are
as follows:
<TABLE>
<S> <C>
1996.......................................................... $ 5,040,000
1997.......................................................... 4,740,000
1998.......................................................... 4,220,000
1999.......................................................... 4,220,000
2000.......................................................... 4,009,000
Thereafter.................................................... 54,107,000
-----------
Total minimum rentals..................................... $76,336,000
===========
</TABLE>
LITIGATION AND CLAIMS
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business. Management believes, based on discussions
with its legal counsel and in consideration of reserves recorded, that the
outcome of all other legal actions will not have a material adverse effect
upon the consolidated financial position and results of operations of the
Company.
INSURANCE
The Company is self-insured with respect to any potential workers'
compensation claim in Texas, but retains excess employer's indemnity coverage
for any claim in excess of $100,000. Management believes that any claims paid
under this self-insured program will not have a material adverse effect upon
the consolidated financial position and results of operations of the Company
because of the Company's historically low level of claims related to workers'
compensation. Since the Company commenced operations in states other than
Texas, it has been required to subscribe to workers' compensation insurance in
those states. The Company maintains a $250,000 deductible for losses in most
states.
7.STOCKHOLDERS' EQUITY:
In May 1995, the Company declared a two-for-one stock split in the form of a
dividend on the $.01 par value common stock. The split was payable to
stockholders of record as of June 15, 1995, and was distributed and effective
on June 23, 1995. All references to earnings per share, number of shares and
share amounts prior to June 1995 have been retroactively restated to reflect
the stock split.
In April 1995, the Company completed a public offering of Common Stock under
a Registration Statement filed with the Securities and Exchange Commission for
the sale of an aggregate 4,358,500 shares of Common Stock by the Company and a
stockholder at $16.75 per share, including the sale by the Company of
3,168,500 shares. Net proceeds to the Company were approximately $50,000,000,
after deducting offering costs.
F-29
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In March 1994, the Company completed a public offering of Common Stock under
a Registration Statement filed with the Securities and Exchange Commission for
the sale of an aggregate 4,400,000 shares of Common Stock by the Company and
certain stockholders at $13.00 per share for aggregate net proceeds of
approximately $36,317,255, after deducting related offering costs. Also
included in 1994 is the exercise of 190,000 employee stock options at $6.00
per share for aggregate proceeds to the Company of $1,140,000, and the
issuance of underlying common shares.
In August 1993, the Company completed an initial public offering of its
common stock (the Offering) with the issuance of 3,200,000 shares of stock at
$6.00 per share. The Company received net proceeds of $17,122,745, after
deducting offering costs. The Company used the net proceeds from the Offering
to retire outstanding bank indebtedness of approximately $1,000,000, and
funded the Company's final Subchapter S and partnership distributions to Mr.
Fertitta, less amounts collected on the outstanding balance of the receivable
from Mr. Fertitta, as contemplated in the Company's Prospectus.
Distributions to Mr. Fertitta of the 1993 earnings of the Company's
predecessor subsidiaries have been treated as a reduction of retained
earnings. Distributions which have been treated as a reduction of additional
paid-in capital represent funds invested by Mr. Fertitta in a restaurant not
owned by the Company.
In 1993, pursuant to a reorganization agreement entered into between the
Company and Mr. Fertitta prior to the Company's initial public offering, the
Company issued 8,400,000 shares of Common Stock for all of the outstanding
capital stock and partnership interests of the predecessor subsidiaries and
partnership held by Mr. Fertitta.
In 1993, the Company also established two stock option plans (the Stock
Option Plans), as amended, pursuant to which options may be granted to
eligible employees and nonemployee directors of the Company or its
subsidiaries for the purchase of an aggregate of 2,750,000 shares of common
stock of the Company. The Stock Option Plans are administered by the Stock
Option Committee of the Board of Directors (the Committee), which determines
in its discretion, the number of shares subject to each option granted and the
related purchase price, and vesting and option periods. The Committee may
grant either nonqualified stock options or incentive stock options, as defined
by the Internal Revenue Code of 1986, as amended.
In June 1995, the Company, with stockholder approval, amended the Company's
Certificate of Incorporation to increase the number of authorized shares of
Common Stock $0.01 par value from 20,000,000 shares to 30,000,000 shares; and
adopted the 1995 Flexible Incentive Plan (Flex Plan) for key employees of the
Company. Under the Flex Plan, eligible employees may receive stock options,
stock appreciation rights, restricted stock, performance awards, performance
stock and other awards, as defined by the Board of Directors or an appointed
committee. The aggregate number of shares of common stock which may be issued
under the Flex Plan (or with respect to which awards may be granted) may not
exceed 1,000,000 shares.
At December 31, 1995, options for 2,251,520 were outstanding (20,920 of
which were exercisable) at prices ranging from $6.00 to $18.00 per share.
Options exercised during 1995 and 1994 were at average price of $6.00 per
share. As of December 31, 1995, all options have been granted at the stock
price on the grant date and are generally exercisable beginning one year from
the date of grant with annual vesting periods.
Options outstanding are as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Options outstanding, beginning of year.............. 1,270,800 690,800
Granted............................................. 1,380,000 780,800
Exercised........................................... (92,020) (95,000)
Terminated.......................................... (307,260) (105,800)
--------- ---------
Options outstanding, December 31.................... 2,251,520 1,270,800
--------- ---------
Options exercisable, December 31.................... 20,920 --
========= =========
</TABLE>
F-30
<PAGE>
LANDRY'S SEAFOOD RESTAURANTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Statement of Financial Accounting Standard No. 123 "Accounting for Stock-
Based Compensation," which applies to the Company in 1996, establishes an
elective method of accounting based on the fair value for stock-based
compensation awarded to employees after December 31, 1995. The current
accounting method for such awards requires expense recognition only in
situations when the award has intrinsic value at the date of grant. The
Company plans to continue using the current method, which will require new pro
forma disclosure in the footnotes to the financial statements of the impact of
using the new elective method.
8.PRO FORMA INFORMATION:
The consummation of the Company's initial public stock offering resulted in
the termination of the S Corporation status of certain subsidiaries of the
Company. Pro forma income taxes have been provided at an effective rate of 36%
and presented for the year ended December 31, 1993 as if the Company was
subject to federal and state income taxes for the entire period.
Pro forma income per share data for 1993 has been computed based on the
weighted average number of outstanding shares which were as follows: 1993
through the Company's initial public offering; 8,400,000 shares of common
stock plus 393,714 common shares sold in the initial public offering which
were necessary to fund a portion of the final distribution of earnings of the
S Corporation Subsidiaries and Partnership L.P. pursuant to the Company's plan
of reorganization; and 1993 subsequent to the Company's initial public
offering -- 11,600,000 common shares plus common stock equivalents
outstanding, if material.
9.QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is a summary of unaudited quarterly consolidated results of
operations (in thousands, except per share data) for 1995, 1994 and 1993:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1995 1995 1995 1995
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Quarter Ended:
Revenues................ $20,612 $27,735 $29,006 $26,664
Operating income........ 2,635 3,726 4,107 2,482
Net income.............. 1,803 2,799 3,101 1,881
Net income per share.... $ 0.12 $ 0.16 $ 0.17 $ 0.10
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1994 1994 1994 1994
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Quarter Ended:
Revenues................ $11,394 $15,721 $19,691 $15,721
Operating income........ 1,350 2,253 2,749 1,533
Net income.............. 910 1,665 1,920 1,185
Net income per share.... $ 0.08 $ 0.11 $ 0.13 $ 0.08
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1993 1993 1993 1993
--------- -------- ------------- ------------
<S> <C> <C> <C> <C>
Quarter Ended:
Revenues................ $ 6,709 $ 8,821 $ 9,658 $ 9,053
Operating income........ 829 1,304 1,439 774
Net income.............. 771 1,241 1,305 519
Pro forma net income.... 501 807 918 *
Net income per share.... * * * $ 0.05
Pro forma net income per
share.................. $ 0.06 $ 0.09 $ 0.09 *
</TABLE>
- --------
* Not applicable.
F-31
<PAGE>
LANDRY'S AND BAYPORT
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined statements of operations for the
year ended December 31, 1995 assume that the Merger had been consummated at
the beginning of the period. The unaudited pro forma condensed combined
balance sheet as of December 31, 1995 assumes that the Merger had been
consummated on December 31, 1995.
The following unaudited pro forma condensed combined financial statements
are presented to reflect the estimated impact on the historical Consolidated
Financial Statements of the Company of the Merger and of the issuance of
2,020,920 shares of Common Stock and 120,721 shares of Preferred Stock in
connection therewith (based on an assumed Exchange Ratio of .2105). The Merger
will be accounted for as a pooling-of-interests.
The unaudited pro forma condensed combined financial statements give effect
only to the reclassifications and adjustments set forth in the accompanying
Notes to unaudited pro forma condensed combined financial statements.
Unaudited pro forma information is not necessarily indicative of the results
of operations or financial position which would have occurred had the Merger
been consummated at the beginning of the earliest period presented, nor is it
necessarily indicative of the Company's future results of operations or
financial position.
These statements have been prepared from the consolidated financial
statements of the Company and the consolidated financial statements of Bayport
and should be read in conjunction with such statements and the related Notes.
Such statements and related notes are incorporated herein by reference. See
"Incorporation of Certain Documents By Reference."
F-32
<PAGE>
LANDRY'S AND BAYPORT
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO
PRO FORMA FORMA
ASSETS COMPANY BAYPORT ADJUSTMENTS COMBINED
------ -------- ------- ----------- --------
<S> <C> <C> <C> <C>
Current Assets......................... $ 23,718 $11,416 $ 35,134
Property and Equipment, net............ 111,570 34,010 145,580
Goodwill and Other Assets.............. 4,713 2,438 7,151
-------- ------- --------
Total Assets......................... $140,001 $47,864 $187,865
======== ======= ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C> <C>
Current Liabilities.................... $ 15,197 $ 8,659 $ 23,856
Notes payable, other long-term
obligations and deferred taxes........ 2,594 16,625 19,219
Stockholders' Equity
Preferred Stock...................... -- 23 $(22) 1
Common Stock......................... 180 9 11 200
Additional Paid-In Capital........... 106,243 22,113 11 128,367
Retained Earnings.................... 15,787 820 16,607
Notes Receivable from Officers....... -- (385) (385)
-------- ------- --------
Total Stockholders' Equity........... 122,210 22,580 144,790
-------- ------- --------
Total Liabilities and Stockholders'
Equity.............................. $140,001 $47,864 $187,865
======== ======= ========
</TABLE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENTS OF
OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO
FORMA
COMPANY BAYPORT COMBINED
-------- ------- --------
<S> <C> <C> <C>
Revenues........................................... $104,018 $53,602 $157,620
Operating Costs and Expenses....................... 91,068 51,107 142,175
-------- ------- --------
Operating Income................................... 12,950 2,495 15,445
Other (Income) Expense, Net........................ (1,893) 344 (1,549)
-------- ------- --------
Income Before Income Taxes......................... 14,843 2,151 16,994
Provisions for Income Taxes........................ 5,259 687 5,946
-------- ------- --------
Net Income......................................... $ 9,584 $ 1,464 $ 11,048
======== ======= ========
Net Income Per Common Share........................ $ 0.55 $ 0.14 $ 0.57
======== ======= ========
Weighted Average Number of Common Shares and Common
Share
Equivalents Outstanding........................... 17,320 10,479 19,526
</TABLE>
The accompanying notes are an integral part of the unaudited pro forma
condensed combined financial statements.
F-33
<PAGE>
LANDRY'S AND BAYPORT
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1.FISCAL PERIODS
The Company's fiscal year ends on the calendar year-end, December 31.
Bayport's fiscal year ends on the last Monday in December, which was December
25, 1995. The 1995 fiscal year consisted of 52 weeks for both the Company and
Bayport. The differences between Bayport's actual year-end and a year-end of
December 31, consistent with the Company's, is not deemed material.
2. STOCKHOLDERS' EQUITY
The pro forma adjustments to common stock, preferred stock, and additional
paid-in-capital as of December 31, 1995 reflect the issuance of 2,020,920
shares of Common Stock for all the outstanding common stock of Bayport,
representing an Exchange Ratio of .2105 share of Common Stock for each share
of Bayport common stock, and to reflect the issuance of 120,721 shares of the
Company's Convertible Preferred Stock for all the outstanding convertible
Series B Preferred shares of Bayport, representing an Exchange Ratio of .0526
Landry's preferred share for each share of Bayport Series B Preferred Stock.
Upon the Merger, each newly issued Landry Preferred Stock share will be
convertible into Landry Common Stock share on a basis of one-to-one, subject
to mandatory conversion into Common Stock on August 19, 1998. For the purpose
of these unaudited pro forma condensed combined financial statements, the
number of shares of Landry's Common and Preferred Stock to be issued
represents the estimated number of shares which may be issued by Landry's
pursuant to the Merger Agreement assuming there are no adjustments to the
Exchange Ratio. See "The Bayport Acquisition."
3.RECLASSIFICATIONS
Certain reclassifications have been made to historical amounts of Bayport to
conform the financial presentation of the two companies.
4.MERGER EXPENSES
Under the pooling-of-interests method of accounting, costs associated with
the merger of the Company and Bayport are treated as an expense of the
combined company. The accompanying unaudited pro forma condensed combined
statements of income do not reflect the expenses associated with the Merger,
which are estimated to be approximately $8,000 to $10,000, that will be
recorded in the first period that consolidated financial statements of the
combined companies are presented, since the expenses are non-recurring. Merger
expenses consist primarily of professional fees, proxy preparation and
solicitation costs, and estimated severance and office consolidation costs,
including termination payments on pre-existing employment contracts
aggregating approximately $3,100 to two senior executive officers of Bayport.
5.WEIGHTED AVERAGE SHARES OUTSTANDING
The weighted average number of outstanding shares of common stock and common
stock equivalents on a pro forma basis gives effect to the number of
equivalent shares of the Company's Common Stock into which such common stock
and common stock equivalents of Bayport may be exchanged utilizing the assumed
Exchange Ratio of .2105, applied to the historical weighted number of shares
of Bayport common stock and common stock equivalents outstanding.
6.1994 AND 1993 UNAUDITED PRO FORMA RESULTS
Landry's and Bayport's statements of operations on an unaudited pro forma
combined basis for the year ended December 31, 1994 and 1993 includes combined
revenues of $100,774 and $60,668, respectively, combined operating income of
$9,263 and $5,255, respectively, combined net income of $6,619 and $4,111,
respectively, and net income per common share of $0.41 and $0.36,
respectively.
F-34
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
LANDRY'S SEAFOOD RESTAURANTS, INC.,
LANDRY'S ACQUISITION, INC.
AND
BAYPORT RESTAURANT GROUP, INC.
----------------
DATED AS OF APRIL 18, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1--DEFINITIONS.................................................... A-7
Section 1.1 DEFINITIONS............................................ A-7
ARTICLE 2--THE CLOSING; THE MERGER; EFFECTS OF THE MERGER................. A-10
Section 2.1 CLOSING................................................ A-10
Section 2.2 THE MERGER............................................. A-11
Section 2.3 EFFECTS OF THE MERGER, CERTIFICATE AND BY-LAWS;
DIRECTORS AND OFFICERS.............................................. A-11
ARTICLE 3--MERGER CONSIDERATION; CONVERSION OF SHARES..................... A-11
Section 3.1 CONVERSION OF SHARES................................... A-11
Section 3.2 EXCHANGE OF CERTIFICATES............................... A-12
Section 3.3 STOCK OPTIONS.......................................... A-14
Section 3.4 EXCHANGE RATIO ADJUSTMENT.............................. A-15
ARTICLE 4--REPRESENTATIONS AND WARRANTIES OF BAYPORT...................... A-15
Section 4.1 ORGANIZATION........................................... A-15
Section 4.2 AFFILIATED ENTITIES.................................... A-16
Section 4.3 CAPITALIZATION......................................... A-16
Section 4.4 AUTHORITY; ENFORCEABLE AGREEMENTS...................... A-16
Section 4.5 NO CONFLICTS OR CONSENTS............................... A-17
Section 4.6 CORPORATE DOCUMENTS, STOCKHOLDER AGREEMENTS AND BOARD
OF DIRECTORS........................................................ A-17
Section 4.7 SEC DOCUMENTS; FINANCIAL STATEMENTS; LIABILITIES....... A-17
Section 4.8 ACCOUNTS RECEIVABLE.................................... A-18
Section 4.9 ABSENCE OF CERTAIN CHANGES OR EVENTS................... A-18
Section 4.10 CONTRACTS.............................................. A-20
Section 4.11 PROPERTIES AND LEASES.................................. A-20
Section 4.12 CONDITION OF BAYPORT'S ASSETS.......................... A-21
Section 4.13 VOTING REQUIREMENTS.................................... A-21
Section 4.14 ACCOUNTING MATTERS..................................... A-21
Section 4.15 SUPPLIERS AND CUSTOMERS................................ A-21
Section 4.16 EMPLOYEE MATTERS....................................... A-21
Section 4.17 EMPLOYEE BENEFIT PLANS................................. A-22
Section 4.18 TAX MATTERS............................................ A-23
Section 4.19 LITIGATION............................................. A-25
Section 4.20 INSURANCE.............................................. A-25
Section 4.21 ENVIRONMENTAL COMPLIANCE............................... A-25
Section 4.22 COMPLIANCE WITH LAW; PERMITS........................... A-26
Section 4.23 INTERESTS IN CLIENTS, SUPPLIERS, ETC................... A-26
Section 4.24 TRANSACTIONS WITH RELATED PARTIES...................... A-27
Section 4.25 STATEMENTS ARE TRUE AND CORRECT........................ A-27
Section 4.26 BROKER'S AND FINDER'S FEE.............................. A-27
Section 4.27 DISCLOSURE............................................. A-27
Section 4.28 TRADEMARKS, TRADENAMES, ETC............................ A-27
ARTICLE 5--REPRESENTATIONS AND WARRANTIES OF LANDRY'S AND SUB............. A-28
Section 5.1 ORGANIZATION........................................... A-28
Section 5.2 AFFILIATED ENTITIES.................................... A-28
Section 5.3 CAPITALIZATION......................................... A-28
Section 5.4 AUTHORITY; ENFORCEABLE AGREEMENTS...................... A-28
Section 5.5 NO CONFLICTS OR CONSENTS............................... A-29
Section 5.6 CORPORATE DOCUMENTS, STOCKHOLDER AGREEMENTS AND BOARD
OF DIRECTORS........................................................ A-29
Section 5.7 SEC DOCUMENTS; FINANCIAL STATEMENTS; LIABILITIES....... A-29
Section 5.8 ABSENCE OF CERTAIN CHANGES OR EVENTS................... A-30
Section 5.9 CONTRACTS.............................................. A-31
Section 5.10 ENVIRONMENTAL COMPLIANCE............................... A-31
Section 5.11 ACCOUNTING MATTERS..................................... A-32
Section 5.12 EMPLOYEE MATTERS....................................... A-32
Section 5.13 EMPLOYEE BENEFIT PLANS................................. A-32
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 5.14 LITIGATION............................................. A-33
Section 5.15 LEGALITY OF LANDRY'S STOCK............................. A-33
Section 5.16 STATEMENTS ARE TRUE AND CORRECT........................ A-33
Section 5.17 NO STOCKHOLDER VOTE.................................... A-33
Section 5.18 BROKER'S AND FINDER'S FEE.............................. A-33
Section 5.19 DISCLOSURE............................................. A-33
Section 5.20 TRADEMARKS, TRADENAMES, ETC............................ A-34
Section 5.21 COMPLIANCE WITH LAW; PERMITS........................... A-34
Section 5.22 PROPERTIES AND LEASES.................................. A-34
Section 5.23 TAX MATTERS............................................ A-35
Section 5.24 INTERESTS IN CLIENTS, SUPPLIERS, ETC................... A-36
Section 5.25 TRANSACTIONS WITH RELATED PARTIES...................... A-36
ARTICLE 6--PRE-CLOSING COVENANTS.......................................... A-36
Section 6.1 HART-SCOTT-RODINO; COOPERATION AND BEST EFFORTS......... A-36
Section 6.2 REGISTRATION STATEMENT AND PROXY STATEMENT; BAYPORT
SPECIAL MEETING..................................................... A-37
Section 6.3 CONDUCT OF BUSINESS BY BOTH PARTIES PRIOR TO THE CLOSING
DATE................................................................ A-37
Section 6.4 CONDUCT OF BUSINESS BY BAYPORT PRIOR TO THE CLOSING
DATE................................................................ A-38
Section 6.5 NO SOLICITATIONS........................................ A-39
Section 6.6 PRESS RELEASES.......................................... A-40
Section 6.7 ACCESS TO INFORMATION AND CONFIDENTIALITY............... A-40
Section 6.8 CONSULTATION AND REPORTING.............................. A-40
Section 6.9 UPDATE SCHEDULES........................................ A-41
Section 6.10 BAYPORT SEC FILINGS.................................... A-41
Section 6.11 SUB STOCKHOLDER APPROVAL............................... A-41
Section 6.12 CHANGE IN CONTROL AGREEMENTS........................... A-41
Section 6.13 BAYPORT GROUP AFFILIATES AGREEMENT..................... A-41
Section 6.14 PHASE ONE.............................................. A-41
ARTICLE 7--CLOSING CONDITIONS............................................. A-41
Section 7.1 CONDITIONS APPLICABLE TO ALL PARTIES.................... A-41
Section 7.2 CONDITIONS TO LANDRY'S OBLIGATIONS...................... A-42
Section 7.3 CONDITIONS TO BAYPORT'S OBLIGATIONS..................... A-43
Section 7.4 WAIVER OF CONDITIONS.................................... A-44
ARTICLE 8--POST-CLOSING COVENANTS......................................... A-44
Section 8.1 USE OF BAYPORT NAME..................................... A-44
Section 8.2 INDEMNIFICATION OF DIRECTORS AND OFFICERS OF BAYPORT.... A-44
Section 8.3 PUBLICATION OF POST-MERGER RESULTS...................... A-45
Section 8.4 EMPLOYEE BENEFITS....................................... A-45
Section 8.5 REGISTRATION RIGHTS..................................... A-45
ARTICLE 9--TERMINATION.................................................... A-45
Section 9.1 TERMINATION............................................. A-45
Section 9.2 EFFECT OF TERMINATION................................... A-46
Section 9.3 ACQUISITION OF BAYPORT PROPERTIES....................... A-46
ARTICLE 10--MISCELLANEOUS................................................. A-47
Section 10.1 NOTICES................................................ A-47
Section 10.2 GOVERNING LAW.......................................... A-47
Section 10.3 COUNTERPARTS........................................... A-47
Section 10.4 INTERPRETATION; SCHEDULES.............................. A-47
Section 10.5 ENTIRE AGREEMENT; SEVERABILITY......................... A-48
Section 10.6 AMENDMENT AND MODIFICATION............................. A-48
Section 10.7 EXTENSION; WAIVER...................................... A-48
Section 10.8 BINDING EFFECT; BENEFITS............................... A-48
Section 10.9 ASSIGNABILITY.......................................... A-48
Section 10.10 EXPENSES.............................................. A-48
Section 10.11 GENDER AND CERTAIN DEFINITIONS........................ A-48
Section 10.12 SURVIVAL OF REPRESENTATIONS AND WARRANTIES............ A-49
Section 10.13 EFFECT OF DUE DILIGENCE............................... A-49
Section 10.14 FURTHER ASSURANCES.................................... A-49
</TABLE>
A-3
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER dated as of April 18, 1996 is by and among
Landry's Seafood Restaurants, Inc., a Delaware corporation ("Landry's"),
Landry's Acquisition, Inc., a wholly owned subsidiary of Landry's and a
Florida corporation ("Sub"), and Bayport Restaurant Group, Inc., a Florida
corporation ("Bayport").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Landry's, Sub and Bayport
deem it desirable to merge Sub into Bayport (the "Merger") with the result
that Bayport shall become a wholly owned subsidiary of Landry's pursuant to
the terms and conditions hereof;
WHEREAS, it is the parties' mutual intent that the Merger constitute a
reorganization under Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code") and that this Agreement constitute a plan of
reorganization thereunder;
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a pooling-of-interests;
NOW, THEREFORE, in consideration of the representations, warranties and
covenants contained herein, the parties agree as follows:
ARTICLE 1 DEFINITIONS
Section 1.1 DEFINITIONS. As used in this Agreement, the following terms when
capitalized have the meanings indicated.
"Adjusted Exchange Ratio" shall mean (a) if the Average Market Price is
between $15.00 and $22.00: .2105 minus the product of .0526 and the ratio of
Excess Build-Out Costs and/or the Excess Pre-Opening Costs (as defined in
Section 3.4), calculated separately, divided by the outstanding Bayport Common
Stock plus Bayport Preferred Stock (the "Outstanding Bayport Stock"); (b) if
the Average Market Price is greater than $22.00: the quotient of (x) 4.63
minus the fraction determined by dividing the Excess Build-Out Costs and/or
the Excess Pre-Opening Costs, calculated separately, by the Outstanding
Bayport Stock divided by (y) the Average Market Price; and (c) if the Average
Market Price is less than $15.00; the quotient of (xx) 3.16 minus the fraction
determined by dividing the Excess Build-Out Costs and/or the Excess Pre-
Opening Costs, calculated separately, by the Outstanding Bayport Stock divided
by (yy) the Average Market Price.
"Affiliate" shall have the meaning ascribed by Rule 12b-2 promulgated under
the Exchange Act.
"Agreement" shall mean this Agreement and Plan of Merger, including the
Schedules and Exhibits hereto, all as amended or otherwise modified from time
to time.
"Average Market Price" shall mean the average of the daily closing prices of
a share of Landry's Common Stock on the Nasdaq-National Market as reported in
The Wall Street Journal for the five consecutive trading days that end on the
second trading day prior to the Closing Date.
"Bayport Audited Financial Statements" shall mean the audited consolidated
balance sheets and related statements of income, stockholders' equity and cash
flows, and the related notes thereto of Bayport as of and for the years ended
December 27, 1993, December 26, 1994 and December 25, 1995.
"Bayport Common Stock" means the shares of Bayport common stock, $.001 par
value per share.
A-4
<PAGE>
"Bayport Financial Statements" shall mean the Bayport Audited Financial
Statements and the Bayport Interim Financial Statements, if any, collectively.
"Bayport Group" shall mean Bayport and any entity in which Bayport directly
or indirectly owns at least 20% of its equity interest.
"Bayport Interim Financial Statement" shall mean the unaudited balance sheet
and the related unaudited statements of earnings and cash flow of Bayport as
of and for the three-month period ended March 26, 1996.
"Bayport Latest Balance Sheet" shall mean the most current balance sheet of
Bayport included in the Bayport Financial Statements.
"Bayport Non-qualified Options" shall mean any and all outstanding non-
qualified options granted to employees, officers, directors and others, except
for options outstanding under the Bayport Stock Option Plans.
"Bayport Preferred Stock" shall mean the shares of Bayport Series B
Convertible Preferred Stock $.01 par value per share.
"Bayport Stock Options" shall mean the Bayport Non-qualified Options and any
options granted and outstanding pursuant to the Bayport Stock Option Plans.
"Bayport Stock Option Plans" shall mean collectively Bayport's 1995 Stock
Option Plan, 1993 Stock Option Plan, 1985 Stock Option Plan, and any other
Bayport Non-qualified Stock Option Plan.
"Bayport Warrants" shall mean warrants issued to the former partners of
Bayport Partners Limited Partners ("BPLP"), and to Alex. Brown & Sons
Incorporated, and any other outstanding warrants to purchase shares of Bayport
Common Stock.
"Benefit Arrangement" means any employment, severance or similar contract,
or any other contract, plan, policy or arrangement (whether or not written)
providing for compensation, bonus, profit-sharing, stock option or other stock
related rights or other forms of incentive or deferred compensation, vacation
benefits, insurance coverage (including any self-insured arrangement), health
or medical benefits, disability benefits, severance benefits and post-
employment or retirement benefits (including compensation, pension, health,
medical or life insurance benefits), other than the Employee Plans, that (A)
is maintained, administered or contributed to by any member of the Bayport
Group or Landry's Affiliated Group, as the case may be, and (B) covers any
employee or former employee of any such member.
"Business Day" shall mean a day other than a Saturday, a Sunday or a day on
which national banks or the New York Stock Exchange is closed.
"Closing Date" shall have the meaning ascribed to it in Section 2.1(a).
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"DGCL" shall mean the General Corporation Law of the State of Delaware, as
amended.
"Effective Date" shall have the meaning ascribed to it in Section 2.1(b).
"Effective Time" shall have the meaning ascribed to it in Section 2.1(b).
"Employee Plan " means a plan or arrangement as defined in Section 3(3) of
ERISA, that (A) is subject to any provision of ERISA, (B) is maintained,
administered or contributed to by any member of the Bayport Group or Landry's
Affiliated Group, as the case may be, and (C) covers any employee or former
employee of any such member.
A-5
<PAGE>
"Environmental Laws" shall have the meaning ascribed to it in Section 4.21.
"ERISA " means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Exchange Ratio", except as set forth in Sections 3.1 or 3.4, shall mean
.2105.
"Florida BCA" shall mean the Florida Business Corporation Act, as amended.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended.
"HSR Report" shall mean the premerger notification and report form to be
filed under the HSR Act.
"Knowledge of Bayport" shall mean the actual knowledge of David J. Connor,
William D. Korenbaum, Dennis Snuszka, David Kirincic or Ruth Stack, all being
executive officers of Bayport, without obligation to conduct further inquiry
outside the ordinary course of business.
"Knowledge of Landry's" shall mean the actual knowledge of Tilman J.
Fertitta, E. A. Jaksa, Jr., Steven L. Scheinthal or Paul S. West, all being
executive officers of Landry's, without obligation to conduct further inquiry
outside the ordinary course of business.
"Landry's Affiliated Group" shall mean Landry's, Sub, and those entities
listed on Attachment "A" hereto.
"Landry's Audited Financial Statements" shall mean the audited balance
sheets, and the related statements of earnings, stockholders' equity and cash
flows, and the related notes thereto of Landry's as of and for the years ended
December 31, 1993, 1994 and 1995.
"Landry's Common Stock" shall mean shares of Landry's common stock, $.01 par
value per share.
"Landry's Financial Statements" shall mean the Landry's Audited Financial
Statements and the Landry's Interim Financial Statements, if any.
"Landry's Interim Financial Statements" shall mean the unaudited balance
sheet, and the related unaudited statements of earnings and cash flows of
Landry's as of and for the three-month period ended March 31, 1996.
"Landry's Balance Sheet" shall mean the most current balance sheet included
in the Landry's Financial Statements.
"Landry's Preferred Stock" shall mean the shares of Landry's Preferred
Stock, $.01 par value per share. Such Landry's Preferred Stock shall have the
same preferences, rights, terms and conditions as the Bayport Preferred Stock.
"Landry's Stock Option Plans" shall mean Landry's 1993 Stock Option Plan,
Landry's 1995 Flexible Incentive Plan, Landry's Non-Employee Director Plan,
and the Landry's Seafood Restaurant's Stock Option Plan.
"Liens" shall mean pledges, liens, defects, leases, licenses, equities,
conditional sales contracts, charges, claims, encumbrances, security
interests, easements, restrictions, chattel mortgages, mortgages or deeds of
trust, of any kind or nature whatsoever.
"Material Adverse Effect" shall mean with respect to any party, a material
adverse effect on the financial condition, results of operations, leases or
construction of restaurants, business or prospects of such party and its 20%
or more owned direct and indirect subsidiaries, taken as a whole.
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"Multiemployer Plan" means a plan or arrangement as defined in Section
4001(a)(3) and 3(37) of ERISA.
"Permitted Liens" shall mean any mechanic's, worker's, materialmen's,
operator's, or other liens arising as a matter of law in the ordinary course
of business.
"Person" shall mean an individual, firm, corporation, general or limited
partnership, limited liability company, limited liability partnership, joint
venture, trust, governmental authority or body, association, unincorporated
organization or other entity.
"Pre-Closing Periods" shall mean all Tax periods ending at or before the
Effective Time and, with respect to any Tax period that includes but does not
end at the Effective Time, the portion of such period that ends at and
includes the Effective Time.
"Preferred Exchange Ratio" shall be the Exchange Ratio divided by four.
"Proxy Statement" shall mean the proxy statement of Bayport to be included
in the Registration Statement for the purpose of obtaining the approval of the
stockholders of Bayport of this Agreement and the prospectus of Landry's to be
included in the Registration Statement for the purpose of offering the
Landry's Common Stock to the Bayport stockholders upon consummation of the
Merger.
"Registration Statement" shall mean the registration statement on Form S-4
to be filed by Landry's with the SEC for the purpose, among other things, of
registering the Landry's Common Stock which will be issued to the holders of
Bayport Common Stock upon consummation of the Merger.
"Returns" shall mean all returns, reports, estimates, declarations and
statements of any nature regarding Taxes for any Pre-Closing Period required
to be filed by the taxpayer relating to its income, properties or operations.
"SEC" shall mean the Securities and Exchange Commission of the United
States.
"SEC Documents" shall mean all reports, schedules, forms, statements and
other documents filed with the SEC since January 1, 1994.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Special Meeting" shall have the meaning ascribed in Section 6.2(c) hereof.
"Surviving Corporation" shall mean Bayport following the Effective Time.
"Taxes" shall mean any federal, state, local, foreign or other taxes
(including, without limitation, income, alternative minimum, franchise,
property, sales, alcohol, liquor, beer, wine, use, lease, excise, premium,
payroll, wage, employment or withholding taxes), fees, duties, assessments,
withholdings or governmental charges of any kind whatsoever (including
interest, penalties and additions to tax).
"Title IV Plan" means an Employee Plan, other than any Multiemployer Plan,
subject to Title IV of ERISA.
ARTICLE 2--THE CLOSING; THE MERGER; EFFECTS OF THE MERGER
Section 2.1 CLOSING. (a) The closing of the transactions contemplated herein
(the "Closing") will take place, assuming satisfaction or waiver of each of
the conditions set forth in Article 7 hereof, at the offices of Winstead
Sechrest & Minick P.C., 910 Travis, Suite 1700, Houston, Texas at 9:00 A.M.
(Central Time) on a date to be mutually agreed upon between the parties, which
shall be no earlier than (i) at Landry's sole discretion thirty-one Business
Days after the receipt by Landry's of the proceeds of an underwritten public
offering
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including any additional proceeds that might be received as a result of sales
to cover over-allotments of Common Stock of at least 3,500,000 shares and (ii)
the satisfaction of the conditions set forth in Article 7, or if no date has
been agreed to, on any date specified by one party to the other upon five
days' notice following satisfaction of the conditions set forth in clauses (i)
and (ii) above; provided that the limitation set forth in clause (i) if not
earlier satisfied shall be deemed satisfied as of December 21, 1996 (the date
of the Closing being referred to herein as the "Closing Date").
(b) At the Closing, the parties shall (i) deliver the documents,
certificates and opinions required to be delivered by Article 7 hereof, (ii)
provide proof or indication of the satisfaction or waiver of each of the
conditions set forth in Article 7 hereof, (iii) cause the appropriate officers
of Bayport and Sub to execute and deliver the Articles of Merger, attaching a
Plan of Merger (the "Articles of Merger") in substantially the form attached
as Exhibit A hereto and (iv) consummate the Merger by causing to be filed the
properly executed Articles of Merger with the Secretary of State of the State
of Florida in accordance with the provisions of the Florida BCA. The Merger
shall be effective upon filing of the Article of Merger with the Secretary of
State of Florida (such date and time being hereinafter referred to
respectively as the "Effective Date" and the "Effective Time").
Section 2.2 THE MERGER. Subject to the terms and conditions of this
Agreement, Sub shall be merged with and into Bayport at the Effective Time.
Following the Merger, the separate corporate existence of Sub shall cease and
Bayport shall be the Surviving Corporation and shall succeed to and assume all
the rights and obligations of Sub in accordance with the Florida BCA.
Section 2.3 EFFECTS OF THE MERGER, CERTIFICATE AND BY-LAWS; DIRECTORS AND
OFFICERS.
(a) The Merger shall have the effects specified in Florida BCA.
(b) The Articles of Incorporation of Bayport, as amended and restated and in
effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation thereafter unless and until amended
in accordance with its terms and as provided by law.
(c) The By-laws of Sub as in effect at the Effective Time shall be the By-
laws of the Surviving Corporation thereafter unless and until amended in
accordance with their terms, the terms of the Certificate of Incorporation of
the Surviving Corporation and as provided by law.
(d) The directors and officers of Sub at the Effective Time shall be the
directors and officers of the Surviving Corporation thereafter, each to hold a
directorship or office in accordance with the Certificate of Incorporation and
By-laws of the Surviving Corporation until their respective successors are
duly elected and qualified.
ARTICLE 3--MERGER CONSIDERATION; CONVERSION OF SHARES
Section 3.1 CONVERSION OF SHARES. (a) At the Effective Time, by virtue of
the Merger and without any further action on the part of Landry's, Sub,
Bayport or the Surviving Corporation, or any holder of any of the following
securities:
(i) each share of common stock of Sub issued and outstanding at the
Effective Time shall be converted into one share of the common stock,
$.001 par value per share, of the Surviving Corporation;
(ii) each issued share of Bayport Common Stock that is held in treasury by
Bayport or held by any subsidiary of Bayport shall be cancelled and no
stock of Landry's or other consideration shall be delivered in
exchange therefor;
(iii) each share of Bayport Common Stock issued and outstanding at the
Effective Time shall be converted into the right to receive the
Exchange Ratio (as it may be adjusted as provided herein) of a fully
paid and nonassessable share of Landry's Common Stock provided that
if the Average Market Price of a
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share of Landry's Common Stock is (a) greater than $22.00 than the
Exchange Ratio shall equal that number obtained by dividing $4.63 by the
Average Market Price or (b) less than $15.00 than the Exchange Ratio
shall equal that number obtained by dividing $3.16 by the Average Market
Price.;
(iv) each share of Bayport Preferred Stock issued and outstanding at the
Effective Time shall be converted into the right to receive the
Preferred Exchange Ratio of a fully paid and non-assessable share of
Landry's Preferred Stock.
As used herein, the "Merger Consideration" shall mean the rights of holders
of Bayport Common Stock and Bayport Preferred Stock to receive Landry's Common
Stock and Landry's Preferred Stock, or, in certain circumstances as set forth
in Section 3.2(e)(ii) hereof, cash.
(b) Upon conversion of the shares of Bayport Common Stock and Bayport
Preferred Stock into the Merger Consideration in the manner described in
paragraphs 3.1(a)(iii) and 3.1(a)(iv) above, each record holder of issued and
outstanding Bayport Common Stock and Bayport Preferred Stock immediately prior
to the Effective Time shall have the right to receive a certificate
representing such number of shares of Landry's Common Stock or Landry's
Preferred Stock (rounded down to the nearest whole share) equal to the product
of (A) the Exchange Ratio or, where applicable the Preferred Exchange Ratio,
and (B) the number of issued and outstanding shares of Bayport Common Stock or
Bayport Preferred Stock of which such Person is the record holder immediately
prior to the Effective Time.
Section 3.2 EXCHANGE OF CERTIFICATES. (a) As of the Effective Date, Landry's
shall deposit with American Stock Transfer Company or such company as may be
designated by Landry's (and reasonably acceptable to Bayport) (the "Exchange
Agent"), for the benefit of the holders of shares of Bayport Common Stock and
Bayport Preferred Stock, for exchange in accordance with this Article 3,
through the Exchange Agent, certificates representing the shares of Landry's
Common Stock and Landry's Preferred Stock (such shares of Landry's Common
Stock and Landry's Preferred Stock being hereinafter referred to as the
"Exchange Fund") issuable pursuant to Section 3.1 in exchange for outstanding
shares of Bayport Common Stock and Bayport Preferred Stock. Except as
contemplated by Section 3.2(f), the Exchange Fund shall not be used for any
other purpose. Landry's agrees to make available to the Exchange Agent from
time to time as needed, cash sufficient to pay cash in lieu of fractional
shares.
(b) As soon as reasonably practicable after the Effective Time, Landry's
shall cause the Exchange Agent to mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Bayport Common Stock or Bayport Preferred
Stock (the "Certificates") whose shares were converted into the right to
receive shares of Landry's Common Stock or Landry's Preferred Stock
(collectively "Landry's Stock") pursuant to Section 3.1, (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 Exchange Agent, and which shall be in such form and have
such other provisions as Landry's may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Landry's Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent, together
with such letter of transmittal, duly executed, and such other documents as
may reasonably be required by the Exchange Agent, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of shares of Landry's Stock (rounded down to the
nearest whole share) which such holder has the right to receive pursuant to
the provisions of this Article 3 after taking into account all the shares of
Bayport Common Stock or Bayport Preferred Stock then held by such holder under
all such Certificates so surrendered and/or cash in lieu of fractional shares
of Landry's Stock to which such holder is entitled pursuant to Section
3.2(e)(ii), and the Certificate so surrendered shall forthwith be canceled. In
the event of a transfer of ownership of Bayport Common Stock which is not
registered in the transfer records of Bayport, a certificate representing the
proper number of shares of Landry's Stock may be issued to a person other than
the person in whose name the Certificate so surrendered is registered, if,
upon presentation to the Exchange Agent, such Certificate shall be properly
endorsed or otherwise be in proper form for transfer and the person requesting
such payment shall pay any transfer or other taxes required by reason of the
issuance of shares of
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Landry's Stock to a person other than the registered holder of such
Certificate or establish to the reasonable satisfaction of Landry's that such
tax has been paid or is not applicable. Until surrendered as contemplated by
this Section 3.2(b), each Certificate shall be deemed at any time after the
Effective Time to represent only the right to receive upon such surrender the
certificate representing shares of Landry's Stock and cash in lieu of any
fractional shares of Landry's Stock as contemplated by this Section 3.2. No
interest will be paid or will accrue on any cash payable pursuant to this
Article 3.
(c) No dividends or other distributions with respect to Landry's Stock with
a record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of Landry's Stock
represented thereby and no cash payment in lieu of fractional shares shall be
paid to any such holder pursuant to Section 3.2(e) until the holder of record
of such Certificate shall surrender such Certificate. Following surrender of
any such Certificate, there shall be paid to the record holder of the
certificate representing whole shares of Landry's Stock issued in exchange
therefor, without interest, (i) at the time of such surrender, the amount of
any cash payable in lieu of a fractional share of Landry's Stock to which such
holder is entitled pursuant to Section 3.2(e) and the amount of dividends or
other distributions with a record date after the Effective Time theretofore
paid with respect to such whole shares of Landry's Common Stock, and (ii) at
the appropriate payment date, the amount of dividends or other distributions
with a record date after the Effective Time but prior to such surrender and a
payment date subsequent to such surrender payable with respect to such whole
shares of Landry's Common Stock.
(d) All shares of Landry's Stock issued upon the surrender for exchange of
shares of Bayport Common Stock or Bayport Preferred Stock in accordance with
the terms hereof (including any cash paid pursuant to Section 3.2(c) or
3.2(e)) shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Bayport Common Stock or Bayport Preferred Stock,
and there shall be no further registration of transfers on the stock transfer
books of the Surviving Corporation of the shares of Bayport Common Stock which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation or the
Exchange Agent for any reason, they shall be canceled and exchanged as
provided in this Article 3.
(e) (i) No certificates or scrip representing fractional shares of Landry's
Stock shall be issued upon the surrender for exchange of Certificates, and
such fractional share interests will not entitle the owner thereof to vote or
to any rights of a stockholder of Landry's.
(ii) In lieu of the issuance of fractional shares of Landry's Common Stock
or Landry's Preferred Stock, each holder of record of issued and outstanding
shares of Bayport Common Stock and Bayport Preferred Stock, as the case may
be, as of the Effective Time shall be entitled to receive a cash payment
(without interest) (each a "Fractional Payment" and, collectively, the
"Fractional Payments") equal to the fair market value of the fractional share
of Landry's Common Stock to which such holder would be entitled but for this
provision (assuming in the case of Landry's Preferred Stock, the immediate
conversion thereof to Landry's Common Stock). For purposes of calculating such
cash payment, the fair market value of a fraction of a share of Landry's
Common Stock shall be such fraction multiplied by the Average Market Price.
(f) Any portion of the Exchange Fund which remains undistributed to the
holders of the Certificates for six months after the Effective Time shall be
delivered to Landry's, upon demand, and any holders of the Certificates who
have not theretofore complied with this Article 3 shall thereafter look only
to Landry's for payment of their claim for Landry's Stock, any cash in lieu of
fractional shares of Landry's Stock and any dividends or distributions with
respect to Landry's Stock.
(g) None of Landry's, Sub, Bayport or the Exchange Agent shall be liable to
any person in respect of any shares of Landry's Stock (or dividends or
distributions with respect thereto) or cash that the Exchange Agent delivered
to a public official pursuant to any applicable abandoned property, escheat or
similar law.
(h) If any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such Certificate to
be lost, stolen or destroyed and, if required by the Surviving
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Corporation or Landry's, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation or Landry's may direct as
indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen
or destroyed Certificate the shares of Landry's Stock and any cash in lieu of
fractional shares, and unpaid dividends and distributions on shares of
Landry's Stock deliverable in respect thereof, pursuant to this Agreement.
Section 3.3 STOCK OPTIONS. (a) As soon as practicable following the date of
this Agreement, the Board of Directors of Bayport (or, if appropriate, any
committee administering the Bayport Stock Option Plans) shall adopt such
resolutions or take such other actions as may be required to effect the
following with respect to all options to purchase shares of Bayport Common
Stock granted under the Bayport Stock Option Plans or otherwise ("Options")
not exercised prior to the Closing Date:
(i) adjust the terms of all such Options to purchase shares of Bayport
Common Stock to provide that, at the Effective Time, each Option
outstanding immediately prior to the Effective Time shall be deemed to
constitute an option to acquire, on substantially the same terms and
conditions (including full exercisability at such time as such Option shall
be exercisable by its terms), as were applicable to such Option under the
terms of such Option and the applicable Bayport Stock Option Plans, the
same number of shares of Landry's Common Stock (rounded down to the nearest
whole share) as the holder of such Option would have been entitled to
receive pursuant to the Merger had such holder exercised such Option in
full immediately prior to the Effective Time, at a price per share equal to
(y) the aggregate exercise price for the shares of Bayport Common Stock
otherwise purchasable pursuant to such Option divided by (z) the number of
shares of Landry's Common Stock deemed purchasable pursuant to such Option;
provided, however, that (i) no certificate or scrip representing fractional
shares of Landry's Common Stock shall be issued in respect of any Option as
adjusted pursuant to this Section 3.3 and (ii) any such fractional share
will not entitle the owner thereof to vote or to any rights of a
shareholder of Landry's; provided, further, that in the case of any option
to which Section 421 of the Code applies by reason of its qualification
under any of Section 422 of the Code ("qualified stock options"), the
option price, the number of shares purchasable pursuant to such option and
the terms and conditions of exercise of such option shall be determined in
order to comply with Section 424(a) of the Code; and
(ii) make such other changes to the Bayport Stock Option Plans as it
deems appropriate to give effect to the Merger (subject to the approval of
Landry's, which shall not be unreasonably withheld).
(b) The provisions in the Bayport Stock Option Plans providing for the
issuance, transfer or grant of any capital stock of Bayport or any interest in
respect of any capital stock of the Bayport shall be deleted as of the
Effective Time, and Bayport shall use its best efforts to ensure that
following the Effective Time no holder of an Option or any participant in any
Bayport Stock Option Plan shall have any right thereunder to acquire any
capital stock of Bayport, Landry's or the Surviving Corporation, except as
provided in Section 3.3(a).
(c) As soon as practicable after the Effective Time, Landry's shall deliver
to the holders of Options appropriate notices setting forth such holder's
rights pursuant to the respective Bayport Stock Option Plans and the
agreements evidencing the grants of such Options shall continue in effect on
the same terms and conditions (subject to the adjustments required by this
Section 3.3 after giving effect to the Merger). Except as otherwise provided
in this Section 3.3, Landry's shall comply with the terms of the Bayport Stock
Option Plans and ensure, to the extent required by, and subject to the
provisions of such Bayport Stock Option Plans, that the Options which
qualified as incentive stock options prior to the Effective Time continue to
qualify as incentive stock options after the Effective Time.
(d) Landry's agrees to use reasonable efforts to take such actions as are
necessary for the conversion of the Options in accordance with this Section
3.3, including (i) the reservation, issuance and listing of Landry's Common
Stock as is necessary to effectuate the transactions contemplated by Section
3.3(a), (ii) entering into such agreements as are necessary to assume such
Options and (iii) the filing of a registration statement or statements on Form
S-8 and/or S-3, if necessary, to facilitate the public sale of stock issuable
upon the exercise of such Options.
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(e) A holder of an Option adjusted in accordance with this Section 3.3 may
exercise such adjusted Option in whole or in part in accordance with its terms
by delivering a properly executed notice of exercise to Landry's, together
with the consideration therefor and the Federal withholding tax information,
if any, required in accordance with the related Bayport Stock Option Plans.
(f) All Bayport Warrants issued and outstanding as of the Effective Time
shall have their terms automatically adjusted at the Effective Time so that
each Bayport Warrant outstanding immediately prior to the Effective Time shall
be deemed to constitute a warrant to acquire, on substantially the same terms
and conditions as were applicable to such Bayport Warrant under the terms of
such Bayport Warrant, the same number of shares of Landry's Common Stock
(rounded down to the nearest whole share) as the holder of such Bayport
Warrant would have been entitled to receive pursuant to the Merger had such
holder exercised such Bayport Warrant in full immediately prior to the
Effective Time, at a price per share equal to (y) the aggregate exercise price
for the shares of Bayport Common Stock otherwise purchasable pursuant to such
Bayport Warrant divided by (z) the number of shares of Landry's Common Stock
deemed purchasable pursuant to such Bayport Warrant; provided, however, that
(i) no certificate or scrip representing fractional shares of Landry's Common
Stock shall be issued in respect of any Bayport Warrant as adjusted pursuant
to this Section 3.3 and (ii) any such fractional share will not entitle the
owner thereof to vote or to any rights of a shareholder of Landry's.
Section 3.4 EXCHANGE RATIO ADJUSTMENT. (a) In determining the Exchange
Ratio, the parties have agreed to an estimate of the costs to complete
construction (the "Build-out Costs") and the pre-opening costs (the "Pre-
Opening Costs") of certain designated Restaurants (the "In-process
Restaurants"). The aggregate of such Build-out Costs has been stipulated to be
$13,000,000 and the aggregate of the Pre-Opening Costs have been stipulated to
be $1,650,000. In the event as of the Closing Date the estimated Build-Out
Costs and/or the Pre-Opening Costs, respectively, as determined by Landry's in
good faith (the "Landry's Estimate") exceed the Build-out Costs (the "Excess
Build-Out Costs") and/or the Pre-Opening Costs (the "Excess Pre-Opening
Costs"), respectively, the applicable Exchange Ratio shall be adjusted to be
equal to the Adjusted Exchange Ratio, and such Adjusted Exchange Ratio shall
for all purposes of this Agreement be deemed the Exchange Ratio. No less than
five days prior to the Closing Date, Landry's shall provide to Bayport the
Landry's Estimate. The parties agree that the adjustment to the Exchange Ratio
provided for in this Section 3.4 shall be Landry's sole and exclusive remedy
in the event that the Landry's Estimate exceeds the Build-out Costs and/or the
Pre-Opening Costs and, notwithstanding anything to the contrary contained
herein, in no event shall such excess be deemed a breach of a representation,
warranty or covenant of Bayport hereunder.
(b) In the event Bayport disagrees with the determination of Landry's
Estimate, Bayport shall notify Landry's prior to the Closing Date and, such
Closing Date shall be postponed for a period not to exceed seven days during
which time the parties shall attempt to mutually determine an estimate of
actual and projected construction and pre-opening costs for the In-process
Restaurants. If, within such seven days Landry's and Bayport cannot reach a
mutually acceptable determination, one of the six nationally recognized
accounting firms which is not auditing the financial statements of either
Bayport or Landry's, mutually agreed to by the parties, shall determine the
revised Build-out Costs, and Pre-Opening Costs; the Excess Build-Out Cost and
the Excess Pre-Opening Costs. In no event shall the Exchange Ratio or the
Adjusted Exchange Ratio be greater than that set forth in Section 3.1 hereof.
ARTICLE 4--REPRESENTATIONS AND WARRANTIES OF BAYPORT
Bayport represents and warrants to Landry's and Sub, as of the date hereof
that except as set forth in the Schedules numbered to correspond to the
applicable representation or warranty:
Section 4.1 ORGANIZATION. (a) Bayport is a corporation duly organized,
validly existing and in good standing under the laws of the state of Florida
and has all corporate power and authority to carry on its business as now
being conducted and to own its properties. Each other member of the Bayport
Group is duly organized under the laws of the state of its organization and
has all the requisite power and authority under the laws of such
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jurisdiction to carry on its business as now being conducted and to own its
properties. Each member of the Bayport Group is duly qualified to do business
and is in good standing in each state in which the character or location of
the properties owned or leased by it or the nature of the business conducted
by it makes such qualification necessary, except where the failure to be so
qualified or in good standing would not have a Material Adverse Effect on
Bayport.
Section 4.2 AFFILIATED ENTITIES. (a) Schedule 4.2 lists each member of the
Bayport Group. All shares of the outstanding capital stock or equity interests
in each member of the Bayport Group have been duly authorized and validly
issued and are fully paid and nonassessable and are not subject to preemptive
rights and except with respect to Bayport, are owned by Bayport, by another
member of the Bayport Group, which is wholly owned by Bayport, or by Bayport
and another member of the Bayport Group, which is wholly owned by Bayport,
free and clear of all Liens.
(b) Except as listed on Schedule 4.2, Bayport does not, directly or
indirectly, own of record or beneficially, or have the right or obligation to
acquire, any outstanding securities or other interest in any corporation,
partnership, joint venture or other entity.
Section 4.3 CAPITALIZATION. (a) The authorized capital stock of Bayport
consists exclusively of 50,000,000 shares of Bayport Common Stock of which
9,655,599 shares were issued and outstanding and no shares were held in its
treasury as of March 29, 1996, and 15,000,000 shares of Bayport Preferred
Stock of which 2,136,499 were outstanding as of March 29, 1996 (giving the
holders thereof the right to convert such Bayport Preferred Stock into 534,124
shares of Bayport Common Stock), and no additional shares of Bayport's capital
stock have been issued from such date to the date of this Agreement (except
for any shares issued upon exercise of Bayport Stock Options). All of such
issued and outstanding shares of Bayport Common Stock and Bayport Preferred
Stock have been validly issued, are fully paid and nonassessable and were
issued free of preemptive rights, in compliance with any rights of first
refusal, and in compliance with all legal requirements. No share of capital
stock of Bayport has been, or may be required to be, reacquired by Bayport for
any reason or is, or may be required to be, issued by Bayport for any reason,
including, without limitation, by reason of any option, warrant, security or
right convertible into or exchangeable for such shares, or any agreement to
issue any of the foregoing, except for shares of Bayport Common Stock issuable
upon (i) the exercise of the Bayport Stock Options (with such outstanding
Bayport Options giving holders thereof the right to acquire, in the aggregate,
2,111,500 shares of Bayport Common Stock as of March 29, 1996 whether or not
vested), (ii) the exercise of rights associated with the Bayport Warrants
(with such Bayport Warrants giving the holders thereof the right to acquire,
in the aggregate, 691,566 shares of Bayport Common Stock as of April 15,
1996), or (iii) the conversion of 2,136,499 shares of Bayport Preferred Stock.
Section 4.4 AUTHORITY; ENFORCEABLE AGREEMENTS. (a) Subject to obtaining
approval of the holders of not less than a majority of the outstanding Bayport
Common Stock and Bayport Preferred Stock, voting as separate classes if
required by the Florida BCA, Bayport has the requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
described herein. The execution and delivery of this Agreement by Bayport and
the consummation by Bayport of the transactions described herein have been
duly authorized by all necessary corporate action on the part of Bayport,
except for the affirmative vote of the holders of not less than a majority of
the outstanding Bayport Common Stock and Bayport Preferred Stock, voting as
separate classes if required by the Florida BCA, which shall have been
obtained prior to the Effective Time.
(b) This Agreement has been duly executed and delivered by Bayport, and
(assuming due execution and delivery by the other parties hereto) constitutes
a valid and binding obligation of Bayport, enforceable in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally and
general equitable principles and provided that the Merger may not be effected
without the affirmative vote of the holders of not less than a majority of the
outstanding Bayport Common Stock and Bayport Preferred Stock, voting as
separate classes if required by the Florida BCA. The Funding Agreement entered
into by Bayport in connection with this Agreement has been, or will be, duly
executed and delivered by Bayport, and (assuming due execution and delivery by
the other parties
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thereto) constitutes, or will constitute, a valid and binding obligation of
Bayport, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally and general equitable
principles.
Section 4.5 NO CONFLICTS OR CONSENTS. (a) Except as set forth on Schedule
4.5(a), neither the execution, delivery or performance of this Agreement by
Bayport nor the consummation of the transactions contemplated hereby will (i)
violate, conflict with, or result in a breach of any provision of, constitute
a default (or an event that, with notice or lapse of time or both, would
constitute a default) under, result in the termination of, or accelerate the
performance required by, or result in the creation of any adverse claim
against any of the properties or assets of any member of the Bayport Group
under, (A) the Articles of Incorporation, By-laws or any other organizational
documents of any member of the Bayport Group, or (B) any note, bond, mortgage,
indenture, deed of trust, lease, license, agreement or other instrument or
obligation to which any member of the Bayport Group is a party, or by which
any member of the Bayport Group or any of its assets are bound, or (ii)
subject to obtaining clearance under the HSR Act and effectiveness of the
Registration Statement, violate any order, writ, injunction, decree, judgment,
statute, rule or regulation of any governmental body to which any member of
the Bayport Group is subject or by which any member of the Bayport Group or
any of the assets of the foregoing are bound.
(b) Except as set forth on Schedule 4.5(b), no consent, approval, order,
permit or authorization of, or registration, declaration or filing with, any
Person or of any government or any agency or political subdivision thereof is
required for the execution, delivery and performance by Bayport of this
Agreement and the covenants and transactions contemplated hereby or for the
execution, delivery and performance by Bayport of any other agreements
entered, or to be entered, into by Bayport in connection with this Agreement,
except for (i) the filing of the HSR Report by Bayport under the HSR Act and
the early termination or expiration of all applicable waiting periods
thereunder, (ii) the filing of the Proxy Statement included in the
Registration Statement described in Section 6.2 hereof with the SEC and the
declaration of effectiveness thereof by the SEC and the filing of other SEC
required documents, (iii) the affirmative vote of the holders of a majority of
the outstanding Bayport Common Stock and Bayport Preferred Stock, required to
approve the Merger and (iv) the filing of the Articles of Merger as provided
in Section 2.1(b) hereof.
Section 4.6 CORPORATE DOCUMENTS, STOCKHOLDER AGREEMENTS AND BOARD OF
DIRECTORS. Bayport has delivered to Landry's true and complete copies of its
Articles of Incorporation and By-laws, as amended or restated through the date
of this Agreement and the organizational documents governing each member of
the Bayport Group listed on Schedule 4.2. The minute books of each member of
the Bayport Group, contain reasonably complete and accurate records of all
corporate actions of the equity owners of the various entities and of the
boards of directors or other governing bodies, including committees of such
boards or governing bodies. The stock transfer records of Bayport are
maintained by its transfer agent and registrar and, to the Knowledge of
Bayport, contain complete and accurate records of all issuances and
redemptions of stock by Bayport. Except for outstanding Bayport Stock Options
and Bayport Warrants, neither Bayport nor, to the Knowledge of Bayport, any of
its Affiliates, is a party to any agreement with respect to the capital stock
of Bayport other than this Agreement.
Section 4.7 SEC DOCUMENTS; FINANCIAL STATEMENTS; LIABILITIES. (a) Bayport
has timely filed all required reports, schedules, forms, statements and other
documents with the SEC since January 1, 1994 (the "Bayport SEC Documents").
The Bayport SEC Documents, and any such reports, forms and documents filed by
Bayport with the SEC after the date hereof, as amended, complied, or will
comply, as to form in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Bayport SEC
Documents, and none of the Bayport SEC Documents contained or will contain any
untrue statement of a material fact or omitted to state a 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. Except to the extent that information contained in any Bayport SEC
Document has been superseded by a later filed Bayport SEC Document, none of
the Bayport SEC Documents contains any untrue statement of a material fact or
omits to state any material fact required to be
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stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
(b) The Bayport Financial Statements included in the Bayport SEC Documents
have been audited by Grant Thornton LLP, independent accountants (in the case
of the Bayport Audited Financial Statements) in accordance with generally
accepted auditing standards, have been prepared in accordance with United
States generally accepted accounting principles applied on a basis consistent
with prior periods, and present fairly the financial position of Bayport at
such dates and the results of operations and cash flows for the periods then
ended. Except as set forth on Schedule 4.7(b), no member of the Bayport Group
has, nor are any of their respective assets subject to, any liability,
commitment, debt or obligation (of any kind whatsoever whether absolute or
contingent, accrued, fixed, known, unknown, matured or unmatured)
("Undisclosed Liabilities"), except (i) as and to the extent reflected on the
Bayport Latest Balance Sheet, or (ii) as may have been incurred or may have
arisen since the date of the Bayport Latest Balance Sheet in the ordinary
course of business and that are not material individually or in the aggregate
or are permitted by this Agreement.
(c) The Bayport Latest Balance Sheet includes appropriate reserves for all
Taxes and other liabilities incurred as of such date but not yet payable.
(d) Except as set forth on Schedule 4.7(d), since the date of the Bayport
Latest Balance Sheet, there has been no change that has had or is likely to
have a Material Adverse Effect on Bayport.
(e) The statements of income included in the Bayport Financial Statements do
not contain any income or revenue realized from services that the Surviving
Corporation would be prohibited or restricted from offering after the
Effective Time pursuant to any covenant or provision in any material contract
to which any member of the Bayport Group is a party.
(f) Schedule 4.7(f) sets forth the budgets prepared by Bayport establishing
estimated costs of construction of In-Process Restaurants and pre-opening
expenses which accurately disclose the actual amounts expended and to be
expended for such costs and expenses including all capitalized costs of any
nature.
(g) Schedule 4.7(g) lists the average inventory of each restaurant store,
the North Carolina crab processing plant, and the Jacksonville central
distribution warehouse, in existence as of the dates noted therein.
Section 4.8 ACCOUNTS RECEIVABLE. All of the accounts receivable reflected on
the Bayport Latest Balance Sheet or created thereafter have arisen only from
bona fide transactions in the ordinary course of business, represent valid
obligations owing to Bayport or another member of the Bayport Group and have
been accrued and recorded in accordance with generally accepted accounting
principles. Except as set forth on Schedule 4.8, such accounts receivable will
be collectible in full when due, without any counterclaims, set-offs or other
defenses and without provision for any allowance for uncollectible accounts
other than such allowance as appears on the Bayport Latest Balance Sheet.
Section 4.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on
Schedule 4.9, or in the Bayport SEC Documents, since the date of the Bayport
Latest Balance Sheet each member of the Bayport Group has conducted its
business only in the ordinary course, and has not:
(a) amended its Articles of Incorporation, By-laws or similar organizational
documents;
(b) incurred any liability or obligation of any nature (whether absolute or
contingent, accrued, fixed, known, unknown, matured or unmatured), except in
the ordinary course of business provided that the execution of a real estate
lease for a restaurant site shall not be considered an obligation incurred in
the ordinary course of business;
(c) suffered or permitted any of its assets to be or remain subject to any
mortgage or other encumbrance other than those disclosed on Schedule 4.11 and
that collateralize indebtedness reflected on the Bayport Latest Balance Sheet
and Permitted Liens;
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(d) merged or consolidated with another entity or acquired or agreed to
acquire any business or any corporation, partnership or other business
organization, or sold, leased, or otherwise disposed of any assets except for
fair value and in the ordinary course of business;
(e) made any capital expenditure or commitment therefor, except in the
ordinary course of business, provided that any acquisition of restaurants or
restaurant sites, or acquisitions of, or improvements to, real property, shall
not be considered to be in the ordinary course of business;
(f) declared or paid any dividend or made any distribution with respect to
any of its equity interests, or redeemed, purchased or otherwise acquired any
of its equity interests, or issued, sold or granted any equity interests or
any option, warrant or other right to purchase or acquire any such interest
other than (i) issuances of Bayport Common Stock upon the exercise of any
Bayport Stock Option, the conversion of any Bayport Preferred Stock, or the
exercise of any Bayport Warrant; or (ii) the acceptance by Bayport of any
shares of Bayport Common Stock in consideration of the exercise of the Bayport
Stock Options or in satisfaction of any tax or tax withholding obligations of
the holders of such Bayport Stock Options in accordance with the Bayport Stock
Option Plans;
(g) adopted any employee benefit plan or made any change in any existing
employee benefit plans or made any bonus or profit sharing distribution or
payment of any kind or granted any stock options;
(h) increased indebtedness for borrowed money, or made any loan to any
Person, other than through the issuance of standby or performance letters of
credit issued in the ordinary course of business;
(i) made any change affecting any banking, safe deposit or power of attorney
arrangements;
(j) written off as uncollectible any notes or accounts receivable, or
employee or non-employee loans, except for notes or accounts receivable in the
ordinary course of business which in the aggregate do not exceed $10,000;
(k) entered into or amended any employment, severance or similar agreement
or arrangement with any director or employee, or granted any increase in the
rate of wages, salaries, bonuses or other compensation or benefits of any
executive officer or other salaried employee.
(l) cancelled, waived, released or otherwise compromised any debt, claim or
right, except as permitted under clause (j);
(m) made any change in any accounting principle or practice or method or
application thereof;
(n) suffered the termination, suspension or revocation of any license or
permit necessary for the operation of its business;
(o) entered into any transaction other than on an arm's-length basis;
(p) suffered any damage, destruction or loss (whether or not covered by
insurance) which has had or could reasonably be anticipated to have (after
giving effect to any insurance benefit either (i) that has been received or
(ii) the payment obligation for which has been acknowledged by the insurer) a
Material Adverse Effect on Bayport;
(q) agreed, whether or not in writing, to do any of the foregoing;
(r) suffered any stop work orders, notices of lien or notices of failure of
permits or any matter which would prevent or delay the construction of a
restaurant; or
(s) materially decrease the weekly average inventory of any restaurant or
house bank accounts in any restaurant.
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Section 4.10 CONTRACTS. Except as set forth on Schedule 4.10 or in any
Bayport SEC Document no member of the Bayport Group is a party to: (i) any
collective bargaining agreement; (ii) any written or oral employment or other
agreement or contract with or commitment to any salaried employee; (iii) any
agreement, contract or commitment containing any covenant limiting its freedom
to engage in any line of business or to compete with any Person or to open or
operate a restaurant within a certain area or any restaurant owned or operated
by Bayport; (iv) any oral or written obligation of guaranty or indemnification
arising from any agreement, contract or commitment, except as provided in its
Articles of Incorporation; (v) any joint venture, partnership or similar
contract involving a sharing of profits or expenses; (vi) any non-disclosure
agreement, non-competition agreement, agreement with an officer, director or
employee of any member of the Bayport Group, tax indemnity, tax sharing or tax
allocation agreement or severance, bonus or commission agreement; (vii) any
agreement or contract under which any member of the Bayport Group is the
licensee of computer software or other intellectual property with a per unit
cost greater than $2,500; (viii) any contract between any member of the
Bayport Group and any of their respective Affiliates (other than other members
of the Bayport Group); (ix) any indenture, mortgage, loan, credit, sale-
leaseback or similar contract under which any member of the Bayport Group has
borrowed any money or issued any note, bond or other evidence of indebtedness
for borrowed money or guaranteed indebtedness for money borrowed by others;
(x) any hedge, swap, exchange, futures or similar agreements or contracts in
an amount in excess of $25,000; or (xi) any other oral or written agreement,
contract or commitment that has had or may have a Material Adverse Effect on
Bayport. There is no existing breach by any member of the Bayport Group of,
nor is there any pending or to the Knowledge of Bayport threatened claim that,
any member of the Bayport Group has breached any of the terms or conditions of
any of its material agreements, contracts or commitments, and to the Knowledge
of Bayport, no other parties to such agreements, contracts or commitments have
breached any of its terms or conditions.
Section 4.11 PROPERTIES AND LEASES. (a) With respect to assets, each member
of the Bayport Group has, except with respect to assets disposed of in the
ordinary course of business (none of which are material to the operations of
its business) or such assets as are no longer used or useful in the conduct of
its business, good and valid title to all real property and all other
properties and assets reflected in the Bayport Latest Balance Sheet free and
clear of all Liens, except for (i) Liens that secure indebtedness that is
properly reflected in the Bayport Latest Balance Sheet; (ii) Liens for Taxes
accrued but not yet payable; (iii) Permitted Liens, provided that the
obligations collateralized by such Permitted Liens are not delinquent or are
being contested in good faith and in no event shall the obligations
collateralized by any such contested Permitted Liens in the aggregate exceed
$150,000; (iv) such imperfections of title and encumbrances, if any, as do not
materially detract from the value or materially interfere with the present use
of any such properties or assets or the potential sale of any such properties
and assets and (v) capital leases and leases of such properties, if any, to
third parties for fair and adequate consideration. Schedule 4.11(a) contains a
list of all Liens (other than Permitted Liens) and equipment leases in an
amount in excess of $25,000 or property collateralizing indebtedness on the
Bayport Latest Balance Sheet and any guaranty or other credit support
arrangement pursuant to which any member of the Bayport Group has guaranteed
an obligation of any other member of the Bayport Group where assets are the
collateral. A member of the Bayport Group owns, or has valid leasehold
interests in, all properties and assets used in the conduct of its business.
(b) With respect to each lease of any real property, or a material amount of
other personal property, to which a member of the Bayport Group is a party (i)
such member of the Bayport Group has a valid leasehold interest in such real
property or personal property; (ii) such lease is in full force and effect in
accordance with its terms; (iii) all rents and other monetary amounts that
have become due and payable thereunder have been paid in full; (iv) no waiver,
indulgence or postponement of the obligations thereunder has been granted by
the other party thereto; (v) there exists no material default (or an event
that, with notice or lapse of time or both would constitute a material
default) under such lease; (vi) such member of the Bayport Group has not
violated any of the material terms or conditions under any such lease and to
the Knowledge of Bayport there has been no (A) condition or covenant to be
observed or performed by any other party under any such lease that has not
been fully observed and performed and (B) in the case of each lease concerning
demised premises subleased to any member of the Bayport Group, condition or
covenant to be observed or performed by any other party thereto that has not
been
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fully observed and performed and there does not exist any event of default or
event, occurrence, condition or act that, with the giving of notice, the lapse
of time or the happening of any further event or condition, would become a
default under any such prime lease; and (vii) except as set forth on Schedule
4.5(b), the transactions described in this Agreement will not constitute a
default under or cause for termination or modification of any such lease.
(c) To the Knowledge of Bayport, the rent charged to any member of the
Bayport Group under any lease, between any member of the Bayport Group and any
of its Affiliates (other than another member of the Bayport Group) is at or
below the market rate as of the time such lease was entered into, and any such
lease contains such other terms and conditions that are no less favorable to
Bayport than would be obtainable in an arms-length transaction with an
independent third party lessor.
(d) Schedule 4.11(d) contains a list of all real property owned by members
of the Bayport Group and a list of all leases to which the members of the
Bayport Group are parties.
Section 4.12 CONDITION OF BAYPORT'S ASSETS. Except as set forth on Schedule
4.12, all of the material tangible assets of the Bayport Group which are being
used in the business of the Bayport Group are currently in good and usable
condition, ordinary wear and tear excepted, and there is no deferred
maintenance requirements on any such assets which would require an expenditure
in excess of $10,000 per store. To the Knowledge of Bayport, there are no
defects in such assets or other conditions that have or would be reasonably
likely to have a Material Adverse Effect on Bayport. Such assets and the other
properties being leased by a member of the Bayport Group pursuant to the
leases described on Schedule 4.11(d), constitute all of the material operating
assets being utilized by the Bayport Group in the conduct of its business and
such assets are sufficient in quantity and otherwise adequate for the
operations of the Bayport Group as currently conducted.
Section 4.13 VOTING REQUIREMENTS. The affirmative vote of a majority of the
outstanding shares of Bayport Common Stock and Bayport Preferred Stock
entitled to vote on the Merger (voting as separate classes if required by the
Florida BCA) and required by Bayport's Articles of Incorporation or the
Florida BCA, is the only vote of the holders of any class or series of
Bayport's capital stock necessary to approve this Agreement and the
transactions described herein.
Section 4.14 ACCOUNTING MATTERS. No member of the Bayport Group, nor to the
Knowledge of Bayport any of its Affiliates, has taken or agreed to take any
action that (without giving effect to any action taken or agreed to be taken
by Landry's or any of its Affiliates) would prevent Landry's from accounting
for the business combination to be effected by the Merger as a pooling-of-
interests. Upon execution of this Agreement, Bayport will have received a
letter from its independent public accountants to the effect that if the
Merger were to be consummated on the date of this Agreement, Bayport qualifies
as an entity that may be a party to a business combination for which the
pooling-of-interests method of accounting would be available.
Section 4.15 SUPPLIERS AND CUSTOMERS. To the Knowledge of Bayport, (a) no
supplier providing products, materials or services to any member of the
Bayport Group intends to cease selling such products, materials or services to
any member of the Bayport Group or to limit or reduce such sales to any member
of the Bayport Group or materially alter the terms or conditions of any such
sales and (b) no customer of any member of the Bayport Group intends to
terminate, limit or reduce its or their business relations with any member of
the Bayport Group except where such action would not have a Material Adverse
Effect on Bayport. Notwithstanding the foregoing, no representation or
warranty is provided that any supplier or customer of Bayport will continue to
do business with Landry's after the consummation of the Merger.
Section 4.16 EMPLOYEE MATTERS. (a) Schedule 4.16(a) sets forth the name,
title, current annual compensation rate (including bonus and commissions),
current base salary rate, accrued bonus, accrued sick leave, accrued severance
pay and accrued vacation benefits of each salaried employee of each member of
the Bayport Group. Copies of organizational charts, any employee handbook(s),
and any reports and/or plans prepared or adopted pursuant to the Equal
Employment Opportunity Act of 1972, as amended, have been provided to
Landry's.
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(b) Each of the following is true with respect to the Bayport Group:
(i) to the Knowledge of Bayport, each such member is in compliance with
all applicable laws respecting employment and employment practices, terms
and conditions of employment, wages and hours and occupational safety and
health, and is not engaged in any unfair labor practice within the meaning
of Section 8 of the National Labor Relations Act, and there is no
proceeding pending or to the Knowledge of Bayport threatened, or, any
investigation pending or to the Knowledge of Bayport threatened against it
relating to any thereof, and to the Knowledge of Bayport there is no basis
for any such proceeding or investigation;
(ii) none of the employees of any such member is a member of, or
represented by, any labor union and there are no efforts being made to
unionize any of such employees; and
(iii) there are no charges of, formal, informal or internal complaints
of, or proceedings involving, discrimination or harassment (including but
not limited to discrimination or harassment based upon sex, age, marital
status, race, religion, color, creed, national origin, sexual preference,
handicap or veteran status) pending or to the Knowledge of Bayport
threatened, nor is there any investigation pending or to the Knowledge of
Bayport threatened, including, but not limited to, investigations before
the Equal Employment Opportunity Commission or any federal, state or local
agency or court, with respect to any such member.
Section 4.17 EMPLOYEE BENEFIT PLANS. With respect to any member of the
Bayport Group:
(a) Schedule 4.17(a) lists each Employee Plan that each member of the
Bayport Group maintains, administers, contributes to, or has any contingent
liability with respect thereto. Bayport has provided a true and complete copy
of each such Employee Plan, current summary plan description, (and, if
applicable, related trust documents) and all amendments thereto, together with
(i) the three most recent annual reports, if any, prepared in connection with
each such Employee Plan (Form 5500 including, if applicable, Schedule B
thereto); (ii) the most recent actuarial report, if any, and trust reports
prepared in connection with each Employee Plan; (iii) all material
communications received from or sent to the Internal Revenue Service ("IRS")
or the Department of Labor ("DOL") within the last two years (including a
written description of any material oral communications relating to the IRS
Voluntary Compliance Resolution or Closing Agreement Programs); (iv) the most
recent IRS determination letter with respect to each Employee Plan and the
most recent application for a determination letter, both as applicable; (v)
all insurance contracts or other funding arrangements, currently in force; and
(vi) an actuarial study of any post-employment life or medical benefits
provided, if any.
(b) Schedule 4.17(b) identifies each Benefit Arrangement that each member of
the Bayport Group maintains, administers, contributes to, or has any
contingent liability with respect thereto. Bayport has furnished to Landry's
copies or descriptions of each Benefit Arrangement and any of the information
set forth in Section 4.17(a) applicable to any such Benefit Arrangement. Each
Benefit Arrangement has been maintained and administered in substantial
compliance with its terms and with the requirements (including reporting
requirements, if any) prescribed by any and all statutes, orders, rules and
regulations which are applicable to such Benefit Arrangement.
(c) Benefits under any Employee Plan or Benefit Arrangement are as
represented in said documents and have not been increased or modified (whether
written or not written) subsequent to the dates of such documents. To the
Knowledge of Bayport, no member of the Bayport Group has communicated to any
employee or former employee any intention or commitment to modify any Employee
Plan or Benefit Arrangement or to establish or implement any other employee or
retiree benefit or compensation arrangement.
(d) No Employee Plan is (i) a Multiemployer Plan, (ii) a Title IV Plan or
(iii) is maintained in connection with any trust described in Section
501(c)(9) of the Code. No member of the Bayport Group has ever maintained or
become obligated to contribute to any employee benefit plan (i) that is
subject to Title IV of ERISA, (ii) to which Section 412 of the Code applies,
or (iii) that is a Multiemployer Plan. No member of the Bayport Group has
within the last five years engaged in, or is a successor corporation to an
entity that has engaged in, a transaction described in Section 4069 of ERISA.
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(e) Each Employee Plan which is intended to be qualified under Section
40l(a) of the Code is so qualified and has been so qualified during the period
from its adoption to date, and no event has occurred since such adoption that
would adversely affect such qualification and each trust created in connection
with each such Employee Plan forming a part thereof is exempt from tax
pursuant to Section 501(a) of the Code. A favorable determination letter has
been issued by the IRS as to the qualification of each such Employee Plan for
which a determination is available under the Code and to the effect that each
such trust is exempt from taxation under Section 501(a) of the Code. Each
Employee Plan has been maintained and administered in substantial compliance
with its terms and with the requirements (including reporting requirements, if
any) prescribed by any and all applicable statutes, orders, rules and
regulations, including but not limited to ERISA and the Code.
(f) Full payment has been made of all amounts which any member of the
Bayport Group is or has been required to have paid as contributions to or
benefits due under any Employee Plan or Benefit Arrangement under applicable
law or under the terms of any such plan or any arrangement.
(g) No member of the Bayport Group, or any of their respective directors,
officers or employees has engaged in any transaction with respect to an
Employee Plan that could subject Bayport to a tax, penalty or liability for a
prohibited transaction, as defined in Section 406 of ERISA or Section 4975 of
the Code. None of the assets of any Employee Plan are invested in employer
securities or employer real property.
(h) To the Knowledge of Bayport, there are no facts or circumstances that
might give rise to any liability under Title I of ERISA.
(i) No member of the Bayport Group has any current or projected liability in
respect of post-retirement or post-employment welfare benefits for retired,
current or former employees, except as required to avoid excise tax under
Section 4980B of the Code, relating to the Consolidated Omnibus Budget
Reconciliation Act of 1985 ("COBRA").
(j) There is no litigation, administrative or arbitration proceeding to the
Knowledge of Bayport or other dispute pending or threatened that involves any
Employee Plan or Benefit Arrangement.
(k) No employee or former employee of any member of the Bayport Group will
become entitled to any bonus, retirement, severance, job security or similar
benefit or enhanced benefit (including acceleration of an award, vesting or
exercise of an incentive award) or any fee or payment of any kind solely as a
result of any of the transactions contemplated hereby, except as disclosed on
Schedule 4.17(k) and no such disclosed payment constitutes a parachute payment
described in Section 280G of the Code, except as disclosed on Schedule
4.17(k).
(l) To the Knowledge of Bayport, all group health plans (as defined in Code
Section 5000(b)(1)) of any member of the Bayport Group have at all times fully
complied with all applicable notification and continuation coverage
requirements of Section 4980B(f) of the Code and Section 601 of ERISA, and the
regulations promulgated thereunder. Further, no Employee Plan provides health,
medical, death or survivor benefits to any stockholders or directors who are
not employees, former employees or beneficiaries thereof, except to the extent
otherwise required by the continuation requirements of Section 4980B(f) of the
Code and Section 601 of ERISA, and to the Knowledge of Bayport there are no
claims by terminated employees with respect thereto.
(m) Except as set forth on Schedule 4.17(m), no employee or former employee,
officer or director of any member of the Bayport Group is or will become
entitled to receive any award under a Bayport discretionary or other bonus
plans.
(n) All obligations under any such Employee Plans have been in the
aggregate, accrued on the Bayport Financial Statements to the extent required
(including items relating to vesting via passage of time or as a result of the
Merger).
Section 4.18 TAX MATTERS.
(a) Except as set forth on Schedule 4.18, each of the following is true with
respect to each member of the Bayport Group to the extent applicable to such
member:
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(i) all Returns required to be filed have been filed, including legal
periods permitted by extensions, by each member of the Bayport Group when
due in accordance with all applicable laws; all Taxes shown on the Returns
have been timely paid when due; the Returns have been properly completed in
compliance in all material respects with all applicable laws and
regulations and completely and accurately reflect the facts regarding the
income, expenses, properties, business and operations required to be shown
thereon; the Returns are not subject to penalties under Section 6662 of the
Code (or any corresponding provision of state, local or foreign tax law);
(ii) All each member of the Bayport Group has paid all Taxes required to
be paid by it (whether or not shown on a Return) or for which it is liable
(provided that it shall not be considered a breach of this representation
if it is ultimately determined that additional tax payments are due but
such assessment is based on an adjustment to a return or position, if such
member has a reasonable basis for the position taken with respect to such
Taxes), whether to taxing authorities or to other persons under tax
allocation agreements, and the charges, accruals, and reserves for Taxes
due, or accrued but not yet due, relating to its income, properties,
transactions or operations for any Pre-Closing Period as reflected on its
books (including, without limitation, the Bayport Latest Balance Sheet) are
adequate in the aggregate to cover such Taxes;
(iii) there are no agreements or consents currently in effect for the
extension or waiver of the time (A) to file any Return or (B) for
assessment or collection of any Taxes relating to the income, properties or
operations of any member of the Bayport Group, and to the Knowledge of the
Bayport Group no member the Bayport Group has been requested to enter into
any such agreement or consent;
(iv) there are no Tax liens (other than for current Taxes not yet due and
payable) upon the assets of any member of the Bayport Group;
(v) all material elections with respect to Taxes affecting any member of
the Bayport Group are set forth in Schedule 4.18;
(vi) all Taxes that the Bayport Group is required by law to withhold or
collect have been duly withheld or collected, and have been timely paid
over to the appropriate governmental authorities to the extent due and
payable (provided that it shall not be considered a breach of this
representation if it is ultimately determined that additional tax payments
are due but such assessment is based on an adjustment to a return or
position, if such member has a reasonable basis for the position taken with
respect to such withholding and collection);
(vii) Schedule 4.18 hereto sets forth (A) the taxable years of each
member of the Bayport Group as to which the respective statutes of
limitations (as defined in Code Section 6501(a) without application of
exceptions contained in other provisions of Code Section 6501) with respect
to Taxes (limited, however, to Taxes imposed by the Code) have not expired,
and (B) with respect to such taxable years, those years for which
examinations have not been completed, those years for which examinations
are currently being conducted, those years for which examinations have not
been initiated, and those years for which required Returns have not yet
been filed. Schedule 4.18 lists each state in which any member of the
Bayport Group has, at any time within the three year period ending on the
date hereof, filed a Return.
(viii) all Tax deficiencies which have been claimed, proposed or asserted
against any member of the Bayport Group have been fully paid or finally
settled, and no issue has been raised in any examination which, by
application of similar principles to the same or a similar factual
situation or practice, can be expected to result in the proposal or
assertion of a Tax deficiency for any other year not so examined;
(ix) to the Knowledge of Bayport, each member of the Bayport Group has
complied in all material respects with all applicable Tax laws;
(x) no member of the Bayport Group is a party to any agreement, contract,
arrangement or plan that would result, separately or in the aggregate, in
the payment of any "excess parachute payments" within the meaning of Code
Section 280G (or any comparable provision of state or local law);
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(xi) no member of the Bayport Group has agreed, nor is it required, to
make any adjustment under Code Section 481(a) (or any comparable provision
of state or local law) by reason of a change in accounting method or
otherwise;
(xii) no member of the Bayport Group has filed a consent pursuant to the
collapsible corporation provisions of Section 341(f) of the Code (or any
corresponding provision of state, local or foreign income law) or agreed to
have Section 341(f)(2) of the Code (or any corresponding provision of
state, local or foreign income law) apply to any disposition of any asset
owned by it;
(xiii) none of the assets of any member of the Bayport Group is property
that such company is required to treat as being owned by any other person
pursuant to the so-called "safe harbor lease" provisions of former Section
168(f)(8) of the Internal Revenue Code of 1954 as in effect prior to
January 1, 1984;
(xiv) none of the assets of any member of the Bayport Group directly or
indirectly secures any debt, the interest on which is tax exempt under
Section 103(a) of the Code;
(xv) none of the assets of any member of the Bayport Group is "tax-exempt
use property" within the meaning of Section 168(h) of the Code;
(xvi) no member of the Bayport Group has made a deemed dividend election
under Section 1.1502-32(f)(2) of the Treasury Regulations or a consent
dividend election under Section 565 of the Code;
(xvii) since 1990, no member of the Bayport Group has ever been a member
of an affiliated group (used herein as defined in Section 1504 of the Code)
other than an affiliated group of which Bayport is the parent corporation;
(xviii) since 1990, no member of the Bayport Group is (or has ever been)
a party to any tax sharing agreement nor has any such member assumed the
tax liability of any other person under contract.
Section 4.19 LITIGATION. Except as disclosed on Schedule 4.19, there are no
actions, suits, proceedings, arbitrations, claims or investigations pending
or, to the Knowledge of Bayport, threatened before any court, any governmental
agency or instrumentality or any arbitration panel, against or affecting any
member of the Bayport Group or any of the directors, officers, or employees of
the Bayport Group which could reasonably be expected to have Material Adverse
Effect on Bayport. To the Knowledge of Bayport, no facts or circumstances
exist that would be likely to result in the filing of any such action that
could reasonably be expected to have a Material Adverse Effect on Bayport.
Except as disclosed on Schedule 4.19, no member of the Bayport Group is
subject to any currently pending judgment, order or decree entered in any
lawsuit or proceeding.
Section 4.20 INSURANCE. Schedule 4.20 contains a list of the insurance
policies that each member of the Bayport Group currently maintains or
maintained in 1995, with respect to its business, properties and employees
each of which is in full force and effect and a complete and correct copy of
each has been delivered to Landry's. All insurance premiums currently due with
respect to such policies have been paid and no member of the Bayport Group is
otherwise in default with respect to any such policy, nor has any member of
the Bayport Group failed to give any notice or to present any claim under any
such policy. No member of the Bayport Group has received notice of
cancellation or non-renewal of any such policy. Such policies are sufficient
for substantial compliance with all material requirements of law and all
agreements to which any member of the Bayport Group is a party.
Section 4.21 ENVIRONMENTAL COMPLIANCE. (a) Except where the absence of, or
non-compliance with, would not reasonably be expected to have a Material
Adverse Effect on Bayport, each member of the Bayport Group possesses all
necessary licenses, permits and other approvals and authorizations that are
required under, and are, and to the Knowledge of Bayport at all times in the
past have been, in compliance with, all federal, state, local and foreign
laws, common law duties, ordinances, codes and regulations relating to
pollution or the protection of the environment (collectively, "Environmental
Laws"), including without limitation all Environmental Laws governing the
generation, use, collection, treatment, storage, transportation, recovery,
removal, discharge or disposal of hazardous substances or wastes, and all
Environmental Laws imposing record-keeping, maintenance, testing, inspection,
notification and reporting requirements with respect to hazardous substances
or wastes. For
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purposes of this Agreement, "hazardous substances" and "hazardous wastes" are
materials defined as "hazardous substances," "hazardous wastes," or "hazardous
constituents" in (i) the Comprehensive-Environmental Response, Compensation
and Liability Act of 1980 42 U.S.C. Sections 9601-9675, as amended by the
Superfund Amendments and Reauthorization Act of 1986, and any amendments
thereto and regulations thereunder; (ii) the Resource Conservation and
Recovery Act of 1976, 42 U.S.C. Sections 6901-6992, as amended by the
Hazardous and Solid Waste Amendments of 1984, and any amendments thereto and
regulations thereunder; (iii) the Oil Pollution Act of 1990, 33 U.S.C.
Sections 2701-2761, and any amendments thereto and regulations thereunder; or
(iv) any other federal, state, local or foreign environmental law or
regulation.
(b) No member of the Bayport Group is, nor has it been, subject to any
administrative or judicial proceeding pursuant to, or has received any notice
of any violation of, or claim alleging liability under, any Environmental
Laws, and, to the Knowledge of Bayport, no facts or circumstances exist that
would be likely to result in a claim, citation or allegation against any
member of the Bayport Group for a violation of, or alleging liability under,
any Environmental Laws that could reasonably be expected to have a Material
Adverse Effect on Bayport.
(c) There are no underground tanks of any type (including tanks storing
gasoline, diesel fuel, oil or other petroleum products) or disposal sites for
hazardous substances, hazardous wastes or any other waste, located on or under
the real estate currently owned, leased or used by any member of the Bayport
Group and to the Knowledge of Bayport there were no such disposal sites
located on or under the real estate previously owned, leased or used by any
member of the Bayport Group on the date of the sale thereof by any member of
the Bayport Group or during the period of lease for use by any member of the
Bayport Group.
(d) Except in the ordinary course of business, and in all cases in
compliance with Environmental Laws, no member of the Bayport Group has engaged
any third party to handle, transport or dispose of hazardous substances or
wastes (including for this purpose, gasoline, diesel fuel, oil or other
petroleum products, or bilge waste) on its behalf.
Section 4.22 COMPLIANCE WITH LAW; PERMITS. Other than compliance with
Environmental Laws which is covered in Section 4.21: (a) the operations and
activities of each member of the Bayport Group comply in all respects material
to its business with all applicable laws, regulations, ordinances, rules or
orders of any federal, state or local court or any governmental authority
except for any violation or failure to comply that could not reasonably be
expected to result in a Material Adverse Effect on Bayport, and
(b) except to the extent that failure to comply will not have a Material
Adverse Effect on the conduct of its business, each member of the Bayport
Group possesses all governmental licenses, permits and other governmental
authorizations that are (i) required under all federal, state and local laws
and regulations for the ownership, use and operation of its assets or (ii)
otherwise necessary to permit the conduct of its business without
interruption, and such licenses, permits and authorizations are in full force
and effect and have been and are being fully complied with by it except for
any violation or failure to comply that could not reasonably be expected to
result in a Material Adverse Effect on Bayport. No member of the Bayport Group
has received any notice of any violation of any of the terms and conditions of
any such license, permit or authorization and, to the Knowledge of Bayport, no
facts or circumstances exist that would form the reasonable basis of a
revocation, claim, citation or allegation against it for a violation of any
such license, permit or authorization. No such license, permit or
authorization or any renewal thereof will be terminated, revoked, suspended,
modified or limited in any respect as a result of the transactions
contemplated by this Agreement except for any violation or failure to comply
that could not reasonably be expected to result in a Material Adverse Effect
on Bayport.
Section 4.23 INTERESTS IN CLIENTS, SUPPLIERS, ETC. Except as set forth in
Schedule 4.23, no officer or director of any member of the Bayport Group
possesses, directly or indirectly, any financial interest in, or is a
director, officer or employee of, any corporation or business organization
that is a supplier, customer, lessor, lessee, or competitor or potential
competitor of the Bayport Group or that has entered into any material contract
with any member of the Bayport Group. Ownership of less than 1% of any class
of securities of a company whose securities are registered under the Exchange
Act will not be deemed to be a financial interest for purposes of this Section
4.23.
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Section 4.24 TRANSACTIONS WITH RELATED PARTIES. (a) Schedule 4.24(a) lists
all transactions between January 1, 1993 and the date of this Agreement
involving or for the benefit of any member of the Bayport Group, on the one
hand, and any director or officer of any member of the Bayport Group or
Affiliate of such director or officer, on the other hand, including, (i) any
debtor or creditor relationship, (ii) any transfer or lease of real or
personal property, (iii) wages, salaries, commissions, bonuses and agreements
relating to employment and (iv) purchases or sales of products or services.
(b) Schedule 4.24(b) lists (i) all agreements and claims of any nature that
any officer or director of any member of the Bayport Group or any Affiliate
(other than another member of the Bayport Group) of such officer or director
has with or against any member of the Bayport Group as of the date of this
Agreement that are not identified on the Bayport Latest Balance Sheet and (ii)
all agreements and claims of any nature that any member of the Bayport Group
has with or against any officer or director of any member of the Bayport Group
or any Affiliate (other than another member of the Bayport Group) of such
officer or director as of the date of this Agreement that are not identified
on the Bayport Latest Balance Sheet.
Section 4.25 STATEMENTS ARE TRUE AND CORRECT. None of the information that
has been or will be supplied by the Bayport Group included in (i) the
Registration Statement to be filed by Landry's with the SEC in connection with
the Landry's Common Stock to be issued in the Merger, (ii) the Proxy Statement
to be mailed to the stockholders of Bayport in connection with its
stockholders meeting, and (iii) any other documents to be filed with the SEC
or any other regulatory authority in connection with the transactions
contemplated hereby will at the respective times such documents are filed,
and, in the case of the Registration Statement, when it becomes effective and,
with respect to the Proxy Statement, when first mailed to the stockholders of
Bayport, be false or misleading with respect to any material fact, or omit to
state any material fact necessary in order to make the statements therein not
misleading, or, in the case of the Proxy Statement or any amendment thereof or
supplement thereto, at the time of the Bayport stockholders' meeting, be false
or misleading with respect to any material fact, or omit to state any material
fact necessary to make the statements therein in light of the circumstances
under which they were made not misleading. All documents that Bayport is
responsible for filing with the SEC or any other regulatory authority in
connection with the transactions contemplated hereby, will comply in all
material respects with the provisions of applicable law.
Section 4.26 BROKER'S AND FINDER'S FEE. No agent, broker, Person or firm
acting on behalf of Bayport is or will be entitled to any commission or
broker's or finder's fee from any of the parties hereto or from any Affiliate
of the parties hereto, in connection with any of the transactions contemplated
herein, except fees to Alex. Brown & Sons Incorporated to be paid by Bayport
that are disclosed in Schedule 4.26, and which do not exceed $750,000,
including all costs and expenses.
Section 4.27 DISCLOSURE. (a) No representations or warranties by Bayport in
this Agreement and no statement contained in the schedules or exhibits or in
any certificate to be delivered pursuant to this Agreement, contains or will
contain any untrue statement of material fact or omits or will omit to state
any material fact necessary, in light of the circumstances under which it was
made, in order to make the statements herein or therein not misleading.
(b) Landry's has been furnished with, or given access to, complete and
correct copies of all agreements, instruments and documents, together with any
amendments or supplements thereto, set forth on, or underlying a disclosure
set forth on, a Schedule provided by Bayport. Each of the Schedules provided
by Bayport is complete and correct.
Section 4.28 TRADEMARKS, TRADENAMES, ETC. Bayport and each member of the
Bayport Group own or possesses, or possesses a valid right or license to use,
all intellectual property, patents, trademarks, tradenames, servicemarks,
copyrights and licenses (collectively "I.P. Rights"), and all rights with
respect to the foregoing, reasonably necessary for the conduct of their
business as now conducted, without any known conflict, asserted or not, with
the rights of others. Schedule 4.28 lists all I.P. Rights.
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ARTICLE 5--REPRESENTATIONS AND WARRANTIES OF LANDRY'S AND SUB
Landry's and Sub jointly and severally represent and warrant to Bayport, as
of the date hereof that, except as set forth in the Schedules numbered to
correspond to the applicable representation or warranty:
Section 5.1 ORGANIZATION. Landry's and Sub are corporations duly organized,
validly existing and in good standing under the laws of their respective
states of incorporation and have all corporate power and authority to carry on
their business as now being conducted and to own their properties. Each other
member of the Landry's Affiliated Group is duly organized under the laws of
the state of its organization and has all the requisite power and authority
under the laws of such jurisdiction to carry on its business as now being
conducted and to own its properties. Each member of the Landry's Affiliated
Group is duly qualified to do business and is in good standing in each state
in which the character or location of the properties owned or leased by it or
the nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified or in good standing would not have
a Material Adverse Effect on Landry's.
Section 5.2 AFFILIATED ENTITIES. (a) All shares of the outstanding capital
stock or equity interests in each such member of the Landry's Affiliated Group
have been duly authorized and validly issued and are fully paid and
nonassessable and are not subject to preemptive rights and, are owned by
Landry's, by another member of the Landry's Affiliated Group or by Landry's
and another member of the Landry's Affiliated Group, free and clear of all
Liens.
(b) Except as listed on Schedule 5.2(b), Landry's does not, directly or
indirectly, own of record or beneficially, or have the right or obligation to
acquire, any outstanding securities or other interest in any corporation,
partnership, joint venture or other entity.
Section 5.3 CAPITALIZATION. (a) The authorized capital stock of Landry's
consists exclusively of 30,000,000 shares of common stock, $0.01 par value per
share, of which 18,204,220 shares were issued and outstanding and no shares
were held in its treasury as of April 15, 1996, and 2,000,000 shares of
preferred stock, $0.01 par value, of which none are currently outstanding, and
no additional shares of Landry's capital stock have been issued from such date
to the date of this Agreement (except for any shares issued upon exercise of
any options referred to in the second following sentence). All of such issued
and outstanding shares have been validly issued, are fully paid and
nonassessable and were issued free of preemptive rights, in compliance with
any rights of first refusal, and in compliance with all legal requirements. No
share of capital stock of Landry's has been, or may be required to be,
reacquired by Landry's for any reason or is, or may be required to be, issued
by Landry's for any reason, including, without limitation, by reason of any
option, warrant, security or right convertible into or exchangeable for such
shares, or any agreement to issue any of the foregoing, except for options
granted under and issuable upon the exercise of stock options granted under
the Landry's Stock Option Plans. As of March 31, 1996, 2,751,520 shares were
reserved for issuance upon exercise of options pursuant to the Landry's Stock
Option Plans.
(b) The authorized capital stock of Sub consists of 1,000 shares of Common
Stock, $.10 par value per share, of which 1,000 shares are issued and
outstanding and owned by Landry's and no shares are held in its treasury. All
of such issued and outstanding shares have been validly issued, are fully paid
and nonassessable and were issued free of preemptive rights, in compliance
with any rights of first refusal, and in compliance with all legal
requirements. No share of capital stock of Sub has been, or may be required to
be, reacquired by Sub for any reason or is, or may be required to be, issued
by Sub for any reason, including by reason of any option, warrant, security or
right convertible into or exchangeable for such shares or any agreement to
issue any of the foregoing.
Section 5.4 AUTHORITY; ENFORCEABLE AGREEMENTS. (a) Landry's and Sub each has
the requisite corporate power and authority to enter into this Agreement and
to consummate the transactions described herein. The execution and delivery of
this Agreement by Landry's and Sub and the consummation by Landry's and Sub of
the transactions described herein have been duly authorized by all necessary
corporate action on the part of Landry's and Sub.
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(b) This Agreement has been duly executed and delivered by Landry's and Sub,
and (assuming due execution and delivery by the other parties thereto)
constitutes a valid and binding obligation of Landry's and Sub, enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally. The other agreements entered, or to be entered, into by
Landry's and Sub in connection with this Agreement have been, or will be, duly
executed and delivered by Landry's and Sub, and (assuming due execution and
delivery by the other parties thereto) constitute, or will constitute, valid
and binding obligations of Landry's and Sub, enforceable in accordance with
their terms, except as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally and general equitable principals.
Section 5.5 NO CONFLICTS OR CONSENTS. (a) Except as set forth on Schedule
5.5(a), neither the execution, delivery or performance of this Agreement by
Landry's or Sub nor the consummation of the transactions contemplated hereby
will (i) violate, conflict with, or result in a breach of any provision of,
constitute a default (or an event that, with notice or lapse of time or both,
would constitute a default) under, result in the termination of, or accelerate
the performance required by, or result in the creation of any adverse claim
against any of the properties or assets of any member of the Landry's
Affiliated Group under, (A) the certificates of incorporation, by-laws or
other organizational documents of any member of the Landry's Affiliated Group
or (B) any note, bond, mortgage, indenture, deed of trust, lease, license,
agreement or other instrument or obligation to which any member of the
Landry's Affiliated Group is a party, or by which any member of the Landry's
Affiliated Group or any of its assets are bound, or (ii) subject to obtaining
clearance under the HSR Act and effectiveness of the Registration Statement,
violate any order, writ, injunction, decree, judgment, statute, rule or
regulation of any governmental body to which any member of the Landry's
Affiliated Group is subject or by which any member of the Landry's Affiliated
Group or any of the assets of the foregoing are bound.
(b) No consent, approval, order, permit or authorization of, or
registration, declaration or filing with, any Person or of any government or
any agency or political subdivision thereof is required for the execution,
delivery and performance by Landry's or Sub of this Agreement and the
covenants and transactions contemplated hereby or for the execution, delivery
and performance by Landry's or Sub of any other agreements entered, or to be
entered, into by Landry's or Sub in connection with this Agreement, except for
(i) the filing of the HSR Report by Landry's under the HSR Act and the early
termination or expiration of applicable waiting periods thereunder, (ii) the
filing of the Registration Statement on Form S-4 described in Section 6.2
hereof with the SEC and the declaration of effectiveness thereof by the SEC
and (iii) the filing of the Certificate of Merger as provided in Section
2.1(b) hereof.
Section 5.6 CORPORATE DOCUMENTS, STOCKHOLDER AGREEMENTS AND BOARD OF
DIRECTORS. Landry's has delivered to Bayport true and complete copies of its
certificate of incorporation and by-laws, as amended or restated through the
date of this Agreement, and the organizational documents governing each member
of the Landry's Affiliated Group. The minute books of each member of the
Landry's Affiliated Group contain reasonably complete and accurate records of
all corporate actions of the equity owners of the various entities and of the
boards of directors or other governing bodies, including committees of such
boards or governing bodies. The stock transfer records of Landry's are
maintained by its transfer agent and registrar, and to the Knowledge of
Landry's, contain complete and accurate records of all issuances and
redemptions of stock by Landry's. Neither Landry's nor any of its Affiliates,
is a party to any agreement with respect to the capital stock of Landry's
other than this Agreement and the Landry's Stock Option Plans.
Section 5.7 SEC DOCUMENTS; FINANCIAL STATEMENTS; LIABILITIES. (a) Landry's
has filed all required reports, schedules, forms, statements and other
documents with the SEC since January 1, 1994 (the "Landry's SEC Documents").
As of their respective dates, the Landry's SEC Documents, and any such
reports, forms and documents filed by Landry's with the SEC after the date
hereof, complied, or will comply, as to form in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be,
and the rules and regulations of the SEC promulgated thereunder applicable to
such Landry's SEC Documents, and none of the Landry's SEC Documents contained,
or will contain, any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of
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the circumstances under which they were made, not misleading. Except to the
extent that information contained in any Landry's SEC Document has been
revised or superseded by a later filed Landry's SEC Document, none of the
Landry's SEC Documents contains any untrue statement of a material fact or
omits 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.
(b) The Landry's Financial Statements included in the Landry's SEC Documents
have been audited by Arthur Andersen, LLP, certified public accountants (in
the case of the Landry's Audited Financial Statements) in accordance with
generally accepted auditing standards, have been prepared in accordance with
United States generally accepted accounting principles and, except as
disclosed therein, applied on a basis consistent with prior periods, and
present fairly the financial position of Landry's and its consolidated
subsidiaries at such dates and the results of operations and cash flows for
the periods then ended. No member of the Landry's Affiliated Group has, nor
are any of their respective assets subject to, any liability, commitment, debt
or obligation (of any kind whatsoever whether absolute or contingent, accrued,
fixed, known, unknown, matured or unmatured), except (i) as and to the extent
reflected on the Landry's Latest Balance Sheet, or (ii) as may have been
incurred or may have arisen since the date of the Landry's Latest Balance
Sheet in the ordinary course of business and that are not material
individually or in the aggregate or are permitted by this Agreement.
(c) The Landry's Latest Balance Sheet includes appropriate reserves for all
Taxes and other liabilities incurred as of such date but not yet payable.
(d) Since the date of the Landry's Latest Balance Sheet, there has been no
change that has had or is likely to have a Material Adverse Effect on
Landry's.
(e) The statements of earnings included in the Landry's Financial Statements
do not contain any income or revenue realized from services that the Surviving
Corporation would be prohibited or restricted from offering after the
Effective Time pursuant to any covenant or provision in any material contract
to which any member of the Landry's Affiliated Group is a party.
Section 5.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth on
Schedule 5.8, since the date of the Landry's Latest Balance Sheet, each member
of the Landry's Affiliated Group has conducted its business only in the
ordinary course, and has not:
(a) amended its certificate of incorporation, by-laws or similar
organizational documents;
(b) incurred any liability or obligation of any nature (whether absolute
or contingent, accrued, fixed, known, unknown, matured or unmatured),
except in the ordinary course of business;
(c) suffered or permitted any of its assets to be or remain subject to
any mortgage or other encumbrance;
(d) merged or consolidated with another entity (other than a subsidiary)
or acquired or agreed to acquire any business or any corporation,
partnership or other business organization, or sold, leased, transferred or
otherwise disposed of any material portion of its assets except for fair
value in the ordinary course of business;
(e) suffered any damage, destruction or loss (whether or not covered by
insurance) which has had or could have a Material Adverse Effect on
Landry's;
(f) suffered the termination, suspension or revocation of any license or
permit necessary for the operation of its business;
(g) entered into any transaction other than on an arm's-length basis;
(f) declared or paid any dividend or made any distribution with respect
to any of its equity interests, or except for the possible sale of Common
Stock in an underwritten public offering redeemed, purchased or otherwise
acquired any of its equity interests, or issued, sold or granted any equity
interests or any option.
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warrant or other right to purchase or acquire any such interest other than
(i) grants of, and issuances of shares of Landry's Common Stock upon the
exercise of, stock options issued under a Landry's Stock Option Plan,
provided that any new options granted by Landry's shall not have covered
more than 800,000 shares, (ii) the acceptance by Landry's of any shares in
consideration of the exercise of such Landry's stock options or in
satisfaction of any tax or tax withholding obligations of the holders of
such options, and (iii) payments within the Landry's Affiliated Group by
entities other than Landry's as part of its cash management program that
may be characterized as dividends or distributions;
(h) adopted any employee benefit plan or made any change in any existing
employee benefit plans;
(i) entered into or amended any employment, severance or similar
agreement or arrangement with any director or employee;
(j) made any change in any accounting principle or practice or method or
application thereof;
(k) suffered the termination suspension or revocation of any license or
permit necessary for the operation of its business; or
(l) agreed, whether or not in writing, to do any of the foregoing.
Section 5.9 CONTRACTS. (a) Each material agreement, contract or commitment
to which any member of the Landry's Affiliated Group is a party that would be
required to be filed as an exhibit to a report, schedule, form, statement or
other document with the SEC (each a "Material Contract") has been so filed,
and between the date of the filing of its most recent Annual Report on Form
10-K and the date of this Agreement, Landry's has not entered into any
Material Contract other than this Agreement. Landry's will file with the SEC
any Material Contract required to be filed that it enters into between the
date of this Agreement and the Closing Date and will furnish Bayport with a
copy of any such Material Contract. No member of the Landry's Affiliated Group
has breached, nor is there any pending or, to the Knowledge of Landry's,
threatened, claim that it has breached, any of the terms or conditions of any
of its Material Contracts, and to the Knowledge of Landry's, no other parties
to any such Material Contract have breached any of its terms or conditions.
Bayport has been provided with a complete and accurate copy of each Material
Contract entered into prior to the date of this Agreement.
(b) Except as set forth on Schedule 5.9(b) or in the Landry's SEC Documents,
Landry's is not a party to: (i) any collective bargaining agreement; (ii) any
oral or written obligation of guaranty or indemnification arising from any
agreement, contract or commitment, in excess of $500,000, except as provided
in its Certificate of Incorporation; (iii) any non-disclosure agreement, non-
competition agreement, agreement with an officer, director or employee of
Landry's, tax indemnity, tax sharing or tax allocation agreement or severance,
bonus or commission agreement; (iv) any indenture, mortgage, loan, credit,
sale-leaseback or similar contract under which it borrowed any money or issued
any note, bond or other evidence of indebtedness for borrowed money or
guaranteed indebtedness for money borrowed by others; (v) any hedge, swap,
exchange, futures or similar agreements or contracts in an amount in excess of
$100,000; or (vi) any other oral or written agreement, contract or commitment
that has had or may have a Material Adverse Effect on Landry's. There is no
existing breach by Landry's nor is there any pending, or to the Knowledge of
Landry's threatened, claim that Landry's has breached any of the terms or
conditions of any of its material agreements, contracts, or commitments, and
to the Knowledge of Landry's, no other parties to such agreement, contracts or
commitments have breached any of its terms or conditions.
Section 5.10 ENVIRONMENTAL COMPLIANCE. (a) Each member of the Landry's
Affiliated Group possesses all necessary licenses, permits and other approvals
and authorizations that are required under, and are, and to the Knowledge of
Landry's at all times in the past have been, in compliance with, all
Environmental Laws, including without limitation all Environmental Laws
governing the generation, use, collection, treatment, storage, transportation,
recovery, removal, discharge or disposal of hazardous substances or wastes,
and all Environmental Laws imposing recordkeeping, maintenance, testing,
inspection, notification and reporting requirements with respect to hazardous
substances or wastes.
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(b) Except as set forth on Schedule 5.10(b) or as otherwise disclosed in
Landry's SEC Documents, no member of the Landry's Affiliated Group is, nor has
it been, subject to any administrative or judicial proceeding pursuant to, or
has received any notice of any violation of, or claim alleging liability
under, any Environmental Laws and, to the Knowledge of Landry's, no facts or
circumstances exist that would be likely to result in a claim, citation or
allegation against any member of the Landry's Affiliated Group for a violation
of, or alleging liability under, any Environmental Laws that would have a
Material Adverse Effect on Landry's.
(c) Except as listed on Schedule 5.10(c), there are no underground tanks of
any type (including tanks storing gasoline, diesel fuel, oil or other
petroleum products) or disposal sites for hazardous substances, hazardous
wastes or any other waste, located on or under the real estate currently
owned, leased or used by any member of the Landry's Affiliated Group and to
the Knowledge of Landry's there were no such disposal sites located on or
under the real estate previously owned, leased or used by any member of the
Landry's Affiliated Group on the date of the sale thereof by any member of the
Landry's Affiliated Group or during the period of lease for use by any member
of the Landry's Affiliated Group.
(d) Except in the ordinary course of business, and in all cases in
compliance with Environmental Laws, no member of the Landry's Affiliated Group
has engaged any third party to handle, transport or dispose of hazardous
substances or wastes (including for this purpose, gasoline, diesel fuel, oil
or other petroleum products, or bilge waste) on its behalf, and except as set
forth on Schedule 5.10(d), the disposal by each member of the Landry's
Affiliated Group of its hazardous substances and wastes has been in compliance
with all Environmental Laws.
Section 5.11 ACCOUNTING MATTERS. No member of the Landry's Affiliated Group
nor any of its Affiliates has taken or agreed to take any action that (without
giving effect to any action taken or agreed to be taken by Bayport or any of
its Affiliates) would prevent Landry's from accounting for the business
combination to be effected by the Merger as a pooling-of-interests. Upon the
execution of this Agreement, Landry's will have received a letter from its
independent public accountants to the effect that Landry's is eligible to be a
party to a merger accounted for by the pooling-of-interests method of
accounting and that based on such accounting firm's knowledge of the
transactions contemplated by the Agreement and inquiries of the affairs of
Bayport, they are not aware of any matters which prohibit the use of pooling-
of-interests accounting in connection with the Merger.
Section 5.12 EMPLOYEE MATTERS.
Each of the following is true with respect to the Landry's Affiliated Group:
(i) to the Knowledge of Landry's, each such member is in compliance with
all applicable laws respecting employment and employment practices, terms
and conditions of employment, wages and hours and occupational safety and
health, and is not engaged in any unfair labor practice within the meaning
of Section 8 of the National Labor Relations Act, and there is no
proceeding pending or to the Knowledge of Landry's threatened, or, any
investigation pending or to the Knowledge of Landry's threatened against it
relating to any thereof, and to the Knowledge of Landry's there is no basis
for any such proceeding or investigation;
(ii) none of the employees of any such member is a member of, or
represented by, any labor union and there are no efforts being made to
unionize any of such employees; and
(iii) there are no charges of, formal, informal or internal complaints
of, or proceedings involving, discrimination or harassment (including but
not limited to discrimination or harassment based upon sex, age, marital
status, race, religion, color, creed, national origin, sexual preference,
handicap or veteran status) pending or to the Knowledge of Landry's
threatened, nor is there any investigation pending or to the Knowledge of
Landry's threatened, including, but not limited to, investigations before
the Equal Employment Opportunity Commission or any federal, state or local
agency or court, with respect to any such member.
Section 5.13 EMPLOYEE BENEFIT PLANS. Except as set forth on Schedule 5.13
and Landry's Stock Option Plans, Landry's has no Employee Plans. Each Employee
Plan and Benefit Arrangement of Landry's has been
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maintained and administered in substantial compliance with its terms and with
the requirements (including reporting requirements, if any) prescribed by any
and all statutes, orders, rules and regulations which are applicable thereto,
including ERISA and the Code.
Section 5.14 LITIGATION. Except (i) as disclosed in Landry's SEC Documents,
or (ii) that are not material individually or in the aggregate, or (iii) are
listed on Schedule 5.14, there are no actions, suits, proceedings,
arbitrations or investigations pending or, to the Knowledge of Landry's,
threatened, before any court, any governmental agency or instrumentality or
any arbitration panel, against or affecting any member of the Landry's
Affiliated Group or any of the directors, officers, or employees of the
foregoing, and to the Knowledge of Landry's no facts or circumstances exist
that would be likely to result in the filing of any such action that would
have a Material Adverse Effect on Landry's. No member of the Landry's
Affiliated Group is subject to any currently pending judgment, order or decree
entered in any lawsuit or proceeding.
Section 5.15 LEGALITY OF LANDRY'S STOCK. The Landry's Common Stock and
Landry's Preferred Stock to be issued in connection with the Merger (including
any shares of Landry's Common Stock to be issued upon exercise of Bayport
Stock Options and Bayport Warrants or conversion of the Bayport Preferred
Stock), when issued and delivered in accordance with the terms hereof, and
thereof, will be duly authorized, validly issued, fully paid and non-
assessable, and free of preemptive rights or other rights of first refusal.
Section 5.16 STATEMENTS ARE TRUE AND CORRECT. None of the information
included in (i) the Registration Statement to be filed by Landry's with the
SEC in connection with the Landry's Common Stock to be issued in the Merger,
(ii) the Proxy Statement to be mailed to the stockholders of Bayport in
connection with its stockholders meeting, and (iii) any other documents to be
filed with the SEC or any other regulatory authority in connection with the
transactions contemplated hereby that has been or will be supplied by the
Landry's Affiliated Group, will, at the respective times such documents are
filed, and, in the case of the Registration Statement, when it becomes
effective and, with respect to the Proxy Statement, when first mailed to the
stockholders of Bayport, be false or misleading with respect to any material
fact, or omit to state any material fact necessary in order to make the
statements therein not misleading, or, in the case of the Proxy Statement or
any amendment thereof or supplement thereto, at the time of the Bayport
stockholders' meeting, be false or misleading with respect to any material
fact or omit to state any material fact necessary to make the statements
therein in light of the circumstances under which they were made not
misleading. All documents that Landry's is responsible for filing with the SEC
or any other regulatory authority in connection with the transactions
contemplated hereby, will comply in all material respects with the provisions
of applicable law.
Section 5.17 NO STOCKHOLDER VOTE. No vote of any class of stockholders of
Landry's is required to approve this Agreement or the transactions
contemplated hereby in order to comply with the DGCL, Landry's Certificate of
Incorporation or By-laws, or the rules and regulations of the Nasdaq-National
Market.
Section 5.18 BROKER'S AND FINDER'S FEE. No agent, broker, Person or firm
acting on behalf of Landry's is or will be entitled to any commission or
broker's or finder's fee from any of the parties hereto, or from any Affiliate
of the parties hereto, in connection with any of the transactions contemplated
herein, except fees to Montgomery Securities to be paid by Landry's.
Section 5.19 DISCLOSURE. (a) No representations or warranties by Landry's or
Sub in this Agreement and no statement contained in the schedules or exhibits
or in any certificates to be delivered pursuant to this Agreement, contains or
will contain any untrue statement of material fact or omits or will omit to
state any material fact necessary, in light of the circumstances under which
it was made, in order to make the statements herein or therein not misleading.
(b) Bayport has been furnished with complete and correct copies of all
agreements, instruments and documents, together with any amendments or
supplements thereto, set forth on, or underlying a disclosure set forth on, a
Schedule provided by Landry's. Each of the Schedules provided by Landry's is
complete and correct.
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Section 5.20 TRADEMARKS, TRADENAMES, ETC. Landry's owns or possesses, or
possesses a valid right or license to use, all intellectual property, patents,
trademarks, tradenames, servicemarks, copyrights and licenses, and all rights
with respect to the foregoing, necessary for the conduct of its business as
now conducted, without any known conflict with the rights of others.
Section 5.21 COMPLIANCE WITH LAW; PERMITS. Other than compliance with
Environmental Laws which is covered in Section Section 5.10: (a) the
operations and activities of Landry's comply in all respects material to its
business with all applicable laws, regulations, ordinances, rules or orders of
any federal, state or local court or any governmental authority except for any
violation or failure to comply that could not reasonably be expected to result
in a Material Adverse Effect on Landry's, and
(b) except to the extent that failure to comply will not have a Material
Adverse Effect on the conduct of its business, possesses all governmental
licenses, permits and other governmental authorizations that are (i) required
under all federal, state and local laws and regulations for the ownership, use
and operation of its assets or (ii) otherwise necessary to permit the conduct
of its business without interruption, and such licenses, permits and
authorizations are in full force and effect and have been and are being fully
complied with by it except for any violation or failure to comply that could
not reasonably be expected to result in a Material Adverse Effect on Landry's.
Landry's has received any notice of any violation of any of the terms and
conditions of any such license, permit or authorization and, to the Knowledge
of Landry's, no facts or circumstances exist that would form the reasonable
basis of a revocation, claim, citation or allegation against it for a
violation of any such license, permit or authorization. No such license,
permit or authorization or any renewal thereof will be terminated, revoked,
suspended, modified or limited in any respect as a result of the transactions
contemplated by this Agreement except for any violation or failure to comply
that could not reasonably be expected to result in a Material Adverse Effect
on Landry's.
Section 5.22 PROPERTIES AND LEASES. (a) With respect to assets, Landry's
has, except with respect to assets disposed of in the ordinary course of
business (none of which are material to the operations of its business) or
such assets as are no longer used or useful in the conduct of its business,
good and valid title to all real property and all other properties and assets
reflected in the Landry's Latest Balance Sheet free and clear of all Liens,
except for (i) Liens that secure indebtedness that is properly reflected in
the Landry's Latest Balance Sheet; (ii) Liens for Taxes accrued but not yet
payable; (iii) Permitted Liens, provided that the obligations collateralized
by such Permitted Liens are not delinquent or are being contested in good
faith; (iv) such imperfections of title and encumbrances, if any, as do not
materially detract from the value or materially interfere with the present use
of any such properties or assets or the potential sale of any such properties
and assets and (v) capital leases and leases of such properties, if any, to
third parties for fair and adequate consideration. Landry's owns, or has valid
leasehold interests in, all properties and assets used in the conduct of its
business.
(b) Except as set forth on Schedule 5.22(b), with respect to each lease of
any real property, or a material amount of other personal property, to which
Landry's is a party (i) Landry's has a valid leasehold interest in such real
property or personal property; (ii) such lease is in full force and effect in
accordance with its terms; (iii) all rents and other monetary amounts that
have become due and payable thereunder have been paid in full; (iv) no waiver,
indulgence or postponement of the obligations thereunder has been granted by
the other party thereto; (v) there exists no material default (or an event
that, with notice or lapse of time or both would constitute a material
default) under such lease; (vi) Landry's has not violated any of the material
terms or conditions under any such lease and to the Knowledge of Landry's
there has been no (A) condition or covenant to be observed or performed by any
other party under any such lease that has not been fully observed and
performed and (B) in the case of each lease concerning demised premises
subleased to Landry's, condition or covenant to be observed or performed by
any other party thereto that has not been fully observed and performed and
there does not exist any event of default or event, occurrence, condition or
act that, with the giving of notice, the lapse of time or the happening of any
further event or condition, would become a default under any such prime lease;
and (vii) the transactions described in this Agreement will not constitute a
default under or cause for termination or modification of any such lease.
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Section 5.23 TAX MATTERS.
(a) Each of the following is true with respect to Landry's:
(i) all Returns have been or will be timely filed, including legal
periods permitted by extensions, by Landry's when due in accordance with
all applicable laws; all Taxes shown on the Returns have been or will be
timely paid when due; the Returns have been properly completed in
compliance with all applicable laws and regulations and completely and
accurately reflect the facts regarding the income, expenses, properties,
business and operations required to be shown thereon; the Returns are not
subject to penalties under Section 6662 of the Code (or any corresponding
provision of state, local or foreign tax law);
(ii) except as set forth on Schedule 5.23(a)(ii), Landry's has paid all
Taxes required to be paid by it (whether or not shown on a Return) or for
which it could be liable, (provided that it shall not be considered a
breach of this representation if it is ultimately determined that
additional tax payments are due but such assessment is based on an
adjustment to a return or position, if such member has a reasonable basis
for the position taken with respect to such Taxes), whether to taxing
authorities or to other persons under tax allocation agreements or
otherwise, and the charges, accruals, and reserves for Taxes due, or
accrued but not yet due, relating to its income, properties, transactions
or operations for any Pre-Closing Period as reflected on its books
(including, without limitation, the Landry's Latest Balance Sheet) are
adequate to cover such Taxes;
(iii) there are no agreements or consents currently in effect for the
extension or waiver of the time (A) to file any Return or (B) for
assessment or collection of any Taxes relating to the income, properties or
operations of Landry's for any Pre-Closing Period, and Landry's has not
been requested to enter into any such agreement or consent;
(iv) there are no Liens for Taxes (other than for current Taxes not yet
due and payable) upon the assets of Landry's;
(v) all Taxes that Landry's is required by law to withhold or collect
have been duly withheld or collected, and have been timely paid over to the
appropriate governmental authorities to the extent due and payable
(provided that it shall not be considered a breach of this representation
if it is ultimately determined that additional tax payments are due but
such assessment is based on an adjustment to a return or position, if such
member has a reasonable basis for the position taken with respect to such
withholding and collection);
(vi) Schedule 5.23(a)(vi) lists each state in which Landry's has, in the
last three years, filed a Return.
(vii) all Tax deficiencies which have been claimed, proposed or asserted
against Landry's have been fully paid or finally settled, and no issue has
been raised in any examination which, by application of similar principles,
can be expected to result in the proposal or assertion of a Tax deficiency
for any other year not so examined;
(viii) to the Knowledge of Landry's, Landry's has complied in all
material respects with all applicable Tax laws;
(ix) except as set forth on Schedule 5.23(a)(ix), Landry's is not a party
to any agreement, contract, arrangement or plan that would result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Code Section 280G (or any comparable
provision of state or local law);
(x) Landry's has not agreed, nor is it required, to make any adjustment
under Code Section 481(a) (or any comparable provision of state or local
law) by reason of a change in accounting method or otherwise;
(xi) Landry's has not filed a consent pursuant to the collapsible
corporation provisions of Section 341(f) of the Code (or any corresponding
provision of state, local or foreign income law) or agreed to have Section
341(f)(2) of the Code (or any corresponding provision of state, local or
foreign income law) apply to any disposition of any asset owned by it;
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(xii) except as set forth on Schedule 5.23(a)(xii), none of Landry's
assets is property that such company is required to treat as being owned by
any other person pursuant to the so-called "safe harbor lease" provisions
of former Section 168(f)(8) of the Code;
(xiii) none of the assets of Landry's directly or indirectly secures any
debt, the interest on which is tax exempt under Section 103(a) of the Code;
(xiv) none of the assets of Landry's is "tax-exempt use property" within
the meaning of Section 168(h) of the Code;
(xv) Landry's has not made a deemed dividend election under Section
1.1502-32(f)(2) of the Treasury Regulations or a consent dividend election
under Section 565 of the Code;
(xvi) since August 1993, Landry's has never been a member of an
affiliated group filing for purposes of filing United States consolidated
returns other than a group of which Landry's is the parent corporation;
(xvii) since August 1993, Landry's is not (nor has ever been) a party to
any tax sharing agreement nor has any such member assumed the tax liability
of any other person under contract.
Section 5.24 INTERESTS IN CLIENTS, SUPPLIERS, ETC. Except as set forth in
Schedule 5.24, no officer or director of Landry's possesses, directly or
indirectly, any financial interest in, or is a director, officer or employee
of, any corporation or business organization that is a supplier, customer,
lessor, lessee, or competitor or potential competitor of Landry's or that has
entered into any material contract with Landry's. Ownership of less than 1% of
any class of securities of a company whose securities are registered under the
Exchange Act will not be deemed to be a financial interest for purposes of
this Section 5.24.
Section 5.25 TRANSACTIONS WITH RELATED PARTIES. (a) Schedule 5.25(a) or the
Landry's SEC Documents list all transactions between August 18, 1993 and the
date of this Agreement involving or for the benefit of Landry's, on the one
hand, and any director or officer of Landry's, on the other hand, including,
(i) any debtor or creditor relationship, (ii) any transfer or lease of real or
personal property, (iii) wages, salaries, commissions, bonuses and agreements
relating to employment and (iv) purchases or sales of products or services.
(b) Schedule 5.25(b) or the Landry's SEC Documents list (i) all agreements
and claims of any nature that any officer or director of Landry's has with or
against Landry's as of the date of this Agreement that are not identified on
the Landry's Latest Balance Sheet and (ii) all agreements and claims of any
nature that Landry's has with or against any officer or director of Landry's
as of the date of this Agreement that are not identified on the Landry's
Latest Balance Sheet.
ARTICLE 6 PRE-CLOSING COVENANTS
Section 6.1 HART-SCOTT-RODINO; COOPERATION AND BEST EFFORTS. (a) Bayport and
Landry's shall cooperate in good faith and take all actions reasonably
necessary or appropriate to file within ten days of the date hereof, and
expeditiously and diligently prosecute to a favorable conclusion, the HSR
Reports required to be filed by each of them in connection herewith with the
Federal Trade Commission (the "FTC") and the Department of Justice (the "DOJ")
pursuant to the HSR Act; provided that Landry's shall not be required to
accept any conditions that may be imposed by the FTC or the DOJ in connection
with such filings that would require the divestiture of any Landry's or
Bayport assets or otherwise have a Material Adverse Effect on such party.
(b) Bayport and Landry's agree that from the date of this Agreement through
the Effective Time, neither party shall enter into any transaction with a
third party or recapitalization that would have the effect of impeding the
ability to obtain HSR Act clearance.
(c) Each party shall cooperate with the other and use its reasonable best
efforts to (i) receive all necessary and appropriate consents of third parties
to the transactions contemplated hereunder, (ii) satisfy all requirements
prescribed by law for, and all conditions set forth in this Agreement to, the
consummation of the Merger, and (iii) effect the Merger in accordance with
this Agreement at the earliest practicable date.
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Section 6.2 REGISTRATION STATEMENT AND PROXY STATEMENT; BAYPORT SPECIAL
MEETING. (a) Landry's will prepare and file the Registration Statement under
the Securities Act which will include the Proxy Statement complying with all
the requirements of the Securities Act applicable thereto, for the purpose,
among other things, of registering the Landry's Common Stock which will be
issued to the holders of Bayport Common Stock pursuant to the Merger, which
will be issuable upon conversion of the Landry's Preferred Stock issued in the
Merger and which will be issuable upon exercise of the Bayport Warrants
immediately following the Merger. Landry's shall use its best efforts to cause
the Registration Statement to become effective as soon as practicable, to
qualify the Landry's Common Stock under the securities or blue sky laws of
such jurisdictions as may be required and to keep the Registration Statement
and such qualifications current and in effect for so long as necessary to
consummate the transactions contemplated hereby. In addition, Landry's shall
file such forms as are required to cause such Landry's Common Stock to be
listed on the Nasdaq-National Market and be fully tradeable except to the
extent any shares of Landry's Common Stock received by stockholders of Bayport
are subject to the provisions of Rule 145 of the SEC or are restricted under
applicable rules related to tax-free reorganizations and pooling-of-interest
accounting rules.
(b) Each of the parties will cooperate in the preparation of the
Registration Statement and the Proxy Statement. Each of the parties will as
promptly as practicable after the date hereof furnish all such data and
information relating to it as the other may reasonably request for the purpose
of including such data and information in the Registration Statement and Proxy
Statement.
(c) Bayport shall, as soon as practicable following effectiveness of the
Registration Statement, take all action necessary under the Florida BCA and
its Articles of Incorporation and By-laws to convene a special meeting of its
stockholders (the "Special Meeting") for the purpose of approving this
Agreement. Bayport will, through its Board of Directors, recommend to its
stockholders approval of this Agreement and the transactions described herein,
subject to the terms set forth in Section 6.5 hereof.
Section 6.3 CONDUCT OF BUSINESS BY BOTH PARTIES PRIOR TO THE CLOSING DATE.
During the period from the date of this Agreement to the Effective Time,
Bayport and Landry's shall each use its reasonable best efforts to preserve
the goodwill of employees, suppliers, customers, landlords, contractors,
bankers, and others having business relations with it and to do nothing
knowingly to impair its ability to keep and preserve its business as it exists
on the date of this Agreement. Without limiting the generality of the
foregoing, and except as set forth on Schedule 6.3, during the period from the
date of this Agreement to the Effective Time of the Merger each of Bayport and
Landry's shall not, without the prior written consent of the other:
(a) declare, set aside, increase or pay any dividend (including any stock
dividends), or declare or make any distribution on, or directly or
indirectly combine, redeem, reclassify, purchase, or otherwise acquire, any
shares of its capital stock or authorize the creation or issuance of, or,
except for the public offering of approximately 3.5 million shares of
Landry's Common Stock, issue, deliver or sell any additional shares of its
capital stock or any securities or obligations convertible into or
exchangeable for its capital stock or effect any stock split or reverse
stock split or other recapitalization, except (i) the grant of, and the
issuance of any shares upon the exercise of, any stock options issued
pursuant to a Landry's Stock Option Plan, provided that any new options
granted by Landry's pursuant to any such Plan shall not cover more than
800,000 shares; (ii) the acceptance by Landry's of any shares in
consideration of the exercise of such Landry's Stock Option or in
satisfaction of any tax or tax withholding obligations of the holders of
such options; (iii) the issuance of any shares upon the exercise of Bayport
Stock Options or Bayport Warrants or the conversion of Bayport Preferred
Stock; or (iv) the acceptance by Bayport of any shares of Bayport Common
Stock in consideration of the exercise of the Bayport Stock Options or in
satisfaction of any tax or tax withholding obligations of the holders of
such Bayport Stock Options.
(b) amend its certificate of incorporation or by-laws, or adopt or amend
any resolution or agreement concerning indemnification of its directors,
officers, employees or agents;
(c) pledge or otherwise encumber any shares of its capital stock, any
other voting securities or any securities convertible into, or any rights,
warrants or options to acquire, any such shares, or any other voting
securities or convertible securities;
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(d) commit or omit to do any act which act or omission would cause a
breach of any covenant contained in this Agreement or would cause any
representation or warranty contained in this Agreement to become untrue, as
if each such representation and warranty were continuously made from and
after the date hereof;
(e) violate any applicable law, statute, rule, governmental regulation or
order that would have a Material Adverse Effect on such party;
(f) fail to maintain its books, accounts and records in the usual manner
on a basis consistent with that heretofore employed or change any
accounting method, policy, practice or application previously employed;
(g) fail to pay, or to make adequate provision in all material respects
for the payment of, all Taxes, interest payments and penalties due and
payable (for all periods up to the Effective Date, including that portion
of its fiscal year to and including the Effective Date) to any city,
parish, state, the United States, foreign or any other taxing authority,
except those being contested in good faith by appropriate proceedings and
for which sufficient reserves have been established, or make any elections
with respect to Taxes;
(h) make any material tax election that is inconsistent with any
corresponding election made on a prior return or settle or compromise any
income tax liability for an amount materially in excess of the liability
therefor that is reflected on the Bayport Financial Statements or Landry's
Financial Statements, as the case may be;
(i) take any action that would prevent the accounting for the business
combination to be effected by the Merger as a pooling-of-interests;
(j) authorize any of, or agree or commit to do any of, the foregoing
actions.
(k) materially decrease the average restaurant inventory or house bank
accounts in any restaurant.
(l) enter into any new line of business.
Section 6.4 CONDUCT OF BUSINESS BY BAYPORT PRIOR TO THE CLOSING DATE. During
the period from the date of this Agreement to the Effective Time, in addition
to its covenants set forth in Section 6.3, each member of the Bayport Group
shall use its best efforts to preserve the possession and control of all of
its assets other than those permitted to be disposed of pursuant to the terms
of this Agreement, shall conduct its business only in the ordinary course
consistent with past practice, and, except as otherwise provided herein or set
forth on Schedule 6.4 hereto, shall not, without the prior written consent of
Landry's:
(a) enter into or modify any written or oral employment, severance or
similar agreement or arrangement with any director or employee, or grant
any increase in the rate of wages, salaries, bonuses or other compensation
or benefits of any executive officer or other salaried employee;
(b) acquire or agree to acquire (i) by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof or (ii) any
assets that are material, individually or in the aggregate, to such party
and its subsidiaries taken as a whole, except purchases of inventory in the
ordinary course of business consistent with past practice;
(c) except as disclosed on Schedule 6.4(c), or, except for dispositions
made in the ordinary course of business and consistent with past practices,
sell, lease, license, mortgage or otherwise encumber or subject to any Lien
or otherwise dispose of any of its other properties or assets;
(d) except as disclosed on Schedule 6.4(d), incur any indebtedness for
borrowed money, excluding the obtaining of letters of credit or surety
bonds in the ordinary course of business consistent with past practices,
but including any borrowings under the existing Bayport credit facility
with the First National Bank of Boston, as Agent (provided that, to the
extent Bayport applies cash to reduce any outstanding debt under the term
loan portion of such facility, it shall be permitted to re-borrow such
amount under the revolving line of credit portion of such facility); or
guarantee any such indebtedness of another Person, issue or sell any debt
securities or warrants or other rights to acquire any debt securities of
such party or any of its
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subsidiaries, guarantee any debt securities of another Person, enter into
any "keep well" or other agreement to maintain any financial condition of
another Person or enter into any arrangement having the economic effect of
any of the foregoing, or make any loans, advances or capital contributions
to, or investments in, any other Person, or alter any credit terms.
(e) except as disclosed on Schedule 6.4(e), make or agree to make any new
capital expenditures other than those made in the ordinary course of
business and consistent with past practices out of available cash
(excluding the proceeds of borrowings);
(f) except in the ordinary course of business, place or suffer to exist
on any of its assets or properties any Lien, other than Liens listed on
Schedule 4.11(a) and Permitted Liens, or forgive any material indebtedness
owing to it or any claims which it may have possessed, or waive any right
of substantial value or discharge or satisfy any material noncurrent
liability;
(g) grant or pay to any salaried employee or former salaried employee,
officer or director of any member of the Bayport Group any award under any
Bayport discretionary or other bonus plans or under any Bayport Stock
Option Plans;
(h) authorize any of, or agree or commit to do any of, the foregoing
actions.
Section 6.5 NO SOLICITATIONS. (a) No member of the Bayport Group shall
directly or indirectly, through any officer, director, employee,
representative or agent of any member of the Bayport Group, solicit or
encourage the initiation or submission of any inquiries, proposals or offers
regarding any acquisition, merger, take-over bid, sale of all or substantially
all of the assets of, or sales of shares of capital stock of Bayport, whether
or not in writing and whether or not delivered to the stockholders of Bayport
generally (including without limitation by way of a tender offer), or similar
transactions involving Bayport (any of the foregoing inquiries or proposals
being referred to herein as an "Acquisition Proposal"); provided, however,
that nothing contained in this Agreement shall prevent the Board of Directors
of Bayport from referring any third party to this Section 6.5. Nothing
contained in this Section 6.5 or any other provision of this Agreement shall
prevent the Board of Directors of Bayport from considering or negotiating an
unsolicited bona fide Acquisition Proposal. If the Board of Directors of
Bayport, after duly considering advice, written or otherwise, of outside
counsel and financial advisors to Bayport, determines in good faith that it
would be consistent with its fiduciary responsibilities to approve or
recommend (and in connection therewith withdraw or modify its approval or
recommendation of this Agreement, and the transactions contemplated hereby or
thereby) a Superior Proposal (as defined below), then, notwithstanding any
such approval or recommendation (x) Bayport shall not enter into any agreement
with respect to the Superior Proposal and (y) any other obligation of Bayport
under this Agreement shall not be affected, unless this Agreement is
terminated pursuant to Section 9.1(f) hereof prior to or simultaneously with
the grant of such approval or the making of such recommendation and Bayport,
within three Business Days following such termination resulting from such
Superior Proposal, pays Landry's the Termination Fee (as defined in Section
9.1(f). As used herein the term "Superior Proposal" means a bona fide proposal
made by a third party to acquire Bayport pursuant to a tender or exchange
offer, a merger, a sale of all or substantially all of its assets or otherwise
that the Board of Directors determines in its good faith judgment to be more
favorable to Bayport's stockholders than the transactions contemplated by this
Agreement (after considering the advice, written or otherwise, of Bayport's
professional advisors). In making a determination of whether a Superior
Proposal is more favorable, the Bayport Board of Directors, without limiting
the generality of the foregoing, nor attempting to establish the priorities
thereof or weight to be given thereto, shall consider not only the price
offered by the third party as compared to the total consideration set forth in
this Agreement, but shall also compare the market liquidity of the Landry's
Common Stock to the liquidity of the consideration offered by the third party,
compare the tax consequences of the Merger to the tax consequences of the
transaction proposed by the third party, determine whether the transaction
proposed by the third party has any financing or other conditions or
contingencies, and make any other meaningful comparison of the relative
benefits offered to the Bayport stockholders by the Merger as compared to the
transaction proposed by the third party.
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(b) Bayport shall immediately notify Landry's after receipt of any formal,
informal, written or oral Acquisition Proposal or any request for nonpublic
information relating to any member of the Bayport Group in connection with an
Acquisition Proposal or for access to the properties, books or records of any
member of the Bayport Group that informs the Board of Directors of any member
of the Bayport Group that it is considering making, or has made, an
Acquisition Proposal. To the extent not prohibited by confidentiality
provisions imposed by the offering party, such notice to Landry's shall be
made orally and in writing and shall indicate in reasonable detail the
identity of the offeror and the terms and conditions of such proposal, inquiry
or contact.
(c) If the Board of Directors of Bayport receives a request for material
nonpublic information by a Person who makes or who states in writing that it
intends, subject to satisfactory review of such nonpublic information, to
make, a bona fide Acquisition Proposal, Bayport may, subject to the execution
of a confidentiality agreement substantially similar to that then in effect
between Bayport and Landry's, provide such Person with access to information
regarding Bayport.
(d) Nothing contained in this Section 6.5 shall prevent Bayport from
complying with Rule 14e-2(a) or Rule 14d-9 promulgated under the Exchange Act,
if applicable, with regard to an Acquisition Proposal made in the form of a
tender offer by a third party.
Section 6.6 PRESS RELEASES. Landry's and Bayport shall jointly prepare any
press release with respect to the transactions described in this Agreement.
Landry's and Bayport will consult with each other before issuing, any press
releases or other public statements with respect to any transactions described
in this Agreement, including the Merger. Landry's and Bayport shall not issue
any such press releases or make any such public statement prior to such
consultation, except as may be required by applicable law, court process or by
obligations pursuant to a listing agreement with the Nasdaq-National Market.
Section 6.7 ACCESS TO INFORMATION AND CONFIDENTIALITY. (a) Prior to the
Closing Date, each of Bayport and Landry's shall afford to the other party and
to the officers, employees. accountants, counsel, financial advisors and other
representatives of such other party, reasonable access during normal business
hours to their respective premises, books and records and will furnish to the
other party (i) a copy of each report, schedule, registration statement and
other documents filed by it during such period pursuant to the requirements of
federal or state securities laws, and (ii) such other information with respect
to its business and properties as such other party reasonably requests.
(b) Each of Bayport and Landry's will, and will cause its officers,
directors, employees, agents and representatives to, (i) hold in confidence,
unless compelled to disclose by judicial or administrative process, or, in the
opinion of its counsel, by other requirements of law, all nonpublic
information concerning the other party furnished in connection with the
transactions contemplated by this Agreement until such time as such
information becomes publicly available (otherwise than through the wrongful
act of such person), (ii) not release or disclose such information to any
other person, except in connection with this Agreement to its auditors,
attorneys, financial advisors, other consultants and advisors, and (iii) not
use such information for any competitive or other purpose other than with
respect to its consideration and evaluation of the transactions contemplated
by this Agreement. In the event of termination of this Agreement for any
reason, Bayport and Landry's will promptly return or destroy all documents
containing nonpublic information so obtained from the other party and any
copies made of such documents and any summaries, analyses or compilations made
therefrom.
Section 6.8 CONSULTATION AND REPORTING. During the period from the date of
this Agreement to the Closing Date, each of Bayport will, subject to any
applicable legal or contractual restrictions confer on a regular and frequent
basis with Landry's to report material operational matters and to report on
the general status of ongoing operations including profits margin options,
cost increases and adverse trends. Bayport will notify Landry's of any
unexpected emergency or other change in the normal course of its business or
in the operation of its properties and of any governmental complaints,
investigations, adjudicatory proceedings, or hearings (or communications
indicating that the same may be contemplated) and will keep Landry's fully
informed of such events and permit Landry's representatives prompt access to
all materials prepared by or on behalf of Bayport or served on Bayport, in
connection therewith.
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Section 6.9 UPDATE SCHEDULES. Each party hereto will promptly disclose to
the other any information contained in its representations and warranties and
on the related schedules that, because of an event occurring after the date
hereof, is incomplete or no longer correct; provided, however, that none of
such disclosures will be deemed to modify, amend or supplement the
representations and warranties of such party, unless the other party consents
to such modification, amendment or supplement in writing.
Section 6.10 BAYPORT SEC FILINGS. Bayport agrees to use its best efforts to
prepare and file with the SEC its quarterly report on Form 10-Q for the
quarter ending March 25, 1996 and a Form 10K-A before the Closing Date.
Section 6.11 SUB STOCKHOLDER APPROVAL. Landry's, as the sole stockholder of
Sub, shall take all action necessary to effect the necessary stockholder
approval by Sub of this Agreement.
Section 6.12 CHANGE IN CONTROL AGREEMENTS. Messrs. Connor and Korenbaum,
executive officers of Bayport, agree that they each shall terminate those
certain Employment Agreements entered into on April 1, 1995, effective as of
the Closing Date.
Section 6.13 BAYPORT GROUP AFFILIATES AGREEMENT. Schedule 6.13 sets forth a
list of Bayport's "affiliates" (as that term is used in paragraph (c) and (d)
of Rule 145 under the Securities Act). To facilitate the treatment of the
Merger for accounting purposes as a "pooling-of-interests", Bayport and each
member of the Bayport Group shall use its best efforts to deliver to Landry's
within 20 days after the execution of this Agreement, a written agreement from
each of its affiliates (the "Bayport Affiliates Agreement") in form and
substance reasonably satisfactorily to Landry's. As a condition to any
transfer of any Bayport Common Stock or Bayport Preferred Stock, Bayport shall
use its best efforts to cause any such transferee to agree in writing that
such transferee will make no disposition (a) of Bayport Common Stock or
Bayport Preferred Stock or of Landry's Common Stock in the 30-day period prior
to the Effective Time or (b) of Landry's Common Stock after the Effective Time
until Landry's shall have publicly released its first report of quarterly
financial statements that include the combined financial statements of
Landry's and Bayport for a period of at least 30 days of post Merger combined
operations. Landry's shall, at least 30 days prior to the Effective Date,
cause to be delivered to each person Landry's believes to be an "affiliate"
(as that term is used in paragraphs (c) and (d) of Rule 145 under the
Securities Act), of Landry's, a notice informing such persons of restrictions
on transfer resulting from the Merger being accounted for as a pooling-of-
interest in accordance with generally accepted accounting principles and all
published rules, regulations and policies of the SEC.
Section 6.14 PHASE ONE. Bayport shall provide at its expense, to Landry's a
Phase 1 Environmental Report covering any property owned or leased by Bayport
as such shall be reasonably requested by Landry's.
ARTICLE 7--CLOSING CONDITIONS
Section 7.1 CONDITIONS APPLICABLE TO ALL PARTIES. The obligations of each of
the parties hereto to effect the Merger and the other transactions
contemplated by this Agreement are subject to the satisfaction or waiver of
the following conditions at or prior to the Closing:
(a) REGISTRATION AND LISTING EFFECTIVENESS; STOCKHOLDER APPROVAL. The
Registration Statement shall have become effective with the SEC (and no
stop order suspending the effectiveness of the Registration Statement shall
have been issued and no proceedings for that purpose shall have been
instituted by the SEC) and the Proxy Statement included therein shall have
been mailed to the Bayport stockholders, the shares of Landry's Common
Stock to be issued pursuant to the Merger shall have been approved for
listing on the Nasdaq-National Market, subject to official notice of
issuance, and the required approval of the stockholders of Bayport of this
Agreement shall have been obtained at the Special Meeting.
(b) NO RESTRAINING ACTION. No action, suit, or proceeding before any
court or governmental or regulatory authority will be pending, no
investigation by any governmental or regulatory authority will have been
commenced, and no action, suit or proceeding by any governmental or
regulatory authority will have
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been threatened, against Bayport, Landry's or any of the principals,
officers or directors of any of them, seeking to restrain, prevent or
change the transactions contemplated hereby or questioning the legality or
validity of any such transactions or seeking damages in connection with any
such transactions.
(c) CONSULTING AGREEMENT. Landry's shall have executed and delivered a
Consulting Agreement, providing for certain consulting services to be
performed by David J. Connor.
Section 7.2 CONDITIONS TO LANDRY'S OBLIGATIONS. The obligations of Landry's
to effect the Merger and the other transactions contemplated by this Agreement
are also subject to the satisfaction or waiver of the following conditions at
or prior to the Closing:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. (i) The representations
and warranties of Bayport in this Agreement or in any certificate delivered
to Landry's pursuant hereto as of the date hereof will be deemed to have
been made again at and as of the Closing Date (without regard to any
Schedule updates furnished by Bayport after the date hereof unless
consented to by Landry's) and will then be true and correct in all material
respects, except to the extent any such representation or warranty is
qualified by materiality or by reference to the term "Material Adverse
Effect" in which case such representation or warranty shall be true and
correct, and (ii) Bayport will have performed and complied in all material
respects with all agreements and conditions required by this Agreement to
be performed or complied with by Bayport prior to or on the Closing Date.
(b) NO MATERIAL ADVERSE CHANGE. There shall not have occurred any event
or circumstance resulting in a Material Adverse Effect with respect to
Bayport from the date of this Agreement to the Closing Date.
(c) HSR ACT. The waiting periods (and any extensions thereof) applicable
to the Merger under the HSR Act shall have been terminated or shall have
expired and no condition shall have been imposed on Bayport or Landry's to
obtain such termination that would require the divestiture of any of either
of such party's assets or otherwise have a Material Adverse Effect on such
party.
(d) CONSENTS AND APPROVALS. All governmental and other third-party
consents and approvals, if any, necessary to permit the consummation of the
transactions contemplated by this Agreement, or to permit the continued
operation of the business of Bayport in substantially the same manner after
the Closing Date as before, will have been received.
(e) CLOSING CERTIFICATE. The receipt by Landry's of a certificate
executed by the Chief Executive Officer and Chief Financial Officer of
Bayport dated the Closing Date, certifying that the conditions specified in
Section 7.2(a) and 7.2(b) hereof have been fulfilled.
(f) GOOD STANDING AND TAX CERTIFICATES. Bayport will have delivered to
Landry's, each dated as of a date not earlier than five days prior to the
Closing Date, (i) copies of the certificates of incorporation or other
organizational documents, including all amendments thereto, certified by
the appropriate government official of each member of the Bayport Group,
(ii) to the extent issued by such jurisdiction, certificates from the
appropriate governmental official to the effect that each member of the
Bayport Group is in good standing in such jurisdiction and listing all
organizational documents of the members of the Bayport Group on file, (iii)
to the extent issued by such jurisdiction, a certificate from the
appropriate governmental official in each jurisdiction in which each member
of the Bayport Group is qualified to do business to the effect that such
member is in good standing in such jurisdiction and (iv) to the extent
issued by such jurisdiction, certificates as to the tax status of each
member of the Bayport Group in its jurisdiction of organization and each
jurisdiction in which such member is qualified to do business.
(g) CONFIRMATION OF POOLING-OF-INTERESTS AVAILABILITY. The receipt by
Landry's of an opinion or confirmation thereof of its independent public
accountants that is eligible to be a party to a merger accounted for by the
pooling-of-interests method of accounting and that based on such accounting
firm's knowledge of the transactions contemplated by the Agreement and
inquiries of the affairs of Bayport, they are not aware of any matters
which prohibit the use of pooling-of-interests accounting in connection
with the Merger.
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(h) FAIRNESS OPINION. Landry's shall have received an opinion from
Montgomery Securities on the date this Agreement is executed by Landry's,
in form and substance satisfactory to Landry's, to the effect that the
aggregate of the Merger Consideration and any other payments to be paid by
Landry's is fair to Landry's and to Landry's stockholders from a financial
point of view, and such opinion shall not have been withdrawn prior to the
Closing.
(i) TAX OPINION. Landry's shall have received from Winstead Sechrest &
Minick P.C. an opinion to the effect that the Merger and the transactions
contemplated hereby will constitute a reorganization under Section 368 of
the Code.
(j) OPINION OF COUNSEL. Landry's shall have received from Akerman,
Senterfitt & Eidson, P.A. counsel to Bayport, an opinion, dated as of the
Closing Date in form and substance satisfactory to Landry's.
(k) BAYPORT SEC FILINGS. Bayport shall have filed with the SEC its
quarterly report on Form 10-Q for the fiscal quarter ending March 25, 1996
and a report on Form 10K-A.
(l) RENEGOTIATION OF LEASES. Bayport shall have been released from all
lease and other obligations in connection with the Crab House Restaurants
in Grand Casino Biloxi and Grand Casino Gulfport and shall have received an
amount equal to Bayport's unamortized hard construction costs, unamortized
FF&E and small wares offset by any monies due for rent and Bayport shall
have had deleted from the leases covering restaurants in Edgewater, New
Jersey (insofar as it relates to New York City), Orlando 1 and Myrtle 2
(insofar as it relates to existing Landry's restaurants), and Orlando 2,
Myrtle 1 (on a best efforts basis only) and Singer Island (with respect to
Singer Island to be reduced to 5 miles as it relates to Landry's) any
provision restricting Landry's from opening or maintaining a restaurant in
a geographical area or requiring any of Landry's restaurants results of
operations to be considered in determining Bayport's lease payments.
Landry's shall have received a consent to assignment and/or estoppel
certificate from each lessor of any lease of any real property to which a
member of the Bayport Group is a party in form and substance satisfactory
to Landry's.
(m) NON-COMPETE AGREEMENTS. Landry's shall have received a non-compete
and non-solicitation agreement, satisfactory to Landry's, from David J.
Connor and William D. Korenbaum.
(n) LOANS TO OFFICERS, ETC. At the Closing, all Bayport loans to
officers, employees, shareholders or directors shall have been fully paid,
other than loans to employees for relocating and computer purchases made in
the ordinary course of business.
Section 7.3 CONDITIONS TO BAYPORT'S OBLIGATIONS. The obligations of Bayport
to effect the Merger and the other transactions contemplated by this Agreement
are also subject to the satisfaction or waiver of the following conditions at
or prior to the Closing:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. (i) The representations
and warranties of Landry's in this Agreement or in any certificate
delivered to Bayport pursuant hereto as of the date hereof will be deemed
to have been made again at and as of the Closing Date (without regard to
any Schedule updates furnished by Landry's after the date hereof unless
consented to by Bayport) and will then be true and correct in all material
respects, except to the extent any such representation or warranty is
qualified by materiality or by reference to the term "Material Adverse
Effect", and (ii) Landry's will have performed and complied in all material
respects with all agreements and conditions required by this Agreement to
be performed or complied with by Landry's prior to or on the Closing Date.
(b) NO MATERIAL ADVERSE CHANGE. There shall not have occurred any event
or circumstance resulting in a Material Adverse Effect with respect to
Landry's from the date of this Agreement to the Closing Date.
(c) HSR ACT. The waiting periods (and any extensions thereof) applicable
to the Merger under the HSR Act shall have been terminated or shall have
expired.
(d) CONSENTS AND APPROVALS. All governmental and other third-party
consents and approvals, if any, necessary to permit the consummation of the
transactions contemplated by this Agreement will have been received.
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(e) CLOSING CERTIFICATE. The receipt by Bayport of a certificate executed
by the Chief Executive Officer and Chief Financial Officer of Landry's
dated the Closing Date, certifying that the conditions specified in Section
7.3(a) and 7.3(b) hereof have been fulfilled.
(f) GOOD STANDING AND TAX CERTIFICATES. Landry's will have delivered to
Bayport, each dated as of a date not earlier than five days prior to the
Closing Date, (i) copies of the certificates of incorporation, including
all amendments thereto, certified by the appropriate government official,
of each member of the Landry's Affiliated Group, (ii) certificates from the
appropriate governmental official to the effect that each member of the
Landry's Affiliated Group is in good standing in such jurisdiction and
listing all charter documents of such members on file, (iii) a certificate
from the appropriate governmental official in each jurisdiction in which
each member of the Landry's Affiliated Group is qualified to do business to
the effect that such member is in good standing in such jurisdiction and
(iv) certificates as to the tax status of each member of the Landry's
Affiliated Group in its jurisdiction of organization and each jurisdiction
in which such member is qualified to do business.
(g) CONFIRMATION OF POOLING-OF-INTERESTS AVAILABILITY. The receipt by
Bayport of an opinion or confirmation thereof of its independent
accountants that Bayport qualifies as an entity that may be party to a
business combination for which the pooling-of-interests method of
accounting would be available.
(h) FAIRNESS OPINION. Bayport shall have received a letter from Alex.
Brown & Sons Incorporated dated the date this Agreement is executed by
Bayport and confirmed within five days prior to the date the Proxy
Statement is mailed to the Bayport stockholders, in form and substance
satisfactory to Bayport, to the effect that the aggregate of the Merger
Consideration to be received by holders of Bayport Common Stock and Bayport
Preferred Stock will be fair to such holders from a financial point of
view, and such opinion shall not have been withdrawn prior to the Closing.
(i) TAX OPINION. The receipt by Bayport of an opinion from Akerman,
Senterfitt & Eidson, P.A. to the effect that the Merger and the
transactions contemplated hereby will constitute a reorganization under
Section 368 of the Code.
(j) OPINION OF COUNSEL. The receipt by Bayport of opinions from Winstead
Sechrest & Minick P.C., counsel for Landry's, in form and substance
satisfactory to Bayport.
Section 7.4 WAIVER OF CONDITIONS. Any condition to a party's obligation to
effect the Merger hereunder may be waived by that party in writing, other than
the conditions specified in Sections 7.1(a) or 7.1(b), the first two lines of
7.2(c) or 7.3(c).
ARTICLE 8--POST-CLOSING COVENANTS
Section 8.1 USE OF BAYPORT NAME. Landry's shall be entitled to use the
Bayport name and any abbreviation thereof and any associated trade or service
marks.
Section 8.2 INDEMNIFICATION OF DIRECTORS AND OFFICERS OF BAYPORT.
(a) From and after the Effective Time of the Merger, Landry's agrees to
indemnify and hold harmless, and to cause Surviving Corporation to honor its
separate indemnification obligations to, each person who is an officer or
director of Bayport (or a member of the Bayport Group serving at the request
of Bayport) on the date of this Agreement (together with those persons
discussed in the last sentence of this subsection, an "Indemnified Person")
from and against all damages, liabilities, judgments and claims (and related
expenses including, but not limited to, attorney's fees and amounts paid in
settlement) based upon or arising out of the transactions contemplated by this
Agreement and based upon or arising from his or her capacity as an officer or
director of Bayport (or a member of the Bayport Group serving at the request
of Bayport), to the same extent he or she would have been indemnified under
the Certificate of Incorporation or By-laws of Bayport as such documents were
in effect on the date of this Agreement. Subject to an Indemnified Person's
obligation to refund any advances in accordance with the Florida BCA, Landry's
shall advance all litigation costs reasonably incurred by such Indemnified
Person.
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(b) The rights granted to the Indemnified Persons hereby shall be
contractual rights inuring to the benefit of all Indemnified Persons and shall
survive this Agreement and any merger, consolidation or reorganization of
Landry's.
(c) The rights to indemnification granted by this Section 8.2 are subject to
the following limitations: (i) amounts otherwise required to be paid by
Landry's to an Indemnified Person pursuant to this Section 8.2 shall be
reduced by any amounts that such Indemnified Person has recovered by virtue of
the claim for which indemnification is sought and Landry's shall be reimbursed
for any amounts paid by Landry's that such Indemnified Person subsequently
recovers by virtue of such claim; (ii) any claim for indemnification pursuant
to this Section 8.2 must be submitted in writing to the Chief Executive
Officer of Landry's promptly upon such Indemnified Person becoming aware of
such claim, provided that any such failure to advise promptly has a
prejudicial effect on Landry's; and (iii) an Indemnified Person shall not
settle any claim for which indemnification is provided herein without the
prior written consent of Landry's.
Section 8.3 PUBLICATION OF POST-MERGER RESULTS. Landry's shall use its
reasonable best efforts to cause financial results covering at least thirty
days of post-Merger combined operations to be published in its first report of
quarterly financial statements as soon as practicable after such information
is required to be filed with the SEC.
Section 8.4 EMPLOYEE BENEFITS. Following the consummation of the Merger,
Landry's shall arrange to make generally available to the employees of Bayport
the benefits generally applicable to Landry's employees.
Section 8.5 REGISTRATION RIGHTS. Landry's shall use its reasonable best
efforts to cause a Registration Statement or Registration Statements on Form
S-8 and or S-3 to be filed with the SEC at Closing and covering the shares of
Landry's Common Stock to be issued upon exercise of the Bayport Stock Options
(provided that no representation is made by Landry's that any such Form S-8
Registration Statement will in all cases be available to permit resales of
Landry's Common Stock).
ARTICLE 9--TERMINATION
Section 9.1 TERMINATION. This Agreement may be terminated and the Merger
contemplated herein abandoned at any time before the Effective Time, whether
before or after approval by the stockholders of Bayport as follows:
(a) MUTUAL CONSENT. By the mutual consent of the Boards of Directors of
Bayport and Landry's.
(b) MATERIAL BREACH. By the Board of Directors of either Bayport or
Landry's if there has been a material breach by the other of any
representation or warranty contained in this Agreement or of any covenant
contained in this Agreement, which in either case cannot be, or has not
been, cured within 15 days after written notice of such breach is given to
the party committing such breach, provided that the right to effect such
cure shall not extend beyond the date set forth in subparagraph (c) below.
(c) ABANDONMENT. By the Board of Directors of either Bayport or Landry's
if (i) all conditions to Closing required by Article 7 hereof have not been
met or waived by December 31, 1996, or (ii) the Merger has not occurred by
such date; provided, however, that neither Bayport nor Landry's shall be
entitled to terminate this Agreement pursuant to this subparagraph (c) if
such party is in willful and material violation of any of its
representations, warranties or covenants in this Agreement.
(d) LACK OF APPROVAL. By the Board of Directors of either Bayport or
Landry's, if any required approval of the stockholders of Bayport shall not
have been obtained by reason of the failure to obtain the required vote at
the Special Meeting of Bayport stockholders or at any adjournment thereof.
(e) GOVERNMENT ACTION. If any governmental authority shall have issued an
order, decree or ruling or taken any other action permanently enjoining,
restraining or otherwise prohibiting the Merger and such order, decree,
ruling or other action shall have become final and nonappealable.
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(f) TERMINATION FEE. If the Agreement is terminated (a) by Bayport's
Board of Directors pursuant to Section 6.5, or (b) by Landry's because of
Bayport's failure to satisfy the conditions to Closing set forth in
Sections 7.2(a), (d), (j), (l), or (n) and 7.3(g), Bayport shall be
obligated to pay to Landry's a fee (the "Termination Fee") in cash in an
amount equal to (i) 2.5% of (x) the product of the closing sale price of
Landry's Common Stock on the Nasdaq-National Market on the date of
termination multiplied by the number of shares of Landry's Common Stock
which would have been issued or reserved for issuance if the transaction
contemplated hereby had been consummated on such date, plus (y) any Bayport
debt on such date; plus (ii) all expenses, including legal, accounting and
tax expenses, expenses incurred in connection with the rendering of the
"fairness opinion," and expenses incurred by Landry's in connection with
the negotiation and preparation of this Agreement and the transactions
contemplated herein. If this Agreement is terminated by Landry's because of
Bayport's inability to obtain approval of this Agreement by its
stockholders, or because of Bayport's failure to satisfy the conditions to
Closing set forth in Section 7.2(b) then the amount set forth in (i) above
for determining the Termination Fee shall be reduced from 2.5% to 1.5%.
Bayport shall be obligated to pay the applicable Termination Fee within six
months following such termination.
Section 9.2 EFFECT OF TERMINATION. Upon termination of this Agreement
pursuant to this Article 9, this Agreement shall be void and of no effect,
other than the obligation to pay the Termination Fee referred to in Section
9.1(f), if applicable, and the provisions of Section 9.3 and shall result in
no obligation of or liability to any party or their respective directors,
officers, employees, agents or shareholders, other than the confidentiality
and non-solicitation provisions hereof unless such termination was the result
of an intentional breach of any representation, warranty or covenant in this
Agreement in which case in addition to the Termination Fee, if any to be paid
hereunder, the party who breached the representation, warranty or covenant
shall be liable to the other party for damages, and all costs and expenses
incurred in connection with the preparation, negotiation, execution and
performance of this Agreement.
Section 9.3 ACQUISITION OF BAYPORT PROPERTIES. In the event this Agreement
is terminated as a result of Bayport's acceptance of a Superior Proposal as
described in Section 6.5, then Landry's shall immediately exercise its right,
which right is hereby irrevocably granted by Bayport, to convert any
outstanding collateralized debt of Bayport owed to Landry's (the "Landry's
Debt") to ownership of the collateral (the "Collateral") securing such debt by
notifying the escrow agent holding any documents required for conveying the
collateral (the "Conveyance Documents") to deliver the Conveyance Documents to
Landry's. Upon receipt by Landry's of the Conveyance Documents, Landry's
shall: (i) assign all of its right, title and interest in and to any documents
evidencing the Landry's Debt (the "Loan Documents") to those banks which are
secured lenders of Bayport (the "Banks"); and (ii) disburse to Banks the sum
of $11 million less: any amounts previously loaned by Landry's to Bayport
pursuant to the Landry's Debt, any accrued but unpaid interest on the Landry's
Debt, any costs and expenses incurred in connection with the Landry's Debt,
and any unadvanced amounts pursuant to the Landry's Debt required to complete
the construction of any of the Collateral. Upon such receipt of the Conveyance
Documents and the disbursement to the Banks, Landry's shall be deemed to have
converted the Landry's Debt to ownership of those leasehold estates owned by
Bayport which form a part of the Collateral (the "Collateral Tracts") and all
improvements, furniture, fixtures, equipment and other personalty located on
each of the Collateral Tracts together with all accounts, contract rights,
trademarks, trade names, trade dress and general intangibles now or hereafter
existing as a result of operations on the Collateral Tracts (the "Collateral
Personalty"), and Bayport shall be conclusively deemed to have sold the
Collateral Tracts and Collateral Personalty to Landry's.
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<PAGE>
ARTICLE 10--MISCELLANEOUS
Section 10.1 NOTICES. All notices hereunder must be in writing and will be
deemed to have been duly given upon receipt of hand delivery; certified or
registered mail, return receipt requested; or telecopy transmission with
confirmation of receipt:
(a)If to Landry's:
Landry's Seafood Restaurant, Inc.
1400 Post Oak Blvd., Suite 1010
Houston, Texas 77056
Attn: Tilman J. Fertitta
Fax: (713) 623-4702
with a copy to:
Winstead Sechrest & Minick P.C.
910 Travis, Suite 1700
Houston, Texas 77002
Attn: Arthur S. Berner
Fax: (713) 951-3800
(b)If to Bayport:
Bayport Restaurant Group, Inc.
4000 Hollywood Blvd.
Hollywood, Florida 33021
Attn: David J. Connor
Fax: (305) 967-8846
with a copy to:
Akerman, Senterfitt & Eidson, P.A.
28th Floor
Suntrust International Center
One Southeast Third Avenue
Miami, Florida 33131
Attn: Philip B. Schwartz
Fax: (305) 374-5095
Such names and addresses may be changed by written notice to each person
listed above.
Section 10.2 GOVERNING LAW. This Agreement shall be governed by, construed
and interpreted in accordance with the laws of the State of Delaware,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.
Section 10.3 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which will be deemed an original but all of which together will
constitute one and the same instrument.
Section 10.4 INTERPRETATION; SCHEDULES. (a) When a reference is made in this
Agreement to a Section, Exhibit or Schedule, such reference shall be to a
Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated. The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
(b) The information set forth in the Schedules to this Agreement is
qualified in its entirety by reference to the specific provisions of this
Agreement, and is not intended to constitute, and shall not be construed as
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constituting, separate representations or warranties of the party to which
such Schedules relate except as and to the extent provided in this Agreement.
Inclusion of information in the Schedules shall not be construed as an
admission that such information is material for purposes of the specific
provisions of this Agreement to which such information relates. Information
included in the Schedules that is not required to be so included under the
specific provisions of this Agreement shall be deemed to be included for
informational purposes only and information of a similar nature need not be
included, at the discretion of the party providing such information. Any
information disclosed by a party in any Schedule shall be deemed to be
disclosed in all the Schedules of such party and for all purposes under this
Agreement to the extent the specific provisions of this Agreement require such
disclosure.
(c) In the event of any inconsistency between provisions of this Agreement
and any provision contained in the documents evidencing the Landry's Debt (the
"Debt Documents") the provisions of the Debt Documents shall control.
Section 10.5 ENTIRE AGREEMENT; SEVERABILITY. (a) This Agreement, including
the Exhibits and Schedules hereto, embodies the entire agreement and
understanding of the parties hereto in respect of the subject matter contained
herein. This Agreement supersedes all prior agreements and understandings
(whether written or oral) between the parties with respect to such subject
matter.
(b) If any provision of this Agreement is determined to be invalid or
unenforceable, in whole or in part, it is the parties' intention that such
determination will not be held to affect the validity or enforceability of any
other provision of this Agreement, which provisions will otherwise remain in
full force and effect.
Section 10.6 AMENDMENT AND MODIFICATION. This Agreement may be amended or
modified only by written agreement of the parties hereto. This Agreement may
be amended by the parties at any time before or after any required approval of
matters presented in connection with the Merger by the stockholders of
Bayport; provided, however, that after any such approval, there shall be made
no amendment that by law requires further approval by such stockholders
without the further approval of such stockholders.
Section 10.7 EXTENSION; WAIVER. At any time prior to the Effective Time of
the Merger, the parties may (a) extend the time for the performance of any of
the obligations or other acts of the other parties, (b) waive any inaccuracies
in the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement or (c) waive compliance with any
of the agreements or conditions contained in this Agreement except for
Sections 7.1(a) or 7.1(b), the first two lines of 7.2(c) and 7.3(c). The
failure of a party to insist upon strict adherence to any term of this
Agreement on any occasion shall not be considered a waiver or deprive that
party of the right thereafter to insist upon strict adherence to that term or
any other term of this Agreement. No waiver of any breach of this Agreement
shall be held to constitute a waiver of any other or subsequent breach. Any
waiver must be in writing.
Section 10.8 BINDING EFFECT; BENEFITS. This Agreement will inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns. Nothing in this Agreement, express or implied, is
intended to confer on any Person other than the parties hereto and their
respective successors and assigns (and, to the extent provided in Section 8.2,
the indemnified Persons and their successors and assigns) any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
Section 10.9 ASSIGNABILITY. This Agreement is not assignable by any party
hereto without the prior written consent of the other parties.
Section 10.10 EXPENSES. Except as otherwise provided herein, each of the
parties hereto shall pay all of its own expenses relating to the transactions
contemplated by this Agreement, including without limitation the fees and
expenses of its own financial, legal and tax advisors.
Section 10.11 GENDER AND CERTAIN DEFINITIONS. All words used herein,
regardless of the number and gender specifically used, shall be deemed and
construed to include any other number, singular or plural, and any other
gender, masculine, feminine or neuter, as the context requires.
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<PAGE>
Section 10.12 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. No representation,
warranty, covenant or agreement shall survive the Closing Date.
Section 10.13 EFFECT OF DUE DILIGENCE. No investigation by Landry's or
Bayport into the business, operations and conditions of the other shall
diminish in any way the effect of any representation or warranty made by
either party in this Agreement or shall relieve such party of any of its
obligations under this Agreement.
Section 10.14 FURTHER ASSURANCES. Each party agrees to cooperate fully with
the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by any other party to better evidence and reflect the transactions
described herein and contemplate hereby and to carry into effect the intends
and purposes of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first written above.
LANDRY'S SEAFOOD RESTAURANTS, INC.
/s/ Tilman J. Fertitta
By:__________________________________
Tilman J. Fertitta
Chairman, President and
Chief Executive Officer
LANDRY'S ACQUISITION, INC.
/s/ Tilman J. Fertitta
By:__________________________________
Tilman J. Fertitta
President
BAYPORT RESTAURANT GROUP, INC.
/s/ David J. Connor
By:__________________________________
David J. Connor
Chairman, and Chief Executive
Officer
A-46
<PAGE>
ANNEX B
Alex. Brown & Sons
INCORPORATED
ESTABLISHED 1800 . AMERICA'S OLDEST INVESTMENT BANKING FIRM
MEMBERS: NEW YORK STOCK EXCHANGE, INC. AND OTHER LEADING EXCHANGES
as of April 18, 1996
Board of Directors
Bayport Restaurant Group, Inc.
4000 Hollywood Boulevard, Suite 695-S
Hollywood, Florida 33021
Dear Sirs:
Bayport Restaurant Group, Inc., a Florida corporation ("Bayport" or the
"Company"), entered into an Agreement and Plan of Merger dated as of April 18,
1996 (the "Agreement") with Landry's Seafood Restaurants, Inc., a Delaware
corporation ("Landry's"), and Landry's Acquisition, Inc., a Florida
corporation ("Merger Sub"). As more specifically set forth in the Agreement,
and subject to the terms and conditions thereof, Merger Sub will be merged
with and into Bayport (the "Merger") and each then outstanding share of common
stock, $.001 par value per share, of Bayport ("Bayport Common Stock"), other
than shares held in treasury by Bayport or held by any subsidiary of Bayport,
will be converted into the right to receive .2105 of a share (the "Exchange
Ratio") of common stock, $.01 par value per share, of Landry's ("Landry's
Common Stock") and each then outstanding share of Series B Convertible
Preferred Stock, $.01 par value per share, of Bayport ("Bayport Preferred
Stock") will be converted into the right to receive a fraction of a share of a
new series of convertible preferred stock, $.01 par value per share, of
Landry's ("Landry's Preferred Stock") equal to the Exchange Ratio divided by
four, so that the number of shares of Landry's Common Stock into which such
Landry's Preferred Stock is convertible equals the product of the number of
shares of Bayport Common Stock into which the Bayport Preferred Stock is
convertible multiplied by the Exchange Ratio. The Exchange Ratio is subject to
adjustment in the event that the average of the daily closing prices of a
share of Landry's Common Stock for the five consecutive trading days ending on
the second trading day prior to the Merger (the "Average Market Price") (a)
exceeds $22.00 (in which case the Exchange Ratio shall be equal to the
quotient obtained by dividing 4.63 by the Average Market Price) or (b) is less
than $15.00 (in which case the Exchange Ratio shall be equal to the quotient
obtained by dividing 3.16 by the Average Market Price). The Exchange Ratio
also is subject to adjustment in the event that the cost estimated to be
incurred by the Company in connection with the construction and opening of
certain designated restaurants exceeds the estimate of such costs provided by
Bayport to Landry's (the amount of such excess being referred to as the
"Excess Costs"). If such adjustment occurs, the Exchange Ratio will be reduced
by subtracting from (x) .2105 (y) the product obtained by multiplying (i)
.0526 times (ii) the quotient obtained by dividing (A) the Excess Costs by (B)
the aggregate number of outstanding shares of Bayport Common Stock and of
Bayport Preferred Stock. Pursuant to the Agreement cash will be exchanged in
lieu of fractional shares of Landry's Common Stock. You have requested our
opinion as to whether the Exchange Ratio is fair, from a financial point of
view, to Bayport's shareholders.
Alex. Brown & Sons Incorporated, as a customary part of its investment
banking business, is engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and
other purposes. We have acted as financial advisor to Bayport in connection
with the transaction described above and will receive a fee for our services,
a portion of which is payable upon delivery of this opinion and a portion of
which is contingent upon consummation of the Merger. As you are aware, we have
previously rendered services to the Company in connection with its placement
of shares of Bayport Preferred Stock for which we received compensation,
including warrants to purchase 267,336 shares of Bayport Common Stock at a
price of $3.8095 per share, which we continue to hold. In addition, as you are
aware, an employee of Alex. Brown is a member of the Board of
1290 AVENUE OF THE AMERICAS, 10TH FLOOR, NEW YORK, NEW YORK 10104 . TELEPHONE:
212-237-2000 . TELEX: 198186
B-1
<PAGE>
Directors of the Company. We regularly publish research reports regarding the
businesses and securities of publicly owned companies in the restaurant
industry. In addition, in the ordinary course of business, Alex. Brown may
actively trade the securities of Landry's and Bayport for its own account and
for the accounts of its customers and, accordingly, at any time may hold a
long or short position in such securities.
In connection with our opinion, we have reviewed certain publicly available
financial and other information concerning Bayport and Landry's and certain
internal financial analyses and other information with respect to the
business, operations and prospects of Bayport and Landry's, furnished by the
managements of Bayport and Landry's to us. We have also held discussions with
members of senior management of Bayport regarding the business and prospects
of Bayport and with members of senior management of Landry's regarding the
business and prospects of Landry's. In addition, we have (i) reviewed the
reported price and trading activity for shares of Bayport Common Stock and
Landry's Common Stock; (ii) compared certain financial and stock market
information for Bayport and Landry's with similar information for certain
selected companies within the restaurant industry whose securities are
publicly traded; (iii) reviewed the financial terms of certain recent business
combinations which we deemed relevant in whole or in part; and (iv) performed
such other studies and analyses and considered such other factors as we deemed
appropriate for the purpose of rendering our opinion. We have also reviewed
the Agreement. We have considered the process that resulted in the negotiation
of the Agreement, including limited inquiries made to other potential
acquirors. We have also discussed with management and considered the
anticipated adverse effects on the Company which the Company believes would
occur if the Company were not to effect the Merger as a result of, among other
things, the Company's current liquidity shortfall.
In connection with our review, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us in arriving
at our opinion, and we have not assumed any responsibility to independently
verify any of such information. With respect to information relating to the
prospects of Bayport and Landry's, we have assumed that the information
provided to us was reasonably prepared on bases reflecting the best currently
available estimates and judgments of the respective managements of Bayport and
Landry's as to the likely respective future financial performance of Bayport
and Landry's. We express no view as to such information or the assumptions on
which it is based. We have assumed in reliance upon advice from your counsel
that the Landry's Preferred Stock will have identical rights, privileges,
preferences, terms and conditions as those of the Bayport Preferred Stock,
except that the Landry's Preferred Stock will be convertible into the number
of shares of Landry's Common Stock that a holder of Bayport Preferred Stock
would have received had such holder converted the Bayport Preferred Stock
prior to consummation of the Merger. We also have assumed that the Merger will
constitute a "reorganization" within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended, that will not be taxable for the
holders of Bayport Common Stock or Bayport Preferred Stock, and that the
Merger will be accounted for as a pooling of interests. While we conducted
physical inspections of a limited number of Landry's and Bayport properties
and facilities, we did not conduct physical inspections of most of such
properties or facilities and we did not make or obtain, or assume any
responsibility for making or obtaining, any evaluations or appraisals of any
of the properties, facilities, assets or liabilities of Landry's or Bayport.
Our opinion is based upon market, economic and other conditions as they
exist and can be evaluated as of the date of this letter. Our opinion as
expressed herein does not constitute an opinion or imply any conclusion as to
the likely trading range for Landry's Common Stock following consummation of
the Merger. Our opinion addresses only the fairness, from a financial point of
view, to the shareholders of Bayport of the Exchange Ratio, and does not
address the Company's underlying business decision to effect the Merger or
constitute a recommendation to any Bayport stockholder as to how to vote with
respect to the Agreement or the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the Exchange Ratio is fair, from a financial point of
view, to Bayport's stockholders.
Very truly yours,
Alex. Brown & Sons Incorporated
B-2
<PAGE>
ANNEX C
MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, CA 94111
(415) 627-2000
April 16, 1996
Board of Directors
Landry's Seafood Restaurants, Inc.
1400 Post Oak Boulevard
Suite 1010
Houston, Texas 77056
Gentlemen:
We understand that Landry's Seafood Restaurants, Inc., a Delaware
corporation (the "Company"), Landry's Acquisition, Inc., a Florida corporation
and wholly-owned subsidiary of the Company ("Merger Sub"), and Bayport
Restaurant Group, Inc., a Florida corporation ("Target"), have entered into a
Merger Agreement dated as of April 18, 1996 (the "Merger Agreement") pursuant
to which Merger Sub will be merged with and into Target, which will be the
surviving entity (the "Merger"). Pursuant to the Merger, as more fully
described in the Merger Agreement and as further described to us by management
of the Company, we understand that (a) each outstanding share of the common
stock, $.001 par value per share ("Target Common Stock"), of Target will be
converted into and exchangeable for a fraction of a share of the common stock,
$.01 par value per share ("Company Common Stock"), of the Company equal to the
Common Stock Exchange Ratio (as defined below), and (b) each outstanding share
of the Series B Convertible Preferred Stock, ($.01 par value per share
("Target Preferred Stock"), of Target will be converted into and exchangeable
for a fraction of a share of the preferred stock, $.01 par value per share
("Company Preferred Stock"), of the Company equal to the Preferred Stock
Exchange Ratio (as defined below).
The "Common Stock Exchange Ratio" is equal to (a) $4.63 divided by the
Average Market Price (as defined below) per share of Company Common Stock, if
such Average Market Price is greater than $22.00, (b) $3.16 divided by the
Average Market Price per share of Company Common Stock, if such Average Price
is less than $15.00, or (c) .2105, in all other circumstances. The "Preferred
Stock Exchange Ratio" is equal to the Common Stock Exchange Ratio divided by
four. The "Common Stock Exchange Ratio" and the "Preferred Stock Exchange
Ratio" are sometimes referred to collectively in this letter as the "Exchange
Ratio." The "Average Market Price" is the average of the daily closing prices
per share of Company Common Stock on the Nasdaq National Market as reported in
The Wall Street Journal for the five consecutive trading days ending on the
second trading day prior to the closing date of the Merger. The Merger
Agreement also provides for reductions in the Exchange Ratio if construction
and pre-opening costs of certain restaurants exceed estimated levels set forth
in the Merger Agreement.
You have asked for our opinion as investment bankers as to whether the
Exchange Ratio to be paid by the Company pursuant to the Merger is fair to the
Company from a financial point of view, as of the date hereof.
In connection with our opinion, we have, among other things: (i) reviewed
publicly available financial and other data with respect to Target and the
Company, including the consolidated financial statements for recent years and
interim periods to December 31, 1995 and certain other relevant financial and
operating data relating to Target and the Company made available to us from
published sources and from the internal records of Target and the Company;
(ii) reviewed the Merger Agreement; (iii) reviewed certain publicly available
information concerning the trading of, and the trading market for, the Target
Common Stock and the Company Common Stock, (iv) compared Target and the
Company from a financial point of view with certain other companies in the
restaurant industry which we deemed to be relevant; (v) considered the
financial terms, to the extent publicly available, of selected recent business
combinations of companies in the restaurant industry which we deemed to
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<PAGE>
be comparable, in whole or in part, to the Merger; (vi) reviewed and discussed
with representatives of the management of Target and the Company certain
information of a business and financial nature regarding Target and the
Company, furnished to us by them, including financial forecasts and related
assumptions of Target and the Company; (vii) made inquiries regarding and
discussed the Merger and the Merger Agreement and other matters related
thereto with the Company's counsel; and (viii) performed such other analyses
and examinations as we have deemed appropriate.
In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its being
accurate and complete in all material respects. With respect to the financial
forecasts for Target and the Company provided to us by their respective
managements, upon their advice and with your consent we have assumed for
purposes of our opinion that the forecasts have been reasonably prepared on
bases reflecting the best available estimates and judgments of their
respective managements at the time of preparation as to the future financial
performance of Target and the Company and that they provide a reasonable basis
upon which we can form our opinion. We have also assumed that there have been
no material changes in Target's or the Company's assets, financial condition,
results of operations, business or prospects since the respective dates of
their last financial statements made available to us. We have relied on advice
of counsel and independent accountants to the Company as to all legal and
financial reporting matters with respect to the Company, the Merger and the
Merger Agreement. We have assumed that the Merger will be consummated in a
manner that complies in all respects with the applicable provisions of the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934 and all other applicable federal and state statutes,
rules and regulations. In addition, we have not assumed responsibility for
making an independent evaluation, appraisal or physical inspection of any of
the assets or liabilities (contingent or otherwise) of Target or the Company,
nor have we been furnished with any such appraisals. Finally, our opinion is
based on economic, monetary and market and other conditions as in effect on,
and the information made available to us as of, the date hereof. Accordingly,
although subsequent developments may affect this opinion, we have not assumed
any obligation to update, revise or reaffirm this opinion.
We have further assumed with your consent that the Merger will be
consummated in accordance with the term described in the Merger Agreement,
without any further amendments thereto, and without waiver by the Company of
any of the conditions to its obligations thereunder.
We have acted as financial advisor to the Company in connection with the
Merger and will receive a fee for our services, including rendering this
opinion, a significant portion of which is contingent upon the consummation of
the Merger. In the ordinary course of our business, we actively trade the
equity securities of the Company for our own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities. We have also acted as an underwriter in connection with
offerings of securities of the Company and performed various investment
banking services for the Company.
Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Exchange Ratio to be paid by the Company pursuant
to the Merger is fair to the Company from a financial point of view, as of the
date hereof.
This opinion is directed to the Board of Directors of the Company in its
consideration of the Merger and is not a recommendation to any shareholder as
to how such shareholder should vote with respect to the Merger. This opinion
may not be used or referred to by the Company, or quoted or disclosed to any
person in any manner, without our prior written consent, which consent is
hereby given to the inclusion of this opinion in any proxy statement or
prospectus filed with the Securities and Exchange Commission in connection
with the Merger. In furnishing this opinion, we do not admit that we are
experts within the meaning of the term "experts" as used in the Securities Act
and the rules and regulations promulgated thereunder, nor do we admit that
this opinion constitutes a report or valuation within the meaning of Section
11 of the Securities Act.
Very truly yours,
MONTGOMERY SECURITIES
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<PAGE>
ANNEX D
FLORIDA STATUTES -- (S) 607.13.01 ET. SEQ.
607-1301 DISSENTERS' RIGHTS; DEFINITIONS.--
The following definitions apply to ss. 607.1302 and 607.1320:
(1) "Corporation" means the issuer of the shares held by a dissenting
shareholder before the corporate action or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Fair value," with respect to a dissenter's shares, means the value of
the shares as of the close of business on the day prior to the shareholders'
authorization date, excluding any appreciation or depreciation in anticipation
of the corporate action unless exclusion would be inequitable.
(3) "Shareholders' authorization date" means the date on which the
shareholders' vote authorizing the proposed action was taken, the date on
which the corporation received written consents without a meeting from the
requisite number of shareholders in order to authorize the action, or, in the
case of a merger pursuant to s. 607.1104, the day prior to the date on which a
copy of the plan of merger was mailed to each shareholder of record of the
subsidiary corporation.
607.1302 RIGHT OF SHAREHOLDERS TO DISSENT.--
(1) Any shareholder of a corporation has the right to dissent from, and
obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a party:
1. If the shareholder is entitled to vote on the merger, or
2. If the corporation is a subsidiary that is merged with its parent
under s. 607.1104, and the shareholders would have been entitled to
vote on action taken, except for the applicability of s. 607.1104;
(b) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation, other than in the usual and regular course
of business, if the shareholder is entitled to vote on the sale or exchange
pursuant to s. 607.1202, including a sale in dissolution but not including
a sale pursuant to court order or a sale for cash pursuant to a plan by
which all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within 1 year after the date of sale;
(c) As provided in s. 607.0902(11), the approval of a control-share
acquisition;
(d) Consummation of a plan of share exchange to which the corporation is
a party as the corporation the shares of which will be acquired, if the
shareholder is entitled to vote on the plan;
(e) Any amendment of the articles of incorporation if the shareholder is
entitled to vote on the amendment and if such amendment would adversely
affect such shareholder by:
1. Altering or abolishing any preemptive rights attached to any of
his shares;
2. Altering or abolishing the voting rights pertaining to any of his
shares, except as such rights may be affected by the voting rights of
new shares then being authorized of any existing or new class or series
of shares;
3. Effecting an exchange, cancellation, or reclassification of any of
his shares, when such exchange, cancellation, or reclassification would
alter or abolish his voting rights or alter his percentage of equity in
the corporation, or effecting a reduction or cancellation of accrued
dividends or other arrearage in respect to such shares;
D-1
<PAGE>
4. Reducing the stated redemption price of any of his redeemable
shares, altering or abolishing any provision relating to any sinking
fund for the redemption or purchase of any of his shares, or making any
of his shares subject to redemption when they are not otherwise
redeemable;
5. Making noncumulative, in whole or in part, dividends of any of his
preferred shares which had theretofore been cumulative;
6. Reducing the stated dividend preference of any of his preferred
shares; or
7. Reducing any stated preferential amount payable on any of his
preferred shares upon voluntary or involuntary liquidation; or
(f) Any corporate action taken, to the extent the articles of
incorporation provide that a voting or nonvoting shareholder is entitled to
dissent and obtain payment for his shares.
(2) A shareholder dissenting from any amendment specified in paragraph
(1)(e) has the right to dissent only as to those of his shares which are
adversely affected by the amendment.
(3) A shareholder may dissent as to less than all the shares registered in
his name. In that event, his rights shall be determined as if the shares as to
which he has dissented and his other shares were registered in the names of
different shareholders.
(4) Unless the articles of incorporation otherwise provide, this section
does not apply with respect to a plan of merger or share exchange or a
proposed sale or exchange of property, to the holders of shares of any class
or series which, on the record date fixed to determine the shareholders
entitled to vote at the meeting of shareholders at which such action is to be
acted upon or to consent to any such action without a meeting, were either
registered 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 not fewer than
2,000 shareholders.
(5) A shareholder entitled to dissent and obtain payment for his shares
under this section may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
607.1320 PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS.-
(1) (a) If a proposed corporate action creating dissenters' rights under s.
607.1302 is submitted to a vote at a shareholders' meeting, the meeting notice
shall state that shareholders are or may be entitled to assert dissenters'
rights and be accompanied by a copy of ss. 607.1301, 607.1302, and 607.1320. A
shareholder who wishes to assert dissenters' rights shall:
1. Deliver to the corporation before the vote is taken written notice of
his intent to demand payment for his shares if the proposed action is
effectuated, and
2. Not vote his shares in favor of the proposed action. A proxy or vote
against the proposed action does not constitute such a notice of intent to
demand payment.
(b) If proposed corporate action creating dissenters' rights under s.
607.1302 is effectuated by written consent without a meeting, the corporation
shall deliver a copy of ss. 607.1301, 607.1302, and 607.1320 to each
shareholder simultaneously with any request for his written consent or, if
such a request is not made, within 10 days after the date the corporation
received written consents without a meeting from the requisite number of
shareholders necessary to authorize the action.
D-2
<PAGE>
(2) Within 10 days after the shareholders' authorization date, the
corporation shall give written notice of such authorization or consent or
adoption of the plan of merger, as the case may be, to each shareholder who
filed a notice of intent to demand payment for his shares pursuant to
paragraph (1)(a) or, in the case of action authorized by written consent, to
each shareholder, excepting any who voted for, or consented in writing to, the
proposed action.
(3) Within 20 days after the giving of notice to him, any shareholder who
elects to dissent shall file with the corporation a notice of such election,
stating his name and address, the number, classes, and series of shares as to
which he dissents, and a demand for payment of the fair value of his shares.
Any shareholder failing to file such election to dissent within the period set
forth shall be bound by the terms of the proposed corporate action. Any
shareholder filing an election to dissent shall deposit his certificates for
certificated shares with the corporation simultaneously with the filing of the
election to dissent. The corporation may restrict the transfer of
uncertificated shares from the date the shareholder's election to dissent is
filed with the corporation.
(4) Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided in this section and shall
not be entitled to vote or to exercise any other rights of a shareholder. A
notice of election may be withdrawn in writing by the shareholder at any time
before an offer is made by the corporation, as provided in subsection (5), to
pay for his shares. After such offer, no such notice of election may be
withdrawn unless the corporation consents thereto. However, the right of such
shareholder to be paid the fair value of his shares shall cease, and he shall
be reinstated to have all his rights as a shareholder as of the filing of his
notice of election, including any intervening preemptive rights and the right
to payment of any intervening dividend or other distribution or, if any such
rights have expired or any such dividend or distribution other than in cash
has been completed, in lieu thereof, at the election of the corporation, the
fair value thereof in cash as determined by the board as of the time of such
expiration or completion, but without prejudice otherwise to any corporate
proceedings that may have been taken in the interim, if:
(a) Such demand is withdrawn as provided in this section;
(b) The proposed corporate action is abandoned or rescinded or the
shareholders revoke the authority to effect such action,
(c) No demand or petition for the determination of fair value by a court
has been made or filed within the time provided in this section; or
(d) A court of competent jurisdiction determines that such shareholder is
not entitled to the relief provided by this section.
(5) Within 10 days after the expiration of the period in which shareholders
may file their notices of election to dissent, or within 10 days after such
corporate action is effected, whichever is later (but in no case later than 90
days from the shareholders' authorization date), the corporation shall make a
written offer to each dissenting shareholder who has made demand as provided
in this section to pay an amount the corporation estimates to be the fair
value for such shares. If the corporate action has not been consummated before
the expiration of the 90-day period after the shareholders' authorization
date, the offer may be made conditional upon the consummation of such action.
Such notice and offer shall be accompanied by:
(a) A balance sheet of the corporation, the shares of which the
dissenting shareholder holds, as of the latest available date and not more
than 12 months prior to the making of such offer; and
(b) A profit and loss statement of such corporation for the 12-month
period ended on the date of such balance sheet or, if the corporation was
not in existence throughout such 12-month period, for the portion thereof
during which it was in existence.
(6) If within 30 days after the making of such offer any shareholder accepts
the same, payment for his shares shall be made within 90 days after the making
of such offer or the consummation of the proposed action, whichever is later.
Upon payment of the agreed value, the dissenting shareholder shall cease to
have any interest in such shares.
D-3
<PAGE>
(7) If the corporation falls to make such offer within the period specified
therefor in subsection (5) or if it makes the offer and any dissenting
shareholder or shareholders fail to accept the same within the period of 30
days thereafter, then the corporation, within 30 days after receipt of written
demand from any dissenting shareholder given within 60 days after the date on
which such corporate action was effected, shall, or at its election at any
time within such period of 60 days may, file an action in any court of
competent jurisdiction in the county in this state where the registered office
of the corporation is located requesting that the fair value of such shares be
determined. The court shall also determine whether each dissenting
shareholder, as to whom the corporation requests the court to make such
determination, is entitled to receive payment for his shares. If the
corporation fails to institute the proceeding as herein provided, any
dissenting shareholder may do so in the name of the corporation. All
dissenting shareholders (whether or not residents of this state), other than
shareholders who have agreed with the corporation as to the value of their
shares, shall be made parties to the proceeding as an action against their
shares. The corporation shall serve a copy of the initial pleading in such
proceeding upon each dissenting shareholder who is a resident of this state in
the manner provided by law for the service of a summons and complaint and upon
each nonresident dissenting shareholder either by registered or certified mail
and publication or in such other manner as is permitted by law. The
jurisdiction of the court is plenary and exclusive. All shareholders who are
proper parties to the proceeding are entitled to judgment against the
corporation for the amount of the fair value of their shares. The court may,
if it so elects, appoint one or more persons as appraisers to receive evidence
and recommend a decision on the question of fair value. The appraisers shall
have such power and authority as is specified in the order of their
appointment or an amendment thereof. The corporation shall pay each dissenting
shareholder the amount found to be due him within 10 days after final
determination of the proceedings. Upon payment of the judgment, the dissenting
shareholder shall cease to have any interest in such shares.
(8) The judgment may, at the discretion of the court, include a fair rate of
interest, to be determined by the court.
(9) The costs and expenses of any such proceeding shall be determined by the
court and shall be assessed against the corporation, but all or any part of
such costs and expenses may be apportioned and assessed as the court deems
equitable against any or all of the dissenting shareholders who are parties to
the proceeding, to whom the corporation has made an offer to pay for the
shares, if the court finds that the action of such shareholders in failing to
accept such offer was arbitrary, vexatious, or not in good faith. Such
expenses shall include reasonable compensation for, and reasonable expenses
of, the appraisers, but shall exclude the fees and expenses of counsel for,
and experts employed by, any party. If the fair value of the shares, as
determined, materially exceeds the amount which the corporation offered to pay
therefor or if no offer was made, the court in its discretion may award to any
shareholder who is a party to the proceeding such sum as the court determines
to be reasonable compensation to any attorney or expert employed by the
shareholder in the proceeding.
(10) Shares acquired by a corporation pursuant to payment of the agreed
value thereof or pursuant to payment of the judgment entered therefor, as
provided in this section, may be held and disposed of by such corporation as
authorized but unissued shares of the corporation, except that, in the case of
a merger, they may be held and disposed of as the plan of merger otherwise
provides. The shares of the surviving corporation into which the shares of
such dissenting shareholders would have been converted had they assented to
the merger shall have the status of authorized but unissued shares of the
surviving corporation.
D-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Section 102(b)(7) of the Delaware General Corporation
Law (the "DGCL"), which enables a corporation in its original certificate of
incorporation or an amendment thereto to eliminate or limit the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of the director's fiduciary duty, except (i) for any breach
of the director's duty of loyalty to the corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the
DGCL (providing for liability of directors for unlawful payment of dividends
or unlawful stock purchases or redemptions), or (iv) for any transaction from
which the director derived an improper personal benefit. The Registrant's
Certificate of Incorporation contains provisions permitted by Section
102(b)(7) of the DGCL.
The Company is incorporated under the laws of the State of Delaware. Section
145 of the DGCL ("Section 145") provides that a Delaware corporation may
indemnify any persons who are, or are threatened to be made, parties to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of such corporation), by reason of the fact that such person is or was
an officer, director, employee or agent of such corporation, or is or was
serving at the request of such corporation as a director, officer, employee or
agent of another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding, provided such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's
best interests and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful. A Delaware
corporation may indemnify any persons who were or are parties or are
threatened to be made a party, to any threatened, pending or completed action
or suit by or in the right of the corporation by reason of the fact that such
person is or was a director, officer, employee or agent of such corporation,
or enterprise. The indemnity may include expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection with the defense
or settlement of such action or suit, provided such person acted in good faith
and in a manner he reasonably believed to be in or not opposed to the
corporation's best interest except that no indemnification is permitted
without judicial approval if the officer is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which such officer or director has actually
and reasonably incurred.
Article IX of the Company's Certificate of Incorporation provides that the
Company shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending, or completed action, suit or
proceeding, whether civil, criminal, administrative, or investigative (other
than an action by or in the right of the Company) by reason of the fact that
he is or was a director, officer, employee or agent of the Company, or is or
was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit, or proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in
a manner which he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
The Certificate of Incorporation further provides that the Company shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the
II-1
<PAGE>
right of the Company to procure a judgment in its favor by reason of the fact
that he is or was a director, officer, employee or agent of the Company, or is
or was serving at the request of the Company as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company and
except that no indemnification shall be made in respect of any claim, issue,
or matter as to which such person shall have been adjudged to be liable to the
Company unless and only to the extent that the Delaware Court of Chancery or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnify for such expenses which the Delaware Court of Chancery of such other
court shall deem proper.
The Certificate of Incorporation also provides that to the extent that a
director, officer, employee or agent of the Company has been successful on the
merits or otherwise in defense of any action, suit or proceeding referred to
above, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
The Certificate of Incorporation further provides that any indemnification
under the above paragraphs (unless ordered by a court) shall be made by the
Company only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set fort
in the above paragraph. Such determination shall be made (i) by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit or proceeding, or (ii) if such a quorum is not
obtainable, or, even if obtainable, if a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders. Notwithstanding the foregoing, a director, officer, employee or
agent of the Company shall be able to contest any determination that the
director, officer, employee or agent has not met the applicable standard of
conduct set forth in the above paragraphs by petitioning a court of
appropriate jurisdiction.
The Certificate of Incorporation also provides that expenses (including
attorneys' fees) incurred by an officer or director in defending or settling
any civil, criminal, administrative or investigative action, suit or
proceeding may be paid by the Company in advance of the final disposition of
such action, suit or proceeding upon receipt of an undertaking by or on behalf
of such director or officer to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the Company as
authorized in these paragraphs. Such expenses incurred by other employees and
agents may be so paid upon such terms and conditions, if any, as the Board of
Directors deems appropriate.
The Certificate of Incorporation further provides that the indemnification
and advancement of expenses provided by, or granted pursuant to, the other
sections of these paragraphs shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under any Bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office.
The Certificate of Incorporation further provides that the Company shall
have the power to purchase and maintain insurance on behalf of any person who
is or was a director, officer, employee or agent of the Company, or is or was
serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of these paragraphs.
The indemnification and advancement of expenses provided by, or granted
pursuant to, the Certificate of Incorporation, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
II-2
<PAGE>
Article VIII of the Company's Bylaws, requires the Company to indemnify the
Company's directors and officers to the extent permitted under the DGCL and
the Certificate of Incorporation.
The Company has entered into indemnification agreements with the Directors
and certain officers.
The foregoing discussion is qualified in its entirety by reference to the
DGCL and the Registrant's Certificate of Incorporation and By-Laws.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS.
Certain of the exhibits to this Registration Statement are hereby
incorporated by reference to the Company's Registration Statement on Form S-1
No. 33-65498 as filed with the Securities and Exchange Commission and all
amendments thereto with which they were filed as exhibits with the same
exhibit number in such Registration Statement. Such exhibits are denoted with
the letter "A". Exhibits denoted by * are filed herewith. Exhibits denoted by
** are incorporated by reference to the Company's current report on Form 8-K
dated April 26, 1996.
<TABLE>
<CAPTION>
EXHIBIT
NO. EXHIBIT
------- -------
<C> <S> <C>
2.1 --Form of Plan and Agreement of Corporate Restructuring--Pirogue
-A-
2.2 --Form of Plan and Agreement of Corporate Restructuring -A-
**2.3 --Agreement and Plan of Merger among the Registrant, Bayport
Restaurant Corp, Inc. and Landry's Acquisition, Inc.(1)
3.1 --Certificate of Incorporation of Landry's Seafood Restaurants,
Inc. as filed with the Delaware Secretary of State on June 23,
1993, as amended -A-
3.2 --Bylaws of Landry's Seafood Restaurants, Inc. -A-
4 --Specimen Common Stock Certificate, $ .01 par value of Landry's
Seafood Restaurants, Inc. -A-
*5.1 --Opinion of Winstead Sechrest & Minick P.C. regarding legality.
5.2 --Opinion and consent of Akerman, Senterfitt & Eidson, P.A.
regarding Federal income tax matters. To be filed by amendment.
**10.1 --Agreement regarding credit facility among the Registrant,
Bayport Restaurant Group, Inc. et al.
**10.2 --Loan Agreement between the Registrant and Bayport Restaurant
Group, Inc.
*23.1 --Consent of Arthur Andersen LLP.
*23.2 --Consent of Grant Thornton LLP.
*23.3 --Consent of Winstead Sechrest & Minick P.C. (included in their
opinion filed as Exhibit 5).
*23.4 --Consent of Akerman, Senterfitt & Eidson, P.A. (to be included
in their opinion filed as Exhibit 5.2)
*24 --Powers of Attorney (included on page II-6).
*99 --Form of Proxy Card
</TABLE>
- --------
(1) The Disclosure Schedules of the Company and Bayport, referred to in the
Agreement and Plan of Merger, is omitted from submission to the SEC in
connection herewith. Upon request, the Company shall furnish to the SEC a
copy of any omitted schedules.
(B) FINANCIAL STATEMENT SCHEDULES.
All schedules are omitted because the required information is included in
the Consolidated Financial Statements or the Notes thereto or is otherwise
inapplicable.
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
II-3
<PAGE>
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement;
provided, however, that paragraphs (i) and (ii) do not apply if the
Registration Statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the Registrant pursuant to section 13
or section 15(d) of the Securities Exchange Act of 1934 that are incorporated
by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(4) That, for purposes of determining any liability under the Securities Act
of 1933, each filing of the Registrant's annual report pursuant to section
13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to section 15(d) of the Securities Exchange Act of 1934) that is incorporated
by reference in the Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(5) That prior to any public reoffering of the securities registered
hereunder through the use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the Registrant undertakes that such reoffering
prospectus will contain the information called for by Form S-4 with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of Form S-4.
(6) That every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to the
Registration Statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act
of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(7) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(8) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within
one business day of receipt of such request, and to send the
II-4
<PAGE>
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the Registration Statement through the date of responding to the
request.
(9) To supply by means of post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when it
became effective.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-4 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED IN THE CITY OF HOUSTON, STATE OF TEXAS, ON THE 8TH DAY OF MAY,
1996.
Landry's Seafood Restaurants, Inc.
By: TILMAN J. FERTITTA
__________________________________
Tilman J. Fertitta,
Chairman of the Board/President
and Chief Executive Officer
Each person whose signature appears below constitutes and appoints Tilman J.
Fertitta, Steven L. Scheinthal and Paul S. West, and each of them (with full
power to each of them to act alone), his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities to sign on his behalf
individually and in each capacity stated below any amendment, (including post-
effective amendments) to this Registration Statement and any Registration
Statement (including any amendment thereto) for this offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of
1933, as amended, and to file the same, with all exhibits thereto and other
documents in connection therewith with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents and either of them, or their
substitutes, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Tilman J. Fertitta Chairman, President and May 8, 1996
____________________________________ Chief Executive Officer and
Tilman J. Fertitta Director (Principal
Executive Officer)
/s/ Paul S. West Vice President, Principal May 8, 1996
____________________________________ Financial Officer,
Paul S. West Principal Accounting
Officer and Director
/s/ E. A. Jaksa, Jr. Executive Vice President and May 8, 1996
____________________________________ Director
E. A. Jaksa, Jr.
/s/ Steven L. Scheinthal Vice President, May 8, 1996
____________________________________ Administration, Secretary,
Steven L. Scheinthal General Counsel and
Director
/s/ James E. Masucci Director May 8, 1996
____________________________________
James E. Masucci
/s/ Joe Max Taylor Director May 8, 1996
____________________________________
Joe Max Taylor
</TABLE>
II-6
<PAGE>
(713) 650-2729
May 8, 1996
The Board of Directors
Landry's Seafood Restaurants, Inc.
1400 Post Oak Blvd., Suite 1010
Houston, Texas 77056
Gentlemen:
You have requested our opinion as to the legality of the issuance of shares
(the "Shares") of the Common Stock, $0.01 par value, of Landry's Seafood
Restaurants, Inc. (the "Company"), which are the subject of a registration
statement on Form S-4 (the "Registration Statement") filed by the Company with
the Securities and Exchange Commission pursuant to the Securities Act of 1933,
as amended. You have requested our opinion as to whether the Shares, to be
issued, when issued, will be fully-paid and non-assessable.
We have examined the Certificate of Incorporation of the Company, the Bylaws
and such other corporate records, documents, and proceedings (including the
proposed Agreement and Plan of Merger dated April 18, 1996 among the Company,
et al.) and the resolutions adopted by the Board of Directors of the Company
in connection with the issuance, sale, and delivery of the Shares as we have
deemed necessary for the purposes of this opinion.
On the basis of the foregoing, it is our opinion that the Shares to be
issued and sold by the Company pursuant to the Registration Statement have
been duly and validly authorized by all necessary corporate action of the
Company and, subject to consummation of the Agreement and Plan of Merger, and
exercise of the options and conversion of the warrants and Preferred Stock in
accordance with their terms, each of such Shares will be duly and validly
issued, fully-paid, and non-assessable shares of Common Stock of the Company.
We know that we are named in the Registration Statement, and we hereby
consent to the use of our name in the Registration Statement and to the filing
of this opinion as Exhibit 5 to the Registration Statement.
Very truly yours,
WINSTEAD SECHREST & MINICK P. C.
/s/ Arthur S. Berner
BY:__________________________________
Arthur S. Berner
For the Firm
ASB:blg
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
Registration Statement.
ARTHUR ANDERSEN LLP
Houston, Texas
May 8, 1996
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EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have issued our report dated March 8, 1996, accompanying the consolidated
financial statements of Bayport Restaurant Group, Inc. and Subsidiaries
included in the Annual Report on Form 10-K for the years ended December 25,
1995, December 26, 1994 and December 27, 1993 which are incorporated by
reference in the Registration Statement. We consent to the incorporation by
reference in the Registration Statement of the aforementioned report and to
the use of our name as it appears under the caption "Experts."
GRANT THORNTON LLP
Miami, Florida
May 7, 1996
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BAYPORT RESTAURANT GROUP, INC.
PROXY
SOLICITED BY THE BOARD OF DIRECTORS FOR THE SPECIAL MEETING TO BE HELD ,
1996
The undersigned hereby appoints David J. Connor and William D. Korenbaum, and
each of them with full power of substitution, to vote all shares that the
undersigned is entitled to vote at the Special Meeting of Shareholders of
Bayport Restaurant Group, Inc. to be held on , 1996, or adjournments
thereof, on the following as specified and on such other matters as may
properly come before the meeting.
1. To approve and adopt an Agreement and Plan of Merger, dated as of April
18, 1996, among Landry's Seafood Restaurants, Inc., Landry's Acquisition, Inc.
and Bayport Restaurant Group, Inc.
[_] FOR[_] AGAINST[_] ABSTAIN
2. To transact such other business as may properly come before the meeting.
[_] FOR[_] AGAINST[_] ABSTAIN
When properly executed, this proxy will be voted as directed.
Dated: _________________________, 1996
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Signature
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Signature if held jointly
Please sign exactly as name appears
on this Proxy. If shares are
registered in more than one name, the
signatures of all such holders are
required. A corporation should sign
its full corporate name by a duly
authorized officer, stating such
officer's title and official
capacity, giving the full title as
such. A partnership should sign in
the partnership name by a duly
authorized person, stating such
person's title and relationship.
IMPORTANT: PLEASE DATE, SIGN AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. NO
POSTAGE IS REQUIRED.
