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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934)
ROCK BOTTOM RESTAURANTS, INC.
(Name of the Issuer)
ROCK BOTTOM RESTAURANTS, INC.
RB CAPITAL, INC.
RBR ACQUISITION CORP.
FRANK B. DAY
ROBERT D. GREENLEE
DAVID M. LUX
ARTHUR WONG
(Name of the Person(s) Filing Statement)
Common Stock, Par Value $.01 Per Share
(Title of Class of Securities)
771833100
(CUSIP Number of Class of Securities)
___________________
William S. Hoppe
Rock Bottom Restaurants, Inc.
248 Centennial Parkway, Suite 100
Louisville, Colorado 80027
(303) 664-4000
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications on Behalf of Person(s) Filing Statement)
_____________________________________
COPIES TO:
Mark D. Gerstein, Esq. Paul Hilton, Esq.
Latham & Watkins Davis, Graham & Stubbs LLP
Sears Tower, Suite 5800 370 Seventeenth Street, Suite 4700
Chicago, Illinois 60606 Denver, Colorado 80201-0185
(312) 876-7700 (303) 892-9400
This statement is filed in connection with (check the appropriate box):
a. [X] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act
of 1933.
c. [ ] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies. [X]
CALCULATION OF FILING FEE
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Transaction Valuation* Amount Of Filing Fee**
$61,268,949 $12,254
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</TABLE>
* For purposes of calculating the filing fee only. Determined by (1)
multiplying 8,045,796 shares of common stock, par value $.01 per share, of
Rock Bottom Restaurants, Inc. (less an aggregate of 2,200,173 shares to be
contributed to RB Capital, Inc. by certain of its affiliates) by $10.00 per
share, and (2) adding thereto the aggregate amount anticipated to be paid
to certain persons holding options to acquire shares of common stock in
consideration of cancellation of such options (assuming an aggregate of
966,907 options are canceled in exchange for cash in the transaction).
** The amount of the filing fee calculated in accordance with Exchange Act
Rule 0-11 equals 1/50th of 1% of the value of the securities proposed to be
acquired.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form
or schedule and the date of its filing.
Amount previously paid: Not applicable Filing party: Not applicable
Form or registration no.: Not applicable Date filed: Not applicable
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INTRODUCTION
This Rule 13e-3 Transaction Statement on Schedule 13E-3 (this "Schedule
13E-3") is being filed jointly by Rock Bottom Restaurants, Inc., a Delaware
corporation (the "Company"), RB Capital, Inc., a Delaware corporation ("RB
Capital"), RBR Acquisition Corp., a Delaware corporation ("RBR Acquisition"),
and Frank B. Day, Robert D. Greenlee, David M. Lux and Arthur Wong, each an
individual, pursuant to Section 13(e) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and Rule 13e-3 thereunder, in connection with the
proposed merger (the "Merger") of the Company with and into RBR Acquisition
pursuant to an Agreement and Plan of Merger, dated as of March 18, 1999 (the
"Merger Agreement"), by and among the Company, RB Capital and RBR Acquisition.
RB Capital and RBR Acquisition were each formed by Messrs. Day, Greenlee, Lux
and Wong in connection with the Merger and RBR Acquisition is a wholly owned
subsidiary of RB Capital.
In the Merger and pursuant to the terms and conditions set forth in the
Merger Agreement, the Company will merge with and into RBR Acquisition, with the
Company as the surviving corporation (the "Surviving Corporation"). At the
effective time of the Merger, each issued and outstanding share of common stock,
par value $.01 per share, of the Company (the "Shares") (other than Shares held
by (1) the Company or any of its wholly-owned subsidiaries, (2) RB Capital or RB
Acquisition, or (3) stockholders who perfect their rights under Delaware law to
dissent from the Merger and seek an appraisal of their Shares) will be converted
into and become the right to receive $10.00 per Share in cash, without interest.
As a result of the Merger, RB Capital will own 100% of the capital stock of the
Surviving Corporation.
Concurrently with the filing of this Schedule 13E-3, the Company is
filing a preliminary proxy statement (the "Proxy Statement") pursuant to
which the stockholders of the Company will be given notice of the Merger. A
copy of the Proxy Statement is attached hereto as Exhibit 99(d)(1). The
cross reference sheet below is being supplied pursuant to General Instruction
F to Schedule 13E-3 and shows the location in the Proxy Statement of the
information required to be included in response to the items of this Schedule
13E-3. The information set forth in the Proxy Statement, including all
schedules, exhibits, appendices and annexes thereto, is hereby expressly
incorporated herein by reference and the responses to each item in this
Schedule 13E-3 are qualified in their entirety by the information contained
in the Proxy Statement and the schedules, exhibits, appendices and annexes
thereto. Capitalized terms used but not defined herein shall have the
meanings ascribed to such terms in the Proxy Statement.
CROSS REFERENCE SHEET
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<CAPTION>
ITEM IN SCHEDULE 13E-3 LOCATION IN PROXY STATEMENT
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<S> <C>
Item 1. Issuer and Class of Security Subject to the Transaction.
(a)........... Cover Page and "THE PARTIES"
(b)........... Cover Page and "INFORMATION CONCERNING THE SPECIAL
MEETING -- Record Date; Voting at the Meeting; Quorum"
(c)-(d)....... "MARKET FOR THE COMMON STOCK -- Common Stock Market
Price Information; Dividend Information"
(e)........... *
(f)........... "MARKET FOR THE COMMON STOCK -- Common Stock Purchase
Information"
Item 2. Identity and Background.
(a)-(d) and (g) "THE PARTIES" and "DIRECTORS AND MANAGEMENT"
(e)-(f)....... *
2
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Item 3. Past Contacts, Transactions or Negotiations.
(a)(1)....... "SPECIAL FACTORS -- Interests of Certain Persons in
the Merger; Certain Relationships -- Affiliated
Leases" and "SPECIAL FACTORS -- Interests of Certain
Persons in the Merger; Certain Relationships -- Other
Arrangements with Affiliates"
(a)(2) and (b) "SUMMARY," "INFORMATION CONCERNING THE SPECIAL MEETING
-- Required Vote," "SPECIAL FACTORS -- Background of
the Merger," "SPECIAL FACTORS -- Interests of Certain
Persons in the Merger; Certain Relationships,"
"SPECIAL FACTORS -- Financing of the Merger -- Equity
Contributions" and "SPECIAL FACTORS -- Financing of
the Merger -- Sale-Leaseback Transactions"
Item 4. Terms of the Transaction.
(a).......... Cover Page, "SUMMARY," "THE MERGER AGREEMENT," "THE
VOTING AGREEMENT" and Annex A
(b).......... "SUMMARY," "INFORMATION CONCERNING THE SPECIAL MEETING
-- Required Vote," "SPECIAL FACTORS -- Interests of
Certain Persons in the Merger; Certain Relationships,"
"THE MERGER AGREEMENT -- The Merger; Merger
Consideration," "THE MERGER AGREEMENT -- Treatment of
Certain Shares Held by the Founders and Certain Other
Individuals" and "THE VOTING AGREEMENT"
Item 5. Plans or Proposals of the Issuer or Affiliate.
(a)-(g)...... "SUMMARY," "SPECIAL FACTORS -- Interests of Certain
Persons in the Merger; Certain Relationships,"
"SPECIAL FACTORS -- Certain Effects of the Merger" and
"SPECIAL FACTORS -- Plans for the Company after the
Merger"
Item 6. Source and Amount of Funds or Other Consideration.
(a).......... "SUMMARY" and "SPECIAL FACTORS -- Financing of the
Merger"
(b).......... "SPECIAL FACTORS -- Fees and Expenses"
(c).......... "SUMMARY," "SPECIAL FACTORS -- Plans for the Company
after the Merger" and "SPECIAL FACTORS -- Financing of
the Merger"
(d).......... *
Item 7. Purpose(s), Alternatives, Reasons and Effects.
(a)-(c)...... "SUMMARY," "SPECIAL FACTORS -- Background of the
Merger," "SPECIAL FACTORS -- Recommendation of the
Special Committee and Board of Directors; Fairness of
the Merger," "SPECIAL FACTORS -- RB Capital's Purpose
and Reason for the Merger" and "SPECIAL FACTORS --
Plans for the Company after the Merger"
(d).......... "SUMMARY," "SPECIAL FACTORS -- Recommendation of the
Special Committee and Board of Directors; Fairness of
the Merger," "SPECIAL FACTORS -- Interests of Certain
Persons in the Merger; Certain Relationships,"
"SPECIAL FACTORS -- Certain Effects of the Merger,"
"SPECIAL FACTORS -- Financing of the Merger -- Equity
Contributions," "SPECIAL FACTORS -- Material Federal
Income Tax Consequences of the Merger," "THE MERGER
AGREEMENT -- The Merger; Merger Consideration," "THE
MERGER AGREEMENT -- Treatment of Certain Shares Held
by the Founders and Certain Other Individuals" and
"THE MERGER AGREEMENT -- Treatment of Stock Options"
3
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Item 8. Fairness of the Transaction.
(a)-(f)...... Cover Page, "SUMMARY," "INFORMATION CONCERNING THE
SPECIAL MEETING -- Purpose of the Special Meeting,"
"INFORMATION CONCERNING THE SPECIAL MEETING --
Required Vote," "SPECIAL FACTORS -- Background of the
Merger," "SPECIAL FACTORS -- Recommendation of the
Special Committee and Board of Directors; Fairness of
the Merger," "SPECIAL FACTORS -- Opinion of Financial
Advisor to the Special Committee" and Annex B
Item 9. Reports, Opinions, Appraisals and Certain Negotiations.
(a)-(c)...... Cover Page, "SUMMARY," "INFORMATION CONCERNING THE
SPECIAL MEETING -- Purpose of the Special Meeting,"
"SPECIAL FACTORS -- Background of the Merger,"
"SPECIAL FACTORS -- Recommendation of the Special
Committee and Board of Directors; Fairness of the
Merger," "SPECIAL FACTORS -- Opinion of Financial
Advisor to the Special Committee," "SPECIAL FACTORS --
RB Capital's Purpose and Reason for the Merger" and
Annex B
Item 10. Interest in Securities of the Issuer.
(a)-(b)..... "SUMMARY," "INFORMATION CONCERNING THE SPECIAL MEETING
-- Required Vote," "SPECIAL FACTORS -- Interests of
Certain Persons in the Merger; Certain Relationships -
- Retained Equity Interest," "SPECIAL FACTORS --
Interests of Certain Persons in the Merger; Certain
Relationships -- Restricted Stock," "THE VOTING
AGREEMENT," "MARKET FOR THE COMMON STOCK -- Common
Stock Purchase Information" and "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT"
Item 11. Contracts, Arrangements or Understandings with Respect to the
Issuer's Securities.
"SUMMARY," "INFORMATION CONCERNING THE SPECIAL MEETING
-- Required Vote," "SPECIAL FACTORS -- Background of
the Merger," "SPECIAL FACTORS -- Interests of Certain
Persons in the Merger; Certain Relationships,"
"SPECIAL FACTORS -- Financing of the Merger -- Equity
Contributions," "THE MERGER AGREEMENT" and "THE VOTING
AGREEMENT"
Item 12. Present Intention and Recommendation of Certain Persons with Regard
to the Transaction.
(a)-(b)..... "SUMMARY," "INFORMATION CONCERNING THE SPECIAL MEETING
-- Purpose of the Special Meeting," "INFORMATION
CONCERNING THE SPECIAL MEETING -- Required Vote,"
"SPECIAL FACTORS -- Background of the Merger,"
"SPECIAL FACTORS -- Recommendation of the Special
Committee and Board of Directors; Fairness of the
Merger," "SPECIAL FACTORS -- RB Capital's Purpose and
Reason for the Merger," "SPECIAL FACTORS -- Financing
of the Merger -- Equity Contributions," "THE MERGER
AGREEMENT -- Treatment of Certain Shares Held by the
Founders and Certain Other Individuals" and "THE
VOTING AGREEMENT"
Item 13. Other Provisions of the Transaction.
(a)......... "SUMMARY -- Dissenters' Rights of Appraisal,"
"DISSENTERS' RIGHTS OF APPRAISAL" and Annex C
(b)-(c)..... *
Item 14. Financial Information.
(a)......... "SUMMARY -- Selected Consolidated Financial Data of
the Company" and Annex D
(b)......... *
4
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Item 15. Persons and Assets Employed, Retained or Utilized.
(a)-(b)..... "SUMMARY," "INFORMATION CONCERNING THE SPECIAL MEETING
-- Purpose of the Special Meeting," "INFORMATION
CONCERNING THE SPECIAL MEETING -- Proxy Solicitation,"
"SPECIAL FACTORS -- Background of the Merger,"
"SPECIAL FACTORS -- Interests of Certain Persons in
the Merger; Certain Relationships," "SPECIAL FACTORS -
- Financing of the Merger -- Equity Contributions,"
"SPECIAL FACTORS -- Financing of the Merger -- Sale-
Leaseback Transactions," "THE MERGER AGREEMENT --
Treatment of Certain Shares Held by the Founders and
Certain Other Individuals" and "THE VOTING AGREEMENT"
Item 16. Additional Information.
"CERTAIN LITIGATION" and the entire Proxy Statement,
together with the proxy card
Item 17. Material to be Filed as Exhibits.
(a)-(f)..... Separately filed with this Schedule 13E-3
</TABLE>
______________
* The Item is not required to be included in the Proxy Statement, is
inapplicable or the answer thereto is in the negative.
5
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ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The name of the issuer of the class of equity securities which is
the subject of the Rule 13e-3 transaction is Rock Bottom Restaurants, Inc., a
Delaware corporation, which has its principal executive offices at 248
Centennial Parkway, Suite 100, Louisville, Colorado 80027.
(b) The title of the class of securities which is the subject of the
Rule 13e-3 transaction is the common stock, par value $.01 per share, of the
Company. The information set forth on the Cover Page to the Proxy Statement and
in the section entitled "INFORMATION CONCERNING THE SPECIAL MEETING -- Record
Date; Voting at the Meeting; Quorum" of the Proxy Statement is incorporated
herein by reference.
(c)-(d) The information set forth in the section entitled "MARKET FOR THE
COMMON STOCK -- Common Stock Market Price Information; Dividend Information" of
the Proxy Statement is incorporated by reference herein.
(e) Not applicable.
(f) The information set forth in the sections entitled "MARKET FOR
THE COMMON STOCK -- Common Stock Purchase Information" of the Proxy Statement is
incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d) This Schedule 13E-3 is being filed jointly by the Company, RB
Capital, RBR Acquisition, Frank B. Day, Robert D. Greenlee, David M. Lux and
Arthur Wong. The Company is the issuer of the class of equity securities which
is the subject of the Rule 13e-3 transaction. The information set forth in the
sections entitled "THE PARTIES" and "DIRECTORS AND MANAGEMENT" of the Proxy
Statement is incorporated herein by reference.
(e) During the last five years, none of the Company, RB Capital, RBR
Acquisition, nor, to the best of their knowledge, any of the persons set forth
in the section entitled "DIRECTORS AND MANAGEMENT" of the Proxy Statement,
including Messrs. Day, Greenlee, Wong and Lux, have been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors).
(f) During the last five years, none of the Company, RB Capital, RBR
Acquisition, nor, to the best of their knowledge, any of the persons set forth
in the section entitled "DIRECTORS AND MANAGEMENT" of the Proxy Statement,
including Messrs. Day, Greenlee, Wong and Lux, was a party to a civil
proceeding of a judicial or administrative body of competent jurisdiction and as
a result of such proceeding was or is subject to a judgment, decree or final
order enjoining further violations of, or prohibiting activities, subject to,
federal or state securities laws or finding any violation of such laws.
(g) The information set forth in the section entitled "DIRECTORS AND
MANAGEMENT" of the Proxy Statement is incorporated herein by reference.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS.
(a)(1) The information set forth in the sections entitled "SPECIAL
FACTORS -- Interests of Certain Persons in the Merger; Certain Relationships --
Affiliated Leases" and "SPECIAL FACTORS -- Interests of Certain Persons in the
Merger; Certain Relationships -- Other Arrangements with Affiliates" of the
Proxy Statement is incorporated herein by reference.
(a)(2) The information set forth in the sections entitled "SUMMARY,"
"INFORMATION CONCERNING THE SPECIAL MEETING -- Required Vote," "SPECIAL FACTORS
- -- Background of the Merger," "SPECIAL FACTORS -- Interests of Certain Persons
in the Merger; Certain Relationships," "SPECIAL FACTORS -- Financing of the
Merger -- Equity Contributions" and "SPECIAL FACTORS -- Financing of the Merger
- -- Sale-Leaseback Transactions" of the Proxy Statement is incorporated herein by
reference.
6
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(b) The information set forth in the sections entitled "SUMMARY,"
"INFORMATION CONCERNING THE SPECIAL MEETING -- Required Vote," "SPECIAL FACTORS
- -- Background of the Merger," "SPECIAL FACTORS -- Interests of Certain Persons
in the Merger; Certain Relationships," "SPECIAL FACTORS -- Financing of the
Merger -- Equity Contributions" and "SPECIAL FACTORS -- Financing of the Merger
- -- Sale-Leaseback Transactions" of the Proxy Statement is incorporated herein by
reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a) The information set forth on the Cover Page to the Proxy
Statement and in the sections entitled "SUMMARY," "THE MERGER AGREEMENT" and
"THE VOTING AGREEMENT" of the Proxy Statement and in Annex A to the Proxy
Statement is incorporated herein by reference.
(b) The information set forth in the sections entitled "SUMMARY,"
"INFORMATION CONCERNING THE SPECIAL MEETING -- Required Vote," "SPECIAL FACTORS
- -- Interests of Certain Persons in the Merger; Certain Relationships," "THE
MERGER AGREEMENT -- The Merger; Merger Consideration," "THE MERGER AGREEMENT --
Treatment of Certain Shares Held by the Founders and Certain Other Individuals"
and "THE VOTING AGREEMENT" of the Proxy Statement is incorporated herein by
reference.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(g) The information set forth in the sections entitled "SUMMARY,"
"SPECIAL FACTORS -- Interests of Certain Persons in the Merger; Certain
Relationships," "SPECIAL FACTORS -- Certain Effects of the Merger" and "SPECIAL
FACTORS -- Plans for the Company after the Merger" of the Proxy Statement is
incorporated herein by reference.
ITEM 6. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The information set forth in the sections entitled "SUMMARY" and
"SPECIAL FACTORS -- Financing of the Merger" of the Proxy Statement is
incorporated herein by reference.
(b) The information set forth in the section entitled "SPECIAL
FACTORS -- Fees and Expenses" of the Proxy Statement is incorporated herein by
reference.
(c) The information set forth in the sections entitled "SUMMARY,"
"SPECIAL FACTORS -- Plans for the Company after the Merger" and "SPECIAL FACTORS
- -- Financing of the Merger" of the Proxy Statement is incorporated herein by
reference.
(d) Not Applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a)-(c) The information set forth in the sections entitled "SUMMARY,"
"SPECIAL FACTORS -- Background of the Merger," "SPECIAL FACTORS --
Recommendation of the Special Committee and Board of Directors; Fairness of the
Merger," "SPECIAL FACTORS -- RB Capital's Purpose and Reason for the Merger" and
"SPECIAL FACTORS -- Plans for the Company after the Merger" of the Proxy
Statement is incorporated herein by reference.
(d) The information set forth in the sections entitled "SUMMARY,"
"SPECIAL FACTORS -- Recommendation of the Special Committee and Board of
Directors; Fairness of the Merger," "SPECIAL FACTORS -- Interests of Certain
Persons in the Merger; Certain Relationships," "SPECIAL FACTORS -- Certain
Effects of the Merger," "SPECIAL FACTORS -- Financing of the Merger -- Equity
Contributions," "SPECIAL FACTORS -- Material Federal Income Tax Consequences of
the Merger," "THE MERGER AGREEMENT -- The Merger; Merger Consideration," "THE
MERGER AGREEMENT -- Treatment of Certain Shares Held by the Founders" and "THE
MERGER AGREEMENT -- Treatment of Stock Options" of the Proxy Statement is
incorporated herein by reference.
7
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ITEM 8. FAIRNESS OF THE TRANSACTION.
(a)-(f) The information set forth on the Cover Page to the Proxy
Statement and in the sections entitled "SUMMARY," "INFORMATION CONCERNING THE
SPECIAL MEETING -- Purpose of the Special Meeting," "INFORMATION CONCERNING THE
SPECIAL MEETING -- Required Vote," "SPECIAL FACTORS -- Background of the
Merger," "SPECIAL FACTORS -- Recommendation of the Special Committee and Board
of Directors; Fairness of the Merger," "SPECIAL FACTORS -- Opinion of Financial
Advisor to the Special Committee" of the Proxy Statement and in Annex B to the
Proxy Statement is incorporated herein by reference.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a)-(c) The information set forth on the Cover Page of the Proxy
Statement and in the sections entitled Cover Page, "SUMMARY," "INFORMATION
CONCERNING THE SPECIAL MEETING -- Purpose of the Special Meeting," "SPECIAL
FACTORS -- Background of the Merger," "SPECIAL FACTORS -- Recommendation of the
Special Committee and Board of Directors; Fairness of the Merger," "SPECIAL
FACTORS -- Opinion of Financial Advisor to the Special Committee" and "SPECIAL
FACTORS -- RB Capital's Purpose and Reason for the Merger" of the Proxy
Statement and in Annex B to the Proxy Statement is incorporated herein by
reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a)-(b) The information set forth in the sections entitled "SUMMARY,"
"INFORMATION CONCERNING THE SPECIAL MEETING -- Required Vote," "SPECIAL FACTORS
- -- Interests of Certain Persons in the Merger; Certain Relationships -- Retained
Equity Interest," "SPECIAL FACTORS -- Interests of Certain Persons in the
Merger; Certain Relationships -- Restricted Stock," "THE VOTING AGREEMENT,"
"MARKET FOR THE COMMON STOCK -- Common Stock Purchase Information" and "SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" of the Proxy Statement is
incorporated herein by reference.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE ISSUER'S
SECURITIES.
The information set forth in the sections entitled "SUMMARY,"
"INFORMATION CONCERNING THE SPECIAL MEETING -- Required Vote," "SPECIAL FACTORS
- -- Background of the Merger," "SPECIAL FACTORS -- Interests of Certain Persons
in the Merger; Certain Relationships," "SPECIAL FACTORS -- Financing of the
Merger -- Equity Contributions," "THE MERGER AGREEMENT" and "THE VOTING
AGREEMENT" of the Proxy Statement is incorporated herein by reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD TO
THE TRANSACTION.
(a)-(b) The information set forth in the sections entitled "SUMMARY,"
"INFORMATION CONCERNING THE SPECIAL MEETING -- Purpose of the Special Meeting,"
"INFORMATION CONCERNING THE SPECIAL MEETING -- Required Vote," "SPECIAL FACTORS
- -- Background of the Merger," "SPECIAL FACTORS -- Recommendation of the Special
Committee and Board of Directors; Fairness of the Merger," "SPECIAL FACTORS --
RB Capital's Purpose and Reason for the Merger," "SPECIAL FACTORS -- Financing
of the Merger -- Equity Contributions," "THE MERGER AGREEMENT -- Treatment of
Certain Shares Held by the Founders and Certain Other Individuals" and "THE
VOTING AGREEMENT" of the Proxy Statement is incorporated herein by reference.
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The information set forth in the sections entitled "SUMMARY --
Dissenters' Rights of Appraisal" and "DISSENTERS' RIGHTS OF APPRAISAL" of the
Proxy Statement and in Annex C to the Proxy Statement is incorporated herein by
reference.
(b)-(c) Not applicable.
8
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ITEM 14. FINANCIAL INFORMATION.
(a) The information set forth in the section entitled "SUMMARY --
Selected Consolidated Financial Data of the Company" of the Proxy Statement
is incorporated herein by reference.
(b) Not Applicable.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAIN OR UTILIZED.
(a)-(b) The information set forth in the sections entitled "SUMMARY,"
"INFORMATION CONCERNING THE SPECIAL MEETING -- Purpose of the Special Meeting,"
"INFORMATION CONCERNING THE SPECIAL MEETING -- Proxy Solicitation," "SPECIAL
FACTORS -- Background of the Merger," "SPECIAL FACTORS -- Interests of Certain
Persons in the Merger; Certain Relationships," "SPECIAL FACTORS -- Financing of
the Merger -- Equity Contributions," "SPECIAL FACTORS -- Financing of the Merger
- -- Sale-Leaseback Transactions," "THE MERGER AGREEMENT -- Treatment of Certain
Shares Held by the Founders and Certain Other Individuals" and "THE VOTING
AGREEMENT" of the Proxy Statement is incorporated herein by reference.
ITEM 16. ADDITIONAL INFORMATION.
The information set forth in the section entitled "CERTAIN LITIGATION" of
the Proxy Statement and in the entire Proxy Statement, together with the proxy
card, and the schedules, exhibits, appendices and annexes thereto is
incorporated herein by reference.
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Commitment Letter executed by BankBoston, N.A. and BancBoston
Robertson Stephens Inc. dated March 18, 1999.
(a)(2) Commitment Letter for Equity and Subordinated Credit Facilities
executed by BancBoston Robertson Stephens Inc. dated March 18,
1999 (portions of the exhibit have been omitted pursuant to a
confidential treatment request).
(b)(1) Opinion of U.S. Bancorp Piper Jaffray Inc., dated as of March 18,
1999 (attached as Annex B to the Proxy Statement and incorporated
herein by reference).
(b)(2) Fairness Opinion Presentation to the Special Committee of the
Board of Directors prepared by U.S. Bancorp Piper Jaffray Inc.
dated March 18, 1999.
(b)(3) Fairness Opinion Presentation to the Special Committee of the
Board of Directors prepared by U.S. Bancorp Piper Jaffray Inc.
dated February 19, 1999.
(c)(1) Agreement and Plan of Merger, dated as of March 18, 1999, by and
among RB Capital, Inc., RBR Acquisition Corp. and Rock Bottom
Restaurants, Inc. (attached as Annex A to the Proxy Statement and
incorporated herein by reference).
(c)(2) Voting Agreement, dated as of March 18, 1999, by and among Rock
Bottom Restaurants, Inc., RB Capital, Inc., RBR Acquisition
Corp. and the stockholders of Rock Bottom Restaurants, Inc.
party thereto.
(c)(3) Commitment Letter for Common Equity Investment executed by Frank
B. Day dated March 18, 1999.
(c)(4) Commitment Letter for Common Equity Investment executed by Robert
D. Greenlee dated March 18, 1999.
9
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(c)(5) Commitment Letter for Common Equity Investment executed by David
M. Lux dated March 18, 1999.
(c)(6) Commitment Letter for Common Equity Investment executed by Arthur
Wong dated March 18, 1999.
(d)(1) Proxy Statement, together with the proxy card.
(d)(2) Press Release issued by the Company dated March 19, 1999.
(e)(1) Section 262 of the Delaware General Corporation Law (attached as
Annex C to the Proxy Statement and incorporated herein by
reference).
(f) Not applicable.
(g)(1) Complaint in Wohlman v. Day, et al., Case No. 99CV0639, filed on
February 2, 1999 in the Denver District Court, City and County of
Denver, Colorado.
10
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SIGNATURE
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete
and correct.
Dated: April 19, 1999 ROCK BOTTOM RESTAURANTS, INC.
By: /s/ William S. Hoppe
-----------------------------
Name: William S. Hoppe
Title: Executive Vice President,
Chief Financial Officer and
Chief Administrative Officer
RB CAPITAL, INC.
By: /s/ Frank B. Day
-----------------------------
Name: Frank B. Day
Title: President
RBR ACQUISITION CORP.
By: /s/ Frank B. Day
-----------------------------
Name: Frank B. Day
Title: President
By: /s/ Frank B. Day
-----------------------------
Frank B. Day
By: /s/ Robert D. Greenlee
-----------------------------
Robert D. Greenlee
By: /s/ David M. Lux
-----------------------------
David M. Lux
By: /s/ Arthur Wong
-----------------------------
Arthur Wong
11
<PAGE>
EXHIBIT INDEX
<TABLE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
99(a)(1) Commitment Letter executed by BankBoston, N.A. and BancBoston
Robertson Stephens Inc. dated March 18, 1999.
99(a)(2) Commitment Letter for Equity and Subordinated Credit Facilities
executed by BancBoston Robertson Stephens Inc. dated March 18, 1999
(portions of the exhibit have been omitted pursuant to a
confidential treatment request).
99(b)(1) Opinion of U.S. Bancorp Piper Jaffray Inc., dated as of March 18, 1999
(attached as Annex B to the Proxy Statement and incorporated herein by
reference).
99(b)(2) Fairness Opinion Presentation to the Special Committee of the Board of
Directors prepared by U.S. Bancorp Piper Jaffray Inc. dated March 18,
1999.
99(b)(3) Fairness Opinion Presentation to the Special Committee of the Board of
Directors prepared by U.S. Bancorp Piper Jaffray Inc. dated February
19, 1999.
99(c)(1) Agreement and Plan of Merger, dated as of March 18, 1999, by and among
RB Capital, Inc., RBR Acquisition Corp. and Rock Bottom Restaurants,
Inc. (attached as Annex A to the Proxy Statement and incorporated
herein by reference).
99(c)(2) Voting Agreement, dated as of March 18, 1999, by and among Rock Bottom
Restaurants, Inc., RB Capital, Inc., RBR Acquisition Corp. and the
stockholders of Rock Bottom Restaurants, Inc. party thereto.
99(c)(3) Commitment Letter for Common Equity Investment executed by Frank B.
Day dated March 18, 1999.
99(c)(4) Commitment Letter for Common Equity Investment executed by Robert D.
Greenlee dated March 18, 1999.
99(c)(5) Commitment Letter for Common Equity Investment executed by David M.
Lux dated March 18, 1999.
99(c)(6) Commitment Letter for Common Equity Investment executed by Arthur Wong
dated March 18, 1999.
99(d)(1) Proxy Statement, together with the proxy card.
99(d)(2) Press Release issued by the Company dated March 19, 1999.
99(e)(1) Section 262 of the Delaware General Corporation Law (attached as Annex
C to the Proxy Statement and incorporated herein by reference).
99(f) Not applicable.
99(g)(1) Complaint in Wohlman v. Day, et al., Case No. 99CV0639, filed on
February 2, 1999 in the Denver District Court, City and County of
Denver, Colorado.
</TABLE>
12
<PAGE>
BankBoston, N.A.
BancBoston Robertson Stephens Inc.
100 Federal Street
Boston, MA 02110
March 18, 1999
RB Capital Inc.
c/o Mr. Frank B. Day, President
1010 69th Street
Boulder, CO 80303
Re: COMMITMENT LETTER
Ladies and Gentlemen:
We are pleased to confirm the commitment of BankBoston, N.A. ("BKB"),
subject to the terms and conditions set forth in this letter and in the
Outline referred to below, to provide financing to RB Capital Inc. ("RB
CAPITAL") in connection with the proposed acquisition by RB Capital (the
"ACQUISITION") of approximately 5.8 million shares of publicly held capital
stock and options of Rock Bottom Restaurants, Inc. (the "TARGET COMPANY"),
such financing to be in an aggregate amount of up to $60,000,000 (the "SENIOR
FINANCING"). The Target Company and all of its current and future direct and
indirect subsidiaries shall be joint and several borrowers (collectively, the
"BORROWERS") in connection with the Senior Financing or, as may be mutually
agreed, certain such subsidiaries may be guarantors (the "SUBSIDIARY
GUARANTORS") of the Senior Financing. RB Capital shall be a guarantor of the
Senior Financing (together with the Subsidiary Guarantors, the "GUARANTORS").
The Senior Financing will be secured by all assets of the Borrowers and the
Guarantors. BkB will act as agent (in such capacity, the "AGENT") for itself
and any other lending institutions which may become party to the Senior
Financing (collectively with BkB, the "LENDERS") with respect to the Senior
Financing, and BancBoston Robertson Stephens Inc. ("BRS") will act as the
exclusive syndication agent and arranger (in such capacity, the "ARRANGER")
for the Lenders with respect to the Senior Financing. The proceeds of the
Senior Financing, along with $22,000,000 of subordinated debt in the form of
junior securities to be issued on terms satisfactory to the Lenders (the
"SUBORDINATED DEBT") and up to $6,000,000 in equity securities to be issued
by RB Capital, shall be used to provide funds for the Acquisition, to pay
related transaction fees and expenses, to refinance certain existing
indebtedness of the Target Company and its subsidiaries, for the acquisition
and/or construction of new operating facilities, for operating facility
upgrades, for the issuance of standby letters of credit and for working
capital and general corporate purposes. BkB will provide the full amount of
the Senior Financing, but intends to syndicate the Senior Financing before
the closing. Notwithstanding anything herein to the contrary, no more than
$1,750,000 of the revolving credit facility to be provided as part of the
Senior Financing will be drawn at closing.
<PAGE>
RB Capital Inc.
March 18, 1999
Page 2
Based on our discussions and on the financial statements, projections
and other information and documents previously furnished to us, we are
enclosing herewith an outline of terms (the "OUTLINE") which sets forth the
principal terms on which BkB would be willing to provide the proposed Senior
Financing to the Borrowers (this letter, together with the Outline, is
referred to as the "COMMITMENT LETTER"), and BRS is willing to act as the
Arranger hereunder.
Although the Outline sets forth the principal terms of the Senior
Financing, you should understand that the Agent and the Arranger reserve the
right to propose terms in addition to these terms which will not
substantially change or alter the terms of this commitment and the enclosed
Outline. Moreover, the Outline does not purport to include all of the
representations, warranties, covenants, defaults, definitions and other terms
which will be contained in the definitive documents for the transaction, all
of which must be satisfactory in form and substance to us and our counsel and
to the Borrowers and their counsel prior to proceeding with the proposed
Senior Financing.
Our willingness to proceed with the proposed Senior Financing is
conditioned on the satisfaction of all the conditions precedent set forth in
the Outline, there being no material misstatements in or omissions from (i)
historical financial and operating information for the Target Company and its
subsidiaries, (ii) the projected financial information for the Target Company
and its subsidiaries for the fiscal year ended December 27, 1998, and (iii)
the financial and operating information included in the Project Lobster
Financial Summary dated March 17, 1999 which previously have been furnished
to us by RB Capital for our review and there being in our reasonable judgment
no material adverse change in the assets or business of the Borrowers or
Guarantors as represented in the Borrowers' September 30, 1998 10-Q filing,
any other filings with the Securities and Exchange Commission made prior to
the date hereof or any other publicly available information existing on the
date hereof, including the press release announcing financial results for the
year ended December 27, 1998, the financial condition of the Borrowers or
Guarantors as represented in the consolidated financial statements relating
to them for the fiscal period ending December 27, 1998, the management or
prospects of the Borrowers or Guarantors, or in the ability of any of the
Borrowers or the Guarantors to perform their respective obligations described
in the Outline or to complete the Acquisition. We acknowledge receipt of the
Rock Bottom Restaurants, Inc. Q1 99 Projection - Revised, dated as of
February 28, 1999 (the "Q1 PROJECTION"), and acknowledge that the financial
performance of the Borrowers as reflected in the Q1 Projection does not, in
itself, represent a material adverse change in the business of the Borrowers;
however, similar financial performance after the first two months of fiscal
year 1999 is not excluded from being considered a material adverse change. In
addition, the proposed Senior Financing is subject to the condition that no
material adverse changes in governmental regulation or policy affecting us or
any of the Borrowers or the Guarantors and no material changes or disruptions
in the syndication, financial or capital markets that could materially impair
the syndication of the Senior Financing occur prior to the closing. The
commitments of BkB and BRS hereunder are further subject to our satisfaction
with the
<PAGE>
RB Capital Inc.
March 18, 1999
Page 3
capitalization of the Borrowers and the Target Company and the terms of the
Subordinated Debt to be issued in connection with the Acquisition.
By your signature below, you agree to assist and cooperate with the
Arranger in its syndication efforts, including, but not limited to, promptly
preparing and providing materials and information reasonably deemed necessary
by the Arranger to successfully complete and otherwise facilitate the
syndication of the facility described herein with a group of Lenders
reasonably acceptable to the Borrowers, the Agent and the Arranger. Without
limiting the foregoing, you hereby agree (a) that the Arranger shall have the
exclusive right to syndicate the Senior Financing contemplated by this
Commitment Letter and manage all aspects of the syndication (including,
without limitation, in consultation with the Borrowers, decisions as to the
selection of institutions to be approached and when they will be approached,
when their commitments will be accepted, which institutions will participate,
the allocations of the commitments among the syndicate lenders and any titles
to be given to any lender participating in the Senior Financing) and that you
will assist the Arranger in contacting and soliciting potential co-lenders
and will provide to the Arranger, at its reasonable request, financial and
organizational information as well as financial projections needed for
syndication purposes; (b) that the Arranger shall be expressly permitted to
distribute any and all documents and information relating to the transactions
contemplated hereby and received from you to any potential lender,
participant or assignee, on a confidential basis and subject to your
authorization and reasonable confidentiality agreements requested by you; (c)
to make available the relevant management personnel related to the Senior
Financing or operations of the Borrowers and their subsidiaries for meetings
with potential syndicate members upon reasonable notification and at
reasonable times to be mutually agreed; (d) to permit the Arranger to
publicize, to the extent permitted under applicable securities laws,
information in respect of the Senior Financing (including the Agent's and the
Arranger's roles in the structuring and Senior Financing thereof) subject to
your prior reasonable approval of the form and content thereof; and (e) that
prior to or after the execution of the definitive documentation for the
Senior Financing, BkB reserves the right to syndicate all or any portion of
its commitment hereunder to one or more financial institutions after
consultation with the Borrowers and the Arranger, and, upon the acceptance by
BkB of a written commitment of any lender to provide a portion of the Senior
Financing, BkB shall be released from a portion of its commitment hereunder
in an aggregate amount equal to the commitment of such lender. You agree
that, prior to and during the syndication of the facilities, you will not
permit any offering, placement or arrangement of any competing issues of debt
securities or commercial bank facilities of the Borrowers or any of their
subsidiaries (other than the agreed upon Subordinated Debt).
By your signature below, you agree to pay all reasonable out-of-pocket
costs and expenses incurred by BkB and BRS in connection with this Commitment
Letter, the transactions contemplated hereby, the preparation and negotiation
of all loan documentation, the syndication of the loans and BkB's and BRS's
ongoing due diligence in connection with the transactions contemplated hereby
(the "EXPENSES") (including, without limitation, travel expenses; attorneys'
fees, expenses and disbursements; asset evaluation expenses; syndication
<PAGE>
RB Capital Inc.
March 18, 1999
Page 4
expenses; and other charges and disbursements and any other reasonable
out-of-pocket costs and expenses) whether or not such transactions are
consummated.
Further, in consideration of the commitment contained herein, you agree
to pay the fees described in the fee letter enclosed herewith (the "FEE
LETTER") on the dates and in the amounts referred to in the Fee Letter.
By your signature below, you further agree to indemnify and hold
harmless BkB, the Agent and the Arranger and their respective officers,
directors, employees, affiliates, agents and controlling persons from and
against any and all losses, claims, damages and liabilities to which any such
person may become subject arising out of, or in connection with, this
Commitment Letter, the transactions contemplated hereby (including, without
limitation, all due diligence and syndication activities) or any claim,
litigation, investigation or proceeding relating to any of the foregoing,
whether or not any of such indemnified persons is a party thereto, and to
reimburse each of such indemnified persons, from time to time upon their
demand, for any reasonable legal or other expenses incurred in connection
with investigating or defending any of the foregoing, whether or not the
transactions contemplated hereby are consummated, PROVIDED that the foregoing
indemnity will not, as to any indemnified person, apply to losses, claims,
damages, liabilities or related expenses to the extent that they arise from
the bad faith, willful misconduct or gross negligence of such indemnified
person or to the extent that they arise solely in connection with materials
prepared by us describing general economic conditions in the restaurant
industry and not specific to the Target Company and/or its subsidiaries and
not based on information furnished by the Target Company or its subsidiaries.
You agree that this Commitment Letter and the related Fee Letter are for
your confidential use only and that, except as required by law, they will not
be disclosed by you to any person (including any lender bidding for the
Senior Financing contemplated by this Commitment Letter) without our consent,
other than your security-holders to the extent necessary or reasonably deemed
prudent to do so, employees, officers, directors, accountants, attorneys, and
other advisors and those of the Borrowers, and then only in connection with
the transactions contemplated hereby and on a confidential basis; PROVIDED
that we understand that this Commitment Letter and the terms of the Senior
Financing, including the fees incurred in connection therewith, will be
required to be included or disclosed in the Schedule 13E-3 and/or the proxy
materials provided to the Target Company's stockholders and to be filed with
the Securities and Exchange Commission; PROVIDED FURTHER that specific
information related to fees paid to us shall not be disclosed in such
Schedule 13E-3 or such proxy materials unless specifically required under
applicable law or requested by the Securities and Exchange Commission.
We agree to keep any information delivered or made available by you to
us confidential from anyone other than our employees, officers, attorneys and
other advisors who are or are expected to become engaged in evaluating,
approving, structuring or administering the Senior Financing or rendering
legal advice in connection therewith, PROVIDED that nothing herein
<PAGE>
RB Capital Inc.
March 18, 1999
Page 5
shall prevent us from disclosing such information (a) on a confidential basis
to potential Lenders, and participants in and assignees of the Senior
Financing, (b) upon the order of any court or administrative agency or upon
the request of any administrative agency or authority, (c) upon the request
or demand of any regulatory agency or authority, (d) to the extent that such
information has been publicly disclosed other than as a result of a
disclosure by us, or (e) otherwise as required by law.
This letter is issued with the specific understanding that, except as
specifically set forth in the preceding paragraphs, it is not intended to
give rise to any legal liability on the part of either you, BkB or BRS (or
any other party claiming an interest) and that the proposal set forth herein
shall be considered withdrawn if for any reason you fail to return to BkB by
5:00 P.M. (EST) on March 19, 1999 (the "EXPIRATION DATE"), to the attention
of Mr. J. Nicholas Cole (i) the enclosed copy of this letter signed by you,
(ii) the Fee Letter signed by you, and (iii) payment in immediately available
funds of the portion of the Closing Fee (as defined in the Fee Letter)
referred to in the Fee Letter as the Acceptance Amount. Further, the
commitment set forth herein shall expire on July 15, 1999 if the closing has
not occurred on or before such date, unless such expiry date has been
extended pursuant to the terms of the Outline or otherwise.
<PAGE>
RB Capital Inc.
March 18, 1999
Page 6
If the foregoing is in accordance with your understanding, please accept
this letter by signing where indicated in the space below and return it to us
together with the signed Fee Letter and the Acceptance Amount on or prior to
the Expiration Date. This letter supersedes all of our prior letters and
communications to you, if any, regarding the subject matter of this letter.
Very truly yours,
BANKBOSTON, N.A.
By: /s/ J. Nicholas Cole
---------------------------
Name: J. Nicholas Cole
Title: Vice President
BANCBOSTON ROBERTSON
STEPHENS INC.
By: /s/ Marisa C. Ronan
---------------------------
Name: Marisa C. Ronan
Title: Vice President
Accepted and Agreed to this
18th day of March, 1999
RB CAPITAL INC.
By: /s/ Frank B. Day
--------------------------
Name: Frank B. Day
Title: President
<PAGE>
RB CAPITAL INC.
Summary Terms and Conditions
March 18, 1999
BORROWER: Rock Bottom Restaurants, Inc. and all of its present and
future direct and indirect subsidiaries (the "Borrower").
GUARANTORS: RB Capital Inc. and certain present and future direct and
indirect subsidiaries of RB Capital.
AGENT: BankBoston, N.A. ("BankBoston" or the "Agent").
ARRANGER: BancBoston Robertson Stephens Inc. ("BRS" or the "Arranger").
LENDERS: The Agent will underwrite the Credit Facilities and the
Arranger will syndicate the Credit Facilities to other
financial institutions to be identified by the Agent and
the Arranger in consultation with the Borrower.
CREDIT FACILITIES: $60,000,000 in total aggregate amount, comprised of:
a) $10,000,000 Revolving Credit Facility (the "Revolver");
b) $20,000,000 Term Loan ("Term Loan A"); and
c) $30,000,000 Term Loan ("Term Loan B").
In its discretion, the Agent may reallocate up to
$10,000,000 between Term Loan A and Term Loan B.
USE OF PROCEEDS: At Closing, Term Loan A, Term Loan B and up to $1,750,000
of the Revolver will be used to refinance existing
indebtedness (excluding capital leases and the Chicago
mortgage) of the Borrower in the amount of approximately
$13,200,000; to partially finance in combination with
$22,000,000 in junior debt securities and $6,000,000 of
equity securities the repurchase of, through a cash
merger, approximately 5.8 million shares of publicly held
common stock and options of Rock Bottom Restaurants, Inc.
for a total of approximately $59,500,000 (collectively the
"Transaction") and to pay fees and expenses associated
with the Transaction. Thereafter, the Revolver will be
available for the acquisition and/or construction of new
operating facilities, for operating facility upgrades, for
the issuance of standby letters of credit and for working
capital and other general corporate purposes.
CLOSING DATE: Such date as may be agreed between the Agent and the
Borrower, but no later than July 15, 1999; PROVIDED that
as soon as
<PAGE>
RB Capital Inc. Page 2
BankBoston deems reasonably practicable after the Borrower
has signed the Commitment Letter to which this Summary of
Terms and Conditions is attached, BankBoston shall
endeavor in good faith to commence the internal procedures
necessary to extend to August 15, 1999 the date on which
this commitment expires; PROVIDED FURTHER that BankBoston
shall have no obligation to commence such procedures if it
in good faith determines that the conditions precedents to
the Closing as set forth in the Commitment Letter and this
Summary could not reasonably be anticipated to be
satisfied on August 15, 1999 and it is understood that
this is not a guarantee that such expiration date shall be
extended.
I. REVOLVING CREDIT
AMOUNT: $10,000,000 Revolver with a Letter of Credit sublimit
(TBD) for stand-by Letters of Credit.
L/C ISSUING BANK: BankBoston, N.A.
AVAILABILITY: Advances under the Revolver may be borrowed, repaid and
reborrowed until Maturity subject to the following
incurrence test:
<TABLE>
<CAPTION>
Senior Leverage Ratio* Amount available for direct borrowing
---------------------- -------------------------------------
<S> <C>
greater than 3.00x $5,000,000
less than or
equal to 3.00x $10,000,000
</TABLE>
*Excludes letter of credit exposure up to sublimit.
MATURITY: Five (5) years from the Closing Date
II. TERM LOAN A
AMOUNT: $20,000,000
MATURITY: Five (5) years from the Closing Date.
AMORTIZATION: Term Loan A shall be payable in quarterly installments,
commencing December 31, 1999, in accordance with the
schedule shown in Exhibit I attached.
III. TERM LOAN B
AMOUNT: $30,000,000
MATURITY: Seven (7) years from the Closing Date.
AMORTIZATION: Term Loan B shall be payable in quarterly installments,
commencing September 30, 2000, in accordance with the
schedule shown in Exhibit I attached.
<PAGE>
RB Capital Inc. Page 3
GENERAL PROVISIONS
COMMITMENT FEE: A fee on the unused portion of the Revolver payable
quarterly in arrears at a rate per annum of 0.50%
after the Closing Date.
INTEREST RATES: For the Revolver and the Term Loans, interest rates
shall be BankBoston's Base Rate or Eurodollar Rate
plus, in each case, the Applicable Margin. Base Rate
will be defined as the higher of the Base Rate
announced by BankBoston from time to time or the
Federal Funds Rate plus 1/2%. Eurodollar loans will
be available for 1, 2, 3 or 6 month periods.
Customary provisions regarding breakage costs,
reserves, taxes, illegality, etc. shall apply. The
credit agreement will restrict the number of
Eurodollar loans, which may be outstanding at any one
time.
APPLICABLE MARGIN: In accordance with Exhibit II attached.
DEFAULT PRICING: Applicable Margin over the Base Rate + 3%.
LETTER OF CREDIT FEE: A per annum fee equal to the Applicable Eurodollar
Margin for Revolving Credit Loans, payable on the
face amount of each outstanding letter of credit
quarterly in arrears. Fees to be shared by the
Revolving Credit Lenders on a pro rata basis.
Letters of credit issued under the Revolver shall
count as utilization for all purposes, including the
commitment fee calculation. An additional 1/8% per
annum shall be paid to BankBoston as the Issuing Bank
as a fronting fee, in addition to customary
administrative fees.
OTHER FEES: As indicated in the Fee Letter among RB Capital Inc.,
BankBoston and BRS.
YIELD PROTECTION: Customary yield protection provisions regarding capital
adequacy, reserves, taxes, regulatory changes, etc.
OPTIONAL PREPAYMENTS: Optional prepayments shall be permitted at any time
(subject to breakage costs if paid prior to any
Eurodollar interest rate period, if applicable) in
minimum amounts of $100,000 and subject to call
protection for Term Loan B. Optional prepayments
shall be applied ratably to the remaining scheduled
principal payments on the Term Loans on a pro rata
basis based on principal amount until repaid in full.
Term Loan B shall be prepayable at 101% of the
outstanding par amount if optionally prepaid prior to
December 31, 2000.
MANDATORY PREPAYMENTS: 1. 100% of net proceeds from asset sales in excess
of $1,000,000 per annum, equity issuance, certain
permitted new debt issuance,
<PAGE>
RB Capital Inc. Page 4
tax refunds and insurance claims not reinvested
within 270 days. Net proceeds will be applied first
to required principal repayments of Term Loan A and
Term Loan B (on a pro rata basis) in inverse order of
maturity and then to permanent reductions of the
Revolver until fully repaid.
2. The percentage specified below of Excess Operating
Cash Flow (as defined below) as follows: (a) 75% of
Excess Operating Cash Flow when Senior Leverage is
greater than 2.50x for the fiscal year and the next
succeeding fiscal quarter; (b) 50% of Excess Operating
Cash Flow when Senior Leverage is greater than 2.00x
for the fiscal year and the next succeeding fiscal
quarter; and (c) 0% of Excess Operating Cash Flow when
Senior Leverage is less than or equal to 2.00x for such
fiscal year and the next succeeding fiscal quarter.
Excess Operating Cash Flow shall be defined as pretax
income plus depreciation and amortization minus the sum
of (a) capital expenditures in excess of the amount
financed by other permitted indebtedness, (b) cash
income taxes, (c) required principal payments and
prepayments, and (d) any voluntary Term Loan
prepayments during such period. Excess Operating Cash
Flow repayments will be payable 120 days after the end
of each fiscal year, beginning December 26, 1999 and
applied first (on a PRO RATA basis) to required
principal repayments of Term Loan A and Term Loan B in
the inverse order of maturity. Any then remaining
Excess Operating Cash Flow shall be applied to reduce
then outstanding borrowings under the Revolver until
fully repaid.
Term Loan B Lenders may at their option decline
Mandatory Prepayments, in which case proceeds shall be
applied in the manner outlined above solely to Term
Loan A and to reduce then outstanding borrowings under
the Revolver.
COLLATERAL: The Revolver and the Term Loans will share a common
collateral pool consisting of (a) a first perfected
pledge of and security interest in one hundred percent
(100%) of the capital stock of the Borrower and
Guarantors (other than RB Capital Inc.) and (b) a first
perfected security interest in all assets of the
Borrower and Guarantors, including but not limited to
accounts and notes receivable, inventory, equipment,
owned real property, all licenses, stock of
subsidiaries and intangible assets (including patents,
trademarks, copyrights etc.), subject to permitted
encumbrances set forth in the credit agreement,
including the Chicago mortgage. At all times after an
Event of Default, and at other times in the Agent's
discretion, the Borrower will provide the Agent with
dominion over its domestic cash receipts through lock
box accounts with BankBoston or agency agreements with
other institutions. The Borrower will provide
customary real estate collateral support, such as title
insurance, environmental studies, surveys, zoning
compliance, etc. The Borrower will use its reasonable
best efforts to obtain landlord waivers and consents
from
<PAGE>
RB Capital Inc. Page 5
all lessors of leased property and will assist the
Agent in seeking to obtain leasehold mortgages (and
lessor consents thereto) on leased real property to
the extent requested by the Agent based upon its due
diligence.
REPRESENTATIONS
AND WARRANTIES: Usual and customary for facilities of this type,
including but not limited to, organization, authority,
enforceability, financial statements, compliance with
law and other instruments, governmental approvals,
material contracts, environmental matters, absence of
Year 2000 computer problems, absence of material
adverse change, absence of material litigation, absence
of default or unmatured default, no conflict with
material agreements, payment of taxes and certain
business-specific matters. Additional representations
and warranties may be proposed based upon the results
of the Agent's due diligence.
FINANCIAL
COVENANTS: Usual and customary for facilities of this type.
Consolidated Financial Covenants will be measured
quarterly (except for Minimum Net Worth, which will be
measured annually) on a rolling four-quarter basis and
include, without limitation, the following (see Exhibit
III for definitions):
1. MAXIMUM CONSOLIDATED LEVERAGE RATIO. The ratio of
Consolidated Funded Indebtedness to Consolidated EBITDA
(the "Leverage Ratio") for each period of four
consecutive quarters shall not exceed at any date of
measurement during the periods set forth below, the
ratio set forth opposite the applicable period set
forth in the table below:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Closing through 12/31/99 4.50x
12/31/00 3.75x
12/31/01 3.00x
Thereafter 2.50x
</TABLE>
2. MINIMUM NET WORTH: Net worth will at all times be
at least the net worth reported in the Borrower's pro
forma closing balance sheet, stepping up each fiscal
year thereafter by 75% of Consolidated Net Income and
100% of the net proceeds of new equity issuance.
3. CONSOLIDATED CASH FLOW RATIO: The ratio of
Consolidated Cash Flow to Consolidated Financial
Obligations for any period of four consecutive fiscal
quarters shall not be less than 1.25x at all times.
4. CONSOLIDATED EBITDAR/INTEREST AND RENTAL EXPENSE:
The ratio of Consolidated EBITDAR to consolidated
interest charges plus Rental Expense for any period of
four consecutive fiscal quarters
<PAGE>
RB Capital Inc. Page 6
shall not be less than the amounts set forth below in
such table opposite such date:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
Closing through 12/31/01 1.75x
Thereafter 2.00x
</TABLE>
5. CONSOLIDATED CAPITAL EXPENDITURES: The Borrower
and its subsidiaries shall not permit the amounts of
Maintenance and Growth Capital Expenditures during each
period set forth below to be greater than the amount
set forth below opposite such period:
<TABLE>
<CAPTION>
Period Maintenance Growth Total
------ ----------- ------ -----
<S> <C> <C> <C>
Fiscal Year 1999 $5,000,000 $14,000,000 $19,000,000
Fiscal Year 2000 $5,000,000 $11,000,000 $16,000,000
Fiscal Year 2001 $5,500,000 $11,500,000 $17,000,000
Fiscal Year 2002 $5,500,000 $12,000,000 $17,500,000
Fiscal Year 2003 $6,000,000 $12,500,000 $18,500,000
Fiscal Years thereafter $6,500,000 $13,000,000 $19,500,000
</TABLE>
75% of the unused portion of each of the Maintenance
and Growth Capital Expenditure baskets for any year
(calculated without reference to any carry over amounts
from prior years) may be carried over to the
corresponding basket for the next fiscal year.
FINANCIAL REPORTS: Financial information to include audited annual and
unaudited monthly and quarterly consolidated financial
statements and unaudited monthly, quarterly and annual
store-by-store financial statements, including no
default certificate and calculations demonstrating
compliance with all covenants.
OTHER COVENANTS: Usual and customary for facilities of this type,
including but not limited to, restrictions on other
indebtedness (with exceptions to be agreed upon)
including subordinated indebtedness and purchase money
equipment financing (in amounts to be agreed upon),
guarantees, non-cancelable rental payments due under
operating leases, other liabilities, an agreed-upon
maximum percentage of unprofitable units (excluding
units that have been in operation for less than six
months), liens, acquisitions, investments, dividends
and other distributions, mergers, sales of assets, sale
and leaseback transactions, limits on subsidiary
distributions, voluntary payments of other funded debt,
derivative contracts, affiliate transactions, negative
pledges, in each case subject to agreed-upon exceptions
and standard affirmative covenants, regarding payment
of claims and taxes, records and accounts, notices,
inspection rights, bank accounts, conduct of business,
compliance with laws and contracts, maintenance of
insurance, maintenance of office, ERISA
<PAGE>
RB Capital Inc. Page 7
compliance, further assurances, etc. Additional
covenants may be proposed based upon the results of
the Agent's due diligence.
The Borrower will be required to maintain interest rate
hedging agreements in amounts (50% of debt) and with
terms acceptable to the Agent.
EVENTS OF DEFAULT: Usual and customary for facilities of this type,
including but not limited to, failure to pay any
interest, principal or other amounts when due, failure
to comply with covenants, inaccurate or false
representations or warranties, cross defaults, change
of control, judgment defaults, ERISA, bankruptcy and
insolvency.
CLOSING CONDITIONS: Closing shall be conditioned upon the satisfaction of
the following conditions precedent and other conditions
customary to transactions of this type or reasonably
required by the Agent:
1. Completion and satisfactory review of the
Transaction, including, but not limited to, (i) maximum
Transaction price, (ii) placement of $22,000,000 in
junior debt securities and $6,000,000 of equity
securities on terms and conditions, including
intercreditor terms, satisfactory to the Agent, (iii)
transaction expenses, (iv) the delivery of a fairness
opinion in connection with the Transaction., and (iv)
day one revolver usage not exceeding $1,750,000
(excluding letters of credit).
2. No material adverse change in the assets or
business of the Borrowers or Guarantors as represented
in the Borrowers' September 30, 1998 10-Q filing, any
other filings with the Securities and Exchange
Commission made prior to the date hereof or any other
publicly available information existing on the date
hereof, including the press release announcing
financial results for the year ended December 27, 1998,
the financial condition of the Borrowers or Guarantors
as represented in the consolidated financial statements
relating to them for the fiscal period ending December
27, 1998, the management or prospects of the Borrowers
or Guarantors, or in the ability of any of the
Borrowers or the Guarantors to perform their respective
obligations described in the Outline or to complete the
Transaction; in addition, no material adverse changes
in governmental regulation or policy affecting
BankBoston, BRS or any of the Borrowers or the
Guarantors and no material changes or disruptions in
the syndication, financial or capital markets that
could materially impair the syndication of the Credit
Facilities prior to closing.
3. The negotiation, execution and delivery of
documentation, satisfactory to the Agent and the
Borrower and their respective counsel (each of which
documents shall be in full force and effect on the
closing date), containing representations and
warranties, conditions, covenants, events of default,
indemnifications, and
<PAGE>
RB Capital Inc. Page 8
increased cost and capital requirement provisions
customary in bank financing documents in transactions
of this type, including, without limitation, the
covenants described above.
4. Receipt by the Agent of a satisfactory day one
balance sheet and sources and uses of funds, showing
the effects of the Transaction, the refinancing
required as a result of the Transaction, and compliance
with Financial Covenants and other terms and conditions
of the Credit Facilities outlined herein.
5. The existing debt (with exceptions to be agreed
upon for existing capitalized lease obligations and the
Chicago mortgage) contemplated to be repaid in
connection with the Transaction shall have been repaid
in full, all credit facilities with respect thereto
shall be terminated and all liens in connection
therewith shall have been released.
6. All filings and other actions required to create
and perfect a first priority security interest in all
collateral of the Borrower shall have been duly made or
taken, and all such collateral shall be free and clear
of other liens (subject to limited exceptions to be
negotiated).
7. The Agent shall have received the results of a
recent lien search in each of the jurisdictions where
assets of any of the Borrower are located, and such
search shall reveal no liens on any of the assets of
the Borrower except for liens approved by the Agent.
8. The Agent shall have completed and be satisfied in
all respects with its confirmatory legal due diligence
investigation of the Borrower.
9. The Lenders shall have received such evidence
reasonably requested by the Agent from officers of the
Borrower as to the Borrower's solvency on a
consolidated basis after giving effect to the
Transaction.
SYNDICATION MATTERS: BankBoston will act as the exclusive administrative
agent for the Credit Facilities and BRS will act as the
exclusive arranger, adviser and syndication manager for
the Credit Facilities and, in such capacities, each of
BankBoston and BRS will perform the duties and exercise
the authority customarily associated with such roles.
BRS will manage all aspects of the syndication,
including the selection of Lenders, the determination
of when BRS will approach potential Lenders and the
final allocations among the Lenders. The Borrower
agrees to assist BRS actively in achieving a timely
syndication that is reasonably satisfactory to BRS,
such assistance to include, among other things, (a)
direct contact during the syndication between the
Borrower's senior officers, representatives and
advisors, on the one hand, and prospective Lenders, on
the other hand at such
<PAGE>
RB Capital Inc. Page 9
times and places as BRS may reasonably request, (b)
providing to BRS all financial and other information
with respect to the Borrower and the transactions
contemplated that BRS may reasonably request,
including but not limited to financial projections
relating to the foregoing, and (c) assistance in the
preparation of a confidential information memorandum
and other marketing materials to be used in
connection with the syndication.
The Borrower agrees that, prior to and during the
syndication of the Credit Facilities, the Borrower will
not permit any offering, placement or arrangement of
any competing issues of debt securities or commercial
bank facilities of the Borrower and any of its
subsidiaries other than the issuance of $22,000,000 of
junior securities referred to above.
EXPENSES: The Borrower will pay all reasonable fees and expenses
incurred by the Agent and Arranger in connection with
the preparation and execution of the facilities. These
will include, without limitation, legal, syndication,
collateral examination, appraisal, environmental survey
and other direct out-of-pocket expenses.
ASSIGNMENTS AND
PARTICIPATIONS: Lenders will be permitted to grant participations or
assignments of their loans and commitments. Any Lender
will be permitted to assign a portion of the Credit
Facilities (on a non pro-rata basis) to another lending
institution in minimum amounts of $5,000,000, subject
to consent of the Borrower (so long as no Default
exists) and Agent, which consent will not be
unreasonably withheld.
VOTING RIGHTS: Lenders holding 66 2/3% of all of the outstanding
commitments under the Revolver and Term Loans for all
amendments and waivers, provided that the following
shall require 100% of the Lenders: (1) increase in
commitments; (2) decreases in interest rates; (3)
postponement of scheduled amortization or final
maturity; (4) release of all or substantially all of
the collateral; and (5) changes in the percentage
voting rights. Voting rights provisions are subject to
adjustment by the Agent to address concerns of
potential Lenders in the syndication process.
INDEMNIFICATION: The Borrower shall indemnify the Agent and the Lenders
against all losses, liabilities, claims, damages or
expenses relating to their loans, the loan documents,
the Borrower's use of loan proceeds or the commitments,
including but not limited to attorneys and other
professional fees and settlement costs.
GOVERNING LAW: The Commonwealth of Massachusetts.
AGENT'S COUNSEL: Bingham Dana LLP
<PAGE>
RB Capital Inc. Page 10
RB CAPITAL INC.
Outline of Terms and Conditions
EXHIBIT I
AMORTIZATION
<TABLE>
<CAPTION>
TERM LOAN A TERM LOAN B TOTAL AMORTIZATION
----------- ----------- ------------------
<S> <C> <C> <C>
Year 1 $750,000 $0 $750,000
Year 2 $3,000,000 $1,000,000 $4,000,000
Year 3 $4,000,000 $1,000,000 $5,000,000
Year 4 $5,000,000 $2,000,000 $7,000,000
Year 5 $7,250,000 $3,000,000 $10,250,000
Year 6 $11,000,000 $11,000,000
Year 7 $12,000,000 $12,000,000
----------- ----------- -----------
$20,000,000 $30,000,000 $50,000,000
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<PAGE>
RB Capital Inc. Page 11
RB CAPITAL INC.
Outline of Terms and Conditions
EXHIBIT II
APPLICABLE MARGIN
<TABLE>
<CAPTION>
LEVEL I LEVEL II LEVEL III LEVEL IV LEVEL V
<S> <C> <C> <C> <C> <C>
LEVERAGE RATIO less than less than less than less than greater than or
2.5x 3.0x 3.50 4.0x equal to 4.0x
REVOLVER:
Base Rate Margin 0.75% 1.00% 1.50% 1.75% 2.00%
Eurodollar Margin 2.25% 2.50% 3.00% 3.25% 3.50%
TERM LOAN A:
Base Rate Margin 0.75% 1.00% 1.50% 1.75% 2.00%
Eurodollar Margin 2.25% 2.50% 3.00% 3.25% 3.50%
TERM LOAN B:
Base Rate Margin 2.00% 2.00% 2.00% 2.25% 2.50%
Eurodollar Margin 3.50% 3.50% 3.50% 3.75% 4.00%
</TABLE>
PRICING WILL BE LOCKED AT LEVEL V UNTIL RECEIPT OF THE COMPLIANCE CERTIFICATE
FOR THE FISCAL YEAR ENDED 12/31/99.
<PAGE>
RB Capital Inc. Page 12
RB CAPITAL INC.
Outline of Terms and Conditions
EXHIBIT III
DEFINITIONS
CAPITAL
EXPENDITURES: Amounts expended or financed for capital assets and
restaurant pre-opening costs.
CONSOLIDATED
CASH FLOW: For any period, the sum of (a) the Consolidated Pre-tax
Income of the Borrower and its subsidiaries for such
period, MINUS (b) cash income taxes during such period,
PLUS (c) the aggregate amount of consolidated
restaurant pre-opening costs and consolidated
depreciation and amortization charges made in
calculating Consolidated Pre-tax Income for such
period, PLUS (d) the Consolidated Interest Charges of
the Borrower and its subsidiaries for such period, PLUS
(e) Minority Interest for such period, PLUS (f)
severance costs and extraordinary non-recurring charges
incurred in connection with the Acquisition, PLUS (g)
other consolidated non-cash charges, if any, for such
period, MINUS (h) the greater of (i) the aggregate
amount of Maintenance Capital Expenditures during such
period, or (ii) $1.5 million.
CONSOLIDATED
EBITDAR: For any period, the sum of (a) the Consolidated Pre-tax
Income of the Borrower and its subsidiaries for such
period, PLUS (b) Minority Interest for such period,
PLUS (c) the Consolidated Interest Charges and Rental
Expense of the Borrower and its subsidiaries for such
period, PLUS (d) consolidated restaurant pre-opening
costs and consolidated depreciation and amortization
expenses of the Borrower and its subsidiaries for such
period, PLUS (e) severance costs and extraordinary
non-recurring charges incurred in connection with the
Acquisition, PLUS (f) other consolidated non-cash
charges of the Borrower and its subsidiaries for such
period.
CONSOLIDATED
EBITDA: For any period, the sum of (a) the Consolidated Pre-tax
Income of the Borrower and its subsidiaries for such
period, PLUS (b) Minority Interest for such period,
PLUS (c) the Consolidated Interest Charges of the
Borrower and its subsidiaries for such period, PLUS (d)
consolidated restaurant pre-opening costs and
consolidated depreciation and amortization expenses of
the Borrower and its subsidiaries for such period, PLUS
(e) severance costs and extraordinary non-recurring
charges incurred in connection with the Acquisition,
PLUS (f) other consolidated non-cash charges of the
Borrower and its subsidiaries for such period.
<PAGE>
RB Capital Inc. Page 13
CONSOLIDATED
FINANCIAL
OBLIGATIONS: For any period, the sum of all scheduled payments
(including without limitation, principal, interest and
commitment fees) on Indebtedness of the Borrower and
its subsidiaries, including capital leases, which came
due during such period.
CONSOLIDATED
FUNDED
INDEBTEDNESS: At any time, the sum of (a) the aggregate amount of
Indebtedness of the Borrower and its subsidiaries, on a
consolidated basis, relating to the borrowing of money
or the obtaining of credit or in respect of capitalized
leases, PLUS (b) the aggregate maximum drawing amount
of all letters of credit outstanding, PLUS (without
duplication) (c) all Indebtedness guaranteed by the
Borrower or any of its subsidiaries.
CONSOLIDATED
NET INCOME: The consolidated net income of the Borrower and its
subsidiaries for any period determined in accordance
with generally accepted accounting principles
consistently applied.
GROWTH CAPITAL
EXPENDITURES: Capital Expenditures (including restaurant pre-opening
costs) for existing concept growth in the Borrower's
projections in amounts reasonably acceptable to the
Agent.
INDEBTEDNESS: All obligations, contingent or otherwise, that in
accordance with generally accepted accounting
principles should be classified on the obligor's
balance sheet as liabilities, or to which reference
should be made by footnotes.
MAINTENANCE CAPITAL
EXPENDITURES: All Capital Expenditures other than those constituting
Growth Capital Expenditures.
<PAGE>
MATERIAL IN THIS DOCUMENT HAS
BEEN OMITTED PURSUANT TO A
CONFIDENTIAL TREATMENT REQUEST.
THE OMITTED MATERIAL HAS BEEN
FILED SEPARATELY WITH THE
COMMISSION.
[BANKBOSTON ROBERTSON STEPHENS LETTERHEAD]
March 18, 1999
Mr. Frank Day
President
RB Capital Inc.
Dear Frank:
COMMITMENT LETTER FOR EQUITY AND SUBORDINATED CREDIT FACILITIES
You have advised BancBoston Robertson Stephens Inc. ("BRS"), that the
undersigned RB Capital Inc., a Delaware corporation ("RB Capital") is seeking to
obtain subordinated debt ("Junior Securities") in the amount of $22 million and
to issue $4 million in equity securities which will be subject to the commitment
of BRS set forth herein (the "Junior Equity Securities" and together with the
Junior Securities, the "Securities"), on the terms and conditions described in
the attached Annex A and, in part, in a separate letter dated as of December 3,
1998 (the "Engagement Letter"), principally to finance RB Capital's acquisition
of, or business combination with, (the "Transaction") Rock Bottom Restaurants,
Inc. ("Rock Bottom" or the "Company").
BRS is hereby engaged to place all of the Securities with institutional
investors (the "Investors"), as set forth herein, in Annex A and in the
Engagement Letter. BRS will serve as the exclusive placement agent in
connection with the placement of the Securities (in such capacity, the
"Placement Agent"). BRS, in its capacity as Placement Agent, will perform all
functions and exercise all authority outlined herein, in Annex A and in the
Engagement Letter. In addition, at RB Capital's request, BRS will serve as
placement agent with respect to the sale of up to $2 million of securities
having the same terms as, but in addition to, the $4 million of Junior Equity
Securities. BRS would conduct such placement for the same fees, and upon the
same terms, as set forth herein and in the Engagement Letter; provided that BRS'
commitment hereunder to purchase the Securities shall not apply to such
additional securities.
BRS is pleased to advise RB Capital that it is willing to make a commitment
to purchase not in excess of $22 million of the Junior Securities and not in
excess of $4 million of the Junior Equity Securities, based upon the proposed
structure outlined in Annex A and subject to the terms and conditions outlined
in this letter agreement, in the event that we are not successful in placing
such securities.
<PAGE>
Mr. Frank B. Day
March 18, 1999
Page 2
The Placement Agent will manage the placement of the Securities,
including Investor selection (which shall be reasonably acceptable to RB
Capital), communication with and invitations to prospective Investors,
acceptance of commitments, and final allocations of commitments among
Investors. RB Capital agrees actively to assist the Placement Agent in
achieving a private placement, on terms consistent with those outlined herein
and in the Engagement Letter, which is satisfactory to RB Capital and the
Placement Agent. This will be accomplished by a variety of means, including
the preparation by RB Capital of a private placement memorandum (in
consultation with BRS) and direct contact during the private placement among
RB Capital and the management and advisors of the Company and the proposed
Investors. RB Capital agrees promptly to provide, and to cause its advisors
to provide, the Placement Agent upon request with all information reasonably
deemed necessary by it to satisfy its due diligence requirements and to
complete successfully the private placement. In addition, RB Capital and the
Placement Agent agree to conduct the Offering in a manner intended to qualify
for the exemption from the registration requirements of the Securities Act of
1933, as amended (the "Act") provided by Section 4(2) and Regulation D
thereunder, and in compliance with applicable state "blue sky" laws and
applicable securities laws of other jurisdictions. RB Capital shall be
responsible for making all filings and taking all other actions as are
required to comply with such blue sky and other applicable securities laws.
RB Capital hereby represents and warrants that (i) all information
concerning RB Capital or Rock Bottom that is provided by RB Capital is
complete and accurate to the best of RB Capital's knowledge in all material
respects and not materially misleading, (ii) the information to be contained
in the private placement memorandum, as amended or supplemented, and in the
materials prepared by RB Capital and provided to Investors as part of the
offering or due diligence process, will (taken as a whole) not contain an
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein not materially
misleading in light of the circumstances under which such information is
provided and (iii) the final financial projections concerning the Company
which have been made available to BRS have been prepared in good faith based
upon assumptions which RB Capital believes to be reasonable. BRS will be
using and relying on such information and projections without independent
verification thereof.
As consideration for the engagement and commitment of BRS, RB Capital
agrees to pay to BRS the fees and expenses set forth in the Engagement
Letter. In addition, RB Capital agrees to pay to BRS a Commitment Fee for the
Junior Equity Securities equal to 3% of the $4 million commitment (or
$120,000) upon the execution of this letter agreement, plus a Funding Fee
equal to 1% of the amount, if any, actually funded under such commitment,
payable upon such funding. The Commitment Fee and the Funding Fee are in
addition to, and not in lieu of, the fees and expenses set forth in the
Engagement Letter.
In addition to the terms and conditions of the Securities outlined under
separate cover, BRS' commitment hereunder is subject to the following: (i)
the negotiation, execution and delivery prior to July 15, 1999 (unless such
date shall have been extended by mutual agreement of the parties hereto) of
definitive documentation with respect to the Securities satisfactory to BRS
and RB Capital; proveded that as soon as BRS deems reasonably practicable
after RB Capital has signed the Commitment Letter, BRS shall endeavor in good
faith to commence the
<PAGE>
Mr. Frank B. Day
March 18, 1999
Page 3
internal procedures necessary to extend to August 15, 1999 the date on which
this commitment expires; provided further that BRS shall have no obligation
to commence such procedures necessary if it in good faith determines that the
conditions precedents to the Closing as set forth in the Commitment Letter
could not reasonably be anticipated to be satisfied on August 15, 1999 and it
is understood that this is not a guarantee that such expiration date shall be
extended; (ii) completion of the Transaction as presented to us, including
but not limited to (a) the purchase of Rock Bottom's common stock and options
not owned by Mr. Frank Day and the insider buying group (except with respect
to options as otherwise agreed in writing by such optionees) at a purchase
price no greater than $10.00 per share; (b) the commitment of approximately
$60 million of senior credit facilities on terms and conditions substantially
in the form contained in the proposed terms and conditions attached to the
commitment letter from BankBoston, N.A. (the "Senior Secured Credit
Facilities) and the purchase of $2 million of Junior Equity Securities by Mr.
Frank B. Day and other members of the insider buying group (provided that
such $2 million of Junior Equity Securities may be purchased by investors
other than Mr. Frank B. Day or other members of the insider buying group, but
only as set forth in the last two sentences of the second paragraph of this
letter agreement); (c) day one revolver usage not exceeding $1.75 million;
(d) the fairness opinion of Piper Jaffray delivered in connection with the
Transaction; (iii) no material adverse change in the business, assets,
prospects, financial condition or income of the Company; (iv) Frank B. Day
will be chairman of the board of the Company upon of the Transaction; (v) no
material misstatements in or omissions from the materials previously
furnished to BRS for its review, including without limitation, Rock Bottom's
projected financial information for the fiscal year ended December 27, 1998
(vi) the receipt by all parties to the transaction of all necessary
regulatory, shareholder, creditor and other third party approvals, including
without limitation, evidence of compliance with all laws applicable to any of
the parties to the transaction, subject to exceptions as reasonably agreed to
by BRS; (vii) BRS's receipt of satisfactory evidence of appropriate
corporate and other approval of all proposed transactions as well as opinions
of counsel, reasonably satisfactory to it as to, among other things, the due
consummation of the transactions, legality, validity, and binding effect of
all loan, security and related documents, and the absence of any violation of
any law, regulation or contract arising out of, or related to, the
Transaction; (viii) the absence of any litigation or other proceeding which
prevents, or makes illegal or impracticable, the consummation of the
transactions contemplated or is likely to be determined adverse to the
Company and the result of which would have a material adverse effect on RB
Capital or the Company; (ix) the absence of a material default under any
material contract or agreement of RB Capital or the Company or its
subsidiaries, except any default that would not have a material adverse
effect on the Company and its subsidiaries taken as a whole; and (x) receipt
by BRS of a satisfactory day one balance sheet and sources and uses of funds,
showing the effects of the Transaction, the refinancing required as a result
of the Transaction, and compliance with financial
<PAGE>
Mr. Frank B. Day
March 18, 1999
Page 4
covenants and other terms and conditions of the Senior Secured Credit
Facilities being offered to RB Capital pursuant to a separate commitment
letter.
RB Capital agrees that, so long as this letter is in effect, RB Capital
will not accept or solicit any offer or commitment from, or execute any
agreement with, any other potential source of financing for the Transaction,
without BRS' prior written consent, other than (i) the Senior Secured Credit
Facilities and (ii) the $2 million of Junior Equity Securities to sold to Mr.
Frank B. Day and other members of the insider buying group; provided,
however, that nothing herein shall prevent RB Capital from selling in excess
of $2 million of Junior Equity Securities to persons other than those
solicited by BRS, thereby reducing the amount of Junior Equity Securities (a)
to be placed by BRS and (b) that are covered by this commitment; provided,
further that the Commitment Fee for the Junior Equity Securities, however,
will not be impacted.
By executing this letter agreement, RB Capital confirms that the
indemnification provisions set forth in the Engagement Letter shall apply to
BRS' engagement and commitment hereunder, and that the provisions contained
therein shall remain in full force and effect notwithstanding that definitive
financing documentation for the Securities may not have been executed and
delivered and that this letter agreement (or the commitments hereunder) may
have been terminated, except that such provisions shall not survive, and
shall expire and terminate upon, the execution and delivery of definitive
financing documentation by BRS and RB Capital containing provisions that
replace the indemnification contemplated hereunder. RB Capital also agrees
that such definitive financing documentation shall include a separate
placement agency and/or underwriting agreement, as contemplated by the
Engagement Letter.
BRS understands that its commitment hereunder and the terms of the
Securities will be required to be included or disclosed in the Schedule 13E-3
and the proxy statements to be provided to Rock Bottom's stockholders and
filed with the Securities and Exchange Commission, and BRS agrees to such
inclusion and disclosure; provided that such inclusion and disclosure shall
be in form and substance reasonably acceptable to BRS and its legal counsel.
Except as provided in this paragraph, BRS' commitment, and the terms thereof,
shall not be disclosed to any party without BRS' prior written consent.
This letter shall be governed by and construed in accordance with the
laws of the State of New York. This letter may be executed in any number of
counterparts, each of which shall be an original and all of which, taken
together, shall constitute one agreement. This letter agreement is intended
to be solely for the benefit of the parties hereto and is not intended to
confer any benefits upon or create any rights in favor of any person other
than the parties hereto.
<PAGE>
Mr. Frank B. Day
March 18, 1999
Page 5
If the foregoing correctly sets forth our agreement, please indicate
your acceptance of the terms hereof by signing in the appropriate spaces
provided below and returning to us the enclosed duplicate originals of this
letter agreement no later than 5:00 p.m. EST on Monday, March 22, 1999. Our
commitment hereunder will expire at such time in the event we have not
received such executed originals in accordance with the preceding sentence.
Very truly yours,
BANCBOSTON ROBERTSON STEPHENS INC.
as Placement Agent
By: /s/ Clark Callander
----------------------------------
Name: Clark Callander
Title: Managing Director
Accepted and Agreed to on and
as of March 18, 1999
RB CAPITAL INC.
By: /s/ Frank B. Day
---------------------------------
Name: Frank B. Day
Title: President
<PAGE>
ACQUISITION CORP.
UP TO $22,000,000 SENIOR SUBORDINATED BRIDGE LOAN AND
SENIOR SUBORDINATED ROLLOVER LOAN WITH DETACHABLE WARRANTS
__________________________
A. SENIOR SUBORDINATED BRIDGE LOAN:
BORROWER: RBR Acquisition Corp., which immediately following the
funding will be merged with and into Rock Bottom
Restaurants, Inc. and its successors (collectively the
"Issuer" or the "Company").
GUARANTOR: RB Capital, Inc.
LOAN: Senior Subordinated Bridge Loan (the "Bridge Loan").
PRINCIPAL AMOUNT: (Up to) $22,000,000
LENDER: BankBoston, N.A. or one of its subsidiaries
USE OF PROCEEDS: To partially finance the purchase of substantially all
the common stock and stock options of Rock Bottom
Restaurants, Inc. not owned by Frank Day and other
insiders, to refinance existing Funded Debt
(collectively the "Transaction") and to pay fees and
expenses associated with the Transaction.
CLOSING DATE: Q2-1999, or such other date as may be agreed between
the Lender and the Issuer.
FINAL MATURITY: Six months after the Closing Date.
AMORTIZATION: Bullet payment at Final Maturity.
INTEREST RATE: LIBOR+6.00% compounded monthly, and payable at
maturity.
FEES: (i) 2% Structuring and Commitment Fee, payable at the
time that the commitment is accepted;
(ii) 1% Funding Fee, payable if and when the Bridge
Loan is funded;
(iii) 4% Placement Fee on proceeds of any subordinated
debt (subject to a minimum Placement Fee of $750,000
per the letter agreement between BancBoston Robertson
Stephens Inc. and Mr. Frank B. Day dated December 3,
1998), payable upon the successful placement of the
permanent Subordinated Notes, with Bank Boston or with
a third party.
OPTIONAL PREPAYMENT: Prepayable in whole at par at any time.
COVENANTS: Those customarily found in loan agreements for similar
financings and additional covenants deemed appropriate
by the Lender in the context of the proposed
transaction. Such covenants may include but not be
limited to (a) maintenance of corporate existence, (b)
maintenance of records, properties and insurance, (c)
payment of taxes, claims, and other obligations, (d)
compliance with applicable agreements and laws (e)
notification of litigation, investigations and other
adverse changes, (f) rights of inspection and access
to business premises and records, (g) financial
information rights, (h) limitations on (i)
indebtedness, (ii)
<PAGE>
liens, (iii) guarantees and other obligations, (iv)
loans, advances and other investments, (v) mergers,
consolidations, sales of assets, and changes in
control, (vi) change in business strategies, (vii)
capital expenditures and operating leases, (viii)
dividends and other distributions, (ix) investments
in new subsidiaries, (x) transactions with
affiliates, (xi) changes in fiscal year and
accounting methods, (xii) restrictive agreements,
(xiii) amendments and prepayments of debt, and
(xiv) amendments of material contracts.
Principal financial covenants will, to the extent
acceptable to the Lender, track the covenants set
forth in the senior bank indebtedness at levels
generally more lenient to the Borrower.
EVENTS OF DEFAULT: To include, without limitation, the following:
(a) failure to pay interest within 10 days after
the due date;
(b) failure to pay principal when due;
(c) covenant defaults not cured within 30 days
after notice; payment default by the Borrower
or any Restricted Subsidiary with respect to
an amounts owing in excess of $2,000,000;
(e) cross acceleration to other borrowed money
agreements of the Borrower or any Restricted
Subsidiary in excess of $250,000 including
the Senior Credit Facilities;
(f) other usual defaults including insolvency,
bankruptcy (resulting in automatic
acceleration of the Subordinated Loans) and
judgment defaults.
Note: Unless the Senior Credit Facilities have been
accelerated, the Investors must give the Agent for the
Senior Credit Facilities at least 10 days' notice
prior to acceleration of the Subordinated Loans
(except per (f) above). The amount due upon
acceleration shall be principal, interest and other
fees.
TERMS OF SUBORDINATION: The Subordinated Loans shall be subordinated to the
prior payment in full of all Senior Debt and Permitted
Refinancings thereof. Subordination provisions to be
negotiated but in any event to be reasonably
satisfactory to the Senior Lenders.
EXPENSES: All reasonable fees of Counsel to the Lender and other
reasonable out-of-pocket expenses incurred in
connection with the transaction will be paid by the
Borrower.
<PAGE>
B. THE SENIOR SUBORDINATED ROLLOVER LOAN/PERMANENT FINANCING
ISSUER: RBR Acquisition Corp., which immediately following the
initial funding will be merged with and into Rock
Bottom Restaurants, Inc. and its successors
(collectively the "Issuer" or the "Company").
GUARANTOR: RB Capital, Inc.
ISSUE: Senior Subordinated Rollover Note (the "Note").
PRINCIPAL AMOUNT: $22,000,000
PLACEMENT AGENT: BancBoston Robertson, Stephens Inc. ("BRS").
USE OF PROCEEDS: To partially finance the acquisition of substantially
all of the common stock and stock options of Rock
Bottom Restaurants, Inc. not owned by Frank Day and
others in the buying group, to refinance existing
Funded Debt and to pay fees and expenses associated
with the transaction; or to finance the takeout of the
Senior Subordinated Bridge Loan.
CLOSING DATE: Q2-1999, or such other date as may be agreed between
the Noteholders and the Issuer.
FINAL MATURITY: 8 years from the Merger Closing Date (one year after
maturity of Senior Credit Facility).
INTEREST RATE: 12% per annum, payable in cash, quarterly in arrears
computed on the basis of twelve 30-day months in a
year of 360 days.
REQUIRED PREPAYMENT: Bullet payment at Final Maturity.
The Notes will be due in full at the time of an IPO,
or in the event of a sale, merger or liquidation of
the Company, or a Change of Control.
OPTIONAL PREPAYMENT: The Notes may be prepaid in whole or in part after the
third year following the Closing Date, provided that
such prepayments do not cause Issuer to violate any
covenants as defined hereof or in the Senior Credit
Facility Agreement. After such date, the Notes may be
prepaid in whole or in part on any interest payment
date, subject to prepayment premiums as set forth
below:
- Year 4 4.00%
- Year 5 3.00%
- Year 6 2.00%
- Thereafter 0.00%
PRINCIPAL FINANCIAL
COVENANTS: Usual and customary for a transaction of this type.
Consolidated Financial Covenants will be measured
quarterly (except for Minimum Net Worth, which will be
measured annually) and set at levels slightly looser
than identical bank loan covenants. Principal
Financial Covenants will include, but may not be
limited to, the following:
(a) Minimum Net Worth
(b) Maximum Consolidated Leverage Ratio
(c) Minimum Consolidated Cash Flow Ratio
(d) Minimum Consolidated EBITDAR/Interest and
Rental Expense
(e) Limitation on Consolidated Capital
Expenditures
<PAGE>
EVENTS OF DEFAULT: To include, without limitation, the following:
(a) failure to pay interest within 10 days after
due date;
(b) failure to pay principal when due;
(c) covenant defaults not cured within 30 days
after notice;
(d) payment default by the Issuer or any
Restricted Subsidiary with respect to an
amounts owing in excess of $2,000,000 and
such default continues for 30 days;
(e) cross acceleration to other borrowed money
agreements of the Issuer or any Restricted
Subsidiary in excess of $250,000 including
the Senior Credit Facilities; and
(f) other usual defaults including insolvency,
bankruptcy (resulting in automatic
acceleration of the Notes) and judgment
defaults.
Note: Unless the Senior Credit Facilities have been
accelerated, prior to a Payment Blockage Period, the
Investors must give the Agent for the Senior Credit
Facilities at least ten days' notice prior to
acceleration of the Notes (except per (f) above). The
amount due upon acceleration shall be principal,
interest and other fees and the prepayment premium.
TERMS OF SUBORDINATION: The Notes shall be subordinated to the prior payment
in full in cash of all Senior Debt and Permitted
Refinancings thereof. Subordination provisions to be
negotiated but in any event to be reasonably
satisfactory to the Senior Lenders.
COUNSEL TO LENDERS: To be appointed by the Investors (or, in the case of
any investor group, the lead Investor), subject to the
approval of the Issuer.
CONTINGENCIES: The financing will be contingent on the successful
completion of legal documentation satisfactory in all
respects to the Noteholder.
EXPENSES: All reasonable fees of Counsel to the Investors and
other reasonable out-of-pocket expenses incurred in
connection with the transaction will be paid by the
Issuer. In the event that the transaction is not
completed, legal fees will be capped at $50,000.
<PAGE>
C. THE WARRANTS
ISSUE: Warrants issued by RB Capital, exercisable into [ %]
of the fully diluted voting common stock of the
Issuer("Warrant Shares"). [calculated to provide
3rd party Investor with a [***%] to [***%] IRR or BKB
with a [***%] to [***%] IRR over a five year holding
period based on the final MBO model and any
adjustments that may be necessary to maintain the
model's accuracy].
EXERCISE FEATURE: Exercisable in whole or in part at any time after
four years into Warrant Shares at the Exercise Price,
subject to certain adjustments. The Warrants may be
exercised prior to four years if: (i) the Issuer has
consummated a public equity offering of at least $10
million (an "IPO"); (ii) there is a Change of Control;
or (iii) the Borrower is in default under the Senior
Subordinated Note Agreement. Such Warrant Shares are
to be identical in every respect to the Class A common
stock of the Company.
EXERCISE EXPIRATION: Up to 10 years from the Closing Date.
EXERCISE PRICE: The exercise price of the Warrants shall be a nominal
amount.
PURCHASE PRICE: The purchase price of the Warrants shall be a nominal
amount.
DISPOSAL RIGHTS: (1) Put
Holders of the Warrants shall, on the earlier of the
fifth anniversary of the Closing Date or upon a change
in control of the Company, subject to availability of
financing on a "best efforts" basis and necessary
approvals, including approval of the Banks and holders
of the Senior Credit Facilities, if required, have the
right until expiration to require the Issuer to
purchase a minimum of 50% and up to all of their
Warrants, or if exercised the Warrant Shares (the
"Put") at the Fair Market Value of the Company's
equity divided by the number of Shares Deemed
Outstanding. The Put shall expire after an IPO. If
holders exercise the Put for less than 100% of the
Warrant Shares prior to year six, RB Capital has the
right to call the remainder before six years.
(2) Call
The Issuer shall, after six years, subject to
availability of financing and necessary approvals,
including approval of the Banks and holders of the
Senior Credit Facilities if required, have the right
until expiration to purchase a minimum of 50% and up
to all of the Warrants, or if exercised the Warrant
Shares (the "Call") at the Fair Market Value of the
Company divided by the number of Shares Deemed
Outstanding. The Call shall expire upon closing of an
IPO. The Noteholders shall have the right to a
Valuation Adjustment up to 270 days after the Call
under conditions whereby the Company is sold or
experiences a change in control for a valuation
materially in excess of the calculation for the Call.
FAIR MARKET VALUE: The Fair Market Value of the Company means the fair
market value of the Company's equity securities. Upon
the occurrence of an event requiring a determination
of Fair Market Value, the Company and the Holders
seeking such determination shall use their best
efforts to agree upon the same. If they cannot so
agree within 15 days after such event, then Fair
Market Value will be determined by a nationally-
recognized investment banking firm chosen jointly by
the Company and such Holders. The expense of said
valuation shall be borne as follows: if the valuation
is within 5% of the Fair Market Value determined by
the Company's Board of Directors (the "Company
Valuation"), then said expenses shall be borne
completely by the Holders; if the valuation is within
such amount as is greater than
<PAGE>
5% but less than or equal to 10% of the Fair Market
Value determined by the Company's Board of
Directors (the "Company Valuation"), then said
expenses shall be borne one-half by the Company and
one-half by the Holders seeking such determination;
if the valuation is more than 10% higher than the
Company Valuation, then said expense shall be borne
completely by the Company; if the valuation is more
than 10% lower than the Company Valuation, then
said expense shall be borne completely by the
Holders seeking such determination.
TRANSFERABILITY: Subject to a right of first offer to the Company,
transferable with the consent of RB Capital, whose
consent shall not be unreasonably withheld, in whole
or in part, with or without the Notes, to other
Financial Institutions, subject to compliance with
securities laws.
ANTI-DILUTION
PROVISIONS: Weighted average anti-dilution provisions for
adjustments of the number of Warrants for stock
splits and combinations, stock dividends, below market
stock sales, including sale of debt or equity
securities convertible into or exchangeable for common
stock at below market prices (excluding employee stock
options or restricted stock included in the fully
diluted capitalization), distributions, merger,
consolidations, and reorganizations. In the event
that BRS exercises its commitment to purchase the
Junior Equity Securities, such securities shall have
full ratchet anti-dilution provisions with respect to
the above.
TAG ALONG RIGHTS: Holders of the Warrants and/or Warrant Shares shall
have the right to participate (without paying any
portion of the transaction costs associated with the
sale except for their own legal expense) in sales of
Class A or Class B common stock by Mr. Frank Day to
any unaffiliated third party in excess of de minimus
amounts, such participation to be pro-rata with shares
sold by Mr. Day. Tag Along Rights expire on closing
of an IPO.
DRAG ALONG RIGHTS: Holders of the Warrants shall be obligated to sell all
of their Warrants and/or Warrant Shares in the event
of the sale of all or substantially all of the common
stock of the Issuer to an unaffiliated third party on
the same terms and conditions and at a price equal to
the price paid to the Class A common stockholders.
These rights will expire upon completion of an IPO.
PRE-EMPTIVE RIGHTS: Holders of the Warrants shall have a right of first
offer to purchase all future equity or equity-linked
securities to be offered by the Issuer (other than to
employees, consultants, directors or other insiders
under company compensation arrangements) pro-rata on
the same terms and conditions and at a price equal to
the price paid by purchasers of such securities.
These rights will expire upon completion of an IPO.
REGISTRATION RIGHTS: If the Issuer proposes to register any of its common
stock in connection with an underwritten public
distribution, holders representing at least 10% of the
warrant shares may request the Issuer to register any
Warrant shares. Piggyback registration rights shall
expire for Holders of less than 2% of the Company's
outstanding stock as soon after an IPO as all of such
Holder's stock may be sold under Rule 144 during any
90-day period. If in the opinion of the underwriter
the public offering must be limited in size below the
aggregate number of Warrant shares requested for
registration, other shares with piggyback registration
rights that have requested registration, and the
shares being sold in the offering, the shares of the
requesting Holder/s and any other shares requesting
under similar piggyback registration rights will be
reduced pro rata to the amount specified by the
underwriter. The registration expenses (exclusive of
underwriting discounts and special counsel fees of a
selling shareholder) of piggyback registrations
provided for above will be borne by the
<PAGE>
Company, and all other expenses of registered
offerings shall be borne pro rata among the selling
shareholders and, if it participates, the Company.
In addition, after an IPO, holders of at least 50%
of the outstanding Warrants or Warrant Shares will
have the right to one registration upon demand at
no expense to the holders (except holders' counsel
fees and underwriting commissions), provided that
the Issuer will not be obligated to register any
common stock upon demand less than six months after
the date of the most recent sale of securities in
an underwritten pubic offering pursuant to an
effective registration statement. The rights of
the parties in connection herewith will also be
subject to other provisions which are reasonable
and customary under the circumstances, including,
without limitation, representations and warranties
and cross-indemnity from the parties.
BOARD REPRESENTATION: The lead investor shall have the right to nominate one
member of the board of directors. This right shall
terminate upon the earlier of an IPO or such time as
warrant shares issued or issuable represent less than
5% of the shares deemed outstanding.
<PAGE>
JUNIOR EQUITY SECURITIES
ISSUER: RB Capital
ISSUE: Class B common stock with rights similar to those of
the existing class of common shares except for the
addition of a Disposal Right after 8 years. The
Junior Equity Securities will be priced to yield
approximately a [***%] IRR.
CONVERSION: Convertible into Class A common stock upon an IPO.
PRINCIPAL AMOUNT: Up to $4,000,000.
PLACEMENT AGENT: BancBoston Robertson Stephens Inc. ("BRS").
USE OF PROCEEDS: To partially finance the acquisition of substantially
all of the common stock and stock options of Rock
Bottom Restaurants, Inc. not owned by Frank Day and
certain others in the buying group, to refinance
certain existing Funded Debt and to pay fees and
expenses associated with the transaction
COUNSEL TO INVESTORS: To be appointed by the Investors (or, in the case of
any investor group, the lead Investor, which are
expected to be the same investors as the subordinated
notes issue), subject to the approval of the Issuer.
EXPENSES: All reasonable fees of Counsel to the Investors and
other reasonable out-of-pocket expenses incurred in
connection with the transaction will be paid by the
Issuer.
DISPOSAL RIGHTS: Holders of the Junior Equity Securities shall have a
disposal right after 8 years which is to be
negotiated, subject to the approval of the senior and
subordinated debt holders. Disposal rights terminate
in the event of an IPO.
TRANSFERABILITY: Subject to right of first offer to the Company,
transferable with the consent of RB Capital, whose
consent shall not be unreasonably withheld, in whole
or in part, to other Financial Institutions, subject
to compliance with security laws.
TAG ALONG RIGHTS: Holders of the Junior Equity Securities shall have the
right to participate (without paying any portion of
the transaction costs associated with the sale except
for their own legal expense) in any sale of Class A or
Class B common stock by Mr. Frank Day to any
unaffiliated third party in excess of de minimus
amounts, such participation to be pro-rata with the
shares sold by Mr. Day. Tag Along Rights expire on
closing of an IPO.
DRAG ALONG RIGHTS: Holders of the Junior Equity Securities shall be
obligated to sell all of their shares in the event of
the sale of all of the common stock of the Issuer to
an unaffiliated third party on the same terms and
conditions and at a price equal to the price paid to
the common stockholders. These rights will expire
upon completion of an IPO.
PRE-EMPTIVE RIGHTS: Holders of the Junior Equity Securities shall have a
right of first offer to purchase all future equity or
equity-linked securities to be offered by the Issuer
(other than to employees, consultants, directors or
other indsiders under company compensation
arrangements) pro-rata on the same terms and
conditions and at a price equal to the price paid by
purchasers of such securities. These rights expire
upon completion of an IPO.
<PAGE>
REGISTRATION RIGHTS: If the Issuer proposes to register any of its common
stock in connection with an underwritten public
distribution, any holder may request the Issuer to
register any shares. Piggyback registration rights
shall expire for Holders of less than 2% of the
Company's outstanding stock as soon after an IPO as
all of such Holder's stock may be sold under Rule 144
during any 90-day period. If in the opinion of the
underwriter the public offering must be limited in
size below the aggregate number of shares requested
for registration, other shares with piggyback
registration rights that have requested registration,
and the shares being sold in the offering, the shares
of the requesting Holder/s and any other shares
requesting under similar piggyback registration rights
will be reduced pro rata to the amount specified by
the underwriter. The registration expenses (exclusive
of underwriting discounts and special counsel fees of
a selling shareholder) of piggyback registration
provided for above will be borne by the Company, and
all other expenses of registered offerings shall be
borne pro rata among the selling shareholders and , if
it participates, the Company. In addition, after an
IPO, holders of at least 50% of the outstanding shares
will have the right to one registration upon demand at
no expense to the holders (except holders' counsel
fees and underwriting commissions), provided that the
Issuer will not be obligated to register any common
stock upon demand less than six months after the date
of the most recent sale of securities in a
underwritten public offering pursuant to an effective
registration statement. The rights of the parties in
connection herewith will also be subject to other
provisions which are reasonable and customary under
the circumstances, including, without limitation,
representations and warranties and cross-indemnity
from the parties.
BOARD REPRESENTATION: Observation rights. This right shall terminate with
respect to all investors upon an IPO or individually
at such time as shares issued or issuable to the
investor represent less than 2% of the shares deemed
outstanding (provided that there shall remain at least
one observer to represent the investors as a group).
<PAGE>
Exhibit 99(b)(2)
FAIRNESS OPINION PRESENTATION
TO THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS
PROJECT ROCKIES
[US BANCORP/PIPER JAFFRAY -REGISTERED TRADEMARK- LOGO]
March 18, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Section
<S> <C>
Description of Rockies 1
- Company Overview
- Recent Performance Issues
Overview of Transaction 2
- Transaction Background
- Proposed Deal Structure and Terms
Due Diligence Procedures 3
Summary of Analyses 4
Appendices
Comparable Company Analysis A
Comparable Transaction Analysis B
Premiums Paid Analysis C
Discounted Cash Flow Analysis D
LBO Analysis E
</TABLE>
<PAGE>
DESCRIPTION OF ROCKIES
<PAGE>
DESCRIPTION OF ROCKIES
- --------------------------------------------------------------------------------
COMPANY OVERVIEW
- - Rockies (the "Company"), currently operates 23 brewery restaurants under
the names Rockies, Chop Shop and Walnut and 39 Cubs restaurants in 18
states throughout the country.
- - The Company's two main concepts, Rockies and Cubs, were founded by the
Chairman in 1990 and 1976, respectively. Rockies was incorporated in April
1994 and completed its initial public offering in July 1994.
- - Both the Brewery concepts and the Cubs concept are casual-dining
restaurants that feature high quality, moderately priced food and a
distinctive selection of microbrewed and specialty beers.
1-1
<PAGE>
DESCRIPTION OF ROCKIES
- --------------------------------------------------------------------------------
RECENT PERFORMANCE ISSUES
CAPITAL MARKET ISSUES
- Stagnant stock price - $6.11 per share average stock price
(1/1/98 - 1/25/99)
- Small market capitalization
- Limited trading volume and float
- Large insider holdings
- Limited institutional sponsorship
- Diminishing research sponsorship from the Street
- Perceived management instability
- Restaurant industry and specialty beer remain "out of favor"
DISAPPOINTING OPERATING RESULTS
- Slowing Company unit growth
- Significant store closings
- Delay in timing of planned new store openings
- Negative same store sales
- Below average profitability versus comparable restaurant
companies
- History of earnings shortfalls
Erratic quarterly results for the last several years
1-2
<PAGE>
DESCRIPTION OF ROCKIES
- ------------------------------------------------------------------------------
RECENT PERFORMANCE ISSUES
DISAPPOINTING RECENT RESULTS
- Q4 '98 operating earnings shortfall and reported earnings "noise"
$0.13 operating vs. $0.22 reported vs $0.16 U.S. Bancorp Piper
Jaffray Inc. estimate vs $0.15 Street estimate
- Performance issues continue, particularly in the Brewery segment
- Brewery concepts continue to underperform previous years
Sales off approximately $950,000 or 6.6% compared to budget in
January/February due to weather ($300k), delayed Bellevue opening
($222k), competitive pressures (new seats in many markets), softness
related to NBA strike, and lack of results from marketing programs.
Same store sales down 4.0% in January and 2.8% in February
Erosion in liquor sales as a percent of overall sales
Erosion in the beer component of liquor sales
- Projected Q1 '99 earnings shortfall
Projected $0.07 operating vs. $0.01 reported vs. $0.16 U.S. Bancorp
Piper Jaffray Inc. estimate vs. 2 published Street estimates of
$0.05 and $0.13
1-3
<PAGE>
DESCRIPTION OF ROCKIES
- ------------------------------------------------------------------------------
RECENT MARKET PERFORMANCE
<TABLE>
<S> <C>
Stock Market NASDAQ
Stock Price (as of 3/12/99)
-- Last Close $8.50
-- Last Bid $8.38
-- Last Ask $8.63
Stock Price (as of 1/25/99)
-- Last Close $6.63
-- 30 Day Average $5.77
-- 60 Day Average $5.73
-- 90 Day Average $5.66
-- 180 Day Average $5.93
In the 12 month period ending 1/25/99 the stock has traded at:
-- A Low Of $4.63
-- A High Of $7.56
-- An Average Daily Volume Of 30.1
In the 6 month period ending 1/25/99 the stock has traded at:
-- A Low Of $4.63
-- A High Of $7.13
-- An Average Daily Volume Of 29.7
In the 3 month period ending 1/25/99 the stock has traded at:
-- A Low Of $5.13
-- A High Of $7.13
-- An Average Daily Volume Of 36.7
Market Cap (based on 3/12/99 price) $68.5
Market Cap (based on 1/25/99 price) $53.4
</TABLE>
1-4
<PAGE>
DESCRIPTION OF ROCKIES
- ------------------------------------------------------------------------------
RECENT MARKET PERFORMANCE
DAILY STOCK PRICE/VOLUME PERFORMANCE
1/02/98 - 3/12/99
[Graph]
Jan. 11, 1999:
Initial indication of
interest received from
the ConQuest Group
Jan 13, 1999:
Share offer from RB Capital
Jan. 26, 1999:
Cracken Harkey
announces offer
Jan. 27, 1999:
Company's press release
1-5
<PAGE>
DESCRIPTION OF ROCKIES
- ------------------------------------------------------------------------------
RECENT MARKET PERFORMANCE
WEEKLY STOCK PRICE/VOLUME PERFORMANCE
7/22/94 - 3/12/99
[Graph]
1-6
<PAGE>
DESCRIPTION OF ROCKIES
- ------------------------------------------------------------------------------
RECENT MARKET PERFORMANCE
ANALYSIS OF TRADING VOLUME AT VARIOUS PRICES
1/1/98 - 1/25/99
[Graph]
* The Weighted Average Stock Price is $6.11
1-7
<PAGE>
DESCRIPTION OF ROCKIES
- ------------------------------------------------------------------------------
RECENT MARKET PERFORMANCE
ANALYSIS OF TRADING VOLUME AT VARIOUS PRICES
7/22/94 - 1/25/99
[Graph]
* The Weighted Average Stock Price is $13.24
1-8
<PAGE>
DESCRIPTION OF ROCKIES
- ------------------------------------------------------------------------------
RECENT MARKET PERFORMANCE
DAILY RELATIVE PRICE PERFORMANCE
1/1/98 - 3/12/99
[Graph]
* Includes 59 companies.
** Includes AVDO, CGR, DAVE, DRI, GRLL, ILFO, LDRY, RAIN, RARE, STAR, TACO and
UNO.
1-9
<PAGE>
DESCRIPTION OF ROCKIES
- ------------------------------------------------------------------------------
RECENT MARKET PERFORMANCE
WEEKLY RELATIVE PRICE PERFORMANCE
7/22/94 - 3/12/99
[Graph]
* Includes 59 companies.
** Includes AVDO, CGR, DAVE, DRI, GRLL, ILFO, LDRY, RAIN, RARE, STAR, TACO and
UNO.
1-10
<PAGE>
OVERVIEW OF TRANSACTION
<PAGE>
OVERVIEW OF TRANSACTION
- --------------------------------------------------------------------------------
TRANSACTION BACKGROUND - 1997 PROCESS
- - During the summer and fall of 1997, U.S. Bancorp Piper Jaffray assisted
Rockies in evaluating strategic alternatives available to the Company to
enhance shareholder value.
- - As a result of this review, U.S. Bancorp Piper Jaffray contacted forty-one
parties to solicit their interest regarding a merger with or acquisition of
the Company.
- - Four of these parties submitted "Firm Offers" for the business.
- - One party was selected to negotiate a definitive agreement. Negotiations
were terminated in December 1997 due to several factors, including:
- Deteriorating Rockies performance, including missing the Q4 '97
analyst estimates
- A material decrease in the acquirer stock price which resulted in a
corresponding decrease in the offer price from the initial $12.50 per
share to below $10.00 per share
- Complications regarding a pooling transaction
- - On December 12, 1997, the Company announced that it had explored strategic
alternatives, that it had adopted a shareholder rights plan and that it had
instituted several management changes.
2-1
<PAGE>
OVERVIEW OF TRANSACTION
- --------------------------------------------------------------------------------
TRANSACTION BACKGROUND - 1998/1999 PROCESS
- - In November of 1998, unaffiliated members of the Board of Directors were
informed that several insiders were working with financial advisors and
financing sources to put together an offer for the Company. A Special
Committee of the Board of Directors (the "Special Committee") was formed.
- - On December 22, 1998, U.S. Bancorp Piper Jaffray was retained as the
Special Committee's exclusive financial advisor.
- - On January 11, 1998, each Board member of the Company received from The
ConQuest Group ("CQ") an unsolicited "initial indication of interest in
discussing with" the Company's Board an all cash acquisition of Rockies for
"approximately $10 per common-stock share."
- - On January 13, 1999, the Special Committee received an offer from RB
Capital, Inc. ("RB Capital"), a group that owns approximately 30% of the
Company's common shares (on a fully diluted basis) to acquire Rockies for
$9.50 per share. The letter addressed transaction structure, financing
status, a rationale for the transaction, next steps and certain other
matters.
- - On January 26, 1999, the Company received an offer from Cracken, Harkey,
Street & Hartnett, LLC to purchase the outstanding shares of the Company
for $9.25 per share. The letter addressed transaction structure, financing
status, a rationale for the transaction, next steps and certain other
matters.
- - On January 27, 1999, the Company issued a press release announcing the
receipt of three indications of interest to acquire the Company and the
formation of a Special Committee.
2-2
<PAGE>
OVERVIEW OF TRANSACTION
- --------------------------------------------------------------------------------
TRANSACTION BACKGROUND - 1998/1999 PROCESS
- - After reviewing the offers, the Special Committee instructed U.S. Bancorp
Piper Jaffray to contact each of the interested parties to facilitate an
exchange of information. U.S. Bancorp Piper Jaffray requested formal offers
be delivered to the Company by February 10, 1999.
- - On February 5, 1999, U.S. Bancorp Piper Jaffray received an inquiry from
Bull Dog Brewery, a brew pub operating company, regarding a transaction
with Rockies. U.S. Bancorp Piper Jaffray requested more information. None
was provided.
- - On February 10, 1999, the Company received proposals from two of the three
interested parties. After a review of each interested parties' proposal,
U.S. Bancorp Piper Jaffray held discussions with the interested parties and
their financing sources.
- - Since receiving the proposals, the Special Committee and its advisors have
continued discussions and negotiations with the interested parties.
- - During the week of March 8, 1999, the Company contacted each of the
interested parties to report on the Company's anticipated first quarter
performance.
2-3
<PAGE>
OVERVIEW OF TRANSACTION
- -------------------------------------------------------------------------------
PROPOSED DEAL STRUCTURE AND TERMS
<TABLE>
<S> <C>
STRUCTURE: The Merger Agreement calls for RB Capital, Inc. to acquire Rockies through a Cash Merger.
PER SHARE PRICE: The per share consideration to be received by Rockies shareholders is $10.00.
SHARES OUTSTANDING(1): 8,011,296
OPTIONS OUTSTANDING(2): 966,907
DEAL VALUE: The aggregate equity and transaction value for the transaction is as follows:
<CAPTION>
As of 12/27/98 Projected 6/30/99
-------------- -----------------
<S> <C> <C> <C>
- Unaffiliated Shareholders @$10.00 per share = $57.4 million $57.4 million
- Options Exercised @$10.00 = $2.1 million $2.1 million
- Insider Holdings Rolled = $22.7 million $22.7 million
- Options Rolled @$10.00 = $0.7 million $0.7 million
- Plus Debt Assumed (Net of Cash)(3) = $23.5 million $20.2 million
---- ----
- Transaction ("Enterprise") Value = $106.4 million $103.1 million
OTHER: The Merger Agreement calls for $2.75 million in termination fees and expense reimbursement payable
to RB Capital by Rockies if the Agreement is terminated under certain conditions.
The Merger is subject to regulatory approvals.
</TABLE>
(1) Excludes restricted stock eliminated upon change of control.
(2) Includes all "in-the-money" options.
(3) Debt includes capital leases.
2-4
<PAGE>
OVERVIEW OF TRANSACTION
- -------------------------------------------------------------------------------
TERMINATION FEES AND EXPENSES
- The termination provision includes $1.0 million in termination fees
and $1.75 million in expense reimbursement.
<TABLE>
<CAPTION>
% of Equity Value(1)
------------------------
<S> <C> <C>
Rockies Termination Fee $1.0 million 1.2%
<CAPTION>
% of Company Value(1)
------------------------
<S> <C> <C>
Rockies Aggregate Termination Fee
and Expense Reimbursement $2.75 million 2.6%
</TABLE>
<TABLE>
<CAPTION>
Termination Fee as a % of Equity Value
--------------------------------------
Low Median Mean High
----- ----------- -------- ------
<S> <C> <C> <C> <C>
Going Private Transactions as a Percent of Equity Value(2) 1.0% 3.4% 4.0% 9.6%
</TABLE>
SOURCE: COMMSCAN
(1) CALCULATIONS BASED ON 12/27/98 BALANCE SHEET.
(2) BASED ON INFORMATION AVAILABLE ON GOING PRIVATE TRANSACTIONS WITH A
TRANSACTION VALUE OF BETWEEN $30 MILLION AND $300 MILLION ANNOUNCED
BETWEEN 1/1/97 AND 3/12/99 (EXCLUDES FINANCIAL INSTITUTIONS AND REITS).
2-5
<PAGE>
OVERVIEW OF TRANSACTION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Other Relevant Transactions
------------------------------------------------------------------------------------------
Termination Fee and Expense
Reimbursement as a Percent of
Target Acquirer Company Value
-------------------------- ------------------------- ----------------------------------
<S> <C> <C>
Berttucci's Ten Ideas 2.8%
Back Bay SCR Holdings 8.5%
Skyline Chili Skyline Acquisition Corp. 9.2%
Ground Round Restaurants GRR Holdings LLC 3.5%
</TABLE>
2-6
<PAGE>
DUE DILIGENCE PROCEDURES
<PAGE>
DUE DILIGENCE PROCEDURES
- --------------------------------------------------------------------------------
U.S. Bancorp Piper Jaffray Inc. ("U.S. Bancorp Piper Jaffray") worked
extensively with Rockies during the summer and fall of 1997 and winter of 1998
as the Company's financial advisor in connection with an analysis of strategic
alternatives and the subsequent investigation of a potential sale of the
Company.
In the course of current due diligence in connection with the rendering of its
Fairness Opinion, U.S. Bancorp Piper Jaffray has, among other things, under-
taken the following steps:
1) U.S. Bancorp Piper Jaffray performed business and financial due diligence
with certain members of senior management of the Company concerning topics
such as the financial condition, operating performance and balance sheet of
the Company, and the prospects for the Company.
2) Conducted discussions with members of the Special Committee of the Board of
Directors.
3) Reviewed certain publicly available business and financial information
relating to the Company which we deemed to be relevant including the
Reports on Form 10-K for the three years ended December 28, 1997 and the
reports on Form 10-Q for the three quarters ended September 27, 1998,
June 28, 1998 and March 29, 1998.
4) Reviewed the Company's unaudited financial results for the year ended
December 27, 1998 and certain unaudited monthly financial and operating
data for January and February 1999.
5) Reviewed estimated 5-year financial forecasts for the Company on a
stand-alone public company basis furnished to U.S. Bancorp Piper Jaffray by
the Company's management for the years ended 1999-2003.
6) Reviewed the latest draft of the Agreement and Plan of Merger.
7) Reviewed the results of store level operations on a weekly and monthly
basis.
3-1
<PAGE>
DUE DILIGENCE PROCEDURES
- --------------------------------------------------------------------------------
CONTINUED
8) Reviewed information regarding the Company's owned/leased properties and
sale/leaseback agreements.
9) Reviewed the historical prices and trading activity for the Company's
Common Stock.
10) Reviewed the financial terms, to the extent publicly available, of certain
comparable merger and acquisition transactions which we deemed relevant.
11) Compared certain public financial data of Rockies with certain financial
and securities data of companies deemed similar to Rockies.
12) Performed discounted cash flow analysis on the five-year financial
forecasts for the Company on a stand-alone public company basis furnished
by the Company's management.
13) Compared premiums paid relative to recent public market pre-announcement
trading prices to Rockies implied premium.
14) Modified the five-year financial forecasts for the Company as a stand-alone
public company based on anticipated changes to be made by RB Capital as a
private company, analyzed the feasibility of a leveraged buyout of the
Company based on these changes and performed a discounted cash flow
analysis on these modified forecasts.
15) Reviewed recent press releases and legal and accounting correspondence.
16) Reviewed such other financial studies and analyses and took into account
such other matters as we deemed necessary, including our assessment of
general economic, market and monetary conditions.
17) Evaluated, responded to and negotiated with respect to unsolicited
indications of interest from persons other than RB Capital both prior to
and after the Company's January 27, 1999 public announcement of indications
of interest.
3-2
<PAGE>
SUMMARY OF ANALYSIS
<PAGE>
SUMMARY OF ANALYSIS
- -------------------------------------------------------------------------------
TRANSACTION MULTIPLES
<TABLE>
<CAPTION>
$10.00 ROCKIES(1)
-------- -----------
<S> <C> <C>
Company Value/Revenue 0.67x $160.1
Company Value/EBITDA 6.2x $17.2
Company Value/EBIT 12.4x $8.6
Equity Value/Operating Net Income 19.1x $4.4
Equity Value/Reported Net Income 20.9x $4.0
Premium Paid(2) 50.9% $6.63
</TABLE>
(1) LTM data as of 12/27/97, debt and cash at 12/27/98.
(2) Based on share price of $6.63 as of 1/25/99.
4-1
<PAGE>
<TABLE>
<CAPTION>
IMPLIED PURCHASE PRICE IMPLIED PURCHASE PRICE ($)
MEAN MEDIAN
---- ------
<S> <C> <C> <C>
COMPARABLE COMPANY
Company Value/Revenue $9.13 $8.09 [GRAPH]
Company Value/Operating Income $6.21 $4.85
Company Value/EBITDA $7.75 $6.53
1999 P/E Ratio $7.75 $7.93
2000 P/E Ratio $10.27 $10.51
COMPARABLE TRANSACTIONS
UNDERPERFORMING
Company Value/Revenue $10.45 $8.87
Company Value/Op. Income $10.58 $7.96
Company Value/EBITDA $10.22 $10.16
Equity Value/Op. Net Income $10.38 $8.50
Equity Value/Reported Net Income $9.57 $7.84
GOING PRIVATE TRANSACTIONS
Company Value/Revenue $10.48 $11.03
Company Value/Op. Income $10.82 $9.80
Company Value/EBITDA $10.23 $9.60
Equity Value/Op. Net Income $10.92 $8.64
Equity Value/Reported Net Income $10.05 $7.97
COMPARABLE PREMIUM
Going Private Transactions
1 Month Prior $6.73 $6.62
1 Week Prior $7.32 $7.15
1 Day Prior $7.98 $7.81
Restaurant Transactions
1 Month Prior $7.34 $6.61
1 Week Prior $7.85 $7.05
1 Day Prior $8.29 $7.70
DISCOUNTED CASH FLOW(1)
Public Model $8.16 $11.99
Private Model $8.26 $12.16
</TABLE>
(1) DCF is calculated at a variety of discount rates and exit multiples, it
does not represent a mean/median.
4-2
<PAGE>
SUMMARY OF ANALYSIS
- -------------------------------------------------------------------------------
COMPARABLE COMPANY ANALYSIS
<TABLE>
<CAPTION>
COMPARABLE GROUP(1) IMPLIED PRICE PER SHARE
------------------- -----------------------
MEAN MEDIAN ROCKIES(2) MEAN MEDIAN
------ --------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
Company Value/Net Sales(2) 0.62x 0.56x $160.1 $9.13 $8.09
Company Value/Operating Income(2) 8.5x 7.2x $8.6 $6.21 $4.85
Company Value/EBITDA(2) 5.0x 4.4x $17.2 $7.75 $6.53
P/E Ratios:
Calendar 1999 Estimate(3) 13.0x 13.0x $4.8 $7.75 $7.93
Calendar 2000 Estimate(3) 10.2x 10.5x $8.4 $10.27 $10.51
--------------------------------------
MEAN $8.22 $7.20
MEDIAN $7.75 $7.93
--------------------------------------
</TABLE>
(1) Comparable Group Includes: AVDO, CGR, DAVE, DRI, GRLL, ILFO, LDRY, RAIN,
RARE, STAR, TACO, UNO
(2) LTM data as of 12/27/98, debt of $23.9 M and cash of $0.4 M at 12/27/98.
(3) Rockies estimates per management.
4-3
<PAGE>
SUMMARY OF ANALYSIS
- -------------------------------------------------------------------------------
COMPARABLE M&A TRANSACTIONS
UNDERPERFORMING COMPANIES
<TABLE>
<CAPTION>
COMPARABLE
Selected Valuation Data: TRANSACTION MULTIPLES (LTM) ROCKIES (2) IMPLIED PRICE PER SHARE
--------------------------- -----------------------
Mean Median Mean Median
---- ------ ---- ------
<S> <C> <C> <C> <C> <C>
Company Value/Revenue 0.69x 0.60x $160.1 $10.45 $8.87
Company Value/Operating Income(1) 13.0x 10.2x $8.6 $10.58 $7.96
Company Value/EBITDA(1) 6.3x 6.3x $17.2 $10.22 $10.16
Equity Value/Operating Net Income(1) 19.8x 15.9x $4.4 $10.38 $8.50
Equity Value/Reported Net Income 19.8x 15.9x $4.0 $9.57 $7.84
--------------------------- -----------------------
Debt(2) $23.9
Cash(2) $0.4
------
</TABLE>
MOST COMPARABLE GOING PRIVATE TRANSACTIONS
<TABLE>
<CAPTION>
COMPARABLE
Selected Valuation Data: TRANSACTION MULTIPLES (LTM) ROCKIES (2) IMPLIED PRICE PER SHARE
--------------------------- -----------------------
Mean Median Mean Median
---- ------ ---- ------
<S> <C> <C> <C> <C> <C>
Company Value/Revenue 0.69x 0.72x $160.1 $10.48 $11.03
Company Value/Operating Income(1) 13.2x 12.2x $8.6 $10.82 $9.80
Company Value/EBITDA(1) 6.3x 6.0x $17.2 $10.23 $9.60
Equity Value/Operating Net Income(1) 20.9x 16.2x $4.4 $10.92 $8.64
Equity Value/Reported Net Income 20.9x 16.2x $4.0 $10.05 $7.97
--------------------------- -----------------------
Debt(2) $23.9
Cash(2) $0.4
------
</TABLE>
(1) Excludes one time gains and losses, discontinued operations and cumulative
effect of accounting change to reflect ongoing operations.
(2) LTM data as of 12/27/98, debt and cash at 12/27/98.
4-4
<PAGE>
SUMMARY OF ANALYSIS
- -------------------------------------------------------------------------------
PREMIUMS PAID IMPLIED VALUATION
- - The tables below show Mean and Median premiums paid in the Restaurant
Sector and in all Going Private Transactions since 1/1/97 and an implied
Rockies price per share based on these analyses.
<TABLE>
<CAPTION>
Premiums Paid Implied Rockies
ROCKIES(1) Going Private Transactions Purchase Price
---------- -------------------------- ---------------------
MEAN MEDIAN MEAN MEDIAN
---- ------ ---- ------
<S> <C> <C> <C> <C> <C>
1 MONTH PRIOR $5.38 25.3% 23.1% $6.73 $6.62
1 WEEK PRIOR $6.00 22.0% 19.1% $7.32 $7.15
1 DAY PRIOR $6.63 20.4% 17.9% $7.98 $7.81
<CAPTION>
Premiums Paid Implied Rockies
Restaurant Transactions Purchase Price
-------------------------- ---------------------
MEAN MEDIAN MEAN MEDIAN
---- ------ ---- ------
<S> <C> <C> <C> <C> <C>
1 MONTH PRIOR $5.38 36.5% 22.9% $7.34 $6.61
1 WEEK PRIOR $6.00 30.9% 17.5% $7.85 $7.05
1 DAY PRIOR $6.63 25.2% 16.2% $8.29 $7.70
</TABLE>
- - These implied premiums compare to a one day premium of 50.9%(1) based on
offer price of $10.00.
(1) Reflects Rockies announcement date of 1/26/99.
4-5
<PAGE>
SUMMARY ANALYSIS
- --------------------------------------------------------------------------------
PUBLIC/PRIVATE MODEL COMPARISON
New Store Build Up Comparison
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003
Public Private Public Private Public Private Public Private Public Private
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Brewery
CONVERSIONS 3 3 1 1 3 1 2 1 2 1
PROTOTYPES 1 1 1 1 1 1 2 1 2 1
Cubs 2 2 4 4 4 4 5 4 5 4
Total 6 6 6 6 8 6 9 6 9 6
------------------------------------------------------------------------------------------------------------------
DIFFERENCE 0 0 +2 +3 +3
</TABLE>
<TABLE>
<CAPTION>
1999(1) 2000 2001 2002 2003 CAGR
------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Public Company Revenues $178,773 $207,482 $232,365 $265,882 $303,038 14.1%
Private Company Revenues $178,773 $207,482 $227,314 $251,678 $275,813 11.4%
---------------------------------------------------------------------------------------------------------
Difference $ - $ - $ 5,051 $ 14,204 $ 27,225
---------------------------------------------------------------------------------------------------------
Public Company Operating Income $ 9,459 $ 14,194 $ 16,897 $ 20,820 $ 24,419 26.8%
Private Company Operating Income $ 10,080 $ 14,752 $ 17,291 $ 20,178 $ 23,129 23.1%
---------------------------------------------------------------------------------------------------------
Difference $ (621) $ (558) $ (395) $ 643 $ 1,290
---------------------------------------------------------------------------------------------------------
Public Company EBITDA $ 19,074 $ 25,215 $ 29,167 $ 34,792 $ 41,037 21.1%
Private Company EBITDA $ 19,695 $ 25,571 $ 28,973 $ 32,938 $ 36,144 16.4%
---------------------------------------------------------------------------------------------------------
Difference $ (621) $ (356) $ 193 $ 1,855 $ 4,893
---------------------------------------------------------------------------------------------------------
Public Company Capital Expenditures $ 11,086 $ 13,586 $ 19,507 $ 22,285 $ 23,428 20.6%
Private Company Capital Expenditures $ 11,087 $ 13,586 $ 14,517 $ 15,106 $ 15,903 9.4%
---------------------------------------------------------------------------------------------------------
Difference $ (0) $ (0) $ 4,990 $ 7,179 $ 7,525
---------------------------------------------------------------------------------------------------------
</TABLE>
(1) 1999 GIVES FULL YEAR EFFECT FOR PRIVATE COMPANY G&A CHANGES.
4-6
<PAGE>
SUMMARY OF ANALYSIS
- --------------------------------------------------------------------------------
PUBLIC DCF ANALYSIS
<TABLE>
<CAPTION>
-------------------------------------------------------------------
PROJECTED
-------------------------------------------------------------------
1999 2000 2001 2002 2003
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING INCOME $9,459.4 $14,193.5 $16,896.9 $20,820.4 $24,418.7
Income Taxes @ 34.0% 3,216.2 4,825.8 5,745.0 7,078.9 8,302.4
-------------------------------------------------------------------
After Tax Operating Income 6,243.2 9,367.7 11,152.0 13,741.4 16,116.4
Depreciation and Amortization 9,615.0 11,021.0 12,270.0 13,972.0 16,618.0
(Increase) Decrease in Working Capital (660.9) (160.0) (58.0) (228.0) (239.0)
Capital Expenditures (11,086.2) (13,586.0) (19,507.0) (22,285.0) (23,428.0)
-------------------------------------------------------------------
FREE CASH FLOW 4111.1 6,642.7 3,857.0 5,200.4 9,067.4
Plus: Terminal Value @ 10.0x Operating Income 244,187.4
-------------------------------------------------------------------
TOTAL CASH FLOW 4111.1 $6,642.7 $3,857.0 $5,200.4 $253,254.7
</TABLE>
---------------------------------------------------
NET PRESENT VALUE CALCULATION
---------------------------------------------------
<TABLE>
<S> <C>
NPV of Free Cash Flow $15,652.5
NPV of Terminal Value $90,299.9
----------
COMPANY VALUE $105,952.5
Cash and Cash Equivalents $449.4
Debt and Capital Lease Obligations $23,905.4
----------
EQUITY VALUE $82,496.5
Share Outstanding 8,287,605.0
EQUITY VALUE PER SHARE $9.95
</TABLE>
ASSUMPTIONS
<TABLE>
<S> <C>
Operating Income Multiple: 10.0x
Discount Rate: 22.0%
Tax Rate: 34.0%
</TABLE>
- --------------------------------------------------------------------------
SENSITIVITY ANALYSIS - EQUITY VALUE
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
DISCOUNT RATE
20.0% 22.0% 24.0%
----------------------------------------------
<S> <C> <C> <C> <C>
OPERATING 9.0x 81,236.4 73,466.5 66,408.9
INCOME 10.0x 91,044.8 82,496,5 74,733.4
MULTIPLE 11.0x 100,853.3 91,526.5 83,057.9
</TABLE>
- ---------------------------------------------
SENSITIVITY ANALYSIS - EQUITY VALUE PER SHARE
- ---------------------------------------------
<TABLE>
<CAPTION>
DISCOUNT RATE
20.0% 22.0% 24.0%
----------------------------------------------
<S> <C> <C> <C> <C>
OPERATING 9.0x 9.81 8.95 8.16
INCOME 10.0x 10.91 9.95 9.09
MULTIPLE 11.0x 11.99 10.96 10.02
</TABLE>
4-7
<PAGE>
SUMMARY OF ANALYSIS
- --------------------------------------------------------------------------------
PRIVATE DCF ANALYSIS
<TABLE>
<CAPTION>
-------------------------------------------------------------------
PROJECTED
-------------------------------------------------------------------
1999 2000 2001 2002 2003
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING INCOME $10,080.3 $14,751.5 $17,291.5 $20,177.8 $23,129.0
Income Taxes @ 34.0% 3,427.3 5,015.5 5,879.1 6,860.5 7,863.9
-------------------------------------------------------------------
After Tax Operating Income 6,653.0 9,736.0 11,412.4 13,317.3 15,265.1
Depreciation and Amortization 9,615.0 10,819.0 11,682.0 12,760.0 13,015.0
(Increase) Decrease in Working Capital (660.9) (160.0) (58.0) (228.0) (239.0)
Capital Expenditures (11,086.5) (13,586.4) (14,517.4) (15,105.7) (15,903.0)
-------------------------------------------------------------------
FREE CASH FLOW 4,520.5 6,808.6 8,519.0 10,743.6 12,138.1
Plus: Terminal Value @ 9.0x Operating Income 208,161.1
-------------------------------------------------------------------
TOTAL CASH FLOW 4,520.5 $6,808.6 $8,519.0 $10,743.6 $220,299.2
</TABLE>
---------------------------------------------------
NET PRESENT VALUE CALCULATION
---------------------------------------------------
<TABLE>
<S> <C>
NPV of Free Cash Flow $23,474.6
NPV of Terminal Value $83,613.5
----------
COMPANY VALUE $107,088.1
Cash and Cash Equivalents $449.4
Debt and Capital Lease Obligations $23,905.4
----------
EQUITY VALUE $83,632.1
Share Outstanding 8,296,270.4
EQUITY VALUE PER SHARE $10.08
</TABLE>
----------------------------------------------------
ASSUMPTIONS
----------------------------------------------------
<TABLE>
<S> <C>
Operating Income Multiple: 9.0x
Discount Rate: 20.0%
Tax Rate: 34.0%
</TABLE>
- -----------------------------------
SENSITIVITY ANALYSIS - EQUITY VALUE
- -----------------------------------
<TABLE>
<CAPTION>
DISCOUNT RATE
18.0% 20.0% 22.0%
----------------------------------------------
<S> <C> <C> <C> <C>
OPERATING 8.0x 82,129.9 74,341.7 67,270.4
INCOME 9.0x 92,235.3 83,632.1 75,823.4
MULTIPLE 10.0x 102,340.6 92,922.5 84,376.5
</TABLE>
- ---------------------------------------------
SENSITIVITY ANALYSIS - EQUITY VALUE PER SHARE
- ---------------------------------------------
<TABLE>
<CAPTION>
DISCOUNT RATE
18.0% 20.0% 22.0%
----------------------------------------------
<S> <C> <C> <C> <C>
OPERATING 8.0x 9.91 9.05 8.26
INCOME 9.0x 11.04 10.08 9.21
MULTIPLE 10.0x 12.16 11.11 10.16
</TABLE>
4-8
<PAGE>
LBO ANALYSIS
- -------------------------------------------------------------------------------
FISCAL YEAR ENDED DECEMBER 31
$ IN 000'S EXCEPT PER SHARE DATA
- -----------------------
SOURCES & USES OF FUNDS
- -----------------------
- ------------
Market Value
- ------------
<TABLE>
<S> <C>
Stock Price on 1/25/99 $6.63
Purchase Premium 50.9%
---------
Buyout Price per Share $10.00
Number of Shares Outstanding (000) 8,291
---------
IMPLIED PURCHASE PRICE OF 100% OF EQUITY: $82,908
---------
---------
Number of Shares Purchased (000s) 8,291
---------
</TABLE>
- ----------------
Uses
- ----------------
<TABLE>
<S> <C>
Purchase Price of Equity $82,908
Existing Debt to Be Refinanced(3) $21,097
---------
Total Purchase Price $104,005
Estimated Advisory Fees $3,000
Financing/Placement Fees $3,000
---------
TOTAL USES OF FUNDS $110,005
---------
---------
</TABLE>
- ----------------
SOURCES
- ----------------
<TABLE>
<CAPTION>
Rate Maturity % of Total Amount Ownership
--------- ----------- -------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Cash on Balance sheet (3) N/A N/A 0.4% $438 N/A
Assumed Debt/Capital Lease Obligations 9.0% 0 7.1% $7,851 N/A
Revolver 10.0% N/A 0.0% ($0) N/A
Term Loan A 8.8% 8 Years 50.9% $55,944 0.0%
Term Loan B 9.1% 8 Years 0.0% $0 0.0%
Senior Subordinated Note (22.9% IRR)* 12.0% 10 Years 18.5% $20,343 7.0%
--------
TOTAL DEBT $84,138
Common Equity
LBO Fund (37.0% IRR)* N/A N/A 23.1% $25,429 93.0%
Management N/A N/A 0.0% $0 0.0%
--------
TOTAL EQUITY $25,429
--------
TOTAL SOURCES OF FUNDS $110,005
--------
--------
</TABLE>
* Equity value is calculated using a 5.0x EBITDA Multiple on year 2003
1999 Proforma Capital Structure Analysis
<TABLE>
<CAPTION>
Multiple of Multiple of
Amount Percent 1998 EBITDA 1999 EBITDA
-------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Revolving Line of Credit ($0) 0.0% 0.0x 0.0x
Existing Debt $7,851 8.9% 0.5x 0.4x
Term Loan A $55,944 63.7% 3.3x 2.8x
Term Loan B $0 0.0% 0.0x 0.0x
Senior Subordinated Note (22.9% IRR)* $20,343 23.2% 1.2x 1.0x
Preferred Stock $0 0.0% 0.0x 0.0x
Stockholders' Equity $3,622 4.1% 0.2x 0.2x
-------- -------- ----------- ------------
Total $87,761 100.0% 5.1x 4.5x
-------- -------- ----------- ------------
-------- -------- ----------- ------------
</TABLE>
(1) Fixed Charge Coverage = (EBITDA - Capex - Current Taxes) / (Interest +
Scheduled Principal Repayments)
(2) Free Cash Flow = EBITDA - Capital Expenditures - Change in Working
Capital. 1998 EBIT is nominalized
(3) Based on Q2 1999 balance sheet
- --------------------------
Leverage/Coverage
- --------------------------
<TABLE>
<CAPTION>
LEVERAGE 1999 2000 2001 2002 2003
-------- ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Total Debt/EBITDA 4.4x 3.3x 2.8x 2.3x 1.9x
Total Debt/(EBITDA - CAPEX) 10.0x 7.1x 5.6x 4.2x 3.3x
Total Debt/Equity 16.9x 8.9x 5.1x 3.1x 1.9x
COVERAGE
EBITDA/Interest Expense 3.8x 3.2x 3.8x 4.6x 5.5x
(EBITDA - CAPEX)/Interest Expense 1.7x 1.5x 1.9x 2.5x 3.1x
Fixed Charge Coverage(1) 0.3x 0.6x 0.7x 0.9x 1.0x
</TABLE>
- --------------------------
Purchase Price Multiples
- --------------------------
<TABLE>
<S> <C>
EQUITY PURCHASE PRICE $82,908
Plus: Assumed Debt $21,097
Less: Excess Cash $438
----------
COMPANY VALUE $103,567
----------
----------
<CAPTION>
Value Multiple
----- --------
<S> <C> <C>
PURCHASE PRICE MULTIPLES
Company Value/1998 EBIT(2) $8,598 12.0x
Company Value/1998 EBITDA $17,213 6.0x
Company Value/1999 EBIT $10,080 10.3x
Company Value/1999 EBITDA $19,695 5.3x
Company Value/1999 Free Cash Flow(2) $7,948 13.0x
Company Value/1999 Revenue $178,773 0.6x
</TABLE>
- --------------------------
Goodwill Calculation
- --------------------------
<TABLE>
<S> <C>
Equity Purchase Price $82,908
Financing Fee 6,000
Book Value of Equity 67,101
---------
Goodwill Assumed NM
Goodwill Amortization Life Expectancy 15 Years
---------
Goodwill Expense per Year NM
Financing Fees Life Expectancy 5 Years
---------
Financing Fees per Year NM
</TABLE>
4-9
<PAGE>
COMPARABLE COMPANY ANALYSIS
<PAGE>
COMPARABLE COMPANY ANALYSIS
- --------------------------------------------------------------------------------
- - The objective of the Comparable Company Analysis is to identify companies
similar to Rockies that are publicly traded. U.S. Bancorp Piper Jaffray
reviewed and compared certain actual and estimated publicly available
financial, operating and stock market information of selected publicly
traded companies that have similar products, markets or customers to
Rockies.
- - The Comparable Companies were selected based on U.S. Bancorp Piper
Jaffray's expertise in the restaurant market. The comparable companies
include the following underperforming casual dining restaurant chains:
Avado Brands Inc. Lone Star Steakhouse Saloon
Cooker Restaurant Rainforest Cafe Inc.
Darden Restaurants Inc. Rare Hospitality International
Famous Dave's America Inc. Roadhouse Grill
Il Fornaio America Corp. Taco Cabana
Landry's Seafood Restaurants Uno Restaurant Corp.
- - Our analysis includes a comparison of the financial data for Rockies and
the Comparable Companies including revenues, EBITDA, operating income, net
income, operating margin, EBITDA margin, net margin and projected earnings
per share growth. Selected financial and market data for the Comparable
Companies and Rockies is summarized on the following pages.
- - This group of Comparable Companies is also used to derive a range of
implied valuations for Rockies by applying various stock market valuation
multiples for the Comparable Companies (such as company value to sales,
company value to EBITDA, company value to operating income and P/E) to
Rockies' sales, EBITDA, operating income and earnings for the twelve months
ended December 31, 1998 and the calendar 1999 consensus and calendar 2000
U.S. Bancorp Piper Jaffray earnings estimates.
<PAGE>
SELECTED UNDERPERFORMING CASUAL DINING RESTAURANT COMPANIES
- --------------------------------------------------------------------------------
COMPARABLE COMPANY ANALYSIS
<TABLE>
<CAPTION>
STOCK 52 CURRENT PRICE $MM
PRICE WEEK AS A % OF MARKET COMPANY
3/12/99 HIGH 52 WEEK HIGH CAPITALIZATION VALUE
------- ------ ------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Avado Brands Inc $6.88 $16.00 43.0% $235.1 $437.7
Cooker Restaurant $6.44 $12.25 52.6% $39.8 $80.9
Famous Dave's $2.81 $7.50 37.5% $24.9 $21.8
Darden Restaurants Inc $22.00 $23.25 94.6% $3,030.7 $3,338.5
Roadhouse Grill $5.50 $8.25 66.7% $53.4 $81.0
Il Fornaio $8.75 $14.94 58.6% 49.5 $35.2
Landry's $5.94 $31.69 18.7% $180.2 $170.3
Rainforest Cafe $5.31 $17.75 29.9% $131.5 $96.9
Rare Hospitality $14.50 $15.63 92.8% $175.1 $212.8
Lone Star Steakhouse $9.69 $23.44 41.3% $378.7 $285.0
Taco Cabana $9.00 $9.75 92.3% $122.7 $150.2
Uno Restaurant Corp $7.63 $7.88 96.8% $78.8 $122.8
-------------------------------------------------------------------------------------
MINIMUM: 18.7%
MEAN: 60.4%
MEDIAN: 55.6%
MAXIMUM: 96.8%
-------------------------------------------------------------------------------------
Rockies $8.50 $9.06 93.8% $68.5 $91.9
Reported N/I
<CAPTION>
VALUATION MULTIPLES
-------------------------------------------------------------------
1998 1999 2000 COMPANY COMPANY COMPANY
CALENDAR CALENDAR CALENDAR VALUE/LTM VALUE/LTM VALUE/LTM
YEAR P/E YEAR P/E YEAR P/E REVENUE OP. INCOME EBITDA
-------- -------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Avado Brands Inc 13.8 9.4 7.5 0.5x 5.9x 4.1x
Cooker Restaurant 9.9 8.8 8.3 0.5x 6.6x 4.4x
Famous Dave's NM NM NA 0.6x NM NM
Darden Restaurants Inc. 26.8 22.9 NA 1.0x 16.3x 10.1x
Roadhouse Grill 9.6 12.0 NA 0.7x 11.1x 5.8x
Il Fornaio 17.5 14.1 11.7 0.4x 7.2x 3.9x
Landry's 6.1 10.1 9.3 0.4x 4.3x 2.9x
Rainforest Cafe 9.3 8.2 7.1 0.5x 5.7x 3.2x
Rare Hospitality 16.9 14.2 12.0 0.7x 10.8x 5.7x
Lone Star Steakhouse 12.4 14.0 12.9 0.5x 4.6x 2.9x
Taco Cabana 18.8 16.1 13.0 1.1x 11.5x 7.1x
Uno Restaurant Corp NA NA NA 0.6x 9.5x 4.9x
---------------------------------------------------------------------------------
MINIMUM: 6.1x 8.2x 7.1x 0.4x 4.3x 2.9x
MEAN: 14.1x 13.0x 10.2x 0.6x 8.5x 5.0x
MEDIAN: 13.1x 13.0x 10.5x 0.6x 7.2x 4.4x
MAXIMUM: 26.8x 22.9x 13.0x 1.1x 16.3x 10.1x
---------------------------------------------------------------------------------
Rockies 15.7 13.1 NA 0.6x 10.7x 5.3x
17.0
</TABLE>
* Financial Data exclude one-time charges and extraordinary items.
** Earnings estimates are as of 3/11/99.
<PAGE>
SELECTED UNDERPERFORMING CASUAL DINING RESTAURANT COMPANIES
- --------------------------------------------------------------------------------
COMPARABLE COMPANY ANALYSIS
<TABLE>
<CAPTION>
LATEST TWELVE MONTHS ("LTM") DATA
------------------------------------------------------------------------------------------------------
OPERATING OPERATING EBITDA NET NET
REVENUES INCOME MARGIN EBITDA MARGIN INCOME MARGIN
------------ ------------ ------------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Avado Brands Inc $904.2 $73.9 8.2% $105.8 11.7% $20.1 2.2%
Cooker Restaurant $160.5 $12.2 7.6% $18.4 11.4% $6.2 3.9%
Famous Dave's $35.6 ($4.2) NM ($2.0) NM ($3.9) NM
Darden Restaurants Inc $3,409.6 $205.0 6.0% $330.5 9.7% $120.9 3.5%
Roadhouse Grill $115.2 $7.3 6.4% $14.0 12.2% $3.8 3.3%
Il Fornaio $83.1 $4.9 5.9% $9.1 11.0% $3.5 4.2%
Landry's $399.5 $39.8 10.0% $58.5 14.6% $25.6 6.4%
Rainforest Cafe $213.9 $16.9 7.9% $30.0 14.0% $14.7 6.9%
Rare Hospitality $319.1 $19.6 6.2% $37.3 11.7% $10.5 3.3%
Lone Star Steakhouse $623.1 $62.3 10.0% $98.0 15.7% $42.5 6.8%
Taco Cabana $143.0 $13.0 9.1% $21.0 14.7% $11.1 7.7%
Uno Restaurant Corp $195.1 $12.9 6.6% $25.2 12.9% $6.3 3.2%
--------------------------------------------------------------------------------------------------------------------
MINIMUM: 5.9% 9.7% 2.2%
MEAN: 7.6% 12.7% 4.7%
MEDIAN: 7.6% 12.2% 3.9%
MAXIMUM: 10.0% 15.7% 7.7%
--------------------------------------------------------------------------------------------------------------------
Rockies(2) $160.1 $8.6 5.4% $17.2 10.8% $4.4 2.7%
Reported N/I $4.0 2.5%
<CAPTION>
ESTIMATED
5 YEAR EPS CASH AND LONG TERM
GROWTH RATE EQUIVALENTS DEBT
------------- ------------- -----------
<S> <C> <C> <C>
Avado Brands Inc 25.0 $1.4 $204.0
Cooker Restaurant 15.0 $1.7(1) $35.8
Famous Dave's 50.0 $4.6 $1.1
Darden Restaurants Inc 13.0 $13.1 $310.4
Roadhouse Grill 25.0 $1.2 $26.4
Il Fornaio 20.0 $14.3 $0.0
Landry's 15.0 $35.2 $25.2
Rainforest Cafe 20.0 $34.6(1) $0.0
Rare Hospitality 20.0 $12.1 $48.9
Lone Star Steakhouse 15.0 $93.7 $0.0
Taco Cabana 23.0 $0.8(1) $21.9
Uno Restaurant Corp NA $1.1 $41.0
-----------------------------------------------------------
MINIMUM:
MEAN:
MEDIAN:
MAXIMUM:
-----------------------------------------------------------
Rockies(2) 15.0 $0.4 $23.5
</TABLE>
(1) Numbers for quarter ending 9/98.
(2) Financials normalized.
<PAGE>
COMPARABLE TRANSACTION ANALYSIS
<PAGE>
COMPARABLE TRANSACTION ANALYSIS
- --------------------------------------------------------------------------------
- - The Comparable Transaction Analysis includes a review of transactions
involving companies deemed similar to Rockies. U.S. Bancorp Piper Jaffray
continually follows transactions in the restaurant industry under SIC codes
5812 and 5813.
- - U.S. Bancorp Piper Jaffray examined two groups of M&A transactions for
Rockies:
- Underperforming Restaurant Transactions
- Comparable Going Private Restaurant Transactions
- - Date range: 1/1/97 - present
- - Disclosed information regarding such transactions is often incomplete,
especially for deals involving acquisitions of or by privately held
companies. This analysis is based on information obtained from SEC filings,
public company disclosures, press releases, industry and popular press
reports, databases and other sources.
- - This group of comparable transactions is used to derive a range of implied
valuations for Rockies by applying the various purchase price multiples
from the comparable transactions to Rockies' sales, EBITDA, operating
income and net income for the twelve month period ending December 31, 1998.
This valuation methodology is illustrated in detail on the following page.
<PAGE>
<TABLE>
<CAPTION>
RESTAURANT INDUSTRY MERGERS & ACQUISITIONS -- UNDERPERFORMING COMPANIES U.S. BANCORP PIPER JAFFRAY INC.
- ------------------------------------------------------------------------------------------------------------------------------------
SIC CODES 5812, 5813
COMPANY VALUE > $10 MILLION
------------------------------------
MULTIPLES
------------------------------------
EQUITY
COMPANY EQUITY COMPANY COMPANY COMPANY VALUE/
DATE VALUE VALUE VALUE/ VALUE/ VALUE/ NET
EFFECTIVE TARGET ACQUIROR $MIL $MIL SALES EBITDA EBIT INCOME
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pending Back Bay Restaurant Group SRC Holdings Inc. $41.3 $37.7 0.4x 5.0x 10.1x 14.9x
Pending Au Bon Pain Bruckmann, Rosser, Sherill & Co $136.4 $73.0 0.5x 6.5x 35.5x NM
Pending Fuddruckers Inc. King Cannon $43.0 $43.0 0.3x 4.2x 9.6x NA
Pending Sbarro Inc. Sbarro Family $468.3 $585.0 1.3x 5.8x 8.1x 16.2x
01/25/99 Spaghetti Warehouse(2) Cracken, Harkey & Co. $50.0 $45.5 0.8x 8.2x 22.2x 38.2x
09/01/98 Timber Lodge Steakhouse Inc. GB Foods Corp $18.6 $18.2 0.6x 6.3x 14.6x 20.6x
07/31/98 Morrison Restaurants Inc. Piccadilly Cafeterias Inc $58.3 $46.3 0.2x 8.8x NM NM
07/21/98 Bertucci's NE Restaurant Co Inc $103.4 $93.6 0.7x 6.6x 16.1x 26.3x
07/09/98 Pollo Tropical Carrols Corp $89.5 $90.8 1.3x 6.8x 9.1x 15.3x
07/07/98 Houlihans Restaurant Group Hampstead/Scoggin $125.0 $30.0 0.5x 5.7x NM NM
04/28/98 Skyline Chili Inc. Fleet Equity Partners $26.1 $22.9 0.8x 4.6x 7.0x 13.0x
04/03/98 DavCo Restaurants Inc Citicorp Venture Capital $180.3 $133.6 0.8x 7.3x 11.7x 14.7x
02/03/98 Sagebrush Inc. WSMP Inc. $41.6 $39.4 0.8x 5.4x 8.9x 14.2x
01/22/98 El Chico Restaurants Inc. Cracken, Harkey & Co. $57.8 $49.4 0.6x 6.0x 14.3x NM
01/05/98 International Dairy Queen Inc. Berkshire Hathaway Inc. $536.9 $585.0 1.3x 8.0x 9.0x 15.4x
12/23/97 Perkins Family Restaurant LP Restaurant Co. $214.0 $146.8 0.8x 5.9x 10.7x 15.9x
10/20/97 Ground Round Restaurants GRR Holdings LLC $56.9 $18.4 0.3x 6.5x NM NM
12/02/97 Rudy's Restaurant Group Benihana Inc. $18.9 $17.6 1.1x 6.6x 8.1x 22.4x
09/26/97 Krystal Co Port Royal Holdings Inc $143.5 $108.4 0.6x 7.0x 15.4x 30.1x
07/16/97 Hardees Food Systems Inc. CKE Restaurants Inc $361.2 $324.1 0.5x NM NM NM
07/03/97 Monterey's Acquisition Corp. Casa Ole Restaurants Inc. $10.8 $4.0 0.5x 4.6x 10.2x NM
06/24/97 Charlie Brown's Inc. Caastle Harlan Partners III $50.4 NA NA 6.1x NA NA
05/28/97 Hamburger Hamlet-Restaurants Koo Koo Roo $11.7 $11.5 0.4x NM NM NM
----------------------------------------------------------------------
MINIMUM .24x 4.2x 7.0x 13.0x
MEAN .69x 6.3x 13.0x 19.8x
MEDIUM .60x 6.3x 10.2x 15.9x
MAXIMUM 1.35x 8.8x 35.5x 38.2x
----------------------------------------------------------------------
<CAPTION>
PRICE PER SHARE
MEAN MEDIAN
<S> <C> <C>
Rockies Implied based on Sales Multiple $10.45 $8.87
Implied based on EBITDA Multiple $10.22 $10.16
Implied based on EBIT Multiple $10.58 $7.96
Implied based on Operating N/I Multiple $10.38 $8.50
Implied based on Reported N/I multiple $9.57 $7.84
<CAPTION>
-----------------------------------------------
TARGET LTM FINANCIAL INFORMATION
-----------------------------------------------
NET NET
DATE SALES EBITDA EBIT INCOME
EFFECTIVE TARGET ACQUIROR $MIL $MIL $MIL $MIL(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Pending Back Bay Restaurant Group SRC Holdings Inc. $97.3 $8.2 $4.1 $2.5
Pending Au Bon Pain Bruckmann, Rosser, Sherill & Co $248.8 $20.8 $3.8 ($2.2)
Pending Fuddruckers Inc. King Cannon $134.2 $10.3 $4.5 NA
Pending Sbarro Inc. Sbarro Family $348.2 $80.5 $57.6 $36.2
01/25/99 Spaghetti Warehouse(2) Cracken, Harkey & Co. $66.0 $6.1 $2.3 $1.2
09/01/98 Timber Lodge Steakhouse Inc. GB Foods Corp $29.9 $3.0 $1.3 $0.9
07/31/98 Morrison Restaurants Inc. Piccadilly Cafeterias Inc $241.3 $6.6 ($3.4) ($2.3)
07/21/98 Bertucci's NE Restaurant Co Inc $143.2 $15.6 $6.4(3) $3.6
07/09/98 Pollo Tropical Carrols Corp $67.7 $13.2 $9.8 $5.9
07/07/98 Houlihans Restaurant Group Hampstead/Scoggin $262.6 $22.0 $9.0 ($2.7)
04/28/98 Skyline Chili Inc. Fleet Equity Partners $34.4 $5.6 $3.7 $1.8
04/03/98 DavCo Restaurants Inc Citicorp Venture Capital $238.4 $24.6 $15.4 $9.1
02/03/98 Sagebrush Inc. WSMP Inc. $49.8 $7.7 $4.6 $2.8
01/22/98 El Chico Restaurants Inc. Cracken, Harkey & Co. $102.5 $9.7 $4.1(4) $0.8
01/05/98 International Dairy Queen Inc. Berkshire Hathaway Inc. $421.1 $67.3 $59.7 $38.1
12/23/97 Perkins Family Restaurant LP Restaurant Co. $269.5 $36.1 $20.1 $9.2
10/20/97 Ground Round Restaurants GRR Holdings LLC $195.5 $8.7 ($2.2) ($8.7)
12/02/97 Rudy's Restaurant Group Benihana Inc. $16.5 $2.9 $2.3 $0.8
09/26/97 Krystal Co Port Royal Holdings Inc $248.2 $20.4 $9.3(5) $3.6
07/16/97 Hardees Food Systems Inc. CKE Restaurants Inc $745.1 $31.6 ($17.8) ($15.3)
07/03/97 Monterey's Acquisition Corp. Casa Ole Restaurants Inc. $20.6 $2.3 $1.1 $0.1
06/24/97 Charlie Brown's Inc. Caastle Harlan Partners III NA $8.3 NA NA
05/28/97 Hamburger Hamlet-Restaurants Koo Koo Roo $30.0 $1.0 ($0.6) ($0.9)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Rockies Implied based on Sales Multiple $160.1 $17.2 $8.6 $4.4
Implied based on EBITDA Multiple Reported N/I $4.0
Implied based on EBIT Multiple
Implied based on Operating N/I Multiple
Implied based on Reported N/I multiple
</TABLE>
(1) Fully Taxed
(2) Based on LTM information available at the day of the announcement
(3) Deferred rent expense amount ($.388) on Bertucci's income statement have
been reclassified from operating expense to depreciation and amortization.
(4) Excludes special charges.
(5) Excludes Special Litigation Charge in Q4 of Fiscal 1996 of $4 million
(before income tax benefit).
<PAGE>
MOST COMPARABLE GOING PRIVATE TRANSACTIONS U.S. BANCORP PIPER JAFFRAY INC.
- --------------------------------------------------------------------------------
SIC CODES 5812, 5813
COMPANY VALUE > $10 MILLION
<TABLE>
<CAPTION>
------------------------------------
MULTIPLES
------------------------------------
EQUITY
COMPANY EQUITY COMPANY COMPANY COMPANY VALUE/
DATE VALUE VALUE VALUE/ VALUE/ VALUE/ NET
EFFECTIVE TARGET ACQUIROR $MIL $MIL SALES EBITDA EBIT INCOME
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Topped Bertucci's Ten Ideas $81.1 $71.3 0.6x 5.2x 12.6x 20.0x
Pending Sbarro Inc. Sbarro Family $468.3 $585.0 1.3x 5.8x 8.1x 16.2x
Pending Back Bay Restaurant SRC Holdings Inc. $41.3 $37.7 0.4x 5.0x 10.1x 14.9x
01/25/99 Spaghetti Warehouse(2) Cracken, Harkey & Co. $50.0 $45.5 0.8x 8.2x 22.2x 38.2x
07/21/98 Bertucci's NE Restaurant Co Inc $103.4 $93.6 0.7x 6.6x 16.1x 26.3x
04/03/98 DavCo Restaurants Inc Citicorp Venture Capital $180.3 $133.6 0.8x 7.3x 11.7x 14.7x
01/22/98 El Chico Restaurants Inc. Cracken, Harkey & Co. $57.8 $49.4 0.6x 6.0x 14.3x NM
12/23/97 Perkins Family Restaurant LP Restaurant Co. $214.0 $146.8 0.8x 5.9x 10.7x 15.9x
12/03/97 Ground Round Restaurant GRR Holdings LLC $56.9 $18.4 0.3x 6.5x NM NM
----------------------------------------------------------------------
MINIMUM .29x 5.0x 8.1x 14.7x
MEAN .69x 6.3x 13.2x 20.9x
MEDIUM .72x 6.0x 12.2x 16.2x
MAXIMUM 1.35x 8.2x 22.2x 38.2x
----------------------------------------------------------------------
<CAPTION>
PRICE PER SHARE
MEAN MEDIAN
<S> <C> <C> <C>
Rockies Implied based on Sales Multiple $10.48 $11.03
Implied based on EBITDA Multiple $10.23 $9.60
Implied based on EBIT Multiple $10.82 $9.80
Implied based on Operating N/I Multiple $10.92 $8.64
Implied based on Reported N/I multiple $10.05 $7.97
<CAPTION>
-----------------------------------------------
TARGET LTM FINANCIAL INFORMATION
-----------------------------------------------
NET NET
DATE SALES EBITDA EBIT INCOME
EFFECTIVE TARGET ACQUIROR $MIL $MIL $MIL $MIL(1)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Topped Bertucci's Ten Ideas $143.2 $15.6(3) $6.4 $3.6
Pending Sbarro Inc. Sbarro Family $348.2 $80.5 $57.6 $36.2
Pending Back Bay Restaurant SRC Holdings Inc. $97.3 $8.2 $4.1 $2.5
01/25/99 Spaghetti Warehouse(2) Cracken, Harkey & Co. $66.0 $6.1 $2.3 $1.2
07/21/98 Bertucci's NE Restaurant Co Inc $143.2 $15.6(3) $6.4 $3.6
04/03/98 DavCo Restaurants Inc Citicorp Venture Capital $238.4 $24.6 $15.4 $9.1
01/22/98 El Chico Restaurants Inc. Cracken, Harkey & Co. $102.5 $9.7 $4.1(4) $0.8
12/23/97 Perkins Family Restaurant LP Restaurant Co. $269.5 $36.1 $20.1 $9.2
12/03/97 Ground Round Restaurant GRR Holdings LLC $195.5 $8.7 ($2.2) ($8.7)
<CAPTION>
<S> <C> <C> <C> <C> <C>
Rockies Implied based on Sales Multiple $160.1 $17.2 $8.6 $4.4
Implied based on EBITDA Multiple Reported N/I $4.0
Implied based on EBIT Multiple
Implied based on Operating N/I Multiple
Implied based on Reported N/I multiple
</TABLE>
(1) Fully Taxed
(2) Based on LTM information available at the day of the announcement
(3) Deferred rent expense amount ($.388) on Bertucci's income statement have
been reclassified from operating expense to depreciation and amortization.
(4) Excludes special charges.
<PAGE>
PREMIUMS PAID ANALYSIS
<PAGE>
PREMIUMS PAID ANALYSIS
- --------------------------------------------------------------------------------
- - The following is an analysis of premiums paid relative to recent public
market pre-announcement trading prices for a variety of transactions
including control acquisitions in the restaurant industry as well as
acquisitions of remaining public minority interests.
- - This analysis examines the difference between the acquisition cost and the
target's market capitalization at distinct points in time. This analysis is
based on information obtained from SEC filings, public company disclosures,
press releases, industry and popular press reports, databases and other
sources.
- - We reviewed two distinct comparable groups for the Premiums Paid Analysis:
- Restaurant Sector Acquisitions
* Equity transaction size greater than $15 million
* 1/1/97 - present
- All Going Private Transactions
* Equity transaction size $30 - $300 million
* 1/1/97 - present
* Acquiror owns greater than 80% post transaction
<PAGE>
PREMIUM ANALYSIS-GOING
PRIVATE TRANSACTIONS U.S. BANCORP PIPER JAFFRAY INC.
- -------------------------------------------------------------------------------
Transaction Value > $30 mil < $300 mil,
80% or more owned after transaction
Announcement Date: 1/1/1997 - 3/12/99
Excludes Financial Institutions and REITS
<TABLE>
<CAPTION>
EFFECTIVE EQUITY COMPANY
ANN DATE DATE ACQUIROR FULL NAME TARGET FULL NAME VALUE VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
04/23/98 Withdrawn CONQUEST PARTNERS SPAGHETTI WAREHOUSE, INC $48.4 $50.4
07/07/97 Topped INVESTOR GROUP XPEDITE SYSTEMS $205.3 $250.0
02/13/98 Topped TEN IDEAS INC. BERTUCCI'S INC. $71.3 $79.4
03/13/98 Topped POLLO MANAGEMENT POLLO TROPICAL, INC. $82.6 $83.3
03/31/97 Terminated HICKS, MUSE, TATE, AND FURST THERMAL INDUSTRIES $37.5 $34.3
10/20/97 Terminated INVESTOR GROUP SYBRON CHEMICALS, INC. $195.6 $196.2
03/17/98 Terminated TRACE INTERNATIONAL FOAMEX INTERNATIONAL INC. $338.8 $827.1
05/22/98 Terminated FREMONT PARTNERS INC GLOBAL MOTORSPORT GROUP $112.3 $221.0
06/23/98 Terminated ODYSSEY INVESTMENT PARTNERS CELADON GROUP INC. $153.0 $259.0
11/18/98 Rejected INVESTORS (DAVID TSAN)G OAK TECHNOLOGY INC $183.0 $132.0
11/25/98 Pending SBARRO FAMILY SBARRO INC. $585.0 $468.3
05/29/98 Pending INNOVATIVE COMMUNICATION EMERGING COMMUNICATIONS $112.3 $114.3
06/15/98 Pending SAFEGUARDS SCIENTIFICS METALLURG $148.7 $201.2
08/18/98 Pending WOODS EQUIPMENT CO. ALAMO GROUP, INC. $180.1 $208.0
10/22/98 Pending WELSH, CARSON, ANDERSON & STOWE CENTENNIAL HEALTHCARE CORP. $190.8 $290.8
11/23/98 Pending JAY B. LANGNER & RIDHARD D. SEGAL HUDSON GENERAL CORP. $99.9 $82.9
12/03/98 Pending SRC HOLDINGS BACK BAY RESTAURANT GROUP. $37.7 $41.3
12/29/98 Pending W.R.HAMBRECT & CO. INTERLINQ SOFTWARE CORP. $47.4 $47.4
9/18/98 1/25/99 CRACKEN, HARKEY & CO. SPAGHETTI WAREHOUSE $45.5 $50.0
06/22/98 12/15/98 J.F.LEHMAN & CO. SPECIAL DEVICES $289.0 $268.0
11/09/98 12/15/98 STONINGTON PARTNERS INC. GLOBAL MOTORSPORT GROUP $100.9 $148.2
03/16/98 10/30/98 FPK, LLC NORWOOD PROMOTIONAL PRODUCTS $105.0 $162.5
05/21/98 10/22/98 LICKING RURAL ELECTRIFICATION NATIONAL GAS & OIL CO. $93.0 $99.5
06/22/98 10/02/98 QUESTOR PARTNERS FUND LP GT BICYCLES INC. $78.6 $168.6
04/21/98 09/24/98 CITICORP ALLIED DIGITAL TECHNOLOGIES CORP. $68.1 $84.3
07/17/98 09/02/98 DONALDSON, LUFKIN & JENRETTE DECRANE AIRCRAFT HOLDINGS $183.5 $225.6
06/16/98 08/31/98 LINSALATA CAPITAL PARTNERS FUND II PERSONNEL MANAGEMENT $32.8 $34.5
07/29/98 08/26/98 EBC TEXAS ACQUISITION CORP. E-Z SERVE CORP. $41.6 $104.1
04/21/98 08/25/98 INVESTOR GROUP PCA INTERNATIONAL INC. $210.4 $362.3
02/17/98 08/18/98 HB ACQUISITION CORP. BELL SPORTS CORP. $142.0 $191.7
04/16/98 08/11/98 INVESTCORP BANK HARBORSIDE HEALTHCARE CORP $200.3 $281.3
06/02/98 08/04/98 ADVENTIST HEALTH SYSTEMS HOUSECALL MEDICAL RESOURCES $10.4 $50.2
02/13/98 07/29/98 INVESTOR GROUP GNI GROUP INC. $46.4 $82.4
04/03/98 07/21/98 NE RESTAURANT COMPANY BERTUCCI'S INC. $93.6 $101.7
02/11/98 06/10/98 APOLLO MANAGEMENT, L.P. MTL INC. $189.5 $243.5
</TABLE>
<TABLE>
BREAKUP/ BREAKUP/
TERMINATION TERMINATION
1 MONTH 1 WEEK 1 DAY FEE (MIL.) FEE (MIL.)
EFFECTIVE PRIOR TO PIROR TO PRIOR TO % OF SHARES AS A % AS A % OF
ANN DATE DATE ANNC. ANNC. ANNC. ACQUIRED OF CO. VALUE EQUITY VALUE
- ------------------------ ----- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
04/23/98 Withdrawn 23.6% 17.2% 16.2% 100.00
07/07/97 Topped 20.0% 30.4% 20.8% 100.00
02/13/98 Topped 23.1% 28.0% 29.3% 100.00 1.89% 2.10%
03/13/98 Topped 14.3% 25.0% 26.0% 100.00
03/31/97 Terminated 28.8% 29.9% 29.9% 100.00
10/20/97 Terminated 32.0% 23.8% 23.8% 55.00
03/17/98 Terminated 25.9% 24.8% 15.3% 54.00
05/22/98 Terminated 11.5% 13.6% 12.9% 34.10 2.26% 4.45%
06/23/98 Terminated 40.4% 41.6% 36.8% 100.00 3.09% 5.23%
11/18/98 Rejected 46.9% 20.0% 13.4% 100.00
11/25/98 Pending 20.2% 11.4% 10.8% 68.50
05/29/98 Pending 40.4% 27.0% 30.4% 48.00
06/15/98 Pending 73.9% 71.4% 73.9% 100.00
08/18/98 Pending 2.1% 9.6% 15.6% 100.00 4.81% 5.55%
10/22/98 Pending 80.3% 103.2% 88.2% 100.00 1.03% 1.57%
11/23/98 Pending 15.4% 4.1% 4.8% 100.00 2.11% 1.75%
12/03/98 Pending 28.1% 13.9% 12.3% 100.00 6.05% 6.64%
12/29/98 Pending 15.6% 23.3% 22.3% 75.60
9/18/98 1/25/99 2.4% 32.0% 39.1% 100.00
06/22/98 12/15/98 8.8% 10.9% 6.1% 100.00 2.24% 2.08%
11/09/98 12/15/98 44.4% 14.7% 15.6% 100.00 2.01% 2.97%
03/16/98 10/30/98 23.6% 19.1% 19.1% 100.00
05/21/98 10/22/98 26.1% 18.2% 7.2% 100.00 2.01% 2.15%
06/22/98 10/02/98 36.2% 77.8% 68.4% 100.00 1.19% 2.54%
04/21/98 09/24/98 63.2% 48.1% 27.0% 100.00 5.19% 6.42%
07/17/98 09/02/98 31.4% 28.7% 30.5% 100.00 5.31% 6.52%
06/16/98 08/31/98 23.1% 23.1% 25.5% 100.00 3.62% 3.81%
07/29/98 08/26/98 37.1% 20.0% 37.1% 100.00
04/21/98 08/25/98 17.8% 17.8% 23.3% 83.00
02/17/98 08/18/98 11.3% 15.9% 16.7% 100.00 1.30% 1.76%
04/16/98 08/11/98 (29.8%) (44.1%) (43.3%) 91.00 2.13% 3.00%
06/02/98 08/04/98 (23.8%) (31.5%) (17.9%) 100.00 1.99% 9.62%
02/13/98 07/29/98 40.0% 17.9% 17.9% 100.00 4.85% 8.61%
04/03/98 07/21/98 33.3% 35.5% 35.5% 100.00 2.21% 2.40%
02/11/98 06/10/98 57.6% 38.5% 37.9% 100.00 3.08% 3.96%
</TABLE>
<PAGE>
PREMIUM ANALYSIS-GOING
PRIVATE TRANSACTIONS U.S. BANCORP PIPER JAFFRAY INC.
- -------------------------------------------------------------------------------
Transaction Value > $30 mil < $300 mil,
80% or more owned after transaction
Announcement Date: 1/1/1997 -3/12/99
Excludes Financial Institutions and REITS
<TABLE>
EFFECTIVE EQUITY COMPANY
ANN DATE DATE ACQUIROR FULL NAME TARGET FULL NAME VALUE VALUE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
01/29/98 06/08/98 GOLDER, THOMA, CRESSEY, RAUNER INC. MONROC, INC. $48.6 $53.0
03/11/98 06/04/98 J RICHARD INDUSTRIES PORTEC INC. $71.3 $66.7
12/19/97 05/01/98 CABLES SYSTEMS HOLDING, LLC. IPC INFORMATION SYSTEMS INC. $219.0 $314.3
09/05/97 04/03/98 DAVCO ACQUISITION HOLDING INC. DAVCO RESTAURANTS, INC. $133.6 $180.3
12/23/97 04/01/98 MCCOWN DE LEEUW & CO. UNION CORP $182.7 $192.1
10/02/97 03/30/98 LAZARD FRERES & CO. KAPSON SENIOR QUARTERS CORP $112.4 $252.3
11/14/97 03/25/98 GOLDMAN SACHS & CO. CHARTWELL LEISURE INC. $271.5 $339.0
09/16/97 02/06/98 SUPERCANAL HOLDING S.A. TESCORP INC. $60.3 $66.8
10/17/97 02/05/98 LINSALATA CAPITAL PARTNERS FUND II L.P. TRANZONIC COS. $101.4 $94.2
07/30/97 02/02/98 INVESTOR GROUP PLASTI-LINE, INC. $55.3 $59.6
10/17/97 01/29/98 WEISS, PECK & GREER LLC ATC GROUP SERVICES INC $101.5 $126.9
09/23/97 01/22/98 CRACKEN, HARKEY & CO. LLC. EL CHICO RESTAURANTS INC. $49.4 $57.8
08/14/97 12/29/97 MADISON DEARBORN PARTNERS, INC TUESDAY MORNING CORPORATION $298.7 $319.9
8/4/97 12/23/97 THE RESTAURANT COMPANY PERKINS FAMILY RESTAURANTS LP $146.8 $214.0
07/23/97 12/18/97 APOLLO MANAGEMENT, L.P. ALLIANCE IMAGING INC. $120.2 $187.2
10/01/97 12/05/97 LAND O'LAKES ALPINE LACE BRANDS INC $47.7 $56.7
9/2/97 10/20/97 GRR HOLDINGS GROUND ROUND RESTAURANTS $18.4 $56.9
09/05/97 10/10/97 COLONNADE CAPITAL LLC NATIONAL PICTURE & FRAME CO $59.7 $69.8
06/16/97 09/30/97 KNIGHTSBRIDGE CAPITAL I FREDERICKS OF HOLLYWOOD $68.7 $57.1
07/31/97 09/24/97 AMERICAN INDUSTRIAL PARTNERS BUCYRUS INTERNATIONAL INC $189.6 $247.5
05/30/97 07/03/97 GOLDMAN SACHS & CO INTEGRATED LIVING COMMUNITIES $77.0 $72.5
04/11/97 06/12/97 HEDSTROM CORP. ERO INC. $115.5 $201.9
Rockies @ $10.00 per share
</TABLE>
<TABLE>
PREMIUMS PAID BREAKUP/ BREAKUP/
--------------------------------- TERMINATION TERMINATION
1 MONTH 1 WEEK 1 DAY FEE (MIL.) FEE (MIL.)
EFFECTIVE PRIOR TO PRIOR TO PRIOR TO % OF SHARES AS A % AS A % OF
ANN DATE DATE ANNC. ANNC. ANNC. ACQUIRED OF CO. VALUE EQUITY VALUE
- ----------------------- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
01/29/98 06/08/98 7.7% 10.5% 5.1% 100.00
03/11/98 06/04/98 11.3% 14.3% 8.9% 100.00
12/19/97 05/01/98 18.3% 31.3% 14.3% 90.00
09/05/97 04/03/98 49.5% 52.4% 49.5% 45.00
12/23/97 04/01/98 29.2% 13.5% 14.5% 100.00 4.01% 4.22%
10/02/97 03/30/98 23.1% 20.8% 9.4% 100.00
11/14/97 03/25/98 8.7% 9.5% 8.7% 100.00
09/16/97 02/06/98 38.5% 33.3% 33.3% 100.00
10/17/97 02/05/98 5.5% (2.9%) (1.5%) 100.00
07/30/97 02/02/98 21.3% 27.1% 27.1% 100.00
10/17/97 01/29/98 9.7% (8.1%) 0.0% 89.93
09/23/97 01/22/98 22.9% 17.2% 21.4% 100.00 0.87% 1.01%
08/14/97 12/29/97 17.6% 25.8% 22.7% 100.00
8/4/97 12/23/97 22.4% 17.5% 19.5% 48.00
07/23/97 12/18/97 13.5% 3.5% 7.3% 100.00
10/01/97 12/05/97 15.9% 5.8% (8.8%) 100.00
9/2/97 10/20/97 (9.0%) 10.0% 5.6% 100.00
09/05/97 10/10/97 9.1% 11.0% 11.6% 100.00
06/16/97 09/30/97 22.8% 14.2% 17.0% 100.00
07/31/97 09/24/97 71.4% 46.9% 33.3% 100.00
05/30/97 07/03/97 53.3% 21.1% 26.9% 100.00
04/11/97 06/12/97 32.4% 16.9% 9.8% 100.00
---------------------------------------------------------------------------------------------------
MAX 80.3% 103.2% 88.2% 6.0% 9.6%
MEAN 25.3% 22.0% 20.4% 2.9% 4.0%
MEDIAN 23.1% 19.1% 17.9% 2.2% 3.4%
MIN (29.8%) (44.1%) (43.3%) 0.9% 1.0%
---------------------------------------------------------------------------------------------------
86.0% 66.7% 50.9%
-----------------------------------------------
Rockies Price $5.38 $6.00 $6.63
-----------------------------------------------
</TABLE>
<PAGE>
PREMIUMS PAID ANALYSIS - RESTAURANTS U.S. BANCORP PIPER JAFFRAY INC.
- -------------------------------------------------------------------------------
Announcement Date: 1/1/1997 - 3/12/1999
<TABLE>
EFFECTIVE EQUITY TRANSACTION
ANN DATE DATE ACQUIROR FULL NAME TARGET FULL NAME VALUE VALUE (MM)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
4/15/97 Withdrawn MERITAGE HOSPITALITY GROUP* SKYLINE CHILI INC. $25.4 25.40
3/25/97 Terminated CHECKERS DRIVE-IN RESTAURANT RALLY'S HAMBURGERS $110.6 175.63
2/13/98 Topped TEN IDEAS* BERTUCCI'S $71.3 71.01
3/6/98 ARTHUR TREACHER'S MIAMI SUBS CORPORATION $28.2 28.24
4/23/98 Withdrawn CONQUEST PARTNERS* SPAGHETTI WAREHOUSE $48.4 47.00
5/1/98 Terminated TECH ELECTRO INDUSTRIES DENAMERICA $65.9 77.90
9/18/98 1/25/99 CRACKEN, HARKEY & CO. SPAGHETTI WAREHOUSE $45.5 60.00
3/13/98 Topped POLLO MANAGEMENT* POLLO TROPICAL $82.6 82.55
11/25/98 Pending SBARRO FAMILY SBARRO INC. $585.0 386.70
12/3/98 Pending SRC HOLDINGS BACK BAY RESTAURANT $37.7 35.47
12/11/98 Pending CRACKER BARREL OLD COUNTRY STORE LOGAN'S ROADHOUSE $1,467.8 1,467.84
6/10/98 10/30/98 FAMILY RESTAURANTS KOO KOO ROO $57.8 57.80
12/12/97 9/1/98 GB FOODS CORP. TIMBER LODGE STEAKHOUSE $18.2 17.40
4/23/98 7/31/98 PICADILLY CAFETERIAS MORRISON RESTAURANTS $46.3 46.15
4/3/98 7/21/98 NE RESTAURANT COMPANY BERTUCCI'S INC. $93.6 97.16
6/4/98 7/9/98 CARROLS CORP. POLLO TROPICAL $90.8 90.81
9/26/97 4/28/98 FLEET EQUITY PARTNERS SKYLINE CHILI INC. $22.9 22.93
9/5/97 4/3/98 DAVCO ACQUISITION HOLDING DAVCO RESTAURANTS $133.6 131.88
9/26/97 2/3/98 WSMP SAGEBRUSH INC. $39.4 39.05
9/23/97 1/22/98 CRACKEN, HARKEY & CO. EL CHICO RESTAURANTS $49.4 47.32
10/21/97 1/5/98 BERKSHIRE HATHAWAY INTERNATIONAL DAIRY QUEEN $585.0 582.75
8/4/97 12/23/97 THE RESTAURANT COMPANY PERKINS FAMILY RESTAURANTS LP $146.8 76.30
7/23/97 12/2/97 BENIHANA RUDY'S RESTAURANT GROUP $17.6 18.83
9/2/97 10/20/97 GRR HOLDINGS GROUND ROUND RESTAURANTS $18.4 19.68
7/3/97 9/26/97 PORT ROYAL HOLDINGS KRYSTAL COMPANY $108.4 145.40
5/28/97 7/17/97 COMPASS GROUP PLC DAKA INTERNATIONAL $83.7 195.00
3/11/97 5/23/97 EQUITY GROUP INVESTMENTS CHART HOUSE ENTERPRISES $67.4 19.55
Rockies @ $10.00 per share
</TABLE>
* Initial merger announcements, the premium paid one day prior based on the
announcement date is the following:
NE Restaurant - Bertucci's: 69.7%
Carrols Corp - Pollo Tropical: 38.6%
Fleet Equity Partners - Skyline Chili: (2.7%)
Cracken Harkey - Spaghetti Warehouse: 9.4%
<TABLE>
PREMIUMS PAID
-------------------------------------
1 MONTH 1 WEEK 1 DAY
EFFECTIVE PRIOR TO PRIOR TO PRIOR TO % OF SHARES
ANN DATE DATE ANNOUN. ANNOUN. ANNOUN. ACQUIRED
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
4/15/97 Withdrawn 3.4% 10.1% 8.1% 100.00
3/25/97 Terminated 39.1% 65.9% 59.7% 100.00
2/13/98 Topped 23.1% 28.0% 29.3% 100.00
3/6/98 146.3% 60.0% 28.0% 100.00
4/23/98 Withdrawn 23.6% 17.2% 16.2% 100.00
5/1/98 Terminated 77.8% 45.5% 23.1% 100.00
9/18/98 1/25/99 2.4% 32.0% 39.1% 100.00
3/13/98 Topped 14.3% 25.0% 26.0% 100.00
11/25/98 Pending 20.2% 11.4% 10.8% 68.50
12/3/98 Pending 28.1% 13.9% 12.3% 100.00
12/11/98 Pending 33.3% 10.3% 13.9% 100.00
6/10/98 10/30/98 18.8% 39.7% 3.3% 100.00
12/12/97 9/1/98 76.4% 74.1% 74.1% 100.00
4/23/98 7/31/98 65.9% 29.0% 14.3% 100.00
4/3/98 7/21/98 33.3% 35.5% 35.5% 100.00
6/4/98 7/9/98 18.9% 7.3% 10.0% 100.00
9/26/97 4/28/98 1.9% 3.8% 3.8% 100.00
9/5/97 4/3/98 49.5% 52.4% 49.5% 45.00
9/26/97 2/3/98 16.9% 10.6% 13.0% 100.00
9/23/97 1/22/98 22.9% 17.2% 21.4% 100.00
10/21/97 1/5/98 10.5% 9.1% 11.9% 100.00
8/4/97 12/23/97 22.4% 17.5% 19.5% 52.00
7/23/97 12/2/97 73.9% 70.2% 50.9% 100.00
9/2/97 10/20/97 (9.0%) 10.0% 5.6% 100.00
7/3/97 9/26/97 176.2% 169.8% 132.0% 100.00
5/28/97 7/17/97 (7.0%) (35.5%) (33.3%) 100.00
3/11/97 5/23/97 2.2% 4.5% 2.2% 28.99
-----------------------------------------------------------
MAX 176.2% 169.8% 132.0%
MEAN 36.5% 30.9% 25.2%
MEDIAN 22.9% 17.5% 16.2%
MIN (9.0%) (35.5%) (33.3%)
-----------------------------------------------------------
86.0% 66.7% 50.9%
-----------------------------------------------------------
Rockies Price $5.38 $6.00 $6.63
-----------------------------------------------------------
</TABLE>
<PAGE>
DISCOUNTED CASH FLOW ANALYSIS
<PAGE>
DISCOUNTED CASH FLOW ANALYSIS
- --------------------------------------------------------------------------------
- - The discounted cash flow analysis is used to calculate a range of
theoretical values for Rockies based on (i) the net present value of
implied future cash flows and (ii) a terminal value which estimates the
value of Rockies in 2003 by applying a multiple of operating income in
2003.
DESCRIPTION OF ANALYSIS
- - The discounted cash flow analysis shows the calculation of a range of net
present values for Rockies based on a range of discount rates and a range
of operating income multiples for the terminal value. These discount rates
and operating income multiples were determined using weighted average cost
of capital computations, qualitative assessments of Company projections and
relevant industry experience.
<TABLE>
<CAPTION>
Discount Rate EBIT Multiple
------------- -------------
<S> <C> <C>
Public Company Assumptions 20% - 24% 9-11x
Private Company Assumptions 18% - 22% 8-1Ox
</TABLE>
- - Differences between the Public Model and the Private Model include the
timing of new store openings, capital expenditures and depreciation
associated with new store openings, and general and administrative
expenses. The assumptions for the Private Model were supplied by the
Company's management based on changes to the Public Model contemplated by
RB Capital's business plan. New stores are projected to open at a slower
pace in the private company model because less cash would be available due
to the need to service debt. Capital expenditures and depreciation would
decrease in the private company model as a result of fewer store openings.
G&A expense would also decrease in the private company model from the
elimination of certain positions no longer necessary in a private company
as well as decreased consultant costs, investor relations and public filing
costs not associated with a private company.
- - The projected income statement and working capital assumptions for the
Public Company model for 1999 through 2003, supplied by management, can be
found on the following pages. The complete Private Company model can be
found in the LBO Analysis section.
<PAGE>
PUBLIC MODEL
- --------------------------------------------------------------------------------
Fiscal Year Ended December 31
$ in 000's except per share data
ROCKIES STORE BUILD-UP MODEL
<TABLE>
<CAPTION>
----------------------------------------------------------------------
1999 2000 2001 2002 2003
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stores Beginning of Year 22 26 28 32 36
New Stores (Conversions) 3 1 3 2 2
New Stores (Prototypes) 1 1 1 2 2
----------------------------------------------------------------------
Stores End of Year 26 28 32 36 40
AVERAGE WEEKLY SALES
1997 Stores 81.5 85.2 88.2 91.3 94.5
4.5% 3.5% 3.5% 3.5%
1998 Stores 77.0 80.5 83.3 86.3 89.3
4.6% 3.5% 3.5% 3.5%
1999 Stores 76.1 79.6 82.4 85.3 88.3
4.6% 3.5% 3.5% 3.5%
2000 Stores 72.8 75.4 78.0 80.8
3.5% 3.5% 3.5%
2001 Stores 77.5 80.2 83.0
3.5% 3.5%
2002 Stores 79.3 82.1
3.4%
2003 Stores 83.0
</TABLE>
<PAGE>
PUBLIC MODEL
- --------------------------------------------------------------------------------
Fiscal Year Ended December 31
$ in 000's except per share data
CUBS STORE BUILD-UP MODEL
<TABLE>
<CAPTION>
----------------------------------------------------------------------
1999 2000 2001 2002 2003
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stores Beginning of Year 39 41 45 49 54
New Stores (Conversions) 2 4 4 5 5
----------------------------------------------------------------------
Stores End of Year 41 45 49 54 59
AVERAGE WEEKLY SALES
1997 Stores 37.0 38.7 40.1 41.5 42.9
4.6% 3.7% 3.4% 3.4%
1998 Stores 0 0 0 0 0
1999 Stores 35.6 37.2 38.5 39.9 41.3
4.6% 3.5% 3.5% 3.5%
2000 Stores 37.2 38.5 39.9 41.3
3.5% 3.5% 3.5%
2001 Stores 38.5 39.9 41.3
3.5% 3.5%
2002 Stores 39.9 41.3
3.5%
2003 Stores 41.3
2.5%
</TABLE>
<PAGE>
PUBLIC MODEL
- --------------------------------------------------------------------------------
Fiscal Year Ended December 31
$ in 000's except per share data
CUBS STORE BUILD-UP MODEL
<TABLE>
<CAPTION>
------------------------------------------------------------------------
1999 2000 2001 2002 2003
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
WEEKS STORE OPEN
1997 Stores 39 2028 2067 2028 2028 2028
1998 Stores 0 0 0 0 0 0
1999 Stores 2 52 106 104 104 104
2000 Stores 4 115 208 208 208
2001 Stores 4 124 208 208
2002 Stores 5 170 260
2003 Stores 5 170
2004 Stores 4
Existing Stores 75,034.0 83,902.7 93,337.3 104,808.7 119,118.8
New Stores 1,850.1 4,277.7 4,775.0 6,777.1 7,021.0
----------------------------------------------------------------------
TOTAL REVENUE $76,884.1 $88,180.4 $98,112.3 $111,585.7 $126,139.8
Maintenance CapEx per Existing Store 45 46 46 45 46
CapEx per New Store 740 1,000 1,080 1,134 1,162
Preopening Cost per New Store 148 110 119 125 128
Maintenance CapEx 1,750 1,900 2,050 2,200 2,484
Total CapEx for New Stores 1,481 4,000 4,320 5,670 5,810
Preopening Costs 297 440 475 625 641
----------------------------------------------------------------------
Total CapEx (excl. preopening costs) 3,231 5,900 6,370 7,870 8,294
Corporate CapEx 500 400 400 400 400
- -------------------------------------------------------------------------------------------------------------------
TOTAL CAPEX $17,918 $13,586 $19,507 $22,284 $23,428
Decrease in cost reduction* 6,832 0 0 0 0
----------------------------------------------------------------------
$11,087 $13,586 $19,507 $22,284 $23,428
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
*Represents a reduction in asset cost for the sale and leaseback of 3 OC
locations (Longmont, Greeley, Grand Junction): $3,157, Warrenville: $1,254 and
Phoenix: $902.
<PAGE>
PUBLIC MODEL
FISCAL YEAR ENDED DECEMBER 31
$ IN 000'S EXCEPT PER SHARE DATA
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION> --------------------------- ------------------------------------------------------------------
ACTUAL PROJECTED
--------------------------- ------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003
--------------------------- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT ASSUMPTIONS
NET SALES 150,248.0 160,101.6 178,773.3 207,481.5 232,364.9 265,882.4 303,038.0
% Net Sales Growth 6.6% 11.7% 16.1% 12.0% 14.4% 14.0%
Cost of Sales as a % of Net Sales 25.1% 25.4% 24.9% 25.0% 25.0% 25.0% 25.0%
GROSS PROFIT MARGIN 74.9% 74.6% 75.1% 75.0% 75.0% 75.0% 75.0%
Labor and Related as a % of
Net Sales 34.0% 33.5% 33.5% 33.5% 33.5% 33.5% 33.5%
Operating expenses as a % of
Net Sales 20.4% 12.8% 12.5% 12.6% 12.4% 12.4% 12.4%
Selling Expenses as a % of
Net Sales 3.8% 3.2% 3.3% 3.3% 3.3% 3.3% 3.3%
Occupancy as a % of Net Sales 0.0% 7.1% 7.5% 7.5% 7.4% 7.4% 7.4%
Depreciation as a % of Net Sales 5.1% 4.9% 4.9% 4.9% 4.9% 4.9% 5.2%
Preopening Amortization/Costs
as a % of Net Sales 2.9% 0.0% 0.8% 0.4% 0.6% 0.6% 0.5%
--------------------------- ------------------------------------------------------------------
Total Operating Expenses
as a % of Net Sales 66.3% 62.7% 62.6% 62.1% 62.1% 62.1% 62.3%
RESTAURANT OPERATING MARGIN 8.6% 11.9% 12.5% 12.9% 12.9% 12.9% 12.7%
OPERATING MARGIN 2.6% 5.4% 5.3% 6.8% 7.3% 7.8% 8.1%
Interest Income (Expense) as a
% of Net Sales -1.2% -1.5% -1.0% -0.7% -0.5% -0.4% -0.3%
Other (Expense) Income (3) as a
% of Net Sales -6.5% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
PRETAX MARGIN -5.1% 4.9% 4.1% 6.1% 6.7% 7.4% 7.8%
Tax Rate % 33.8% 32.5% 34.0% 34.0% 34.0% 34.0% 34.0%
NET MARGIN -3.3% 3.3% 2.7% 4.0% 4.4% 4.9% 5.1%
</TABLE>
-51-
<PAGE>
PUBLIC MODEL
FISCAL YEAR ENDED DECEMBER 31
$ IN 000'S EXCEPT PER SHARE DATA
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION> ------------------------- -------------------------------------------------------------------
ACTUAL PROJECTED
------------------------- -------------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003
------------------------- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
NET SALES $150,248.0 $160,101.6 $178,773.3 $207,481.5 $232,364.9 $265,882.4 $303,038.0
GROWTH % 6.6% 11.7% 16.1% 12.0% 14.4% 14.0%
------------------------- --------------------------------------------------------------------
Cost of Sales 37,672.0 40,624.7 44,550.0 51,798.0 58,091.2 66,470.6 75,759.5
------------------------- --------------------------------------------------------------------
GROSS PROFIT 112,576.0 119,476.9 134,223.3 155,683.5 174,273.7 199,411.8 227,278.5
GROSS MARGIN % 74.9% 74.6% 75.1% 75.0% 75.0% 75.0% 75.0%
RESTAURANT OPERATING EXPENSES
Labor and Related 51,086.0 53,632.3 59,869.0 69,447.0 77,842.2 89,070.6 101,517.7
Operating Expenses 30,627.0 20,542.3 22,381.0 26,055.0 28,813.3 32,969.4 37,576.7
Selling Expenses 5,773.0 5,098.9 5,840.0 6,810.0 7,668.0 8,774.1 10,000.3
Occupancy 0.0 11,364.0 13,466.0 15,480.0 17,195.0 19,675.3 22,424.8
Other operating expense
(income) 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Depreciation 7,714.0 7,919.0 8,819.0 10,200.0 11,424.0 13,101.3 15,718.0
Preopening Costs 0.0 1,808.5 1,486.9 890.0 1,447.2 1,625.0 1,666.3
Preopening Amortization 4,422.0 0.0 0.0 0.0 0.0 0.0 0.0
------------------------- --------------------------------------------------------------------
TOTAL OPERATING EXPENSES 99,622.0 100,364.7 111,861.9 128,882.0 144,389.8 165,215.4 188,903.7
------------------------- --------------------------------------------------------------------
RESTAURANT OPERATING INCOME 12,954.0 19,112.2 22,361.4 26,801.5 29,883.9 34,196.4 38,374.7
OPERATING MARGIN % 8.6% 11.9% 12.5% 12.9% 12.9% 12.9% 12.7%
General and Administrative (1) 9,073.5 9,818.4 12,106.0 11,787.0 12,141.0 12,505.0 13,056.0
Corporate D&A 696.0 796 821 846 871 900
------------------------- --------------------------------------------------------------------
OPERATING INCOME 3,880.5 8,597.8 9,459.4 14,193.5 16,896.9 20,820.4 24,418.7
OPERATING MARGIN % 2.6% 5.4% 5.3% 6.8% 7.3% 7.8% 8.1%
Interest (Expense) Income (2) (1,763.0) (2,378.1) (1,843.7) (1,511.2) (1,253.6) (1,015.6) (815.0)
Other (Expense) Income (3) (9,706.0) 1,554.0 (297.0) 0.0 0.0 0.0 0.0
------------------------- --------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) (11,469.0) (824.1) (2,140.7) (1,511.2) (1,253.6) (1,015.6) (815.0)
------------------------- --------------------------------------------------------------------
INCOME BEFORE INCOME TAXES (7,588.5) 7,773.7 7,318.7 12,682.4 15,643.4 19,804.7 23,603.7
PRE-TAX MARGIN % -5.1% 4.9% 4.1% 6.1% 6.7% 7.4% 7.8%
Provision For Income Taxes (2,568.0) 2,526.5 2,488.4 4,312.0 5,318.7 6,733.6 8,025.3
TAX RATE % 33.8% 32.5% 34.0% 34.0% 34.0% 34.0% 34.0%
------------------------- --------------------------------------------------------------------
NET INCOME ($5,020.5) $5,247.2 $4,830.3 $8,370.4 $10,324.6 $13,071.1 $15,578.5
------------------------- --------------------------------------------------------------------
------------------------- --------------------------------------------------------------------
NET MARGIN % -3.3% 3.3% 2.7% 4.0% 4.4% 4.9% 5.1%
EBITDA (EXCLUDES PREOPENING
COSTS/AMORTIZATION) 11,594.5 17,212.8 19,074.4 25,214.5 29,166.9 34,792.4 41,036.7
</TABLE>
(1) INCLUDES PROJECT ROCKIES COSTS
(2) AVERAGE CASH BALANCE EARNS 5%
(3) INCLUDES THE EQUITY IN JOINT VENTURE EARNINGS, GAIN ON SALE OF INVESTMENT
IN JOINT VENTURE AND INTEREST INCOME
<PAGE>
PUBLIC MODEL
FISCAL YEAR ENDED DECEMBER 31
$ IN 000'S EXCEPT PER SHARE DATA
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACTUAL PROJECTED
-------------------------- -------------------------------------------------------------
1997 1998 1999 2000 2001 2002 2003
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and Cash Equivalents $ 623.0 $ 449.4 $ 500.0 $ 500.0 $ 500.0 $ 4,931.6 $ 16,052.1
Cash required for Operations $ 1,000.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Accounts Receivable 1,055.0 321.0 353.0 388.0 427.0 470.0 515.0
Inventories 2,727.0 2,532.0 2,828.0 3,281.0 3,673.0 4,205.0 4,750.0
Prepaid Expenses 1,613.0 1,026.0 1,085.0 1,199.0 1,283.0 1,408.0 1,530.0
Current Deferred Income Taxes 219.0 0.0 0.0 0.0 0.0 0.0 0.0
Preopening Costs, net 1,520.0 0.0 0.0 0.0 0.0 0.0 0.0
------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 8,757.0 4,328.4 4,766.0 5,368.0 5,883.0 11,014.6 22,847.1
LONG-TERM ASSETS:
Gross Fixed Assets 108,209.2 119,147.5 130,233.7 143,819.7 163,326.7 185,611.7 209,039.7
LESS ACCUMULATED DEPRECIATION 17,395.2 23,966.7 33,878.7 44,899.7 57,169.7 71,141.7 87,759.7
------------------------------------------------------------------------------------------
Net Fixed Assets 90,814.0 95,180.8 96,355.0 98,920.0 106,157.0 114,470.0 121,280.0
Investment in Joint Venture 5,553.0 0.0 0.0 0.0 0.0 0.0 0.0
Deferred Income Taxes 2,335.0 1,817.8 1,818.0 1,818.0 1,818.0 1,818.0 1,818.0
Other Long-term Assets 736.0 260.1 273.0 287.0 301.0 316.0 330.0
------------------------------------------------------------------------------------------
TOTAL ASSETS: $108,195.0 $101,587.2 $103,212.0 $106,393.0 $114,159.0 $127,618.6 $146,275.1
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
LIABILITIES
CURRENT LIABILITIES:
Revolver $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0 $ 0.0
Accounts Payable 4,341.0 5,565.0 5,843.0 6,135.0 6,442.0 6,764.0 7,085.0
Accrued Taxes other than Income
Taxes 1,023.0 3,271.0 3,000.0 3,000.0 3,000.0 3,000.0 3,000.0
Accrued Expenses 5,871.0 2,223.0 2,373.0 2,523.0 2,673.0 2,823.0 2,975.0
Accrued Restructuring Costs/Other
Liabilities 2,447.0 431.0 0.0 0.0 0.0 0.0 0.0
Current Portion Long-term Debt 642.0 404.0 199.0 250.0 312.0 422.0 486.0
------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 14,324.0 11,894.0 11,415.0 11,908.0 12,427.0 13,009.0 13,546.0
LONG-TERM LIABILITIES:
Revolving Line 26,450.0 19,050.0 13,955.5 7,027.1 2,767.5 0.0 0.0
Capital Lease Obligations 2,334.0 2,256.0 5,335.0 6,627.0 7,863.0 10,498.0 13,100.0
Long Term Debt 2,375.0 2,195.3 2,106.0 2,009.0 1,904.0 1,792.0 1,680.0
Accrued Restructuring Costs/Other
Liabilities 1,494.0 769.2 0.0 0.0 0.0 0.0 0.0
------------------------------------------------------------------------------------------
TOTAL NON-CURRENT LIABILITIES 32,653.0 24,270.6 21,396.5 15,663.1 12,534.5 12,290.0 14,780.0
------------------------------------------------------------------------------------------
TOTAL LIABILITIES: 46,977.0 36,164.6 32,811.5 27,571.1 24,961.5 25,299.0 28,326.0
STOCKHOLDERS' EQUITY:
Preferred Stock 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Common Stock 81.0 80.6 80.6 80.6 80.6 80.6 80.6
Additional Paid-in Capital 58,320.0 58,287.9 58,288.4 58,288.4 58,288.4 58,288.4 58,288.4
Deferred Compensation/Treasury
Stock (975.0) (735.0) (588.0) (537.0) (486.0) (435.0) (384.0)
Retained Earnings 3,792.0 7,789.2 12,619.5 20,989.9 31,314.5 44,385.6 59,964.1
------------------------------------------------------------------------------------------
TOTAL STOCKHOLDER'S EQUITY 61,218.0 65,422.6 70,400.5 78,821.9 89,197.5 102,319.6 117,949.1
------------------------------------------------------------------------------------------
TOTAL LIABILITIES & STOCKHOLDERS'
EQUITY $108,195.0 $101,587.2 $103,212.0 $106,393.0 $114,159.0 $127,618.6 $146,275.1
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PUBLIC MODEL
FISCAL YEAR ENDED DECEMBER 31
$ IN 000'S EXCEPT PER SHARE DATA
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ACTUAL PROJECTED
--------------- -------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET INCOME $ 3,997.2 $ 4,830.3 $ 8,370.4 $10,324.6 $13,071.1 $15,578.5
Depreciation & Amortization 6,571.5 9,912.0 11,021.0 12,270.0 13,972.0 16,618.0
Increase (Decrease) in Deferred
Income Taxes 0.0 0.0 0.0 0.0 0.0 0.0
WORKING CAPITAL ACCOUNTS:
(Increase) Decrease in Accounts
Receivable 734.0 (32.0) (35.0) (39.0) (43.0) (45.0)
(Increase) Decrease in Inventories 194.9 (295.9) (453.0) (392.0) (532.0) (545.0)
(Increase) Decrease in Prepaid
Expenses 587.0 (59.0) (114.0) (84.0) (125.0) (122.0)
(Increase) Decrease in Current
Deferred Income Taxes 219.0 0.0 0.0 0.0 0.0 0.0
(Increase) Decrease Preopening
Costs, net 1,520.0 0.0 0.0 0.0 0.0 0.0
Increase (Decrease)in Accounts
Payable 1,224.0 278.0 292.0 307.0 322.0 321.0
Increase (Decrease)in Accrued
Taxes other than Income Taxes 2,248.0 (271.0) 0.0 0.0 0.0 0.0
Increase (Decrease)in Accrued
Expenses (3,648.0) 150.0 150.0 150.0 150.0 152.0
Increase (Decrease)in Accrued
Restructuring Costs/Other
Liabilities (2,016.0) (431.0) 0.0 0.0 0.0 0.0
---------------------------------------------------------------------------------------
(INCREASE) DECREASE IN NET WORKING
CAPITAL 1,062.9 (660.9) (160.0) (58.0) (228.0) (239.0)
SOURCE (USE) OF CASH OPERATIONS 11,631.5 14,081.4 19,231.4 22,536.6 26,815.1 31,957.5
INVESTING ACTIVITIES
(Increase) Decrease in Gross Fixed
Assets (10,938.3) (11,086.2) (13,586.0) (19,507.0) (22,285.0) (23,428.0)
(Increase) Decrease in Investment
in Joint Venture 5,553.0 0.0 0.0 0.0 0.0 0.0
(Increase) Decrease in Deferred
Income Taxes 517.2 (0.2) 0.0 0.0 0.0 0.0
(Increase) Decrease in Other
Long-term Assets 475.9 (12.9) (14.0) (14.0) (15.0) (14.0)
Increase (Decrease) in Accrued
Restructuring Costs/Other
Liabilities (724.8) (769.2) 0.0 0.0 0.0 0.0
---------------------------------------------------------------------------------------
SOURCE (USE) OF CASH FROM INVESTING
ACTIVITIES (5,117.0) (11,868.5) (13,600.0) (19,521.0) (22,300.0) (23,442.0)
- -------------------------------------------------------------------------------------------------------------------------------
FINANCIAL ACTIVITIES
Increase (Decrease) in Revolver 0.0 0.0 0.0 0.0 0.0 0.0
Increase (Decrease) in Current
Portion Long-term Debt (238.0) (205.0) 51.0 62.0 110.0 64.0
Increase (Decrease) in Revolving
Line, net (7,400.0) (5,094.5) (6,928.4) (4,259.6) (2,767.5) 0.0
Increase (Decrease) in Capital
Lease Obligations, net (78.0) 3,079.0 1,292.0 1,236.0 2,635.0 2,602.0
Increase (Decrease) in Long Term
Debt, net (179.7) (89.3) (97.0) (105.0) (112.0) (112.0)
Increase (Decrease) in Deferred
Compensation/Treasury Stock, net 240.0 147.0 51.0 51.0 51.0 51.0
Increase (Decrease) in Common Stock,
net (0.4) 0.0 0.0 0.0 0.0 0.0
Increase (Decrease) in Additional
Paid-in Capital (32.1) 0.5 0.0 0.0 0.0 0.0
---------------------------------------------------------------------------------------
SOURCE (USE) OF CASH FROM FINANCING
ACTIVITIES (7,688.2) (2,162.3) (5,631.4) (3,015.6) (83.5) 2,605.0
NET CHANGE IN CASH (1,173.6) 50.6 0.0 0.0 4,431.6 11,120.5
BEGINING CASH BALANCE 1,623.0 449.4 500.0 500.0 500.0 4,931.6
---------------------------------------------------------------------------------------
ENDING CASH BALANCE $ 494.4 $ 500.0 $ 500.0 $ 500.0 $ 4,931.6 $16,052.1
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LBO ANALYSIS
<PAGE>
LBO ANALYSIS
- --------------------------------------------------------------------------------
- - The objective of the leveraged buyout analysis is to analyze the
feasibility of a leveraged buyout at $10.00 by estimating the returns for
equity sponsors and other investors in the capital structure and comparing
those returns to industry standards.
- - The returns are derived based on the Private Model and customary capital
structure assumptions for a leveraged buyout.
- - The leveraged buyout analysis assumes a "going private" transaction in the
second quarter 1999 at a per share buyout price of $10.00.
- - A leveraged buyout at this price provides returns which are within
acceptable return parameters for the various investors in the capital
structure.
<PAGE>
LBO ANALYSIS
- -------------------------------------------------------------------------------
Fiscal Year Ended December 31
$ in 000's except per share data
SOURCES & USES OF FUNDS
MARKET VALUE
<TABLE>
<S> <C>
Stock Price on 1/25/99 $6.63
Purchase Premium 50.9%
---------
Buyout Price per Share $10.00
Number of Shares Outstanding (000) 8,291
---------
IMPLIED PURCHASE PRICE OF 100% OF EQUITY: $82,908
---------
---------
Number of Shares Purchased (000s) 8,291
---------
</TABLE>
USES
<TABLE>
<S> <C>
Purchase Price of Equity $82,908
Existing Debt to Be Refinanced (3) $21,097
---------
Total Purchase Price $104,005
Estimated Advisory Fees $3,000
Financing/Placement Fees $3,000
---------
Total Uses of Funds $110,005
---------
---------
</TABLE>
SOURCES
<TABLE>
<CAPTION>
Rate Maturity % of Total Amount Ownership
--------- ----------- -------------- -------- -------------
<S> <C> <C> <C> <C> <C>
Cash on Balance sheet (3) N/A N/A 0.4% $438 N/A
Assumed Debt/Capital Lease Obligations 9.0% 0 7.1% $7,851 N/A
Revolver 10.0% N/A 0.0% ($0) N/A
Term Loan A 8.8% 8 Years 50.9% $55,944 0.0%
Term Loan B 9.1% 8 Years 0.0% $0 0.0%
Senior Subordinated Note (22.9% IRR)* 12.0% 10 Years 18.5% $20,343 7.0%
--------
TOTAL DEBT $84,138
Common Equity
LBO Fund (37.0% IRR)* N/A N/A 23.1% $25,429 93.0%
Management N/A N/A 0.0% $0 0.0%
--------
TOTAL EQUITY $25,429
--------
TOTAL SOURCES OF FUNDS $110,005
--------
--------
</TABLE>
* Equity value is calculated using a 5.0x EBITDA Multiple on year 2003
1999 PROFORMA CAPITAL STRUCTURE ANALYSIS
<TABLE>
<CAPTION>
Multiple of Multiple of
Amount Percent 1998 EBITDA 1999 EBITDA
-------- --------- -----------------------------
<S> <C> <C> <C> <C>
Revolving Line of Credit ($0) 0.0% 0.0x 0.0x
Existing Debt $7,851 8.9% 0.5x 0.4x
Term Loan A $55,944 63.7% 3.3x 2.8x
Term Loan B $0 0.0% 0.0x 0.0x
Senior Subordinated Note (22.9% IRR)* $20,343 23.2% 1.2x 1.0x
Preferred Stock $0 0.0% 0.0x 0.0x
Stockholders' Equity $3,622 4.1% 0.2x 0.2x
-------- --------- -----------------------------
TOTAL $87,761 100.0% 5.1x 4.5x
-------- --------- -----------------------------
-------- --------- -----------------------------
</TABLE>
(1) Fixed Charge Coverage = (EBITDA - Capex - Current Taxes) / (Interest +
Scheduled Principal Repayments)
(2) Free Cash Flow = EBITDA - Capital Expenditures - Change in Working
Capital. 1998 EBIT is normalized
(3) Based on Q2 1999 balance sheet
LEVERAGE/COVERAGE
<TABLE>
<CAPTION>
LEVERAGE 1999 2000 2001 2002 2003
<S> <C> <C> <C> <C> <C>
Total Debt/EBITDA 4.4x 3.3x 2.8x 2.3x 1.9x
Total Debt/(EBITDA - CAPEX) 10.0x 7.1x 5.6x 4.2x 3.3x
Total Debt/Equity 16.9x 8.9x 5.1x 3.1x 1.9x
COVERAGE
EBITDA/Interest Expense 3.8x 3.2x 3.8x 4.6x 5.5x
(EBITDA - CAPEX)/Interest Expense 1.7x 1.5x 1.9x 2.5x 3.1x
Fixed Charge Coverage(1) 0.3x 0.6x 0.7x 0.9x 1.0x
</TABLE>
PURCHASE PRICE MULTIPLES
<TABLE>
<S> <C>
EQUITY PURCHASE PRICE $82,908
Plus: Assumed Debt $21,097
Less: Excess Cash $438
----------
COMPANY VALUE $103,567
----------
----------
<CAPTION>
Value Multiple
----- --------
<S> <C> <C>
PURCHASE PRICE MULTIPLES
Company Value/1998 EBIT (2) $8,598 12.0x
Company Value/1998 EBITDA $17,213 6.0x
Company Value/1999 EBIT $10,080 10.3x
Company Value/1999 EBITDA $19,695 5.3x
Company Value/1999 Free Cash Flow (2) $7,948 13.0x
Company Value/1999 Revenue $178,773 0.6x
</TABLE>
GOODWILL CALCULATION
<TABLE>
<S> <C>
Equity Purchase Price $82,908
Financing Fees 6,000
Book Value of Equity 67,101
---------
Goodwill Assumed NM
Goodwill Amortization Life Expectancy 15 Years
---------
Goodwill Expense per Year NM
Financing Fees Life Expectancy 5 Years
---------
Financing Fees per Year NM
</TABLE>
<PAGE>
PRIVATE MODEL
- --------------------------------------------------------------------------------
Fiscal Year Ended December 31
$ in 000's except per share data
ROCKIES STORE BUILD-UP MODEL
<TABLE>
<CAPTION>
----------------------------------------------------------------------
1999 2000 2001 2002 2003
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stores Beginning of Year 22 26 28 30 32
New Stores (Conversions) 3 1 1 1 1
New Stores (Prototypes) 1 1 1 1 1
----------------------------------------------------------------------
Stores End of Year 26 28 30 32 34
AVERAGE WEEKLY SALES
1997 Stores 81.5 85.2 88.2 91.3 94.5
4.5% 3.5% 3.5% 3.5%
1998 Stores 77.0 80.5 83.3 86.3 89.3
4.6% 3.5% 3.5% 3.5%
1999 Stores 76.1 79.6 82.4 85.3 88.3
4.6% 3.5% 3.5% 3.5%
2000 Stores 72.8 75.4 78.0 80.8
3.5% 3.5% 3.5%
2001 Stores 73.3 75.8 78.5
3.4% 3.6%
2002 Stores 81.7 84.5
3.4%
2003 Stores 73.3
2004 Stores
</TABLE>
<PAGE>
PRIVATE MODEL
- --------------------------------------------------------------------------------
Fiscal Year Ended December 31
$ in 000's except per share data
ROCKIES STORE BUILD-UP MODEL
<TABLE>
<CAPTION>
------------------------------------------------------------------------
1999 2000 2001 2002 2003
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
WEEKS STORE OPEN
1997 Stores 18 936 954 936 936 936
1998 Stores 4 208 212 208 208 208
1999 Stores 4 126 212 208 208 208
2000 Stores 2 56 104 104 104
2001 Stores 2 61 104 104
2002 Stores 2 53 104
2003 Stores 2 53
2004 Stores 2
EXISTING STORES 92,300.0 115,223.7 124,874.0 137,158.7 150,789.3
NEW STORES 9,589.2 4,077.5 4,434.7 4,289.3 3,848.3
----------------------------------------------------------------------
TOTAL REVENUE $101,889.2 $119,301.2 $129,308.7 $141,448.0 $154,637.6
Maintenance CapEx per Existing Store 80 73 73 69 75
CapEx per New Store(Conversions) 2,858 2,310 2,495 2,620 2,685
CapEx per New Store(Prototypes) 2,166 1,576 1,703 1,788 1,832
Preopening Cost per New Store 298 225 243 250 256
Capitalized Lease per New Store 1,698 1,500 1,500 1,500 1,500
Maintenance CapEx 1,750 1,900 2,050 2,063 2,400
Total CapEx per New Store(Conversions) 8,573 2,310 2,495 2,620 2,685
Total CapEx per New Store(Prototypes) 2,166 1,576 1,703 1,788 1,832
Preopening Costs 1,190 450 486 500 513
Growth CapEx financed through Capitalized lea 1,698 1,500 1,500 1,500 1,500
----------------------------------------------------------------------
Total CapEx (excl. preopening costs) 14,187 7,286 7,747 7,970 8,417
</TABLE>
<PAGE>
PRIVATE MODEL
- --------------------------------------------------------------------------------
Fiscal Year Ended December 31
$ in 000's except per share data
CUBS STORE BUILD-UP MODEL
<TABLE>
<CAPTION>
----------------------------------------------------------------------
1999 2000 2001 2002 2003
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stores Beginning of Year 39 41 45 49 53
New Stores (Conversions) 2 4 4 4 4
----------------------------------------------------------------------
Stores End of Year 41 45 49 53 57
AVERAGE WEEKLY SALES
1997 Stores 37.0 38.7 40.0 41.5 42.9
4.6% 3.5% 3.5% 3.5%
1998 Stores 0 0 0 0 0
1999 Stores 35.6 37.2 38.5 39.9 41.3
4.6% 3.5% 3.5% 3.5%
2000 Stores 37.2 38.5 39.9 41.3
3.5% 3.5% 3.5%
2001 Stores 38.5 39.9 41.3
3.5% 3.5%
2002 Stores 39.9 41.3
3.5%
2003 Stores 39.3
2.5%
2004 Stores
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Fiscal Year Ended December 31
$ in 000's except per share data
CUBS STORE BUILD-UP MODEL
<TABLE>
<CAPTION>
------------------------------------------------------------------------
1999 2000 2001 2002 2003
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
WEEKS STORE OPEN
1997 Stores 39 2028 2067 2028 2028 2028
1998 Stores 0 0 0 0 0 0
1999 Stores 2 52 106 104 104 104
2000 Stores 4 115 208 208 208
2001 Stores 4 124 208 208
2002 Stores 4 136 208
2003 Stores 4 104
2004 Stores 4
Existing Stores 75,034.0 83,902.7 93,229.8 104,808.7 117,087.8
New Stores 1,850.1 4,277.7 4,775.0 5,421.6 4,087.2
----------------------------------------------------------------------
TOTAL REVENUE $76,884.1 $88,180.4 $98,004.8 $110,230.3 $121,175.0
Maintenance CapEx per Existing Store 45 46 46 45 46
CapEx per New Store 740 1,000 1,080 1,134 1,162
Preopening Cost per New Store 148 110 119 125 128
MAINTENANCE CAPEX 1,750 1,900 2,050 2,200 2,438
Total CapEx per New Store 1,481 4,000 4,320 4,536 4,648
Preopening Costs 297 440 475 500 513
----------------------------------------------------------------------
Total CapEx (excl. preopening costs) 3,231 5,900 6,370 6,736 7,086
Corporate CapEx 500 400 400 400 400
- -------------------------------------------------------------------------------------------------------------------
TOTAL CAPEX $17,918 $13,586 $14,517 $15,106 $15,903
Decrease in cost reduction* 6,832 0 0 0 0
----------------------------------------------------------------------
$11,087 $13,586 $14,517 $15,106 $15,903
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
PRIVATE MODEL
FISCAL YEAR ENDED DECEMBER 31
$ IN 000'S EXCEPT PER SHARE DATA
- -------------------------------------------------------------------------------
CASE 1
MODEL ASSUMPTION 1
<TABLE>
<CAPTION>
ACTUAL INTERIM PERIOD
----------------------- -------------------------
Remainder of
1997 1998 Jun-99 Fiscal Year
----------------------- -------------------------
<S> <C> <C> <C> <C>
INCOME STATEMENT ASSUMPTIONS
NET SALES
% Net Sales Growth 150,248.0 160,101.6 85,098.0 93,675.3
6.6% NM NM
Cost of Sales as a % of Net Sales 25.1% 25.4% 25.0% 24.8%
GROSS PROFIT MARGIN 74.9% 74.6% 75.0% 75.2%
Labor and Related as a % of Net Sales 34.0% 33.5% 33.6% 33.4%
Operating Expenses as a % of Net Sales 20.4% 12.8% 12.6% 12.5%
Selling Expenses as a % of Net Sales 3.8% 3.2% 3.3% 3.2%
Occupancy as a % of Net Sales 0.0% 7.1% 7.5% 7.5%
Depreciation as a % of Net Sales 5.1% 4.9% 4.9% 4.9%
Amortization of LBO Related Goodwill as a % of Net Sales 0.0% 0.0% 0.0% 0.0%
Amortization of Financing Fees as a % of Net Sales 0.0% 0.0% 0.0% 0.0%
----------------------- -------------------------
Total Operating Expenses as a % of Net Sales 66.3% 62.7% 63.5% 61.7%
RESTAURANT-LEVEL OPERATING MARGIN 8.6% 11.9% 11.5% 13.5%
OPERATING MARGIN 2.6% 5.4% 4.2% 6.9%
Other Income (Expense) as a % of Net Sales -6.5% 1.0% -0.2% -0.1%
PRETAX MARGIN -5.1% 4.9% 2.8% 2.4%
TAX RATE % 33.8% 32.5% 34.0% 34.0%
NET MARGIN -3.3% 3.3% 1.9% 1.6%
<CAPTION>
PROJECTED
--------------------------------------------------------------
1999 2000 2000 2000 2000
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT ASSUMPTIONS
NET SALES
% Net Sales Growth 178,773.3 207,481.5 227,313.5 251,678.3 275,812.6
11.7% 16.1% 9.6% 10.7% 9.6%
Cost of Sales as a % of Net Sales 24.9% 25.0% 25.0% 25.0% 25.0%
GROSS PROFIT MARGIN 75.1% 75.0% 75.0% 75.0% 75.0%
Labor and Related as a % of Net Sales 33.5% 33.5% 33.5% 33.5% 33.5%
Operating Expenses as a % of Net Sales 12.5% 12.6% 12.4% 12.4% 12.4%
Selling Expenses as a % of Net Sales 3.3% 3.3% 3.3% 3.3% 3.3%
Occupancy as a % of Net Sales 7.5% 7.5% 7.4% 7.4% 7.4%
Depreciation as a % of Net Sales 4.9% 4.8% 4.8% 4.7% 4.4%
Amortization of LBO Related Goodwill as a % of Net Sales 0.0% 0.0% 0.0% 0.0% 0.0%
Amortization of Financing Fees as a % of Net Sales 0.0% 0.0% 0.0% 0.0% 0.0%
--------------------------------------------------------------
Total Operating Expenses as a % of Net Sales 62.6% 62.0% 61.8% 61.7% 61.4%
RESTAURANT-LEVEL OPERATING MARGIN 12.5% 13.0% 13.2% 13.3% 13.6%
OPERATING MARGIN 5.6% 7.1% 7.6% 8.0% 8.4%
Other Income (Expense) as a % of Net Sales -0.2% 0.0% 0.0% 0.0% 0.0%
PRETAX MARGIN 2.6% 3.3% 4.2% 5.1% 6.0%
TAX RATE % 34.0% 34.0% 34.0% 34.0% 34.0%
NET MARGIN 1.7% 2.1% 2.8% 3.4% 4.0%
</TABLE>
<PAGE>
PRIVATE MODEL
FISCAL YEAR ENDED DECEMBER 31
$ IN 000'S EXCEPT PER SHARE DATA
- -------------------------------------------------------------------------------
INCOME STATEMENT
- -------------------------------------------------
Private Company Model
<TABLE>
<CAPTION>
---------------------------- ----------------------------
ACTUAL INTERIM PERIOD
---------------------------- ----------------------------
Remainder of
1997 1998 Jun-99 Fiscal Year
-----------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $150,248.0 $160,101.6 $85,098.0 $93,675.3
GROWTH % 6.6% NM NM
Cost of Sales 37,672.0 40,624.7 21,288.7 $23,261.3
-----------------------------------------------------------
GROSS PROFIT 112,576.0 119,476.9 63,809.3 70,414.0
GROSS MARGIN % 74.9% 74.6% 75.0% 75.2%
OPERATING EXPENSES
Labor and Related 51,086.0 53.632.3 28,619.0 31,250.0
Operating Expenses 30,627.0 20,542.0 10,711.0 11,670.0
Selling Expenses 5,773.0 5,098.9 2,833.0 3,007.0
Occupancy 0.0 11,364.0 6,422.0 7,044.0
Other operating expense(income) 0.0 0.0 0.0 0.0
Depreciation 7,714.0 7,919.0 4,198.0 4,621.0
Preopening Costs 0.0 1,808.5 1,267.0 219.9
Preopening Amortization 4,422.0 0.0 0.0 0.0
Amortization of LBO Related Goodwill 0.0 0.0 0.0 0.0
Amortization of Financing Fees 0.0 0.0 0.0 0.0
-----------------------------------------------------------
Total Operating Expenses 99,622.0 100,364.7 54,050.0 57,811.9
-----------------------------------------------------------
RESTAURANT-LEVEL OPERATING INCOME 12,954.0 19,112.2 9,759.3 12,602.1
OPERATING MARGIN % 8.6% 11.9% 11.5% 13.5%
General and Administrative* 9,073.5 9,818.4 5,781.5 5,703.7
Corporate Depreciation & Amortization 696.0 402.0 394.0
-----------------------------------------------------------
OPERATING INCOME 3,880.5 8,597.8 3,575.8 6,504.5
OPERATING MARGIN % 2.6% 5.4% 4.2% 6.9%
Interest Expense
Interest Expense (Senior Revolver) 0.0 0.0 0.0 (49.1)
Interest Expense Related to LBO Debt 0.0 0.0 0.0 (3,620.6)
Interest Expense Capital Leases (1,763.0) (2,378.1) (1,002.1) (383.6)
Commitment Fee on Senior Revolver 0.0 0.0 0.0 (62.7)
Other Income (Expense) (2) (9,706.0) 1,554.0 (160.9) (136.1)
-----------------------------------------------------------
Total Other Income (Expense) (11,469.0) (824.1) (1,163.0) (4,252.0)
-----------------------------------------------------------
INCOME BEFORE INCOME TAXES (7,588.5) 7,773.7 2,412.9 2,252.4
PRE-TAX MARGIN % -5.1% 4.9% 2.8% 2.4%
Provision For Income Taxes (2,568.0) 2,526.5 820.4 765.8
TAX RATE % 33.8% 32.5% 34.0% 34.0%
-----------------------------------------------------------
NET INCOME ($5,020.5) $5,247.2 $1,592.5 $1,486.6
-----------------------------------------------------------
-----------------------------------------------------------
NET MARGIN % -3.3% 3.3% 1.9% 1.6%
Cumulative effect of change in accounting for 0.0 1,250.0 0.0 0.0
start-up costs, net of income taxes
NET INCOME, AFTER CUMULATIVE EFFECT ($5,020.5) $3,997.2 $1,592.5 $1,486.6
-----------------------------------------------------------
-----------------------------------------------------------
NET MARGIN % -3.3% 2.5% 1.9% 1.6%
- ------------------------------------------------------------------------------------------------------------
EBITDA $11,594.5 $17,212.8 $8,175.8 $11,519.5
EBITDA MARGIN 7.7% 10.8% 9.6% 12.3%
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
---------------------------------------------------------------------
PROJECTED
---------------------------------------------------------------------
1999 2000 2001 2002 2003
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET SALES $178,773.3 $207,481.5 $227,313.5 $251,678.3 $275,812.6
GROWTH % 11.7% 16.1% 9.6% 10.7% 9.6%
Cost of Sales 44,550.0 51,798.0 56,828.4 62,919.6 68,953.1
----------------------------------------------------------------------
GROSS PROFIT 134,223.3 155,683.5 170,485.1 188,758.7 206,859.4
GROSS MARGIN % 75.1% 75.0% 75.0% 75.0% 75.0%
OPERATING EXPENSES
Labor and Related 59,869.0 69,447.0 76,150.0 84,312.2 92,397.2
Operating Expenses 22,381.0 26,055.0 28,186.9 31,208.1 34,200.8
Selling Expenses 5,840.0 6,810.0 7,501.3 8,305.4 9,101.8
Occupancy 13,466.0 15,480.0 16,821.2 18,624.2 20,410.1
Other operating expense(income) 0.0 0.0 0.0 0.0 0.0
Depreciation 8,819.0 9,998.0 10,836.0 11,889.0 12,115.0
Preopening Costs 1,486.9 890.0 961.2 1,000.0 1,025.5
Preopening Amortization 0.0 0.0 0.0 0.0 0.0
Amortization of LBO Related Goodwill 0.0 0.0 0.0 0.0 0.0
Amortization of Financing Fees 0.0 0.0 0.0 0.0 0.0
----------------------------------------------------------------------
Total Operating Expenses 111,861.9 128,680.0 140,456.6 155,338.9 169,250.4
----------------------------------------------------------------------
RESTAURANT-LEVEL OPERATING INCOME 22,361.4 27,003.5 30,028.5 33,419.8 37,609.0
OPERATING MARGIN % 12.5% 13.0% 13.2% 13.3% 13.6%
General and Administrative* 11,485.1 11,431.0 11,891.0 12,371.0 13,580.0
Corporate Depreciation & Amortization 796.0 821.0 846.0 871.0 900.0
----------------------------------------------------------------------
OPERATING INCOME 10,080.3 14,751.3 17,291.5 20,177.8 23,129.0
OPERATING MARGIN % 5.6% 7.1% 7.6% 8.0% 8.4%
Interest Expense
Interest Expense (Senior Revolver) (49.1) (405.8) (749.7) (920.2) (921.8)
Interest Expense Related to LBO Debt (3,620.6) (6,768.4) (5,992.8) (5,257.2) (4,491.5)
Interest Expense Capital Leases (1,385.6) (787.9) (915.3) (1,037.3) (1,153.6)
Commitment Fee on Senior Revolver (62.7) (36.5) (19.7) (15.2) (19.5)
Other Income (Expense) (2) (297.0) 0.0 0.0 0.0 0.0
----------------------------------------------------------------------
Total Other Income (Expense) (5,415.0) (7,998.7) (7,677.5) (7,229.8) (6,586.4)
----------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 4,665.3 6,752.9 9,614.0 12,947.9 16,542.6
PRE-TAX MARGIN % 2.6% 3.3% 4.2% 5.1% 6.0%
Provision For Income Taxes 1,586.2 2,296.0 3,268.7 4,402.3 5,624.5
TAX RATE % 34.0% 34.0% 34.0% 34.0% 34.0%
----------------------------------------------------------------------
NET INCOME $3,079.1 $4,456.9 $6,345.2 $8,545.6 $10,918.1
----------------------------------------------------------------------
----------------------------------------------------------------------
NET MARGIN % 1.7% 2.1% 2.8% 3.4% 4.0%
Cumulative effect of change in accounting for 0.0 0.0 0.0 0.0 0.0
start-up costs, net of income taxes
NET INCOME, AFTER CUMULATIVE EFFECT $3,079.1 $4,456.9 $6,345.2 $8,545.6 $10,918.1
----------------------------------------------------------------------
----------------------------------------------------------------------
NET MARGIN % 1.7% 2.1% 2.8% 3.4% 4.0%
- -----------------------------------------------------------------------------------------------------------------------
EBITDA $19,695.3 $25,570.5 $28,973.5 $32,937.8 $36,144.0
EBITDA MARGIN 11.0% 12.3% 12.7% 13.1% 13.1%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) DOES NOT INCLUDE PROJECT ROCKIES COSTS
(2) INCLUDES THE EQUITY IN JOINT VENTURE SAVINGS, GAIN ON SALE OF INVESTMENT
IN JOINT VENTURE AND INTEREST INCOME
<PAGE>
PRIVATE MODEL
FISCAL YEAR ENDED DECEMBER 31
$ IN 000'S EXCEPT PER SHARE DATA
- -------------------------------------------------------------------------------
BALANCE SHEET
- -------------------------------------
<TABLE>
<CAPTION>
---------------------------- ----------------- -------------- ----------------
ACTUAL ESTIMATED ADJUSTMENTS PROFORMA
---------------------------- ----------------- -------------- ----------------
1997 1998 June-99 Pre LBO June-99 Post LBO
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and Cash Equivalents $623.0 $449.4 $437.7 ($437.7) 0.0
Cash required for Operations 1,000.0 0.0 0.0 0.0 0.0
Accounts Receivable 1,055.0 321.0 321.0 0.0 321.0
Inventories 2,727.0 2,532.1 2,532.0 0.0 2,532.0
Prepaid Expenses 1,613.0 1,026.0 1,026.0 0.0 1,026.0
Current Deferred Income Taxes 219.0 0.0 0.0 0.0 0.0
Preopening Costs, net 1,520.0 0.0 0.0 0.0 0.0
------------------------------------------------------------------------------
Total Current Assets 8,757.0 4,328.4 4,316.7 (437.7) 3,879.0
LONG-TERM ASSETS:
GROSS FIXED ASSETS 108,209.2 119,147.5 122,790.6 0.0 122,790.6
LESS ACCUMULATED DEPRECIATION 17,395.2 23,966.7 28,727.6 0.0 28,727.6
------------------------------------------------------------------------------
NET FINAL ASSETS 90,814.0 95,180.8 94,063.0 0.0 94,063.0
LBO RELATED GOODWILL 0.0 0.0 0.0 0.0 0.0
FINANCING FEES 0.0 0.0 0.0 0.0 0.0
INVESTMENT IN JOINT VENTURE 5,553.0 0.0 0.0 0.0 0.0
DEFERRED INCOME TAXES 2,335.0 1,817.8 1,817.8 0.0 1,817.8
OTHER LONG-TERM ASSETS 736.0 260.1 260.1 0.0 260.1
------------------------------------------------------------------------------
TOTAL ASSETS: 108,195.0 101,587.2 100,457.6 (437.7) 100,019.9
------------------------------------------------------------------------------
------------------------------------------------------------------------------
<CAPTION>
---------------------------- ----------------- -------------- ----------------
ACTUAL ESTIMATED ADJUSTMENTS PROFORMA
---------------------------- ----------------- -------------- ----------------
1997 1998 June-99 Pre LBO June-99 Post LBO
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LIABILITIES:
CURRENT LIABILITIES:
Revolver 0.0 0.0 0.0 (0.0) (0.0)
Accounts Payable 4,341.0 5,565.0 5,564.0 0.0 5,564.0
Accrued Taxes other than Income Taxes 1,023.0 3,271.0 0.0 0.0 0.0
Accrued Expenses 5,871.0 2,223.0 5,495.0 0.0 5,495.0
Accrued Restructuring Costs/Other Liabilities 2,447.0 431.0 431.0 0.0 431.0
Current Portion of Debt 642.0 404.0 206.0 0.0 206.0
------------------------------------------------------------------------------
Total Current Liabilities 14,324.0 11,894.0 11,696.0 (0.0) 11,696.0
LONG-TERM LIABILITIES:
Existing Debt 26,450.0 19,050.0 13,246.0 (13,246.0) 0.0
Long-term Debt 2,375.0 2,195.3 2,195.3 2,195.3
Capital Lease Obligations 2,334.0 2,256.0 5,450.0 5,450.0
TERM LOAN A 0.0 0.0 0.0 55,943.8 55,943.8
TERM LOAN B 0.0 0.0 0.0 0.0 0.0
SENIOR SUBORDINATED NOTE 0.0 0.0 0.0 20,343.2 20,343.2
Accrued Restructuring Costs/Other Liabilities 1,494.0 769.2 769.2 0.0 769.2
------------------------------------------------------------------------------
Total Non-current Liabilities 32,653.0 24,270.6 21,660.6 63,041.0 84,701.6
TOTAL LIABILITIES: 46,977.0 36,164.6 33,356.6 63,041.0 96,397.6
STOCKHOLDERS' EQUITY
Preferred Stock 0.0 0.0 0.0 0.0 0.0
Common Stock 81.0 80.6 80.5 0.0 80.5
Additional Paid-in Capital 58,320.0 58,287.9 58,287.9 25.429.0 83,716.9
Deferred Compensation/Treasury Stock (975.0) (735.0) (649.0) (82,907.7) (83,556.7)
Retained Earnings 3,792.0 7,789.2 9,381.6 (6,000.0) 3,381.6
------------------------------------------------------------------------------
Total Stockholders' Equity 61,218 65,422.7 67,101.0 (63,478.7) 3,622.4
------------------------------------------------------------------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY: $108.195.0 $101,587.2 $100,457.6 ($437.7) $100,019.9
------------------------------------------------------------------------------
------------------------------------------------------------------------------
<CAPTION>
----------------------------------------------------------------------------
PROJECTED
----------------------------------------------------------------------------
1999 2000 2001 2002 2003
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
CURRENT ASSETS:
Cash and Cash Equivalents $0.0 $0.0 $0.0 $0.0 $0.0
Cash required for Operations 0.0 0.0 0.0 0.0 0.0
Accounts Receivable 353.0 388.0 427.0 470.0 515.0
Inventories 2,828.0 3,281.0 3,673.0 4,205.0 4,750.0
Prepaid Expenses 1,085.0 1,199.0 1,283.0 1,408.0 1,530.0
Current Deferred Income Taxes 0.0 0.0 0.0 0.0 0.0
Preopening Costs, net 0.0 0.0 0.0 0.0 0.0
----------------------------------------------------------------------------
Total Current Assets 4,266.0 4,868.0 5,383.0 6,083.0 6,795.0
LONG-TERM ASSETS:
GROSS FIXED ASSETS 130,234.1 143,820.5 158,337.9 173,443.6 189,346.6
LESS ACCUMULATED DEPRECIATION 33,878.7 44,697.7 56,379.7 69,139.7 82,154.7
----------------------------------------------------------------------------
NET FINAL ASSETS 96,355.4 99,122.8 101,958.2 104,303.9 107,191.9
LBO RELATED GOODWILL 0.0 0.0 0.0 0.0 0.0
FINANCING FEES 0.0 0.0 0.0 0.0 0.0
INVESTMENT IN JOINT VENTURE 0.0 0.0 0.0 0.0 0.0
DEFERRED INCOME TAXES 1,818.0 1,818.0 1,818,0 1,818.0 1,818.0
OTHER LONG-TERM ASSETS 273.0 287.0 301.0 316.0 330.0
----------------------------------------------------------------------------
TOTAL ASSETS: 102,712.4 106,095.8 109,460.2 112,520.9 116,134.9
----------------------------------------------------------------------------
----------------------------------------------------------------------------
<CAPTION>
----------------------------------------------------------------------------
PROJECTED
----------------------------------------------------------------------------
1999 2000 2001 2002 2003
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LIABILITIES:
CURRENT LIABILITIES:
Revolver 2,453.6 7,690.9 11,051.0 11,954.1 11,091.0
Accounts Payable 5,843.0 6,135.0 6,442.0 6,764.0 7,085.0
Accrued Taxes other than Income Taxes 3,000.0 3,000.0 3,000.0 3,000.0 3,000.0
Accrued Expenses 2,373.0 2,523.0 2,673.0 2,823.0 2,975.0
Accrued Restructuring Costs/Other Liabilities 0.0 0.0 0.0 0.0 0.0
Current Portion of Debt 8,197.8 8,242.0 8,304.0 8,414.0 8,110.0
----------------------------------------------------------------------------
Total Current Liabilities 21,867.4 27,590.9 31,470.0 32,955.1 32,260.9
LONG-TERM LIABILITIES:
Existing Debt 0.0 0.0 0.0 0.0 0.0
Long-term Debt 2,106.0 2,009.0 1,904.0 1,792.0 1,674.0
Capital Lease Obligations 5,335.0 6,627.0 7,864.0 8,998.0 10,498.0
TERM LOAN A 47,951.8 39,959.9 31,967.9 23,975.9 15,983.9
TERM LOAN B 0.0 0.0 0.0 0.0 0.0
SENIOR SUBORDINATED NOTE 20,343.2 20,343.2 20,343.2 20,343.2 20,343.2
Accrued Restructuring Costs/Other Liabilities 0.0 0.0 0.0 0.0 0.0
----------------------------------------------------------------------------
Total Non-current Liabilities 75,736.0 68,939.0 62,079.1 55,109.1 48,499.1
TOTAL LIABILITIES: 97,603.4 96,529.9 93,549.1 88,064.2 80,760.1
STOCKHOLDERS' EQUITY
Preferred Stock 0.0 0.0 0.0 0.0 0.0
Common Stock 80.5 80.5 80.5 80.5 80.5
Additional Paid-in Capital 83,716.9 83,716.9 83,716.9 83,716.9 83,716.9
Deferred Compensation/Treasury Stock (83,556.7) (83,556.7) (83,556.7) (83,556.7) (83,556.7)
Retained Earnings 4,868.2 9,325.1 15,670.4 24,216.0 35,134.1
----------------------------------------------------------------------------
Total Stockholders' Equity 5,109.0 9,565.9 15,911.1 24,456.7 35,374.8
----------------------------------------------------------------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY: $102,712.4 $106,095.8 $109,460.2 $112.520.9 $116,134.5
----------------------------------------------------------------------------
----------------------------------------------------------------------------
</TABLE>
<PAGE>
PRIVATE MODEL
FISCAL YEAR ENDED DECEMBER 31
$ IN 000'S EXCEPT PER SHARE DATA
- -------------------------------------------------------------------------------
CASH FLOW STATEMENT
- -------------------------------------
<TABLE>
<CAPTION>
--------------- ------------------------------------
ACTUAL INTERIM PERIOD
--------------- ------------------------------------
OPERATING ACTIVITIES 1998
----------------------------------------------------
<S> <C> <C> <C>
NET INCOME $ 3,997.2 $ 1,592.5 $ 1,486.6
Depreciation & Amortization 6,571.5 4,760.9 5,151.1
Amortization of LBO Related Goodwill 0.0 0.0 0.0
Amortization of LBO Related Financing Fees 0.0 0.0 0.0
WORKING CAPITAL ACCOUNTS:
(Increase) Decrease in Accounts Receivable 734.0 0.0 (32.0)
(Increase) Decrease in Inventories 194.9 0.1 (296.0)
(Increase) Decrease in Prepaid Expenses 587.0 0.0 (59.0)
(Increase) Decrease in Current Deferred Income Taxes 219.0 0.0 0.0
(Increase) Decrease in Preopening Costs, net 1,520.0 0.0 0.0
Increase (Decrease) in Accounts Payable 1,224.0 (1.0) 279.0
Increase (Decrease) in Accrued Taxes other than Income Taxes 2,248.0 (3,271.0) 3,000.0
Increase (Decrease) in Accrued Expenses (3,648.0) 3,272.0 (3,122.0)
Increase (Decrease) in Accrued Restructuring Costs/Other Liabil (2,016.0) 0.0 (431.0)
-----------------------------------------------------
INCREASE (DECREASE) IN NET WORKING CAPITAL 1,062.9 0.1 (661.0)
SOURCE (USE) OF CASH FROM OPERATIONS 11,631.5 6,353.5 5,976.7
INVESTING ACTIVITIES
(Increase) Decrease in Gross Fixed Assets (10,938.3) (3,643.1) (7,443.5)
(Increase) Decrease in Investment in Joint Venture 5,553.0 0.0 0.0
(Increase) Decrease in Deferred Income Taxes 517.2 0.0 (0.2)
(Increase) Decrease in Other Long-term Assets 475.9 0.0 (12.9)
Increase (Decrease) in Accrued Restructuring Costs/Other Liabil (724.8) 0.0 (769.2)
Increase (Decrease) in Deferred Income Taxes 0.0 0.0 0.0
-----------------------------------------------------
SOURCE (USE) OF CASH FROM INVESTING ACTIVITIES (5,117.0) (3,643.1) (8,225.8)
FINANCING ACTIVITIES
Increase (Decrease) in Revolver 0.0 0.0 2,453.6
Addition of LBO Goodwill 0.0 0.0 0.0
Addition of LBO Finance Fees 0.0 0.0 0.0
Increase (Decrease) in Current Portion of Debt (238.0) (198.0) 7,991.8
Increase (Decrease) in Existing Debt, net (7,579.7) (5,804.0) (13,335.3)
Increase (Decrease) in Capital Lease Obligations, net (78.0) 3,194.0 (115.0)
Increase (Decrease) in Term Loan A, net 0.0 0.0 47,951.8
Increase (Decrease) in Term Loan B, net 0.0 0.0 0.0
Increase (Decrease) in Senior Subordinated Note, net 0.0 0.0 20,343.2
Increase (Decrease) in Preferred Stock, net 0.0 0.0 0.0
Increase (Decrease) in Common Stock, net (0.4) (0.1) 0.0
Increase (Decrease) in Additional Paid-in Capital (32.1) 0.0 25,429.0
-----------------------------------------------------
SOURCE (USE) OF CASH FROM FINANCING ACTIVITIES (7,928.1) (2,808.1) 90,719.1
Net Change in Cash (1,413.6) (97.7) 88,470.0
LBO Adjustment to Deferred Compensation/Treasury Stock 240.0 86.0 (82,907.7)
LBO Adjustment to Retained Earnings 0.0 0.0 (6,000.0)
Beginning Cash Balance 1,623.0 449.4 437.7
-----------------------------------------------------
ENDING CASH BALANCE $449.4 $437.7 $0.0
-----------------------------------------------------
-----------------------------------------------------
<CAPTION>
----------------------------------------------------------------
PROJECTED
----------------------------------------------------------------
OPERATING ACTIVITIES 1999 2000 2001 2002 2003
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET INCOME $ 3,079.1 $ 4,456.9 $ 6,345.2 $ 8,545.6 $ 10,918.1
Depreciation & Amortization 9,912.0 10,819.0 11,682.0 12,760.0 13,015.0
Amortization of LBO Related Goodwill 0.0 0.0 0.0 0.0 0.0
Amortization of LBO Related Financing Fees 0.0 0.0 0.0 0.0 0.0
WORKING CAPITAL ACCOUNTS:
(Increase) Decrease in Accounts Receivable (32.0) (35.0) (39.0) (43.0) (45.0)
(Increase) Decrease in Inventories (295.9) (453.0) (392.0) (532.0) (545.0)
(Increase) Decrease in Prepaid Expenses (59.0) (114.0) (84.0) (125.0) (122.0)
(Increase) Decrease in Current Deferred Income Taxes 0.0 0.0 0.0 0.0 0.0
(Increase) Decrease in Preopening Costs, net 0.0 0.0 0.0 0.0 0.0
Increase (Decrease) in Accounts Payable 278.0 292.0 307.0 322.0 321.0
Increase (Decrease) in Accrued Taxes other than Income Taxes (271.0) 0.0 0.0 0.0 0.0
Increase (Decrease) in Accrued Expenses 150.0 150.0 150.0 150.0 152.0
Increase (Decrease) in Accrued Restructuring Costs/Other Liabil (431.0) 0.0 0.0 0.0 0.0
----------------------------------------------------------------
INCREASE (DECREASE) IN NET WORKING CAPITAL (660.9) (160.0) (58.0) (228.0) (239.0)
SOURCE (USE) OF CASH FROM OPERATIONS 12,330.2 15,115.9 17,969.2 21,077.6 23,694.1
INVESTING ACTIVITIES
(Increase) Decrease in Gross Fixed Assets (11,086.5) (13,586.4) (14,517.4) (15,105.7) (15,903.0)
(Increase) Decrease in Investment in Joint Venture 0.0 0.0 0.0 0.0 0.0
(Increase) Decrease in Deferred Income Taxes (0.2) 0.0 0.0 0.0 0.0
(Increase) Decrease in Other Long-term Assets (12.9) (14.0) (14.0) (15.0) (14.0)
Increase (Decrease) in Accrued Restructuring Costs/Other Liabil (769.2) 0.0 0.0 0.0 0.0
Increase (Decrease) in Deferred Income Taxes 0.0 0.0 0.0 0.0 0.0
----------------------------------------------------------------
SOURCE (USE) OF CASH FROM INVESTING ACTIVITIES (11,868.9) (13,600.4) (14,531.4) (15,120.7) (15,917.0)
FINANCING ACTIVITIES
Increase (Decrease) in Revolver 2,453.6 5,237.3 3,360.1 903.1 (863.1)
Addition of LBO Goodwill 0.0 0.0 0.0 0.0 0.0
Addition of LBO Finance Fees 0.0 0.0 0.0 0.0 0.0
Increase (Decrease) in Current Portion of Debt 7,793.8 44.2 62.0 110.0 (304.0)
Increase (Decrease) in Existing Debt, net (19,139.3) (97.0) (105.0) (112.0) (118.0)
Increase (Decrease) in Capital Lease Obligations, net 3,079.0 1,292.0 1,237.0 1,134.0 1,500.0
Increase (Decrease) in Term Loan A, net 47,951.8 (7,992.0) (7,992.0) (7,992.0) (7,992.0)
Increase (Decrease) in Term Loan B, net 0.0 0.0 0.0 0.0 0.0
Increase (Decrease) in Senior Subordinated Note, net 20,343.2 0.0 0.0 0.0 0.0
Increase (Decrease) in Preferred Stock, net 0.0 0.0 0.0 0.0 0.0
Increase (Decrease) in Common Stock, net (0.1) 0.0 0.0 0.0 0.0
Increase (Decrease) in Additional Paid-in Capital 25,429.0 0.0 0.0 0.0 0.0
----------------------------------------------------------------
SOURCE (USE) OF CASH FROM FINANCING ACTIVITIES 87,910.9 (1,515.5) (3,437.9) (5,956.9) (7,777.1)
Net Change in Cash 88,372.3 0.0 0.0 0.0 (0.0)
LBO Adjustment to Deferred Compensation/Treasury Stock (82,821.7) 0.0 0.0 0.0 0.0
LBO Adjustment to Retained Earnings (6,000.0) 0.0 0.0 0.0 0.0
Beginning Cash Balance 449.4 0.0 0.0 0.0 0.0
----------------------------------------------------------------
ENDING CASH BALANCE ($0.0) $0.0 $0.0 $0.0 ($0.0)
----------------------------------------------------------------
----------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 99(b)(3)
FAIRNESS OPINION PRESENTATION
TO THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS
PROJECT ROCKIES
PIPER JAFFRAY
February 19, 1999
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Section
<S> <C>
Description of Rockies 1
- Company Overview
- Recent Performance Issues
Due Diligence Procedures 2
Overview of Transaction 3
- Transaction Background
- Proposed Deal Structure and Terms
Summary of Analyses 4
Appendices
Comparable Acquisition Analysis A
Premiums Paid Analysis B
Comparable Company Analysis C
Discounted Cash Flow Analysis D
LBO Analysis E
</TABLE>
<PAGE>
DESCRIPTION OF ROCKIES
<PAGE>
DESCRIPTION OF ROCKIES
- --------------------------------------------------------------------------------
COMPANY OVERVIEW
- - Rockies (the "Company"), currently operates 22 brewery restaurants under
the names Rockies, Chop Shop and Walnut and 39 Cubs restaurants in 18
states throughout the country.
- - The Company's two main concepts, Rockies and Cubs, were founded by the
Chairman in 1990 and 1976, respectively. Rockies was incorporated in April
1994 and completed its initial public offering in July 1994.
- - Both the Brewery concepts and the Cubs concept are casual-dining
restaurants that feature high quality, moderately priced food and a
distinctive selection of microbrewed and specialty beers.
1-1
<PAGE>
DESCRIPTION OF ROCKIES
- --------------------------------------------------------------------------------
RECENT PERFORMANCE ISSUES
DISAPPOINTING OPERATING RESULTS
- Slowing Company unit growth
- Significant store closings
- Delay in timing of planned new store openings
- Negative same store sales
- Below average profitability versus comparable restaurant companies
HISTORY OF EARNINGS SHORTFALLS
- Erratic earnings history
- Q4 '98 operating earnings shortfall and reported earnings "noise"
- $0.13 operating vs. $0.22 reported vs. $0.16 Piper Jaffray
estimate vs. $0.15 Street estimate
- Q1 '99 sales already off budget
- Projected Q1 '99 earnings shortfall
- $0.11 projected vs. $0.16 Piper Jaffray estimate vs. 2
published Street estimates at $0.04 and $0.13
- Lack of near term earnings visibility
1-2
<PAGE>
DESCRIPTION OF ROCKIES
- --------------------------------------------------------------------------------
RECENT PERFORMANCE ISSUES
CAPITAL MARKET ISSUES
- Stagnant stock price - $6.11 per share average stock price
(1/1/98 - 1/25/99)
- Small market capitalization
- Limited trading volume and float
- Large insider holdings
- Limited institutional sponsorship
- Diminishing research sponsorship from the Street
- Perceived management instability
- Restaurant industry and specialty beer remain "out of favor"
1-3
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION OF ROCKIES
- -------------------------------------------------------------------------------
<S> <C>
RECENT MARKET PERFORMANCE
-------------------------
Stock Market NASDAQ
Stock Price (as of 2/17/99)
-- Last Close $8.53
-- Last Bid $8.50
-- Last Ask $8.75
Stock Price (as of 1/25/99)
-- Last Close $6.63
-- 30 Day Average $5.77
-- 60 Day Average $5.73
-- 90 Day Average $5.67
-- 180 Day Average $5.92
In the 12 month period ending 1/25/99 the stock has traded at:
-- A Low Of $4.63
-- A High Of $7.56
-- An Average Daily Volume Of 30.1
In the 6 month period ending 1/25/99 the stock has traded at:
-- A Low Of $4.63
-- A High Of $7.13
-- An Average Daily Volume Of 29.7
In the 3 month period ending 1/25/99 the stock has traded at:
-- A Low Of $5.13
-- A High Of $7.13
-- An Average Daily Volume Of 36.7
Market Cap (based on 2/17/99 price) $68.7
Market Cap (based on 1/25/99 price) $53.4
</TABLE>
1-4
<PAGE>
DESCRIPTION OF ROCKIES
- -------------------------------------------------------------------------------
RECENT MARKET PERFORMANCE
-------------------------
DAILY STOCK PRICE/VOLUME PERFORMANCE
1/02/98 - 2/17/99
[GRAPH]
1-5
<PAGE>
DESCRIPTION OF ROCKIES
- -------------------------------------------------------------------------------
RECENT MARKET PERFORMANCE
-------------------------
WEEKLY STOCK PRICE/VOLUME PERFORMANCE
7/22/94 - 2/17/99
[GRAPH]
1-6
<PAGE>
DESCRIPTION OF ROCKIES
- -------------------------------------------------------------------------------
RECENT MARKET PERFORMANCE
-------------------------
ANALYSIS OF TRADING VOLUME AT VARIOUS PRICES
1/1/98 - 1/25/99
[GRAPH]
* The Weighted Average Stock Price is $6.11
1-7
<PAGE>
DESCRIPTION OF ROCKIES
- -------------------------------------------------------------------------------
RECENT MARKET PERFORMANCE
-------------------------
ANALYSIS OF TRADING VOLUME AT VARIOUS PRICES
7/22/94 - 1/25/99
[GRAPH]
* The Weighted Average Stock Price is $13.24
1-8
<PAGE>
DESCRIPTION OF ROCKIES
- -------------------------------------------------------------------------------
RECENT MARKET PERFORMANCE
-------------------------
DAILY RELATIVE PRICE PERFORMANCE
1/1/98 - 2/17/99
[GRAPH]
* Includes 59 companies.
** Includes AVDO, CGR, DAVE, DRI, GRLL, ILFO, LDRY, RAIN, RARE, STAR,
TACO and UNO.
1-9
<PAGE>
DESCRIPTION OF ROCKIES
- -------------------------------------------------------------------------------
RECENT MARKET PERFORMANCE
-------------------------
WEEKLY RELATIVE PRICE PERFORMANCE
7/22/94 - 2/17/99
[GRAPH]
* Includes 59 companies.
** Includes AVDO, CGR, DAVE, DRI, GRLL, ILFO, LDRY, RAIN, RARE, STAR,
TACO and UNO.
1-10
<PAGE>
DUE DILIGENCE PROCEDURES
<PAGE>
DUE DILIGENCE PROCEDURES
- --------------------------------------------------------------------------------
Piper Jaffray worked extensively with Rockies during the summer and fall of 1997
and winter of 1998 as the Company's financial advisor in connection with an
analysis of strategic alternatives and the subsequent investigation of a
potential sale of the Company.
In the course of our current due diligence in connection with the rendering of
its Fairness Opinion, Piper Jaffray has undertaken the following steps:
1) Piper Jaffray performed business and financial due diligence with the
following representatives of the Company: William S. Hoppe, EVP and Chief
Administrative Officer; Theresa P. Shelton, Vice President - Finance; and
John A. Coletta, Vice President - Controller.
2) Conducted discussions with members of the Special Committee of the Board of
Directors.
3) Reviewed certain publicly available business and financial information
relating to the Company which we deemed to be relevant including the
Reports on Form 10-K for the three years ended December 31, 1997 and the
reports on Form 10-Q for the three quarters ended September 30, 1998.
4) Reviewed the Company's financial results for the year ended December 31,
1998.
5) Reviewed certain estimated financial information, including 5-year
financial forecasts, relating to the business, earnings, cash flow, assets
and liabilities furnished to us by the Company's management for the years
ended 1999-2003.
6) Reviewed the latest draft of the Agreement and Plan of Merger.
7) Reviewed the results of store level operations on a weekly and monthly
basis.
2-1
<PAGE>
DUE DILIGENCE PROCEDURES
- --------------------------------------------------------------------------------
CONTINUED
8) Reviewed information regarding the Company's owned/leased properties and
sale/leaseback agreements.
9) Reviewed the historical prices and trading activity for the Company's
Common Stock.
10) Reviewed the financial terms, to the extent publicly available, of certain
comparable merger and acquisition transactions which we deemed relevant.
11) Compared certain public financial data of Rockies with certain financial
and securities data of companies deemed similar to Rockies.
12) Performed discounted cash flow analysis on the five-year financial
forecasts for Rockies furnished by Rockies management.
13) Compared premiums paid relative to recent public market pre-announcement
trading prices to Rockies implied premium.
14) Analyzed the feasibility of a leverage buyout of the Company at various
prices.
15) Reviewed recent press releases and legal and accounting correspondence.
16) Reviewed such other financial studies and analyses and took into account
such other matters as we deemed necessary, including our assessment of
general economic, market and monetary conditions.
17) Reviewed the unsolicited indications of interest from parties other than RB
Capital.
2-2
<PAGE>
OVERVIEW OF TRANSACTION
<PAGE>
OVERVIEW OF TRANSACTION
- --------------------------------------------------------------------------------
TRANSACTION BACKGROUND - 1997 PROCESS
- - During the summer and fall of 1997, Piper Jaffray assisted Rockies in
evaluating strategic alternatives available to the Company to enhance
shareholder value.
- - As a result of this review, Piper Jaffray contacted forty-one parties to
solicit their interest regarding a merger with or acquisition of the
Company.
- - Four of these parties submitted "Firm Offers" for the business.
- - One party was selected to negotiate a definitive agreement. Negotiations
were terminated in December 1997 due to several factors, including:
- Deteriorating Rockies performance, including missing the Q4 '97
analyst estimates
- A material decrease in the acquirer stock price which resulted in a
corresponding decrease in the offer price from the initial $12.50 per
share to below $10.00 per share
- Complications regarding a pooling transaction
- - On December 12, 1997, the Company announced that it had explored strategic
alternatives, that it had adopted a shareholder rights plan and that it
had instituted several management changes.
3-1
<PAGE>
OVERVIEW OF TRANSACTION
- --------------------------------------------------------------------------------
TRANSACTION BACKGROUND - 1998/1999 PROCESS
- - In December of 1998, unaffiliated members of the Board of Directors were
informed that several insiders were working with financial advisors and
financing sources to put together an offer for the Company. A Special
Committee of the Board of Directors was formed.
- - On December 22, 1998, Piper Jaffray was retained as the Company's exclusive
financial advisor.
- - On January 11, 1998, each Board member of the Company received from The
ConQuest Group ("CQ") an unsolicited "initial indication of interest in
discussing with" the Company's Board an all cash acquisition of Rockies for
"approximately $10 per common-stock share."
- - On January 13, 1999, the Special Committee received an offer from a group
that owns approximately 30% of the Company's common shares (on a fully
diluted basis) to acquire Rockies for $9.50 per share. The letter addressed
transaction structure, financing status, a rationale for the transaction,
next steps and certain other matters.
- - On January 26, 1999, the Company received an offer from Cracken, Harkey,
Street & Harnett, LLC to purchase the outstanding shares of the Company for
$9.25 per share. The letter addressed transaction structure, financing
status, a rationale for the transaction, next steps and certain other
matters.
- - On January 27, 1999, the Company issued a press release announcing the
receipt of three indications of interest to acquire the Company and the
formation of a Special Committee.
3-2
<PAGE>
OVERVIEW OF TRANSACTION
- --------------------------------------------------------------------------------
TRANSACTION BACKGROUND - 1998/1999 PROCESS
- - After reviewing the offers, the Special Committee instructed Piper Jaffray
to contact each of the interested parties to facilitate an exchange of
information. Piper Jaffray requested formal offers be delivered to the
Company by February 10, 1999.
- - On February 10, 1999, the Company received proposals from two of the three
interested parties. After a review of each interested parties' proposal,
Piper Jaffray held discussions with the interested parties and their
financing sources.
- - On February 11, 1999, Piper Jaffray received an inquiry from Bull Dog
Brewery, a brew pub operating company, regarding a transaction with
Rockies. Piper Jaffray requested more information. None was provided.
- - February 11, 1999 - February 18, 1999 the Special Committee and its
advisors continued discussions and negotiations with interested parties.
3-3
<PAGE>
<TABLE>
<CAPTION>
OVERVIEW OF TRANSACTION
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
PROPOSED DEAL STRUCTURE AND TERMS
STRUCTURE: The Merger Agreement calls for RB Capital, Inc. to acquire Rockies through a Cash Merger.
PER SHARE PRICE: The per share consideration to be received by Rockies shareholders is $10.25.
SHARES OUTSTANDING(1): 8,011,296
OPTIONS OUTSTANDING(2): 947,100
DEAL VALUE: The aggregate equity and transaction value for the transaction is as follows:
- Unaffiliated shareholders @ $10.25 per share = $58.1 million
- Options Exercised @ $10.25 = $2.6 million
- Insider Holdings Rolled = $24.0 million
- Options Rolled @ $10.25 = $0.3 million
- Plus Debt Assumed (Net of Cash)(3) = $23.9 million
- Transaction ("Enterprise") Value = $108.9 million
OTHER: The Merger Agreement calls for $3.16 million in termination fees and expense reimbursement
payable to RB Capital by Rockies if the Agreement is terminated under certain conditions.
The Merger is subject to regulatory approvals.
</TABLE>
(1) Excludes restricted stock eliminated upon change of control.
(2) Includes all "in-the-money" options.
(3) Debt and cash as of 12/27/98, debt includes capital leases.
3-4
<PAGE>
<TABLE>
<CAPTION>
OVERVIEW OF TRANSACTION
- -----------------------------------------------------------------------------------------------------------
<S><C>
TERMINATION FEES AND EXPENSES
- - THE TERMINATION PROVISION OF $1.6 MILLION IN TERMINATION FEES AND $1.56 MILLION IN EXPENSE REIMBURSEMENT
COMPARES FAVORABLY TO COMPARABLE TRANSACTIONS.
% of Equity Value
--------------------------
Rockies Termination Fee $1.6 million 1.9%
% of Company Value
Rockies Aggregate Termination Fee ---------------------------
and Expense Reimbursement $3.16 million 2.9%
Termination Fee as a % of Equity Value
-----------------------------------------------
Low Median Mean High
------- ---------- -------- -------
Going Private Transactions as a Percent of Equity Value(1) 1.0% 3.4% 4.0% 9.6%
SOURCE: COMMSCAN
</TABLE>
(1) BASED ON INFORMATION AVAILABLE ON GOING PRIVATE TRANSACTIONS WITH A
TRANSACTION VALUE OF BETWEEN $30 MILLION AND $300 MILLION ANNOUNCED
BETWEEN 1/1/97 AND 2/17/99 (EXCLUDES FINANCIAL INSTITUTIONS AND REITS).
3-5
<PAGE>
<TABLE>
<CAPTION>
OVERVIEW OF TRANSACTION
- -----------------------------------------------------------------------------------------------------------
<S><C>
Other Relevant Transactions
----------------------------------------------------------------------------------------
Termination Fee and Expense
Reimbursement as a Percent of
Target Acquirer Company Value
------------------------ ------------------------ -----------------------------
Bertucci's Ten Ideas 2.8%
Back Bay SRC Holdings 8.5%
Skyline Chili Skyline Acquisition Corp. 5.7%(1)
Ground Round Restaurants GRR Holdings LLC 3.5%
</TABLE>
- ---------------------
(1) Excludes expense reimbursement
3-6
<PAGE>
SUMMARY OF ANALYSIS
<PAGE>
SUMMARY OF ANALYSIS
- -------------------------------------------------------------------------------
TRANSACTION MULTIPLES
<TABLE>
<CAPTION>
$10.25 ROCKIES
------- -------
<S> <C> <C>
Company Value/Revenue 0.68x $160.1
Company Value/EBITDA 6.4x $17.2
Company Value/EBIT 12.7x $8.6
Equity Value/Net Income 19.9x $4.3
Equity Value/Reported Net Income 21.4x $4.0
Premium Paid(1) 54.7% $6.63
</TABLE>
(1) Based on share price of $6.63 as of 1/25/99.
4-1
<PAGE>
SUMMARY OF ANALYSIS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
VALUATION METHODOLOGY IMPLIED VALUATION RANGE(1)
($ PER SHARE)(2)
- ---------------------------------------------------------------------------------------
<S> <C>
COMPARABLE TRANSACTION:
Underperforming Restaurants $7.84 - $10.56
Restaurant Going Private Transactions $7.97 - $11.03
PREMIUMS PAID ANALYSIS:
All Going Private Transactions $6.62 - $10.89
Restaurant Sector Acquisitions $6.61 - $9.67
COMPARABLE COMPANY:
Underperforming Restaurants $6.16 - $9.37
DISCOUNTED CASH FLOW:
Management Projections $7.39 - $11.09
LEVERAGED BUYOUT ANALYSIS(2) $10.25
- ---------------------------------------------------------------------------------------
</TABLE>
(1) Range is defined as the low mean or median implied value derived from any
of the valuation metrics to the high mean or median implied value except
in the case of the discounted cash flow analysis where the range is
calculated at a variety of discount rates and exit multiples.
(2) Based on fully diluted shares outstanding.
(3) Feasibility tested at listed price.
4-2
<PAGE>
SUMMARY OF ANALYSIS
- -------------------------------------------------------------------------------
COMPARABLE M&A TRANSACTIONS
UNDERPERFORMING COMPANIES
<TABLE>
<CAPTION>
COMPARABLE
SELECTED VALUATION DATA: TRANSACTION MULTIPLES (LTM) ROCKIES IMPLIED PRICE PER SHARE
--------------------------- -----------------------
MEAN MEDIAN MEAN MEDIAN
---- ------ ---- ------
<S> <C> <C> <C> <C> <C>
Company Value/Revenue 0.69x 0.60x $160.1 $10.42 $8.82
Company Value/Operating Income(1) 13.0x 10.2x $8.6 $10.56 $7.91
Company Value/EBITDA(1) 6.3x 6.3x $17.2 $10.19 $10.12
Equity Value/Net Income(1) 19.9x 15.9x $4.3 $10.28 $8.36
Equity Value/Reported Net Income 19.9x 15.9x $4.0 $9.63 $7.84
--------------------------- -----------------------
Debt(2) $24.3
Cash(2) $0.4
------
</TABLE>
MOST COMPARABLE GOING PRIVATE TRANSACTIONS
<TABLE>
<CAPTION>
COMPARABLE
SELECTED VALUATION DATA: TRANSACTION MULTIPLES (LTM) ROCKIES IMPLIED PRICE PER SHARE
--------------------------- -----------------------
MEAN MEDIAN MEAN MEDIAN
---- ------ ---- ------
<S> <C> <C> <C> <C> <C>
Company Value/Revenue 0.69x 0.72x $160.1 $10.44 $11.03
Company Value/Operating Income(1) 13.3x 12.3x $8.6 $10.84 $9.84
Company Value/EBITDA(1) 6.3x 6.0x $17.2 $10.23 $9.56
Equity Value/Net Income(1) 21.3x 16.2x $4.3 $10.96 $8.50
Equity Value/Reported Net Income 21.3x 16.2x $4.0 $10.26 $7.97
--------------------------- -----------------------
Debt(2) $24.3
Cash(2) $0.4
------
</TABLE>
(1) Excludes one time gains and losses, discontinued operations and cumulative
effect of accounting change to reflect ongoing operations.
(2) Debt and cash as of 12/27/98.
4-3
<PAGE>
SUMMARY OF ANALYSIS
- -------------------------------------------------------------------------------
PREMIUMS PAID IMPLIED VALUATION
- - The tables below show Mean and Median premiums paid in the Restaurant
Sector and in all Going Private Transactions since 1/1/97 and an implied
Rockies price per share based on these analyses.
<TABLE>
<CAPTION>
PREMIUMS PAID IMPLIED ROCKIES
ROCKIES(1) GOING PRIVATE TRANSACTIONS PURCHASE PRICE
---------- -------------------------- ---------------------
MEAN MEDIAN MEAN MEDIAN
---- ------ ---- ------
<S> <C> <C> <C> <C> <C>
1 YEAR PRIOR $6.38 70.9% 55.4% $10.89 $9.90
1 MONTH PRIOR $5.38 25.3% 23.1% $6.73 $6.62
1 WEEK PRIOR $6.00 22.0% 19.1% $7.32 $7.15
1 DAY PRIOR $6.63 20.4% 17.9% $7.98 $7.81
<CAPTION>
PREMIUMS PAID IMPLIED ROCKIES
RESTAURANT TRANSACTIONS PURCHASE PRICE
-------------------------- ---------------------
MEAN MEDIAN MEAN MEDIAN
---- ------ ---- ------
<S> <C> <C> <C> <C> <C>
1 YEAR PRIOR $6.38 44.4% 51.7% $9.21 $9.67
1 MONTH PRIOR $5.38 36.5% 22.9% $7.34 $6.61
1 WEEK PRIOR $6.00 30.9% 17.5% $7.85 $7.05
1 DAY PRIOR $6.63 25.2% 16.2% $8.29 $7.70
</TABLE>
- - These implied premiums compare to a one day premium of 54.7%(1) based on
offer price of $10.25.
(1) Reflects Rockies announcement date of 1/26/99.
4-4
<PAGE>
SUMMARY OF ANALYSIS
- -------------------------------------------------------------------------------
COMPARABLE COMPANY ANALYSIS
<TABLE>
<CAPTION>
COMPARABLE GROUP(1) IMPLIED PRICE PER SHARE
------------------- -----------------------
MEAN MEDIAN ROCKIES MEAN MEDIAN
------ --------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Company Value/Net Sales(2) 0.60x 0.52x $160.1 $8.87 $7.37
Company Value/Operating Income(2) 8.52x 8.92x $8.6 $6.16 $6.59
Company Value/EBITDA(2) 4.94x 4.75x $17.2 $7.58 $7.21
P/E Ratios:
Calendar 1999 Estimate 12.66x 11.78x $4.9 $7.72 $7.19
Calendar 2000 Estimate 10.85x 11.43x $6.7 $8.89 $9.37
--------------------------------------
MEAN $7.84 $7.55
MEDIAN $7.72 $7.21
--------------------------------------
</TABLE>
(1) Comparable Group Includes: AVDO, CGR, DAVE, DRI, GRLL, ILFO, LDRY, RAIN,
RARE, STAR, TACO, UNO
(2) Debt of $24.3 M. and cash of $0.4 M as of 12/27/98.
4-5
<PAGE>
SUMMARY OF ANALYSIS
- -------------------------------------------------------------------------------
DCF ANALYSIS
<TABLE>
<CAPTION>
---------------------------------------------------------
PROJECTED
---------------------------------------------------------
1999 2000 2001 2002 2003
---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING INCOME $11,280.0 $14,922.0 $16,713.0 $19,251.1 $21,795.9
Income Taxes @ 37.0% 4,173.6 5,521.2 6,183.8 7,122.9 8,064.5
---------------------------------------------------------
After Tax Operating Income 7,106.4 9,400.9 10,529.2 12,128.2 13,731.4
Depreciation and Amortization 9,615.0 11,021.0 11,805.0 12,864.0 13,121.0
(Increase) Decrease in Working Capital (5,893.0) (451.0) (186.0) (359.0) 125.0
Capital Expenditures (11,532.0) (12,835.8) (13,311.8) (13,631.7) (14,123.0)
---------------------------------------------------------
FREE CASH FLOW (703.60) 7,135.1 8,836.4 11,001.5 12,854.4
Plus: Terminal Value @ 9.0x Operating Income 196,163.2
---------------------------------------------------------
TOTAL CASH FLOW (703.60) $7,135.1 $8,836.4 $11,001.5 $209,017.6
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------
NET PRESENT VALUE CALCULATION
- -------------------------------------------------
<S> <C>
NPV of Free Cash Flow $19,953.6
NPV of Terminal Value $78,833.6
-----------
COMPANY VALUE $98,787.2
Cash and Cash Equivalents $449.7
Debt and Capital Lease Obligations $24,335.0
-----------
EQUITY VALUE $74,901.9
Share Outstanding 8,219,262.2
EQUITY VALUE PER SHARE $9.11
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------
ASSUMPTIONS
- -------------------------------------------------
<S> <C>
Operating Income Multiple: 9.0x
Discount Rate: 20.0%
Tax Rate: 37.0%
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------
SENSITIVITY ANALYSIS - EQUITY VALUE
- ------------------------------------------------------
DISCOUNT RATE
18.0% 20.0% 22.0%
--------------------------------
<S> <C> <C> <C> <C>
OPERATING 8.0x 73,531.5 66,142.6 59,435.9
INCOME 9.0x 83,058.7 74,901.9 67,500.4
MULTIPLE 10.0x 92,585.9 83,661.2 75,564.9
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------
SENSITIVITY ANALYSIS - EQUITY VALUE PER SHARE
- ------------------------------------------------------
DISCOUNT RATE
18.0% 20.0% 22.0%
-------------------------------
<S> <C> <C> <C> <C>
OPERATING 8.0x 8.96 8.14 7.39
INCOME 9.0x 10.02 9.11 8.29
MULTIPLE 10.0x 11.09 10.09 9.19
</TABLE>
Management projections adjusted to reflect change in
accounting for startup costs.
4-6
<PAGE>
LBO ANALYSIS
- -------------------------------------------------------------------------------
FISCAL YEAR ENDED DECEMBER 31
$ IN 000'S EXCEPT PER SHARE DATA
- -----------------------------------------------------
SOURCES & USES OF FUNDS
- -----------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Market Value
- -------------------------------------------------------------------------------
<S> <C>
Stock Price on 1/25/99 $6.63
Purchase Premium: 54.7%
-------
Buyout Price per Share $10.25
Number of Shares Outstanding(000) 8,301
-------
IMPLIED PURCHASE PRICE OF 100% OF EQUITY $85,068
-------
-------
Number of Shares Purchased(000s) 8,301
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Uses
- -------------------------------------------------------------------------------
<S> <C>
Purchase Price of Equity $85,088
Existing Debt to Be Refinanced(3) $20,226
--------
Total Purchase Price $105,314
Estimated Advisory fees $2,250
Financing/Placement Fees $2,500
--------
TOTAL USES OF FUNDS $110,064
--------
--------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Sources
- -------------------------------------------------------------------------------------------------------------
RATE MATURITY % OF TOTAL AMOUNT OWNERSHIP
----- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
CASH ON BALANCE SHEET NA NA 0.4% $450 NA
Assumed Debt/Capital Lease Obligations 9.3% 0 7.7% $8,529 NA
Revolver 10.0% NA 0.0% (50) NA
Term Loan A 8.8% 8 Years 45.9% $50,543 0.0%
Term Loan B 9.1% 8 Years 0.0% $0 0.0%
Senior Subordinated Note (21.1% IRR)* 12.0% 10 Years 23.0% $25,271 7.0%
--------
TOTAL DEBT $84,343
Common Equity
LBO Fund (32.6% IRR)* NA NA 23.0% $25,271 93.0%
Management NA NA 0.0% $0 0.0%
--------
TOTAL EQUITY $25,271
--------
TOTAL SOURCES OF FUNDS $110,064
--------
--------
</TABLE>
*Equity value is calculated using a 5.0x EBITDA Multiple on year 2003
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
1999 Proforma Capital Structure Analysis
- -----------------------------------------------------------------------------------------
MULTIPLE OF MULTIPLE OF
AMOUNT PERCENT 1998 EBITDA 1999 EBITDA
------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Revolving Line of Credit ($0) 0.0% 0.0x 0.0x
Existing Debt $8,529 9.9% 0.5x 0.4x
Term Loan A $50,543 58.8% 2.9x 2.4x
Term Loan B $0 0.0% 0.0x 0.0x
Senior Subordinated Note (21.1% IRR)* $25,271 29.4% 1.5x 1.2x
Preferred Stock $0 0.0% 0.0x 0.0x
Stockholders' Equity $1,635 1.9% 0.1x 0.1x
------- ------- ----------- -----------
TOTAL $85,978 100.0% 5.0x 4.1x
------- ------- ----------- -----------
------- ------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Leverage/Coverage
- ----------------------------------------------------------------------------
--------------------------------------
LEVERAGE 1999 2000 2001 2002 2003
--------------------------------------
<S> <C> <C> <C> <C> <C>
Total Debt/EBITDA 4.2x 3.4x 3.0x 2.5x 2.0x
Total Debt/(EBITDA-CAPEX) 9.3x 6.7x 5.6x 4.3x 3.4x
Total Debt/Equity 25.6x 11.7x 6.6x 3.9x 2.4x
COVERAGE
EBITDA/Interest Expense 3.1x 3.1x 3.5x 4.2x 4.9x
(EBITDA-CAPEX)/Interest Expense 1.4x 1.5x 1.9x 2.4x 2.9x
Fixed Charge Coverage(1) 0.3x 0.7x 0.8x 0.9x 1.0x
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Purchase Price Multiples
- ----------------------------------------------------------------------------
<S> <C>
EQUITY PURCHASE PRICE $85,088
Plus: Assumed Debt $20,226
Less: Excess Cash $450
--------
COMPANY VALUE $104,864
--------
--------
<CAPTION>
VALUE MULTIPLE
-------- --------
<S> <C> <C>
PURCHASE PRICE MULTIPLES
Company Value/1998 EBIT(2) $8,598 12.2x
Company Value/1998 EBITDA $17,213 6.1x
Company Value/1999 EBIT $11,280 9.3x
Company Value/1999 EBITDA $21,192 4.9x
Company Value/1999 Free Cash Flow(2) $9,660 10.9x
Company Value/1999 Revenue $182,372 0.6x
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------
Goodwill Calculation
- -------------------------------------------------------------------------
<S> <C>
Equity Purchase Price $85,088
Financing Fees 4,750
Book Value of Equity 66,202
--------
GOODWILL ASSUMED NM
Goodwill Amortization Life Expense 15 Years
--------
GOODWILL EXPENSE PER YEAR NM
Financing Fees Life Expectancy 5 Years
--------
FINANCING FEES PER YEAR NM
</TABLE>
(1) Fixed Charge Coverage = (EBITDA - Capex - Current Taxes)/(Interest +
Scheduled Principal Repayments)
(2) Free Cash Flow = EBITDA - Capital Expenditures - Change in Working Capital,
1998 EBIT is normalized
(3) Based on Q1 1999 balance sheet
4-7
<PAGE>
COMPARABLE ACQUISITION ANALYSIS
<PAGE>
COMPARABLE ACQUISITION ANALYSIS
- --------------------------------------------------------------------------------
- - The Comparable Transaction Analysis includes a review of transactions
involving companies deemed similar to Rockies. Piper Jaffray continually
follows transactions in the restaurant industry under SIC codes 5812 and
5813.
- - Piper Jaffray examined two groups of M&A transactions for Rockies:
- Underperforming Restaurant Transactions
- Comparable Going Private Restaurant Transactions
- - Date range: 1/1/97 - present
- - Disclosed information regarding such transactions is often incomplete,
especially for deals involving acquisitions of or by privately held
companies. This analysis is based on information obtained from SEC filings,
public company disclosures, press releases, industry and popular press
reports, databases and other sources.
- - This group of comparable transactions is used to derive a range of implied
valuations for Rockies by applying the various purchase price multiples
from the comparable transactions to Rockies' sales, EBITDA, operating
income and net income for the twelve month period ending December 31, 1998.
This valuation methodology is illustrated in detail on the following page.
<PAGE>
<TABLE>
<CAPTION>
RESTAURANT INDUSTRY MERGERS & ACQUISITIONS - UNDERPERFORMING COMPANIES PIPER JAFFRAY INC.
- ---------------------------------------------------------------------------------------------------------------------------------
SIC CODES 5812, 5813
COMPANY VALUE > $10 MILLION
------------------------------------------
MULTIPLES
------------------------------------------
EQUITY
COMPANY EQUITY COMPANY COMPANY COMPANY VALUE/
DATE VALUE VALUE VALUE/ VALUE/ VALUE/ NET
EFFECTIVE TARGET ACQUIROR $MIL $MIL SALES EBITDA EBIT INCOME
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pending Back Bay Restaurant Group SRC Holdings Inc. $41.3 $37.7 0.4x 5.0x 10.1x 14.9x
Pending Au Bon Pain Bruckmann, Rosser, Sherill & Co. $136.4 $73.0 0.5x 6.5x 35.5x NM
Pending Fuddruckers Inc. King Cannon $43.0 $43.0 0.3x 4.2x 9.6x NA
Pending Sbarro Inc. Sbarro Family $468.3 $585.0 1.3x 5.8x 8.1x 16.2x
01/25/99 Spaghetti Warehouse(2) Cracken, Harkey & Co. $50.0 $45.5 0.8x 8.2x 22.2x 38.2x
09/01/98 Timber Lodge Steakhouse Inc. GB Foods Corp $18.6 $18.2 0.6x 6.3x 14.6x 20.6x
07/31/98 Morrison Restaurants Inc. Piccadilly Cafeterias Inc $58.3 $46.3 0.2x 8.8x NM NM
07/21/98 Bertucci's NE Restaurant Co Inc $101.7 $93.6 0.7x 6.8x 16.4x 28.0x
07/09/98 Pollo Tropical Carrols Corp $89.5 $90.8 1.3x 6.8x 9.1x 15.3x
07/07/98 Houlihans Restaurant Group Hampstead/Scoggin $125.0 $30.0 0.5x 5.7x NM NM
04/28/98 Skyline Chili Inc. Fleet Equity Partners $26.1 $22.9 0.8x 4.6x 7.0x 13.0x
04/03/98 DavCo Restaurants Inc Citicorp Venture Capital $180.3 $133.6 0.8x 7.3x 11.7x 14.7x
02/03/98 Sagebrush Inc. WSMP Inc. $41.6 $39.4 0.8x 5.4x 8.9x 14.2x
01/22/98 El Chico Restaurants Inc. Cracken, Harkey & Co. $57.8 $49.4 0.6x 6.0x 14.3x NM
01/05/98 International Dairy Queen Inc.Berkshire Hathaway, Inc. $536.9 $585.0 1.3x 8.0x 9.0x 15.4x
12/23/97 Perkins Family Restaurant LP Restaurant Co. $214.0 $146.8 0.8x 5.9x 10.7x 15.9x
10/20/97 Ground Round Restaurants GRR Holdings LLC $56.9 $18.4 0.3x 6.5x NM NM
12/02/97 Rudy's Restaurant Group Benihana Inc. $18.9 $17.6 1.1x 6.6x 8.1x 22.4x
09/26/97 Krystal Co Port Royal Holdings Inc $143.5 $108.4 0.6x 7.0x 15.4x 30.1x
07/16/97 Hardees Food Systems Inc. CKE Restaurants Inc $361.2 $324.1 0.5x NM NM NM
07/03/97 Monterey's Acquistion Corp. Casa Ole Restaurants Inc. $10.8 $4.0 0.5x 4.6x 10.2x NM
06/24/97 Charlie Brown's Inc. Castle Harlan Partners III $50.4 NA NA 6.1x NA NA
05/28/97 Hamberger Hamlet-Restaurants Koo Koo Roo $11.7 $11.5 0.4x NM NM NM
<CAPTION>
-------------------------------------
TARGET LTM FINANCIAL INFORMATION
-------------------------------------
NET NET
DATE SALES EBITDA EBIT INCOME
EFFECTIVE TARGET ACQUIROR $MIL $MIL $MIL $MIL(1)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Pending Back Bay Restaurant Group SRC Holdings Inc. $97.3 $8.2 $4.1 $2.5
Pending Au Bon Pain Bruckman, Rosser, Sherill & Co. $248.8 $20.8 $3.8 ($2.2)
Pending Fuddruckers Inc. King Cannon $134.2 $10.3 $4.5 NA
Pending Sbarro Inc. Sbarro Family $348.2 $80.5 $57.6 $36.2
01/25/99 Spaghetti Warehouse(2) Cracken, Harkey & Co. $66.0 $6.1 $2.3 $1.2
09/01/98 Timber Lodge Steakhouse Inc. GB Foods Corp $29.9 $3.0 $1.3 $0.9
07/31/98 Morrison Restaurants Inc. Piccadilly Cafeterias Inc $241.3 $6.6 ($3.4) ($2.3)
07/21/98 Bertucci's NE Restaurant Co Inc $140.3 $15.1 $6.2 $3.3
07/09/98 Pollo Tropical Carrols Corp $67.7 $13.2 $9.8 $5.9
07/07/98 Houlihans Restaurant Group Hampstead/Scoggin $262.6 $22.0 $9.0 ($2.7)
04/28/98 Skyline Chili Inc. Fleet Equity Partners $34.4 $5.6 $3.7 $1.8
04/03/98 DavCo Restaurants Inc Citicorp Venture Capital $238.4 $24.6 $15.4 $9.1
02/03/98 Sagebrush Inc. WSMP Inc. $49.8 $7.7 $4.6 $2.8
01/22/98 El Chico Restaurants Inc. Cracken, Harkey & Co. $102.5 $9.7 $4.1(3) $0.8
01/05/98 International Dairy Queen Inc.Berkshire Hathaway, Inc. $421.1 $67.3 $59.7 $38.1
12/23/97 Perkins Family Restaurant LP Restaurant Co. $269.5 $36.1 $20.1 $9.2
10/20/97 Ground Round Restaurants GRR Holdings LLC $195.5 $8.7 ($2.2) ($8.7)
12/02/97 Rudy's Restaurant Group Benihana Inc. $16.5 $2.9 $2.3 $0.8
09/26/97 Krystal Co Port Royal Holdings Inc $248.2 $20.4 $9.3(4) $3.6
07/16/97 Hardees Food Systems Inc. CKE Restaurants Inc $745.1 $31.6 ($17.8) ($15.3)
07/03/97 Monterey's Acquistion Corp. Casa Ole Restaurants Inc. $20.6 $2.3 $1.1 $0.1
06/24/97 Charlie Brown's Inc. Castle Harlan Partners III NA $8.3 NA NA
05/28/97 Hamberger Hamlet-Restaurants Koo Koo Roo $30.0 $1.0 ($0.6) ($0.9)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
---------------------------------------------------------------------
MINIMUM .24x 4.2x 7.0x 13.0x
MEAN .69x 6.3x 13.0x 19.9x
MEDIAN .60x 6.3x 10.2x 15.9x
MAXIMUM 1.35x 8.8x 35.5x 38.2x
---------------------------------------------------------------------
<CAPTION>
PRICE PER SHARE
MEAN MEDIAN
<S> <C> <C> <C> <C> <C> <C> <C>
Rockies Implied based on Sales Multiple $10.42 $8.82 $160.1 $17.2 $8.6 $4.3
Implied based on EBITDA Multiple $10.19 $10.12 Reported NI $4.0
Implied based on EBIT Multiple $10.56 $7.91
Implied based on N/I Multiple $10.28 $8.36
Implied based on Report N/I multiple $9.63 $7.84
</TABLE>
(1) Fully Taxed
(2) Based on LTM information available at the day of the announcement
(3) Excludes special charges.
(4) Excludes Special Litigation Charge in Q4 of Fiscal 1996 of $4 million
(before income tax benefit)
<PAGE>
<TABLE>
<CAPTION>
RESTAURANT INDUSTRY MERGERS & ACQUISITIONS - MOST COMPARABLE GOING PRIVATE TRANSACTIONS PIPER JAFFRAY INC.
- ----------------------------------------------------------------------------------------------------------------------------------
SIC CODES 5812, 5813
COMPANY VALUE > $10 MILLION
------------------------------------------
MULTIPLES
------------------------------------------
EQUITY
COMPANY EQUITY COMPANY COMPANY COMPANY VALUE/
DATE VALUE VALUE VALUE/ VALUE/ VALUE/ NET
EFFECTIVE TARGET ACQUIROR $MIL $MIL SALES EBITDA EBIT INCOME
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Topped Bertucci's Ten Ideas $79.4 $71.3 0.6x 5.3x 12.8x 21.3x
Pending Sbarro Inc. Sbarro Family $468.3 $585.0 1.3x 5.8x 8.1x 16.2x
Pending Back Bay Restaurant Group SRC Holdings Inc. $41.3 $37.7 0.4x 5.0x 10.1x 14.9x
01/25/99 Spaghetti Warehouse(2) Cracken, Harkey & Co. $50.0 $45.5 0.8x 8.2x 22.2x 38.2x
07/21/98 Bertucci's NE Restaurant Co Inc $101.7 $93.6 0.7x 6.8x 16.4x 28.0x
04/03/98 DavCo Restaurants Inc Citicorp Venture Capital $180.3 $133.6 0.8x 7.3x 11.7x 14.7x
01/22/98 El Chico Restaurants Inc. Cracken, Harkey & Co. $57.8 $49.4 0.6x 6.0x 14.3x NM
12/23/97 Perkins Family Restaurant LP Restaurant Co. $214.0 $146.8 0.8x 5.9x 10.7x 15.9x
12/03/97 Ground Round Restaurants GRR Holdings LLC $56.9 $18.4 0.3x 6.5x NM NM
<CAPTION>
-------------------------------------
TARGET LTM FINANCIAL INFORMATION
-------------------------------------
NET NET
DATE SALES EBITDA EBIT INCOME
EFFECTIVE TARGET ACQUIROR $MIL $MIL $MIL $MIL(1)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Topped Bertucci's Ten Ideas $140.3 $15.1 $6.2 $3.3
Pending Sbarro Inc. Sbarro Family $348.2 $80.5 $57.6 $36.2
Pending Back Bay Restaurant Group SRC Holdings Inc. $97.3 $8.2 $4.1 $2.5
01/25/99 Spaghetti Warehouse(2) Cracken, Harkey & Co. $66.0 $6.1 $2.3 $1.2
07/21/98 Bertucci's NE Restaurant Co Inc $140.3 $15.1 $6.2 $3.3
04/03/98 DavCo Restaurants Inc Citicorp Venture Capital $238.4 $24.6 $15.4 $9.1
01/22/98 El Chico Restaurants Inc. Cracken, Harkey & Co. $102.5 $9.7 $4.1(3) $0.8
12/23/97 Perkins Family Restaurant LP Restaurant Co. $269.5 $36.1 $20.1 $9.2
12/03/97 Ground Round Restaurants GRR Holdings LLC $195.5 $8.7 ($2.2) ($8.7)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
---------------------------------------------------------------------
MINIMUM .29x 5.0x 8.1x 14.7x
MEAN .69x 6.3x 13.3x 21.3x
MEDIAN .72x 6.0x 12.3x 16.2x
MAXIMUM 1.35x 8.2x 22.2x 38.2x
---------------------------------------------------------------------
<CAPTION>
PRICE PER SHARE
MEAN MEDIAN
<S> <C> <C> <C> <C> <C> <C> <C>
Rockies Implied based on Sales Multiple $10.44 $11.03 $160.1 $17.2 $8.6 $4.3
Implied based on EBITDA Multiple $10.23 $9.56 Reported NI $4.0
Implied based on EBIT Multiple $10.84 $9.84
Implied based on N/I Multiple $10.96 $8.50
Implied based on Report N/I multiple $10.26 $7.97
</TABLE>
(1) Fully Taxed
(2) Based on LTM information available at the day of the announcement
(3) Excludes special charges.
<PAGE>
PREMIUMS PAID ANALYSIS
<PAGE>
PREMIUMS PAID ANALYSIS
- --------------------------------------------------------------------------------
- - The following is an analysis of premiums paid relative to recent public
market pre-announcement trading prices for a variety of transactions
including control acquisitions in the restaurant industry as well as
acquisitions of remaining public minority interests.
- - This analysis examines the difference between the acquisition cost and the
target's market capitalization at distinct points in time. This analysis is
based on information obtained from SEC filings, public company disclosures,
press releases, industry and popular press reports, databases and other
sources.
- - We reviewed two distinct comparable groups for the Premiums Paid Analysis:
- Restaurant Sector Acquisitions
* Equity transaction size greater than $15 million
* 1/1/97 - present
- All Going Private Transactions
* Equity transaction size $30 - $300 million
* 1/1/97 - present
* Acquiror owns greater than 80% post transaction
<PAGE>
<TABLE>
<CAPTION>
PREMIUMS PAID ANALYSIS - RESTAURANTS PIPER JAFFRAY INC.
- -----------------------------------------------------------------------------------------------
ANNOUNCEMENT DATE: 1/11/1997 - 2/17/1999
ANN. EFFECTIVE
DATE DATE ACQUIROR FULL NAME TARGET FULL NAME
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
4/15/97 Withdrawn MERITAGE HOSPITALITY GROUP* SKYLINE CHILI INC.
3/25/97 Terminated CHECKERS DRIVE-IN RESTAURANT RALLY'S HAMBURGERS
2/13/98 Topped TEN IDEAS* BERTUCCI'S
3/6/98 ARTHUR TREACHER'S MIAMI SUBS CORPORATION
4/23/98 Withdrawn CONQUEST PARTNERS* SPAGHETTI WAREHOUSE
5/1/98 Terminated TECH ELECTRO INDUSTRIES DENAMERICA
9/18/98 1/25/99 CRACKEN, HARKEY & CO. SPAGHETTI WAREHOUSE
3/13/98 Topped POLLO MANAGEMENT* POLLO TROPICAL
11/25/98 Pending SBARRO FAMILY SBARRO INC.
12/3/98 Pending SRC HOLDINGS BACK BAY RESTAURANT
12/11/98 Pending CRACKER BARREL OLD COUNTRY STORE LOGAN'S ROADHOUSE
6/10/98 10/30/98 FAMILY RESTAURANTS KOO KOO ROO
12/12/97 9/1/98 GB FOODS CORP. TIMBER LODGE STEAKHOUSE
4/23/98 7/31/98 PICCADILLY CAFETERIAS MORRISON RESTAURANTS
4/3/98 7/21/98 NE RESTAURANT COMPANY BERTUCCI'S INC.
6/4/98 7/9/98 CARROLS CORP. POLLO TROPICAL
9/26/97 4/28/98 FLEET EQUITY PARTNERS SKYLINE CHILI INC.
9/5/97 4/3/98 DAVCO ACQUISITION HOLDING DAVCO RESTAURANTS
9/26/97 2/3/98 WSMP SAGEBRUSH INC.
9/23/97 1/22/98 CRACKEN, HARKEY & CO. EL CHICO RESTAURANTS
10/21/97 1/5/98 BERKSHIRE HATHAWAY INTERNATIONAL DAIRY QUEEN
8/4/97 12/23/97 THE RESTAURANT COMPANY PERKINS FAMILY RESTAURANTS LP
7/23/97 12/2/97 BENIHANA RUDY'S RESTAURANT GROUP
9/2/97 10/20/97 GRR HOLDINGS GROUND ROUND RESTAURANTS
7/3/97 9/26/97 PORT ROYAL HOLDINGS KRYSTAL COMPANY
5/28/97 7/17/97 COMPASS GROUP PLC DAKA INTERNATIONAL
3/11/97 5/23/97 EQUITY GROUP INVESTMENTS CHART HOUSE ENTERPRISES
<CAPTION>
-----------------------------------------------
PREMIUMS PAID
-----------------------------------------------
1 YEAR 1 MONTH 1 WEEK 1 DAY
EQUITY TRANSACTION PRIOR TO PRIOR TO PRIOR TO PRIOR TO % OF SHARES
VALUE VALUE (MM) ANNOUN. ANNOUN. ANNOUN. ANNOUN. ACQUIRED
- -----------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
$25.4 25.40 106.9% 3.4% 10.1% 8.1% 100.00
$110.6 175.63 161.4% 39.1% 65.9% 59.7% 100.00
$71.3 71.01 48.8% 23.1% 28.0% 29.3% 100.00
$28.2 28.24 (60.0%) 146.3% 60.0% 28.0% 100.00
$48.4 47.00 74.4% 23.6% 17.2% 16.2% 100.00
$65.9 77.90 60.0% 77.8% 45.5% 23.1% 100.00
$45.5 60.00 13.3% 2.4% 32.0% 39.1% 100.00
$82.6 82.55 105.1% 14.3% 25.0% 26.0% 100.00
$585.0 386.70 (3.5%) 20.2% 11.4% 10.8% 68.50
$37.7 35.47 56.2% 28.1% 13.9% 12.3% 100.00
$1,467.8 1,467.84 61.3% 33.3% 10.3% 13.9% 100.00
$57.8 57.80 (48.4%) 18.8% 39.7% 3.3% 100.00
$18.2 17.40 139.4% 76.4% 74.1% 74.1% 100.00
$46.3 46.15 8.1% 65.9% 29.0% 14.3% 100.00
$93.6 97.16 86.7% 33.3% 35.5% 35.5% 100.00
$90.8 90.81 66.0% 18.9% 7.3% 10.0% 100.00
$22.9 22.93 18.7% 1.9% 3.8% 3.8% 100.00
$133.6 131.88 135.3% 49.5% 52.4% 49.5% 45.00
$39.4 39.05 #N/A 16.9% 10.6% 13.0% 100.00
$49.4 47.32 54.5% 22.9% 17.2% 21.4% 100.00
$585.0 582.75 35.0% 10.5% 9.1% 11.9% 100.00
$146.8 76.30 9.5% 22.4% 17.5% 19.5% 52.00
$17.6 18.83 5.3% 73.9% 70.2% 50.9% 100.00
$18.4 19.68 (34.0%) (9.0%) 10.0% 5.6% 100.00
$108.4 145.40 182.9% 176.2% 169.8% 132.0% 100.00
$83.7 195.00 (71.7%) (7.0%) (35.5%) (33.3%) 100.00
$67.4 19.55 (55.8%) 2.2% 4.5% 2.2% 28.99
-----------------------------------------------
- ----------------------------------------------------------------------------
MAX 182.9% 176.2% 169.8% 132.0%
MEAN 44.4% 36.5% 30.9% 25.2%
MEDIAN 51.7% 22.9% 17.5% 16.2%
MIN (71.7%) (9.0%) (35.5%) (33.3%)
- ----------------------------------------------------------------------------
Rockies @ $10.25 per share 60.8% 90.7% 70.8% 54.7%
-----------------------------------------------------------------
Rockies Price $6.38 $5.38 $6.00 $6.63
-----------------------------------------------------------------
</TABLE>
* Initial merger announcements, the premium paid one day prior based on the
announcement date is the following:
NE Restaurant - Bertucci's: 69.7%
Carrols Corp - Pollo Tropical: 38.6%
Fleet Equity Partners - Skyline Chili: (2.7%)
Cracken Harkey - Spaghetti Warehouse: 9.4%
<PAGE>
PREMIUM ANALYSIS - GOING PRIVATE TRANSACTIONS PIPER JAFFRAY INC.
- -------------------------------------------------------------------------------
TRANSACTION VALUE > $30 MIL < $300 MIL, 80% OR MORE OWNED
AFTER TRANSACTION
ANNOUNCEMENT DATE: 1/11/1997 - 2/17/99
EXCLUDES FINANCIAL INSTITUTIONS AND REITS
<TABLE>
<CAPTION>
ANN. EFFECTIVE EQUITY COMPANY
DATE DATE ACQUIROR FULL NAME TARGET FULL NAME VALUE VALUE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
04/23/98 Withdrawn CONQUEST PARTNERS SPAGHETTI WAREHOUSE, INC. $48.4 $50.4
07/07/97 Topped INVESTOR GROUP XPEDITE SYSTEMS $205.3 $250.0
02/13/98 Topped TEN IDEAS INC. BERTUCCI'S INC. $71.3 $79.4
03/13/98 Topped POLLO MANAGEMENT POLLO TROPICAL, INC. $82.6 $83.3
03/31/97 Terminated HICKS, MUSE, TATE, AND FURST THERMAL INDUSTRIES $37.5 $34.3
10/20/97 Terminated INVESTOR GROUP SYBRON CHEMICALS, INC. $195.6 $196.2
03/17/98 Terminated TRACE INTERNATIONAL FOAMEX INTERNATIONAL INC. $338.8 $827.1
05/22/98 Terminated FREMONT PARTNERS INC GLOBAL MOTORSPORT GROUP $112.3 $221.0
06/23/98 Terminated ODYSSEY INVESTMENT PARTNERS CELADON GROUP INC $153.0 $259.0
11/18/98 Rejected INVESTORS (DAVID TSAN)G OAK TECHNOLOGY INC $183.0 $132.0
11/25/98 Pending SBARRO FAMILY SBARRO INC $585.0 $468.3
05/29/98 Pending INNOVATIVE COMMUNICATION EMERGING COMMUNICATIONS $112.3 $114.3
06/15/98 Pending SAFEGUARD SCIENTIFICS, METALLURG $148.7 $201.2
08/18/98 Pending WOODS EQUIPMENT CO. ALAMO GROUP, INC. $180.1 $208.0
10/22/98 Pending WELSH, CARSON, ANDERSON & STOWE CENTENNIAL HEALTHCARE CORP. $190.8 $290.8
11/23/98 Pending JAY B. LANGNER & RIDHARD D. SEGAL HUDSON GENERAL CORP. $99.9 $82.9
12/03/98 Pending SRC HOLDINGS BACK BAY RESTAURANT GROUP. $37.7 $41.3
12/29/98 Pending W.R. HAMBRECHT & CO. INTERLINQ SOFTWARE CORP. $47.4 $47.4
9/18/98 1/25/99 CRACKEN, HARKEY & CO. SPAGHETTI WAREHOUSE $45.5 $50.0
06/22/98 12/15/98 J.F. LEHMAN & CO. SPECIAL DEVICES $289.0 $268.0
11/09/98 12/15/98 STONINGTON PARTNERS INC. GLOBAL MOTORSPORT GROUP $100.9 $148.2
03/16/98 10/30/98 FPK, LLC NORWOOD PROMOTIONAL PRODUCTS $105.0 $162.5
05/21/98 10/22/98 LICKING RURAL ELECTRIFICATION NATIONAL GAS & OIL CO. $93.0 $99.5
06/22/98 10/02/98 QUESTOR PARTNERS FUND LP GT BICYCLES INC. $78.6 $168.6
04/21/98 09/24/98 CITICORP ALLIED DIGITAL TECHNOLOGIES CORP. $68.1 $84.3
07/17/98 09/02/98 DONALDSON, LUFKIN & JENRETTE DECRANE AIRCRAFT HOLDINGS $183.5 $225.6
06/16/98 08/31/98 LINSALATA CAPITAL PARTNERS FUND II PERSONNEL MANAGEMENT $32.8 $34.5
07/29/98 08/26/98 EBC TEXAS ACQUISITION CORP. E-Z SERVE CORP. $41.6 $104.1
04/21/98 08/25/98 INVESTOR GROUP PCA INTERNATIONAL INC. $210.4 $362.3
02/17/98 08/18/98 HB ACQUISITION CORP. BELL SPORTS CORP. $142.0 $191.7
04/16/98 08/11/98 INVESTCORP BANK HARBORSIDE HEALTHCARE CORP $200.3 $281.3
06/02/98 08/04/98 ADVENTIST HEALTH SYSTEMS HOUSECALL MEDICAL RESOURCES $10.4 $50.2
02/13/98 07/29/98 INVESTOR GROUP GNI GROUP INC. $46.4 $82.4
04/03/98 07/21/98 NE RESTAURANT COMPANY BERTUCCI'S INC. $93.6 $101.7
02/11/98 06/10/98 APOLLO MANAGEMENT, L.P. MTL INC. $189.5 $243.5
<CAPTION>
- -----------------------------------------------
PREMIUMS PAID BREAKUP/ BREAKUP/
- ----------------------------------------------- TERMINATION TERMINATION
1 YEAR 1 MONTH 1 WEEK 1 DAY FEE (MIL.) FEE (MIL.)
PRIOR TO PRIOR TO PRIOR TO PRIOR TO % OF SHARES AS A % AS A % OF
ANNC. ANNC. ANNC. ANNC. ACQUIRED OF CO. VALUE EQUITY VALUE
- -----------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
74.4% 23.6% 17.2% 16.2% 100.00
(14.3%) 20.0% 30.4% 20.8% 100.00
48.8% 23.1% 28.0% 29.3% 100.00 1.89% 2.10%
105.1% 14.3% 25.0% 26.0% 100.00
125.2% 28.8% 29.9% 29.9% 100.00
120.3% 32.0% 23.8% 23.8% 55.00
0.7% 25.9% 24.8% 15.3% 54.00
91.7% 11.5% 13.6% 12.9% 34.10 2.26% 4.45%
81.8% 40.4% 41.6% 36.8% 100.00 3.09% 5.23%
(45.5%) 46.9% 20.0% 13.4% 100.00
10.8% 20.2% 11.4% 10.8% 68.50
NA 40.4% 27.0% 30.4% 48.00
650.0% 73.9% 71.4% 73.9% 100.00
(8.4%) 2.1% 9.6% 15.6% 100.00 4.81% 5.55%
(34.7%) 80.3% 103.2% 88.2% 100.00 1.03% 1.57%
18.3% 15.4% 4.1% 4.8% 100.00 2.11% 1.75%
56.2% 28.1% 13.9% 12.3% 100.00 6.05% 6.64%
117.6% 15.6% 23.3% 22.3% 75.60
13.3% 2.4% 32.0% 39.1% 100.00
148.7% 8.8% 10.9% 6.1% 100.00 2.24% 2.08%
39.3% 44.4% 14.7% 15.6% 100.00 2.02% 2.97%
40.3% 23.6% 19.1% 19.1% 100.00
52.6% 26.1% 18.2% 7.2% 100.00 2.01% 2.15%
0.0% 36.2% 77.8% 68.4% 100.00 1.19% 2.54%
166.7% 63.2% 48.1% 27.0% 100.00 5.19% 6.42%
33.3% 31.4% 28.7% 30.5% 100.00 5.31% 6.52%
66.2% 23.1% 23.1% 25.5% 100.00 3.62% 3.81%
#N/A 37.1% 20.0% 37.1% 100.00
80.4% 17.8% 17.8% 23.3% 83.00
95.3% 11.3% 15.9% 16.7% 100.00 1.30% 1.76%
119.8% (29.8%) (44.1%) (43.3%) 91.00 2.13% 3.00%
(75.4%) (23.8%) (31.5%) (17.9%) 100.00 1.99% 9.62%
14.3% 40.0% 17.9% 17.9% 100.00 4.85% 8.61%
86.7% 33.3% 35.5% 35.5% 100.00 2.21% 2.40%
79.8% 57.6% 38.5% 37.9% 100.00 3.08% 3.96%
- ------------------------------------------------
</TABLE>
<PAGE>
PREMIUMS PAID ANALYSIS - GOING PRIVATE TRANSACTIONS PIPER JAFFRAY INC.
- -------------------------------------------------------------------------------
TRANSACTION VALUE GREATER THAN $30 MIL LESS THAN $300 MIL, 80% OR MORE OWNED
AFTER TRANSACTION
ANNOUNCEMENT DATE: 1/1/1997 - 2/17/1999
EXCLUDES FINANCIAL INSTITUTIONS AND REITS
<TABLE>
<CAPTION>
EFFECTIVE
ANN DATE DATE ACQUIRER FULL NAME TARGET FULL NAME
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
01/29/98 06/08/98 GOLDER, THOMA, CRESSEY, RAUNER INC. MONROC, INC.
03/11/98 06/04/98 J RICHARD INDUSTRIES PORTEC INC.
12/19/97 05/01/98 CABLE SYSTEMS HOLDING, LLC. IPC INFORMATION SYSTEMS INC.
09/05/97 04/03/98 DAVCO ACQUISITION HOLDING INC. DAVCO RESTAURANTS, INC.
12/23/97 04/01/98 MCCOWN DE LEEUW & CO. UNION CORP
10/02/97 03/30/98 LAZARD FRERES & CO. KAPSON SENIOR QUARTERS CORP
11/14/97 03/25/98 GOLDMAN SACHS & CO CHARTWELL LEISURE INC
09/16/97 02/06/98 SUPERCANAL HOLDING S.A. TESCORP INC.
10/17/97 02/05/98 LINSALATA CAPITAL PARTNERS FUND II L.P. TRANZONIC COS.
07/30/97 02/02/98 INVESTOR GROUP PLASTI-LINE, INC.
10/17/97 01/29/98 WEISS, PECK & GREER LLC ATC GROUP SERVICES INC
09/23/97 01/22/98 CRACKEN, HARKEY & CO. LLC. EL CHICO RESTAURANTS INC.
08/14/97 12/29/97 MADISON DEARBORN PARTNERS, INC TUESDAY MORNING CORPORATION
8/4/97 12/23/97 THE RESTAURANT COMPANY PERKINS FAMILY RESTAURANTS LP
07/23/97 12/18/97 APOLLO MANAGEMENT, L.P. ALLIANCE IMAGING INC.
10/01/97 12/05/97 LAND O'LAKES ALPINE LACE BRANDS INC
9/2/97 10/20/97 GRR HOLDINGS GROUND ROUND RESTAURANTS
09/05/97 10/10/97 COLONNADE CAPITAL LLC NATIONAL PICTURE & FRAME CO
06/16/97 09/30/97 KNIGHTBRIDGE CAPITAL I FREDERICKS OF HOLLYWOOD
07/31/97 09/24/97 AMERICAN INDUSTRIAL PARTNERS BUCYRUS INTERNATIONAL INC
05/30/97 07/30/97 GOLDMAN SACHS & CO INTEGRATED LIVING COMMUNITIES
04/11/97 06/12/97 HEDSTROM CORP. ERO INC.
<CAPTION>
-----------------------------------------------
PREMIUM PAID BREAKUP/ BREAKUP/
----------------------------------------------- TERMINATION TERMINATION
1 YEAR 1 MONTH 1 WEEK 1 DAY FEE (MIL.) FEE (MIL.)
EQUITY COMPANY PRIOR TO PRIOR TO PRIOR TO PRIOR TO % OF SHARES AS A % AS A % OF
VALUE VALUE ANNC. ANNC. ANNC. ANNC. ACQUIRED OF CO. VALUE EQUITY VALUE
- -----------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$48.6 $53.0 74.1% 7.7% 10.5% 5.1% 100.00
$71.3 $66.7 45.5% 11.3% 14.3% 8.9% 100.00
$219.0 $314.3 182.4% 18.3% 31.3% 14.3% 90.00
$133.6 $180.3 135.3% 49.5% 52.4% 49.5% 45.00
$182.7 $192.1 41.6% 29.2% 13.5% 14.5% 100.00 4.01% 4.22%
$112.4 $252.3 60.0% 23.1% 20.8% 9.4% 100.00
$271.5 $339.0 32.7% 8.7% 9.5% 8.7% 100.00
$60.3 $66.8 50.0% 38.5% 33.3% 33.3% 100.00
$101.4 $94.2 88.6% 5.5% (2.9%) (1.5%) 100.00
$55.3 $59.6 71.4% 21.3% 27.1% 27.1% 100.00
$101.5 $126.9 0.0% 9.7% (8.1%) 0.0% 89.93
$49.4 $57.8 54.5% 22.9% 17.2% 21.4% 100.00 0.87% 1.01%
$298.7 $319.9 197.0% 17.6% 25.8% 22.7% 100.00
$146.8 $214.0 19.5% 22.4% 17.5% 19.5% 48.00
$120.2 $187.2 134.7% 13.5% 3.5% 7.3% 100.00
$47.7 $56.7 43.1% 15.9% 5.8% (8.8%) 100.00
$18.4 $56.9 5.6% (9.0%) 10.0% 5.6% 100.00
$59.7 $69.8 10.3% 9.1% 11.0% 11.6% 100.00
$68.7 $57.1 46.6% 22.8% 14.2% 17.0% 100.00
$189.6 $247.5 108.7% 71.4% 46.9% 33.3% 100.00
$77.0 $72.5 #N/A 53.3% 21.1% 26.9% 100.00
$115.5 $201.9 66.7% 32.4% 16.9% 9.8% 100.00
-----------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
MAX 650.0% 80.3% 103.2% 88.2% 6.0% 9.6%
MEAN 70.9% 25.3% 22.0% 20.4% 2.9% 4.0%
MEDIAN 55.4% 23.1% 19.1% 17.9% 2.2% 3.4%
MIN (75.4%) (29.8%) (44.1%) (43.3%) 0.9% 1.0%
- -----------------------------------------------------------------------------------------------------------------------------
Rockies @ $10.25 per share 60.8% 90.7% 70.8% 54.7%
-----------------------------------------------------------------
Rockies Price $6.38 $5.38 $6.00 $6.63
-----------------------------------------------------------------
</TABLE>
<PAGE>
COMPARABLE COMPANY ANALYSIS
<PAGE>
COMPARABLE COMPANY ANALYSIS
- --------------------------------------------------------------------------------
- - The objective of the Comparable Company Analysis is to identify companies
similar to Rockies that are publicly traded. Piper Jaffray reviewed and
compared certain actual and estimated publicly available financial,
operating and stock market information of selected publicly traded
companies that have similar products, markets or customers to Rockies.
- - The Comparable Companies were selected based on Piper Jaffray's expertise
in the restaurant market. The comparable companies include the following
underperforming casual dining restaurant chains:
Avado Brands Inc. Lone Star Steakhouse Saloon
Cooker Restaurant Rainforest Cafe Inc.
Darden Restaurants Inc. Rare Hospitality International
Famous Dave's America Inc. Roadhouse Grill
Il Fornaio America Corp. Taco Cabana
Landry's Seafood Restaurants Uno Restaurant Corp.
- - Our analysis includes a comparison of the financial data for Rockies and
the Comparable Companies including revenues, EBITDA, operating income, net
income, operating margin, EBITDA margin, net margin and projected earnings
per share growth. Selected financial and market data for the Comparable
Companies and Rockies is summarized on the following pages.
- - This group of Comparable Companies is also used to derive a range of
implied valuations for Rockies by applying various stock market valuation
multiples for the Comparable Companies (such as company value to sales,
company value to EBITDA, company value to operating income and P/E) to
Rockies' sales, EBITDA, operating income and earnings for the twelve months
ended December 31, 1998 and the calendar 1999 consensus and calendar 2000
Piper Jaffray earnings estimates.
<PAGE>
SELECTED UNDERPERFORMING CASUAL DINING RESTAURANT COMPANIES
- -------------------------------------------------------------------------------
COMPARABLE COMPANY ANALYSIS
<TABLE>
<CAPTION>
STOCK 52 CURRENT PRICE $MM
PRICE WEEK AS A % OF MARKET COMPANY
2/17/99 HIGH 52 WEEK HIGH CAPITALIZATION VALUE
------- ------ ------------ -------------- --------
<S> <C> <C> <C> <C> <C>
Avado Brands Inc $7.13 $16.00 44.5% $243.7 $446.2
Cooker Restaurant $6.75 $12.25 55.1% $41.7 $82.8
Famous Dave's $2.44 $8.19 29.8% $21.5 $18.5
Darden Restaurants Inc $20.31 $21.00 96.7% $2,798.2 $3,106.1
Roadhouse Grill $4.56 $8.25 55.3% $44.3 $66.5
Il Fornaio $10.19 $15.38 66.3% $57.6 $43.4
Landry's $6.81 $31.69 21.5% $206.7 $190.4
Rainforest Cafe $5.44 $17.75 30.6% $134.6 $100.0
Rare Hospitality $13.38 $15.63 85.6% $161.5 $208.4
Lone Star Steakhouse $8.94 $23.44 38.1% $349.4 $255.7
Taco Cabana $8.25 $9.75 84.6% $112.5 $140.0
Uno Restaurant Corp $7.75 $7.88 98.4% $80.1 $124.1
---------------------------------------------------------------------------------------------------
MINIMUM: 21.5%
MEAN: 58.9%
MEDIAN: 55.2%
MAXIMUM: 98.4%
---------------------------------------------------------------------------------------------------
Rockies $8.53 $9.06 94.1% $68.7 $92.6
<CAPTION>
VALUATION MULTIPLES
---------------------------------------------------------------------
1998 1999 2000 COMPANY COMPANY COMPANY
CALENDAR CALENDAR CALENDAR VALUE/LTM VALUE/LTM VALUE/LTM
YEAR P/E YEAR P/E YEAR P/E REVENUE OP. INCOME EBITDA
--------- -------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Avado Brands Inc 14.3 9.8 7.8 0.5x 6.0x 4.2x
Cooker Restaurant 10.4 9.2 NA 0.5x 6.8x 4.5x
Famous Dave's NM NM NA 0.5x NM NM
Darden Restaurants Inc 24.8 21.2 NA 0.9x 15.2x 9.4x
Roadhouse Grill 9.1 10.6 NA 0.6x 11.8x 5.7x
Il Fornaio 20.4 16.4 NA 0.5x 8.9x 4.8x
Landry's 7.0 9.6 10.3 0.5x 4.0x 2.6x
Rainforest Cafe 9.5 8.4 NA 0.5x 5.9x 3.3x
Rare Hospitality 15.6 13.5 11.4 0.7x 10.6x 5.6x
Lone Star Steakhouse 11.5 13.0 11.8 0.4x 4.1x 2.6x
Taco Cabana 17.2 15.0 12.9 1.0x 10.8x 6.7x
Uno Restaurant Corp NA NA NA 0.6x 9.6x 4.9x
-----------------------------------------------------------------------------------------------------------
MINIMUM: 7.0x 8.4x 7.8x 0.4x 4.0x 2.6x
MEAN: 14.0x 12.7x 10.8x 0.6x 8.5x 4.9x
MEDIAN: 12.9x 11.8x 11.4x 0.5x 8.9x 4.8x
MAXIMUM: 24.8x 21.2x 12.9x 1.0x 15.2x 9.4x
-----------------------------------------------------------------------------------------------------------
Rockies 16.0 14.0 10.4 0.6x 10.8x 5.4x
REPORTED N/I 17.1
</TABLE>
*Financial Data exclude one-time charges and extraordinary items.
**Earnings estimates are as of 2/16/99.
<PAGE>
SELECTED UNDERPERFORMING CASUAL DINING RESTAURANT COMPANIES
- -------------------------------------------------------------------------------
COMPARABLE COMPANY ANALYSIS
<TABLE>
<CAPTION>
LATEST TWELVE MONTH ("LTM") DATA
-----------------------------------------------------------------------------
OPERATING OPERATING EBITDA NET NET
REVENUES INCOME MARGIN EBITDA MARGIN INCOME MARGIN
-------- --------- --------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Avado Brands Inc $904.2 $73.9 8.2% $105.8 11.7% $20.1 2.2%
Cooker Restaurant $160.5 $12.2 7.6% $18.4 11.4% $6.2 3.9%
Famous Dave's $35.6 ($4.2) NM ($2.0) NM ($3.9) NM
Darden Restaurants Inc $3,409.6 $205.0 6.0% $330.5 9.7% $120.9 3.5%
Roadhouse Grill $104.1 $5.7 5.4% $11.6 11.1% $3.0 2.9%
Il Fornaio $83.1 $4.9 5.9% $9.1 11.0% $3.5 4.2%
Landry's $386.8 $47.4 12.3% $72.5 18.7% $32.0 8.3%
Rainforest Cafe $213.9 $16.9 7.9% $30.0 14.0% $14.7 6.9%
Rare Hospitality $319.1 $19.6 6.2% $37.3 11.7% $10.5 3.3%
Lone Star Steakhouse $623.1 $62.3 10.0% $98.0 15.7% $42.5 6.8%
Taco Cabana $143.0 $13.0 9.1% $21.0 14.7% $11.1 7.7%
Uno Restaurant Corp $195.1 $12.9 6.6% $25.2 $12.9% $6.3 3.2%
-------------------------------------------------------------------------------------------------------------------
MINIMUM: 5.4% 9.7% 2.2%
MEAN: 7.7% 13.0% 4.8%
MEDIAN: 7.6% 11.7% 3.9%
MAXIMUM: 12.3% 18.7% 8.3%
-------------------------------------------------------------------------------------------------------------------
Rockies (2) $160.1 $8.6 5.4% $17.2 10.8% $4.3 2.7%
REPORTED NI $4.0 2.5%
<CAPTION>
ESTIMATED
5 YEAR EPS CASH AND LONG-TERM
GROWTH RATE EQUIVALENTS DEBT
----------- ----------- ---------
<S> <C> <C> <C>
Avado Brands Inc 25.0 $1.4 $204.0
Cooker Restaurant 20.0 $1.7(1) $35.8
Famous Dave's 50.0 $4.6 $1.1
Darden Restaurants Inc 13.0 $13.1 $310.4
Roadhouse Grill 25.0 $4.0 $24.2
Il Fornaio 20.0 $14.3 $0.0
Landry's 20.0 $41.6 $25.2
Rainforest Cafe 20.0 $34.6(1) $0.0
Rare Hospitality 20.0 $4.8 $50.9
Lone Star Steakhouse 15.0 $93.7 $0.0
Taco Cabana 20.0 $0.8(1) $21.9
Uno Restaurant Corp NA $1.1 $41.0
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
Rockies (2) 17.0 $0.4 $23.9
</TABLE>
(1) Numbers for quarter ending 9/98.
(2) Financials normalized.
<PAGE>
DISCOUNTED CASH FLOW ANALYSIS
<PAGE>
DISCOUNTED CASH FLOW ANALYSIS
- --------------------------------------------------------------------------------
- - The discounted cash flow analysis is used to calculate a range of
theoretical values for Rockies based on (i) the net present value of
implied future cash flows and (ii) a terminal value which estimates the
value of Rockies in 2003 by applying a multiple of operating income in
2003.
DESCRIPTION OF ANALYSIS
- - The discounted cash flow analysis shows the calculation of a range of net
present values for Rockies based on a range of discount rates and a range
of operating income multiples for the terminal value. These discount rates
and operating income multiples were determined based on relevant industry
experience.
<TABLE>
<CAPTION>
Discount Rate EBIT Multiple
------------------- -------------------
<S> <C> <C>
Management Case 18% - 22% 8 - l0x
</TABLE>
- - The projected income statement and working capital assumptions for 1999
through 2003, derived using assumptions from management, can be found in
the LBO Analysis section.
<PAGE>
LBO ANALYSIS
<PAGE>
LBO ANALYSIS
- --------------------------------------------------------------------------------
- - The objective of the leveraged buyout analysis is to calculate a range of
prices that can be paid to acquire the Company while generating the
required returns for equity sponsors and other investors in the capital
structure.
- - The returns are derived based on the Company's projected financial
performance from 1999 to 2003 and customary capital structure assumptions.
- - The leveraged buyout analysis assumes a "going private" transaction in the
second quarter 1999. Piper Jaffray reviewed a potential transaction at a
per share buyout price of $10.25.
- - A leveraged buyout at this price meets standard industry return parameters
for the various investors in the capital structure.
<PAGE>
PROJECT ROCKIES
- -------------------------------------------------------------------------------
FISCAL YEAR ENDED DECEMBER 31 2/18/99
$ IN 000'S EXCEPT PER SHARE DATA 5:35 PM
SOURCES & USES OF FUNDS
- -----------------------------
Market Value:
- -----------------------------
<TABLE>
<S> <C>
Stock Price on 1/25/99 $6.63
Purchase Premium: 54.7%
-------
Buyout Price per Share $10.25
Number of Shares Outstanding(000) 8,301
-------
IMPLIED PURCHASE PRICE OF 100% OF EQUITY: $85,088
-------
-------
Number of Shares Purchased(000s) 8,301
</TABLE>
- -----------------------------
Uses:
- -----------------------------
<TABLE>
<S> <C>
Purchase Price of Equity $85,088
Existing Debt to Be Refinanced (3) $20,226
--------
Total Purchase Price $105,314
Estimated Advisory fees $2,250
Financing/Placement Fees $2,500
--------
TOTAL USES OF FUNDS $110,064
--------
--------
</TABLE>
- -----------------------------
Leverage/Coverage
- -----------------------------
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003
--------------------------------------
<S> <C> <C> <C> <C> <C>
LEVERAGE
Total Debt/EBITDA 4.2x 3.4x 3.0x 2.5x 2.0x
Total Debt/(EBITDA-CAPEX) 9.3x 6.7x 5.6x 4.3x 3.4x
Total Debt/Equity 25.6x 11.7x 6.6x 3.9x 2.4x
COVERAGE
EBITDA/Interest Expense 3.1x 3.1x 3.5x 4.2x 4.9x
(EBITDA-CAPEX)/Interest Expense 1.4x 1.5x 1.9x 2.4x 2.9x
Fixed Charge Coverage(1) 0.3x 0.7x 0.8x 0.9x 1.0x
</TABLE>
- -----------------------------
Sources:
- -----------------------------
<TABLE>
<CAPTION>
RATE MATURITY % OF TOTAL AMOUNT OWNERSHIP
---- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
Cash on Balance sheet NA NA 0.4% $450 NA
Assumed Debt/Capital Lease
Obligations 9.3% 0 7.7% $8,529 NA
Revolver 10.0% NA 0.0% ($0) NA
Term Loan A 8.8% 8 Years 45.9% $50,543 0.0%
Term Loan B 9.1% 8 Years 0.0% $0 0.0%
Senior Subordinated Note
(21.1% IRR)* 12.0% 10 Years 23.0% $25,271 7.0%
--------
TOTAL DEBT $84,343
Common Equity
LBO Fund (32.6% IRR)* NA NA 23.0% $25,271 93.0%
Management NA NA 0.0% $0 0.0%
--------
TOTAL EQUITY $25,271
--------
TOTAL SOURCES OF FUNDS $110,864
--------
--------
</TABLE>
* Equity value is calculated using a 5.0x EBITDA Multiple on year 2003
- -----------------------------
Purchase Price Multiples
- -----------------------------
<TABLE>
<S> <C> <C>
EQUITY PURCHASE PRICE $ 85,088
Plus: Assumed Debt $ 20,226
Less: Excess Cash $450
--------
COMPANY VALUE $104,864
--------
--------
VALUE MULTIPLE
-------- --------
PURCHASE PRICE MULTIPLES
Company Value/1998 EBIT(2) $8,598 12.2x
Company Value/1998 EBITDA $17,213 6.1x
Company Value/1999 EBIT $11,280 9.3x
Company Value/1999 EBITDA $21,192 4.9x
Company Value/1999 Free Cash Flow (2) $9,660 10.9x
Company Value/1999 Revenue $182,372 0.6x
</TABLE>
- -----------------------------
1999 Proforma Capital Structure Analysis:
- -----------------------------
<TABLE>
<CAPTION>
MULTIPLE OF MULTIPLE OF
AMOUNT PERCENT 1998 EBITDA 1999 EBITDA
------- ------- ----------- -----------
<S> <C> <C> <C> <C>
Revolving Line of Credit ($0) 0.0% 0.0x 0.0x
Existing Debt $8,529 9.9% 0.5x 0.4x
Term Loan A $50,543 58.8% 2.9x 2.4x
Term Loan B $ 0 0.0% 0.0x 0.0x
Senior Subordinated Note (21.1% IRR)* $25,271 29.4% 1.5x 1.2x
Preferred Stock $0 0.0% 0.0x 0.0x
Stockholders' Equity $1,634 1.9% 0.1x 0.1x
------- ------- --- ---
TOTAL $85,978 100.0% 5.0X 4.1X
------- ------- --- ---
------- ------- --- ---
</TABLE>
- -----------------------------
Goodwill Calculation:
- -----------------------------
<TABLE>
<S> <C>
Equity Purchase Price $85,088
Finance Fees 4,750
Book Value of Equity 66,202
--------
GOODWILL ASSUMED NM
Goodwill Amortization Life Expectanc 15 Years
--------
GOODWILL EXPENSE PER YEAR NM
Financing Fees Life Expectancy 5 Years
--------
FINANCING FEES PER YEAR NM
</TABLE>
- ------------------------
(1) Fixed Charge Coverage = (EBITDA - Capex - Current Taxes)/(Interest +
Scheduled Principal Repayments)
(2) Free Cash Flow = EBITDA - Capital Expenditures - Change in Working Capital,
1998 EBIT is normalized.
(3) Based on Q1 1999 balance sheet
<PAGE>
PROJECT ROCKIES
- -------------------------------------------------------------------------------
FISCAL YEAR ENDED DECEMBER 31
$ IN 000'S EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
ROCKIES STORE BUILD-UP MODEL
-------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stores Beginning of Year 22 26 28 30 32 34
New Stores (Conversions) 3 0 0 0 0 0
New Stores (Prototypes) 1 2 2 2 2 2
--------------------------------------------------------------------------------
Stores End of Year 26 28 30 32 34 36
AVERAGE WEEKLY SALES:
1997 Stores 83.3 85.3 87.4 89.6 91.9 94.1
2.4% 2.5% 2.5% 2.5% 2.5%
1998 Stores 78.7 80.7 82.716 84.8 86.9 89.1
2.5% 2.5% 2.5% 2.5% 2.5%
1999 Stores 74.8 75.9 77.7 79.7 81.8 83.9
1.3% 2.5% 2.5% 2.6% 2.5%
2000 Stores 66.6 68.3 70.0 71.7 73.4
2.5% 2.5% 2.4% 2.5%
2001 Stores 68.3 70.0 71.7 73.5
2.5% 2.4% 2.5%
2002 Stores 70.0 71.7 73.5
2.4% 2.5%
2003 Stores 71.7 73.5
2.5%
2004 Stores 71.7
</TABLE>
<PAGE>
PROJECT ROCKIES
- -------------------------------------------------------------------------------
FISCAL YEAR ENDED DECEMBER 31
$ IN 000'S EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
ROCKIES STORE BUILD-UP MODEL
-----------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
WEEKS STORE OPEN
1997 Stores 18 936 954 936 936 936 954
1998 Stores 4 208 212 208 208 208 212
1999 Stores 4 143 212 208 208 208 212
2000 Stores 2 78 104 104 104 106
2001 Stores 2 56 104 104 106
2002 Stores 2 52 104 106
2003 Stores 2 52 106
2004 Stores 2 52
Existing Stores 94,306.6 114,564.8 122,315.7 132,652.7 143,431.8 157,634.6
New Stores 10,702.3 5,197.1 3,824.8 3,640.0 3,728.4 3,728.4
------------------------------------------------------------------------------------
TOTAL REVENUE $105,008.8 $119,761.9 $126,140.5 $136,292.7 $147,160.2 $161,363.0
Maintenance CapEx per
Existing Store 75 67 68 63 63 65
CapEx per New Store
(Conversions) 2,241 2,297 2,354 2,413 2,474 2,535
CapEx per New Store
(Prototypes) 1,322 1,476 1,520 1,566 1,605 1,645
Preopening Cost per
New Store 337 225 232 250 256 263
Capitalized Lease per
New Store 1,800 1,500 1,500 1,500 1,500 1,500
Maintenance CapEx 1,650 1,750 1,900 1,900 2,027 2,207
Total CapEx per New Store
(Conversions) 6,723 0 0 0 0 0
Total CapEx per New Store
(Prototypes) 1,322 2,952 3,040 3,132 3,210 3,290
Preopening Costs 1,349 450 464 500 513 525
Growth CapEx financed through
Capitalized le 3,600 3,000 3,000 3,000 3,000 3,000
------------------------------------------------------------------------------------
Total Capex (excl.
preopening costs) 13,295 7,702 7,940 8,032 8,237 8,497
</TABLE>
<PAGE>
PROJECT ROCKIES
- -------------------------------------------------------------------------------
FISCAL YEAR ENDED DECEMBER 31
$ IN 000'S EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
CUBS STORE BUILD-UP MODEL
-------------------------------------------------------
1999 2000 2001 2002 2003 2004
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Stores Beginning of Year 39 41 45 49 53 57
New Stores (Conversions) 2 4 4 4 4 4
-------------------------------------------------------
Stores End of Year 41 45 49 53 57 61
AVERAGE WEEKLY SALES
1997 Stores 37.2 38.2 39.1 40.1 41.1 42.1
2.5% 2.5% 2.5% 2.5% 2.5%
1998 Stores 0 0 0 0 0 0
1999 Stores 35.6 36.5 37.4 38.3 39.3 40.2
2.5% 2.5% 2.5% 2.5% 2.5%
2000 Stores 36.5 37.4 38.3 39.3 40.3
2.5% 2.5% 2.5% 2.5%
2001 Stores 37.4 38.3 39.3 40.3
2.5% 2.5% 2.5%
2002 Stores 38.3 39.3 40.3
2.5% 2.5%
2003 Stores 39.3 40.3
2.5% 2.5%
2004 Stores 40.3
</TABLE>
<PAGE>
PROJECT ROCKIES
- -------------------------------------------------------------------------------
FISCAL YEAR ENDED DECEMBER 31
$ IN 000'S EXCEPT PER SHARE DATA
<TABLE>
<CAPTION>
CUBS STORE BUILD-UP MODEL
--------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
WEEKS STORE OPEN
1997 Stores 39 2028 2067 2028 2028 2028 2067
1998 Stores 0 0 0 0 0 0 0
1999 Stores 2 52 106 104 104 104 106
2000 Stores 4 115 208 208 208 212
2001 Stores 4 124 208 208 212
2002 Stores 4 129 208 212
2003 Stores 4 104 212
2004 Stores 4 104
Existing Stores 75,513.0 82,756.7 90,999.6 101,243.2 111,944.8 125,489.6
New Stores 1,850.0 4,193.6 4,634.8 4,943.9 4,087.2 4,191.2
--------------------------------------------------------------------------
TOTAL REVENUE $77,363.0 $86,950.3 $95,634.4 $106,187.1 $116,032.0 $129,680.8
Maintenance CapEx per
Existing Store 42 43 42 39 40 41
CapEx per New Store 700 721 743 800 820 841
Preopening Cost per
New Store 100 103 106 125 128 131
Maintenance CapEx 1,650 1,750 1,900 1,900 2,106 2,322
Total CapEx per
New Store 1,400 2,884 2,972 3,200 3,280 3,362
Preopening Costs 200 412 424 500 513 525
--------------------------------------------------------------------------
Total CapEx (excl.
preopening costs) 3,050 4,634 4,872 5,100 5,386 5,684
Corporate CapEx 500 500 500 500 500 500
TOTAL CAPEX $16,845 $12,836 $13,312 $13,632 $14,123 $14,681
Proceeds from Disposal
of Assets 5,313 0 0 0 0 0
--------------------------------------------------------------------------
$11,532 $12,836 $13,312 $13,632 $14,123 $14,681
</TABLE>
<PAGE>
PROJECT ROCKIES
- -------------------------------------------------------------------------------
FISCAL YEAR ENDED DECEMBER 31 2/18/99
$ IN 000'S EXCEPT PER SHARE DATA CASE 1 5:37PM
INCOME STATEMENT
- -----------------
<TABLE>
<CAPTION>
----------------------------------------------------
INTERIM PERIOD
----------------------------------------------------
REMAINDER OF
1997 1998 MAR-99 FISCAL YEAR
----------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $150,248.0 $160,101.6 $ 42,263.0 $140,108.8
GROWTH % 6.6% NM NM
Cost of Sales 37,672.0 40,624.7 10,522.0 $ 34,947.0
----------------------------------------------------
GROSS PROFIT 112,576.0 119,476.9 31,741.0 105,161.9
GROSS MARGIN % 74.9% 74.6% 75.1% 75.1%
OPERATING EXPENSES
Labor and Related 51,086.0 53,632.3 14,197.0 47,036.9
Operating Expenses 30,627.0 31,906.2 5,362.0 17,649.0
Selling Expenses 5,773.0 5,098.9 1,412.0 4,548.0
Occupancy 0.0 0.0 3,078.0 10,114.0
Other operating expense (income) 0.0 (138.4) 0.0 0.0
Depreciation 7,714.0 6,521.1 2,300.0 7,315.0
Preopening Costs 0.0 1,808.5 667.0 882.0
Preopening Amortization 4,422.0 2,094.0 0.0 0.0
Amortization of LBO Related Goodwill 0.0 0.0 0.0 0.0
Amortization of Financing Fees 0.0 0.0 0.0 0.0
----------------------------------------------------
TOTAL OPERATING EXPENSES 99,622.0 100,922.5 27,016.0 87,544.9
----------------------------------------------------
RESTAURANT-LEVEL OPERATING INCOME 12,954.0 18,554.3 4,725.0 17,617.0
OPERATING MARGIN % 8.6% 11.6% 11.2% 12.6%
General and Administrative 9,073.5 9,818.4 2,956.0 8,106.0
----------------------------------------------------
OPERATING INCOME 3,880.5 8,736.0 1,769.0 9,511.0
OPERATING MARGIN % 2.6% 437.2% 4.2% 6.8%
Interest Expense
Interest Expense (Senior Revolver) 0.0 0.0 0.0 (184.8)
Interest Expense Related to LBO Debt 0.0 0.0 0.0 (5,526.8)
Interest Expense Capital Leases (1,763.0) (2,378.0) (556.0) (620.6)
Commitment Fee on Senior Revolver 0.0 0.0 0.0 (46.3)
Other (Expense) Income (1) (9,706.0) 1,416.3 (110.0) (187.0)
----------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) (11,469.0) (961.7) (666.0) (6,565.5)
----------------------------------------------------
Income Before Income Taxes (7,588.5) 7,774.2 1,103.0 2,945.4
PRE-TAX MARGIN % -5.1% 4.9% 2.6% 2.1%
Provision for Income Taxes (2,568.0) 2,526.5 325.0 1,089.8
TAX RATE % 33.8% 32.5% 29.5% 37.0%
----------------------------------------------------
NET INCOME ($ 5,020.5) $ 5,247.7 $ 778.0 $ 1,855.6
----------------------------------------------------
----------------------------------------------------
NET MARGIN % -3.3% 3.3% 1.8% 1.3%
Cumulative effect of change in
accounting for start-up costs, net of
income taxes 0.0 1,250.0 0.0 0.0
NET INCOME, AFTER CUMULATIVE EFFECT ($ 5,020.5) $3,997.7 $ 778.0 $ 1,855.6
----------------------------------------------------
----------------------------------------------------
NET MARGIN % -3.3% 2.5% 1.8% 1.3%
- ----------------------------------------------------------------------------------------------
EBITDA (2) $ 8,302.5 $ 17,212.6 $ 4,179.0 $ 17,013.0
EBITDA MARGIN 5.5% 10.8% 9.9% 12.1%
- ----------------------------------------------------------------------------------------------
<CAPTION>
-----------------------------------------------------------------------------
PROTECTED
-----------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET SALES $182,371.8 $206,712.2 $221,774.9 $242,479.8 $263,192.2 $291,043.8
GROWTH % 13.9% 13.3% 7.3% 9.3% 8.5% 10.6%
Cost of Sales 45,469.0 51,622.1 55,400.0 60,582.2 65,757.6 72,715.2
-----------------------------------------------------------------------------
GROSS PROFIT 136,902.9 155,090.2 166,374.9 181,897.6 197,434.7 218,328.6
GROSS MARGIN % 75.1% 75.0% 75.0% 75.0% 75.0% 75.0%
OPERATING EXPENSES
Labor and Related 61,233.9 69,153.1 74,197.0 81,148.3 88,079.7 97,400.3
Operating Expenses 23,011.0 26,120.0 27,894.0 30,369.1 32,963.3 36,451.1
Selling Expenses 5,960.0 6,770.0 7,294.0 7,992.0 8,675.1 9,593.0
Occupancy 13,192.0 15,042.0 16,184.0 17,673.1 19,183.2 21,213.1
Other operating expense (income) 0.0 0.0 0.0 0.0 0.0 0.0
Depreciation 9,615.0 11,021.0 11,805.0 12,864.0 13,121.0 13,384.0
Preopening Costs 1,549.0 862.0 888.0 1,000.0 1,025.5 1,050.0
Preorpening Amortization 0.0 0.0 0.0 0.0 0.0 0.0
Amortization of LBO Related Goodwill 0.0 0.0 0.0 0.0 0.0 0.0
Amortization Financing Fees 0.0 0.0 0.0 0.0 0.0 0.0
-----------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 114,560.9 128,968.1 138,261.9 151,046.4 163,047.8 179,091.4
-----------------------------------------------------------------------------
RESTAURANT-LEVEL OPERATING INCOME 22,342.0 26,122.0 28,113.0 30,851.1 34,386.9 39,237.1
OPERATING MARGIN % 12.3% 12.6% 12.7% 12.7% 13.1% 13.5%
General and Administrative 11,062.0 11,200.0 11,400.0 11,600.0 12,591.0 13,923.0
-----------------------------------------------------------------------------
OPERATING INCOME 11,280.0 14,922.0 16,713.0 19,251.1 21,795.9 25,314.1
OPERATING MARGIN % 6.2% 7.2% 7.5% 7.9% 8.3% 8.7%
Interest Expense
Interest Expense (Senior Revolver) (184.8) (622.3) (784.4) (754.3) (530.8) (176.2)
Interest Expense Related to LBO Debt (5,526.8) (6,942.0) (6,241.3) (5,576.7) (4,884.9) (4,355.7)
Interest Expense Capital Leases (1,176.6) (883.0) (1,148.6) (1,371.8) (1,649.7) (1,923.0)
Commitment Fee on Senior Revolver (46.3) (29.0) (23.9) (29.7) (47.8) (75.0)
Other (Expense) Income (1) (297.0) 0.0 0.0 0.0 0.0 0.0
-----------------------------------------------------------------------------
TOTAL OTHER INCOME (EXPENSE) (7,231.5) (8,476.4) (8,198.2) (7,732.5) (7,113.3) (6,529.9)
-----------------------------------------------------------------------------
Income Before Income Taxes 4,048.4 6,445.6 8,514.8 11,518.7 14,682.6 18,784.2
PRE-TAX MARGIN % 2.2% 3.1% 3.8% 4.8% 5.6% 6.5%
Provision for Income Taxes 1,414.8 2,384.9 3,150.5 4,261.9 5,432.6 6,950.2
TAX RATE % 34.9% 37.0% 37.0% 37.0% 37.0% 37.0%
-----------------------------------------------------------------------------
NET INCOME $ 2,633.6 $ 4,060.8 $ 5,364.3 $ 7,256.8 $ 9,250.1 $ 11,834.1
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
NET MARGIN % 1.4% 2.0% 2.4% 3.0% 3.5% 4.1%
Cumulative effect of change in
accounting for start-up costs, net of
income taxes 0.0 0.0 0.0 0.0 0.0 0.0
NET INCOME, AFTER CUMULATIVE EFFECT $ 2,633.6 $ 4,060.8 $ 5,364.3 $ 7,256.8 $ 9,250.1 $ 11,834.1
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
NET MARGIN % 1.4% 2.0% 2.4% 3.0% 3.5% 4.1%
- -----------------------------------------------------------------------------------------------------------------------
EBITDA (2) $ 21,192.0 $ 25,943.0 $ 28,518.0 $ 32,115.1 $ 34,916.9 $ 38,698.1
EBITDA MARGIN 11.6% 12.6% 12.9% 13.2% 13.3% 13.3%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) INCLUDES THE EQUITY IN JOINT VENTURE EARNINGS AND GAIN ON SALE OF
INVESTMENT IN JOINT VENTURE.
(2) EBITDA FOR 1998 DOES NOT INCLUDE OTHER OPERATING INCOME OF $138.4.
<PAGE>
PROJECT ROCKIES
- --------------------------------------------------------------------------------
Fiscal Year Ended December 31 2/18/99
$ in 000's except per share data CASE 1 5:37 PM
BALANCE SHEET
<TABLE>
<CAPTION>
ESTIMATED ADJUSTMENTS PROFORMA
-----------------------------------------------
1997 1998 Mar-99 Pre LBO Mar-99 Post LBO
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
CURRENT ASSETS
Cash and Cash Equivalents $623.0 $449.7 $449.7 ($449.7) $0.0
Cash required for Operations 1,000.0 0.0 0.0 0.0 0.0
Accounts Receivable 1,055.0 601.0 601.0 0.0 601.0
Inventories 2,727.0 2,532.0 2,532.0 0.0 2,532.0
Prepaid Expenses 1,613.0 741.0 741.0 0.0 741.0
Current Deferred Income Taxes 219.0 219.0 219.0 0.0 219.0
Preopening Costs, net 1,520.0 0.0 0.0 0.0 0.0
--------------------------------------------------------------------------
TOTAL CURRENT ASSETS 8,757.0 4,542.7 4,542.7 (449.7) 4,093.0
LONG-TERM ASSETS:
Gross Fixed Assets 108,209.2 117,909.3 118,223.3 0.0 118,223.3
LESS ACCUMULATED DEPRECIATION 17,395.2 23,916.3 26,326.3 0.0 26,326.3
--------------------------------------------------------------------------
Net Fixed Assets 90,814.0 93,993.0 91,897.0 0.0 91,897.0
LBO Related Goodwill 0.0 0.0 0.0 0.0 0.0
Financing Fees 0.0 0.0 0.0 0.0 0.0
Investment in Joint Venture 5,553.0 0.0 0.0 0.0 0.0
Deferred Income Taxes 2,335.0 2,335.0 2,335.0 0.0 2,335.0
Other Long-term Assets 736.0 1,879.0 644.0 0.0 644.0
--------------------------------------------------------------------------
TOTAL ASSETS 108,195.0 102,749.7 99,418.7 (449.7) 98,969.0
--------------------------------------------------------------------------
--------------------------------------------------------------------------
<CAPTION>
ESTIMATED ADJUSTMENTS PROFORMA
-----------------------------------------------
1997 1998 Mar-99 Pre LBO Mar-99 Post LBO
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LIABILITIES:
CURRENT LIABILITIES:
Revolver 0.0 0.0 0.0 (0.0) (0.0)
Accounts Payable 4,341.0 5,474.0 5,474.0 0.0 5,474.0
Accrued Taxes other than Income Taxes 1,023.0 0.0 0.0 0.0 0.0
Accrued Expenses 5,871.0 6,311.0 6,311.0 0.0 6,311.0
Accrued Restructuring Costs/Other Liabilities 2,447.0 432.0 432.0 0.0 432.0
Current Portion of Debt 642.0 404.0 454.0 0.0 454.0
--------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 14,324.0 12,621.0 12,671.0 (0.0) 12,671.0
LONG-TERM LIABILITIES:
Existing Debt 26,450.0 19,050.0 11,697.0 (11,697.0) 0.0
Long-term Debt 2,375.0 2,195.0 2,195.0 2,195.0
Capital Lease Obligations 2,334.0 2,686.0 5,880.0 5,880.0
TERM LOAN A 0.0 0.0 0.0 50,542.6 50,542.6
TERM LOAN B 0.0 0.0 0.0 0.0 0.0
SENIOR SUBORDINATED NOTE 0.0 0.0 0.0 25,271.3 25,271.3
Accrued Restructuring Costs/Other Liabilities 1,494.0 774.0 774.0 0.0 774.0
--------------------------------------------------------------------------
Total Non-current Liabilities 32,653.0 24,705.0 20,546.0 64,116.9 84,662.9
TOTAL LIABILITIES: 46,977.0 37,326.0 33,217.0 64,116.9 97,333.9
STOCKHOLDERS' EQUITY:
Preferred Stock 0.0 0.0 0.0 0.0 0.0
Common Stock 81.0 81.0 81.0 0.0 81.0
Additional Paid-in Capital 58,320.0 58,288.0 58,288.0 25,271.3 83,559.3
Deferred Compensation/Treasury Stock (975.0) (735.0) (692.0) (85,087.9) (85,779.9)
Retained Earnings 3,792.0 7,789.7 8,524.7 (4,750.0) 3,774.7
--------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY: 61,218.0 65,423.7 66,201.7 (64,566.6) 1,635.1
--------------------------------------------------------------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY: $108,195.0 $102,749.7 $99,418.7 ($449.7) $98,969.0
--------------------------------------------------------------------------
--------------------------------------------------------------------------
<CAPTION>
PROJECTED
---------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
CURRENT ASSETS
Cash and Cash Equivalents $0.0 $0.0 $0.0 $0.0 $0.0 $915.8
Cash required for Operations 0.0 0.0 0.0 0.0 0.0 0.0
Accounts Receivable 1,277.0 1,405.0 1,545.0 1,700.0 1,845.0 2,040.0
Inventories 3,310.0 3,752.0 4,025.0 4,401.0 4,777.0 5,282.0
Prepaid Expenses 1,958.0 2,220.0 2,381.0 2,604.0 2,826.0 3,126.0
Current Deferred Income Taxes 219.0 219.0 219.0 219.0 219.0 219.0
Preopening Costs, net 0.0 0.0 0.0 0.0 0.0 0.0
---------------------------------------------------------------------------
TOTAL CURRENT ASSETS 6,764.0 7,596.0 8,170.0 8,924.0 9,667.0 11,582.8
LONG-TERM ASSETS:
Gross Fixed Assets 129,441.3 142,277.1 155,588.9 169,220.6 183,343.6 198,024.2
LESS ACCUMULATED DEPRECIATION 33,828.3 44,849.3 56,654.3 69,518.3 82,639.3 96,023.3
---------------------------------------------------------------------------
Net Fixed Assets 95,613.0 97,427.8 98,934.6 99,702.3 100,704.3 102,000.9
LBO Related Goodwill 0.0 0.0 0.0 0.0 0.0 0.0
Financing Fees 0.0 0.0 0.0 0.0 0.0 0.0
Investment in Joint Venture 0.0 0.0 0.0 0.0 0.0 0.0
Deferred Income Taxes 121.0 121.0 121.0 121.0 121.0 121.0
Other Long-term Assets 280.0 980.0 1,077.0 1,185.0 1,286.0 1,422.0
---------------------------------------------------------------------------
TOTAL ASSETS 102,778.0 106,124.8 108,302.6 109,932.3 111,778.3 115,126.7
---------------------------------------------------------------------------
---------------------------------------------------------------------------
<CAPTION>
PROJECTED
---------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES:
CURRENT LIABILITIES:
Revolver 5,742.3 9,199.8 10,216.6 9,051.0 5,432.3 0.0
Accounts Payable 2,625.0 2,756.0 2,894.0 3,039.0 3,299.0 3,648.0
Accrued Taxes other than Income Taxes 0.0 0.0 0.0 0.0 0.0 0.0
Accrued Expenses 6,370.0 6,620.0 6,870.0 7,120.0 7,728.0 8,546.0
Accrued Restructuring Costs/Other Liabilities 0.0 0.0 0.0 0.0 0.0 0.0
Current Portion of Debt 7,552.4 7,591.4 7,856.4 7,653.4 7,220.4 0.0
---------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 22,289.7 26,167.1 27,837.0 26,863.4 23,679.7 12,194.0
LONG-TERM LIABILITIES:
Existing Debt 0.0 0.0 0.0 0.0 0.0 0.0
Long-term Debt 1,969.0 1,851.0 1,722.0 1,618.0 1,618.0 1,618.0
Capital Lease Obligations 5,661.0 8,408.0 10,901.0 13,572.0 16,572.0 19,572.0
TERM LOAN A 43,322.2 36,101.9 28,881.5 21,661.1 14,440.7 14,440.7
TERM LOAN B 0.0 0.0 0.0 0.0 0.0 0.0
SENIOR SUBORDINATED NOTE 25,271.3 25,271.3 25,271.3 25,271.3 25,271.3 25,271.3
Accrued Restructuring Costs/Other Liabilities 774.0 774.0 774.0 774.0 774.0 774.0
---------------------------------------------------------------------------
Total Non-current Liabilities 76,997.5 72,406.2 67,549.8 62,896.4 58,676.0 61,676.0
TOTAL LIABILITIES: 99,287.2 98,573.3 95,386.8 89,759.8 82,355.7 73,870.0
STOCKHOLDERS' EQUITY:
Preferred Stock 0.0 0.0 0.0 0.0 0.0 0.0
Common Stock 81.0 81.0 81.0 81.0 81.0 81.0
Additional Paid-in Capital 83,559.3 83,559.3 83,559.3 83,559.3 83,559.3 83,559.3
Deferred Compensation/Treasury Stock (85,779.9) (85,779.9) (85,779.9) (85,779.9) (85,779.9) (85,779.9)
Retained Earnings 5,630.3 9,691.0 15,055.3 22,312.1 31,562.2 43,396.2
---------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 3,490.7 7,551.5 12,915.8 20,172.5 29,422.6 41,256.7
---------------------------------------------------------------------------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY: $102,778.0 $106,124.8 $108,302.6 $109,932.3 $111,778.3 $115,126.7
---------------------------------------------------------------------------
---------------------------------------------------------------------------
</TABLE>
<PAGE>
PROJECT ROCKIES
- --------------------------------------------------------------------------------
Fiscal Year Ended December 31 2/18/99
$ in 000's except per share data CASE 1 5:37 PM
CASH FLOW STATEMENT
<TABLE>
<CAPTION>
PROJECTED
ACTUAL INTERIM PERIOD ----------------------------------------------------------------------
1998 1999 2000 2001 2002 2003 2004
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
NET INCOME $3,997.7 $778.0 $1,855.6 $2,633.6 $4,060.8 $5,364.3 $7,256.8 $9,250.1 $11,834.1
Depreciation &
Amortization 6,521.1 2,410.0 7,502.0 9,912.0 11,021.0 11,805.0 12,864.0 13,121.0 13,384.0
Amortization of LBO
Related Goodwill 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Amortization of LBO
Related Financing Fees 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
WORKING CAPITAL ACCOUNTS:
(Increase) Decrease in
Accounts Receivable 454.0 0.0 (676.0) (676.0) (128.0) (140.0) (155.0) (145.0) (195.0)
(Increase) Decrease in
Inventories 195.0 0.0 (778.0) (778.0) (442.0) (273.0) (376.0) (376.0) (505.0)
(Increase) Decrease in
Prepaid Expenses 872.0 0.0 (1,217.0) (1,217.0) (262.0) (161.0) (223.0) (222.0) (300.0)
(Increase) Decrease in
Current Deferred
Income Taxes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
(Increase) Decrease in
Preopening Costs, net 1,520.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Increase (Decrease) in
Accounts Payable 1,133.0 0.0 (2,849.0) (2,849.0) 131.0 138.0 145.0 260.0 349.0
Increase (Decrease) in
Accrued Taxes other
than Income (1,023.0) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Increase (Decrease) in
Accrued Expenses 440.0 0.0 59.0 59.0 250.0 250.0 250.0 608.0 818.0
Increase (Decrease) in
Accrued Restructuring
Costs/Othe (2,015.0) 0.0 (432.0) (432.0) 0.0 0.0 0.0 0.0 0.0
---------------------------------------------------------------------------------------------------------
(INCREASE) DECREASE IN
NET WORKING CAPITAL 1,576.0 0.0 (5,893.0) (5,893.0) (451.0) (186.0) (359.0) 125.0 167.0
SOURCE (USE) OF CASH
FROM OPERATIONS 12,094.7 3,188.0 3,464.6 6,652.6 14,630.8 16,983.3 19,761.8 22,496.1 25,385.1
INVESTING ACTIVITIES
(Increase) Decrease in
Gross Fixed Assets (9,700.1) (314.0) (11,218.0) (11,532.0) (12,835.8) (13,311.8) (13,631.7) (14,123.0) (14,680.6)
(Increase) Decrease in
Investment in Joint
Venture 5,553.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
(Increase) Decrease in
Deferred Income Taxes 0.0 0.0 2,214.0 2,214.0 0.0 0.0 0.0 0.0 0.0
(Increase) Decrease in
Other Long-term Assets (1,143.0) 1,235.0 364.0 1,599.0 (700.0) (97.0) (108.0) (101.0) (136.0)
Increase (Decrease) in
Accrued Restructuring
Costs/Othe (720.0) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Increase (Decreases) in
Deferred Income Taxes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
---------------------------------------------------------------------------------------------------------
SOURCE (USE) OF CASH FROM
INVESTING ACTIVITIES (6,010.1) 921.0 (8,640.0) (7,719.0) (13,535.8) (13,408.8) (13,739.7) (14,224.0) (14,816.6)
FINANCING ACTIVITIES
Increase (Decrease) in
Revolver 0.0 0.0 5,742.3 5,742.3 3,457.4 1,016.9 (1,165.6) (3,618.7) (5,432.3)
Addition of LBO Goodwill 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Addition of LBO Finance
Fees 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Increase (Decrease) in
Current Portion of
Debt (238.0) 50.0 7,098.4 7,148.4 39.0 265.0 (203.0) (433.0) (7,220.4)
Increase (Decrease) in
Existing Debt, net (7,580.0) (7,353.0) (11,923.0) (19,276.0) (118.0) (129.0) (104.0) 0.0 0.0
Increase (Decrease) in
Capital Lease
Obligations, net 352.0 3,194.0 (219.0) 2,975.0 2,747.0 2,493.0 2,671.0 3,000.0 3,000.0
Increase (Decrease) in
Term Loan A, net 0.0 0.0 43,322.2 43,322.2 (7,220.4) (7,220.4) (7,220.4) (7,220.4) 0.0
Increase (Decrease) in
Term Loan B, net 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Increase (Decrease) in
Senior Subordinated
Note, net 0.0 0.0 25,271.3 25,271.3 0.0 0.0 0.0 0.0 0.0
Increase (Decrease) in
Preferred Stock, net 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Increase (Decrease) in
Common Stock, net 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Increase (Decrease) in
Additional Paid-in
Capital (32.0) 0.0 25,271.3 25,271.3 0.0 0.0 0.0 0.0 0.0
---------------------------------------------------------------------------------------------------------
SOURCE (USE) OF CASH FROM
FINANCING ACTIVITIES (7,498.0) (4,109.0) 94,563.5 90,454.5 (1,095.0) (3,574.5) (6,022.0) (8,272.1) (9,652.7)
Net Change in Cash (1,413.3) 0.0 89,388.2 89,388.2 0.0 0.0 (0.0) 0.0 915.8
LBO Adjustment to Deferred
Compensation/Treasury
Stock 240.0 0.0 (85,087.9) (85,087.9) 0.0 0.0 0.0 0.0 0.0
LBO Adjustment to Retained
Earnings 0.0 0.0 (4,750.0) (4,750.0) 0.0 0.0 0.0 0.0 0.0
Beginning Cash Balance 1,623.0 449.7 449.7 449.7 0.0 0.0 0.0 0.0 0.0
---------------------------------------------------------------------------------------------------------
ENDING CASH BALANCE $449.7 $449.7 $0.0 ($0.0) $0.0 $0.0 ($0.0) $0.0 $915.8
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "AGREEMENT"), dated as of March
18, 1999 (the "AGREEMENT"), is by and among the undersigned holders
(collectively the "HOLDERS" and each a "HOLDER") of shares of common stock, par
value $.01 per share (the "COMPANY COMMON STOCK"), of ROCK BOTTOM RESTAURANTS,
INC., a Delaware corporation (the "COMPANY").
WHEREAS, the Company, RB Capital, Inc., a Delaware corporation
("PARENT"), and RBR Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Parent ("MERGER SUB"), propose to enter into an Agreement and Plan
of Merger, dated as of the date hereof (as amended from time to time, the
"MERGER AGREEMENT"), pursuant to which, among other things, Merger Sub would be
merged (the "MERGER") with and into the Company at the Effective Time, and,
except as otherwise provided in the Merger Agreement, each outstanding share of
Company Common Stock would be converted into the right to receive $10.00 per
share in cash, without interest thereon;
WHEREAS, the Board of Directors of the Company (the "COMPANY
BOARD") has formed a special committee of its members (the "SPECIAL COMMITTEE")
and has authorized the Special Committee to, among other things, review and
evaluate the terms of, and make recommendations to the Company Board with
respect to, the Merger Agreement and the transactions contemplated thereby,
including the Merger;
WHEREAS, to induce the Company to enter into the Merger
Agreement, the Company has requested each Holder to agree, and each Holder has
agreed, to enter into this Agreement;
WHEREAS, prior to the execution hereof, and prior to Parent,
Merger Sub or any of the Holders becoming an "interested stockholder" for
purposes of Section 203 of the DGCL ("SECTION 203") by virtue of entering into
the Merger Agreement or this Agreement, the Company Board has approved this
Agreement, the Merger Agreement and the transactions contemplated hereby and
thereby, including the agreement of the Holders to vote as provided in Section 2
of this Agreement and not to transfer shares of Company Common Stock as provided
in Section 6(b) of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein and for other good and valuable consideration, the parties hereto,
intending to be legally bound hereby, agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE HOLDERS. Each Holder
represents and warrants, severally and not jointly, to the Company as follows:
(a) OWNERSHIP OF SECURITIES. As of the date hereof, each
Holder is the record and/or beneficial owner of the number of shares of
Company Common Stock (the "EXISTING SECURITIES" and, together with any
shares of Company Common Stock or other
<PAGE>
capital stock or securities of the Company hereafter acquired by the
Holder, the "SUBJECT SECURITIES") set forth opposite such Holder's name
on the signature page to this Agreement. Such Holder does not
beneficially or of record own any shares of Company Common Stock or
capital stock or other securities of the Company as of the date hereof
other than the Existing Securities. Except as indicated on SCHEDULE I,
each Holder (i) has sole voting power and sole power to issue
instructions with respect to the voting of such Holder's Existing
Securities, (ii) has sole power of disposition, sole power of exercise
and the sole power to demand appraisal rights, in each case with
respect to all of such Holder's Existing Securities, and (iii) on the
date of the Stockholders Meeting (as defined in the Merger Agreement),
will have sole voting power and sole power to issue instructions with
respect to the voting of all of such Holder's Subject Securities, and
the sole powers of disposition, exercise and to demand appraisal
rights, in each case with respect to all of such Holder's Subject
Securities.
(b) POWER; BINDING AGREEMENT. Each Holder has the legal
capacity, power and authority to enter into and perform all of such
Holder's obligations under this Agreement. The execution, delivery and
performance of this Agreement by each Holder will not violate any other
agreement relating to the Subject Securities to which the Holder is a
party, including, without limitation, any voting agreement,
shareholder's agreement, partnership agreement or voting trust. This
Agreement has been duly and validly executed and delivered by such
Holder and constitutes a valid and binding agreement of such Holder,
enforceable against such Holder in accordance with its terms, except
that (i) such enforcement may be subject to applicable bankruptcy,
insolvency or other similar laws, now or hereafter in effect, affecting
creditors' rights generally, and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
(c) NO CONFLICTS. Except as disclosed in SCHEDULE II, no
filing with, and no permit, authorization, consent or approval of, any
state or federal public body or authority is necessary for the
execution of this Agreement by such Holder and the consummation by such
Holder of the transactions contemplated hereby. Neither the execution
and delivery of this Agreement by such Holder nor the consummation by
such Holder of the transactions contemplated hereby nor compliance by
such Holder with any of the provisions hereof will (i) conflict with or
result in any breach of any organizational documents applicable to such
Holder, (ii) result in a violation or breach of, or constitute (with or
without notice or lapse of time or both) a default (or give rise to any
third-party right of termination, cancellation, material modification
or acceleration) under any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, license, contract, commitment,
arrangement, understanding, agreement or other instrument or obligation
of any kind to which such Holder is a party or by which such Holder's
properties or assets may be bound, or (iii) violate any order, writ,
injunction, decree, judgment, order, statute, rule or regulation
applicable to such Holder or any of such Holder's properties or assets,
except in any such case as would not materially impair such Holder's
performance of its obligations hereunder.
2
<PAGE>
(d) NO LIENS. The Existing Securities are now and, at all
times during the term hereof, the Subject Securities will be held by
such Holder, or by a nominee or custodian for the benefit of such
Holder, free and clear of all liens, claims, security interests,
proxies, voting trusts or agreements, understandings or arrangements or
any other encumbrances whatsoever, except for any encumbrances arising
hereunder.
2. AGREEMENT TO VOTE SHARES. At every meeting of the stockholders
of the Company, including without limitation the Stockholders Meeting, called
with respect to any of the following, and at every adjournment thereof, and on
every action or approval by written consent of the stockholders of the Company
with respect to any of the following, each Holder, severally and not jointly,
agrees that it shall vote or execute a written consent, as the case may be, with
respect to all the Subject Securities as to which it has power to vote in any
such vote or consent in favor of the Merger and each of the other transactions
contemplated by the Merger Agreement and the adoption of and execution and
delivery of the Merger Agreement and the approval of the terms thereof.
3. EQUITY COMMITMENTS. Each Holder, as applicable, agrees,
severally and not jointly, to contribute to Parent the amount of cash and the
amount of such Holder's Subject Securities specified in, and in the manner
contemplated by, the equity commitment letter executed and delivered by such
Holder in connection with the Merger Agreement (collectively, the "EQUITY
COMMITMENT LETTERS").
4. IRREVOCABLE PROXY. EACH HOLDER HEREBY, SEVERALLY AND NOT
JOINTLY, GRANTS TO, AND APPOINTS THE SPECIAL COMMITTEE AND THE EACH MEMBER OF
THE SPECIAL COMMITTEE, AND ANY SUCCESSOR THERETO OR OTHER DESIGNEE THEREOF, EACH
OF THEM INDIVIDUALLY, SUCH HOLDER'S PROXY AND ATTORNEY-IN-FACT (WITH FULL POWER
OF SUBSTITUTION) TO VOTE OR ACT BY WRITTEN CONSENT WITH RESPECT TO SUCH HOLDER'S
SUBJECT SECURITIES IN ACCORDANCE WITH SECTION 2 HEREOF. THIS PROXY IS COUPLED
WITH AN INTEREST AND SHALL BE IRREVOCABLE, AND EACH HOLDER WILL TAKE SUCH
FURTHER ACTION OR EXECUTE SUCH OTHER INSTRUMENTS AS MAY REASONABLY BE NECESSARY
TO EFFECTUATE THE INTENT OF THIS PROXY AND HEREBY REVOKES ANY PROXY PREVIOUSLY
GRANTED BY IT WITH RESPECT TO THE SUBJECT SECURITIES.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
(a) POWER; BINDING AGREEMENT. The Company has full corporate
power and authority to enter into and perform all of the Company's
obligations under this Agreement. This Agreement has been duly and
validly executed and delivered by the Company and constitutes a valid
and binding agreement of the Company, enforceable against the Company
in accordance with its terms, except that (i) such enforcement may be
subject to applicable bankruptcy, insolvency or other similar laws, now
or hereafter in effect, affecting creditors' rights generally, and (ii)
the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses
3
<PAGE>
and to the discretion of the court before which any proceeding therefor
may be brought.
(b) NO CONFLICTS. No filing with, and no permit,
authorization, consent or approval of, any state or federal public body
or authority is necessary for the execution of this Agreement by the
Company and the consummation by the Company of the transactions
contemplated hereby. Neither the execution and delivery of this
Agreement by the Company nor the consummation by the Company of the
transactions contemplated hereby nor compliance by the Company with any
of the provisions hereof shall (i) conflict with or result in any
breach of any organizational documents applicable to the Company, (ii)
result in a violation or breach of, or constitute (with or without
notice or lapse of time or both) a default (or give rise to any
third-party right of termination, cancellation, material modification
or acceleration) under any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, license, contract, commitment,
arrangement, understanding, agreement or other instrument or obligation
of any kind to which the Company is a party or by which the Company's
properties or assets may be bound, or (iii) violate any order, writ,
injunction, decree, judgment, order, statute, rule or regulation
applicable to the Company or any of the Company's properties or assets,
except for any such conflicts, breaches, defaults or violations as
would not materially impair the Company's performance of its
obligations hereunder.
6. COVENANTS OF THE HOLDERS. Each Holder, severally and not
jointly, hereby agrees and covenants that:
(a) NOTICE OF ACQUISITION PROPOSALS. If any Holder receives
any Acquisition Proposal (as defined in the Merger Agreement), such
Holder shall promptly inform the Company and the Special Committee of
the terms and conditions of such Acquisition Proposal and the identity
of the person or entity making such Acquisition Proposal.
(b) RESTRICTION ON TRANSFER, PROXIES AND NONINTERFERENCE.
Such Holder shall not, directly or indirectly: (i) except pursuant to
the terms of the Merger Agreement, this Agreement and the Equity
Commitment Letters, offer for sale, sell, transfer (whether by merger,
operation of law or otherwise), tender, pledge, encumber, assign or
otherwise dispose of, or enter into any contract, option or other
arrangement or understanding with respect to or consent to the offer
for sale, sale, transfer, tender, pledge, encumbrance, assignment or
other disposition of, any or all of such Holder's Subject Securities;
(ii) except as contemplated hereby, grant any proxies or powers of
attorney, deposit any such Subject Securities into a voting trust or
enter into a voting agreement with respect to any of such Holder's
Subject Securities; or (iii) take any action that would make any
representation or warranty contained herein untrue or incorrect or have
the effect of preventing or disabling such Holder from performing its
obligations under this Agreement; PROVIDED, HOWEVER, nothing in this
Section 6(b) shall prohibit transfers between Holders or pursuant to
any prior obligation or restriction set forth on SCHEDULE II.
7. FIDUCIARY DUTIES. Notwithstanding anything in this Agreement
to the contrary, the covenants and agreements set forth herein shall not prevent
any Holder serving on the
4
<PAGE>
Company Board from taking any action, subject to applicable provisions of the
Merger Agreement, which such director shall deem to be required by his fiduciary
duties to the Company or its stockholders while acting in such person's capacity
as a director of the Company.
8. ASSIGNMENT; BENEFITS. This Agreement may not be assigned by
any party hereto without the prior written consent of the other party. This
Agreement shall be binding upon, and shall inure to the benefit of, each Holder,
the Company and their respective successors and permitted assigns.
9. NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made if and when delivered personally or by overnight courier or sent by
electronic transmission, with confirmation received, to the address or telecopy
number specified in this Section 9 or to such other address or telecopy number
as any party may furnish to the other parties in writing in accordance herewith:
(a) If to any Holder, at the applicable address set forth
on the signature pages hereto, with a copy to:
Davis, Graham & Stubbs LLP
370 17th Street, Suite 4700
Denver, Colorado 80202
Telephone No.: (303) 892-9400
Telecopier No.: (303) 893-1379
Attention: Paul Hilton
(b) If to the Company, to:
Rock Bottom Restaurants, Inc.
c/o Special Committee of the Board of Directors
248 Centennial Parkway, Suite 100
Louisville, Colorado 80027
Telephone No.: (303) 664-4777
Telecopier No.: (303) 664-4196
Attention: Duncan H. Cocroft, Chairman
With a copy to:
Latham & Watkins
233 South Wacker Drive
Sears Tower, Suite 5800
Chicago, Illinois 60606
Telephone No.: (312) 876-7700
Telecopier No.: (312) 993-9767
Attention: Mark D. Gerstein
5
<PAGE>
10. SPECIFIC PERFORMANCE. The parties hereto agree that
irreparable harm would occur in the event that any of the provisions of this
Agreement were not performed in accordance with its specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state thereof having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
11. AMENDMENT. This Agreement may not be amended or modified,
except by an instrument in writing signed by or on behalf of each of the parties
hereto. This Agreement may not be waived by either party hereto, except by an
instrument in writing signed by or on behalf of the party granting such waiver.
12. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE LAWS
THAT MIGHT BE APPLICABLE UNDER CONFLICTS OF LAWS PRINCIPLES. The parties hereby
(i) irrevocably submit to the jurisdiction of the Chancery Court of the State of
Delaware and the federal courts of the United States of America located in the
State of Delaware solely in respect of the interpretation and enforcement of the
provisions of this Agreement and in respect of the transactions contemplated
hereby and (ii) waive, and agree not to assert, as a defense to any action, suit
or proceeding for the interpretation or enforcement hereof, that such party is
not subject to such jurisdiction or that such action, suit or proceeding may not
be brought or is not maintainable in said courts or that the venue thereof may
not be appropriate or that this Agreement may not be enforced in or by such
courts, and the parties hereby irrevocably agree that all claims with respect to
such action, suit or proceeding shall be heard and determined in such courts.
The parties hereby consent to and grant any such court jurisdiction over the
person of such party and over the subject matter of such dispute and agree that
mailing of process or other papers in connection with any such action, suit or
proceeding in the manner provided in Section 9, or in such other manner as may
be permitted by applicable law, shall be valid and sufficient service thereof.
13. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO ACKNOWLEDGES
AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY
TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION OR PROCEEDING DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY AND FOR ANY COUNTERCLAIM THEREIN. EACH PARTY ACKNOWLEDGES
THAT (i) NO REPRESENTATIVE OF SUCH PARTY HAS BEEN AUTHORIZED BY SUCH PARTY TO
REPRESENT OR, TO THE KNOWLEDGE OF SUCH PARTY, HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION SEEK TO ENFORCE
THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS
6
<PAGE>
WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS
AGREEMENT BY, AMONG OTHER THINGS, THE PROVISIONS OF THIS SECTION 13.
14. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same agreement.
15. DEFINED TERMS. Terms used herein but not otherwise defined
shall have the meanings set forth in the Merger Agreement.
16. TERMINATION. This Agreement shall terminate upon the earliest
of (i) the Effective Time (as defined in the Merger Agreement), (ii) the date of
termination of the Merger Agreement, or (iii) the date the Company Board
recommends to the Company's stockholders an Acquisition Proposal other than the
transactions, including the Merger, contemplated by the Merger Agreement. This
Agreement may also be terminated as to any Holder at any time upon one business
day prior written notice to such Holder from the Special Committee or the
Company Board. Upon any termination of this Agreement, this Agreement shall
thereupon become void and of no further force and effect, and there shall be no
liability in respect of this Agreement or of any transactions contemplated
hereby or by the Merger Agreement on the part of any party hereto or any of its
directors, officers, partners, stockholders, employees, agents, advisors,
representatives or affiliates; provided, however, that nothing herein shall
relieve any party from any liability for such party's willful breach of this
Agreement; and provided further that nothing herein shall limit, restrict,
impair, amend or otherwise modify the rights, remedies, obligations or
liabilities of any person under any other contract or agreement, including,
without limitation, the Merger Agreement.
[Signature page follows]
7
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by or on
behalf of each of the parties hereto, all as of the date first above written.
ROCK BOTTOM RESTAURANTS, INC., a Delaware
corporation
By: /s/ WILLIAM S. HOPPE
---------------------------------------
Name: William S. Hoppe
Title: Executive Vice President, Chief
Financial Officer and Chief
Administrative Officer
HOLDERS:
Shares of RB CAPITAL, INC., a Delaware corporation
Company Common Stock: None
By: /s/ FRANK B. DAY
---------------------------------------
Name: Frank B. Day
Title: President
Address: c/o Frank B. Day, President
1010 69th Street
Boulder, Colorado 80303
Shares of RBR ACQUISITION CORP., a Delaware corporation
Company Common Stock: None
By: /s/ FRANK B. DAY
---------------------------------------
Name: Frank B. Day
Title: President
Address: c/o Frank B. Day, President
1010 69th Street
Boulder, Colorado 80303
<PAGE>
Shares of Company By: /s/ FRANK B. DAY
Common Stock: 1,333,772 ---------------------------------------
Frank B. Day
Address: 1010 69th Street
Boulder, Colorado 80303
Shares of Company By: /s/ ROBERT D. GREENLEE
Common Stock: 519,136 ---------------------------------------
Robert D. Greenlee
Address: 2060 Broadway, Suite 400
Boulder, Colorado 80302
Shares of Company By: /s/ ARTHUR WONG
Common Stock: 216,200 ---------------------------------------
Arthur Wong
Address: One East Wacker Drive, Room 3430
Chicago, Illinois 60601
Shares of Company By: /s/ DAVID M. LUX
Common Stock: 181,065 ---------------------------------------
David M. Lux
Address: 3020 Bonnie Vista Drive
Colorado Springs, Colorado 80906
<PAGE>
SCHEDULE I
1. The following shares beneficially owned by Frank Day are held in the
name of the following trusts, of which Frank Day is trustee:
<TABLE>
<CAPTION>
<S> <C>
NAME SHARES
-------------------------------------------------- ------------
Day Family Charitable Remainder Trust 62,500
Day Family Irrevocable Trust 412,635
Frank B. Day Charitable Remainder Trust 62,500
Frank B. Day Charitable Lead Annuity Trust 137,150
The Day Foundation 5,850
</TABLE>
2. The following shares beneficially owned by David Lux are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
NAME RELATIONSHIP SHARES
------------------------------------ ------------------- ------------
D.T. Lux Ltd. (a Colorado Limited Managing Partner 3,000
Partnership) (along with wife)
David M. Lux Irrevocable Grantor Trustee 8,850
Trust
</TABLE>
<PAGE>
SCHEDULE II
None
<PAGE>
March 18, 1999
RB Capital, Inc.
Re: Commitment Letter for Common Equity Investment
To Whom it May Concern:
I understand that RB Capital, Inc., a Delaware corporation ("RB Capital"),
is seeking to obtain financing through the issuance of its common stock ("Common
Stock") to finance RB Capital's acquisition of, or business combination with
(the "Transaction"), Rock Bottom Restaurants, Inc., a Delaware corporation (the
"Company"). A loan is currently outstanding from me to RB Capital representing
borrowing undertaken by RB Capital to finance certain fees and expenses incurred
to finance the Transaction (the "Loan").
I am pleased to advise you that I am willing to make a commitment to
purchase $1.0 million of RB Capital's Common Stock for cash, and to contribute
to RB Capital on or before the closing date of the Transaction 1,333,772 shares
of Company common stock, subject to the terms and conditions outlined in this
letter agreement.
In addition to the terms and conditions of the Common Stock outlined on
Exhibit 1 hereto, the funding of my commitment hereunder is subject to the prior
or contemporaneous satisfaction of the following:
(i) completion of the Transaction as set forth in the merger
agreement approved by the Board of Directors of the Company, including but not
limited to
(a) the purchase by RB Capital of the Company's common stock not
owned by RB Capital or the stockholders of RB Capital at a purchase price
no greater than $10.00 per share;
(b) the execution of definitive documentation relating to
approximately $60 million of senior credit facilities on terms and
conditions not materially more adverse to RB Capital or the Company than
those contained in the Summary Terms and Conditions attached to the
commitment letter from BancBoston, N.A. to RB Capital (the "Senior Secured
Credit Facility"), and the borrowing by RB Capital of up to $51 million
under such Facility;
<PAGE>
(c) the execution of definitive documentation relating to
approximately $22 million of subordinated debt on terms and conditions not
materially more adverse to RB Capital or the Company than those contained
in the attachment to the commitment letter from BancBoston Robertson
Stephens Inc. to RB Capital (the "Subordinated Debt"), and the borrowing by
RB Capital of $22 million of Subordinated Debt;
(d) the execution of definitive documentation relating to
approximately $6 million of new cash equity financing and the equivalent of
approximately $23 million of rollover equity financing in the form of
contributions of Company common stock to RB Capital, or the issuance of RB
Capital common stock in exchange for cancellation of Company common stock
(the "Equity Financing"), and the receipt by RB Capital of such $29 million
aggregate equity;
(e) delivery to the Special Committee of the Board of Directors
of the Company of the opinion of Piper Jaffrey, Inc. regarding the fairness
of the Transaction to the Company's stockholders (other than RB Capital) or
its affiliates;
(f) repayment in full of all principal and interest owing in
respect of the Loan.
I agree to use my reasonable best efforts to complete and execute the
definitive documentation relating to my equity commitment hereunder including,
but not limited to, the documents referenced on Exhibit 1 hereto.
This letter shall be governed by and construed in accordance with the laws
of the State of Colorado. This letter may be executed in any number of
counterparts, each of which shall be an original and all of which, taken
together, shall constitute one agreement. This letter agreement is intended to
be solely for the benefit of the parties hereto and is not intended to confer
any benefits upon or create any rights in favor of, any person other than the
parties hereto.
If the foregoing correctly sets forth our agreement, please indicate your
acceptance of the terms hereof by signing in the appropriate space provided
below and returning to me the enclosed
<PAGE>
duplicate originals of this letter agreement no later than 5:00 p.m. EST on
March 18, 1999. My commitment hereunder will expire at such time in the
event I have not received such executed original in accordance with the
preceding sentence.
Very truly yours,
/s/ Frank B. Day
Frank B. Day
Accepted and Agreed to on and
as of March 18, 1999
RB CAPITAL INC.
By: /s/ Frank B. Day
---------------------
Name: Frank B. Day
Title: President
<PAGE>
EXHIBIT I
COMMON STOCK TERMS
Company: RB Capital, Inc.
Use of Proceeds: To partially finance the purchase of approximately 6.7
million shares of publicly held common stock of the Company
and approximately 720,000 of vested stock options for a
total of approximately $59.5 million (collectively, the
"Transaction") and to pay approximately $6.9 million of fees
and expenses associated with the Transaction.
Closing Date: No later than August 15, 1999.
Stockholders' Holders of the Common Stock purchased pursuant to this
Rights: Commitment Letter (the "Holders") shall become parties to a
Stockholders Agreement by and among RB Capital and certain
of its stockholders on customary terms and conditions
reasonably satisfactory to the Holders and RB Capital.
Registration The Holders shall become parties to a Registration Rights
Rights: Agreement by and among RB Capital and certain of its
stockholders on customary terms and conditions reasonably
satisfactory to the Holders and RB Capital.
<PAGE>
[Letterhead of Bob Greenlee]
March 16, 1999
RB Capital, Inc.
248 Centennial Parkway #100
Louisville, CO 80027
Re: Commitment Letter for Common Equity Investment
To Whom it May Concern:
I understand that RB Capital, Inc., a Delaware corporation ("RB Capital"),
is seeking to obtain financing through the issuance of its common stock ("Common
Stock") to finance RB Capital's acquisition of, or business combination with
(the "Transaction"), Rock Bottom Restaurants, Inc., a Delaware corporation (the
"Company"). A loan is currently outstanding from me to RB Capital representing
the borrowing undertaken by RB Capital to finance certain fees and expenses
incurred to finance the Transaction (the "Loan").
I am pleased to advise you that I am willing to make a commitment to
purchase $500,000 of RB Capital's Common Stock for cash (subject to reduction to
the extent substitute equity is provided for this cash commitment that is
sufficient to satisfy the conditions to the Financings, but in no event will my
cash commitment exceed $500,000) and to contribute to RB Capital on or before
the closing date of the Transaction 519,136 shares of Company common stock,
subject to the terms and conditions outlined in this letter agreement.
In addition to the terms and conditions of the Common Stock outlined on
Exhibit 1 hereto, the funding of my commitment hereunder is subject to the prior
or contemporaneous satisfaction of the following:
(1) completion of the Transaction as set forth in the merger agreement
approved by the Board of Directors of the Company, including but not
limited to
(a) the purchase by RB Capital of the Company's common stock not
owned by RB Capital or the stockholders of RB Capital at a
purchase price no greater than $10.00 per share;
(b) the execution of definitive documentation relating to
approximately $60 million of senior credit facilities on terms
<PAGE>
and conditions not materially more adverse to RB Capital or the
Company than those contained in the Summary Terms and Conditions
attached to the commitment letter from BancBoston, N.A. to
RB Capital (the "Senior Secured Credit Facility"), and the
borrowing by RB Capital of up to $51 million under such Facility;
(c) the execution of definitive documentation relating to
approximately $22 million of subordinated debt on terms and
conditions not materially more adverse to RB Capital or the
Company than those contained in the attachment to the commitment
letter from BancBoston Robertson Stephens Inc. to RB Capital (the
"Subordinated Debt"), and the borrowing by RB Capital of
$22 million of Subordinated Debt;
(d) the execution of definitive documentation relating to
approximately $6 million of new cash equity financing and the
equivalent of approximately $23 million of rollover equity
financing in the form of contributions of Company common stock to
RB Capital, or the issuance of RB Capital common stock in
exchange for cancellation of Company common stock (the "Equity
Financing"), and the receipt by RB Capital of such $29 million
aggregate equity;
(e) the delivery to the Special Committee of the Board of Directors
of the Company of the opinion of Piper Jaffrey, Inc. regarding
the fairness of the Transaction to the Company's stockholders
(other than RB Capital) or its affiliates;
(f) the repayment in full of all principal and interest owning in
respect of the Loan.
I agree to use my reasonable best efforts to complete and execute the
definitive documentation relating to my equity commitment hereunder
including, but not limited to, the documents referenced on Exhibit 1
hereto.
This letter shall be governed by and construed in accordance with the laws
of the State of Colorado. This letter may be executed in any number of
counterparts, each of which shall be an original and all of which, taken
together, shall constitute one agreement. This letter agreement is
intended to be solely for the benefit of the parties hereto and is not
intended to confer any benefits upon or create any rights in favor of, any
person other than the parties hereto.
<PAGE>
If the foregoing correctly sets forth our agreement, please indicate your
acceptance of the terms hereof by signing in the appropriate space provided
below and returning to me the enclosed duplicate originals of this letter
agreement no later than 5:00 p.m. EST on March 18, 1999. My commitment
hereunder will expire at such time in the event I have not received such
executed original in accordance with the preceding sentence.
Sincerely,
/s/ Robert D. Greenlee
Robert Greenlee
Accepted and Agreed to on the
18th day of March, 1999
RB CAPITAL INC.
By: /s/ Frank B. Day
-----------------
<PAGE>
EXHIBIT I
COMMON STOCK TERMS
Company: RB Capital, Inc.
Use of Proceeds: To partially finance the purchase of approximately 6.7
million shares of publicly held common stock of the Company
and approximately 720,000 of vested stock options for a
total of approximately $59.5 million (collectively, the
"Transaction") and to pay approximately $6.9 million of fees
and expenses associated with the Transaction.
Closing Date: No later than August 15, 1999.
Stockholders' Holders of the Common Stock purchased pursuant to this
Rights: Commitment Letter (the "Holders") shall become parties to a
Stockholders Agreement by and among RB Capital and certain
of its stockholders on customary terms and conditions
reasonably satisfactory to the Holders and RB Capital.
Registration The Holders shall become parties to a Registration Rights
Rights: Agreement by and among RB Capital and certain of its
stockholders on customary terms and conditions reasonably
satisfactory to the Holders and RB Capital.
<PAGE>
March 18, 1999
RB Capital, Inc.
Re: Commitment Letter for Common Equity Investment
To Whom it May Concern:
I understand that RB Capital, Inc., a Delaware corporation ("RB Capital"),
is seeking to obtain financing through the issuance of its common stock ("Common
Stock") to finance RB Capital's acquisition of, or business combination with
(the "Transaction"), Rock Bottom Restaurants, Inc., a Delaware corporation (the
"Company").
I am pleased to advise you that I am willing to contribute to RB Capital on
or before the closing date of the Transaction 131,065 shares of Company common
stock, subject to the terms and conditions outlined in this letter agreement.
In addition to the terms and conditions of the Common Stock outlined on
Exhibit 1 hereto, the funding of my commitment hereunder is subject to the prior
or contemporaneous satisfaction of the following:
(i) completion of the Transaction as set forth in the merger
agreement approved by the Board of Directors of the Company, including but not
limited to
(a) the purchase by RB Capital of the Company's common stock not
owned by RB Capital or the stockholders of RB Capital at a purchase price
no greater than $10.00 per share;
(b) the execution of definitive documentation relating to
approximately $60 million of senior credit facilities on terms and
conditions not materially more adverse to RB Capital or the Company than
those contained in the Summary Terms and Conditions attached to the
commitment letter from BancBoston, N.A. to RB Capital (the "Senior Secured
Credit Facility"), and the borrowing by RB Capital of up to $51 million
under such Facility;
<PAGE>
(c) the execution of definitive documentation relating to
approximately $22 million of subordinated debt on terms and conditions not
materially more adverse to RB Capital or the Company than those contained
in the attachment to the commitment letter from BancBoston Robertson
Stephens Inc. to RB Capital (the "Subordinated Debt"), and the borrowing by
RB Capital of $22 million of Subordinated Debt;
(d) the execution of definitive documentation relating to
approximately $6 million of new cash equity financing and the equivalent of
approximately $23 million of rollover equity financing in the form of
contributions of Company common stock to RB Capital, or the issuance of RB
Capital common stock in exchange for cancellation of Company common stock
(the "Equity Financing"), and the receipt by RB Capital of such $29 million
aggregate equity; and
(e) delivery to the Special Committee of the Board of Directors
of the Company of the opinion of Piper Jaffrey, Inc. regarding the fairness
of the Transaction to the Company's stockholders (other than RB Capital) or
its affiliates.
I agree to use my reasonable best efforts to complete and execute the
definitive documentation relating to my equity commitment hereunder including,
but not limited to, the documents referenced on Exhibit 1 hereto.
This letter shall be governed by and construed in accordance with the laws
of the State of Colorado. This letter may be executed in any number of
counterparts, each of which shall be an original and all of which, taken
together, shall constitute one agreement. This letter agreement is intended to
be solely for the benefit of the parties hereto and is not intended to confer
any benefits upon or create any rights in favor of, any person other than the
parties hereto.
If the foregoing correctly sets forth our agreement, please indicate your
acceptance of the terms hereof by signing in the appropriate space provided
below and returning to me the enclosed
<PAGE>
duplicate originals of this letter agreement no later than 5:00 p.m. EST on
March 18, 1999. My commitment hereunder will expire at such time in the
event I have not received such executed original in accordance with the
preceding sentence.
Very truly yours,
/s/ David M. Lux
David M. Lux
Accepted and Agreed to on and
as of March 18, 1999
RB CAPITAL INC.
By: /s/ Frank B. Day
---------------------
Name: Frank B. Day
Title: President
<PAGE>
EXHIBIT I
COMMON STOCK TERMS
Company: RB Capital, Inc.
Use of Proceeds: To partially finance the purchase of approximately 6.7
million shares of publicly held common stock of the Company
and approximately 720,000 of vested stock options for a
total of approximately $59.5 million (collectively, the
"Transaction") and to pay approximately $6.9 million of fees
and expenses associated with the Transaction.
Closing Date: No later than August 15, 1999.
Stockholders' Holders of the Common Stock purchased pursuant to this
Rights: Commitment Letter (the "Holders") shall become parties
to a Stockholders Agreement by and among RB Capital and
certain of its stockholders on customary terms and
conditions reasonably satisfactory to the Holders and RB
Capital.
Registration The Holders shall become parties to a Registration Rights
Rights: Agreement by and among RB Capital and certain of its
stockholders on customary terms and conditions reasonably
satisfactory to the Holders and RB Capital.
<PAGE>
March 18, 1999
RB Capital, Inc.
Re: Commitment Letter for Common Equity Investment
To Whom it May Concern:
I understand that RB Capital, Inc., a Delaware corporation ("RB Capital"),
is seeking to obtain financing through the issuance of its common stock ("Common
Stock") to finance RB Capital's acquisition of, or business combination with
(the "Transaction"), Rock Bottom Restaurants, Inc., a Delaware corporation (the
"Company"). A loan is currently outstanding from me to RB Capital representing
borrowing undertaken by RB Capital to finance certain fees and expenses incurred
to finance the Transaction (the "Loan").
I am pleased to advise you that I am willing to make a commitment to
purchase $500,000 of RB Capital's Common Stock for cash, and to contribute to RB
Capital on or before the closing date of the Transaction 216,200 shares of
Company common stock, subject to the terms and conditions outlined in this
letter agreement.
In addition to the terms and conditions of the Common Stock outlined on
Exhibit 1 hereto, the funding of my commitment hereunder is subject to the prior
or contemporaneous satisfaction of the following:
(i) completion of the Transaction as set forth in the merger
agreement approved by the Board of Directors of the Company, including but not
limited to
(a) the purchase by RB Capital of the Company's common stock not
owned by RB Capital or the stockholders of RB Capital at a purchase price
no greater than $10.00 per share;
(b) the execution of definitive documentation relating to
approximately $60 million of senior credit facilities on terms and
conditions not materially more adverse to RB Capital or the Company than
those contained in the Summary Terms and Conditions attached to the
commitment letter from BancBoston, N.A. to RB Capital (the "Senior Secured
Credit Facility"), and the borrowing by RB Capital of up to $51 million
under such Facility;
<PAGE>
(c) the execution of definitive documentation relating to
approximately $22 million of subordinated debt on terms and conditions not
materially more adverse to RB Capital or the Company than those contained
in the attachment to the commitment letter from BancBoston Robertson
Stephens Inc. to RB Capital (the "Subordinated Debt"), and the borrowing by
RB Capital of $22 million of Subordinated Debt;
(d) the execution of definitive documentation relating to
approximately $6 million of new cash equity financing and the equivalent of
approximately $23 million of rollover equity financing in the form of
contributions of Company common stock to RB Capital, or the issuance of RB
Capital common stock in exchange for cancellation of Company common stock
(the "Equity Financing"), and the receipt by RB Capital of such $29 million
aggregate equity;
(e) delivery to the Special Committee of the Board of Directors
of the Company of the opinion of Piper Jaffrey, Inc. regarding the fairness
of the Transaction to the Company's stockholders (other than RB Capital) or
its affiliates;
(f) repayment in full of all principal and interest owing in
respect of the Loan.
I agree to use my reasonable best efforts to complete and execute the
definitive documentation relating to my equity commitment hereunder including,
but not limited to, the documents referenced on Exhibit 1 hereto.
This letter shall be governed by and construed in accordance with the laws
of the State of Colorado. This letter may be executed in any number of
counterparts, each of which shall be an original and all of which, taken
together, shall constitute one agreement. This letter agreement is intended to
be solely for the benefit of the parties hereto and is not intended to confer
any benefits upon or create any rights in favor of, any person other than the
parties hereto.
If the foregoing correctly sets forth our agreement, please indicate your
acceptance of the terms hereof by signing in the appropriate space provided
below and returning to me the enclosed
<PAGE>
duplicate originals of this letter agreement no later than 5:00 p.m. EST on
March 18, 1999. My commitment hereunder will expire at such time in the
event I have not received such executed original in accordance with the
preceding sentence.
Very truly yours,
/s/ Arthur Wong
Arthur Wong
Accepted and Agreed to on and
as of March 18, 1999
RB CAPITAL INC.
By: /s/ Frank B. Day
----------------------
Name: Frank B. Day
Title: President
<PAGE>
EXHIBIT I
COMMON STOCK TERMS
Company: RB Capital, Inc.
Use of Proceeds: To partially finance the purchase of approximately 6.7
million shares of publicly held common stock of the Company
and approximately 720,000 of vested stock options for a
total of approximately $59.5 million (collectively, the
"Transaction") and to pay approximately $6.9 million of fees
and expenses associated with the Transaction.
Closing Date: No later than August 15, 1999.
Stockholders' Holders of the Common Stock purchased pursuant to this
Rights: Commitment Letter (the "Holders") shall become parties to a
Stockholders Agreement by and among RB Capital and certain
of its stockholders on customary terms and conditions
reasonably satisfactory to the Holders and RB Capital.
Registration The Holders shall become parties to a Registration Rights
Rights: Agreement by and among RB Capital and certain of its
stockholders on customary terms and conditions reasonably
satisfactory to the Holders and RB Capital.
<PAGE>
PRELIMINARY COPY SUBJECT TO COMPLETION, DATED APRIL 19, 1999
ROCK BOTTOM RESTAURANTS, INC.
248 CENTENNIAL PARKWAY, SUITE 100
LOUISVILLE, COLORADO 80027
(303) 664-4000
Dear Stockholder: [Month Date], 1999
You are cordially invited to attend a Special Meeting of Stockholders of
Rock Bottom Restaurants, Inc. to be held at [Location] on [Day], [Date] at
[Time] a.m., Mountain Daylight Time.
At the special meeting, you will be asked to consider and vote upon the
approval of the Agreement and Plan of Merger, dated as of March 18, 1999, by and
among RB Capital, Inc., RBR Acquisition Corp. and Rock Bottom, as it may be
amended from time to time, providing for the merger of RBR Acquisition, a wholly
owned subsidiary of RB Capital, with and into Rock Bottom, with Rock Bottom as
the surviving corporation. Pursuant to the proposed merger, you will be entitled
to receive $10.00 in cash, without interest, for each of your shares of common
stock of Rock Bottom. RB Capital is and after the proposed Merger will be
controlled principally by Frank B. Day Chairman of the Board of Directors,
President and Chief Executive Officer of Rock Bottom, and certain other
directors of Rock Bottom. The accompanying proxy statement explains the proposed
merger and provides specific information concerning the special meeting. Please
read these materials carefully.
Rock Bottom's board of directors formed a special committee of disinterested
directors to mitigate any conflict of interest in evaluating this merger
proposal and other proposals and indications of interest in Rock Bottom, and to
negotiate the proposals, including the terms of the merger agreement with RB
Capital and RBR Acquisition and related agreements.
The board of directors of Rock Bottom, acting on the unanimous
recommendation of the special committee, has unanimously approved the merger
agreement and declared the merger agreement advisable. The special committee and
the entire board of directors believe that the terms and provisions of the
merger agreement and the proposed merger are fair to and in the best interests
of Rock Bottom's stockholders (other than RB Capital, RBR Acquisition and their
affiliates). Therefore, THE BOARD OF DIRECTORS, BASED ON THE RECOMMENDATION OF
THE SPECIAL COMMITTEE, RECOMMENDS THAT YOU VOTE IN FAVOR OF THE APPROVAL OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. In reaching its
decision, the board of directors considered, among other things, the written
opinion of U.S. Bancorp Piper Jaffray Inc., the special committee's financial
advisor, that, as of March 18, 1999, the $10.00 per share cash consideration to
be received by Rock Bottom's stockholders in the proposed Merger was fair to
Rock Bottom's stockholders (other than RB Capital, RBR Acquisition and their
affiliates) from a financial point of view.
The proposed merger is an important decision for Rock Bottom and its
stockholders. The proposed merger cannot occur unless, among other things, the
merger agreement is approved by the affirmative vote of the holders of a
majority of all outstanding shares of common stock of Rock Bottom. Whether or
not you plan to attend the special meeting, I urge you to sign, date and
promptly return the enclosed proxy card to ensure that your shares will be voted
at the special meeting. Failure to return an executed proxy card will
constitute, in effect, a vote against approval of the merger agreement and the
transactions contemplated thereby.
On behalf of the board of directors, I urge you to consider the enclosed
materials carefully and, based on the recommendation of the special committee,
recommend you vote "FOR" approval of the merger agreement and the transactions
contemplated thereby.
Sincerely,
/s/ Duncan H. Cocroft
Duncan H. Cocroft
CHAIRMAN OF THE SPECIAL COMMITTEE
OF THE BOARD OF DIRECTORS
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
This proxy statement and proxy are being mailed to Rock Bottom's
stockholders beginning about [Month Date], 1999.
<PAGE>
PRELIMINARY COPY SUBJECT TO COMPLETION, DATED APRIL 19, 1999
ROCK BOTTOM RESTAURANTS, INC.
248 CENTENNIAL PARKWAY, SUITE 100
LOUISVILLE, COLORADO 80027
(303) 664-4000
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
<TABLE>
<S> <C>
Date: [Month Date], 1999
Time: [Time] a.m., Mountain Daylight Time
Place: [Location]
</TABLE>
A special meeting of the stockholders of Rock Bottom Restaurants, Inc. is
being held for the following purposes:
- To consider and vote upon the Agreement and Plan of Merger, dated as of
March 18, 1999, by and among RB Capital, Inc., RBR Acquisition Corp. and
Rock Bottom Restaurants, Inc., as it may be amended from time to time, and
the transactions contemplated thereby, including the merger of RBR
Acquisition with and into Rock Bottom, with Rock Bottom as the surviving
corporation and with stockholders of Rock Bottom (other than RB Capital,
RBR Acquisition and their affiliates) entitled to receive $10.00 in cash,
without interest, for each share of Rock Bottom's common stock.
- To consider any other matters that may properly be brought before the
special meeting or any adjournment(s) or postponement(s) thereof.
Only stockholders of record on [Record Date], 1999 are entitled to notice
of, and to vote at, the special meeting. During the ten day period prior to the
special meeting, any stockholder may examine a list of Rock Bottom's
stockholders of record, for any purpose related to the special meeting, during
ordinary business hours at the offices of Rock Bottom: 248 Centennial Parkway,
Suite 100, Louisville, Colorado 80027.
Stockholders of Rock Bottom who do not vote in favor of the merger agreement
will have the right to dissent and to seek appraisal of the fair value of their
shares if the merger is completed and they comply with the Delaware law
procedures explained in the accompanying proxy statement.
The merger is described in the accompanying proxy statement, which you are
urged to read carefully. A copy of the Agreement and Plan of Merger is attached
as Annex A to the accompanying proxy statement.
By Order of the Board of Directors
/s/ Robert D. Greenlee
Robert D. Greenlee
SECRETARY
Louisville, Colorado
[Month Date], 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER......... 1
SUMMARY........................................ 4
The Special Meeting.......................... 4
Special Factors.............................. 4
Recommendation of the Special Committee and
Rock Bottom's Board of Directors......... 4
Factors Considered by the Special
Committee................................ 5
Fairness Opinion of U.S. Bancorp Piper
Jaffray.................................. 5
Purpose and Effects of the Merger.......... 5
Interests of Certain Persons in the
Merger................................... 6
Financing of the Merger.................... 6
The Merger Agreement......................... 7
The Merger Consideration................... 7
Conditions to the Merger................... 7
Termination of the Merger Agreement........ 8
Acquisition Proposals...................... 8
Fees and Expenses.......................... 9
Dissenters' Rights of Appraisal.............. 10
Selected Consolidated Financial Data of the
Company.................................... 11
CAUTIONARY STATEMENT REGARDING FORWARD--LOOKING
STATEMENTS................................... 13
INFORMATION CONCERNING THE SPECIAL MEETING..... 14
Time, Place and Date......................... 14
Purpose of the Special Meeting............... 14
Record Date; Voting at the Meeting; Quorum... 15
Required Vote................................ 15
Action to be Taken at the Special Meeting.... 16
Proxy Solicitation........................... 16
<CAPTION>
PAGE
---------
<S> <C>
THE PARTIES.................................... 17
The Company.................................. 17
RB Capital................................... 17
RBR Acquisition.............................. 17
SPECIAL FACTORS................................ 17
Background of the Merger..................... 17
Recommendation of the Special Committee and
Board of Directors; Fairness of the
Merger..................................... 26
Special Committee.......................... 26
Board of Directors of the Company.......... 29
Opinion of Financial Advisor to the Special
Committee.................................. 29
Proposed Consideration..................... 31
Market Analysis............................ 31
Comparable Company Analysis................ 31
Comparable Transaction Analysis............ 32
Premiums Paid Analysis..................... 33
Discounted Cash Flow Analyses.............. 34
LBO Analysis............................... 34
Certain Projections.......................... 36
RB Capital's Purpose and Reason for the
Merger..................................... 37
Interests of Certain Persons in the Merger;
Certain Relationships...................... 39
Retained Equity Interest................... 39
Directors and Management of the Surviving
Corporation.............................. 39
Management Employment Agreements........... 40
Restricted Stock........................... 40
Affiliated Leases.......................... 41
Other Arrangements with Affiliates......... 42
Certain Effects of the Merger................ 42
Plans for the Company after the Merger....... 43
Conduct of the Business of the Company if the
Merger is not Consummated.................. 43
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Accounting Treatment......................... 43
Financing of the Merger...................... 44
Senior Secured Revolving Credit and Term
Loan Facility............................ 44
Subordinated Credit Facility and Junior
Equity................................... 46
Equity Contributions....................... 48
Sale-Leaseback Transactions................ 49
Regulatory Requirements; Third Party
Consents................................... 50
Material Federal Income Tax Consequences of
the Merger................................. 51
Treatment of Holders of Common Stock....... 51
Backup Withholding......................... 52
Fees and Expenses............................ 52
THE MERGER AGREEMENT........................... 53
The Merger; Merger Consideration............. 53
Treatment of Certain Shares Held by the
Founders and Certain Other Individuals..... 54
The Exchange Fund; Payment for Shares of
Common Stock............................... 54
Transfers of Common Stock.................... 55
Treatment of Stock Options................... 55
Conditions................................... 56
Representations and Warranties............... 57
Covenants.................................... 58
Acquisition Proposals........................ 59
Termination.................................. 60
Fees and Expenses............................ 61
<CAPTION>
PAGE
---------
<S> <C>
Amendment/Waiver............................. 63
THE VOTING AGREEMENT........................... 63
CERTAIN LITIGATION............................. 64
DISSENTERS' RIGHTS OF APPRAISAL................ 64
MARKET FOR THE COMMON STOCK.................... 68
Common Stock Market Price Information;
Dividend Information....................... 68
Common Stock Purchase Information............ 68
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT............................... 69
DIRECTORS AND MANAGEMENT....................... 71
The Company.................................. 71
RB Capital and RBR Acquisition............... 72
INDEPENDENT AUDITORS........................... 72
STOCKHOLDER PROPOSALS.......................... 73
WHERE YOU CAN FIND MORE INFORMATION............ 73
OTHER BUSINESS................................. 74
AVAILABLE INFORMATION.......................... 74
LIST OF DEFINED TERMS.......................... 75
ANNEX A--Agreement and Plan of Merger, dated as
of March 18, 1999, by and among RB Capital,
Inc., RBR Acquisition Corp., and Rock Bottom
Restaurants, Inc............................. A-1
ANNEX B--Opinion of U.S. Bancorp Piper Jaffray
Inc.......................................... B-1
ANNEX C--Section 262 of the Delaware General
Corporate Law Relating to Dissenters'
Rights....................................... C-1
</TABLE>
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT IS THE PROPOSED TRANSACTION?
A: RB Capital will acquire Rock Bottom by merging RBR Acquisition, a
wholly-owned subsidiary of RB Capital, into Rock Bottom with Rock Bottom as
the surviving corporation.
Q: WHO ARE RB CAPITAL AND RBR ACQUISITION?
A: RB Capital and RBR Acquisition were formed in connection with the proposed
merger by Frank B. Day, Chairman of the board of directors, President and
Chief Executive Officer of Rock Bottom; Robert D. Greenlee, Secretary of
Rock Bottom; Arthur Wong; and David M. Lux (collectively, the "Founders").
Each of the Founders is a director and stockholder of Rock Bottom. RBR
Acquisition is a wholly owned subsidiary of RB Capital. Currently, the only
individuals committed to become stockholders of RB Capital are the Founders,
but certain other officers and employees of Rock Bottom may enter into
agreements with RB Capital and Rock Bottom to become RB Capital
stockholders. Each of the Founders and other stockholders of RB Capital will
have a direct ownership interest in RB Capital and an indirect ownership
interest in RBR Acquisition and, following the merger, in Rock Bottom.
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: Stockholders of Rock Bottom (other than RB Capital, RBR Acquisition and
stockholders who dissent and seek appraisal of the fair value of their
shares) will be entitled to receive $10.00 in cash, without interest, for
each share of Rock Bottom's common stock. If you own stock options of Rock
Bottom, you will be entitled to receive, for each stock option, the
difference between $10.00 and the exercise price of such stock option unless
you have agreed in writing with RB Capital and Rock Bottom prior to the
effective time of the merger to exchange such options for options or
restricted stock of RB Capital.
Q: WHY IS THE BOARD OF DIRECTORS RECOMMENDING THAT I VOTE FOR THE MERGER
AGREEMENT?
A: In the opinion of the board of directors, based upon the unanimous
recommendation of the special committee, the terms and provisions of the
merger agreement and the proposed merger are fair to and in the best
interests of Rock Bottom's stockholders (other than RB Capital, RBR
Acquisition and their affiliates), and the board of directors has
accordingly unanimously approved the merger agreement and declared it
advisable. To review the background and reasons for the merger in greater
detail, see pages 17 to 29.
Q: SINCE CERTAIN MEMBERS OF THE BOARD OF DIRECTORS ARE ALSO STOCKHOLDERS OR
FUTURE STOCKHOLDERS OF RB CAPITAL, WHAT CONFLICTS OF INTEREST DOES THE BOARD
OF DIRECTORS HAVE IN RECOMMENDING APPROVAL OF THE MERGER AGREEMENT?
A: Four of the seven members of the board of directors have a conflict of
interest in recommending approval of the merger agreement because they are
committed to become stockholders of RB Capital. If the merger occurs, these
four individuals will indirectly own a majority of Rock Bottom's common
stock following the merger and as a result will receive the majority of the
benefit of future earnings, growth and increased value of Rock Bottom, while
you will no longer receive any such benefit. To counteract this conflict of
interest, the board of directors recommendation is based on the unanimous
recommendation of the special committee, which did not have a conflict of
interest in making the recommendation. To review the factors considered by
the special committee and the board of directors in approving the merger
agreement, see pages 26 to 29.
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Q: HOW DID THE BOARD OF DIRECTORS MAKE SURE THE PRICE PER SHARE I WILL RECEIVE
IN THE PROPOSED MERGER IS FAIR TO ME?
A: The board of directors formed a special committee consisting of three
disinterested directors to evaluate and negotiate the terms of the merger
agreement with the company formed by the Founders. The special committee
independently selected and retained legal and financial advisors to assist
it in the negotiation, and received an opinion from its financial advisor,
on which the special committee and the entire board of directors relied,
that as of its date (assuming you are a person other than RB Capital, RBR
Acquisition or an affiliate of either) the $10.00 per share you will receive
in the proposed merger is fair to you from a financial point of view.
Q: WHAT ARE THE DISADVANTAGES TO ME OF MERGING ROCK BOTTOM WITH RBR ACQUISITION?
A: Following the proposed merger, the holders of Rock Bottom's common stock
will no longer benefit from the earnings or growth of Rock Bottom.
Q: WHAT VOTE IS REQUIRED TO APPROVE THE MERGER AGREEMENT?
A: The holders of a majority of all outstanding shares of Rock Bottom's common
stock must vote to approve the merger agreement. The Founders currently own
approximately [28.0]% of Rock Bottom's common stock in the aggregate, which
they have agreed to vote in favor of the merger agreement.
Q: WHAT DO I NEED TO DO NOW?
A: Please mark your vote on, sign, date and mail your proxy card in the
enclosed return envelope as soon as possible, so that your shares may be
represented at the special meeting.
Q: WHAT RIGHTS DO I HAVE IF I OPPOSE THE MERGER?
A: Stockholders who oppose the merger may dissent and seek appraisal of the
fair value of their shares, but only if they comply with all of the Delaware
law procedures explained on pages 64 to 67 and in Annex C to this proxy
statement.
Q: WHO CAN VOTE ON THE MERGER?
A: All stockholders of record as of the close of business on [Record Date] will
be entitled to notice of, and to vote at, the special meeting to approve the
merger agreement and the transactions contemplated thereby.
Q: SHOULD I SEND MY STOCK CERTIFICATES NOW?
A: No. After the merger is completed, we will send you a transmittal form and
written instructions for exchanging your share certificates.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will ONLY vote your shares if you provide instructions on how to
vote. You should follow the directions provided by your broker regarding how
to instruct your broker to vote your shares.
Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. Just send in a written revocation or another signed proxy card with a
later date to American Stock Transfer & Trust, Inc., Rock Bottom's transfer
agent, before the special meeting or simply attend the special meeting and
vote in person. American Stock Transfer's address is 938 Quail Street,
Lakewood, Colorado 80215.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the merger as quickly as possible. If the
merger agreement is approved and the other conditions to the merger are
satisfied, we
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expect to complete the merger shortly after the special meeting.
Q: WHAT ARE THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO ME?
A: The cash you receive for your shares generally will be taxable for U.S.
federal income tax purposes. To review the federal income tax consequences
to stockholders in greater detail, see pages 51 to 52.
Q: WHAT OTHER MATTERS WILL BE VOTED ON AT THE SPECIAL MEETING?
A: We do not expect that any other matters will be voted upon at the special
meeting.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have more questions about the merger or would like additional copies
of this proxy statement, you should contact Theresa Shelton, Vice
President-Finance, Treasurer and Assistant Secretary of Rock Bottom at (303)
664-4379.
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SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT
IS IMPORTANT TO YOU, AND IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION CONTAINED ELSEWHERE IN THIS PROXY STATEMENT, INCLUDING THE ANNEXES
TO IT, AND IN THE DOCUMENTS INCORPORATED BY REFERENCE. TO UNDERSTAND THE
PROPOSED MERGER FULLY AND FOR A MORE COMPLETE DESCRIPTION OF THE TERMS OF THE
PROPOSED MERGER, YOU SHOULD READ CAREFULLY THIS ENTIRE PROXY STATEMENT,
INCLUDING THE ANNEXES TO IT, AND THE DOCUMENTS INCORPORATED BY REFERENCE.
THE SPECIAL MEETING (SEE PAGE 14)
A Special Meeting of Stockholders of Rock Bottom will be held at [Time]
a.m., Mountain Daylight Time, on [Day], [Date], 1999 at [Location]. At the
special meeting, you will be asked to consider and vote on a proposal to approve
the merger agreement described in this proxy statement.
Only holders of shares of Rock Bottom common stock who are holders at the
close of business on the record date, [Record Date], will be entitled to notice
of, and to vote at, the special meeting. On the record date, there were
[8,045,796] shares of common stock outstanding and entitled to vote held by
approximately [250] stockholders of record.
Each share of common stock is entitled to one vote per share. As of [Record
Date], [8,045,796] votes were eligible to be cast at the special meeting.
Delaware law requires that the holders of a majority of the voting power of
all outstanding shares of Rock Bottom common stock vote to approve the merger
agreement. The Founders currently own 2,250,173 shares of Rock Bottom common
stock in the aggregate, representing approximately [28.0%] of the outstanding
shares of common stock as of the record date. To review a more detailed
description of the interests of the Founders and other future stockholders of RB
Capital, see pages 39 to 42.
Each of the Founders, together with RB Capital and RBR Acquisition, entered
into a voting agreement, dated as of March 18, 1999 with Rock Bottom, which
provides, among other things, that each of them will vote all their shares in
favor of the merger agreement and the transactions contemplated thereby. The
executive officers of Rock Bottom who are not Founders also intend to vote all
their shares (69,714 shares in the aggregate or approximately [0.9]% of the
outstanding shares of common stock as of [record date]) in favor of the merger
agreement and the transactions contemplated thereby.
SPECIAL FACTORS (SEE PAGE 17)
RECOMMENDATION OF THE SPECIAL COMMITTEE AND ROCK BOTTOM'S BOARD OF DIRECTORS
(SEE PAGE 26)
In November 1998, Mr. Day informed Rock Bottom's board of directors that he,
along with certain other directors, was exploring the feasibility of organizing
an acquisition of Rock Bottom. The board of directors sought to mitigate the
potential conflicts of interest involved by forming a special committee of
disinterested directors to receive, study, negotiate and make recommendations to
the board of directors in connection with any proposed acquisition of Rock
Bottom by Mr. Day or any other prospective acquiror. The special committee is
comprised of Duncan H. Cocroft, who serves as the special committee's chairman,
Gerald A. Hornbeck and Mary C. Hacking. Each is a director of Rock Bottom and is
not and will not become a stockholder of RB Capital.
The board of directors, acting on the unanimous recommendation of the
special committee, unanimously approved the merger agreement and declared it
advisable. The board of directors recommends that you vote to approve the merger
agreement and the transactions contemplated thereby. The board of directors
believes that the merger and the terms and provisions of the merger agreement
(including the $10.00 per share cash purchase price) are fair to and in the best
interests of Rock Bottom's stockholders (other than RB Capital, RBR Acquisition
and their affiliates).
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FACTORS CONSIDERED BY THE SPECIAL COMMITTEE (SEE PAGE 26)
In reaching its decision to approve, and recommend approval of, the merger
agreement, the special committee considered a number of factors. These include,
among others, the following:
- the belief that stockholder value was not likely to be maximized were Rock
Bottom to remain a public company, which belief was based on, among other
things, Rock Bottom's inability to meet earnings and growth expectations
of the public equity markets and the adverse effect that Rock Bottom's
limited trading volume, institutional sponsorship and public float, small
market capitalization and diminishing research attention from market
analysts had had on the value of Rock Bottom's common stock;
- the views expressed by U.S. Bancorp Piper Jaffray as to the inconsistent
results of operations and slowed earnings growth of Rock Bottom over a
period of several years;
- the fact that the $10.00 per share to be received by Rock Bottom's
stockholders in the merger exceeded by $2.44 the highest price per share
of the common stock as quoted by Nasdaq for the 12 months prior to January
26, 1999 and a 50.8% premium to the closing sale price of the shares of
common stock on January 25, 1999, the day prior to the public announcement
by a third party of its indication of interest in Rock Bottom, a 63.7%
premium to the average stock price for the period between January 1, 1998
and January 26, 1999 and a 68.6% of premium to the average stock price for
the six months prior to January 26, 1999.
- the opinion of U.S. Bancorp Piper Jaffray Inc., the financial advisor to
the special committee, that, subject to the various considerations,
assumptions and limitations stated therein, as of March 18, 1999, the
$10.00 per share cash consideration to be received by the holders of Rock
Bottom's common stock in the merger was fair to such stockholders (other
than RB Capital, RBR Acquisition and their affiliates) from a financial
point of view.
Additional factors considered by the special committee are set forth on
pages 26 to 29.
FAIRNESS OPINION OF U.S. BANCORP PIPER JAFFRAY (SEE PAGE 29)
U.S. Bancorp Piper Jaffray delivered to the special committee a written
opinion, dated March 18, 1999, that, as of such date and based upon and subject
to the various considerations, assumptions and limitations stated therein, the
$10.00 per share cash consideration to be received by the holders of Rock
Bottom's common stock in connection with the merger was fair to such
stockholders (other than RB Capital, RBR Acquisition and their affiliates) from
a financial point of view. The U.S. Bancorp Piper Jaffray opinion is included as
Annex B at the end of this proxy statement. Please read this opinion carefully.
PURPOSE AND EFFECTS OF THE MERGER (SEE PAGES 37 AND 42)
The purpose of the merger is to permit RB Capital and RBR Acquisition, to
acquire all of the shares of Rock Bottom's common stock. The Founders sought to
structure the transaction as a cash merger because it would permit the
acquisition to be accomplished in a single step without the necessity of
financing a tender offer. If the merger is completed, Rock Bottom's common stock
would cease to be publicly traded and holders of common stock (other than RB
Capital, RBR Acquisition and any stockholders who validly dissent from the
merger and seek appraisal of their shares in accordance with the Delaware law
requirements explained in this proxy statement) will be entitled to receive
$10.00 per share in cash, without interest. Following the merger, all of the
outstanding capital stock of Rock Bottom, as the surviving corporation in the
merger, would be owned by RB Capital and a majority of RB Capital, in turn, will
be owned by the Founders.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER (SEE PAGE 39)
The Founders and certain officers and employees of Rock Bottom have
relationships or interests in the merger that are different from your interests
as a stockholder or that may present a conflict of interest. The special
committee was aware of these interests and considered them in recommending and
approving the merger agreement.
Prior to the effective time of the merger, the Founders will contribute
shares of Rock Bottom common stock beneficially owned by them and certain cash
amounts to RB Capital in consideration of the issuance of RB Capital stock. In
addition, certain officers and employees of Rock Bottom may, by subsequent
agreement among RB Capital, such persons and Rock Bottom, contribute some or all
of their stock, stock options and/or restricted stock to RB Capital in exchange
for stock, stock options and/or restricted stock of RB Capital. As a result of
such agreements, these officers and employees will become stockholders of RB
Capital as of the effective time of the merger.
Upon consummation of the merger, the stockholders of RB Capital will
indirectly own 100% of the outstanding common stock of the surviving
corporation. Such ownership will arise from the conversion, upon the
consummation of the merger, of all of the outstanding shares of common stock of
RBR Acquisition, a wholly owned subsidiary of RB Capital, into all of the
outstanding shares of common stock of the surviving corporation.
Other than the equity contributions of the Founders to RB Capital in the
form of cash and/or shares of Rock Bottom common stock, the Founders have not
yet formulated definitive plans regarding equity contributions or the treatment
of stock options and/or restricted stock held by the Founders or other officers
and employees of Rock Bottom, or certain other arrangements to be made among the
Founders and other officers and employees of Rock Bottom. It is currently
contemplated, however, that such arrangements would include an agreement among
the stockholders of RB Capital regarding the management and control of the
surviving corporation, the creation of certain rights of first refusal
concerning dispositions of the shares of common stock of RB Capital, the
creation of certain equity or equity-based incentives for certain members of
management and related stockholder arrangements.
FINANCING OF THE MERGER (SEE PAGE 44)
At the closing of the merger, assuming that no additional individuals become
stockholders of RB Capital, RB Capital and RBR Acquisition expect to pay
aggregate consideration of approximately $61.3 million to the holders of Rock
Bottom's common stock (including restricted stock) and holders of options to
acquire 100% of Rock Bottom's common stock and to cash out all stock options
(other than shares of common stock and restricted stock and stock options
contributed to RB Capital by the Founders in exchange for stock, stock options
and/or restricted stock of RB Capital). To the extent that certain other
officers and employees of Rock Bottom contribute their shares of common stock
of, or other equity interests in, Rock Bottom to RB Capital in exchange for
stock, stock options and/or restricted stock of RB Capital, the maximum
aggregate consideration will be reduced accordingly. In addition, the parties
anticipate that Rock Bottom, RB Capital and RBR Acquisition will refinance
approximately $13.2 million of outstanding debt of Rock Bottom and will require
approximately $6.9 million to pay for Rock Bottom's, RB Capital's and RBR
Acquisition's expenses and costs relating to the merger agreement and the
transactions contemplated thereby.
On March 18, 1999, RB Capital obtained:
- a commitment from BankBoston, N.A. and BancBoston Robertson Stephens Inc.
to arrange, fund and administer, subject to certain specified conditions,
senior secured revolving credit and term loan facilities aggregating up to
approximately $60 million;
- a commitment from BancBoston Robertson Stephens, subject to certain
specified conditions, to fund or serve as
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placement agent for $22 million of senior subordinated notes with warrants
and $4 million in Class B common stock of RB Capital;
- a commitment from Frank B. Day to purchase $1.0 million of RB Capital's
Class B common stock for cash and to contribute 1,333,772 shares of Rock
Bottom's common stock to RB Capital;
- a commitment from Robert D. Greenlee to purchase $500,000 of RB Capital's
Class B common stock for cash and to contribute 519,136 shares of Rock
Bottom's common stock to RB Capital;
- a commitment from Arthur Wong to purchase $500,000 of RB Capital's Class B
common stock for cash and to contribute 216,200 shares of Rock Bottom's
common stock to RB Capital; and
- a commitment from David M. Lux to contribute 131,065 shares of Rock
Bottom's common stock to RB Capital.
Additionally, in order to facilitate the financing of the proposed merger,
net proceeds of approximately $8.6 million obtained by Rock Bottom from certain
ancillary sale-leaseback transactions will be used to reduce the amount of debt
of Rock Bottom outstanding as of the effective time of the merger. One such
transaction between the Company and Lagamorph, L.L.C., which is owned in part by
Mr. Wong, has already occurred. To review additional terms and conditions of
these sale-leaseback transactions, see pages 49 to 50.
THE MERGER AGREEMENT
THE MERGER CONSIDERATION
If the merger is completed, you will be entitled to receive $10.00 per share
in cash for each share of Rock Bottom common stock you own, without interest.
CONDITIONS TO THE MERGER (SEE PAGE 56)
A number of conditions must be satisfied before any of Rock Bottom, RB
Capital or RBR Acquisition is obligated to complete the merger, including, among
others, the following:
- the merger must be approved by a majority of the voting power held by the
stockholders of Rock Bottom; and
- there must be no legal or judicial restraints or prohibitions preventing
completion of the merger.
Additional conditions must be satisfied or waived before either RB Capital
or RBR Acquisition is obligated to complete the merger, including:
- The funding of the debt and equity financings being provided by BankBoston
and BancBoston Robertson Stephens and certain Founders (or other financing
mutually satisfactory to RB Capital and Rock Bottom) must have occurred.
The funding of these financings is subject to a number of material
conditions independent of those in the merger agreement, including the
completion of certain ancillary sale-leaseback transactions.
- The Company must have performed or complied with all of its obligations
and covenants set forth in the merger agreement except where failure to do
so would not have a material adverse effect on Rock Bottom or would not
prevent completion of the merger by September 18, 1999.
- The representations and warranties made by Rock Bottom in the merger
agreement must be true and correct except where the failure to be true and
correct would not have a material adverse effect on Rock Bottom or would
not prevent completion of the merger by September 18, 1999.
Additional conditions must be satisfied before Rock Bottom is obligated to
complete the merger, including:
- RB Capital and RBR Acquisition must have performed or complied with all of
their respective obligations and covenants set forth in the merger
agreement except
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where failure to do so would not have a material adverse effect on RB
Capital or RBR Acquisition or would not prevent completion of the merger
by September 18, 1999.
- The representations and warranties made by RB Capital and RBR Acquisition
in the merger agreement must be true and correct except where the failure
to be true and correct would not have a material adverse effect on RB
Capital or RBR Acquisition or would not prevent completion of the merger
by September 18, 1999.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 60)
Rock Bottom and RB Capital may agree at any time (including any time after
the special meeting) to terminate the merger agreement. In addition, either Rock
Bottom or RB Capital may terminate the merger agreement if:
- the merger has not been completed by September 18, 1999 or, under certain
circumstances, by December 18, 1999;
- a final court order or other governmental action prohibits the merger;
- any approval of the stockholders of Rock Bottom required to complete the
merger is not obtained; or
- the board of directors resolves to accept an acquisition proposal other
than the merger, based upon the recommendation of the special committee.
Rock Bottom may also terminate the merger agreement if:
- RB Capital or RBR Acquisition breaches a representation, warranty,
covenant or obligation set forth in the merger agreement which would have
a material adverse effect on RB Capital or RBR Acquisition, and such
failure cannot be materially remedied by September 18, 1999.
RB Capital may also terminate the merger agreement if:
- Rock Bottom breaches a representation, warranty, covenant or obligation
set forth in the merger agreement which would have a material adverse
effect on Rock Bottom, and such failure cannot be materially remedied by
September 18, 1999, or which would result in the failure of RB Capital to
obtain funding from its financing sources;
- the board of directors, based upon the recommendation of the special
committee withdraws or adversely modifies its recommendation of the merger
agreement or recommends that Rock Bottom stockholders approve an
acquisition proposal other than the merger;
- a tender offer or exchange offer that would result in any person owning
30% or more of Rock Bottom's common stock is commenced and the board of
directors has not timely recommended that Rock Bottom stockholders reject
such tender or exchange offer;
- Rock Bottom, based on the recommendation of the special committee, fails
to mail the proxy statement within the time frame set forth in the merger
agreement or has postponed or adjourned the special meeting of
stockholders, in each case, where another proposal to acquire 30% or more
of Rock Bottom's assets or common stock was pending, or fails to include
certain information in this proxy statement; or
- RB Capital, despite its reasonable best efforts, fails to obtain funding
from its financing sources by September 18, 1999 or, under certain
circumstances, by December 18, 1999.
ACQUISITION PROPOSALS (SEE PAGE 59)
In the merger agreement, Rock Bottom agrees not to solicit or encourage any
acquisition proposal for 30% or more of Rock Bottom's assets or common stock. In
addition, Rock
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Bottom agrees not to engage in any discussions or provide access to information
about Rock Bottom with respect to any acquisition proposal for 30% or more of
Rock Bottom's assets or stock except under the following circumstances:
- Rock Bottom has received a written acquisition proposal which the special
committee determines in good faith is reasonably likely to lead to a
proposal that is, among other things, more favorable to the stockholders
of Rock Bottom from a financial point of view than the merger;
- the party making the proposal has signed an appropriate confidentiality
agreement; and
- Rock Bottom has notified RB Capital of the taking of such action.
Under the terms of the merger agreement, neither the board of directors nor
the special committee is permitted to engage in negotiations with respect to an
acquisition proposal, withdraw or modify its recommendation of the merger and
the merger agreement or approve, declare advisable or recommend an acquisition
proposal other than the merger, except under the following circumstances:
- the special committee has determined in good faith that the proposal is
for a transaction that would be, among other things, more favorable to the
stockholders of Rock Bottom from a financial point of view than the
merger;
- Rock Bottom has notified RB Capital that Rock Bottom intends to take such
action; and
- prior to withdrawing or modifying the recommendation of the merger or
approving, declaring advisable or recommending an acquisition proposal
other than the merger agreement, Rock Bottom and the special committee
have given RB Capital an opportunity to propose modifications to the
merger agreement and the transactions contemplated thereby.
FEES AND EXPENSES (SEE PAGE 61)
Under certain circumstances, Rock Bottom will pay RB Capital a termination
or "break up" fee equal to $1,000,000 PLUS, in certain circumstances, an
additional amount of unutilized expense reimbursement up to $250,000. The
termination or "break up" fee is payable if, among other things:
- the merger agreement is terminated by Rock Bottom or RB Capital because
the required stockholder approval of the merger agreement and the
transactions contemplated thereby is not obtained and, on or within the
five (5) business days prior to the special meeting of stockholders at
which such approval was sought, an acquisition proposal for 30% or more of
Rock Bottom's assets or common stock other than the proposed merger was
publicly pending;
- the merger agreement is terminated by Rock Bottom or RB Capital because
the board of directors, based on a recommendation of the special
committee, decides to approve and recommend a proposal for a transaction
that it believes, among other things, would be more favorable to the
stockholders of Rock Bottom, from a financial point of view, than the
merger;
- the merger agreement is terminated by RB Capital because the board of
directors, based on the recommendation of the special committee, (1)
withdraws or adversely modifies its recommendation of the merger
agreement; (2) recommends another acquisition proposal to the stockholders
of Rock Bottom; (3) adjourns or postpones the stockholder meeting without
obtaining the required stockholder approval while an acquisition proposal
other than the merger is publicly pending; or (4) fails to include a
recommendation in favor of the merger agreement or the fairness opinion of
U.S. Bancorp Piper Jaffray in this proxy statement and at the time an
acquisition proposal other than the Merger is publicly
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pending or known to the special committee;
- the merger agreement is terminated by RB Capital because the board of
directors fails to timely recommend rejection of an acquisition offer
which would result in a person owning 30% or more of Rock Bottom's common
stock; or
- Rock Bottom willfully and materially breaches its covenants, obligations,
representations or warranties with regard to, among other things,
soliciting, engaging in discussions, furnishing access or information or
negotiating with respect to acquisition proposals for 30% or more of Rock
Bottom's assets or common stock set forth in the merger agreement.
In addition, under certain circumstances, including those set forth above,
Rock Bottom will reimburse RB Capital for its costs and expenses incurred in
connection with the transactions contemplated by the merger agreement in an
amount up to $1,750,000 in the aggregate, PLUS an additional amount of up to
$500,000, in the event no termination or "break up" fee is payable to RB Capital
under the merger agreement. Under no circumstances will the sum of the
termination or "break up" fee and the amount of the expense reimbursement
payable to RB Capital as described above, exceed $2,750,000 in the aggregate.
For a more detailed discussion of the circumstances under which a
termination or "break up" fee may be payable to RB Capital to, or RB Capital's
expenses may be reimbursed by, the Company, see pages 61 to 63.
DISSENTERS' RIGHTS OF APPRAISAL (SEE PAGE 64)
Any stockholder who does not wish to accept $10.00 per share cash
consideration in the merger has the right under Delaware law to have his, her or
its shares appraised by the Delaware Chancery Court. This "right of appraisal"
is subject to a number of restrictions and technical requirements. Generally, in
order to exercise appraisal rights, among other things:
- you must NOT vote in favor of the merger agreement; and
- you must make a written demand for appraisal in compliance with Delaware
law BEFORE the vote on the merger agreement.
Merely voting against the merger agreement will not preserve your right of
appraisal under Delaware law. Annex C to this proxy statement contains the
Delaware statute relating to your right of appraisal. Failure to follow all of
the steps required by this statute will result in the loss of your right of
appraisal.
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SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
The following table sets forth selected consolidated financial data for Rock
Bottom and its subsidiaries as of and for each of the five fiscal years in the
period ended December 27, 1998. No separate financial information is provided
for RB Capital or RBR Acquisition since each is a special purpose entity formed
in connection with the proposed merger and has no independent operations. No pro
forma data giving effect to the proposed merger is provided because Rock Bottom
does not believe such information is material to stockholders in evaluating the
proposed merger and merger agreement since (1) the proposed merger consideration
is all cash and (2) if the proposed merger is completed, the common stock of
Rock Bottom would cease to be publicly traded.
The financial information for Rock Bottom as of and for each of the five
fiscal years in the period ended December 27, 1998 has been derived from audited
consolidated financial statements of Rock Bottom. The following financial
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operation" and the Consolidated
Financial Statements of Rock Bottom and the notes thereto included in Rock
Bottom's Annual Report on Form 10-K for the fiscal year ended December 27, 1998,
which is enclosed with this proxy statement.
<TABLE>
<CAPTION>
AS OF OR FOR THE FISCAL YEARS ENDED
--------------------------------------------------------------------
DECEMBER 25, DECEMBER 31, DECEMBER 29, DECEMBER 28, DECEMBER 27,
1994 1995 1996 1997 1998
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUES:
Old Chicago restaurants.................... $ 22,201 $ 40,499 $ 58,328 $ 73,117 $ 74,131
Brewery restaurants........................ 16,652 33,465 50,902 77,131 85,971
------------ ------------ ------------ ------------ ------------
Total revenues........................... 38,853 73,964 109,230 150,248 160,102
------------ ------------ ------------ ------------ ------------
OPERATING EXPENSES:
Cost of sales.............................. 9,785 18,509 27,100 37,672 40,625
Restaurant salaries & benefits............. 12,727 24,739 35,552 51,086 53,632
Operating expenses......................... 8,044 15,135 23,529 30,627 31,906
Selling expenses........................... 1,272 2,855 4,272 5,773 5,099
General & administrative................... 2,468 4,577 5,620 9,073 9,818
Depreciation & amortization................ 1,325 4,200 7,802 12,136 8,615
Start-up costs(1).......................... -- -- -- -- 1,809
Restructuring charges and other, net....... -- -- -- 9,707 (138)
------------ ------------ ------------ ------------ ------------
Total operating expenses................. 35,621 70,015 103,875 156,074 151,366
Income (Loss) From Operations................ 3,232 3,949 5,355 (5,826) 8,736
Equity in joint venture earnings........... -- -- 223 330 688
Gain on sale of investment in joint
venture.................................. -- -- -- -- 728
Interest income (expense), net............. (106) 831 (74) (1,763) (2,378)
Other income (expense), net................ 8 40 (1) -- --
------------ ------------ ------------ ------------ ------------
Income (Loss) Before Taxes................... 3,134 4,820 5,503 (7,259) 7,774
Income (Loss) Before Cumulative Effect of
Accounting Change(1)....................... 1,924 3,270 4,025 (4,691) 5,248
Net Income (Loss)(1)(2)...................... $ 1,924 $ 3,270 $ 4,025 $ (4,691) $ 3,998
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
AS OF OR FOR THE FISCAL YEARS ENDED
--------------------------------------------------------------------
DECEMBER 25, DECEMBER 31, DECEMBER 29, DECEMBER 28, DECEMBER 27,
1994 1995 1996 1997 1998
------------ ------------ ------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
DILUTED NET INCOME (LOSS) PER SHARE:
Income (loss) before cumulative effect of
accounting change........................ $ .47 $ .45 $ .52 $ (.58) $ .65
Cumulative effect of accounting change..... -- -- -- -- (.15)
------------ ------------ ------------ ------------ ------------
Diluted Net Income (Loss) Per Share.......... $ .47 $ .45 $ .52 $ (.58) $ .50
------------ ------------ ------------ ------------ ------------
Diluted Weighted Average Shares
Outstanding(3)............................. 4,072 7,264 7,725 8,027 8,056
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
BALANCE SHEET DATA
(AT END OF PERIOD):
Working Capital (deficit).................. $ 1,113 $ 9,335 $ (732) $ (5,567) $ (26,747)
Total assets............................... 26,359 64,169 84,948 107,413 102,497
Long-term debt (including current
portion)................................. 706 641 11,564 28,940 21,425
Obligations under capital leases (including
current portion)......................... 1,794 1,667 1,372 2,079 2,481
Stockholders' equity....................... 17,924 55,341 65,337 61,219 65,423
OTHER DATA:
Book Value per share....................... $ 3.38 $ 7.53 $ 8.26 $ 7.60 $ 8.12
</TABLE>
- ------------------------
(1) Rock Bottom adopted Statement of Position No. 98-5 "Reporting on the Costs
of Start-up Activities" effective December 29, 1997. Adoption of this
standard resulted in a charge of approximately $1.3 million, net of taxes,
for the cumulative effect of the accounting change.
(2) Rock Bottom was taxed as an S corporation through July 10, 1994 and,
therefore, the income statement data includes certain adjustments to reflect
a provision for income taxes through that date as if Rock Bottom had been
taxed as a C corporation.
(3) Weighted average common shares outstanding for the year ended December 25,
1994 include (a) 3,000,000 shares of common stock issued to stockholders of
certain predecessor corporations and (b) 62,375 additional shares of common
stock deemed issued at December 26, 1993, to fund undistributed S
corporation earnings at that date.
12
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement contains or incorporates by reference certain
forward-looking statements and information relating to Rock Bottom that are
based on the beliefs of management as well as assumptions made by and
information currently available to Rock Bottom. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, future
events or performance, and underlying assumptions and other statements which are
other than statements of historical facts, including statements regarding the
completion of the proposed merger. When used in this document, the words
"anticipate," "believe," "estimate," "expect," "plan," "intend," "project,"
"predict," "may," and "should" and similar expressions, are intended to identify
forward-looking statements. Such statements reflect the current view of Rock
Bottom with respect to future events, including the completion of the proposed
merger, and are subject to numerous risks, uncertainties and assumptions. Many
factors could cause the actual results, performance or achievements of Rock
Bottom to be materially different from any future results, performance or
achievements that may be expressed or implied by such forward-looking
statements, including, among others:
- delays in receiving required regulatory and other approvals;
- the ability of RB Capital to obtain funding necessary to consummate the
proposed merger;
- the failure of stockholders to approve the merger agreement;
- general economic or market conditions;
- changes in business strategy;
- availability of suitable restaurant locations;
- availability of financing on acceptable terms to fund future growth;
- increasing costs associated with new restaurant construction, and
developing a significant number of new restaurants over a relatively short
period of time;
- delays in opening new restaurants;
- ability to hire and train increasing numbers of restaurant management,
staff and other personnel for new restaurants;
- fluctuations in consumer demand and tastes including a decrease in
consumers' preference for high quality, more flavorful beer;
- acceptance in new markets;
- competitive conditions in Rock Bottom's markets;
- general economic or market conditions;
- adverse weather conditions;
- operating restrictions and costs associated with governmental regulations;
- regulatory limitations regarding common ownership of breweries and
restaurants in certain states;
- greater than expected costs associated with closing restaurants; and
- various other factors, both referenced and not referenced in this proxy
statement.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those described herein as anticipated, believed, estimated, expected, planned or
intended. Rock Bottom does not intend, or assume any obligation, to update these
forward-looking statements to reflect actual results, changes in assumptions or
changes in the factors affecting such forward-looking statements.
13
<PAGE>
INFORMATION CONCERNING THE SPECIAL MEETING
FOR YOUR CONVENIENCE, WE HAVE INCLUDED ON PAGE 75 A LIST OF CERTAIN DEFINED
TERMS USED IN THIS PROXY STATEMENT.
TIME, PLACE AND DATE
This proxy statement is furnished in connection with the solicitation by the
board of directors (the "Board") of Rock Bottom Restaurants, Inc. (the
"Company") of proxies from the holders of shares of common stock, par value $.01
per share, of the Company for use at a Special Meeting of Stockholders (the
"Special Meeting") to be held at [Time] a.m., Mountain Daylight Time, on [Day]
[Date] 1999, at [Location], or at any adjournment(s) or postponement(s) thereof,
pursuant to the enclosed Notice of Special Meeting of Stockholders.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, the stockholders of the Company will be asked to
consider and vote upon the approval of the Agreement and Plan of Merger, dated
as of March 18, 1999, by and among the Company, RB Capital, Inc. ("RB Capital")
and RBR Acquisition Corp. ("RBR Acquisition"), as heretofore and hereafter
amended (the "Merger Agreement") and the transactions contemplated thereby. A
copy of the Merger Agreement is attached to this proxy statement as Annex A. The
Merger Agreement provides for the merger of RBR Acquisition with and into the
Company (the "Merger"), with the Company as the surviving corporation (the
"Surviving Corporation"). Pursuant to the Merger Agreement, each outstanding
share of common stock (other than (1) common stock held in the treasury of the
Company or by any of its wholly owned subsidiaries, (2) common stock held by RB
Capital or RBR Acquisition, or (3) common stock held by stockholders who perfect
their rights under Delaware law to dissent from the Merger and seek an appraisal
of the fair value of their shares (the "Dissenting Stockholders")) will be
converted into the right to receive $10.00 per share in cash, without interest
(the "Merger Consideration").
The special committee consisting of Messrs. Cocroft and Hornbeck and Ms.
Hacking (the "Special Committee") was appointed by the Board to, among other
things, review and evaluate the terms of the Merger and to make a recommendation
to the Board regarding the fairness of the Merger to the holders of common
stock. Ms. Hacking and Mr. Hornbeck selected Mr. Cocroft as chairman of the
Special Committee. None of Messrs. Cocroft and Hornbeck or Ms. Hacking are
employees of the Company and none of the Special Committee members have or will
have any continuing equity interest in RB Capital or the Surviving Corporation.
The Special Committee concluded that the terms and provisions of the Merger
Agreement and the Merger are fair to and in the best interests of the holders of
common stock (other than RB Capital, RBR Acquisition and their affiliates), and
unanimously recommended that the Board approve and declare advisable the Merger
Agreement. At a meeting held on March 18, 1999, acting on the unanimous
recommendation of the Special Committee, the Board unanimously approved the
Merger Agreement, concluded that the terms and provisions of the Merger
Agreement are advisable and that the Merger Agreement and the transactions
contemplated thereby, including the Merger, are fair to and in the best
interests of the holders of common stock (other than RB Capital, RBR Acquisition
and their affiliates), and approved a recommendation that the stockholders of
the Company approve the Merger Agreement and the transactions contemplated
thereby. The Special Committee and the Board, in reaching their respective
decisions, considered a number of factors, including the opinion of U.S. Bancorp
Piper Jaffray Inc. (formerly known as Piper Jaffray Inc.) ("U.S. Bancorp Piper
Jaffray"), the financial advisor to the Special Committee, that, as of the date
of such opinion and based upon and subject to various considerations,
assumptions and limitations stated therein, the $10.00 per share cash
consideration to be received by the stockholders of the Company in the Merger
was fair to the stockholders of the Company (other than RB Capital or RBR
Acquisition and their affiliates) from a financial point of view. A copy of U.S.
Bancorp Piper
14
<PAGE>
Jaffray's opinion is attached as Annex B to this proxy statement. See "Special
Factors-- Recommendation of the Special Committee and Board of Directors;
Fairness of the Merger" and "Special Factors--Opinion of Financial Advisor to
the Special Committee."
BASED ON THE UNANIMOUS RECOMMENDATION OF ITS SPECIAL COMMITTEE, THE BOARD
UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
RECORD DATE; VOTING AT THE MEETING; QUORUM
Acting under authority granted to it by the Board, the Special Committee has
fixed the close of business on [Record Date] as the record date (the "Record
Date") for the Special Meeting. Only stockholders of record as of the close of
business on [Month Day], 1999 will be entitled to notice of and to vote at the
Special Meeting.
As of the close of business on the Record Date, the Company had outstanding
[8,045,796] shares of common stock, held of record by approximately [250]
registered holders. Holders of the common stock are entitled to one vote per
share. The presence in person or by proxy of the holders of not less than
one-third of the voting power of the outstanding common stock entitled to vote
at the Special Meeting constitutes a quorum. Broker non-votes and shares as to
which a stockholder abstains will be included in determining whether there is a
quorum at the Special Meeting.
REQUIRED VOTE
Under Delaware law, the Merger Agreement must be approved by the affirmative
vote of the holders of a majority of the voting power of the outstanding shares
of common stock. The affirmative vote of approximately 4,022,899 shares of
common stock will be necessary to satisfy this voting requirement. The Founders,
each a director of the Company, currently own 2,250,173 shares of common stock
in the aggregate, representing approximately [28.0]% of the outstanding shares
of common stock as of the Record Date. The Founders also collectively hold
options to acquire an aggregate of 103,907 shares of common stock, which stock
options are expected to be converted into restricted stock or options to acquire
shares of common stock of RB Capital in connection with the Merger, provided RB
Capital, such persons and the Company have entered into agreements for such
purpose on terms which have not yet been determined. See "Special
Factors--Interests of Certain Persons in the Merger; Certain Relationships." The
Founders have entered into a Voting Agreement dated as of March 18, 1999 (the
"Voting Agreement"), which provides, among other things, that each of them will
vote their shares in favor of the Merger Agreement and the transactions
contemplated thereby. See "The Voting Agreement." The executive officers of the
Company who are not Founders also intend to vote their shares (69,714 shares in
the aggregate or approximately [0.9]% of the outstanding shares of common stock
as of the Record Date) in favor of the Merger Agreement and the transactions
contemplated thereby. Although those members of the Board who are not Founders
currently own options to purchase shares of the Company's common stock, they do
not currently own shares of common stock of the Company. As a result of these
arrangements, the affirmative vote of an additional [1,703,012] shares is
required to satisfy the voting requirement.
Because Delaware law requires the Merger Agreement to be approved by the
affirmative vote of the holders of a majority of the voting power of the
outstanding shares of common stock, failure to return an executed proxy card or
to vote in person at the Special Meeting or abstaining from the vote will
constitute, in effect, a vote against approval of the Merger Agreement and the
transactions contemplated thereby for purposes of Delaware law. Similarly,
broker non-votes will have the same effect as a vote against approval of the
Merger Agreement and the transactions contemplated thereby.
15
<PAGE>
ACTION TO BE TAKEN AT THE SPECIAL MEETING
The enclosed proxy card is solicited on behalf of the Board. The giving of a
proxy does not preclude the right to vote in person should any stockholder
giving the proxy so desire. Stockholders have an unconditional right to revoke
their proxy at any time prior to its exercise, either by filing with the
Company's Secretary at the Company's principal executive offices a written
revocation or a duly executed proxy bearing a later date or by voting in person
at the Special Meeting. Attendance at the Special Meeting without casting a
ballot will not, by itself, constitute revocation of a proxy. Any written notice
revoking a proxy should be sent to American Stock Transfer & Trust, Inc., 938
Quail Street, Lakewood, Colorado 80215.
All shares of common stock represented at the Special Meeting by properly
executed proxies received prior to or at the Special Meeting, unless previously
revoked, will be voted at the Special Meeting in accordance with the
instructions on the proxies. Unless contrary instructions are indicated, proxies
will be voted "FOR" the approval of the Merger Agreement and the transactions
contemplated thereby. As explained below in the section entitled "Dissenters'
Rights of Appraisal," a vote in favor of the Merger Agreement means that the
stockholder owning those shares will not have the right to dissent and seek
appraisal of the fair value of such stockholder's shares. The Company does not
know of any matters, other than as described in the Notice of Special Meeting of
Stockholders, which are to come before the Special Meeting. If any other matters
are properly presented at the Special Meeting for action, including, among other
things, consideration of a motion to adjourn such meeting to another time and/or
place (including, without limitation, for the purpose of soliciting additional
proxies or allowing additional time for the satisfaction of conditions to the
Merger), the persons named in the enclosed proxy card and acting thereunder
generally will have discretion to vote on such matters in accordance with their
best judgment. Notwithstanding the foregoing, the persons named in the enclosed
proxy card will not use their discretionary authority to use proxies voting
against the Merger to vote in favor of adjournment or postponement of the
Special Meeting. The Merger is also subject to a number of additional
conditions. See "The Merger Agreement--Conditions."
PROXY SOLICITATION
The cost of preparing, assembling and mailing this proxy statement, the
Notice of Special Meeting of Stockholders and the enclosed proxy card will be
borne by the Company. The Company is requesting that banks, brokers and other
custodians, nominees and fiduciaries forward copies of the proxy material to
their principals and request authority for the execution of proxies. The Company
may reimburse such persons for their expenses in so doing. In addition to the
solicitation of proxies by mail, the directors, officers and employees of the
Company and its subsidiaries may, without receiving any additional compensation,
solicit proxies by telephone, telefax, telegram or in person.
No person is authorized to give any information or make any representation
not contained in this proxy statement, and if given or made, such information or
representation should not be relied upon as having been authorized.
COMPANY STOCKHOLDERS SHOULD NOT SEND ANY CERTIFICATES REPRESENTING SHARES OF
COMMON STOCK WITH THEIR PROXY CARD. IF THE MERGER IS CONSUMMATED, THE PROCEDURE
FOR THE EXCHANGE OF CERTIFICATES REPRESENTING SHARES OF COMMON STOCK WILL BE AS
SET FORTH IN THIS PROXY STATEMENT. SEE "THE MERGER AGREEMENT--THE EXCHANGE FUND;
PAYMENT FOR SHARES OF COMMON STOCK" AND "THE MERGER AGREEMENT--TRANSFERS OF
COMMON STOCK."
16
<PAGE>
THE PARTIES
THE COMPANY
The Company was incorporated in April 1994 and as of April 10, 1999 operated
24 brewery restaurants and 39 Old Chicago-Registered Trademark- restaurants in
17 states and the District of Columbia. The Company's brewery restaurants
operate under the names Rock Bottom Restaurant & Brewery( SM) (19 restaurants),
Walnut Brewery (two restaurants) and ChopHouse & Brewery (three restaurants).
All of the Company's restaurants are casual dining restaurants that feature high
quality, moderately priced food and a distinctive selection of microbrewed and
specialty beers. Two of the Company's brewery restaurants also operate Sing Sing
nightclubs, which emphasize comedy shows performed by dueling pianists.
For additional information concerning the Company, see "Where You Can Find
More Information" and "Available Information."
RB CAPITAL
RB Capital was incorporated in Delaware on November 30, 1998 by Mr. Day in
connection with the proposed Merger. RB Capital has not been engaged in any
business activities other than those in connection with the Merger. The
principal office and business address of RB Capital is c/o Mr. Frank B. Day,
President, 1227 Spruce Street, Boulder, Colorado 80302. The telephone number of
RB Capital is (303) 443-8424.
RBR ACQUISITION
RBR Acquisition was incorporated in Delaware on March 18, 1999 by the
Founders in connection with the proposed Merger. RBR Acquisition has not been
engaged in any business activities other than those in connection with the
Merger. The principal office and business address of RBR Acquisition is c/o Mr.
Frank B. Day, President, 1227 Spruce Street, Boulder, Colorado 80302. The
telephone number of RBR Acquisition is (303) 443-8424.
SPECIAL FACTORS
BACKGROUND OF THE MERGER
During the summer of 1997, the Company determined to explore strategic
alternatives to enhance stockholder value. The Company engaged U.S. Bancorp
Piper Jaffray (then known as Piper Jaffray Inc.) to advise the Company in
connection with its evaluation of strategic alternatives. U.S. Bancorp Piper
Jaffray had previously advised the Company in connection with, among other
things, its initial public offering in July 1994 and its secondary equity
offering in February 1995. During the late summer and fall of 1997, in
connection with its evaluation of strategic alternatives, the Company authorized
U.S. Bancorp Piper Jaffray to contact third parties on the Company's behalf to
solicit their interest with respect to a merger or other business combination
with or acquisition of the Company and, under certain circumstances (including
the execution of appropriate confidentiality agreements), to provide certain
non-public information to interested parties.
Over the course of several months, U.S. Bancorp Piper Jaffray contacted
forty-one such parties. Of the parties U.S. Bancorp Piper Jaffray contacted, six
submitted written indications of interest to the Company. Each of these six
parties (together with an additional party which had submitted an oral
indication of interest) were invited to meet with the Company's management to
conduct further due diligence on the Company. Four of the seven parties
submitted firm offers to the Company in October 1997. Three of the firm offers
were structured as all-cash tender offer or merger transactions (including one
offer to purchase only the Company's brewery concept for cash) and the remaining
firm offer was structured as a stock-for-stock merger.
17
<PAGE>
In October 1997, the Company determined to engage the party proposing the
stock-for-stock merger in the negotiation of a definitive agreement.
Negotiations were, however, terminated with the potential acquiror in December
1997 due to, among other factors, a decline in the Company's performance during
the fourth quarter of 1997 and a material decrease in the stock price of the
potential acquiror resulting in a decrease in the offering price in the proposed
stock-for-stock transaction. Following such termination, the Board concluded, in
light of the circumstances at the time, that it was in the best interests of the
Company's stockholders to focus on operating the business of the Company rather
than continuing to consider a sale of the Company.
In May 1998, Cracken, Harkey, Street & Hartnett, L.L.C. ("CHSH"), a third
party which was not involved in the strategic alternative review process in 1997
informally contacted the Company regarding an indication of interest in the
Company. CHSH was informed that the Company was not interested in a business
combination at that time.
In November 1998, Mr. Day informed the Board that he and Messrs. Greenlee,
Wong and Lux were in the preliminary stages of exploring the feasibility of
acquiring the Company at a price "around $8.00 per share." The Board, following
consultation with the Company's outside legal counsel, Davis, Graham & Stubbs
LLP ("Davis Graham"), unanimously determined that, in view of possible conflicts
of interest in connection with any affiliate-led proposal, it was advisable to
form a special committee of the Board comprised of disinterested directors. At a
meeting of the Board on November 24, 1998, the Board resolved to form the
Special Committee, consisting of Messrs. Cocroft and Hornbeck and Ms. Hacking,
for the purpose of evaluating and negotiating the terms of any potential
acquisition proposal from Messrs. Day, Greenlee, Wong and/or Lux or any entity
organized by any of them and any related matters.
At the November 24, 1998 meeting of the Board, Mr. Day indicated to the
newly-constituted Special Committee that RB Capital expected to engage Davis
Graham to represent the affiliated group in connection with any potential
acquisition proposal and to engage BancBoston Robertson Stephens Inc.
("BancBoston Robertson Stephens") as independent financial advisor to the
affiliated group in connection with an analysis of the feasibility of a
transaction with the Company. Following the November 24, 1998 Board meeting and
pursuant to the authority of the Board granted at that meeting, the members of
the Special Committee engaged in discussions regarding the retention of an
investment bank and law firm as its financial and legal advisors. The Special
Committee determined to explore with U.S. Bancorp Piper Jaffray the possibility
of engaging U.S. Bancorp Piper Jaffray as financial advisor to the Special
Committee, based upon its familiarity and expertise with the restaurant industry
generally, and with the Company and its potential acquirors (based on the 1997
alternative strategic review process).
In late November 1998, the Special Committee preliminarily determined to
retain Latham & Watkins as its legal advisor.
The Special Committee met telephonically on December 23, 1998 (the "December
23 Meeting"). Latham & Watkins participated in the December 23 Meeting to review
with the Special Committee its fiduciary duties and other responsibilities under
applicable law. The Special Committee ratified the engagements of U.S. Bancorp
Piper Jaffray as its financial advisor and Latham & Watkins as its legal
counsel. In reaching its decision, the Special Committee reviewed the nature and
extent of the advisory services previously furnished by U.S. Bancorp Piper
Jaffray to the Company and concluded that those prior engagements, coupled with
the representations of principals of U.S. Bancorp Piper Jaffray that there was
no material relationship between U.S. Bancorp Piper Jaffray and Mr. Day or any
entity controlled by Mr. Day, would not impair the ability of U.S. Bancorp Piper
Jaffray to independently advise the Special Committee. At the December 23
Meeting, the Special Committee also considered a request from Mr. Day that the
Company agree to reimburse all expenses incurred in evaluating and making an
acquisition proposal for the Company, including financing commitment fees which
would be
18
<PAGE>
incurred to facilitate a transaction. The Special Committee deferred any
decision on the possible reimbursement of expenses until such time as a proposal
was made by Mr. Day and/or the affiliated group and until, among other things,
further information on the estimated fees and expenses to be incurred was
provided to the Special Committee.
On January 11, 1999, each member of the Board received an unsolicited letter
from ConQuest Partners ("ConQuest") regarding an "initial indication of
interest" in acquiring all of the capital stock of the Company for
"approximately $10" per share (the "Initial ConQuest Proposal"), subject to
certain conditions and further due diligence. The Initial ConQuest Proposal
requested an exclusive opportunity to negotiate a transaction and noted that
ConQuest would not participate in an auction. Later on January 11, the Special
Committee met telephonically with its legal and financial advisors to discuss
the Initial ConQuest Proposal, after which discussion, the Special Committee
authorized U.S. Bancorp Piper Jaffray to contact ConQuest to obtain additional
information regarding ConQuest and the Initial ConQuest Proposal, including the
sources and status of its debt and equity financing and any additional
contingencies to its proposal.
On January 13, the Special Committee received a proposal from RB Capital to
acquire all of the equity interests in the Company, in either a cash merger or a
reverse stock split, at a price of $9.50 per share (the "Initial RB Capital
Proposal"). The Initial RB Capital Proposal requested that, for a period of 15
days, the Special Committee negotiate with RB Capital and the Company not agree
to sell the Company to any other party or solicit other offers for such a
transaction. The Initial RB Capital Proposal further requested reimbursement of
expenses, including financing commitment fees. In addition, through its counsel,
RB Capital requested non-disclosure of the Initial RB Capital Proposal as well
as an amount, which included the reimbursement of expenses requested in the
Initial RB Capital Proposal, equal to approximately 5% of the aggregate
transaction value in the event any transaction with RB Capital was subsequently
terminated. The Special Committee met telephonically with its legal and
financial advisors on January 14 to consider the Initial RB Capital Proposal and
to receive an update on the status of discussions with ConQuest. The Special
Committee requested advice from its legal and financial advisors regarding RB
Capital's requests. After discussing the issues involved, the Special Committee
determined that it was not prepared to accept the negotiation terms proposed by
RB Capital, particularly in light of the fact that another proposal was pending.
The Special Committee further decided that it needed to receive additional
information from RB Capital regarding, among other things, its planned capital
structure and financing for the transaction and a more detailed analysis of the
Company from U.S. Bancorp Piper Jaffray, in order to fully consider the other
issues raised by the Initial RB Capital Proposal. The Special Committee directed
U.S. Bancorp Piper Jaffray to contact ConQuest and RB Capital and its financial
advisor, BancBoston Robertson Stephens, to obtain additional information on the
Initial ConQuest Proposal and the Initial RB Capital Proposal, respectively.
During the week of January 18, the Special Committee's advisors updated the
Special Committee on the status of the Initial ConQuest Proposal and the Initial
RB Capital Proposal and on certain discussions with ConQuest and RB Capital and
its advisors. With respect to ConQuest, U.S. Bancorp Piper Jaffray informed the
Special Committee that it had received a due diligence request from ConQuest.
Following discussions of the matter, the Special Committee directed U.S. Bancorp
Piper Jaffray to procure an executed confidentiality agreement prior to
furnishing any information to ConQuest. With respect to RB Capital, U.S. Bancorp
Piper Jaffray and Latham & Watkins reported on discussions with BancBoston
Robertson Stephens and Davis Graham, respectively, in which each of RB Capital's
advisors had indicated a willingness on the part of RB Capital to increase the
price of its offer in exchange for certain considerations, including the
Company's agreement (1) to reimburse RB Capital's expenses upon the signing of a
definitive agreement; (2) to provide RB Capital a "meaningful" level of expense
reimbursement and "break-up" or termination fees upon termination of any
definitive agreement between the parties; and (3) to permit RB Capital an
exclusive period within
19
<PAGE>
which to negotiate with the Special Committee. Based on the advice of its
advisors, the Special Committee directed U.S. Bancorp Piper Jaffray to continue
discussions with each bidder and determined to defer the discussion of RB
Capital's exclusivity request until such time as the Special Committee had
received a financial analysis of the Company from U.S. Bancorp Piper Jaffray,
which had been scheduled for January 22, 1999.
On January 22, the Special Committee met in Chicago, Illinois with its legal
and financial advisors (the "January 22 Meeting"). At the January 22 Meeting,
U.S. Bancorp Piper Jaffray reviewed the recent events surrounding the Company,
including the 1997 exploration of strategic alternatives and the recent receipt
of acquisition proposals from ConQuest and RB Capital. The Special Committee and
U.S. Bancorp Piper Jaffray discussed the background of the Company since its
initial public offering, its recent financial performance and the casual dining
restaurant industry and market as a whole. U.S. Bancorp Piper Jaffray outlined
for the Special Committee certain factors affecting the Company's financial and
market position and presented preliminary information to the Special Committee.
U.S. Bancorp Piper Jaffray provided a preliminary financial evaluation of the
Company including analyses substantially similar to those used by U.S. Bancorp
Piper Jaffray in the preparation of its fairness opinion delivered on March 18.
See "--Opinion of Financial Advisor to the Special Committee." Following U.S.
Bancorp Piper Jaffray's presentation and questions to and discussions with U.S.
Bancorp Piper Jaffray, the Special Committee discussed with its advisors issues
relating to pursuing the offers received from ConQuest and RB Capital on
parallel paths. The Special Committee directed U.S. Bancorp Piper Jaffray to
continue discussions with ConQuest and to provide all diligence materials
requested by ConQuest immediately upon receiving an executed confidentiality
agreement. In addition, the Special Committee authorized its financial advisor
to contact BancBoston Robertson Stephens to solicit an increase in the price of
the Initial RB Capital Proposal.
On January 25, the Special Committee met telephonically with its legal and
financial advisors to discuss the status of negotiations with each of RB Capital
and ConQuest following the January 22 Meeting. U.S. Bancorp Piper Jaffray
reported to the Special Committee that RB Capital had offered to increase its
purchase price to $10.00 per share in exchange for increased termination fees
and expense reimbursement of approximately 3% of the aggregate transaction
value. The Special Committee rejected RB Capital's revised proposal, but, after
discussions with U.S. Bancorp Piper Jaffray and Latham & Watkins about the
nature of expense reimbursement and termination fees and the implication of such
reimbursement and fees on future bidders for, and their bids to acquire, the
Company, authorized U.S. Bancorp Piper Jaffray to advise RB Capital that the
Special Committee would consider an expense reimbursement of up to $1.5 million
and a termination fee of equal to $750,000 if RB Capital were to increase its
bid to greater than $10.00 per share.
Later in the evening on January 25, the Company received an unsolicited
proposal from CHSH, the third party that had previously contacted the Company
regarding an indication of interest in the Company in May 1998, to acquire 100%
of the capital stock of the Company for $9.25 per share, subject to certain
conditions (the "CHSH Proposal"). CHSH also publicly announced on January 26
that it was interested in acquiring the Company, but did not disclose its
proposed acquisition price.
The Special Committee met in the afternoon of January 26 with its legal and
financial advisors to discuss the CHSH Proposal and other matters. Prior to
discussing the CHSH Proposal, U.S. Bancorp Piper Jaffray reported that
BancBoston Robertson Stephens had indicated that RB Capital might be willing to
increase its proposal to $10.25 per share in exchange for aggregate expense
reimbursement and termination fees equal to 3% of aggregate transaction value
(approximately $3.16 million). In light of the circumstances, including the
receipt of the CHSH Proposal and its public disclosure, the Special Committee
instructed its counsel to prepare a press release announcing the pendency of all
three proposals to be issued prior to the opening of the market on January 27
and to contact Davis Graham to advise it of the planned issuance of the release.
In addition, the Special Committee authorized U.S. Bancorp Piper Jaffray to
solicit firm offers from, and to circulate a draft of a definitive merger
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agreement prepared by Latham & Watkins to, each of CHSH, ConQuest and RB
Capital. On January 27, the Company issued a press release announcing the
receipt of the Initial RB Capital Proposal, the Initial ConQuest Proposal and
the CHSH Proposal and the formation of the Special Committee to evaluate the
proposals it had received to date and any other expressions of interest received
by the Company. ConQuest also issued a press release on January 27 announcing
the Initial ConQuest Proposal and stating its "initial valuation" of the Company
at $10.00 per share.
On February 2, 1999, a lawsuit captioned ANDREW WOHLMAN V. FRANK B. DAY;
DUNCAN H. COCROFT; ROBERT D. GREENLEE; MARY C. HACKING; GERALD A. HORNBECK;
DAVID M. LUX; ARTHUR WONG; AND ROCK BOTTOM RESTAURANTS, INC., Case No. 99CV0639
(the "Stockholder Litigation") was filed in the Colorado District Court for the
City and County of Denver. The Stockholder Litigation alleged, among other
things, a breach of fiduciary duty on the part of the named director-defendants
in connection with the "proposed acquisition of the outstanding shares of Rock
Bottom common stock by its principal shareholder, to the exclusion of other bona
fide bidders" and sought to enjoin such actions as well as unspecified monetary
damages. In connection with the Stockholder Litigation, the Special Committee
and the Company retained Latham & Watkins as its counsel and Messrs. Day,
Greenlee, Wong and Lux retained Davis Graham as their counsel. See "Certain
Litigation."
The Special Committee met several times during the period from January 27
through February 7 to discuss the status of the three proposals, to review
drafts of a merger agreement prepared by Latham & Watkins and to consider
developments in the process. A letter from U.S. Bancorp Piper Jaffray was
distributed to each of ConQuest, CHSH and RB Capital on January 29, together
with a draft merger agreement for comment by such parties, requesting that firm
offers be submitted to U.S. Bancorp Piper Jaffray in writing no later than
February 10. On February 3 and 5, Davis Graham provided comments upon and
negotiated with counsel to the Special Committee the principal terms of the
draft merger agreement distributed on January 29. Among other issues, at the
outset of and throughout these negotiations, Latham & Watkins and Davis Graham
negotiated (1) the circumstances under which the agreement could be terminated
and under which the payment of a termination fee and/or the reimbursement of
expenses was appropriate; (2) the scope of the representations and warranties of
the Company and the nature of the qualifications thereto; (3) the treatment of
Company stock options and restricted stock grants; (4) the terms of a voting
agreement between RB Capital and its affiliates and the Company; and (5) the
extent of the ability of the Company, the Special Committee and its
representatives to pursue, respond to and accept third party acquisition
proposals.
On February 10, the Company received proposal letters from each of RB
Capital (the "Revised RB Capital Proposal") and ConQuest (the "Revised ConQuest
Proposal"), and a letter from counsel to ConQuest outlining general comments to
the draft merger agreement. CHSH declined the Special Committee's invitation to
conduct due diligence or to submit a firm offer, requesting that the Special
Committee contact it when and if a transaction at $9.25 was competitive. The
Special Committee met on February 11 (the "February 11 Meeting") to discuss the
Revised ConQuest Proposal and the Revised RB Capital Proposal and the comments
of ConQuest and RB Capital to the draft merger agreement. U.S. Bancorp Piper
Jaffray outlined for the Special Committee the material financial differences in
the proposals made by the two parties. Based on this presentation, the Special
Committee directed U.S. Bancorp Piper Jaffray to contact ConQuest to confirm the
price of the Revised ConQuest Proposal (which was not stated in such proposal)
and to request access to ConQuest's lenders to determine the feasibility of
ConQuest's financing structure. With respect to the Revised RB Capital Proposal,
U.S. Bancorp Piper Jaffray noted at the February 11 Meeting that the Revised RB
Capital Proposal offered a price of $10.00 per share and that draft commitment
letters for senior financing from BankBoston, N.A. ("BankBoston"), for the
placement of subordinated debt from BancBoston Robertson Stephens and for the
contribution of cash equity and shares of Company common stock from each of
Messrs. Day, Greenlee and Wong were included with the Revised RB Capital
Proposal. U.S. Bancorp Piper Jaffray advised the Special Committee that the
Revised RB
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Capital Proposal appeared to be financially more viable than the Revised
ConQuest Proposal based on the failure of ConQuest to provide the Special
Committee or U.S. Bancorp Piper Jaffray with meaningful information concerning
its ability to secure equity or debt capital to finance its proposal. U.S.
Bancorp Piper Jaffray also informed the Special Committee that, in its
discussions with BancBoston Robertson Stephens, BancBoston Robertson Stephens
had indicated that RB Capital would consider increasing its price to $10.25 per
share, conditioned upon an aggregate of $3.16 million in expense reimbursement
and termination fees. U.S. Bancorp Piper Jaffray also reported at the February
11 Meeting that it had received a telephone call from another party indicating a
preliminary interest in the Company and that, at the request of U.S. Bancorp
Piper Jaffray, such party would be providing U.S. Bancorp Piper Jaffray with
additional information concerning its financial capabilities. At the conclusion
of the February 11 Meeting, the Special Committee authorized its advisors to
make the ConQuest inquiries described above, to continue to negotiate the
economic terms of the Revised RB Capital Proposal and the terms of a related
definitive agreement and to ascertain the level of interest of the new
interested party. The Special Committee deferred its decision on RB Capital's
proposal for increased aggregate expense reimbursement and termination fees
until additional information was obtained from ConQuest and certain issues in
the draft merger agreement were resolved.
At a telephonic meeting on February 15, U.S. Bancorp Piper Jaffray updated
the Special Committee on conversations with ConQuest which clarified that
ConQuest was offering $10.00 per share and with BancBoston Robertson Stephens
which indicated that RB Capital would offer $10.25 per share conditioned on
aggregate expense reimbursement and termination fees in an amount no less than
$3.16 million, and that this was the maximum price RB Capital would offer. In
addition, U.S. Bancorp Piper Jaffray reported the results of its due diligence
call with ConQuest and its lenders concerning the viability of the financing
structure of the Revised ConQuest Proposal. ConQuest's proposed senior debt
financing source indicated to U.S. Bancorp Piper Jaffray that it could not
provide the senior debt financing contemplated by the Revised ConQuest proposal.
The Special Committee was also advised that the party that had initially
expressed an indication of interest on February 11 had not yet contacted U.S.
Bancorp Piper Jaffray with the information requested of it.
On February 17, 1999, the Special Committee's advisors and counsel to the
plaintiffs in the Stockholder Litigation engaged in discussions with respect to
the Special Committee's process in evaluating and responding to acquisition
proposals and the preliminary financial evaluation concerning the Company
presented by U.S. Bancorp Piper Jaffray to the Special Committee on January 22,
1999. Plaintiff's counsel and an expert hired by plaintiffs' counsel had
previously been provided with copies of materials provided by U.S. Bancorp Piper
Jaffray to the Special Committee on January 22, 1999.
On February 17, the Special Committee met to receive reports on the status
of the discussions with each of the bidders. The Special Committee received an
update from counsel on the status of negotiations with Davis Graham with respect
to the draft merger agreement, including the status of negotiations with respect
to the non-solicitation, termination rights and expense reimbursement and
termination fees provisions in the merger agreement. After considering the
matter and consultation with U.S. Bancorp Piper Jaffray and Latham & Watkins,
the Special Committee determined that it would be willing to increase its
proposal on expense reimbursement and termination fees to $1.75 million of
expense reimbursement and $1.4 million as a termination fee in certain
circumstances, and to grant certain of the requested provisions in the draft
merger agreement, in consideration of a firm price of $10.25 per share. The
Special Committee further concluded, with the advice of its advisors, that U.S.
Bancorp Piper Jaffray should contact ConQuest and CHSH prior to February 19 to
determine whether they had made further progress on their respective proposals.
On February 19, the Special Committee met in Denver, Colorado (the "February
19 Meeting"). At the February 19 Meeting, U.S. Bancorp Piper Jaffray summarized
its discussions and contacts with
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ConQuest, CHSH and the party that had contacted U.S. Bancorp Piper Jaffray on
February 11. U.S. Bancorp Piper Jaffray reported:
- ConQuest had not distinguished its proposal on price or on the basis of
its financing structure, which was not sufficient to support its offer;
- CHSH had consistently stated that it would not increase its bid above
$9.25 per share and had declined an invitation to conduct due diligence
and submit a firm offer; and
- U.S. Bancorp Piper Jaffray had engaged in discussions with the party that
had initially expressed an indication of interest on February 11 and
reported that, based on such discussions, such party had given no
indication it was prepared to move forward with a meaningful proposal.
U.S. Bancorp Piper Jaffray further indicated that it had not received any other
inquiries. U.S. Bancorp Piper Jaffray and Latham & Watkins informed the Special
Committee that they had each reviewed revised drafts of the commitment letter
for senior debt furnished by RB Capital and were generally satisfied with the
form and substance of the commitment. U.S. Bancorp Piper Jaffray indicated that
revised commitments for the subordinated debt and equity were to be forthcoming
from BancBoston Robertson Stephens. Latham & Watkins reviewed with the Special
Committee the status of negotiations with Davis Graham, and the open issues,
which principally involved the non-solicitation and termination provisions of
the merger agreement and the merger agreement provisions relating to expense
reimbursement and termination fees.
At the February 19 Meeting, U.S. Bancorp Piper Jaffray provided a detailed
financial evaluation of the $10.25 RB Capital proposal and of the Company. The
analyses used by U.S. Bancorp Piper Jaffray in preparing the financial
evaluation were substantially similar to those used to prepare its fairness
opinion on March 18. Following presentation of its financial evaluation, U.S.
Bancorp Piper Jaffray addressed inquiries from the Special Committee regarding
RB Capital's request for an increased termination fee. The Special Committee
concluded, after such consultation with U.S. Bancorp Piper Jaffray and Latham &
Watkins, that the $3.16 million in aggregate expense reimbursement and
termination fees would not be preclusive of other potential acquirors. After
extensive discussions with and questions to its advisors, the Special Committee
authorized its advisors to finalize RB Capital's $10.25 per share purchase price
proposal and to offer RB Capital a $200,000 increase to the $1.4 million
termination fee previously considered by the Special Committee, provided that
the additional $200,000 would only be payable to the extent of any unutilized
expense reimbursement.
Later in the day on February 19, prior to being notified of the decision of
the Special Committee, Davis Graham informed Latham & Watkins and BancBoston
Robertson Stephens concurrently informed U.S. Bancorp Piper Jaffray that RB
Capital was withdrawing its $10.25 per share proposal in light of its concerns
regarding recent developments in the Company's financial and operating
performance and the amount and terms of financing to support such offer.
Specifically, RB Capital was concerned over the Company's revenues and earnings
in January and February, 1999 and the preliminary projections of financial
results for the first quarter. Upon receipt of this information, the Special
Committee promptly withdrew its proposals on the draft merger agreement,
including that with respect to expense reimbursement and a termination fee, and
directed U.S. Bancorp Piper Jaffray and Latham & Watkins to obtain additional
information with respect to the Company's financial results and the reasons for
the withdrawal of RB Capital's $10.25 per share proposal.
During the week of February 22, 1999, the Special Committee met to receive
reports from its advisors with respect to the status of the RB Capital proposal.
U.S. Bancorp Piper Jaffray reported that RB Capital had requested a period of
time to reevaluate the economics of its proposal given the Company's results of
operations from the first two months of 1999 and the revised projections being
generated by the Company, and that BancBoston Robertson Stephens accordingly
requested additional
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time to revise its analysis of the Company. U.S. Bancorp Piper Jaffray indicated
to the Special Committee that it had contacted and was working with the
Company's management to obtain the Company's revised projections based on the
Company remaining public and reflecting the Company's recent operating
performance and to evaluate the first quarter financial results.
On February 27, the Special Committee convened by telephone (the "February
27 Meeting") and the Chairman of the Special Committee reported on a series of
discussions with Mr. Day in which Mr. Day indicated that the first quarter
results adversely impacted RB Capital's proposal. The Special Committee was
informed by Mr. Cocroft and U.S. Bancorp Piper Jaffray that they had been
informed that BancBoston Robertson Stephens and RB Capital were close to
submitting a revised proposal, which was likely to reduce RB Capital's proposal
from $10.25 to $10.00 per share. U.S. Bancorp Piper Jaffray also reported that
it had received another inquiry from, on behalf of a client of, an investment
bank on February 25 and that U.S. Bancorp Piper Jaffray had requested additional
information from such investment bank with regard to the inquiry, which
additional information was never received. U.S. Bancorp Piper Jaffray also
indicated, at the February 27 Meeting, that it was awaiting revised projections
from the Company as the Company was still finalizing its compilation of the
financial results of January and February, 1999. In addition, the Special
Committee and its advisors considered the status of ConQuest and CHSH in light
of the recent developments with respect to the RB Capital proposed transaction,
and the Special Committee instructed U.S. Bancorp Piper Jaffray to provide the
Company's revised 1999 projections to ConQuest and CHSH promptly upon receiving
them from the Company, and to reassess their interest in and capabilities for a
transaction.
The Special Committee met telephonically on March 1, 1999 to further discuss
its response to a potential decrease in offering price by RB Capital. The
Special Committee directed U.S. Bancorp Piper Jaffray to prepare a review of the
Company's financial results for the first two months of 1999.
On March 5, 1999, at a telephonic meeting of the Special Committee, U.S.
Bancorp Piper Jaffray advised the Special Committee that RB Capital and its
advisors were prepared to proceed with a transaction at $10.00 per share. Also
on March 5, 1999, U.S. Bancorp Piper Jaffray reported to the Special Committee
that it had been informed by CHSH that, in light of the recent announcement of a
business combination involving a subsidiary of CHSH and a third party, the
post-closing combined entity might have a renewed interest in the Company. No
price, however, was specified by CHSH. The Special Committee authorized U.S.
Bancorp Piper Jaffray to contact CHSH to obtain further information,
specifically with respect to the price the combined company would be willing to
pay for the Company and the timing of the pending transaction.
During the period from February 20, 1999 through March 10, 1999, U.S.
Bancorp Piper Jaffray engaged in discussions with the Company and BancBoston
Robertson Stephens with respect to the financial condition of the Company and
the status of the Company's revised projections. The revised projections, which
were delivered by the Company in preliminary form to U.S. Bancorp Piper Jaffray
on March 10, 1999, included revised first quarter 1999, fiscal year 1999 and
five-year projections. The Company revised its first quarter 1999 and fiscal
year 1999 projections based on actual performance in January and February. The
Company believed the revised projections were more indicative of the Company's
future performance, especially as to the Company's projected short term
financial results and its continuation as a publicly traded Company.
At a telephonic meeting held on the evening of March 10, 1999 (the "March 10
Meeting"), U.S. Bancorp Piper Jaffray reviewed with the Special Committee, the
Company's adverse financial results for January and February, 1999 and presented
the revised projections described above. U.S. Bancorp Piper Jaffray advised the
Special Committee that the revised projections reflected decreases in overall
brewery sales as a result of decreased same-store sales and delayed new store
openings in January and February, 1999. Sales of liquor as a percentage of
overall sales and sales of beer as a percentage of liquor sales had also
decreased at the Company's brewery restaurants for this
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period. Additionally, in January and February, 1999, the Company experienced
increases in cost of sales and cost of labor, each as a percentage of revenues.
The combination of these factors led to overall declines in operating income and
EBITDA for January and February, 1999 from initial projections. U.S. Bancorp
Piper Jaffray also discussed the revised first quarter and fiscal year 1999
projections. The Special Committee and U.S. Bancorp Piper Jaffray then discussed
the reasons for such results, including bad weather conditions, and the impact
of these factors on the Company and a proposed transaction with the Company.
U.S. Bancorp Piper Jaffray also informed the Special Committee at the March
10 Meeting that the proposed transaction involving CHSH and a third party
announced on March 5 had been terminated and that CHSH had indicated to U.S.
Bancorp Piper Jaffray that, as a result, CHSH had not modified its original
proposal to acquire the Company for no more than $9.25 per share and was again
not interested in participating in the sale process until its proposal was
competitive. Additionally, U.S. Bancorp Piper Jaffray indicated that the revised
1999 Company projections would be distributed to ConQuest. Neither the Special
Committee nor U.S. Bancorp Piper Jaffray received any response from ConQuest
after delivery of such revised projections. After questions of and discussions
with U.S. Bancorp Piper Jaffray, the Special Committee authorized its advisors
to renew negotiations with RB Capital.
The Special Committee met during the week of March 14 to discuss the status
of negotiations with RB Capital on price and the terms of the draft merger
agreement. The Special Committee proposed expense reimbursement of up to $1.5
million and a termination fee of $750,000 to RB Capital and, in response, RB
Capital indicated that it was still seeking its previous proposal ($3.16 million
in aggregate expense reimbursement and termination fees) based on an expected
increase in fees and expenses to be incurred by RB Capital in connection with
the transaction. The Special Committee rejected RB Capital's proposal, but
authorized U.S. Bancorp Piper Jaffray to obtain a revised estimate of RB
Capital's expenses. After discussions with members of the Special Committee,
Latham & Watkins proposed to Davis Graham and U.S. Bancorp Piper Jaffray
proposed to BancBoston Robertson Stephens that the Special Committee would be
prepared to offer expense reimbursement of $1.5 million and a termination fee of
$1 million.
On March 18, the Special Committee met via telephone conference (the "March
18 Meeting") and reviewed with counsel a draft of the merger agreement in
substantially final form other than the provisions on expense reimbursement and
termination fees. Counsel reported to the Special Committee that it had proposed
to Davis Graham and that Davis Graham had agreed to a $1.75 million limit on
expense reimbursement and $1.0 million as a termination fee, provided that RB
Capital would have the ability to apply up to $250,000 of unreimbursed expenses
as an additional termination fee and up to $500,000 of unearned termination fees
as additional expense reimbursement under certain circumstances. At the March 18
Meeting, U.S. Bancorp Piper Jaffray provided a detailed financial evaluation of
the Company and the pending RB Capital proposal to the Special Committee and
advised the Special Committee that, in its opinion, as of that date, the $10.00
price was fair, from a financial point of view, to the stockholders of the
Company other than RB Capital, RBR Acquisition or their affiliates. A discussion
with and questions to U.S. Bancorp Piper Jaffray by the Special Committee
followed U.S. Bancorp Piper Jaffray's fairness presentation. The Special
Committee then concluded, after also considering the Company's prospects of
increasing shareholder value as a public company in light of, among other
things, the Company's stock price performance and restaurant industry stock
performance generally, that in the circumstances then existing, the $10.00 per
share offer was, for stockholders other than RB Capital, RBR Acquisition or
their affiliates, preferable to continuing to hold shares in the public company.
The Special Committee then unanimously determined to approve the Merger
Agreement and declare that the Merger Agreement was advisable and fair to and in
the best interests of the stockholders of the Company other than RB Capital, RBR
Acquisition and their affiliates, and approved resolutions recommending that the
Board approve the Merger Agreement and
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cause the Company to execute and deliver the Merger Agreement and the Voting
Agreement. Following the March 18 Meeting of the Special Committee, the entire
Board met telephonically. U.S. Bancorp Piper Jaffray was present at the Board
meeting, presented a summary of its report and responded to questions from the
members of the Board as to the bases for its opinion as to fairness of the
Merger Consideration. After considering the matters presented to the Board, the
Board unanimously resolved to approve the Merger Agreement. Subsequent to the
Board meeting, on March 18, 1999, the Company, RB Capital and RBR Acquisition
entered into the Merger Agreement and the Voting Agreement.
The Company issued a press release on the morning of March 19, 1999
announcing the execution of the Merger Agreement.
RECOMMENDATION OF THE SPECIAL COMMITTEE AND BOARD OF DIRECTORS; FAIRNESS OF THE
MERGER
On March 18, 1999, the Special Committee approved the Merger Agreement,
determined that the Merger and the terms and provisions of the Merger Agreement
are fair to and in the best interests of the Company's stockholders (other than
RB Capital, RBR Acquisition and their affiliates), and unanimously recommended
to the entire Board that it, among other things, approve and declare advisable
the Merger Agreement.
At a meeting of the Board held immediately following the Special Committee's
meeting on March 18, 1999, at which all directors of the Company were present,
the Board considered the recommendations of the Special Committee. The Board
unanimously concluded that the terms and provisions of the Merger Agreement are
advisable and fair to and in the best interests of the Company's stockholders
(other than RB Capital, RBR Acquisition and their affiliates), approved the
Merger Agreement, declared the Merger Agreement advisable and recommended that
the stockholders approve the Merger Agreement and the transactions contemplated
thereby.
SPECIAL COMMITTEE
In approving, and recommending that the entire Board approve, the Merger
Agreement, and in declaring, and recommending that the entire Board declare, the
Merger Agreement advisable and the transactions contemplated thereby to be fair
to and in the best interests of the Company's stockholders, the Special
Committee considered the following factors, each of which, in the opinion of the
Special Committee, supported its determination.
- LIMITATIONS AS A PUBLIC COMPANY. The Special Committee considered the fact
that the Company's limited trading volume, institutional sponsorship and
public float, small market capitalization, and diminishing research
attention from market analysts, had adversely affected the trading markets
for, and the value of, the Company's common stock. In addition, the
Company's stock price performance since the Company's secondary offering
in 1995 had been erratic. The Special Committee also considered the fact
that restaurant stocks had underperformed major indices over the past four
years. In recent years, the Company's failure to demonstrate consistent
profitability, revenue growth and maintain restaurant development and
expansion highlighted the Company's inability to generate and sustain the
rate of rapid growth generally expected by the public equity markets for
small capitalization casual dining restaurant companies. The Special
Committee also considered its discussions with U.S. Bancorp Piper Jaffray
with respect to these market and trading considerations. The Special
Committee concluded that in the circumstances then existing, the $10.00
per share cash consideration to be received by stockholders other than RB
Capital, RBR Acquisition and their affiliates pursuant to the Merger
Agreement was preferable to continuing to hold shares in the public
company. Accordingly, the Special Committee concluded that stockholder
value was not likely to be maximized were the Company to remain a public
company.
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- FINANCIAL PERFORMANCE AND FUTURE PROSPECTS. The Special Committee
considered the inconsistent results of operations, slowed earnings growth
of the Company over a period of several years and the Company's related
results of operations in the months of January and February 1999. The
Special Committee also considered the impact that these factors had and
could have on the value of the Company's shares.
- OPINION OF U.S. BANCORP PIPER JAFFRAY. The Special Committee received the
financial presentation of U.S. Bancorp Piper Jaffray and U.S. Bancorp
Piper Jaffray's oral opinion delivered at the March 18, 1999 meeting of
the Special Committee (which was subsequently confirmed in writing) to the
effect that, as of the date of its opinion and based upon and subject to
the matters stated in its opinion, the $10.00 per share Merger
Consideration to be received by the Company's stockholders in the Merger
was fair to the Company's stockholders (other than RB Capital, RBR
Acquisition and their affiliates) from a financial point of view. THE FULL
TEXT OF U.S. BANCORP PIPER JAFFRAY'S WRITTEN OPINION, WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN BY U.S. BANCORP PIPER JAFFRAY, IS ATTACHED AS ANNEX B TO THIS
PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS ARE
URGED TO, AND SHOULD, READ THE OPINION OF U.S. BANCORP PIPER JAFFRAY
CAREFULLY. In addition, the presentation of and the factors considered by
U.S. Bancorp Piper Jaffray in its fairness opinion as discussed under
"Special Factors--Opinion of Financial Advisor to the Special Committee"
supported the Special Committee's determination.
- MARKET PRICE AND PREMIUM. The Special Committee considered that (1) the
$10.00 per share to be received by the Company's stockholders in the
Merger exceeded by $2.44 the highest price per share of the common stock
as quoted by Nasdaq for the 12 months prior to January 26, 1999 and (2)
the Merger Consideration represented a 50.8% premium to the closing sale
price of the shares of common stock on January 25, 1999, the day prior to
the public announcement by a third party of its indication of interest in
the Company, a 63.7% premium to the stock price for the period between
January 1, 1998 and January 26, 1999 and a 68.6% of premium to the average
closing sale price for the six months prior to January 26, 1999.
- NEGOTIATIONS WITH RB CAPITAL. The Special Committee considered the history
of negotiations with respect to the Merger Agreement and the transactions
contemplated thereby as the product of arm's-length negotiations between
RB Capital and the Special Committee which, among other things, led to:
- an increase in RB Capital's offer from "around $8.00" per share in
December 1998 to the $10.00 per share to be received by the Company's
stockholders in the Merger, combined with the Special Committee's
belief that $10.00 per share was the highest price that RB Capital
would offer;
- a decrease in the aggregate and individual maximum amounts of the
termination or "break up" fees and expense reimbursement being
requested by RB Capital from approximately $4.6 million in the
aggregate to $1 million as a termination fee (plus, under certain
circumstances, an additional amount of unutilized expenses
reimbursement not to exceed $250,000) and $1.75 million in expense
reimbursement (plus, under certain circumstances, an additional amount
not to exceed $500,000), which in no event would aggregate to greater
than $2.75 million; and
- provisions providing that the Company may, under certain circumstances,
engage in discussions or negotiations with, and furnish information or
access to, third parties who submit a written acquisition proposal for
a transaction, together with the ability of the
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Company to terminate the Merger Agreement in order to permit the
Company to enter into such a transaction.
See "Special Factors--Background of the Merger" and "The Merger
Agreement."
- FINANCING COMMITMENTS. The Special Committee considered (1) the commitment
letters received by RB Capital from BankBoston and BancBoston Robertson
Stephens to arrange, fund and administer certain of the financing for the
Merger; (2) the commitment letters from Messrs. Day, Greenlee, Wong and
Lux for their contributions of common stock and/or cash to the equity of
RB Capital; and (3) the status of negotiations with respect to certain
ancillary sale-leaseback transactions, the proceeds of which will be used
to reduce the Company's debt, which is a condition to the financing. The
Special Committee and its advisors reviewed the terms and conditions of,
and were satisfied with, such commitment letters and such negotiations.
- COMPARISON TO OTHER PROPOSALS. The Special Committee, together with its
advisors, evaluated the viability of the indications of interest received
by the Special Committee during its process and the relative strength of
the RB Capital proposal when compared to all other proposals and concluded
that the RB Capital proposal was stronger than each of the other proposals
in substantially all respects, and specifically in the amount and
specificity of the purchase price being offered, the viability and
certainty of the financing structure and the Company's ability to
negotiate representations and warranties, covenants, conditions and other
provisions in the Merger Agreement which are more favorable to the
Company's stockholders than those which would have been available in a
transaction with an unaffiliated third party. Accordingly, the Special
Committee believed that it was not likely that any party other than RB
Capital and the Founders would propose and complete a transaction on terms
more favorable to the Company's stockholders than the Merger.
- OTHER POTENTIAL BUYERS. The Special Committee believed that the length of
time between the public announcement of indications of interest in the
Company and the date of the Merger Agreement provided a substantial amount
of time within which to gauge the current level of interest in the Company
and to permit potential buyers to come forward. The Special Committee also
believed, based on discussions with U.S. Bancorp Piper Jaffray, that the
prospects for a transaction between the Company and potential unaffiliated
strategic or financial third party buyers were limited due to the
Company's multi-concept structure, that it would be difficult to attain
value through the divestiture of Company assets and that there were
limitations on the ability of a financial buyer to finance a leveraged
buyout of the Company at a price materially above the prices considered
during the course of negotiations with interested parties. In addition,
the members of the Special Committee considered their experience as
directors in connection with the Company's exploration of strategic
alternatives in late 1997 and the limited results of that process. The
Special Committee also considered the provisions of the Merger Agreement
which legally and practically permit the Company to meaningfully respond
to third party proposals for alternative transactions. In specific, the
terms of the Merger Agreement authorize the Company under certain
circumstances to (1) engage in negotiations with third parties who submit
in writing an acquisition proposal for a transaction which, among other
things, the Special Committee determines in good faith is as or more
likely to occur than the Merger and would be more favorable to the
stockholders of the Company and (2) terminate the Merger Agreement in
order to permit the Company to enter into such a transaction. See
"--Negotiations with RB Capital" and "The Merger Agreement--Acquisition
Proposals."
- SPECIAL COMMITTEE COMPOSITION AND RETENTION OF ADVISORS. The Special
Committee considered that it was composed of disinterested directors, none
of whom were employed by or affiliated with the Company (except in their
capacities as directors) or would have any equity interest in the
Surviving Corporation, RB Capital or RBR Acquisition. The Special
Committee also
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<PAGE>
considered that it had retained and was advised by its own legal counsel
and its own financial advisor who negotiated on behalf of the Special
Committee, assisted the Special Committee in evaluating proposed
transactions and provided the Special Committee with financial and legal
advice.
- REGULATORY APPROVALS. The Special Committee considered that there are
relatively few regulatory approvals required to consummate the Merger, and
the favorable prospects for receiving those approvals.
- AVAILABILITY OF DISSENTERS' RIGHTS. The Special Committee considered that
dissenters' rights of appraisal will be available to the holders of common
stock under Delaware law.
- LOSS OF EQUITY INTEREST. The Special Committee considered the fact that if
the Merger Agreement is approved, the holders of the common stock will not
participate in the future growth of the Company. Because of the risks and
uncertainties associated with the Company's future prospects, the Special
Committee concluded that the Merger was preferable to enabling the holders
of such stock to have a speculative potential future return.
BOARD OF DIRECTORS OF THE COMPANY
In reaching its determination referred to above, the Board considered and
relied upon the Special Committee's conclusions, recommendations, unanimous
approval of the Merger Agreement, declaration of the Merger Agreement's
advisability and U.S. Bancorp Piper Jaffray's opinion (which opinion expressly
permitted reliance thereon by the entire Board) that, as of the date of such
opinion, based upon and subject to various considerations, assumptions and
limitations stated therein, the $10.00 per share in cash to be received by the
Company's stockholders in the Merger was fair to such stockholders (other than
RB Capital, RBR Acquisition and their affiliates) from a financial point of
view, and the related analyses presented by U.S. Bancorp Piper Jaffray.
THE BOARD BELIEVES THAT THE MERGER IS ADVISABLE AND IS FAIR TO AND IN THE
BEST INTERESTS OF THE COMPANY AND THE HOLDERS OF COMMON STOCK (OTHER THAN RB
CAPITAL, RB ACQUISITION AND THEIR AFFILIATES) AND, BASED UPON THE UNANIMOUS
RECOMMENDATION OF THE SPECIAL COMMITTEE, RECOMMENDS APPROVAL OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY TO THE COMPANY'S
STOCKHOLDERS.
OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE
The Special Committee retained U.S. Bancorp Piper Jaffray to act as the
Special Committee's financial advisor in connection with certain proposals,
including the proposal of RB Capital, to acquire the Company or any other
business combination or extraordinary disposition of assets or stock of the
Company. U.S. Bancorp Piper Jaffray was selected by the Special Committee based
on U.S. Bancorp Piper Jaffray's experience, expertise in the casual dining
restaurant industry and long-standing familiarity with the Company and its
businesses as the Company's financial advisor in connection with, among other
things, the Company's initial and secondary public offerings and its exploration
of strategic alternatives in 1997. U.S. Bancorp Piper Jaffray is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes.
At the meeting of the Special Committee held on March 18, 1999, U.S. Bancorp
Piper Jaffray rendered its oral opinion to the Special Committee that, as of
such date, based on and subject to the assumptions, factors and limitations set
forth in the opinion and as described below, the consideration proposed to be
paid to the unaffiliated stockholders of the Company in the merger pursuant to
the merger agreement was fair, from a financial point of view, to such
stockholders. For purposes of this
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<PAGE>
opinion, unaffiliated stockholders means stockholders of the Company other than
RB Capital or persons affiliated with RB Capital. Such opinion was subsequently
confirmed in writing and is dated March 18, 1999. Except as set forth below, no
limitations were imposed by the Special Committee upon U.S. Bancorp Piper
Jaffray with respect to the investigations made or procedures followed by it in
rendering its opinion.
While U.S. Bancorp Piper Jaffray acted as financial advisor, participated in
negotiations on behalf of and provided financial analyses and a fairness opinion
to the Special Committee, U.S. Bancorp Piper Jaffray was not requested and did
not make any recommendation to the Special Committee as to the form or amount of
the consideration to be received by the unaffiliated stockholders of the Company
in the Merger, which was determined through negotiations between the parties to
the Merger. The opinion was rendered to the Special Committee and does not
constitute a recommendation to any stockholder of the Company as to how such
stockholder should vote with respect to the Merger. The opinion does not address
the Company's underlying business decision to proceed with or effect the Merger.
In arriving at its opinion, U.S. Bancorp Piper Jaffray reviewed:
- the Merger Agreement;
- publicly available financial, operating and business information related
to the Company;
- internal historical interim and forecasted financial information of the
Company furnished by the Company management;
- publicly available securities and market data related to the Company;
- to the extent publicly available, financial terms of selected acquisition
transactions;
- financial and securities data of public companies deemed comparable to the
Company;
- internal forecasted financial information of the Company furnished by the
Company; management and adjusted to give effect to operation as a private
company following the merger; and
- unsolicited indications of interest from persons other than RB Capital.
In addition, U.S. Bancorp Piper Jaffray engaged in discussions with members of
the Special Committee and management of the Company concerning the financial
condition, current operating results and business outlook of the Company and
plans and business outlook for the Company following the merger.
THE FULL TEXT OF THE WRITTEN OPINION OF U.S. BANCORP PIPER JAFFRAY DATED
MARCH 18, 1999, WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITS ON THE REVIEW UNDERTAKEN, IS ATTACHED AS ANNEX B TO THIS PROXY STATEMENT
AND IS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS OF THE COMPANY ARE URGED
TO READ THE OPINION IN ITS ENTIRETY. U.S. BANCORP PIPER JAFFRAY'S WRITTEN
OPINION IS ADDRESSED TO THE SPECIAL COMMITTEE (BUT EXPRESSLY PERMITS RELIANCE
THEREON BY THE ENTIRE BOARD), IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL
POINT OF VIEW, OF THE CONSIDERATION TO BE PAID PURSUANT TO THE MERGER AGREEMENT
AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF THE COMPANY AS TO
HOW SUCH STOCKHOLDER SHOULD VOTE AT THE SPECIAL MEETING. THE OPINION DOES NOT
ADDRESS THE COMPANY'S UNDERLYING BUSINESS DECISION TO PROCEED WITH OR EFFECT THE
MERGER. THE SUMMARY OF THE OPINION OF U.S. BANCORP PIPER JAFFRAY SET FORTH IN
THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION.
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<PAGE>
In delivering the opinion to the Special Committee on March 18, 1999, U.S.
Bancorp Piper Jaffray prepared and delivered to the Special Committee certain
written materials containing various analyses material to the opinion. The
following is a summary of these analyses:
PROPOSED CONSIDERATION
Giving effect to the proposed merger consideration of $10 per share and
outstanding common stock and options of the Company, U.S. Bancorp Piper Jaffray
calculated the implied aggregate equity value of the Company to be approximately
$82.9 million and the implied aggregate enterprise or company value (equity
value plus debt less cash as of December 27, 1998) to be approximately $106.4
million.
MARKET ANALYSIS
U.S. Bancorp Piper Jaffray reviewed market and stock trading information
concerning the Company. U.S. Bancorp Piper Jaffray presented the following stock
price data for the Company common stock for specified periods to and after
announcement of an indication of interest on January 26, 1999 relative to a
possible business combination:
<TABLE>
<S> <C>
Closing stock price as of 3/12/99........................... $8.50
Closing stock price as of 1/25/99........................... $6.63
30, 60, 90 and 180 trading day average as of 1/25/99........ $5.66-$5.93
Market capitalization (based on 3/12/99 close).............. $68.5 million
Market capitalization (based on 1/25/99 close).............. $53.4 million
12-month high and low stock price (as of 1/25/99)........... $4.63-$7.56
6-month high and low stock price (as of 1/25/99)............ $4.63-$7.13
3-month high and low stock price (as of 1/25/99)............ $5.13-$7.13
Volume weighted average stock price (1/1/98-1/25/99)........ $6.11
Volume weighted average stock price (7/22/94-1/25/99)....... $13.24
</TABLE>
U.S. Bancorp Piper Jaffray also presented a comparison of weekly price
performance of the Company common stock relative to various indices and the
comparable group described below.
COMPARABLE COMPANY ANALYSIS
U.S. Bancorp Piper Jaffray compared financial information relating to the
Company to corresponding data and ratios from a group of 12 selected publicly
traded companies deemed comparable to the Company. The comparable companies
included Avado Brands, Inc., Cooker Restaurant, Darden Restaurants, Inc., Famous
Dave's America, Inc., Il Fornaio America Corp., Landry's Seafood Restaurants,
Lone Star Steakhouse Saloon, Rainforest Cafe Inc., Rare Hospitality
International, Roadhouse Grill, Taco Cabana and Uno Restaurant Corp. U.S.
Bancorp Piper Jaffray characterized this group as comparable restaurant chains
with performance issues, including missed earnings estimates, declining same
store sales, and low or negative margins.
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<PAGE>
U.S. Bancorp Piper Jaffray presented the following implied value and
valuation multiple data for the Company and the comparable companies:
<TABLE>
<CAPTION>
COMPANY IMPLIED
VALUE PER SHARE
BASED ON COMPARABLE
GROUP MULTIPLE COMPARABLE COMPANIES
-------------------- --------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MEAN MEDIAN MINIMUM MEAN MEDIAN MAXIMUM
--------- --------- ------------- --------- ----------- -----------
P/E Ratios:
Calendar 1999 Estimated(1)......................... $ 7.75 $ 7.93 8.2x 13.0x 13.0x 22.9x
Calendar 2000 Estimated(1)......................... $ 10.27 $ 10.51 7.1x 10.2x 10.5x 13.0x
Company Value/Revenue.............................. $ 9.13 $ 8.09 0.4x 0.6x 0.6x 1.1x
Company Value/Operating Income..................... $ 6.21 $ 4.85 4.3x 8.5x 7.2x 16.3x
Company Value/EBITDA............................... $ 7.75 $ 6.53 2.9x 5.0x 4.4x 10.1x
</TABLE>
- ------------------------
(1) Based on internal Company management forecasts and publicly available
analyst estimates.
COMPARABLE TRANSACTION ANALYSIS
U.S. Bancorp Piper Jaffray reviewed recent merger and acquisition
transactions for which information was publicly available involving two groups
of announced restaurant company transactions since January 1, 1997:
- 23 transactions involving restaurant chains experiencing performance
issues as described above under "Comparable Company Analysis"
- 9 "going private" restaurant transactions involving business combinations
where parties affiliated with the target acquired or sought to acquire 50%
or more of the target's equity
U.S. Bancorp Piper Jaffray calculated the following implied value and
valuation multiple data for the underperforming restaurant comparable
transactions group:
<TABLE>
<CAPTION>
COMPANY IMPLIED
VALUE PER SHARE
BASED ON COMPARABLE
TRANSACTION
MULTIPLES MERGER COMPARABLE TRANSACTION MULTIPLE
-------------------- CONSIDERATION ------------------------------------------------
MEAN MEDIAN MULTIPLE MINIMUM MEAN MEDIAN MAXIMUM
--------- --------- --------------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Company Value/Revenue................. $ 10.45 $ 8.87 .67x .24x .69x .60x 1.35x
Company Value/EBITDA.................. $ 10.22 $ 10.16 6.2x 4.2x 6.3x 6.3x 8.8x
Company Value/EBIT.................... $ 10.58 $ 7.96 12.4x 7.0x 13.0x 10.2x 35.5x
Equity Value/Operating Net
Income(1)........................... $ 10.38 $ 8.50 19.1x 13.0x 19.8x 15.9x 38.2x
Equity Value/Reported Net Income(1)... $ 9.57 $ 7.84 20.9x 13.0x 19.8x 15.9x 38.2x
</TABLE>
- ------------------------
(1) "Operating Net Income" is publicly reported net income adjusted to eliminate
one time gains and losses, restructuring charges, discontinued operations or
accounting changes. For purposes of determining the Company implied value
per share based on the multiple of equity value to reported net income, U.S.
Bancorp Piper Jaffray used the same multiples as it derived for the equity
value to operating net income analysis.
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<PAGE>
U.S. Bancorp Piper Jaffray calculated the following implied value and
valuation multiple data for the going private comparable transaction group:
<TABLE>
<CAPTION>
COMPANY IMPLIED
VALUE PER SHARE
BASED ON COMPARABLE
TRANSACTION
MULTIPLES MERGER COMPARABLE TRANSACTION MULTIPLE
-------------------- CONSIDERATION ------------------------------------------------
MEAN MEDIAN MULTIPLE MINIMUM MEAN MEDIAN MAXIMUM
--------- --------- --------------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Company Value/Revenue................. $ 10.48 $ 11.03 .67x .29x .69x .72x 1.35x
Company Value/EBITDA.................. $ 10.23 $ 9.60 6.2x 5.0x 6.3x 6.0x 8.2x
Company Value/EBIT.................... $ 10.82 $ 9.80 12.4x 8.1x 13.2x 12.2x 22.2x
Equity Value/Operating Net Income..... $ 10.92 $ 8.64 19.1x 14.7x 20.9x 16.2x 38.2x
Equity Value/Reported Net Income...... $ 10.05 $ 7.97 20.9x 14.7x 20.9x 16.2x 38.2x
</TABLE>
PREMIUMS PAID ANALYSIS
U.S. Bancorp Piper Jaffray analyzed the implied premium or discount paid or
proposed to be paid in acquisitions relative to recent public market
pre-announcement trading prices for two groups of announced transactions since
January 1, 1997:
- 27 restaurant sector acquisitions involving $15 million or more in equity
value
- 57 "going private" transactions involving $30 to $300 million in equity
value and resulting ownership by the acquiror or proposed acquiror of
greater than 80% of the target
U.S. Bancorp Piper Jaffray calculated a one-day, one-week and one-month
implied premium based upon the $10.00 per share offer price as a percentage of
the Company's closing stock price on the corresponding date prior to public
announcement of a third party indication of interest on January 26, 1999. U.S.
Bancorp Piper Jaffray also calculated an implied value per share for the Company
based on the mean and median percentage premium of the applicable transaction
groups.
<TABLE>
<CAPTION>
RESTAURANT SECTOR TRANSACTION
IMPLIED IMPLIED VALUE IMPLIED VALUE GROUP
PREMIUM IN BASED ON BASED ON IMPLIED PREMIUM (DISCOUNT)
MERGER MEAN MEDIAN --------------------------------
BASED ON $10 PERCENTAGE PERCENTAGE MINIMUM MEAN MEDIAN MAXIMUM
------------ ------------- ------------- ------- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 month prior to announcement...... 86.0% $7.34 $6.61 (9.0)% 36.5% 22.9% 176.2%
1 week prior to announcement....... 66.7% $7.85 $7.05 (35.5)% 30.9% 17.5% 169.8%
1 day prior to announcement........ 50.9% $8.29 $7.70 (33.3)% 25.2% 16.2% 132.0%
</TABLE>
<TABLE>
<CAPTION>
IMPLIED IMPLIED VALUE IMPLIED VALUE GOING PRIVATE TRANSACTION GROUP
PREMIUM IN BASED ON BASED ON IMPLIED PREMIUM (DISCOUNT)
MERGER MEAN MEDIAN --------------------------------
BASED ON $10 PERCENTAGE PERCENTAGE MINIMUM MEAN MEDIAN MAXIMUM
------------ ------------- ------------- ------- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
1 month prior to announcement...... 86.0% $6.73 $6.62 (29.8)% 25.3% 23.1% 80.3%
1 week prior to announcement....... 66.7% $7.32 $7.15 (44.1)% 22.0% 19.1% 103.2%
1 day prior to announcement........ 50.9% $7.98 $7.81 (43.3)% 20.4% 17.9% 88.2%
</TABLE>
33
<PAGE>
DISCOUNTED CASH FLOW ANALYSES
Using discounted cash flow analysis, U.S. Bancorp Piper Jaffray estimated
the present value of the projected cash flows of the Company as a public company
using the projections prepared by the Company in March 1999. See "--Certain
Projections". U.S. Bancorp Piper Jaffray applied a range of terminal value
multiples of projected operating income of 9.0x to 11.0x and a range of discount
rates of 20.0% to 24.0%, based on weighted average cost of capital computations,
qualitative assessments of the projections and relevant industry experience.
This analysis yielded a range of estimated present values of the Company equity
of approximately $66.409 million to $100.853 million, or $8.16 to $11.99 per
fully diluted common share, with a midpoint of $82.5 million in aggregate and
$9.95 per share.
U.S. Bancorp Piper Jaffray also used discounted cash flow analyses to
estimate the present value of the Company as a private company following the
Merger. U.S. Bancorp Piper Jaffray modified the projections referenced above
based on information concerning the Company as a private company furnished by
the Company. These modifications include principally a slower pace of new store
openings, decreased capital expenditures and decreased general and
administrative expenses. U.S. Bancorp Piper Jaffray applied a range of terminal
value multiples of projected operating income of 8.0x to 10x and a range of
discount rates of 18% to 22%. This analysis yielded a range of estimated present
values of the Company equity of approximately $67.270 million to $102.341
million, or $8.26 to $12.16 per share, with a midpoint of $83.632 million in
aggregate and $10.08 per share.
LBO ANALYSIS
U.S. Bancorp Piper Jaffray analyzed the feasibility of a leveraged buyout at
the $10.00 merger consideration by estimating the investment returns for sources
of equity and debt and comparing those to expected industry returns. For
purposes of this analysis, U.S. Bancorp Piper Jaffray utilized the private
company projections for the Company described under "Discounted Cash Flow
Analyses" and the anticipated capital structure of the Company as a private
company. U.S. Bancorp Piper Jaffray noted that based on this analysis of the
$10.00 merger consideration, estimated investment returns to debt and equity
investors in RB Capital would be within a range of expected industry returns.
In reaching its conclusion as to the fairness of the merger consideration
and in its presentation to the Special Committee, U.S. Bancorp Piper Jaffray did
not rely on any single analysis or factor described above, assign relative
weights to the analyses or factors considered by it, or make any conclusion as
to how the results of any given analysis, taken alone, supported its opinion.
The preparation of a fairness opinion is a complex process and not necessarily
susceptible to partial analysis or summary description. U.S. Bancorp Piper
Jaffray believes that its analyses must be considered as a whole and that
selection of portions of its analysis and of the factors considered by it,
without considering all of the factors and analyses, would create a misleading
view of the processes underlying the opinion.
The analyses of U.S. Bancorp Piper Jaffray are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by the analyses. Analyses relating to the value of
companies do not purport to be appraisals or valuations or necessarily reflect
the price at which companies may actually be sold. No company or transaction
used in any analysis for purposes of comparison is identical to the Company or
the merger. Accordingly, an analysis of the results of the comparisons is not
mathematical; rather, it involves complex considerations and judgments about
differences in the companies to which the Company was compared and other factors
that could affect the public trading value of the companies.
For purposes of its opinion, U.S. Bancorp Piper Jaffray relied upon and
assumed the accuracy, completeness and fairness of the financial statements and
other information provided to it by the Company or otherwise made available to
U.S. Bancorp Piper Jaffray and did not assume responsibility for the independent
verification of such information. U.S. Bancorp Piper Jaffray relied upon the
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<PAGE>
assurances of the management of the Company that (1) the information provided to
it by the Company was prepared on a reasonable basis, (2) the financial planning
data and other business outlook information reflects the best currently
available estimates of management, (3) management was not aware of any
information or facts that would make the information provided to U.S. Bancorp
Piper Jaffray incomplete or misleading and (4) there were no material changes in
the Company's assets, financial condition, results of operations, business or
prospects since the date of the last financial statements or information made
available to U.S. Bancorp Piper Jaffray.
In arriving at its opinion, U.S. Bancorp Piper Jaffray did not perform any
appraisals or valuations of any specific assets or liabilities of the Company,
and was not furnished with any such appraisals or valuations. U.S. Bancorp Piper
Jaffray analyzed the Company as a going concern and accordingly expressed no
opinion as to its liquidation value. U.S. Bancorp Piper Jaffray expressed no
opinion as to the price at which shares of the Company common stock have traded
or at which these shares may trade at any future time. The opinion is based on
information available to U.S. Bancorp Piper Jaffray and the facts and
circumstances as they existed and were subject to evaluation on the date of the
opinion. Events occurring after that date could materially affect the
assumptions used in preparing the opinion.
Although U.S. Bancorp Piper Jaffray was authorized to evaluate, respond to
and negotiate with respect to the indications of interest in a business
combination announced by the Company on January 27, 1999, U.S. Bancorp Piper
Jaffray was not engaged or authorized to solicit, and it did not solicit, any
other business combination transaction or strategic alternative transaction to
the merger.
U.S. Bancorp Piper Jaffray, as a customary part of its investment banking
business, evaluates businesses and their securities in connection with mergers
and acquisitions, underwritings and secondary distributions of securities,
private placements and valuations for estate, corporate and other purposes. The
Special Committee selected U.S. Bancorp Piper Jaffray because of its expertise,
reputation and familiarity with the Company and the restaurant industry in
general. U.S. Bancorp Piper Jaffray makes a market in the common stock of the
Company and provides research coverage on the Company. Since 1994, U.S. Bancorp
Piper Jaffray has provided investment banking services to the Company for which
it has received customary fees. In May 1997, the Company engaged U.S. Bancorp
Piper Jaffray to advise its Board of Directors concerning its evaluation of
strategic alternatives for the Company and in December 1997, the Company engaged
U.S. Bancorp Piper Jaffray to advise its Board of Directors regarding a
shareholder rights plan for the Company. The Company paid U.S. Bancorp Piper
Jaffray an aggregate of $40,000 in fees for these services. In the ordinary
course of business, U.S. Bancorp Piper Jaffray and its affiliates may actively
trade securities of the Company for their own accounts or the accounts of their
customers and, accordingly, may at any time hold a long or short position in
those securities.
The Special Committee and U.S. Bancorp Piper Jaffray are parties to a letter
agreement dated December 22, 1998 (the "Engagement Letter"). The Engagement
Letter provides that the Company, on behalf of the Special Committee, shall pay
U.S. Bancorp Piper Jaffray (1) a $50,000 retainer upon execution of the
Engagement Letter (which has been paid by the Company); (2) a fee of $250,000
upon the delivery of U.S. Bancorp Piper Jaffray's fairness opinion (which has
been paid by the Company); (3) a fee equal to 1.25% of the aggregate transaction
value of any transaction involving the acquisition of 50% or more of the
Company's assets or common stock which is consummated during the term of the
engagement or within 12 months thereafter (but not to exceed 18 months after the
date of the engagement letter) (less $125,000 if the Company has paid a fee
under (2) above); and (4) in the event a fee under (3) above is not payable and
if a transaction involving the acquisition of 15% or more of the Company's
assets or common stock is consummated during the term of the engagement or
within 12 months thereafter (but not to exceed 18 months after the date of the
engagement letter), a fee of $100,000. The contingent nature of the fees
described under (3) and (4) above may have created a potential conflict of
interest in that the Company would be unlikely to consummate the merger unless
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<PAGE>
the Special Committee had received the opinion. Pursuant to the terms of the
Engagement Letter, upon the consummation of the Merger, the Company will have
paid, or otherwise be obligated to pay, U.S. Bancorp Piper Jaffray an aggregate
fee of approximately $1,463,750. The Engagement Letter also provides that the
Company will reimburse U.S. Bancorp Piper Jaffray for its out-of-pocket expenses
and will indemnify U.S. Bancorp Piper Jaffray and its affiliates from and
against certain liabilities. These liabilities include liabilities under the
federal securities laws in connection with the engagement of U.S. Bancorp Piper
Jaffray by the Special Committee.
CERTAIN PROJECTIONS
The Company does not as a matter of course make public forecasts as to
future operations, but the Company did prepare certain projections in March 1999
which it provided to U.S. Bancorp Piper Jaffray in connection with their
analysis of the RB Capital proposal and the financial evaluation of the Company
at that time. The projections set forth below are included in this proxy
statement solely because such information was available to RB Capital, was
provided by the Company to U.S. Bancorp Piper Jaffray in March, 1999 and was
used in connection with U.S. Bancorp Piper Jaffray's March 18, 1999 fairness
opinion and related presentation to the Special Committee. See "Special
Factors-- Background of the Merger" and "Special Factors--Opinion of Financial
Advisor to the Special Committee."
THE PROJECTIONS SET FORTH BELOW WERE NOT PREPARED BY THE COMPANY WITH A VIEW
TO PUBLIC DISCLOSURE OR COMPLIANCE WITH PUBLISHED GUIDELINES OF THE SEC OR THE
AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING PROSPECTIVE
FINANCIAL INFORMATION, NOR WAS THE INFORMATION PREPARED WITH THE ASSISTANCE OF
OR REVIEWED, COMPILED OR EXAMINED BY, INDEPENDENT ACCOUNTANTS. THE PROJECTIONS
REFLECT NUMEROUS ASSUMPTIONS, ALL MADE BY MANAGEMENT OF THE COMPANY, WITH
RESPECT TO INDUSTRY PERFORMANCE, GENERAL BUSINESS, ECONOMIC, MARKET AND
FINANCIAL CONDITIONS AND OTHER MATTERS, ALL OF WHICH ARE DIFFICULT TO PREDICT
AND MANY OF WHICH ARE BEYOND THE COMPANY'S CONTROL. ACCORDINGLY, THERE CAN BE NO
ASSURANCE THAT THE ASSUMPTIONS MADE IN PREPARING THE PROJECTIONS SET FORTH BELOW
WILL PROVE ACCURATE, AND ACTUAL RESULTS MAY BE MATERIALLY GREATER OR LESS THAN
THOSE CONTAINED IN THE PROJECTIONS SET FORTH BELOW. THE INCLUSION OF THE
PROJECTIONS IN THIS PROXY STATEMENT SHOULD NOT BE REGARDED AS AN INDICATION THAT
THE COMPANY OR RB CAPITAL OR ANY OF THEIR RESPECTIVE FINANCIAL ADVISORS OR OTHER
REPRESENTATIVES, OR THEIR RESPECTIVE OFFICERS AND DIRECTORS, CONSIDER SUCH
INFORMATION TO BE ACCURATE, RELIABLE OR ACHIEVABLE, AND NONE OF SUCH PERSONS OR
ENTITIES ASSUMES ANY RESPONSIBILITY FOR THE VALIDITY, REASONABLENESS, ACCURACY
OR COMPLETION THEREOF.
<TABLE>
<CAPTION>
FISCAL YEARS ENDING
-----------------------------------------------------
1999 2000 2001 2002 2003
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C> <C>
Net Sales............................... $ 178,773 $ 207,482 $ 232,365 $ 265,882 $ 303,038
% NET SALES GROWTH.................... 11.7% 16.1% 12.0% 14.4% 14.0%
Cost of Sales........................... $ 44,550 $ 51,798 $ 58,091 $ 66,470 $ 75,759
--------- --------- --------- --------- ---------
Gross Profit............................ $ 134,223 $ 155,684 $ 174,274 $ 199,412 $ 227,279
GROSS MARGIN %........................ 75.1% 75.0% 75.0% 75.0% 75.0%
Operating Expenses...................... $ 111,862 $ 128,882 $ 144,390 $ 165,215 $ 188,904
General & Administrative Expenses....... $ 12,902 $ 12,608 $ 12,987 $ 13,376 $ 13,956
--------- --------- --------- --------- ---------
Operating Income........................ $ 9,459 $ 14,194 $ 16,897 $ 20,820 $ 24,419
OPERATING MARGIN %.................... 5.3% 6.8% 7.3% 7.8% 8.1%
Interest and Other Expense.............. $ 2,141 $ 1,511 $ 1,254 $ 1,016 $ 815
--------- --------- --------- --------- ---------
Income Before Income Taxes.............. $ 7,318 $ 12,682 $ 15,643 $ 19,805 $ 23,604
Provision for Income Taxes.............. $ (2,488) $ (4,312) $ (5,319) $ (6,734) $ (8,025)
--------- --------- --------- --------- ---------
Net Income.............................. $ 4,830 $ 8,370 $ 10,325 $ 13,071 $ 15,579
NET MARGIN %.......................... 2.7% 4.0% 4.4% 4.9% 5.1%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
36
<PAGE>
The following sets forth certain material assumptions used in the Company's
preparation of the foregoing projections and other relevant information:
(1) General & Administrative expenses include corporate D&A expenses and the
costs and expenses that would be incurred by the Company if the Merger
were not consummated and no break-up fee or expense reimbursement were
required.
(2) The projections assume the conversion and/or opening of: (i) 4
brewery/chophouse and 2 Old Chicago restaurants in the fiscal year ending
in 1999, (ii) 2 brewery/chophouse and 4 Old Chicago restaurants in the
fiscal year ending in 2000, (iii) 4 brewery/chophouse and 4 Old Chicago
restaurants in the fiscal year ending in 2001, (iv) 4 brewery/chophouse
and 5 Old Chicago restaurants in the fiscal year ending in 2002, and (v)
4 brewery/chophouse and 5 Old Chicago restaurants in the fiscal year
ending in 2003.
The Company also provided projections to U.S. Bancorp Piper Jaffray in
January 1999. However, in March 1999, the Company prepared revised first quarter
1999, fiscal year 1999 and five-year projections. The Company revised its first
quarter 1999 and fiscal year 1999 projections based on actual performance in
January and February. The Company believed the revised projections, which are
summarized above, were more indicative of the Company's future performance,
especially as to the Company's projected short term financial results and its
continuation as a publicly traded Company.
RB CAPITAL'S PURPOSE AND REASON FOR THE MERGER
The purpose of RB Capital and the Founders in proceeding with the Merger is
to acquire the entire equity interest of the Company in a leveraged transaction
providing fair value to the Company's unaffiliated shareholders. The Merger was
motivated largely by the continuing low valuation placed on the Company in the
public markets despite improved operating results during 1998.
The low public market valuation had led to pressure on Company management
from public stockholders to take actions to increase stockholder value. In
addition, it gave rise to concerns for the Founders that contributed to their
desire to undertake the Merger, including the difficulty in improving the
market's valuation of the Company and the negative effects of a low stock price
on the Company's stockholders. In addition, the low stock price, combined with
the failure of negotiations in the fall of 1997 to result in a sale or merger of
the Company, created an atmosphere for employees and management that was not
conducive to improvements in operations or long term success. The Founders, in
particular Mr. Day, believed that the Company was at a key juncture and, if
action was not taken to define the Company's future more clearly, employees
essential to successful operations and growth would begin to leave. As a
significant stockholder, Mr. Day considered alternatives based on enhancing the
value of the Company's common stock. Having resumed the position of Chief
Executive Officer in December 1997 and improving operations for 1998 without
significant improvement in the market price for the common stock, Mr. Day came
to believe that obtaining improved stock value would require seeking a sale of
the Company or consideration of a purchase of the Company by the Founders. In
evaluating these alternatives, Mr. Day took into consideration the 1997 sale
effort and the effect of recommending to the Board that the Company undertake an
effort to sell to a third party at this time, while evaluating the feasibility
of a purchase by the Founders. Upon concluding that a purchase by the Founders
was feasible, Mr. Day approached the Board and the Special Committee was
created. The Founders came to believe that they could better manage the
Company's future without the short-term focus of the public markets. As a
private company, the Company would be better positioned to manage the high risk
period of debt repayment, at the conclusion of which values could be enhanced,
and the Founders would be left in a better position to control the Company's
future with a view to increased opportunities for employees and shareholders
than exists in the current public market environment.
37
<PAGE>
The transactions contemplated by the Merger Agreement, however, will involve
a substantial risk to the Founders because of the large amount of indebtedness
to be incurred in connection with the consummation of the Merger. See "Special
Factors--Financing of the Merger."
The acquisition of the entire equity interest in the Company was structured
as a cash merger in order to accomplish the acquisition in a single step,
without the necessity of financing separate purchases of shares in a tender
offer or in open market purchases.
Each of the Founders and RB Capital has concluded that the Merger, including
the Merger Consideration of $10.00 per share in cash and the terms and
conditions of the Merger Agreement, are fair to the Company and the holders of
the common stock (other than RB Capital, RBR Acquisition and their affiliates)
based upon, among other things, the following factors:
- the conclusions and recommendations of the Special Committee and the
Board;
- the Special Committee, consisting of disinterested directors who are not
affiliated with RB Capital or the Founders, had unanimously approved the
Merger and recommended that stockholders approve and adopt the Merger
Agreement and the transactions contemplated thereby;
- the Merger Consideration and the other terms and conditions of the Merger
Agreement were the result of arm's-length, good faith negotiations
between the Special Committee and the Founders and their respective
advisors;
- U.S. Bancorp Piper Jaffray issued an opinion to the Special Committee to
the effect that, as of the date of such opinion, based upon and subject
to various considerations, assumptions and limitations stated therein,
the $10.00 per share in cash to be received in the Merger was fair to the
holders of common stock (other than RB Capital, RBR Acquisition or their
affiliates) from a financial point of view;
- the Company and two third-party bidders publicly disclosed eight weeks
before the Merger Agreement was signed that the Company was considering
acquisition proposals and, during such period, no entity proposed a
transaction resulting in an agreement at a price higher than that offered
by RB Capital;
- during the substantial period of time which would elapse between the
announcement of the execution of the Merger Agreement and the
consummation of the Merger following the Special Meeting to be held to
vote upon the Merger, there would be more than sufficient time and
opportunity for other persons to propose alternative transactions to the
Merger;
- the terms of the Merger Agreement authorize the Company under certain
circumstances to (1) engage in negotiations with, and provide access to
information about the Company to, third parties who submit in writing an
acquisition proposal for a transaction which, among other things, the
Special Committee determines is at least as likely to occur as the Merger
and would be more favorable to the stockholders of the Company than the
Merger and (2) terminate the Merger Agreement in order to permit the
Company to enter into such a transaction; and
- the other factors referred to above as having been taken into account by
the Special Committee, with which the Founders concur (see "Special
Factors--Recommendation of the Special Committee and Board of Directors;
Fairness of the Merger" and "Special Factors-- Opinion of Financial
Advisor to the Special Committee").
Although BancBoston Robertson Stephens Inc. generally assisted the Founders
in this transaction and, in particular, advised the Founders' on bidding and
negotiating strategies, participated in negotiations with the Special Committee
and its representatives, BancBoston Robertson Stephens Inc.
38
<PAGE>
was not requested to and did not deliver a fairness opinion as to the Merger
Consideration and did not provide the Founders with any reports, opinions or
appraisals.
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CERTAIN RELATIONSHIPS
In considering the recommendation of the Special Committee and the Board
with respect to the Merger, stockholders should be aware that certain members of
the Board and of the Company's management have interests that may present
actual, potential or the appearance of potential conflicts of interest in
connection with the Merger. The Special Committee and the Board were aware of
these potential or actual conflicts of interest and considered them along with
other matters described under "Special Factors--Recommendation of the Special
Committee and Board of Directors; Fairness of the Merger."
RETAINED EQUITY INTEREST
The Founders beneficially own an aggregate of 2,250,173 shares of common
stock, representing approximately [28.0%] of the total outstanding shares of
common stock. In addition, the Founders hold options to purchase an aggregate of
103,907 shares of common stock at exercise prices ranging from $6.10 to $7.00
per share.
The Founders will, prior to the Effective Time (as defined herein),
contribute to RB Capital the shares of common stock beneficially owned by them
(other than 50,000 shares owned by Mr. Lux which will be converted into the
right to receive the Merger Consideration at the Effective Time) and certain
cash amounts in consideration of the issuance of RB Capital stock. Without
giving effect to the equity issuances, if any, to employees of the Company upon
exchange of stock options described below, or to new investors as described
under "Financing of the Merger--Subordinated Credit Facility and Junior
Equity--Warrants" and "Junior Equity Securities," upon consummation of the
Merger, the Founders will collectively indirectly own 100% of the outstanding
common stock of the Surviving Corporation. Such ownership will arise from the
conversion, upon the consummation of the Merger, of all of the outstanding
shares of common stock of RBR Acquisition, a wholly owned subsidiary of RB
Capital, into all of the outstanding shares of common stock of the Surviving
Corporation. In addition, certain other officers, employees and stockholders of
the Company may, by agreement among RB Capital, such persons and the Company
prior to the effective time of the Merger, contribute some or all of their stock
options and/or restricted or other stock of the Company to RB Capital in
exchange for stock, stock options and/or restricted stock of RB Capital. As a
result of such agreements, these other officers, employees and stockholders of
the Company may own a portion of RB Capital. None of the members of the Special
Committee will contribute any shares of common stock or other equity interests
in the Company to RB Capital nor will any member of the Special Committee own
any interest in RB Capital or the Surviving Corporation following the effective
time of the Merger.
Except as otherwise set forth above, the Founders have not yet formulated
definitive plans regarding equity contributions, the treatment of stock options
and restricted stock held by the Founders and other officers or employees of the
Company, or certain other arrangements to be made among the current and future
stockholders of RB Capital. It is currently anticipated that such arrangements
would include an agreement among the Founders and future stockholders of RB
Capital regarding the management and control of the Surviving Corporation, the
creation of certain rights of first refusal concerning dispositions of the
shares of common stock of RB Capital, the creation of certain equity or
equity-based incentives for certain members of management, and related
stockholder arrangements.
DIRECTORS AND MANAGEMENT OF THE SURVIVING CORPORATION
The Merger Agreement provides that the current directors of RBR Acquisition
shall be the directors of the Surviving Corporation immediately after the
Merger. Messrs. Day and Wong are the
39
<PAGE>
current directors of RBR Acquisition and no determination has been made as to
whether additional persons will be invited to join the Board of Directors of the
Surviving Corporation following the Merger. The officers of the Company
immediately prior to the Effective Time of the Merger will be the officers of
the Surviving Corporation immediately after the Merger, except that RB Capital
has held discussions with various officers of the Company concerning changes in
titles and responsibilities, as well as termination without cause following the
Merger. None of such officers are Founders although they may become stockholders
of RB Capital.
The Merger Agreement provides that the Surviving Corporation will, for a
period of six years after the Effective Time, maintain all rights to
indemnification and limitations on liability in favor of such officers and
directors to the same extent and upon the terms and conditions provided in the
Company's and its subsidiaries' certificates of incorporation, bylaws and
indemnification agreements as in effect on the date of the Merger Agreement. The
Merger Agreement also provides that the Surviving Corporation will maintain its
existing (or appropriate substitute) policies of directors' and officers'
liability insurance and fiduciary liability insurance for a period of six years
after the Effective Time, subject to certain limitations. See "The Merger
Agreement--Covenants." The Merger Agreement also provides that, for a period of
at least one year following the Effective Time, RB Capital will cause the
Surviving Corporation to maintain employee benefit plans and arrangements (other
than equity incentive arrangements) which provide benefits substantially
comparable in aggregate value to the benefits provided by the Company as of
March 18, 1999.
MANAGEMENT EMPLOYMENT AGREEMENTS
Each of Mr. Hoppe and Ned R. Lidvall (each, an "Executive") is party to an
employment agreement (each, an "Employment Agreement") with the Company which
was entered into in July 1997 and amended in January 1998, providing generally
for the employment of the Executive by the Company on a year-to-year basis. The
Employment Agreements currently expire on June 30, 1999, which term will
automatically be extended through June 30, 2000 unless a notice of non-renewal
is provided by the Company or the Executive prior to April 30, 1999. Pursuant to
the Employment Agreements, the Executive's employment is terminable by the
Company without cause (other than as a result of a "Change of Control" or the
death or disability of the Executive) at any time upon 30 days prior written
notice to the Executive. Under such circumstances, the Executive will be
entitled to certain severance payments for a period of 12 months, and certain
other benefits for a period of 9 months, after the date of termination. Upon the
occurrence of a "Change of Control" and a subsequent termination of the
Executive without cause or a termination by the Executive for good reason as set
forth in the Employment Agreement, the Executive will be entitled to certain
severance payments and other benefits for a period of 18 months after the date
of termination. In the event Messrs. Hoppe and Lidvall were terminated following
a "Change of Control," the Company expects that severance payments payable to
each of Messrs. Hoppe and Lidvall under the Employment Agreement would equal
approximately $232,500. Stockholder approval of the Merger Agreement will
constitute a "Change of Control" for purposes of the Employment Agreements.
Any payment or benefit received by an Executive in connection with a change
in control of the Company or the termination of the Executive's employment will
be reduced to the extent that such payment would not be deductible by the
Company pursuant to Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code").
RESTRICTED STOCK
Messrs. Day, Hoppe and Lidvall currently hold an aggregate of 75,974 shares
of restricted stock of the Company granted under the Company's Equity Incentive
Plan, as amended. In addition, a total of 23,000 shares of restricted stock
granted to William R. Edmiston (a former employee and officer of the Company),
prior to the termination of his employment on January 15, 1999, continue to vest
as
40
<PAGE>
provided in the grant agreements with respect to such shares until July 15,
1999. Except for 11,500 shares of restricted stock held by each of Messrs.
Hoppe, Lidvall and Edmiston, the agreements granting shares of restricted stock
to such persons provide that upon a "Change of Control," the restrictions on
such shares lapse. The Merger Agreement provides that all shares of restricted
stock, including the aggregate of 34,500 shares held by Messrs. Hoppe, Lidvall
and Edmiston as to which the restrictions applicable to such shares do not lapse
upon a "Change of Control," will be converted into the Merger Consideration at
the Effective Time, unless otherwise agreed in writing by the Company, such
persons and RB Capital prior to the such time, although the individuals' right
to the Merger Consideration vests in 2006 when the applicable restrictions would
otherwise lapse. Under the terms of the Equity Contribution Letter, as defined
herein, between Mr. Day and RB Capital, Mr. Day has agreed to contribute his
shares of restricted stock (10,499 shares) to RB Capital and as a result will
not receive Merger Consideration for such shares. RB Capital has not yet
formulated definitive plans with respect to whether it will enter into any such
agreement with any of Messrs. Hoppe, Lidvall or Edmiston. In the event any
agreement is reached, any or all of the 34,500 shares of restricted stock
outstanding as to which the restrictions thereon do not lapse upon a "Change of
Control" may be converted at the Effective Time into shares of restricted stock
or other equity securities of or stock options in RB Capital. For purposes of
the restricted stock grant agreements, stockholder approval of the Merger
Agreement will constitute a "Change of Control."
AFFILIATED LEASES
The Company leases the Old Chicago restaurant in Fort Collins, Colorado from
C. B. Partnership, a partnership that is 50% owned by 141 College Partnership.
Messrs. Wong and Day own 12% and 10%, respectively, of 141 College Partnership.
The lease term was renewed in June 1997 and will expire in May 2012. The annual
base rent for 1998 was $97,400 and increases $2,400 annually. The Company pays
additional rent based on the excess of 6% of gross sales over base rent, if any.
The Company subleases the Old Chicago restaurant on Tejon Street, Colorado
Springs, Colorado from Old Chicago Colorado Springs Limited Partnership, a
partnership owned by Messrs. Day, Wong and Lux. The restaurant sublease, which
was renewed effective April 1, 1995 and amended effective September 1, 1997,
expires in March 2005. Annual base rent for years one through four under the
sublease, as amended, was $147,600 and increased to $158,352 for years five
through ten. On January 1, 1999, the Company executed a second amendment to the
lease that extended the lease term to March 2010 and increased the total square
footage subject to such lease. Pursuant to this amendment, annual base rent
increases approximately $100 per month through March 2005. Annual base rent for
the last five years of the lease increases to approximately $178,800. The
Company pays additional rent based on the excess of 6% of gross sales over base
rent, if any.
The Company leases the Old Chicago restaurant on Commerce Center Drive in
Colorado Springs, Colorado from Lux/Day Northport Ltd., a partnership that is
94% owned by Messrs. Day and Lux. The lease term commenced in 1986, terminates
in 2006 and provides for a monthly payment of $11,000 or 6% of sales, whichever
is higher.
The Company leases the Old Chicago restaurant in Bettendorf, Iowa, from
Dulcet, LLC, an Iowa limited liability corporation in which Mr. Wong and his
wife have a 33% ownership interest. The lease commenced in June 1996, terminates
in 2011 and provides for a monthly payment of $6,250. The monthly payment
increases to $7,078 in years six through ten and to $8,016 in years ten through
fifteen.
The Company leases the brewery restaurant in Boulder, Colorado, from The
1123 Walnut Corporation, a corporation owned by Messrs. Greenlee and Day. The
lease expires in July, 1999 and provides for an annual base rent of $84,000. The
Company also pays additional rent based on the excess of 6% of gross restaurant
sales over base rent, if any. On February 23, 1999, the Company exercised its
renewal option under the lease extending the lease term to July 31, 2004.
41
<PAGE>
The Company leases the brewery restaurant in Englewood, Colorado, from
Zymotic, LLC, a Colorado limited liability company in which Mr. Wong and/or his
affiliates own 34%. The lease commenced in July 1997, and terminates in June
2012, with the option to renew for four terms of 60 months each. The initial
base rent for years one through five under the lease is $230,775, increases to
$261,353 for years six through ten, and increases to $295,982 for years eleven
through fifteen.
The Company leases the brewery restaurant in Des Moines, Iowa from B.W.C.
Farms, Inc., an Iowa corporation in which Mr. Wong and/or his affiliates own
12.5%. The lease commenced in February 1998, and terminates in February 2013,
with the option to renew for four terms of 60 months each. The initial base rent
for years one through five under the lease is $230,775, increases to $261,353
for years six through ten, and increases to $295,982 for years eleven through
fifteen.
The Company leases the brewery restaurant in Warrenville, Illinois from
Lagomorph, L.L.C., a limited liability company partially owned by Mr. Wong. The
lease commenced in April 1999 and expires in March 2010, with the option to
renew for four terms of 60 months each. The initial base rent during the first
year of the lease is $287,000 and increases each year thereafter by 2.25%.
The Surviving Company will continue to be a party to these leases after the
Merger. Management of the Company believes the terms of these leases are no less
favorable to the Company than those that could be obtained from unaffiliated
third parties. All such transactions with affiliated lessors or any other
affiliate are subject to the approval of the Company's disinterested directors
and are on terms believed by such directors to be no less favorable to the
Company than those available from unaffiliated third parties.
OTHER ARRANGEMENTS WITH AFFILIATES
The Company purchases certain of its pasta products used in the Old Chicago
restaurants from Pasta Fresca Inc., a Colorado corporation owned 39% by Mr. Day.
During 1998, the Company paid approximately $132,000 to Pasta Fresca, Inc.
CERTAIN EFFECTS OF THE MERGER
If the Merger is consummated, the holders of the Company's common stock will
no longer have any interest in, and will not be stockholders of, the Company
and, therefore, will not benefit from any future earnings or growth of the
Company or from any increases in the value of the Company and will no longer
bear the risk of any decreases in value of the Company. Instead, each
stockholder (other than the Company and its wholly-owned subsidiaries, RB
Capital, RBR Acquisition, certain consenting holders of restricted stock and
Dissenting Stockholders) will have the right to receive upon consummation of the
Merger $10.00 in cash for each share of common stock they hold, without
interest. The benefit to the holders of common stock of the transaction is the
payment of a premium, in cash, above the market value for such stock prior to
the announcement of the transaction. This cash payment assures that all
stockholders will receive the same amount for their shares, rather than taking
the risks associated with attempting to sell their shares in the open market.
The detriment to such holders is their inability to participate as continuing
stockholders in the possible future growth of the Company. If the Merger is
consummated, the Founders, together with the other stockholders of RB Capital,
will indirectly hold the entire equity interest in the Company and will
therefore be the sole beneficiaries of any future earnings or growth of the
Company and any increases in value of the Company. However, the Founders will
bear the risk of any decreases in value of the Company and the risks associated
with (1) the significant amount of debt to be incurred by the Company in
connection with the Merger and (2) the lack of liquidity in its investment in
the Company. See "Special Factors-- Recommendation of the Special Committee and
the Board of Directors; Fairness of the Merger-- Special Committee."
42
<PAGE>
The common stock is currently registered under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"). As a result of the Merger, the common
stock will be delisted from the Nasdaq National Market, the registration of the
common stock under the Exchange Act will be terminated, the Company will be
relieved of the obligation to comply with the proxy rules of Regulation 14A
under Section 14 of the Exchange Act, and its officers, directors and beneficial
owners of more than 10% of the common stock will be relieved of the reporting
requirements and "short-swing" trading provisions under Section 16 of the
Exchange Act. Further, the Company will no longer be subject to periodic
reporting requirements of the Exchange Act and will cease filing information
with the SEC. Accordingly, less information will be required to be made publicly
available than presently is the case.
The certificate of incorporation and bylaws of the Company will be amended
and restated as of the Effective Time and, as amended and restated, will be the
certificate of incorporation and bylaws of the Surviving Corporation until
thereafter amended.
PLANS FOR THE COMPANY AFTER THE MERGER
Each of RB Capital and the Founders expects that, except as described in
this proxy statement, the business and operations of the Surviving Corporation
will be continued substantially as they are currently being conducted by the
Company and its subsidiaries. However, RB Capital expects that it may, from time
to time, evaluate and review the Surviving Corporation's businesses, operations
and properties and make such changes as are deemed appropriate.
Except as described in this proxy statement, none of the Founders, RB
Capital, RBR Acquisition or the Company has any present plans or proposals
involving the Company or its subsidiaries which relate to or would result in an
extraordinary corporate transaction such as a merger, reorganization,
liquidation, sale or transfer of a material amount of assets, or any material
change in the present dividend policy, indebtedness or capitalization, or any
other material change in the Company's corporate structure or business. As
contemplated by the Merger Agreement, the Company expects to engage in several
sale-leaseback transactions with respect to five operating properties and to
sell one non-operating property. See "Special Factors--Financing of the
Merger--Sale-Leaseback Transactions." However, the Founders, RB Capital and RBR
Acquisition will review proposals or may propose the acquisition or disposition
of assets or other changes in the Surviving Corporation's business, corporate
structure, capitalization, management or dividend policy which they consider to
be in the best interests of the Surviving Corporation and its stockholders. None
of the Company, RB Capital or the Founders have formulated any specific plans
regarding repayment of the indebtedness incurred in connection with the Merger;
however, such persons anticipate that such indebtedness will be repaid primarily
with or by means of cash from the operations of the business of the Surviving
Corporation, or such other means as the Surviving Corporation or RB Capital may
determine in their sole discretion.
CONDUCT OF THE BUSINESS OF THE COMPANY IF THE MERGER IS NOT CONSUMMATED
If the Merger is not consummated, the Board expects to seek to retain the
Company's current management team, although there can be no assurance it will be
successful in doing so. There are no plans in such circumstances to operate the
Company's business in a manner substantially different than presently operated.
ACCOUNTING TREATMENT
The merger will be accounted for in accordance with the purchase method of
accounting under U.S. generally accepted accounting principles.
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<PAGE>
FINANCING OF THE MERGER
The maximum amount of funds required by RB Capital and RBR Acquisition to
pay the aggregate Merger Consideration due to stockholders and to pay cash to
holders of stock options in the Company in exchange for the cancellation of such
options at the closing of the Merger pursuant to the Merger Agreement, assuming
all shares of common stock, including shares of restricted stock, and stock
options, in each case, not owned by the Founders, are converted into cash in the
Merger in accordance with the Merger Agreement and there are no Dissenting
Stockholders, is expected to be approximately $60.1 million. In addition, in
order to fulfill conditions to the financing described below, the Company will
be required to repay approximately $13.2 million under its existing loan
agreement. The Company, RB Capital and RBR Acquisition will also require
approximately $6.9 million to pay other expenses and costs incurred by the
Company, RB Capital and RBR Acquisition relating to the transactions and for
other general corporate purposes. The proceeds to pay the Merger Consideration
and related costs and expenses of the transaction will be obtained from new
senior secured revolving credit and term loan facilities, the private placement
of senior subordinated debt securities issued by the Surviving Corporation and
Class B common stock of RB Capital, equity contributions of certain of the
Founders and the proceeds of certain ancillary sale-leaseback financing
transactions with net proceeds of approximately $8.6 million.
SENIOR SECURED REVOLVING CREDIT AND TERM LOAN FACILITY
On March 18, 1999, RB Capital entered into and delivered to the Company a
commitment letter (the "Senior Debt Commitment Letter") with BankBoston and
BancBoston Robertson Stephens. Pursuant to the Senior Debt Commitment Letter,
but subject to the terms and conditions set forth therein, BankBoston has agreed
to act as administrative agent for itself and for any other lending institutions
(together with BankBoston, the "Lenders") which may become party to the Senior
Debt Facilities (as defined below) with respect to the proposed senior secured
revolving credit and term loan facilities aggregating up to approximately
$60,000,000 (collectively, the "Senior Debt Facilities"), including two term
loan tranches of $20,000,000 ("Term Loan A") and $30,000,000 ("Term Loan B"),
respectively, and a revolving credit facility of $10,000,000, for the purpose of
providing a portion of the financing for the Merger. BancBoston Robertson
Stephens has agreed to act as the exclusive syndication agent and arranger for
the Lenders with respect to the Senior Debt Facilities. BankBoston has
committed, subject to the terms and conditions of the Senior Debt Commitment
Letter, to provide the full amount of the Senior Debt Facilities, but may
syndicate the Senior Debt Facilities to other banks or financial institutions.
Under the Senior Debt Commitment Letter, the entire proceeds of the term loans,
but no more than $1.75 million of the revolving credit facility, may be drawn at
the effective time of the Merger.
The proceeds of the Senior Debt Facilities will be used:
- to pay a portion of the Merger Consideration;
- to pay related transaction fees and expenses of the Merger;
- to refinance certain existing indebtedness of the Company and its
subsidiaries;
- for the acquisition and/or construction of new operating facilities;
- for operating facility upgrades;
- for the issuance of standby letters of credit; and
- for working capital and general corporate purposes.
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The Senior Debt Commitment Letter contemplates that the definitive credit
agreement governing the Senior Debt Facilities (the "Credit Agreement") will
contain terms and conditions, including, without limitation, the following:
- BORROWER. Rock Bottom Restaurants, Inc. and all of its present and future
direct and indirect subsidiaries (the "Borrower").
- GUARANTORS. All of the Borrower's obligations under the Senior Debt
Facilities will be fully and unconditionally guaranteed by RB Capital and
all direct and indirect present and future subsidiaries of RB Capital
(collectively, the "Guarantors").
- INTEREST RATE. Amounts outstanding under the Senior Debt Facilities will
bear interest at a rate per annum equal to either: the Eurodollar Rate
available for 1, 2, 3 or 6 month periods or the higher of (1) the
BankBoston's Base Rate as publicly announced from time to time, and (2)
0.50% plus the federal funds rate, in each case, plus the Applicable
Margin (as defined below).
The "Applicable Margin," which will be based upon the ratio of
consolidated funded indebtedness to consolidated EBITDA of the Borrower, as
such terms will be defined in the Credit Agreement, will range from:
- 2.25% to 3.50% for Eurodollar Rate loans and from 0.75% to 2.00% for
Base Rate loans under the revolving credit facility and Term Loan A;
and
- 3.50% to 4.00% for Eurodollar Rate loans and from 2.00% to 2.50% for
Base Rate loans under Term Loan B.
- TERM. Borrowings under the Senior Debt Facilities will be amortized, and
commitments with respect to drawings under the Senior Debt Facilities will
be correspondingly reduced, over the five years for Term Loan A and seven
year terms for Term Loan B in accordance with an agreed schedule.
- SECURITY. The Senior Debt Facilities will be secured by:
- a first priority perfected pledge of and security interest in all of
the capital stock of the Borrower and the Guarantors; and
- a first priority perfected security interest in all tangible and
intangible assets of the Borrower and the Guarantors.
- CONDITIONS. The obligations of BankBoston under the Credit Agreement will
be subject to usual and customary conditions for credit facilities of the
size, type and purpose contemplated by the Senior Debt Facilities,
including, without limitation, the following:
- consummation of the Merger in a manner satisfactory to BankBoston,
including contemporaneous closing of the private placement of
$22,000,000 in junior debt securities and $6,000,000 of equity
securities pursuant to the terms and conditions set forth in the
separate commitment letter between BancBoston Robertson Stephens and RB
Capital (described below);
- the negotiation, execution and delivery of documentation in respect of
the Senior Debt Facilities that are satisfactory in form and substance
to BankBoston;
- the absence of any material adverse change (from certain information
previously provided or available to BankBoston) in the assets or
business of the Company or its subsidiaries, or the financial
condition, management or prospects of the Company, its subsidiaries, or
the Guarantors, or the ability of the Company, its subsidiaries, or the
Guarantors to perform their respective obligations described in the
Senior Debt Commitment Letter;
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<PAGE>
- the repayment of all of the existing debt of the Company contemplated
to be repaid in connection with the Merger, and the termination of all
credit facilities and the release of all liens with respect thereto;
- the absence of material adverse changes in governmental regulation or
policy affecting BankBoston, BancBoston Robertson Stephens or any of
the Company, its subsidiaries or the Guarantors;
- the absence of material adverse changes or disruptions in the
syndication, financial or capital markets that could materially impair
the syndication of the Senior Debt Facilities prior to the closing;
- the receipt by BankBoston of a day one balance sheet and sources and
uses of funds, showing the effects of the Merger, the refinancing
required as a result of the Merger, and compliance with the terms and
conditions of the Senior Debt Facilities; and
- the receipt by BankBoston of customary solvency opinions.
- COVENANTS AND EVENTS OF DEFAULT. The Credit Agreement will contain
affirmative and negative covenants and events of default, in each case
which are customary for credit facilities of that size, type and purpose.
Such affirmative and negative covenants will, among other matters, limit
certain activities of the Borrower and require it to satisfy certain
ongoing financial requirements. Such events of default will include, among
other matters, certain cross-defaults and judgment defaults and an event
of default upon a change in control of the Surviving Corporation.
- EXPIRATION. The obligations of BankBoston under the Senior Debt Commitment
Letter will expire and terminate automatically if the closing of the
Merger has not occurred on or prior to July 15, 1999, although BankBoston
has expressly agreed to use its good faith efforts to extend such
expiration date to August 15, 1999. There can be no assurance, however,
that the closing of the Merger will occur prior to July 15, 1999 or that
the expiration date of the Senior Debt Commitment Letter will be extended.
The Credit Agreement will also contain other terms and conditions which are
customary in transactions of the type contemplated by the Senior Debt
Facilities.
SUBORDINATED CREDIT FACILITY AND JUNIOR EQUITY
On March 18, 1999, RB Capital entered into and delivered to the Company a
commitment letter (the "Subordinated Debt and Junior Equity Commitment Letter")
with BancBoston Robertson Stephens. Pursuant to the Subordinated Debt and Junior
Equity Commitment Letter, but subject to the conditions set forth therein,
BancBoston Robertson Stephens has agreed to provide a senior subordinated bridge
loan (the "Bridge Loan") of up to $22 million, if necessary, and to serve as
exclusive placement with respect to the sale of $22 million of senior
subordinated debt securities (the "Senior Subordinated Debt Securities"), $4
million of Class B common stock of RB Capital (the "Junior Equity Securities")
and up to $2 million of securities having the same terms as, but in addition to,
the $4 million of Junior Equity Securities (collectively, the "Subordinated Debt
and Junior Equity Facilities"). Under the Subordinated Debt and Junior Equity
Commitment Letter, BancBoston Robertson Stephens has committed to purchase up to
$22 million of the Senior Subordinated Debt Securities and up to $4 million of
the Junior Equity Securities if it is unable to place such securities with other
purchasers. If BancBoston Robertson Stephens is required to fund under such
commitment, it will do so by means of the Bridge Loan.
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<PAGE>
The Subordinated Debt and Junior Equity Commitment Letter contemplates that
the definitive agreements governing the Subordinated Debt and Junior Equity
Facilities, will contain terms and conditions which are customary in
transactions of the type contemplated by the Subordinated Debt and Junior Equity
Commitment Letter and will contain certain other terms and conditions,
including, without limitation, the following:
- BRIDGE LOAN.
- BORROWER. Rock Bottom Restaurants, Inc.
- INTEREST RATE. Amounts outstanding under the Bridge Loan will bear
interest at the London interbank offered rate (LIBOR) plus 6.00%,
compounded monthly.
- GUARANTOR. All of the Borrower's obligations under the Bridge Loan will
be fully and unconditionally guaranteed by RB Capital.
- USE OF PROCEEDS. The proceeds of the Bridge Loan will be used to pay a
portion of the Merger Consideration and to pay related transaction fees
and expenses of the Merger.
- MATURITY. The Bridge Loan will mature six months after the Effective
Time, with a bullet payment of the entire principal amount payable on
such date, which bullet payment shall be prepayable in whole or in part
at any time.
- COVENANTS AND EVENTS OF DEFAULT. The credit agreement governing the
Bridge Loan will contain affirmative and negative covenants and events
of default, in each case which are customary for credit facilities of
similar size, type and purpose. Such affirmative and negative covenants
will, among other matters, limit certain activities of the Borrower and
require it to satisfy certain ongoing financial requirements. Such
events of default will include, among other matters, failure to pay
interest, principal and other usual defaults including insolvency,
bankruptcy and judgment defaults.
- SENIOR SUBORDINATED DEBT SECURITIES.
- SECURITY. Senior Subordinated Notes with Detachable Warrants.
- ISSUER. Rock Bottom Restaurants, Inc.
- GUARANTOR. All of the Issuer's obligations under the Senior
Subordinated Debt Securities will be fully and unconditionally
guaranteed by RB Capital.
- PRINCIPAL AMOUNT. $22 million payable in its entirety at the maturity
date of the Senior Subordinated Debt Securities.
- INTEREST RATE. Amounts outstanding under the Senior Subordinated Debt
Securities will bear interest at a rate of 12% per annum, payable in
cash, quarterly in arrears computed on the basis of twelve 30-day
months in a year of 360 days.
- USE OF PROCEEDS. The proceeds of the sale of the Senior Subordinated
Debt Securities will be used to pay a portion of the Merger
Consideration, to pay related transaction fees and expenses of the
Merger or, in the event the Bridge Loan is funded, to refinance the
Bridge Loan.
- FINAL MATURITY. Eight years after the Effective Time.
- PREPAYMENTS. Required prepayment at final maturity or on an initial
public offering of the Company, or in the event of a sale, merger or
liquidation of the Company or a change of control of the Company.
Optional prepayments may be made after the third year following the
Effective Time under certain circumstances and subject to certain
premiums.
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<PAGE>
- COVENANTS AND EVENTS OF DEFAULT. The Senior Subordinated Debt
Securities will be subject to affirmative and negative covenants and
events of default, in each case which are customary for transactions of
this type. Such affirmative and negative covenants will, among other
matters, limit certain activities of the Issuer and require it to
satisfy certain ongoing financial requirements. Such events of default
will include, among other matters, failure to pay interest, principal
and other usual defaults including insolvency, bankruptcy and judgment
defaults.
- WARRANTS.
The Senior Subordinated Debt Securities will be issued with warrants (the
"Warrants") entitling the holders thereof to purchase approximately [ ]%
of the equity of RB Capital (on a fully diluted basis). The Warrants will
be exercisable in whole or in part for a nominal price at any time after
four years following the Effective Time, except that the Warrants will
become immediately exercisable upon (1) certain public equity offerings
by RB Capital; (2) a change of control of the Surviving Corporation; or
(3) a default under the definitive agreement governing the Senior
Subordinated Debt Securities. After the fifth anniversary of the
Effective Date, holders of Warrants will be entitled to require that the
Company repurchase their securities at fair market value and the Company
can call the securities after six years at such price. The agreement
governing the Warrants will provide for certain tag-along, drag-along,
preemptive and registration rights in favor of the holders thereof, as
well as customary anti-dilution provisions. Under certain circumstances,
the holders of the Warrants shall also have the right to appoint one
member to the RB Capital board of directors. The Warrants will expire 10
years from the Effective Time.
- JUNIOR EQUITY SECURITIES.
- SECURITY. Class B Common Stock.
- ISSUER. RB Capital.
- CONVERSION. The Junior Equity Securities will be convertible into Class
A common stock of RB Capital upon an initial public offering of RB
Capital.
- USE OF PROCEEDS. The proceeds of the sale of the Junior Equity
Securities will be used to pay a portion of the Merger Consideration,
to pay related transaction fees and expenses of the Merger, and to
refinance certain debt of RB Capital.
- OTHER RIGHTS. Holders of the Junior Equity Securities will have a
disposal right after eight years (the terms of which will be determined
prior to the Effective Time), a right to participate in certain sales
of common stock of RB Capital by Mr. Day, a right of first offer to
purchase future equity or equity-linked securities offered by RB
Capital, certain registration rights and observation rights on RB
Capital's board of directors.
- RESTRICTIONS; OBLIGATIONS. The Junior Equity Securities will be subject
to certain restrictions on transfer and holders of the Junior Equity
Securities will be obligated to sell their Junior Equity Securities
under certain circumstances.
EQUITY CONTRIBUTIONS
The Founders have each entered into a letter agreement with RB Capital,
dated March 18, 1999 (the "Equity Contribution Letters"), pursuant to which they
agreed to make the following purchases
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from, and contributions to, RB Capital prior to the Effective Time, subject to
the terms and conditions set forth therein:
- Mr. Day agrees to purchase $1.0 million of RB Capital's Class B common
stock for cash and contribute 1,333,772 shares of the Company's common
stock to RB Capital;
- Mr. Greenlee agrees to purchase $500,000 of RB Capital's Class B common
stock for cash and contribute 519,136 shares of the Company's common stock
to RB Capital;
- Mr. Wong agrees to purchase $500,000 of RB Capital's Class B common stock
for cash and contribute 216,200 shares of the Company's common stock to RB
Capital; and
- Mr. Lux agrees to contribute 131,065 shares of the Company's common stock
to RB Capital.
Funding under each of the Equity Contribution Letters is conditioned upon
the completion of the Merger, the execution of definitive documentation with
respect to the Senior Debt Facilities and the Subordinated Debt and Junior
Equity Facilities on terms not materially more adverse to RB Capital than those
set forth in the Senior Debt Commitment Letter and the Subordinated Debt and
Junior Equity Contribution Letter, respectively, and the funding of amounts
thereunder, the funding under each of the other Equity Contribution Letters and
the repayment of certain amounts loaned to RB Capital by Messrs. Day and Wong to
finance certain fees and expenses incurred by RB Capital in connection with the
Merger Agreement. The Founders have agreed to use their reasonable best efforts
to complete and execute the definitive documentation with respect to the equity
contributions set forth in their respective Equity Contribution Letters. See
"Special Factors--Interests of Certain Persons in the Merger; Certain
Relationships." Pursuant to the Merger Agreement, all such shares of the
Company's common stock contributed by the Founders to RB Capital will be
canceled at the effective time of the Merger and no consideration will be paid
therefor in the Merger. See "The Merger Agreement--The Merger; Merger
Consideration."
SALE-LEASEBACK TRANSACTIONS
The funding of the financings described in the Senior Debt Commitment Letter
and the Subordinated Debt and Junior Equity Commitment Letters is contingent
upon there being no more than $13.2 million in indebtedness (excluding capital
leases and certain other amounts) outstanding at the Company as of the Effective
Time. In order to reduce the Company's indebtedness to a level at or below $13.2
million as of the effective time of the Merger, the Company currently plans, and
the Merger Agreement provides for, the consummation of certain ancillary
sale-leaseback transactions (the "Sale-Leaseback Transactions") and the
subsequent use of expected proceeds of approximately $8.6 million from those
transactions to reduce the Company's outstanding debt. The Board approved the
Sale-Leaseback Transactions on March 18, 1999. The Sale-Leaseback Transactions
comprise five separate transactions with respect to property owned by the
Company in each of Warrenville, Illinois; Phoenix, Arizona; Greeley, Colorado;
Longmont, Colorado; and Grand Junction, Colorado. The Sale-Leaseback
Transactions in Warrenville, Illinois and Phoenix, Arizona are part of the
Company's business plan to develop prototype brewery restaurants and utilize
sale-leaseback transactions. This strategy has been in the Company's budget
since early 1998. The three Sale-Leaseback Transactions relating to the Colorado
properties are consistent with the Company's desire to reduce indebtedness and
will assist RB Capital in satisfying the conditions of the Senior Debt
Facilities. The Company believes that each of the Sale-Leaseback Transactions is
on arms-length terms.
The Company has engaged in negotiations with respect to each of the
Sale-Leaseback Transactions. The party involved in the Sale-Leaseback
Transaction with respect to the Warrenville, Illinois property is Lagomorph,
L.L.C., an entity in which Mr. Wong, a director of the Company and one of the
Founders, has an interest. Each of the other Sale-Leaseback Transactions will be
entered into by the Company with an unaffiliated third party investment group or
groups.
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Under the terms of the agreement with respect to the Warrenville, Illinois
property, the Company sold to and leased from Lagamorph, L.L.C. certain real
property, including a building, which is currently occupied as a Rock Bottom
restaurant. The Company sold the Warrenville, Illinois property for $2.8 million
and executed a lease for such property which provides for rent equal to $287,000
per year, increasing annually at a rate of 2.25%. In addition, the lease has a
term of 12 years with four 5-year renewal options. The net proceeds of the
Warrenville, Illinois sale were applied to reduce the outstanding amounts under
the Company's revolving credit facility with Norwest Bank Colorado, National
Association (the "Norwest Credit Facility").
The terms of the Sale-Leaseback Transactions with respect to the Phoenix,
Arizona and the three Colorado properties have not yet been fully negotiated but
the purchase agreements and leases with respect to each of such properties are
expected by the Company to provide for, among other things:
- the sale and lease by the Company of property located in Phoenix, Arizona
for between $2,650,000--$2,950,000 (depending on the cost to complete the
restaurant being constructed on the property) and between
$271,625--$302,375 (based on the purchase price) per year, respectively;
- the sale and lease by the Company of property located in Grand Junction,
Colorado for $1,110,000 and $113,775 per year, respectively;
- the sale and lease by the Company of property located in Greeley, Colorado
for $907,241 and $92,992 per year, respectively; and
- the sale and lease by the Company of property located in Longmont,
Colorado for $1,140,000 and $116,850 per year, respectively.
Each of the foregoing leases is expected to have a term of 12 years with two
10-year renewal options and to provide for increases in lease payments equal to
6.75% compounded every third year. The Company anticipates completion of the
foregoing Sale-Leaseback Transactions by June, 1999, and that the proceeds
thereof (net of expenses) will be applied to reduce the outstanding amounts
under the Norwest Credit Facility.
REGULATORY REQUIREMENTS; THIRD PARTY CONSENTS
The Company does not believe that any material federal or state regulatory
approvals, filings or notices are required by the Company in connection with the
Merger other than:
- such approvals, filings or notices required pursuant to federal and state
securities laws; and
- the filing of the certificate of merger with the Secretary of State of the
State of Delaware.
Based upon RB Capital's currently anticipated capital structure, the parties
are not required to file a Premerger Notification under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), because RBR
Acquisition does not satisfy the "size of person" jurisdictional test of the HSR
Act insofar as RB Capital is its "ultimate parent" and does not have a regularly
prepared balance sheet or assets of $10,000,000 or more, excluding the cash that
will be used to consummate the Merger and shares of common stock and stock
options to be contributed to RB Capital by the Founders. However, if the equity
structure is modified so that Mr. Day holds 50% or more of the issued and
outstanding securities of RB Capital at the time of the Merger, it may be
necessary to file a Premerger Notification.
The Company's restaurants are subject to licensing and regulation by a
number of governmental authorities regarding alcoholic beverages. As a result of
the Merger, various subsidiaries of the Company will be required to satisfy
various notification requirements imposed by the Federal Bureau of Alcohol,
Tobacco and Firearms (BATF), as well as state and municipal licensing
authorities where its
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restaurants are located. Filing requirements for notification vary by agency.
Subject to the timely submission of notices, which the Company intends to do
prior to the Merger, the Company will be duly licensed and able to continue
business as usual throughout the notification period. Failure to appropriately
and timely file notices could pose a risk of loss or suspension of the affected
license.
The Company does not believe any material third party consents will be
required by the Company in connection with the Merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following summary is a general discussion of certain of the material
federal income tax consequences expected to result to stockholders whose shares
of common stock are converted to cash in the Merger and is for general
information only and does not purport to be a complete analysis of all potential
tax effects of the Merger. For example, the summary does not consider the effect
of any applicable state, local or foreign tax laws. In addition, the summary
does not address all aspects of federal income taxation that may affect
particular stockholders in light of their particular circumstances and is not
intended for stockholders (including insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, stockholders who hold
their common stock as part of a hedge, straddle or conversion transaction,
stockholders who acquired their common stock pursuant to the exercise of an
employee stock option or otherwise as compensation, and stockholders who are not
citizens or residents of the United States or that are foreign corporations,
foreign partnerships or foreign estates or trusts as to the United States) that
may be subject to special federal income tax rules not discussed below. The
following summary also does not address holders of stock options. The following
summary assumes that stockholders have held their common stock as "capital
assets" (generally, property held for investment) under the Code.
This summary is based on the current provisions of the Code, applicable
Treasury Regulations, judicial authority and administrative rulings and
practice. There can be no assurance that the Internal Revenue Service will not
take a contrary view. No ruling from the IRS has been or will be sought with
respect to any aspect of the transactions described herein. Future legislative,
judicial or administrative changes or interpretations could alter or modify the
statements and conclusions set forth herein, and any such changes or
interpretations could be retroactive and could affect the tax consequences to
stockholders. It cannot be predicted at this time whether any current proposed
tax legislation will be enacted or, if enacted, whether any tax law changes
contained therein would affect the tax consequences to stockholders.
EACH STOCKHOLDER IS URGED TO CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE
PARTICULAR TAX CONSEQUENCES TO IT OF THE TRANSACTIONS DESCRIBED HEREIN,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS,
AND OF CHANGES IN APPLICABLE TAX LAWS.
TREATMENT OF HOLDERS OF COMMON STOCK
The conversion of common stock in the Merger will be fully taxable to
stockholders. Accordingly, a stockholder who, pursuant to the Merger, converts
such holder's common stock into cash will recognize a gain or loss equal to the
difference between (1) the amount of cash received in the Merger and (2) such
stockholder's tax basis in the common stock. Generally, a stockholder's tax
basis in his common stock will be equal to such stockholder's costs therefor. In
the case of a stockholder who is an individual, such capital gain or loss will
be taxable at a maximum capital gains rate of 20% if the holder held the common
stock for more than one year at the time of the Merger.
For federal income tax purposes, the Surviving Corporation will be deemed to
be the source of a portion of the cash consideration issued in the Merger
(including the proceeds from debt used to fund the Merger that is assumed by the
Surviving Corporation in the Merger). Therefore, to the extent that cash
received by a stockholder is from such source, the receipt of cash in exchange
for such
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stockholder's common stock in the Merger will be treated as a redemption of
common stock for federal income tax purposes. If a stockholder's interest in the
Company will terminate as a result of the Merger, taking into account the
constructive ownership rules of Section 318 of the Code, then the stockholder
will continue to receive sale or exchange treatment as described in the
preceding paragraph. If a stockholder's interest in the Surviving Corporation,
taking into account the constructive ownership rules of Section 318 of the Code,
is not terminated as a result of the Merger, then the stockholder will recognize
gain or loss as described above only if the deemed redemption is either "not
essentially equivalent to a dividend" or "substantially disproportionate" within
the meaning of Section 302 of the Code. Whether or not a stockholder qualifies
for sale or exchange treatment under these provisions depends on the
stockholder's individual facts and circumstances. Stockholders are urged to
consult their tax advisors with respect to the potential applicability of these
provisions.
BACKUP WITHHOLDING
A stockholder whose common stock is converted to cash pursuant to the Merger
may be subject to backup withholding at the rate of 31% with respect to the
gross proceeds from the conversion of such common stock unless such stockholder
(1) is a corporation or other exempt recipient and, when required, establishes
this exemption or (2) provides its correct taxpayer identification number,
certifies that it is not currently subject to backup withholding and otherwise
complies with applicable requirements of the backup withholding rules. A
stockholder who does not provide the Surviving Corporation with its correct
taxpayer identification number may be subject to penalties imposed by the IRS.
Any amount withheld under these rules will be creditable against the
stockholder's federal income tax liability.
The Surviving Corporation will report to stockholders and to the IRS the
amount of any reportable payments (including payments made to stockholders
pursuant to the Merger) and any amount withheld pursuant to the Merger.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, EACH STOCKHOLDER
SHOULD CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO THE PARTICULAR TAX
CONSEQUENCES OF THE TRANSACTIONS DESCRIBED HEREIN, INCLUDING THE APPLICABILITY
AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAW.
FEES AND EXPENSES
Whether or not the Merger is consummated and except as otherwise provided
herein, all fees and expenses incurred in connection with the Merger will be
paid by the party incurring such fees and expenses, except that:
- the Company will pay for all costs and expenses relating to the printing
and mailing of this proxy statement; and
- if the Merger is consummated, the Surviving Corporation will pay any real
property transfer tax imposed on the holders of shares of capital stock of
the Company resulting from the Merger.
In addition, under the terms of the Merger Agreement, the Company will pay
RB Capital certain costs, expenses and fees, up to a maximum of $2,750,000, if
the Merger Agreement is terminated under certain circumstances. See "The Merger
Agreement--Fees and Expenses."
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Estimated fees and expenses (rounded to the nearest thousand) to be incurred
by the Company or RB Capital in connection with the Merger, the financing and
related transactions are as follows:
<TABLE>
<S> <C>
Financing Fees(1)........................................... $ 3,220,000
Special Committee's Financial Advisor's Fees(2)............. 1,463,750
Buyout Group's Financial Advisor's Fees..................... 750,000
SEC Filing Fees............................................. 12,254
Legal and Accounting Fees and Expenses...................... 1,100,000
Printing and Solicitation Fees and Expenses................. 123,996
Special Committee Fees...................................... 225,000
------------
Total..................................................... 6,895,000
------------
------------
</TABLE>
- ------------------------
(1) See "Special Factors--Financing of the Merger."
(2) See "Special Factors--Opinion of Financial Advisor to the Special
Committee."
To the extent not paid prior to the Effective Time by RB Capital or the
Company, all such fees and expenses will be paid by the Surviving Corporation if
the Merger is consummated. If the Merger is not consummated, each party will
bear its respective fees and expenses, except as otherwise provided in the
Merger Agreement. See "The Merger Agreement--Fees and Expenses."
THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger
Agreement, a copy of which is attached as Annex A to this proxy statement. Such
summary is qualified in its entirety by reference to the full text of the Merger
Agreement.
THE MERGER; MERGER CONSIDERATION
The Merger Agreement provides that the Merger will become effective upon the
filing of a certificate of merger with the Secretary of State of the State of
Delaware or at such other time as the parties may agree and specify in the
certificate of merger (the "Effective Time"). If the Merger is approved at the
Special Meeting by the holders of a majority of all outstanding shares of common
stock, and the other conditions to the Merger are satisfied or waived, it is
currently anticipated that the Merger will become effective as soon as
practicable after the Special Meeting; however, there can be no assurance as to
the timing of the consummation of the Merger or that the Merger will be
consummated.
At the Effective Time, RBR Acquisition will be merged with and into the
Company, the separate corporate existence of RBR Acquisition will cease and the
Company will continue as the Surviving Corporation. In the Merger and at the
Effective Time:
- each share of common stock, including each share of restricted stock,
issued and outstanding immediately prior to the Effective Time (other than
common stock held by the Company, its wholly-owned subsidiaries, RB
Capital, RBR Acquisition or Dissenting Stockholders) will, by virtue of
the Merger and without any action on the part of the holder thereof, be
converted into and become the right to receive the Merger Consideration;
- each share of common stock issued and outstanding immediately prior to the
Effective Time that is owned by the Company, its wholly-owned
subsidiaries, RB Capital or RBR Acquisition will automatically be
canceled, retired and cease to exist and no payment will be made with
respect thereto;
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- each share of common stock of RBR Acquisition issued and outstanding
immediately prior to the Effective Time will be converted into and become
one share of common stock of the Surviving Corporation and will constitute
the only outstanding shares of capital stock of the Surviving Corporation;
- Dissenting Stockholders who do not vote to approve the Merger Agreement
and who otherwise strictly comply with the provisions of the DGCL
regarding statutory appraisal rights have the right to seek a
determination of the fair value of their shares of common stock and
payment in cash therefor in lieu of the Merger Consideration. See
"Dissenters' Rights of Appraisal;" and
- each certificate representing shares of common stock that has been
converted to cash under the terms of the Merger Agreement (a
"Certificate") will, after the Effective Time, evidence only the right to
receive, upon the surrender of such certificate, an amount of cash per
share equal to the Merger Consideration.
TREATMENT OF CERTAIN SHARES HELD BY THE FOUNDERS AND CERTAIN OTHER INDIVIDUALS
Prior to the Effective Time, each of the Founders will contribute shares of
common stock owned by them to RB Capital in exchange for shares of capital stock
of RB Capital in accordance with the Voting Agreement and their respective
Equity Contribution Letter. With respect to 50,000 shares of common stock owned
by Mr. Lux which will not be so contributed, such shares will be subject to
cancellation in the Merger in exchange for Merger Consideration. Shares so
contributed to RB Capital will, pursuant to the Merger Agreement, be canceled in
the Merger and no consideration will be paid therefor.
In addition, other officers, employees and stockholders of the Company may,
prior to the Merger, execute agreements with RB Capital and the Company to
contribute some or all of their shares of common stock, including restricted
stock, to RB Capital in exchange for stock or restricted stock of RB Capital.
Such agreements would govern the treatment of such shares in the Merger. Shares
of restricted stock held by any individuals which are not covered by such
agreements will be subject to cancellation in the Merger in exchange for Merger
Consideration, although the holders' right to receive the Merger Consideration
will not, with respect to certain shares of restricted stock, vest until 2006,
when conditions would otherwise lapse. See "Special Factors--Interests of
Certain Persons in the Merger-- Retained Equity Interest."
Options to acquire shares of common stock of the Company held by the
Founders and certain other officers and employees and of the Company may be
converted into stock, stock options or restricted stock of RB Capital or the
Surviving Corporation, pursuant to agreements between RB Capital, such persons
and the Company on terms which have not yet been determined. In the event such
stock options are not so converted, such stock options will be canceled and such
stock option holders will be entitled to receive Stock Option Consideration (as
defined below).
THE EXCHANGE FUND; PAYMENT FOR SHARES OF COMMON STOCK
On or before the closing date of the Merger, RB Capital will enter into an
agreement with a bank, trust company or other exchange agent selected by RB
Capital and reasonably satisfactory to the Company (the "Exchange Agent"). As of
the Effective Time, RB Capital or the Surviving Corporation will deposit or
cause to be deposited with the Exchange Agent, cash in the amount equal to the
aggregate Merger Consideration (such amount being hereinafter referred to as the
"Exchange Fund") for the benefit of holders of shares of the common stock (other
than common stock held by Dissenting Stockholders and shares to be canceled
without consideration pursuant to the Merger Agreement).
Within five days following the Effective Time, the Exchange Agent will mail
to each holder of record of shares of common stock that have been converted
pursuant to the Merger Agreement into
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the right to receive Merger Consideration immediately prior to the Effective
Time, a letter of transmittal and instructions for use in surrendering
Certificates in exchange for the Merger Consideration. No stockholder should
surrender any Certificates until the stockholder receives the letter of
transmittal and other materials for such surrender. Upon surrender of a
Certificate for cancellation to the Exchange Agent, together with a letter of
transmittal, duly executed, and such other customary documents as may be
required pursuant to the instructions, the holder of such Certificate will be
entitled to receive in exchange therefor the Merger Consideration into which the
number of shares of common stock previously represented by such Certificate(s)
shall have been converted pursuant to the Merger Agreement, without any interest
thereon, and the Certificates so surrendered will be canceled.
If payment of the Merger Consideration is to be made to a person other than
the person in whose name the Certificate surrendered is registered, it will be a
condition of payment that the Certificate so surrendered will be properly
endorsed (together with signature guarantees on such Certificate) or otherwise
be in proper form for transfer and that the person requesting such payment pay
to the Exchange Agent any transfer or other taxes required by reason of the
payment of the Merger Consideration to a person other than the registered holder
thereof or establish to the satisfaction of the Exchange Agent that such tax has
been paid or is not applicable.
STOCKHOLDERS SHOULD NOT SEND THEIR CERTIFICATES NOW AND SHOULD SEND THEM
ONLY PURSUANT TO INSTRUCTIONS SET FORTH IN THE LETTERS OF TRANSMITTAL TO BE
MAILED TO STOCKHOLDERS PROMPTLY AFTER THE EFFECTIVE TIME. IN ALL CASES, THE
MERGER CONSIDERATION WILL BE PROVIDED ONLY IN ACCORDANCE WITH THE PROCEDURES SET
FORTH IN THIS PROXY STATEMENT AND SUCH LETTERS OF TRANSMITTAL.
Eighteen months after the Effective Time, the Exchange Agent will deliver to
the Surviving Corporation or otherwise at the direction of the Surviving
Corporation any portion of the Exchange Fund that remains undistributed to or
unclaimed by the holders of Certificates (including the proceeds of any
investments thereof), and any holders of Certificates who have not theretofore
complied with the above-described procedures to receive payment of the Merger
Consideration may look only to the Surviving Corporation for payment of the
Merger Consideration to which they are entitled.
TRANSFERS OF COMMON STOCK
After the Effective Time, the stock transfer books of the Company will be
closed, and there will be no further transfers of Certificates on the records of
the Company or its transfer agent. If, after the Effective Time, Certificates
are presented to the Exchange Agent or the Surviving Corporation, they will be
canceled and exchanged for the Merger Consideration as provided above and
pursuant to the terms of the Merger Agreement (subject to applicable law in the
case of Dissenting Stockholders).
TREATMENT OF STOCK OPTIONS
It is currently anticipated that at the Effective Time, each outstanding
option to acquire common stock, other than stock options held by the Founders
and certain other officers and employees of the Company with respect to which
the holder has agreed with RB Capital and the Company as to an alternative
arrangement, will be canceled. In consideration of such cancellation, the
Surviving Corporation will pay to the holder of each such canceled stock option,
as soon as practicable after the Effective Time, a cash payment equal to the
product of (1) the excess, if any, of the Merger Consideration over the per
share exercise price of such stock option, multiplied by (2) the aggregate
number of shares of common stock then subject to such stock option, subject to
any required withholding of taxes (the "Stock Option Consideration"). At the
Effective Time, all such stock options, will be converted into, and will
thereafter only represent the right to receive, the Stock Option Consideration.
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Prior to the Effective Time, the Company will use its best efforts to make
any amendments to the terms of any stock option agreements with the holder of
stock options granted under the Company's stock Option Plans that are necessary
or appropriate to consummate the transactions contemplated by the Merger
Agreement.
CONDITIONS
The respective obligations of RB Capital and RBR Acquisition and of the
Company to consummate the Merger are subject to the following conditions, among
others:
- the approval of the Merger Agreement by the affirmative vote of the
holders of a majority of all outstanding shares of common stock;
- the expiration or termination of the waiting period under the HSR Act
applicable to the Merger; and
- the absence of any governmental action or order which makes the Merger
illegal or otherwise prohibits consummation of the Merger.
The obligations of RB Capital and RBR Acquisition to effect the Merger are
subject to the following additional conditions:
- the representations and warranties of the Company being true and correct
as of the Effective Time as though made on and as of the Effective Time,
except where, among other things, the failure to be true and correct,
individually or in the aggregate, would not have a material adverse effect
on the Company (without giving effect to qualifications as to materiality
contained within such representations and warranties) or would not prevent
completion of the Merger by September 18, 1999, or in certain cases,
December 18, 1999 (the "Outside Date");
- the Company having performed or complied with all of its obligations and
covenants required to be performed by the Company under the Merger
Agreement at or prior to the Effective Time, except where the failure to
so perform or comply would not have a material adverse effect on the
Company or would not prevent consummation of the Merger by the Outside
Date; and
- The funding of the debt and equity financings being provided by
BankBoston, BancBoston Robertson Stephens and the Founders must have
occurred. The funding of these financings is subject to a number of
material conditions independent of those in the merger agreement,
including the funding of certain ancillary sale-leaseback transactions
with expected proceeds of approximately $8.6 million.
The obligations of the Company to effect the Merger are also subject to the
following additional conditions:
- the representations and warranties of RB Capital and RBR Acquisition being
true and correct as of the Effective Time as though made on and as of the
Effective Time, except where, among other things, the failure to be true
and correct, individually or in the aggregate, would not have a material
adverse effect on RB Capital and RBR Acquisition (without giving effect to
qualifications as to materiality contained within such representations and
warranties) or would not prevent completion of the Merger by the Outside
Date; and
- RB Capital and RBR Acquisition having performed or complied with all of
their respective obligations and covenants required to be performed by
them under the Merger Agreement at or prior to the Effective Time, except
where the failure to so perform or comply would not have a material
adverse effect on RB Capital or RBR Acquisition or would not prevent
consummation of the Merger by the Outside Date.
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REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains limited representations and warranties of RB
Capital, RBR Acquisition and the Company.
The representations of RB Capital and RBR Acquisition relate to, among other
things:
- their respective organization and qualification to do business,
capitalization, ownership, and authority to enter into the Merger
Agreement and the Voting Agreement;
- the absence of a conflict of the Merger Agreement, the Voting Agreement,
and the transactions contemplated thereby, with laws applicable to, and
material agreements of, RB Capital and RBR Acquisition;
- the consents and filings required with respect to the Merger Agreement,
the Voting Agreement and the transactions contemplated thereby;
- the availability of financing;
- the accuracy of the information provided by RB Capital and RBR Acquisition
for inclusion in this proxy statement and in filings to be made with the
SEC with respect to the proposed Merger;
- the requirement for approval of the Merger Agreement by the shareholders
of RB Capital and RBR Acquisition;
- the brokers used by RB Capital and RBR Acquisition; and
- the historical business activities of RB Capital and RBR Acquisition.
The representations of the Company relate to, among other things:
- the organization and qualification to do business of the Company and its
subsidiaries;
- the capitalization and indebtedness of the Company and its subsidiaries;
- the Company's authority to enter into the Merger Agreement and the Voting
Agreement;
- the absence of a conflict of the Merger Agreement, Voting Agreement and
the transactions contemplated thereby with laws applicable to and material
agreements of the Company and its subsidiaries;
- the consents and filings required with respect to the Merger Agreement,
Voting Agreement and the transactions contemplated thereby;
- filings made with the SEC;
- the compliance with law and accuracy of the proxy statement and filings
made with the SEC with respect to the proposed Merger;
- the absence of changes in the business of the Company;
- the required vote of the shareholders of the Company with respect to the
proposed Merger;
- the status of all existing discussions or negotiations with any parties
conducted before the date of the Merger Agreement;
- the brokers used by the Company;
- the effect of the Merger Agreement, the Voting Agreement and the
transactions contemplated thereby on the provisions of the Rights
Agreement;
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- the action of the Board approving the Merger Agreement and the Voting
Agreement and the transactions contemplated thereby; and
- the opinion of U.S. Bancorp Piper Jaffray.
Most of the Company's representations and warranties are qualified by the
facts, circumstances, conditions or events actually known by the Founders, Mr.
Lidvall and Ms. Shelton which would cause such representations or warranties to
be untrue or incorrect in any material respect (without giving effect to
qualifications as to materiality contained in such representations or
warranties) as of March 18, 1999.
COVENANTS
The Company has agreed to operate, and cause each of its subsidiaries to
operate, their respective businesses in the ordinary and usual course prior to
the Effective Time. In this regard, the Company has agreed that it will not,
without the consent of RB Capital (which consent may not be unreasonably
withheld or delayed), engage in certain types of transactions. Specifically, the
Company has agreed that prior to the Effective Time, the Company will not, and
will not permit any of its subsidiaries to, among other things:
- declare or pay dividends (other than dividends by the Company's
subsidiaries in the ordinary course of business consistent with past
practice);
- split, combine or reclassify their respective capital stock;
- repurchase, redeem or acquire any of their respective capital stock;
- issue, sell, grant, pledge or otherwise encumber any of their respective
securities (other than issuance of common stock upon exercise of Company
stock options which were issued in the ordinary course or issuance of
stock options or other awards in the ordinary course pursuant to Company
benefit plans) or accelerate the vesting of or the lapsing of restrictions
with respect to restricted stock;
- amend their respective certificates of incorporation or bylaws;
- incur additional indebtedness (subject to certain ordinary course
allowances);
- increase the compensation payable to or materially modify the benefits
provided to employees;
- take any action that could reasonably be expected to result in any of the
conditions to the Merger not being satisfied; or
- enter into non-competition agreements.
In addition, the Company has agreed not to:
- merge or sell substantially all of its assets;
- enter into or amend material employment, consulting or severance
agreements;
- change its method of accounting;
- acquire substantially all of the assets of any other person; or
- make material capital expenditures or commitments.
The Company has also agreed to use reasonable best efforts to consummate certain
sale-leaseback transactions on commercially reasonable terms and to amend its
bylaws to require the vote of 2/3 of the entire board of directors of the
Company to approve certain matters. See "Special Factors--Financing of the
Merger."
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RB Capital and RBR Acquisition have agreed that they will not, without the
consent of the Company (which consent may not be unreasonably withheld or
delayed), engage in certain types of transactions. Specifically, RB Capital and
RBR Acquisition have agreed that prior to the Effective Time, neither of them
will, among other things:
- amend their respective certificates of incorporation or bylaws in any way
that would delay the timely consummation of the Merger or prevent the
consummation of the Merger by the Outside Date;
- change their respective capital structures in a manner that would
materially delay the timely consummation of the Merger or prevent the
consummation of the Merger by the Outside Date; or
- take any action that could reasonably be expected to result in any of the
conditions to the Merger not being satisfied.
In addition, RB Capital agreed to use its reasonable best efforts to consummate
financing on terms consistent with the commitment letters; to keep the
commitment letters in effect until the Effective Time; and to maintain certain
employee benefits for one year following the Effective Time; to maintain
provisions in the organizational documents of the Surviving Corporation
regarding the indemnification of directors and officers following the Effective
Time; and to continue in force the Company's directors and officers liability
insurance for six years following the Effective Time.
RB Capital and the Company have made further agreements regarding, among
other things, advising each other of representations or warranties contained in
the Merger Agreement becoming untrue, of their respective failure to comply with
or satisfy covenants, conditions or agreements contained in the Merger Agreement
and of any change, event or circumstance that could reasonably be expected to
have a material adverse effect on such party or on its ability to consummate the
proposed Merger by the Outside Date; cooperating in the preparation of required
governmental filings, in obtaining required permits and regulatory approvals and
in the release of public announcements; and granting access to information and
maintaining confidentiality.
ACQUISITION PROPOSALS
The Merger Agreement provides that, at any time prior to the Effective Time
(unless RB Capital consents in writing), the Company and the Special Committee
will not, and the Company will use its reasonable best efforts to cause its and
the Special Committee's Representatives not to, either directly or indirectly,
initiate, encourage, or solicit the making, submission or announcement of any
Acquisition Proposal. "Acquisition Proposal" means any offer, indication of
interest or proposal (1) to acquire 30% or more of the Company's assets, or (2)
relating to a transaction which would, upon consummation, result in any person
beneficially owning 30% or more of the capital stock of the Company, in either
case by merger, consolidation, share exchange, reorganization or other business
combination, purchase of assets, tender or other exchange offer or otherwise.
"Acquisition Proposal" does not include any offer, indication of interest or
proposal made by RB Capital, RBR Acquisition or any of the Founders or any of
them jointly with any other person.
In addition, the Company and the Special Committee will not, and the Company
will use its reasonable best efforts to cause its and the Special Committee's
Representatives not to, either directly or indirectly, engage in discussions
with, furnish or provide any non-public information to, or afford reasonable
access to the properties, books, records and Representatives of the Company
(other than Company employees) to, any person with respect to any Acquisition
Proposal unless the Special Committee determines in good faith that the
Acquisition Proposal is reasonably likely to lead to a Superior Proposal (as
defined below) provided that such person has entered into an appropriate
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confidentiality agreement and the Company has notified RB Capital of the taking
of any such action, the identity of the person making such Acquisition Proposal
and the terms of the proposal.
In addition, the Company, the Board or the Special Committee may engage in
negotiations with any person with respect to an Acquisition Proposal; and may
withdraw or modify its recommendation of, or refrain from recommending, the
Merger and the Merger Agreement, approve any Acquisition Proposal, declare such
Acquisition Proposal advisable, recommend such Acquisition Proposal to the
Company's stockholders or terminate the Merger Agreement to accept an
Acquisition Proposal if, prior to taking such action:
- the Special Committee determines in good faith that such Acquisition
Proposal is a Superior Proposal. A "Superior Proposal" is an Acquisition
Proposal which (1) is as or more likely than the Merger to be consummated;
(2) is accompanied by evidence of cash on hand or readily available under
existing lines of credit or written commitments for financing sufficient
to fund its consummation; and (3) would, if consummated, result in a
transaction more favorable to the Company's stockholders from a financial
point of view than the transactions contemplated by the Merger Agreement;
- the Company and Special Committee gives RB Capital 10 business days from
the date of notifying RB Capital of the Acquisition Proposal to propose to
the Company modifications to RB Capital's proposal; and
- the Special Committee provides RB Capital with notice of any material
changes in the terms of a Superior Proposal during its pendency and gives
RB Capital 5 business days, after written notice of the final material
economic terms of the Superior Proposal, to modify RB Capital's proposal.
Finally, the Company, the Board or the Special Committee may take such
actions as required by the rules promulgated under the Exchange Act with regard
to tender offers received by the Company if, prior to taking such action, the
Company notifies RB Capital that the Company intends to take such action and
provides RB Capital with a copy of the tender offer and description of the
financial and other terms, if necessary.
TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after the approval of the proposed Merger by the
stockholders of the Company, by the mutual written consent of the Company and RB
Capital (acting through their respective boards of directors), or by either the
Company or RB Capital if:
- any permanent injunction, judgment, order, decree, ruling or other action
of any governmental entity prohibiting the consummation of the Merger has
become final and nonappealable;
- the Merger has not been consummated by the Outside Date (provided that
such termination will not be available to any party whose material breach
of any representation, warranty, covenant or agreement under the Merger
Agreement has been the cause of or resulted in the failure of the Merger
to occur on or before such date);
- the required stockholder approval is not obtained (provided that, in the
case of RB Capital, the grantee of the irrevocable proxy set forth in the
Voting Agreement shall be able to vote shares of common stock subject to
such proxy in favor of the Merger Agreement or, if unable to vote, RB
Capital, RBR Acquisition and the Founders shall have voted in favor of the
approval of the Merger Agreement and the Merger); or
- the Company's board of directors, based upon the recommendation of the
Special Committee, determines to accept a Superior Proposal.
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The Company may also terminate the Merger Agreement at any time prior to the
Effective Time, whether before or after the approval of the proposed Merger by
the stockholders of the Company, upon a breach by RB Capital or RBR Acquisition
of any representation, warranty, covenant or obligation, in each case, as set
forth in the Merger Agreement, which would have a material adverse effect on RB
Capital or RBR Acquisition (without giving effect to qualifications as to
materiality contained within such representations and warranties), which breach
is not or cannot be materially cured by the Outside Date.
RB Capital may also terminate the Merger Agreement at any time prior to the
Effective Time, whether before or after the approval of the proposed Merger by
the stockholders of the Company:
- if the Board, based upon the recommendation of the Special Committee:
- withdraws or adversely modifies its recommendation of the Merger
Agreement;
- recommends to the stockholders of the Company that they approve an
Acquisition Proposal other than the proposed Merger;
- fails to include the Board's recommendation in favor of the Merger
Agreement or the fairness opinion of U.S. Bancorp Piper Jaffray in this
proxy statement;
- fails to mail this proxy statement within the time periods set forth in
the Merger Agreement or has postponed or, without obtaining the
required shareholder vote, adjourned the stockholder meeting, in each
case, when an Acquisition Proposal from a person other than RB Capital
and RBR Acquisition was publicly pending or known to the Special
Committee;
- if a tender offer or exchange offer which would result in a person owning
30% or more of the common stock is commenced and the Board shall not have
timely recommended rejection of such offer;
- upon a breach by the Company of any representation, warranty, covenant or
obligation, in each case, as set forth in the Merger Agreement, which
would result in the funding of the debt and equity financings being
provided by BankBoston, BancBoston Robertson Stephens and the Founders not
occurring or the proceeds thereof not being immediately available on the
Effective Time or which would have a material adverse effect on the
Company (without giving effect to qualifications as to materiality
contained within such representations and warranties), which breach is not
or cannot be materially cured by the Outside Date; or
- if, despite the exercise of RB Capital's reasonable best efforts, the
funding of the financing for
the completion of the Merger does not occur by the Outside Date by reason
of any failure of any condition to the definitive financing documents or
upon the exercise by any party to the definitive financing documents
(other than RB Capital, RBR Acquisition or any of the Founders) of any
right to terminate the definitive financing documents.
FEES AND EXPENSES
Whether or not the Merger is consummated and except as otherwise provided in
the Merger Agreement, all fees and expenses incurred in connection with the
Merger will be paid by the party incurring such fees and expenses, except that
(1) the Company will pay for all costs and expenses relating to the printing,
filing and mailing of this proxy statement and (2) if the Merger is consummated,
the Surviving Corporation will pay any real property transfer tax imposed on the
holders of shares of capital stock of the Company resulting from the Merger.
Under the terms of the Merger Agreement, the Company will (1) reimburse RB
Capital for its costs and expenses incurred in connection with the Merger,
including any fees or expenses payable pursuant to the Senior Debt Commitment
Letter and the Junior Debt and Equity Commitment Letter,
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up to a maximum of $1,750,000 (the "Costs and Expenses") and (2) pay RB Capital
a cash termination payment equal to $1,000,000 plus the amount by which RB
Capital's reimbursed costs and expenses are less than $1,750,000 (up to a
maximum of $250,000) within two business days after the termination of the
Merger Agreement if:
- the Merger Agreement is terminated by the Company or RB Capital because
the required stockholder approval is not obtained and on or within the
five (5) business days prior to the stockholders meeting at which such
approval was sought, a publicly announced Acquisition Proposal from a
person other than RB Capital and RBR Acquisition was pending;
- the Merger Agreement is terminated by the Company or RB Capital because
the Board, based on the recommendation of the Special Committee, resolves
to accept a Superior Proposal;
- the Merger Agreement is terminated by RB Capital because the Board, based
on the recommendation of the Special Committee:
- withdraws or adversely modifies its recommendation of the Merger
Agreement;
- recommends to the stockholders of the Company that they approve another
Acquisition Proposal;
- fails to include a recommendation in favor of the Merger Agreement or
the fairness opinion of U.S. Bancorp Piper Jaffray in this proxy
statement while an Acquisition Proposal from a person other than RB
Capital and RBR Acquisition was publicly pending or known to the
Special Committee; or
- fails to mail a proxy statement within the time periods set forth in
the Merger Agreement or has postponed or, without obtaining the
required shareholder vote, adjourned the stockholder meeting, in each
case, when an Acquisition Proposal from a person other than RB Capital
and RBR Acquisition is publicly pending or known to the Special
Committee;
- the Merger Agreement is terminated by RB Capital because the Board fails
to timely recommend rejection of a tender offer or exchange offer which
would result in a person owning 30% or more of the common stock; or
- the Company willfully and materially breaches its covenants, obligations,
representations or warranties with regard to Acquisition Proposals set
forth in the Merger Agreement.
The Company will pay RB Capital the Costs and Expenses plus an additional
amount of up to $500,000 if the Merger Agreement is terminated:
- by mutual written consent of the Company and RB Capital;
- by the Company or RB Capital because the Merger has not been consummated
by the Outside Date (for reasons other than the failure of the conditions
to the Company's obligation to consummate the Merger to be satisfied) at a
time when the requisite financing was available;
- by the Company or RB Capital because a Governmental Entity shall have
issued an order permanently restraining the Merger which order does not
result from the failure of the conditions to the Company's obligation to
consummate the Merger to be satisfied;
- by the Company or RB Capital if the required stockholder approval is not
obtained and RB Capital, RBR Acquisition and the Founders have voted or
effectively voted their shares of common stock in favor of approval;
- by RB Capital because the Company breaches any of the representations,
warranties or covenants in the Merger Agreement, which breach cannot be
timely cured; or
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- by RB Capital because the Board, based on the recommendation of the
Special Committee fails to include a recommendation in favor of the Merger
Agreement or the fairness opinion of U.S. Bancorp Piper Jaffray in this
proxy statement while no Acquisition Proposal from a person other than RB
Capital and RBR Acquisition was publicly pending or known to the Special
Committee.
AMENDMENT/WAIVER
Before or after approval of the Merger Agreement by the stockholders, the
Merger Agreement may be amended by the written agreement of the parties thereto
at any time prior to the Effective Time if such amendment is approved on behalf
of the Company by the Special Committee or the Board, based on the
recommendation of the Special Committee, and on behalf of RB Capital or RBR
Acquisition by their respective boards of directors or duly authorized
committees thereof; provided that, after any such stockholder approval has been
obtained, no amendment may be made which under applicable law or Nasdaq rules
requires the approval of the stockholders of the Company if such approval has
not been obtained.
At any time prior to the Effective Time, the Company, RB Capital and RBR
Acquisition may extend the time for performance of any of the obligations or
other acts of the other parties to the Merger Agreement, waive any inaccuracies
in the representations and warranties contained in the Merger Agreement or in
any document delivered pursuant to the Merger Agreement, or waive compliance
with any agreements or conditions contained in the Merger Agreement. Any
extension or waiver will be valid only if set forth in writing and signed by the
party making such extension or waiver.
THE VOTING AGREEMENT
On March 18, 1999, the Founders entered into the Voting Agreement, under the
terms of which each agreed:
- to vote or execute a written consent, with respect to the shares of common
stock of the Company subject to the Voting Agreement in favor of the
approval of the Merger Agreement and the transactions contemplated thereby
and to grant the Special Committee, and its members, on behalf of the
Company, an irrevocable proxy, with respect to such shares and to appoint
the Special Committee and its members as their attorneys-in-fact to so
vote or act by written consent;
- to contribute to RB Capital the amount of cash and/or common stock
specified in the Equity Contribution Letters executed by each of the
Founders;
- to inform the Company and the Special Committee of the receipt of any
Acquisition Proposal; and
- other than as contemplated by the Voting Agreement, to refrain from
selling, pledging or transferring shares of common stock of the Company
subject to the Voting Agreement, or entering into any voting agreement or
granting any proxy with respect thereto.
The Voting Agreement applies to an aggregate of 2,250,173 shares of common
stock owned by RB Capital, RBR Acquisition and the Founders, representing
approximately [28.0%] of the outstanding shares of common stock as of such date.
Shares acquired by any of RB Capital, RBR Acquisition or the Founders after
March 18, 1999, including by virtue of the contribution of shares to RB Capital,
will also be subject to the terms of the Voting Agreement. The Voting Agreement
terminates on the earliest of the Effective Time, the date of termination of the
Merger Agreement or the date the Board recommends an Acquisition Proposal other
than the Merger.
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CERTAIN LITIGATION
On February 2, 1999, a stockholder of the Company filed a purported
stockholder class action lawsuit against the Company and each of the Company's
directors in Colorado District Court for the City and County of Denver under the
caption WOHLMAN V. DAY, ET AL., Case No. 99CV0639. The plaintiff alleged, among
other things, that (1) Mr. Day unfairly possessed non-public information
concerning the financial condition and prospects of the Company when negotiating
with the Company on behalf of RB Capital, and (2) the individual defendants
breached their fiduciary duties to the Company's stockholders by facilitating RB
Capital's proposal to acquire the Company to the exclusion of others, for unfair
and inadequate consideration, which actions prevented or could prevent the
stockholders of the Company from realizing the full and fair value of their
stock. The plaintiff sought preliminary and permanent injunctive relief
restraining the defendants from proceeding with a transaction with RB Capital
and a declaratory judgment that the defendants had breached their fiduciary
duties. The Company and the defendant directors believe the plaintiff's
allegations are without merit. On March 18, 1999, the Company, the defendant
directors, and the named plaintiff reached an agreement in principle with
respect to the settlement of this litigation and, on March 19, 1999, counsel to
each of the parties to the litigation entered into a Memorandum of
Understanding, agreeing to attempt in good faith to settle all claims and pay
certain expenses of plaintiff's counsel and experts following plaintiff's
confirmatory discovery, if any, the execution and court approval of a definitive
settlement agreement and certain other terms and conditions without any
admission of any breach of fiduciary duty or other wrongdoing on the part of any
of the defendants. The Company anticipates that any settlement of this
litigation will not have a material adverse effect on the Company's financial
condition, results of operations or liquidity.
DISSENTERS' RIGHTS OF APPRAISAL
Under Section 262 of the Delaware General Corporation Law ("DGCL"), any
holder of common stock who does not wish to accept the Merger Consideration may
dissent from the Merger and elect to have the fair value of such stockholder's
shares of common stock (exclusive of any element of value arising from the
accomplishment or expectation of the Merger) judicially determined and paid to
such stockholder in cash, together with a fair rate of interest, if any,
provided that such stockholder complies with the provisions of Section 262.
The following discussion is not a complete statement of the law pertaining
to appraisal rights under the DGCL, and is qualified in its entirety by the full
text of Section 262, which is provided in its entirety as Annex C to this proxy
statement. All references in Section 262 and in this summary to a "stockholder"
are to the record holder of the shares of common stock as to which appraisal
rights are asserted. A person having a beneficial interest in shares of common
stock held of record in the name of another person, such as a broker or nominee,
must act promptly to cause the record holder to follow properly the steps
summarized below and in timely manner to perfect appraisal rights.
Under Section 262, where a proposed merger is to be submitted for approval
at a meeting of stockholders, as in the case of the Special Meeting, the
corporation, not less than 20 days prior to the meeting, must notify each of its
stockholders entitled to appraisal rights that such appraisal rights are
available and include in such notice a copy of Section 262. This proxy statement
will constitute such notice to the holders of common stock and the applicable
statutory provisions of the DGCL are attached to this proxy statement as Annex
C. Any stockholder who wishes to exercise such appraisal rights or who wishes to
preserve the right to do so should review carefully the following discussion and
Annex C to this proxy statement. FAILURE TO COMPLY WITH THE PROCEDURES SPECIFIED
IN SECTION 262 TIMELY AND PROPERLY WILL RESULT IN THE LOSS OF APPRAISAL RIGHTS.
Moreover, because of the complexity of the procedures for exercising the right
to seek appraisal of the common stock, the Company believes that stockholders
who consider exercising such rights should seek the advice of counsel.
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<PAGE>
Any holder of common stock wishing to exercise the right to dissent from the
Merger and demand appraisal under Section 262 of the DGCL must satisfy each of
the following conditions:
- deliver to the Company a written demand for appraisal of such
stockholder's shares before the vote on the Merger Agreement at the
Special Meeting, which demand will be sufficient if it reasonably informs
the Company of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares;
- not vote the holder's shares of common stock in favor of the Merger
Agreement; a proxy which does not contain voting instructions will, unless
revoked, be voted in favor of the Merger Agreement, therefore, a
stockholder who votes by proxy and who wishes to exercise appraisal rights
must vote against the Merger Agreement or abstain from voting on the
Merger Agreement; and
- continuously hold such shares from the date of making the demand through
the Effective Time; a stockholder who is the record holder of shares of
common stock on the date the written demand for appraisal is made but who
thereafter transfers such shares prior to the Effective Time will lose any
right to appraisal in respect of such shares.
Neither voting (in person or by proxy) against, abstaining from voting on or
failing to vote on the proposal to approve the Merger Agreement will constitute
a written demand for appraisal within the meaning of Section 262. The written
demand for appraisal must be in addition to and separate from any such proxy or
vote.
Only a holder of record of shares of common stock issued and outstanding
immediately prior to the Effective Time is entitled to assert appraisal rights
for the shares of common stock registered in that holder's name. A demand for
appraisal should be executed by or on behalf of the stockholder of record, fully
and correctly, as such stockholder's name appears on such stock certificates,
should specify the stockholder's name and mailing address, the number of shares
of common stock owned and that such stockholder intends thereby to demand
appraisal of such stockholder's common stock. If the shares are owned of record
in a fiduciary capacity, such as by a trustee, guardian or custodian, execution
of the demand should be made in that capacity. If the shares are owned of record
by more than one person as in a joint tenancy or tenancy in common, the demand
should be executed by or on behalf of all owners. An authorized agent, including
one or more joint owners, may execute a demand for appraisal on behalf of a
stockholder; however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, the agent is acting
as agent for such owner or owners. A record holder such as a broker who holds
shares as nominee for several beneficial owners may exercise appraisal rights
with respect to the shares held for one or more beneficial owners while not
exercising such rights with respect to the shares held for one or more
beneficial owners; in such case, the written demand should set forth the number
of shares as to which appraisal is sought, and where no number of shares is
expressly mentioned the demand will be presumed to cover all shares held in the
name of the record owner. Stockholders who hold their shares in brokerage
accounts or other nominee forms and who wish to exercise appraisal rights are
urged to consult with their brokers to determine and appropriate procedures for
the making of a demand for appraisal by such nominee.
A stockholder who elects to exercise appraisal rights pursuant to Section
262 should mail or deliver a written demand to: Rock Bottom Restaurants, Inc.,
248 Centennial Parkway, Suite 100, Louisville, Colorado 80027, Theresa D.
Shelton, Assistant Secretary.
Within ten days after the Effective Time, the Surviving Corporation must
send a notice as to the effectiveness of the Merger to each former stockholder
of the Company who has made a written demand for appraisal in accordance with
Section 262 and who has not voted in favor of the Merger Agreement. Within 120
days after the Effective Time, but not thereafter, either the Surviving
65
<PAGE>
Corporation or any dissenting stockholder who has complied with the requirements
of Section 262 may file a Petition in the Delaware Chancery Court demanding a
determination of the value of the shares of common stock held by all dissenting
stockholders. The Company is under no obligation to and has no present intent to
file a petition for appraisal, and stockholders seeking to exercise appraisal
rights should not assume that the Surviving Corporation will file such a
petition or that the Surviving Corporation will initiate any negotiations with
respect to the fair value of such shares. Accordingly, stockholders who desire
to have their shares appraised should initiate any petitions necessary for the
perfection of their appraisal rights within the time periods and in the manner
prescribed in Section 262. Inasmuch as the Company has no obligation to file
such a petition, the failure of a stockholder to do so within the period
specified could nullify such stockholder's previous written demand for
appraisal. In any event, at any time within 60 days after the Effective Time (or
at any time thereafter with the written consent of the Company), any stockholder
who has demanded appraisal has the right to withdraw the demand and to accept
payment of the Merger Consideration.
Under the Merger Agreement, the Company has agreed to give RB Capital prompt
notice of any demands for appraisal received by the Company. RB Capital has the
right to participate in and approve all negotiations and proceedings with
respect to demands for appraisal under the DGCL. The Company will not, except
with the prior written consent of RB Capital, make any payment with respect to
any demands for appraisal, or offer to settle, or settle, any such demands.
Within 120 days after the Effective Time, any stockholder who has complied
with the provisions of Section 262 to that point in time will be entitled to
receive from the Surviving Corporation, upon written request, a statement
setting forth the aggregate number of shares not voted in favor of the Merger
Agreement and with respect to which demands for appraisal have been received and
the aggregate number of holders of such shares. The Surviving Corporation must
mail such statement to the stockholder within 10 days of receipt of such request
or within 10 days after expiration of the period for delivery of demands for
appraisals under Section 262, whichever is later.
A stockholder timely filing a petition for appraisal with the Court of
Chancery must deliver a copy to the Surviving Corporation, which will then be
obligated within 20 days to provide the Delaware Court of Chancery with a duly
verified list containing the names and addresses of all stockholders who have
demanded appraisal of their shares. After notice to such stockholders, the
Delaware Court of Chancery is empowered to conduct a hearing on the petition to
determine which stockholders are entitled to appraisal rights. The Delaware
Court of Chancery may require stockholders who have demanded an appraisal for
their shares and who hold stock represented by certificates to submit their
certificates to the Register in Chancery for notation thereon of the pendency of
the appraisal proceedings, and if any stockholder fails to comply with the
requirement, the Delaware Court of Chancery may dismiss the proceedings as to
that stockholder.
After determining the stockholders entitled to an appraisal, the Delaware
Court of Chancery will appraise the "fair value" of their shares, exclusive of
any element of value arising from the accomplishment or expectation of the
Merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value. The costs of the action may be
determined by the Delaware Chancery Court and taxed upon the parties as the
Delaware Chancery Court deems equitable. Upon application of a dissenting
stockholder, the Delaware Chancery Court may also order that all or a portion of
the expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts, be charged pro rata against the value of all of
the shares entitled to appraisal. STOCKHOLDERS CONSIDERING SEEKING APPRAISAL
SHOULD BE AWARE THAT THE FAIR VALUE OF THEIR SHARES AS DETERMINED UNDER SECTION
262 COULD BE MORE THAN, THE SAME AS OR LESS THAN THE MERGER CONSIDERATION THEY
WOULD RECEIVE PURSUANT TO THE MERGER AGREEMENT IF THEY DID NOT SEEK APPRAISAL OF
THEIR SHARES. STOCKHOLDERS SHOULD ALSO BE AWARE THAT INVESTMENT BANKING OPINIONS
ARE NOT OPINIONS AS TO FAIR VALUE UNDER SECTION 262.
66
<PAGE>
In determining fair value and, if applicable, a fair rate of interest, the
Delaware Chancery Court is to take into account all relevant factors. In
Weinberger v. UOP, Inc., the Delaware Supreme Court discussed the factors that
could be considered in determining fair value in an appraisal proceeding,
stating that "proof of value by any techniques or methods that are generally
considered acceptable in the financial community and otherwise admissible in
court" should be considered, and that "fair price obviously requires
consideration of all relevant factors involving the value of a company." The
Delaware Supreme Court stated that, in making this determination of fair value,
the court must consider market value, asset value, dividends, earnings
prospects, the nature of the enterprise and any other facts that could be
ascertained as of the date of the merger that throw any light on future
prospects of the merged corporation. In Weinberger, the Delaware Supreme Court
stated that "elements of future value, including the nature of the enterprise,
that are known or susceptible of proof as of the date of the merger and not the
product of speculation, may be considered." Section 262 provides that fair value
is to be "exclusive of any element of value arising from the accomplishment or
expectation of the merger."
Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the Effective Time, be entitled to vote the shares
subject to such demand for any purpose or be entitled to the payment of
dividends or other distributions on those shares (except dividends or other
distributions payable to holders of record of shares as of a record date prior
to the Effective Time).
Any stockholder may withdraw its demand for appraisal and accept the Merger
Consideration by delivering to the Surviving Corporation a written withdrawal of
such stockholder's demands for appraisal, except that (1) any such attempt to
withdraw made more than 60 days after the Effective Time will require written
approval of the Surviving Corporation and (2) no appraisal proceeding in the
Delaware Chancery Court shall be dismissed as to any stockholder without the
approval of the Delaware Chancery Court, and such approval may be conditioned
upon such terms as the Delaware Chancery Court deems just. If the Surviving
Corporation does not approve a stockholder's request to withdraw a demand for
appraisal when such approval is required or if the Delaware Chancery Court does
not approve the dismissal of an appraisal proceeding, the stockholder would be
entitled to receive only the appraised value determined in any such appraisal
proceeding, which value could be lower than the value of the Merger
Consideration.
FAILURE TO COMPLY STRICTLY WITH ALL OF THE PROCEDURES SET FORTH IN SECTION
262 OF THE DGCL WILL RESULT IN THE LOSS OF A STOCKHOLDER'S STATUTORY APPRAISAL
RIGHTS. CONSEQUENTLY, ANY STOCKHOLDER WISHING TO EXERCISE APPRAISAL RIGHTS IS
URGED TO CONSULT LEGAL COUNSEL BEFORE ATTEMPTING TO EXERCISE SUCH RIGHTS.
67
<PAGE>
MARKET FOR THE COMMON STOCK
COMMON STOCK MARKET PRICE INFORMATION; DIVIDEND INFORMATION
The Company's common stock is traded on the Nasdaq National Market under the
symbol "BREW." The following table shows, for the quarters indicated, the per
share high and low closing sale prices of the common stock on the Nasdaq
National Market based on published financial sources. The Company has not paid
any dividends on its common stock since its initial public offering in 1994.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL YEAR ENDING DECEMBER 28, 1997
First Quarter............................................................. $ 12.00 $ 8.63
Second Quarter............................................................ 12.00 9.25
Third Quarter............................................................. 10.00 7.25
Fourth Quarter............................................................ 11.75 5.75
FISCAL YEAR ENDING DECEMBER 27, 1998
First Quarter............................................................. $ 6.63 $ 5.06
Second Quarter............................................................ 7.56 5.50
Third Quarter............................................................. 6.88 4.63
Fourth Quarter............................................................ 6.50 4.88
FISCAL YEAR ENDING DECEMBER 26, 1999
First Quarter............................................................. $ 8.97 $ 5.13
</TABLE>
On January 25, 1999, the last full trading day prior to the public
announcement by a third party of an indication of interest in the Company, the
high and low sales prices of the common stock on the Nasdaq National Market were
$6.81 and $6.38, respectively, and the closing sale price was $6.63. On March
18, 1998, the last full trading day prior to the day on which the execution of
the Merger Agreement was publicly announced, the closing sale price for the
common stock on the Nasdaq National Market was $8.44. On [Month Day], 1999, the
last trading day prior to the date of this proxy statement, the closing price
for the common stock on the Nasdaq National Market was $[XX]. The market price
for common stock is subject to fluctuation and stockholders are urged to obtain
current market quotations.
COMMON STOCK PURCHASE INFORMATION
Except as described in this proxy statement, none of the Company, its
executive officers or directors, RB Capital, RBR Acquisition or any of the
Founders has engaged in any transaction with respect to the common stock within
the past 60 days. Except as set forth below, since December 29, 1996, none of
the Company, RB Capital, RBR Acquisition or any of the Founders has purchased
any of the Company's common stock:
<TABLE>
<CAPTION>
PURCHASER PURCHASE DATE NUMBER OF SHARES PURCHASE PRICE
- -------------------------------------------------- ----------------- ---------------- --------------
<S> <C> <C> <C>
Frank B. Day...................................... March 5, 1998 5,000 $ 6.625
Arthur Wong....................................... February 26, 1998 2,500 $ 6.4375
Arthur Wong....................................... February 27, 1998 5,000 $ 6.5175
Arthur Wong....................................... February 28, 1998 1,500 $ 6.4375
Arthur Wong....................................... March 3, 1998 6,000 $ 6.4375
</TABLE>
The average purchase price for shares of the Company's common stock purchased by
the Company, RB Capital, RBR Acquisition or any of the Founders during the first
quarter of 1998 was $6.5044 per share.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of March 26, 1999,
except as otherwise indicated, concerning the beneficial ownership of the
Company's common stock by (1) each person or group known by the Company to
beneficially own more than 5% of the outstanding shares of common stock; (2)
each director of the Company, (3) the Company's Chief Executive Officer and the
three other executive officers of the Company; and (4) all of the Company's
directors and executive officers as a group.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) SHARES COMMON STOCK (%)
- ------------------------------------------------------------- ---------- ---------------------
<S> <C> <C>
ICM Asset Management, Inc.(2) ............................... 952,350 11.8
601 W. Main Ave., Suite 600
Spokane, Washington 99201
Dimensional Fund Advisors(2) ................................ 466,500 5.8
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Frank B. Day(3)(4) .......................................... 1,372,919 17.0
Duncan H. Cocroft(5) ........................................ 12,564 *
Robert D. Greenlee(3)(5) .................................... 533,041 6.6
Mary C. Hacking(5) .......................................... 13,591 *
Gerald A. Hornbeck(5) ....................................... 30,022 *
David M. Lux(3)(6) .......................................... 187,871 2.3
Arthur Wong(3)(5) ........................................... 228,976 2.8
William S. Hoppe(5)(7) ...................................... 83,646 1.0
Ned R. Lidvall(5)(7) ........................................ 79,244 1.0
Theresa D. Shelton(5) ....................................... 29,244 *
All directors and executive officers as a group (10
persons)(8) ............................................... 2,571,118 31.0
</TABLE>
- ------------------------
* Less than one percent
(1) Unless otherwise indicated, the address of each of the beneficial owners
identified is c/o Rock Bottom Restaurants, Inc., 248 Centennial Parkway,
Suite 100, Louisville, Colorado 80027.
(2) Ownership interests are as of December 31, 1998.
(3) The Voting Agreement executed by Messrs. Day, Greenlee, Lux and Wong in
connection with the proposed merger with RB Capital granted the Special
Committee, on behalf of the Company, an irrevocable proxy to vote such
shares. By virtue of the Voting Agreement, each of Messrs. Day, Greenlee,
Lux and Wong, together with RB Capital, have joined in the filing with the
SEC of a Schedule 13-D which indicates shared voting power over an aggregate
of 2,354,080 shares (which number includes all options, whether exercisable
as of within 60 days from March 26, 1999 or not, held by such persons).
(4) Includes 680,635 shares held in trusts of which Mr. Day is trustee, 10,499
shares of restricted stock and 39,147 shares subject to stock options
exercisable as of or within 60 days from March 26, 1999.
(5) Includes shares subject to stock options exercisable as of or within 60 days
from March 26, 1999 as follows: Mr. Cocroft-- 12,564 shares; Mr.
Greenlee--13,905 shares; Ms. Hacking--13,591 shares; Mr. Hornbeck--30,022
shares; Mr. Wong--12,776 shares; Mr. Hoppe--49,773 shares; Mr.
Lidvall--45,603 shares; and Ms. Shelton--27,044 shares.
(6) Includes 8,850 shares held in the David M. Lux Irrevocable Grantor Trust of
which Mr. Lux is trustee, 3,000 shares held by DT Lux Ltd. of which Mr. Lux
is the general partner, and 6,806 shares subject to stock options
exercisable as of or within 60 days from March 26, 1999.
(7) Includes shares of restricted stock as follows: Mr. Hoppe--32,921 shares;
and Mr. Lidvall--32,554 shares.
(8) Includes a total of 251,231 shares subject to stock options exercisable as
of or within 60 days or March 26, 1999, and 75,974 shares of restricted
stock.
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<PAGE>
DIRECTORS AND MANAGEMENT
THE COMPANY
Set forth below are the name and business address of each director and
executive officer of the Company, the present principal occupation or employment
of each such person and the name, principal business and address of the
corporation or other organization in which such occupation or employment of each
such person is conducted. Also set forth below are the material occupations,
positions, offices and employment of each such person and the name, principal
business and address of any corporation or other organization in which any
material occupation, position, office or employment of each such person was held
during the last five years. Messrs. Day, Cocroft, Greenlee, Hornbeck, Lux and
Wong and Ms. Hacking are directors of the Company. Each person listed below is a
citizen of the United States.
<TABLE>
<CAPTION>
NAME AND BUSINESS ADDRESS PRINCIPAL OCCUPATIONS
- ------------------------------------------ ---------------------------------------------------------------------
<S> <C>
Frank B. Day ............................. Chairman of the Board since 1994. Mr. Day has also served as Chief
248 Centennial Parkway Executive Officer since 1997 and from 1976 to 1995, and as
Suite 100 President since 1997. Since 1992, Mr. Day has served as a director
Louisville, Colorado 80027 and officer of Black Hawk Gaming and Development, Inc., 2060
Broadway, #400, Boulder, Colorado 80302. Since 1994, Mr. Day has
served as the Chairman of the Board and President of Concept
Restaurants, 1227 Spruce Street, Boulder, Colorado 80302, and
President of FBD Management, Inc., P.O. Box 25662 Christiansted,
St. Croix, USVI 00824.
Duncan H. Cocroft ........................ Director since 1996. Since 1997, Mr. Cocroft has served as Senior
101 Brickell Bay Drive Vice President and Chief Administrative Officer of Kos
25th Floor Pharmaceuticals, Inc., 101 Brickell Bay Drive, 25th Floor, Miami,
Miami, Florida 33131 Florida 33131. From 1990 to 1997, Mr. Cocroft served as Vice
President of Finance and Chief Financial Officer of International
Multifoods Corporation, Minneapolis, Minnesota.
Robert D. Greenlee ....................... Secretary and a Director since 1994. Mayor of Boulder, Colorado from
2060 Broadway November 1997 to September 1998. Since 1988, Mr. Greenlee has
Suite 400 served as President of Centennial Investment & Management Company,
Boulder, Colorado 80302 Inc., 2060 Broadway, #400, Boulder, Colorado 80302. Since 1992, Mr.
Greenlee has served as Chairman of the Board, Chief Executive
Officer and President of Black Hawk Gaming and Development, Inc.,
2060 Broadway, #400, Boulder, Colorado 80302. Since 1990, Mr.
Greenlee has served as President of 1123 Walnut Corporation, 2060
Broadway, #400, Boulder, Colorado 80302.
Mary C. Hacking .......................... Director since 1994. Since 1995, Ms. Hacking has been President and
1425 Market Street owner of Think Marketing, L.L.C., 1425 Market Street, Suite 100,
Suite 100 Denver, Colorado 80202. From 1990 to 1995, Ms. Hacking served as
Denver, Colorado 80220 President of Barnhart Advertising, Marketing and Public Relations,
Inc., Denver, Colorado.
Gerald A. Hornbeck ....................... Director since 1994. Since 1990, Mr. Hornbeck has served as President
1164 Safety Harbor Cove of Concept Management, Inc., 1164 Safety Harbour Cove, Old Hickory,
Old Hickory, Tennessee 37138 Tennessee 37138.
</TABLE>
70
<PAGE>
<TABLE>
<CAPTION>
NAME AND BUSINESS ADDRESS PRINCIPAL OCCUPATIONS
- ------------------------------------------ ---------------------------------------------------------------------
<S> <C>
David M. Lux .............................
13 South Tejon Director since 1994. Since 1982, Mr. Lux has served as a director and
Suite 206 executive officer of Concept Restaurant Management C.S., Inc., 13
Colorado Springs, Colorado 80903 South Tejon, Suite 206, Colorado Springs, Colorado 80903.
Arthur Wong ..............................
1 East Wacker Drive Director since 1995. Mr. Wong is also a principal in numerous private
Suite 3430 companies, including computer software, hospitality, real estate,
Chicago, Illinois 60601 healthcare, retail, recreation and financial services companies.
William S. Hoppe ......................... Chief Administrative Officer since 1997, Executive Vice President
248 Centennial Parkway since November 1996, and Chief Financial Officer since May 1996.
Suite 100 From May to November 1996, Mr. Hoppe served as Vice President and
Louisville, Colorado 80027 Treasurer of the Company. From 1993 to 1996, Mr. Hoppe served as
Executive Vice President and Chief Financial Officer for ZuZu,
Inc., 2651 North Harwood, Suite 100, Dallas, Texas 75201.
Ned R. Lidvall ........................... Executive Vice President and Chief Operating Officer since December
248 Centennial Parkway 1997. From November 1996 to November 1997, Mr. Lidvall served as
Suite 100 Executive Vice President--Brewery Operations, and from October 1995
Louisville, Colorado 80027 to October 1996, Vice President--Operations. From May 1994 to
September 1996, Mr. Lidvall served as Vice President of Operations
for On the Border Cafes Corporation, 6820 LBJ Freeway, Dallas,
Texas 75240.
Theresa D. Shelton ....................... Treasurer since December 1997, Vice President--Finance since June
248 Centennial Parkway 1996 and Assistant Secretary since February 1996. Ms. Shelton
Suite 100 served as Controller of the Company from October 1994 to June 1996.
Louisville, Colorado 80027 From September 1985 to September 1994, Ms. Shelton served as audit
manager with Arthur Andersen LLP, 1225 Seventeenth Street, Suite
3100, Denver, Colorado 80202.
</TABLE>
RB CAPITAL AND RBR ACQUISITION
Mr. Day is the President, and Mr. Wong is the Vice President, Treasurer and
Secretary, of each of RB Capital and RBR Acquisition. All information concerning
the current business address, present principal occupation or employment and
five-year employment history for each of Messrs. Day and Wong is the same as the
information set forth above. In addition to holding the offices indicated,
Messrs. Day and Wong both serve as directors of each of RB Capital and RBR
Acquisition.
INDEPENDENT AUDITORS
The firm of Arthur Andersen LLP has served as the Company's independent
auditors since 1994. The consolidated financial statements of the Company for
each of the years in the three year period ended December 27, 1998 included in
the Company's Annual Report on Form 10-K for the fiscal year ended December 27,
1998 attached hereto as Annex D hereto, have been audited by Arthur Andersen,
independent auditors, as stated in their reports appearing therein. It is
expected that representatives of Arthur Andersen will be present at the Special
Meeting, both to respond to appropriate questions of stockholders of the Company
and to make a statement if they so desire.
71
<PAGE>
STOCKHOLDER PROPOSALS
If the Merger is consummated, there will be no public stockholders of the
Company and no public participation in any future meetings of stockholders of
the Company. However, if the Merger is not consummated, the Company's public
stockholders will continue to be entitled to attend and participate in Company
stockholders' meetings. Pursuant to Rule 14a-8 under the Exchange Act
promulgated by the SEC, any stockholder of the Company who wishes to present a
proposal at the next Annual Meeting of Stockholders of the Company (in the event
the Merger is not consummated), and who wishes to have such proposal included in
the Company's proxy statement for that meeting, must have delivered a copy of
such proposal to the Company at 248 Centennial Parkway, Suite 100, Louisville,
Colorado 80027, Attention: Corporate Secretary, so that it was received no later
than December 23, 1998. In order for proposals by stockholders not submitted in
accordance with Rule 14a-8 to have been timely within the meaning of Rule
14a-4(c) under the Exchange Act, such proposal must have been submitted so that
it was received no later than March 7, 1999.
WHERE YOU CAN FIND MORE INFORMATION
The SEC allows the Company to "incorporate by reference" information into
this proxy statement, which means that the Company can disclose important
information by referring you to another document filed separately with the SEC.
The following documents previously filed by the Company with the SEC are
incorporated by reference in this Proxy Statement and are deemed to be a part
hereof:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
December 27, 1998; and
(2) The Company's Current Report on Form 8-K dated March 23, 1999.
Specifically, the information set forth in the following sections of the
Company's Annual Report on Form 10-K for the fiscal year ended December 27, 1998
is incorporated by reference in this proxy statement and deemed to be a part
hereof:
Item 1: Business;
Item 5: Market for Registrant's Common Equity and Related Stockholder
Matters;
Item 6: Selected Financial Data;
Item 7: Management's Discussion and Analysis of Financial Condition and
Results of Operations;
Item 8: Financial Statements and Supplementary Data; and
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
The Company's Annual Report on Form 10-K for the fiscal year ended December
27, 1998 and Current Report on Form 8-K dated March 23, 1999, are enclosed with
this proxy statement. Any statement contained in a document incorporated by
reference herein shall be deemed to be modified or superseded for all purposes
to the extent that a statement contained in this proxy statement modifies or
replaces such statement.
The Company undertakes to provide by first class mail, without charge and
within one business day of receipt of any written or oral request, to any person
to whom a copy of this proxy statement has been delivered, a copy of any or all
of the documents referred to above which have been incorporated by reference in
this proxy statement, other than exhibits to such documents (unless such
exhibits are specifically incorporated by reference therein). Requests for such
copies should be directed to Corporate Secretary, Rock Bottom Restaurants, Inc.,
248 Centennial Parkway, Suite 100, Louisville, Colorado 80027; telephone number:
(303) 664-4000.
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<PAGE>
OTHER BUSINESS
The Board does not know of any other matters to be presented for action at
the Special Meeting other than as set forth in this proxy statement. If any
other business should properly come before the Special Meeting, the persons
named in the enclosed proxy card intend to vote thereon in accordance with their
best judgment on the matter.
AVAILABLE INFORMATION
No person is authorized to give any information or to make any
representations, other than as contained in this proxy statement, in connection
with the Merger Agreement or the Merger, and, if given or made, such information
or representations may not be relied upon as having been authorized by the
Company, RB Capital or RBR Acquisition. The delivery of this proxy statement
shall not, under any circumstances, create any implication that there has been
no change in the information set forth herein or in the affairs of the Company
since the date hereof.
Because the Merger is a "going private" transaction, RB Capital, RBR
Acquisition, the Founders and the Company have filed with the SEC a Rule 13e-3
Transaction Statement on Schedule 13E-3 under the Exchange Act with respect to
the Merger. This proxy statement does not contain all of the information set
forth in the Schedule 13E-3 and the exhibits thereto. Copies of the Schedule
13E-3 and the exhibits thereto are available for inspection and copying at the
principal executive offices of the Company during regular business hours by any
interested stockholder of the Company, or a representative who has been so
designated in writing, and may be inspected and copied, or obtained by mail, by
written request directed to Corporate Secretary, Rock Bottom Restaurants, Inc.,
248 Centennial Parkway, Suite 100, Louisville, Colorado 80027, or from the SEC
as described below.
The Company is currently subject to the information requirements of the
Exchange Act and in accordance therewith files periodic reports, proxy
statements and other information with the SEC relating to its business,
financial and other matters. Copies of such reports, proxy statements and other
information, as well as the Schedule 13E-3 and the exhibits thereto, may be
copied (at prescribed rates) at the public reference facilities maintained by
the SEC at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549 and at the following Regional Offices of the SEC: 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661; and Seven World Trade Center, Suite 1300,
New York, New York 10048. For further information concerning the SEC's public
reference rooms, you may call the SEC at 1-800-SEC-0330. Some of this
information may also be accessed on the World Wide Web through the SEC's
Internet address at "http://www.sec.gov." The Company's common stock is listed
on the Nasdaq National Market (ticker symbol: BREW), and materials may also be
inspected at its offices, 1735 K Street, N.W., Washington, D.C. 20006.
By Order of the Board of Directors
/s/ ROBERT D. GREENLEE
Robert D. Greenlee
SECRETARY
Louisville, Colorado
[Month Day], 1999
73
<PAGE>
LIST OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE
- ----------------------------------------------- -----
<S> <C>
Acquisition Proposal........................... 56
BankBoston Robertson Stephens.................. 17
BankBoston..................................... 20
Board.......................................... 13
Borrower....................................... 41
Bridge Loan.................................... 43
Certificate.................................... 57
CHSH........................................... 19
CHSH Proposal.................................. 19
Code........................................... 39
Company........................................ 13
ConQuest....................................... 17
Costs and Expenses............................. 59
Credit Agreement............................... 41
Davis Graham................................... 17
December 23 Meeting............................ 17
DGCL........................................... 62
Dissenting Stockholders........................ 13
Effective Time................................. 50
Employment Agreement........................... 38
Engagement Letter.............................. 33
Equity Contribution Letters.................... 46
Exchange Act................................... 40
Exchange Agent................................. 51
Exchange Fund.................................. 51
Executive...................................... 38
February 11 Meeting............................ 19
February 19 Meeting............................ 21
February 27 Meeting............................ 22
Founders....................................... i
Guarantors..................................... 42
HSR Act........................................ 48
Initial ConQuest Proposal...................... 17
Initial RB Capital Proposal.................... 18
Issuer......................................... 44
<CAPTION>
TERM PAGE
- ----------------------------------------------- -----
<S> <C>
January 22 Meeting............................. 18
Junior Equity Securities....................... 43
Lenders........................................ 41
March 10 Meeting............................... 22
March 18 Meeting............................... 23
Merger......................................... 13
Merger Agreement............................... 13
Merger Consideration........................... 13
Norwest Credit Facility........................ 47
Outside Date................................... 53
RB Capital..................................... 13
RBR Acquisition................................ 13
Record Date.................................... 14
Revised ConQuest Proposal...................... 20
Revised RB Capital Proposal.................... 20
Sale-Leaseback Transactions.................... 46
Senior Debt Commitment Letter.................. 41
Senior Debt Facilities......................... 41
Senior Subordinated Debt Securities............ 43
Special Committee.............................. 13
Special Meeting................................ 13
Stockholder Litigation......................... 19
Stock Option Consideration..................... 52
Subordinated Debt and Junior Equity Commitment
Letter....................................... 43
Subordinated Debt and Junior Equity
Facilities................................... 43
Superior Proposal.............................. 57
Surviving Corporation.......................... 13
Term Loan A.................................... 42
Term Loan B.................................... 42
U.S. Bancorp Piper Jaffray..................... 13
Voting Agreements.............................. 14
Warrants....................................... 45
</TABLE>
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<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF MARCH 18, 1999
BY AND AMONG
RB CAPITAL, INC.,
A DELAWARE CORPORATION
RBR ACQUISITION CORP.,
A DELAWARE CORPORATION
AND
ROCK BOTTOM RESTAURANTS, INC.,
A DELAWARE CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I. THE MERGER.....................................................................................1
1.1. The Merger...........................................................................................1
1.2. Closing..............................................................................................2
1.3. Effective Time.......................................................................................2
1.4. Effects of the Merger................................................................................2
1.5. Certificate of Incorporation.........................................................................2
1.6. Bylaws...............................................................................................2
1.7. Directors............................................................................................2
1.8. Effect on Capital Stock..............................................................................2
1.9. Dissenting Shares....................................................................................3
1.10. Stock Options.......................................................................................4
ARTICLE II. EXCHANGE OF CERTIFICATES.......................................................................4
2.1. Exchange Fund........................................................................................4
2.2. Exchange Procedures..................................................................................4
2.3. No Further Ownership Rights in Company Common Stock..................................................5
2.4. Termination of Exchange Fund; Unclaimed Funds........................................................6
2.5. No Liability.........................................................................................6
2.6. Lost Certificates....................................................................................6
2.7. Withholding Rights...................................................................................6
ARTICLE III. REPRESENTATIONS AND WARRANTIES.................................................................7
3.1. Representations and Warranties of the Company........................................................7
3.2. Representations and Warranties of Parent and Merger Sub.............................................12
ARTICLE IV. COVENANTS RELATING TO CONDUCT OF BUSINESS.....................................................15
4.1. Covenants of the Company............................................................................15
4.2. Covenants of Parent and Merger Sub..................................................................18
4.3. Advice of Changes; Government Filings...............................................................18
ARTICLE V. ADDITIONAL AGREEMENTS.........................................................................19
5.1. Stockholders Meeting; Preparation of Disclosure Documents...........................................19
5.2. Access to Information; Confidentiality..............................................................21
5.3. Approvals and Consents; Cooperation.................................................................21
5.4. Financing...........................................................................................22
5.5. Acquisition Proposals...............................................................................22
5.6. Employee Benefits; Company Plans....................................................................25
5.7. Fees and Expenses...................................................................................25
5.8. Indemnification; Directors'and Officers'Insurance...................................................25
5.9. Public Announcements................................................................................25
5.10. Takeover Statutes..................................................................................26
5.11. Supermajority Voting Requirement...................................................................26
5.12. Voting Agreement; Certain Other Agreements.........................................................26
5.13. Further Assurances.................................................................................26
ARTICLE VI. CONDITIONS PRECEDENT..........................................................................27
6.1. Conditions to Each Party's Obligation to Effect the Merger..........................................27
6.2. Conditions to the Obligation of Parent and Merger Sub to Effect the Merger..........................27
</TABLE>
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<TABLE>
<S> <C> <C>
6.3. Conditions to the Obligation of the Company to Effect the Merger....................................28
ARTICLE VII. TERMINATION AND AMENDMENT.....................................................................28
7.1. Termination.........................................................................................28
7.2. Effect of Termination; Termination Fee and Reimbursement of Expenses................................30
7.3. Amendment...........................................................................................32
7.4. Extension; Waiver...................................................................................32
7.5. Procedure for Termination, Amendment, Extension or Waiver...........................................32
ARTICLE VIII. GENERAL PROVISIONS............................................................................33
8.1. Non-Survival of Representations, Warranties, Covenants and Agreements...............................33
8.2. Notices.............................................................................................33
8.3. Interpretation......................................................................................34
8.4. Counterparts........................................................................................35
8.5. Entire Agreement; No Third Party Beneficiaries......................................................35
8.6. Governing Law.......................................................................................35
8.7. Waiver of Jury Trial................................................................................35
8.8. Severability........................................................................................36
8.9. Assignment..........................................................................................36
8.10. Enforcement........................................................................................36
8.11. Definitions........................................................................................36
</TABLE>
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<PAGE>
GLOSSARY OF DEFINED TERMS
<TABLE>
<CAPTION>
LOCATION OF
DEFINITION DEFINED TERM
<S> <C>
Acquisition Proposal.................................................................................Section 5.5(a)
Affiliate...........................................................................................Section 8.11(a)
Agreement..................................................................................................Preamble
Business Day........................................................................................Section 8.11(b)
Certificate of Merger...................................................................................Section 1.3
Closing.................................................................................................Section 1.2
Closing Date............................................................................................Section 1.2
Code....................................................................................................Section 2.7
Commitments..........................................................................................Section 3.2(d)
Company....................................................................................................Preamble
Company Board..............................................................................................Recitals
Company Common Stock.......................................................................................Recitals
Company Disclosure Schedule.............................................................................Section 3.1
Company Incentive Plans................................................................................Section 1.10
Company Stock Options..................................................................................Section 1.10
Confidentiality Agreement...............................................................................Section 5.2
Definitive Financing Agreements.........................................................................Section 5.4
Delaware Secretary of State.............................................................................Section 1.3
DGCL....................................................................................................Section 1.1
Dissenting Shares.......................................................................................Section 1.9
Dissenting Stockholder..................................................................................Section 1.9
Effective Time..........................................................................................Section 1.3
Exchange Act....................................................................................Section 3.1(c)(iii)
Exchange Agent..........................................................................................Section 2.1
Exchange Fund...........................................................................................Section 2.1
Expenses............................................................................................Section 8.11(c)
Financing............................................................................................Section 3.2(d)
GAAP.................................................................................................Section 3.1(d)
Governmental Entity.............................................................................Section 3.1(c)(iii)
HSR Act.........................................................................................Section 3.1(c)(iii)
Indemnified Parties.....................................................................................Section 5.8
Liens...........................................................................................Section 3.1(b)(iii)
Material Adverse Effect.............................................................................Section 8.11(d)
Merger..................................................................................................Section 1.1
Merger Consideration.................................................................................Section 1.8(c)
Merger Sub.................................................................................................Preamble
Modified Proposal....................................................................................Section 5.5(c)
Nasdaq..........................................................................................Section 3.1(c)(iii)
Organizational Documents............................................................................Section 8.11(e)
</TABLE>
iii
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<TABLE>
<S> <C>
Other Party.........................................................................................Section 8.11(f)
Outside Date.........................................................................................Section 7.1(b)
Parent.....................................................................................................Preamble
Parent Common Stock...............................................................................Section 3.2(b)(i)
Parent Disclosure Schedule..............................................................................Section 3.2
person..............................................................................................Section 8.11(g)
Principals.................................................................................................Recitals
Proxy Statement.................................................................................Section 3.1(c)(iii)
Reports..............................................................................................Section 3.1(d)
Representatives.....................................................................................Section 8.11(h)
Required Company Vote................................................................................Section 3.1(g)
Required Regulatory Approvals...........................................................................Section 5.3
Restricted Stock.....................................................................................Section 1.8(d)
Rights............................................................................................Section 3.1(b)(i)
Rights Agreement..................................................................................Section 3.1(b)(i)
Schedule 13E-3..................................................................................Section 3.1(c)(iii)
SEC.............................................................................................Section 3.1(c)(iii)
Securities Act...................................................................................Section 3.1(b)(vi)
Special Committee..........................................................................................Recitals
Stockholders Meeting.................................................................................Section 5.1(a)
Subsidiary..........................................................................................Section 8.11(i)
Superior Proposal....................................................................................Section 5.5(c)
Surviving Corporation...................................................................................Section 1.1
Termination Fee......................................................................................Section 7.2(b)
U.S. Bancorp Piper Jaffray...........................................................................Section 3.1(k)
Voting Agreement...........................................................................................Recitals
</TABLE>
iv
<PAGE>
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as
of March 18, 1999, is by and among RB CAPITAL, INC., a Delaware corporation
("PARENT"), RBR ACQUISITION CORP., a Delaware corporation ("MERGER SUB"), and
ROCK BOTTOM RESTAURANTS, INC., a Delaware corporation (the "COMPANY").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent, Merger
Sub and the Company have each approved and adopted this Agreement and the
transactions contemplated hereby, including the Merger, subject to the terms and
conditions set forth in this Agreement;
WHEREAS, the Board of Directors of the Company (the "COMPANY
BOARD"), based upon the recommendation of a special committee of independent
directors thereof (the "SPECIAL COMMITTEE"), has determined that this Agreement
and the transactions contemplated hereby, including the Merger, are advisable
and are fair to and in the best interests of the Company's stockholders;
WHEREAS, as an inducement to the Company to enter into this
Agreement, Parent, Merger Sub and certain of the Company's founding shareholders
as identified on EXHIBIT A attached hereto (the "PRINCIPALS") have entered into
that certain Voting Agreement, dated as of the date hereof (the "VOTING
AGREEMENT"), with the Company pursuant to which Parent, Merger Sub and each of
the Principals agrees, among other things, to vote shares of common stock, par
value $.01 per share, of the Company (together with the associated Rights, the
"COMPANY COMMON STOCK") held by them in favor of the Merger and the transactions
contemplated hereby in accordance with the terms set forth in the Voting
Agreement;
WHEREAS, Parent, Merger Sub and the Company desire to make
certain representations, warranties, covenants and agreements in connection with
the Merger and also to prescribe various conditions to the Merger as set forth
in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein and for other good and valuable consideration, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I.
THE MERGER
1.1 THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the General Corporation Law of
the State of Delaware (the "DGCL"), Merger Sub shall be merged with and into the
Company (the "MERGER") at the Effective Time. Upon the Effective Time, the
separate corporate existence of Merger Sub shall cease and the Company shall
continue as the surviving corporation (the "SURVIVING CORPORATION") in
accordance with the DGCL.
<PAGE>
1.2 CLOSING. Unless this Agreement shall have been terminated
pursuant to Section 7.1, the closing of the Merger (the "CLOSING") will take
place no later than the second Business Day after satisfaction or waiver (as
permitted by this Agreement and applicable law) of the conditions (excluding
conditions that, by their terms, cannot be satisfied until the Closing Date) set
forth in Article VI (the "CLOSING DATE"), unless another time or date is agreed
to in writing by the parties hereto. The Closing shall be held at the offices of
Davis, Graham & Stubbs LLP, 370 Seventeenth Street, Suite 4700, Denver, Colorado
80201, unless another place is agreed to in writing by the parties hereto.
1.3 EFFECTIVE TIME. Upon the Closing, the parties shall file with
the Secretary of State of the State of Delaware (the "DELAWARE SECRETARY OF
STATE") a certificate of merger or other appropriate documents (in any such
case, the "CERTIFICATE OF MERGER"), executed in accordance with the relevant
provisions of the DGCL, and shall make all other filings, recordings or
publications required under the DGCL in connection with the Merger. The Merger
shall become effective upon the filing of the Certificate of Merger with the
Delaware Secretary of State, or at such later time as the parties may agree and
specify in the Certificate of Merger (the date and time the Merger becomes
effective being herein referred to as the "EFFECTIVE TIME").
1.4 EFFECTS OF THE MERGER. At and after the Effective Time, the
Merger will have the effects set forth in the DGCL. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
properties, rights, privileges, powers and franchises of the Company and Merger
Sub shall vest in the Surviving Corporation, and all debts, liabilities and
duties of the Company and Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
1.5 CERTIFICATE OF INCORPORATION. The certificate of incorporation
of the Company in effect immediately prior to the Effective Time shall be
amended in its entirety as of the Effective Time as set forth on EXHIBIT B
attached hereto and, as so amended, shall be the certificate of incorporation of
the Surviving Corporation from and after the Effective Time, until thereafter
amended as provided therein or by applicable law.
1.6 BYLAWS. The bylaws of the Company as in effect immediately
prior to the Effective Time shall be amended and restated in their entirety as
of the Effective Time as set forth on EXHIBIT C attached hereto and, as so
amended and restated, shall be the bylaws of the Surviving Corporation from and
after the Effective Time, until thereafter amended as provided therein or by
applicable law.
1.7 DIRECTORS. The directors of Merger Sub at the Effective Time
shall be the directors of the Surviving Corporation from and after the Effective
Time, until the earlier of their death, resignation, removal or otherwise
ceasing to be a director or until their respective successors are duly elected
and qualified, as the case may be.
1.8 EFFECT ON CAPITAL STOCK. As of the Effective Time, by virtue
of the Merger and without any action on the part of the Company, Parent, Merger
Sub or any holder of any shares of Company Common Stock or Parent Common Stock
or any shares of common stock of Merger Sub:
2
<PAGE>
(a) COMMON STOCK OF MERGER SUB. Each share of common stock
of Merger Sub issued and outstanding immediately prior to the Effective Time
shall be converted into and become one validly issued, fully paid and
nonassessable share of common stock, par value $.01 per share, of the Surviving
Corporation.
(b) CANCELLATION OF CERTAIN STOCK. Each share of Company
Common Stock issued and outstanding immediately prior to the Effective Time that
is owned by the Company or any wholly-owned Subsidiary of the Company or by
Parent (including shares of Company Common Stock contributed to Parent by
certain stockholders of the Company prior to the Effective Time) or Merger Sub
shall automatically be canceled and retired and shall cease to exist, and no
cash or other consideration shall be delivered or deliverable in exchange
therefor.
(c) CONVERSION OF COMPANY COMMON STOCK. Each share of
Company Common Stock issued and outstanding immediately prior to the Effective
Time (other than shares canceled pursuant to Section 1.8(b) and Dissenting
Shares) shall be converted into and become the right to receive $10.00 in cash,
without interest thereon (the "MERGER CONSIDERATION").
(d) CONVERSION OF CERTAIN RESTRICTED STOCK. Each share of
restricted Company Common Stock issued under the Company Incentive Plans (the
"RESTRICTED STOCK") shall be converted into and become the right to receive the
Merger Consideration in accordance with Section 1.8(c), except as shall be
agreed upon in writing by the Company, Parent and the holder of such Restricted
Stock prior to the Effective Time.
(e) CANCELLATION AND RETIREMENT OF COMPANY COMMON STOCK. As
of the Effective Time, all shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any such shares of Company Common Stock shall
cease to have any rights with respect thereto, except the right to receive the
Merger Consideration, upon surrender of such certificate(s) in accordance with
Article 2.
1.9 DISSENTING SHARES. Notwithstanding anything in this Agreement
to the contrary, including, without limitation, Section 1.8, shares of Company
Common Stock issued and outstanding immediately prior to the Effective Time and
held by a holder who has not voted in favor of the Merger or otherwise consented
thereto in writing and who has the right to demand, and properly demands, an
appraisal of such holder's shares in accordance with Section 262 of the DGCL or
any successor provision (such holder being herein referred to as a "DISSENTING
STOCKHOLDER" and such shares being herein referred to as "DISSENTING SHARES"),
shall not be converted into or represent the right to receive the Merger
Consideration, unless such Dissenting Stockholder fails to perfect or otherwise
loses or withdraws any such right to appraisal. With respect to any Dissenting
Shares, a Dissenting Stockholder shall have solely the appraisal rights provided
under Section 262 of the DGCL, provided such Dissenting Stockholder complies
with the provisions thereof. If, after the Effective Time, such Dissenting
Stockholder fails to perfect or otherwise loses or withdraws any such right to
appraisal, each Dissenting Share held by such
3
<PAGE>
Dissenting Stockholder shall be treated as if such share had been converted
into, as of the Effective Time, the right to receive, without any interest
thereon, the Merger Consideration. The Company shall give Parent prompt notice
of any demand for appraisal of shares of Company Common Stock received by the
Company, and Parent shall have the right to participate in and approve (which
approval shall not be unreasonably withheld or delayed) all negotiations and
proceedings with respect to any such demand. The Company shall not, except with
the prior written consent of Parent, make any payment with respect to, or settle
or offer to settle, any such demand.
1.10 STOCK OPTIONS
Other than Company Stock Options as to which the holder
thereof has agreed in writing with the Company and Parent prior to the Effective
Time to elect different treatment in the Merger than as provided in this Section
1.10, each outstanding and unexercised option to purchase shares of Company
Common Stock (collectively, the "COMPANY STOCK OPTIONS") issued under the
Company's Equity Incentive Plan or the Company's Nonemployee Directors' Stock
Option Plan, as each has been amended through the date hereof (together, the
"COMPANY INCENTIVE PLANS"), whether vested or unvested, shall be automatically
vested and shall terminate and be canceled and each holder of vested Company
Stock Options (including those vested hereby) shall be entitled to receive, in
consideration therefor, a cash payment (which payment shall be made as soon as
practicable after the Effective Time) equal to the product of (i) the excess, if
any, of the Merger Consideration over the per share exercise price of such
Company Stock Option, multiplied by (ii) the aggregate number of shares of
Company Common Stock then subject to such Company Stock Option. Such cash
payment shall be net of any required withholding taxes.
ARTICLE II.
EXCHANGE OF CERTIFICATES
2.1 EXCHANGE FUND. As of the Effective Time, Parent or the
Surviving Corporation shall deposit, or shall cause to be deposited, with a
bank, trust company or other exchange agent reasonably satisfactory to the
Company appointed to act as exchange agent (the "EXCHANGE AGENT") for the
benefit of the holders of shares of Company Common Stock, cash in an aggregate
amount equal to the product of (i) the number of shares of Company Common Stock
outstanding immediately prior to the Effective Time (other than shares to be
canceled pursuant to Section 1.8(b), shares of Restricted Stock not converted
into the Merger Consideration pursuant to Section 1.8(d) and Dissenting Shares),
multiplied by (ii) the Merger Consideration (the "EXCHANGE FUND"). The Exchange
Agent shall invest all cash in the Exchange Fund as directed by the Surviving
Corporation. Interest and other income with respect to the Exchange Fund shall
accrue for the account of, and shall be promptly paid to, the Surviving
Corporation.
2.2 EXCHANGE PROCEDURES
(a) EXCHANGE OF CERTIFICATES. As soon as reasonably
practicable after the Effective Time, each holder of an outstanding certificate
or certificates which prior thereto
4
<PAGE>
represented shares of Company Common Stock shall, upon surrender to the Exchange
Agent of such certificate(s) and acceptance thereof by the Exchange Agent
(together with the letter of transmittal described in Section 2.2(b), duly
executed, and such other documents as may reasonably be required by the Exchange
Agent), be entitled to receive the amount of the Merger Consideration into which
the number of shares of Company Common Stock previously represented by such
certificate(s) so surrendered shall have been converted pursuant to this
Agreement. After the Effective Time, there shall be no further transfer on the
records of the Company or its transfer agent of certificates representing shares
of Company Common Stock which have been converted pursuant to this Agreement
into the right to receive the Merger Consideration, and if such certificates are
presented for transfer, they shall be canceled against delivery of the Merger
Consideration. If the Merger Consideration is to be delivered to any person
other than the person in whose name the certificate(s) representing shares of
Company Common Stock surrendered for exchange is registered, it shall be a
condition of such exchange that the certificate(s) so surrendered shall be
properly endorsed with the signature guaranteed or otherwise in proper form for
transfer, and that the person requesting such exchange shall pay to the Exchange
Agent any transfer or other taxes required by reason of the payment of the
Merger Consideration to a person other than the registered holder thereof, or
shall establish to the satisfaction of the Exchange Agent that such tax has been
paid or is not applicable. Until surrendered as contemplated by this Section
2.2(a), each certificate which, prior to the Effective Time, represented
outstanding shares of Company Common Stock (other than shares canceled pursuant
to Section 1.8(b), shares of Restricted Stock not converted into the Merger
Consideration pursuant to Section 1.8(d) and Dissenting Shares) shall be deemed
at any time after the Effective Time to represent only the right to receive upon
such surrender the Merger Consideration in accordance with Section 1.8. No
interest will be paid or will accrue on any cash payable as Merger Consideration
to any holder of shares of Company Common Stock.
(b) LETTER OF TRANSMITTAL. Promptly following the Effective
Time (but no later than five (5) Business Days thereafter), the Exchange Agent
shall mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock, other than shares to be canceled or retired in accordance
with Section 1.8(b) or shares of Restricted Stock not converted into the Merger
Consideration pursuant to Section 1.8(d)) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
certificate(s) shall pass, only upon delivery thereof to the Exchange Agent and
shall be in such form and have such other provisions as the Surviving
Corporation may reasonably specify) and instructions for use in effecting the
surrender of such certificate(s) in exchange for the Merger Consideration.
2.3 NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. The
Merger Consideration paid upon the surrender for exchange of certificates
representing shares of Company Common Stock in accordance with the terms of
Article I and this Article II shall be deemed to have been issued and paid in
full satisfaction of all rights pertaining to the shares of Company Common Stock
theretofore represented by such certificates, and no holder of shares of Company
Common Stock shall thereby have any equity interest in the Surviving Corporation
(other than as set forth in Section 1.8(d)).
5
<PAGE>
2.4 TERMINATION OF EXCHANGE FUND; UNCLAIMED FUNDS. Any portion of
the Exchange Fund that remains undistributed to or unclaimed by the holders of
certificates representing shares of Company Common Stock for eighteen (18)
months after the Effective Time shall be delivered to the Surviving Corporation
or otherwise at the direction of the Surviving Corporation, upon demand, and any
holders of such certificates who have not theretofore complied with this Article
II shall thereafter look only to the Surviving Corporation for the Merger
Consideration to which such holders are entitled pursuant to this Agreement
(subject to applicable abandoned property, escheat or other similar laws) and
only as general creditors thereof for payment of their claim for the Merger
Consideration.
2.5 NO LIABILITY. None of Parent, Merger Sub, the Company, the
Surviving Corporation or the Exchange Agent shall be liable to any person in
respect of any cash, shares, dividends or distribution payable from the Exchange
Fund delivered to a public official pursuant to any applicable abandoned
property, escheat or other similar law. If any certificates representing shares
of Company Common Stock shall not have been surrendered prior to eighteen (18)
months after the Effective Time (or immediately prior to any earlier date on
which the Merger Consideration in respect of such certificate would become the
property of or otherwise escheat to any Governmental Entity), any such cash,
shares, dividends or distributions shall, to the extent permitted by applicable
law, become the property of the Surviving Corporation, free and clear of all
claims or interest of any person previously entitled thereto.
2.6 LOST CERTIFICATES. If any certificate representing shares of
Company Common Stock has 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 Company, the posting by such person
of a bond in such reasonable amount as the Company may direct as indemnity
against any claim that may be made against the Company with respect to such
certificate, the Exchange Agent will deliver in exchange for such lost, stolen
or destroyed certificate the applicable Merger Consideration with respect to the
shares of Company Common Stock formerly represented thereby.
2.7 WITHHOLDING RIGHTS. The Surviving Corporation or the Exchange
Agent, as applicable, shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any holder of
shares of Company Common Stock such amounts as the Surviving Corporation or the
Exchange Agent, as the case may be, may be required to deduct and withhold with
respect to the making of such payment under the Internal Revenue Code of 1986,
as amended (the "CODE"), or any provision of state, local or foreign tax law,
including, without limitation, withholdings required in connection with payments
under Section 1.10. To the extent withheld by the Surviving Corporation or the
Exchange Agent, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of shares of Company Common Stock in
respect of which such deduction and withholding was made.
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ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as
otherwise set forth in the Disclosure Schedule delivered by the Company to
Parent at or prior to the execution of this Agreement (the "COMPANY DISCLOSURE
SCHEDULE") (each section of which qualifies the correspondingly numbered
representation and warranty to the extent specified therein), the Company
represents and warrants to Parent and Merger Sub as set forth in this Section
3.1:
(a) ORGANIZATION, STANDING AND POWER. Each of the Company
and its Subsidiaries has been duly organized and is validly existing and in good
standing under the laws of its respective state of incorporation and has the
corporate power and authority to carry on its business as presently being
conducted and to own, operate and lease its properties. Each of the Company and
its Subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, except where the failure to be so qualified or licensed, either
individually or in the aggregate, would not have a Material Adverse Effect on
the Company or would not prevent the consummation of the Merger by the Outside
Date. The copies of the Organizational Documents of each of the Company and its
Subsidiaries which were previously furnished to Parent are true, complete and
correct copies of such documents. The Subsidiaries set forth in Section 3.1(a)
of the Company Disclosure Schedule constitute all of the Company's Subsidiaries.
(b) CAPITAL STRUCTURE
(i) As of the date of this Agreement, the authorized
capital stock of the Company consists of (A) 15,000,000 shares of
Company Common Stock, of which 8,045,796 shares are outstanding,
1,955,752 shares are authorized for issuance pursuant to outstanding
Company Stock Options, 98,974 shares represent Restricted Stock and no
shares are held in the Company's treasury, and (B) 5,000,000 shares of
preferred stock, par value $.01 per share, of which no shares are
outstanding, and of which 300,000 shares of Series A Junior
Participating Preferred Stock have been designated (none of which have
been issued) and were reserved for issuance upon the exercise of the
rights (the "RIGHTS") distributed to holders of shares of Company
Common Stock pursuant to that certain Rights Agreement, dated as of
December 12, 1997, between the Company and American Securities Transfer
& Trust, Inc., as rights agent (as amended, the "RIGHTS AGREEMENT").
(ii) All issued and outstanding shares of capital
stock of the Company and its Subsidiaries are duly authorized, validly
issued, fully paid and nonassessable, and no class of capital stock is
entitled to preemptive rights.
(iii) All of the issued and outstanding shares of
capital stock of each of the Company's Subsidiaries are owned directly
or indirectly by the Company and are owned free and clear of any liens,
claims, encumbrances, restrictions, preemptive rights
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or any other claims of any third party ("LIENS"), except for Liens
which, individually or in the aggregate, would not have a Material
Adverse Effect on the Company or would not prevent the consummation of
the Merger by the Outside Date.
(iv) As of the date of this Agreement, (A) no bonds,
notes, debentures or other indebtedness of the Company having the right
to vote on any matters on which stockholders may vote are issued and
outstanding, (B) other than the Rights and outstanding Company Stock
Options representing in the aggregate the right to purchase up to
1,015,000 shares of Company Common Stock under the Company Incentive
Plans, there are no securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to
which the Company is a party or by which the Company is bound
obligating the Company to issue, deliver or sell or cause to be issued,
delivered or sold, additional shares of capital stock or other voting
securities of the Company or obligating the Company to issue, grant,
extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking, and (C) there are no
outstanding obligations of the Company to repurchase, redeem or
otherwise acquire any shares of capital stock of the Company.
(v) As of the date of this Agreement, the outstanding
indebtedness for borrowed money of the Company and its Subsidiaries
(excluding capital leases) does not exceed $25,000,000. No indebtedness
for borrowed money of the Company or its Subsidiaries contains any
restriction upon the incurrence of indebtedness for borrowed money of
the Company or its Subsidiaries or restricts the ability of any of them
to grant any Liens on its properties or assets, except for Liens which,
individually or in the aggregate, would not have a Material Adverse
Effect on the Company or would not prevent the consummation of the
Merger by the Outside Date.
(vi) There are no agreements or arrangements pursuant
to which (A) the Surviving Corporation could be required to register
any shares of its common stock or other securities under the Securities
Act of 1933, as amended (the "SECURITIES ACT"), or (B) the Company is a
party or of which the Company is aware and which restricts the voting
or disposition of any Company Common Stock (other than the Voting
Agreement).
(c) AUTHORITY; NO CONFLICTS
(i) The Company has all requisite corporate power and
authority to enter into this Agreement and the Voting Agreement and,
subject to the adoption of this Agreement by the requisite vote of the
holders of Company Common Stock, to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this
Agreement and the Voting Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly authorized
by all necessary corporate action on the part of the Company, subject
in the case of the consummation of the Merger to the adoption of this
Agreement by the holders of Company Common Stock. Each of this
Agreement and the Voting Agreement has been duly executed and delivered
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by the Company and constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws
relating to or affecting creditors rights generally or by general
equity principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
(ii) The execution and delivery of this Agreement and
the Voting Agreement do not, and the consummation of the transactions
contemplated hereby and thereby and compliance with the provisions
hereof and thereof will not, (A) violate any provision of the
Organizational Documents of the Company or its Subsidiaries, (B)
subject to obtaining or making the consents, approvals, orders,
authorizations, registrations, declarations and filings referred to in
Section 3.1(c)(iii) below, conflict with or result in any violation of
any statute, law, ordinance, rule or regulation of any state or the
United States or any political subdivision thereof or therein
applicable to the Company or any judgment, order, decree, determination
or award currently in effect, which, individually or in the aggregate,
would have a Material Adverse Effect on the Company or would prevent
the consummation of the Merger by the Outside Date, or (C) other than
any required consents of landlords or any licensing board, agency or
similar authority governing the sale, production or distribution of
alcoholic beverages, violate, conflict with, constitute a breach or
default under or give rise to a right of termination under any
contract, loan or credit agreement, note, mortgage, bond, indenture,
lease, benefit plan or other agreement, obligation, instrument, permit,
concession, franchise or license to which the Company is a party or by
which any of its properties or assets is bound or subject, which,
individually or in the aggregate, would have a Material Adverse Effect
on the Company or would prevent the consummation of the Merger by the
Outside Date.
(iii) No consent, approval, order or authorization of
or registration, declaration or filing with, any supranational,
national, state, municipal or local government, any instrumentality,
subdivision, court, administrative agency or commission or other
authority thereof, or any quasi-governmental authority or any private
body exercising any regulatory, taxing or other governmental authority
(a "GOVERNMENTAL ENTITY"), which has not been received or made, is
required by or with respect to the Company or any Subsidiary in
connection with the execution and delivery of this Agreement or the
Voting Agreement by the Company or the consummation by the Company of
the transactions contemplated hereby or thereby, except for (A) the
filing with the Securities and Exchange Commission (the "SEC") of a
proxy statement in connection with the Stockholders Meeting (such proxy
statement, including any preliminary version thereof, in either case,
as amended, modified or supplemented from time to time, the "PROXY
STATEMENT"), (B) the filing with the SEC of a Rule 13e-3 Transaction
Statement on Schedule 13E-3 (the "SCHEDULE 13E-3") under the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), (C) compliance
with any applicable requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR ACT"), (D) state
securities or "blue sky" laws, (E) any other filings or
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reports required under the Exchange Act or the rules and regulations
promulgated thereunder in connection with the transactions contemplated
by this Agreement, (F) the filing and recordation of appropriate merger
or other documents under the DGCL, (G) compliance with the rules and
regulations of the Nasdaq National Market ("NASDAQ"), (H) antitrust or
other competition laws of other jurisdictions, (I) the consent of any
licensing board, agency or similar authority governing or regulating
the sale, production or distribution of alcoholic beverages, and (J)
such consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to make or obtain could
not reasonably be expected to have a Material Adverse Effect on the
Company or to prevent the consummation of the Merger by the Outside
Date.
(d) REPORTS AND FINANCIAL STATEMENTS. Since
December 29, 1996, the Company has filed all required reports, schedules, forms,
statements and other documents required to be filed by it with the SEC
(collectively, the "REPORTS"). None of the Company's Subsidiaries is required to
file any form, report or other document with the SEC. Each of the financial
statements and the related schedules and notes thereto included in the Reports
(or incorporated therein by reference) present fairly, in all material respects,
the consolidated financial position and consolidated results of operations and
cash flows of the Company and its Subsidiaries as of the respective dates or for
the respective periods set forth therein, all in conformity with generally
accepted accounting principles ("GAAP") (except, in the case of interim
unaudited financial statements, as permitted by Form 10-Q) consistently applied
during the periods involved except as otherwise noted therein, and subject, in
the case of interim unaudited financial statements, to normal and recurring
year-end adjustments that have not been and are not reasonably expected to be
material in amount, and such financial statements complied as to form as of
their respective dates in all material respects with the Securities Act, the
Exchange Act and the rules and regulations promulgated thereunder. Each Report
was prepared in accordance with the requirements of the Securities Act, the
Exchange Act and the rules and regulations promulgated thereunder and did not,
on the date of effectiveness in the case of any registration statement under the
Securities Act, on the date of mailing in the case of any proxy statement under
the Exchange Act and on the date of filing in the case of any other Report (and,
if amended or superseded by a filing prior to the date of this Agreement or of
the Closing Date, then on the date of such filing), contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(e) DISCLOSURE DOCUMENTS. The Proxy Statement and the
Schedule 13E-3 will comply as to form in all material respects with the
requirements of the Exchange Act and the rules and regulations promulgated
thereunder. None of the information supplied or to be supplied by the Company
for inclusion or incorporation by reference in (A) the Proxy Statement, at the
date such Proxy Statement is first mailed to the Company's stockholders or at
the time of the Stockholders Meeting, or (B) the Schedule 13E-3, at the time of
filing with the SEC (and at any time such Proxy Statement or Schedule 13E-3 is
amended or supplemented), will contain any untrue statement of a material fact
or omit 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 are made, not misleading. Notwithstanding the foregoing provisions of this
Section 3.1(e),
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no representation or warranty is made by the Company with respect to statements
made or incorporated by reference in the Proxy Statement or the Schedule 13E-3
based on information supplied in writing by Parent or Merger Sub or any of their
representatives specifically for inclusion or incorporation by reference
therein.
(f) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as may be
disclosed in the Reports, (i) since September 28, 1998 through the date of this
Agreement, each of the Company and its Subsidiaries has conducted their
respective businesses in the ordinary course consistent with their past
practices and have not incurred any material liability, except in the ordinary
course of their respective businesses consistent with their past practices; (ii)
since September 28, 1998 through the date of this Agreement, there has not been
any change in the business, financial condition or results of operations of the
Company and its Subsidiaries taken as a whole that has had a Material Adverse
Effect on the Company; and (iii) from the date hereof, there has not been any
change in the business, financial condition or results of operations of the
Company and its Subsidiaries taken as a whole that has had a Material Adverse
Effect on the Company.
(g) VOTE REQUIRED. Assuming the accuracy of the
representation set forth in Section 3.2(i), the affirmative vote of the holders
of a majority of the outstanding shares of Company Common Stock (the "REQUIRED
COMPANY VOTE") is the only vote of the holders of any class or series of the
Company's capital stock necessary to approve this Agreement and the transactions
contemplated hereby.
(h) BROKERS OR FINDERS. No agent, broker, investment banker,
financial advisor or other firm or person, the fees of which will be paid by the
Company, is or will be entitled to any broker's, financial advisory or finder's
fee or any other similar commission or fee in connection with any of the
transactions contemplated by this Agreement, based upon arrangements made by or
on behalf of the Company, except the fees payable to U.S. Bancorp Piper Jaffray
pursuant to the engagement letter dated December 22, 1998 (a copy of which has
been delivered to Parent) whose fees and expenses shall remain the sole
responsibility of the Company and the Surviving Corporation in accordance
therewith, and shall be paid upon consummation of the Merger.
(i) RIGHTS AGREEMENT. None of the approval, execution or
delivery of this Agreement or the Voting Agreement or the consummation of the
Merger or the other transactions contemplated hereby or thereby will cause (A)
the Rights to become exercisable under the Rights Agreement, (B) Parent or
Merger Sub to be deemed an Acquiring Person (as defined in the Rights Agreement)
under the Rights Agreement, or (C) the Shares Acquisition Date (as defined in
the Rights Agreement) to occur pursuant to the Rights Agreement. The
Distribution Date (as defined in the Rights Agreement) under the Rights
Agreement will not occur as a result of the execution or delivery of this
Agreement or the Voting Agreement or the consummation of the Merger or the other
transactions contemplated hereby or thereby.
(j) COMPANY ACTION. As of the date hereof, the Company
Board, based upon the recommendation of the Special Committee, at a meeting
thereof duly called and held has (i)(A) approved the acquisition by Parent,
Merger Sub and the Principals of shares of Company
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Common Stock pursuant to the Merger and the Voting Agreement and approved and
adopted and declared advisable this Agreement and the Voting Agreement and the
transactions contemplated hereby and thereby, including the Merger, and (B)
which approvals are sufficient to render inapplicable to the Merger, the
provisions of Section 203 of the DGCL and of the Rights Agreement, (ii)
determined that this Agreement and the Voting Agreement and the transactions
contemplated hereby and thereby, including the Merger, are fair to and in the
best interests of the Company's stockholders, and (iii) resolved to declare
advisable and recommend approval of this Agreement and the Voting Agreement and
the transactions contemplated hereby and thereby, including the Merger, by the
Company's stockholders.
(k) FAIRNESS OPINION. As of the date hereof, the Special
Committee has received the written opinion of U.S. Bancorp Piper Jaffray Inc.,
financial advisor to the Special Committee ("U.S. BANCORP PIPER JAFFRAY"), dated
as of the date hereof, to the effect that, subject to the qualifications and
limitations stated therein, the consideration to be received by the holders of
shares of Company Common Stock (other than Parent, Merger Sub and the
Principals) in the Merger is fair to such holders from a financial point of
view. The Special Committee has furnished an accurate and complete copy of such
written opinion to Parent.
Each of the representations and warranties in this Section 3.1 (other than those
set forth in Sections 3.1(f)(iii), (g), (i), (j) and (k)) is qualified by, and
the Company Disclosure Schedule shall be deemed to disclose in qualification
thereof, any facts, circumstances, conditions or events actually known to or by
the Principals or any of the persons set forth in Section 3.1 of the Company
Disclosure Schedule and which would result in any such representation or
warranty that is qualified by materiality or Material Adverse Effect being
untrue or incorrect or any such representation and warranty that is not so
qualified being untrue or incorrect in any material respect as of the date
hereof.
3.2 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.
Except as otherwise set forth in the Disclosure Schedule delivered by Parent and
Merger Sub to the Company at or prior to the execution of this Agreement (the
"PARENT DISCLOSURE SCHEDULE") (each section of which qualifies the
correspondingly numbered representation and warranty to the extent specified
therein), Parent and Merger Sub represent and warrant to the Company as follows:
(a) ORGANIZATION, STANDING AND POWER. Each of Parent and
Merger Sub has been duly incorporated and is validly existing and in good
standing under the laws of its jurisdiction of incorporation and has the
corporate power and authority to carry on its business as presently being
conducted and to own, operate and lease its properties. Each of Parent and
Merger Sub is duly qualified or licensed to do business and is in good standing
in each jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification or licensing necessary,
except where the failure to be so qualified or licensed, either individually or
in the aggregate, would not have a Material Adverse Effect on Parent or Merger
Sub or would not prevent the consummation of the Merger by the Outside Date. The
copies of the Organizational Documents of each of Parent and Merger Sub which
were previously furnished to the Company are true, complete and correct copies
of such documents.
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(b) CAPITAL STRUCTURE
(i) As of the date of this Agreement, the authorized
capital stock of Parent consists of 1,000 shares of common stock, par
value $.01 per share (the "PARENT COMMON STOCK"), 100 shares of which
are outstanding. All issued and outstanding shares of capital stock of
Parent are validly issued, fully paid and nonassessable. As of the date
of this Agreement, there are no options, warrants or other rights to
acquire capital stock from Parent.
(ii) As of the date of this Agreement, the authorized
capital stock of Merger Sub consists of 1,000 shares of common stock,
par value $.01 per share, 100 shares of which are outstanding. All of
the issued and outstanding shares of capital stock of Merger Sub are
validly issued, fully paid and nonassessable.
(iii) All of the issued and outstanding shares of
common stock of Merger Sub are owned by Parent. As of the date hereof,
none of the issued and outstanding shares of Parent Common Stock are
owned by any person other than the Principals. As of the date hereof,
(A) Parent owns no shares of Company Common Stock, (B) Merger Sub owns
no shares of Company Common Stock, (C) the Principals own the number of
shares of Company Common Stock set forth opposite their names on
EXHIBIT A, and (D) the Principals own the number of shares of Parent
Common Stock set forth opposite their names on EXHIBIT A.
(c) AUTHORITY; NO CONFLICTS
(i) Each of Parent and Merger Sub has all requisite
corporate power and authority to enter into this Agreement and the
Voting Agreement and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the
Voting Agreement and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate
action on the part of each of Parent and Merger Sub. Each of this
Agreement and the Voting Agreement has been duly executed and delivered
by each of Parent and Merger Sub and constitutes a valid and binding
agreement of each of Parent and Merger Sub, enforceable against each of
them in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws relating to or
affecting creditors rights generally, or by general equity principles
(regardless of whether such enforceability is considered in a
proceeding in equity or at law).
(ii) The execution and delivery of this Agreement and
the Voting Agreement do not, and the consummation of the transactions
contemplated hereby and thereby and compliance with the provisions
hereof and thereof will not, (A) violate any provision of the
Organizational Documents of Parent or Merger Sub, (B) subject to
obtaining or making the consents, approvals, orders, authorizations,
registrations, declarations and filings referred to in Section
3.2(c)(iii) below, conflict with or result in any violation of or
constitute a default (with or without notice or lapse of time, or both)
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under any statute, law, ordinance, rule or regulation of any state or
the United States or any political subdivision thereof or therein or
any judgment, order, decree, determination or award currently in
effect, which, individually or in the aggregate, would have a Material
Adverse Effect on Parent or Merger Sub or would prevent the
consummation of the Merger by the Outside Date, or (C) violate,
conflict with, constitute a breach or default under or give rise to a
right of termination under any contract, loan or credit agreement,
note, mortgage, bond, indenture, lease (other than required consents of
landlords), benefit plan or other agreement , obligation, instrument,
permit, concession, franchise or license to which Parent or Merger Sub
is a party or by which any of its properties or assets is bound or
subject, which, individually or in the aggregate, would have a Material
Adverse Effect on Parent or Merger Sub or would prevent the
consummation of the Merger by the Outside Date.
(iii) No consent, approval, order or authorization
of, or registration, declaration or filing with, any Governmental
Entity, which has not been received or made, is required by or with
respect to Parent or Merger Sub in connection with the execution and
delivery of this Agreement or the Voting Agreement by Parent or Merger
Sub or the consummation by Parent and Merger Sub of the transactions
contemplated hereby or thereby, except for (A) compliance with any
applicable requirements of the HSR Act, (B) state securities or "blue
sky" laws, (C) any filings or reports required under the Exchange Act
or the rules and regulations promulgated thereunder in connection with
the transactions contemplated by this Agreement, (D) the filing and
recordation of appropriate merger or other documents under the DGCL,
(E) antitrust or other competition laws of other jurisdictions and (F)
such consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to make or obtain could
not reasonably be expected to have a Material Adverse Effect on Parent
or Merger Sub or to prevent the consummation of the Merger by the
Outside Date.
(d) FINANCING. Parent has cash on hand or has received fully
executed written commitments, copies of which are attached as EXHIBIT D hereto,
from the persons indicated thereon (collectively, the "COMMITMENTS") to provide,
in the aggregate, monies sufficient to fund the consummation of the transactions
contemplated by this Agreement, including the Merger and satisfy all other costs
and expenses arising in connection therewith (the "FINANCING"). The Commitments
have been accepted by Parent and the fees due upon acceptance of such
Commitments have been paid in full. As of the date hereof, the Commitments have
not been amended or modified from those attached as EXHIBIT D and there is no
breach or default existing, or with notice or the passage of time may exist,
under the Commitments. Parent has no reason to believe that any of the matters
set forth in the Company Disclosure Schedule or the Parent Disclosure Schedule
will result in the failure of any of the conditions precedent to the
consummation of the Financing contemplated hereby stated in each of the
Commitments (provided that the Company shall bear the burden of proving the
existence of any such reason to believe on the part of Parent by a preponderance
of the evidence).
(e) DISCLOSURE DOCUMENTS. None of the information supplied
or to be supplied by Parent or Merger Sub for inclusion or incorporation by
reference in (A) the Proxy
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Statement, at the date such Proxy Statement is first mailed to the Company's
stockholders or at the time of the Stockholders Meeting, or (B) the Schedule
13E-3, at the time of filing with the SEC (and at any time such Proxy
Statement or Schedule 13E-3 is amended or supplemented), will contain any
untrue statement of a material fact or omit 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 are made, not misleading.
(f) NO VOTE REQUIRED. No vote of the holders of the
outstanding shares of common stock of either Parent or Merger Sub is necessary
to approve this Agreement and the transactions contemplated hereby other than
those obtained by Parent and Merger Sub as of the date hereof.
(g) BROKERS OR FINDERS. No agent, broker, investment banker,
financial advisor or other firm or person, the fees of which will be paid by
Parent or Merger Sub, is or will be entitled to any broker's, financial advisory
or finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement, based upon arrangements made by
or on behalf of Parent, except the fees payable to BancBoston Robertson Stephens
Inc. pursuant to the engagement letter dated December 3, 1998 (a copy of which
has been delivered to the Company) whose fees and expenses shall be paid in
accordance therewith.
(h) NO BUSINESS ACTIVITIES. Neither Parent nor Merger Sub is
a party to any material agreement or has conducted any activities other than in
connection with its organization, the preparation, negotiation and execution of
this Agreement and the Commitments, the procurement of the Financing and the
consummation of the transactions contemplated hereby. Except for its ownership
of the shares of Company Common Stock set forth in Section 3.2(b)(iii) and all
of the outstanding shares of common stock of Merger Sub, Parent does not own,
directly or indirectly, any capital stock or other ownership interest in any
person and Parent has no Subsidiaries other than Merger Sub.
(i) DELAWARE SECTION 203. Assuming the accuracy of the
Company's representation and warranty in Section 3.1(j)(i)(A), the actions of
the Company Board set forth in Section 3.1(j)(i)(A) are sufficient to render
inapplicable to the Merger the provisions of Section 203 of the DGCL.
ARTICLE IV.
COVENANTS RELATING TO CONDUCT OF BUSINESS
4.1 COVENANTS OF THE COMPANY. During the period from the date of
this Agreement and continuing until the Effective Time (except as expressly
contemplated or permitted by this Agreement or to the extent that Parent shall
otherwise consent in writing, which consent shall not be unreasonably withheld
or delayed):
(a) ORDINARY COURSE. The Company shall operate, and shall
cause each of its Subsidiaries to operate, their respective businesses in the
ordinary course of business in all material respects, in substantially the same
manner as heretofore conducted, and shall use all
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reasonable efforts to preserve intact their present lines of business, maintain
their rights and preserve their relationships with customers, suppliers and
others having business dealings with them; PROVIDED, HOWEVER, that no action by
the Company or its Subsidiaries with respect to matters specifically addressed
by any other provision of this Section 4.1 shall be deemed a breach of this
Section 4.1(a) unless such action would constitute a breach of one or more of
such other provisions.
(b) DIVIDENDS; CHANGES IN CAPITAL STOCK. The Company shall
not, and shall not permit any of its Subsidiaries to, and shall not propose to,
(i) declare, set aside or pay any dividends on or make any other distributions
(whether cash, stock or property) in respect of any of its capital stock, except
dividends by the Company's Subsidiaries in the ordinary course of business
consistent with past practice, (ii) split, combine or reclassify any of its
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, or (iii) repurchase, redeem or otherwise acquire any shares of
its capital stock or any securities convertible into or exercisable for any
shares of its capital stock.
(c) ISSUANCE OF SECURITIES. The Company shall not and shall
cause its Subsidiaries not to issue, sell, grant, pledge or otherwise encumber,
or authorize or propose the issuance, grant, sale or encumbrance of, any shares
of its capital stock of any class, any other voting securities or any securities
convertible into or exercisable for, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities, or
accelerate the vesting of, or the lapsing of restrictions with respect to, the
Restricted Stock (other than in accordance with the terms of the grant thereof
or pursuant to this Agreement or the Merger) or enter into any agreement with
respect to any of the foregoing, other than (i) the issuance of Company Common
Stock upon the exercise of Company Stock Options issued in the ordinary course
of business consistent with past practice in accordance with the terms of the
Company Incentive Plans as in effect on the date of this Agreement, and (ii)
issuances of options, rights or other awards in the ordinary course of business
consistent with past practice pursuant to the Company Incentive Plans as in
effect on the date of this Agreement.
(d) ORGANIZATIONAL DOCUMENTS. Except to the extent required
to comply with their respective obligations hereunder or as required by law, the
Company and its Subsidiaries shall not amend or propose to amend their
respective Organizational Documents.
(e) EXTRAORDINARY TRANSACTIONS. The Company shall not (i)
merge, amalgamate or consolidate with any other person in any transaction or
(ii) sell all or substantially all of its assets.
(f) INDEBTEDNESS. The Company shall not, and shall not
permit its Subsidiaries to, (i) incur any indebtedness for borrowed money or
guarantee any such indebtedness of another person or issue or sell any debt
securities or warrants or rights to acquire any debt securities of the Company
or its Subsidiaries or guarantee any debt securities of another person other
than indebtedness of the Company or its Subsidiaries to the Company or its
Subsidiaries and other than (A) in the ordinary course of business consistent
with past practice,
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(B) borrowings under the Company's existing line of credit
(or under any refinancing thereof) with Norwest Bank Colorado, National
Association such that amounts outstanding thereunder do not exceed $30,000,000
in the aggregate (which amount shall be reduced by the proceeds of any
sale-leaseback transaction set forth in Section 4.1(m) of the Company Disclosure
Schedule or, without duplication, any mandatory prepayments required under the
loan documents governing such credit facility), (C) pursuant to that certain
promissory note with Lakeside Bank (or any refinancing thereof), or (D) pursuant
to the sale-leaseback arrangements set forth in Section 4.1(m) of the Company
Disclosure Schedule or other capital lease arrangements in the ordinary course
of business; (ii) make any loans, advances or capital contributions to, or
investments in, any other person, other than by the Company or its Subsidiaries
to or in the Company or its Subsidiaries or routine advances to employees; or
(iii) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
in the case of clauses (ii) or (iii) above, loans, advances, capital
contributions, investments, payments, discharges or satisfactions entered into,
incurred or committed to in the ordinary course of business consistent with past
practice.
(g) EMPLOYEE SALARIES AND BENEFIT PLANS. Except as set forth
in the Company Disclosure Schedule, the Company shall not, and shall not permit
its Subsidiaries to, (i) increase the compensation payable or to become payable
to any of its executive officers or employees, or (ii) take any action with
respect to the grant of or make any material modification, any deferred
compensation, retirement, severance or termination pay, or stay, bonus or other
incentive arrangement (other than pursuant to employment agreements, the Company
Incentive Plans or other benefit plans and policies in effect on the date of
this Agreement), except, in either such case, any such increases or grants made
in the ordinary course of business consistent with past practice.
(h) EMPLOYMENT AND OTHER AGREEMENTS. Except as set forth in
the Company Disclosure Schedule, the Company shall not enter into or amend any
employment, consulting, severance or similar agreement with any person which
would result in a Material Adverse Effect on the Company.
(i) OTHER ACTIONS. Except as otherwise permitted by Section
5.5, the Company shall not, and shall not permit its Subsidiaries to, take any
action that could reasonably be expected to result in any of the conditions to
the Merger set forth in Article VI not being satisfied.
(j) ACCOUNTING METHODS; INCOME TAX ELECTIONS. Except as
disclosed in the Reports filed prior to the date of this Agreement and in
Section 4.1(j) of the Company Disclosure Schedule, or as required by a
Governmental Entity or a change in GAAP as concurred in by the Company's
independent auditors, the Company shall not change its methods of accounting in
effect at September 27, 1998. The Company shall not, without the prior approval
of Parent (which approval shall not be unreasonably withheld or delayed), (i)
change its fiscal year, or (ii) make any material tax election or settle or
compromise any federal, state, local or foreign tax liability, other than in the
ordinary course of business consistent with past practice.
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(k) CERTAIN AGREEMENTS. The Company shall not, and shall not
permit any of its Subsidiaries to, enter into any agreement or arrangement that
limits or otherwise restricts the Company or any of its Subsidiaries or any of
their respective Affiliates or any successor thereto or that could, after the
Closing, limit or restrict the Surviving Corporation or any of its Affiliates or
any successor thereto from engaging or competing in any line of business or in
any geographic area, except as set forth in Section 4.1(k) of the Company
Disclosure Schedule.
(l) CAPITAL EXPENDITURES. The Company shall not (i) acquire
all or substantially all of the business or assets of any other person, or (ii)
make any capital expenditures or commitments, except those involving payment of
aggregate consideration not exceeding the amount budgeted by the Company for
such acquisitions and/or capital expenditures for the fiscal year ending
December 26, 1999 (less any such amounts expended through the date hereof) plus
an additional $2,500,000.
(m) SALE-LEASEBACK TRANSACTIONS. The Company shall use
reasonable best efforts to consummate the sale-leaseback transactions described
in Section 4.1(m) of the Company Disclosure Schedule, in each case in accordance
with and upon the terms and conditions thereof as approved by the Company Board,
based upon the recommendation of the Special Committee, on or prior to the date
hereof.
(n) COMMITMENTS. The Company shall not commit or agree to
take any of the actions specified in this Section 4.1.
4.2 COVENANTS OF PARENT AND MERGER SUB. During the period from the
date of this Agreement and continuing until the Effective Time (except as
expressly contemplated or permitted by this Agreement or to the extent that the
Company otherwise consents in writing, which consent shall not be unreasonably
withheld or delayed):
(a) ORGANIZATIONAL DOCUMENTS. Except to the extent required
to comply with their respective obligations hereunder or as required by law,
neither Parent nor Merger Sub shall amend or propose to amend their respective
Organizational Documents in any way which would materially delay the timely
consummation of the Merger or prevent the consummation of the Merger by the
Outside Date.
(b) CHANGES IN CAPITAL STRUCTURE. Neither Parent nor Merger
Sub shall change its capital structure in a manner which would materially delay
the timely consummation of the Merger or prevent the consummation of the Merger
by the Outside Date.
(c) OTHER ACTIONS. Neither Parent nor Merger Sub shall take
any action that could reasonably be expected to result in any of the conditions
to the Merger set forth in Article VI not being satisfied.
4.3 ADVICE OF CHANGES; GOVERNMENT FILINGS. Each party hereto shall
(a) confer on a regular and frequent basis with the other party, (b) report (to
the extent permitted by law, regulation and any applicable confidentiality
agreement) to the other on operational matters, and (c) promptly advise the
other orally and in writing of (i) any representation or warranty made by
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it contained in this Agreement that is qualified as to materiality becoming
untrue or any such representation or warranty that is not so qualified becoming
untrue in any material respect, (ii) the failure by it (A) to comply with or
satisfy in any respect any covenant, condition or agreement required to be
complied with or satisfied by it under this Agreement that is qualified as to
materiality or (B) to comply with or satisfy in any material respect any
covenant, condition or agreement required to be complied with or satisfied by it
under this Agreement that is not so qualified as to materiality, or (iii) any
change, event or circumstance that has had or could reasonably be expected to
have a Material Adverse Effect on such party or materially adversely affect its
ability to consummate the Merger by the Outside Date; PROVIDED, HOWEVER, that no
such notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement. The Company shall file all reports required to be filed by
it with the SEC (and all other Governmental Entities) between the date of this
Agreement and the Effective Time and shall (to the extent permitted by law or
regulation or any applicable confidentiality agreement) deliver to the other
party copies of all such reports promptly after the same are filed. Subject to
applicable laws relating to the exchange of information, each of the Company and
Parent shall have the right to review in advance and approve (which approval
shall not be unreasonably withheld or delayed), and to the extent practicable
each will consult with the other with respect to, all the information relating
to the other party, which appears in any filings, announcements or publications
made with, or written materials submitted to, any Governmental Entity in
connection with the transactions contemplated by this Agreement. In exercising
the foregoing right, each of the parties hereto agrees to act reasonably and as
promptly as practicable. Each party agrees that, to the extent practicable, it
will consult with the other party with respect to the obtaining of all permits,
consents, approvals and authorizations of all third parties and Governmental
Entities necessary or advisable to consummate the transactions contemplated by
this Agreement and each party will keep the other party apprised of the status
of matters relating to completion of the transactions contemplated hereby.
ARTICLE V.
ADDITIONAL AGREEMENTS
5.1 STOCKHOLDERS MEETING; PREPARATION OF DISCLOSURE DOCUMENTS
(a) Except as otherwise provided in Section 5.5, the Company
shall, as soon as practicable following the date of this Agreement, duly call,
give notice of, convene and hold a meeting of its stockholders (the
"STOCKHOLDERS MEETING") for the purpose of adopting this Agreement and the
transactions contemplated hereby, including the Merger, by obtaining the
Required Company Vote. Except as otherwise provided in Section 5.5, the Company
Board, based upon the recommendation of the Special Committee, shall declare the
advisability of, and recommend to its stockholders the approval and adoption of,
this Agreement and the transactions contemplated hereby, including the Merger,
shall include such recommendation in the Proxy Statement and shall take all
lawful action to solicit such approval and adoption.
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(b) As soon as practicable following the date of this
Agreement, the Company and Parent shall jointly prepare, and the Company shall
file with the SEC, the Proxy Statement and the Schedule 13E-3. Parent will
cooperate with the Company in connection with the preparation and filing with
the SEC of the Proxy Statement and the Schedule 13E-3, including, but not
limited to, furnishing the Company upon request with any and all information
regarding Parent, Merger Sub, the Principals or their respective Affiliates, the
plans of such persons for the Surviving Corporation after the Effective Time,
information regarding the Financing and all other matters and information as may
be required to be set forth therein under the Exchange Act or the rules and
regulations promulgated thereunder. The Company shall use reasonable best
efforts (i) to respond to the comments of the SEC concerning the Proxy Statement
or the Schedule 13E-3 as promptly as practicable, and (ii) to cause the final
Proxy Statement to be mailed to the Company's stockholders prior to the later of
(A) seventy-five (75) days following the date hereof, or (B) sixty (60) days
after the filing with the SEC of the Company's Annual Report on Form 10-K for
the fiscal year ended December 27, 1998. The Company shall pay the filing fees
for the Proxy Statement and the Schedule 13E-3. Parent shall be given a
reasonable opportunity to review and approve (which approval shall not be
unreasonably withheld or delayed) all filings with the SEC and all mailings to
the Company's stockholders in connection with the Merger prior to the filing or
mailing thereof. The Company and Parent each agree to correct any information
provided by such party for use in the Proxy Statement or the Schedule 13E-3
which becomes false or misleading. The Company shall cause the fairness opinion
of U.S. Bancorp Piper Jaffray referred to in Section 3.1(k) to be included as an
exhibit to the Proxy Statement and the Schedule 13E-3.
(c) Each party shall notify the other party promptly of (i)
the receipt of any notices, comments or other communications from the SEC or any
other Governmental Authority, and (ii) any requests by the SEC for amendments or
supplements to the Proxy Statement or the Schedule 13E-3 or for additional
information, and will promptly provide the other party with copies of all
correspondence between such party or its representatives on the one hand and the
SEC or members of its staff on the other hand with respect to the Proxy
Statement or the Schedule 13E-3.
(d) If, at any time prior to the Stockholders Meeting, any
event should occur relating to the Company or its Subsidiaries which should be
set forth in an amendment of, or a supplement to, the Proxy Statement or the
Schedule 13E-3, the Company will promptly inform Parent. If, at any time prior
to the Stockholders Meeting, any event should occur relating to Parent or Merger
Sub or relating to the plans of Parent for the Surviving Corporation after the
Effective Time or the Financing, which should be set forth in an amendment of,
or a supplement to, the Proxy Statement or the Schedule 13E-3, Parent will
promptly inform the Company. In any such case, the Company or Parent, as the
case may be, with the cooperation of the other party, shall, upon learning of
such event, promptly prepare, file and, if required, mail such amendment or
supplement to the Company's stockholders; provided that, prior to such filing or
mailing, the parties shall approve (which approval, with respect to either
party, shall not be unreasonably withheld or delayed) the form and content of
such amendment or supplement.
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(e) The Company will cause American Stock Transfer & Trust,
Inc., the Company's transfer agent, to make stock transfer records available to
the extent reasonably necessary to effectuate the intent of this Agreement.
5.2 ACCESS TO INFORMATION; CONFIDENTIALITY. From and after the
date hereof until the Effective Time, upon reasonable notice, each of the
Company and Parent shall (and shall cause their respective Subsidiaries, if any,
to the extent permitted by the Organizational Documents or other pertinent
agreements of such entity, to) afford to the officers, employees, accountants,
counsel, financial advisors and other representatives of the other party
reasonable access during normal business hours, to all its properties, books,
contracts, commitments and records and its officers, employees, representatives
and lenders and, during such period, each of the Company and Parent shall (and
shall cause its Subsidiaries, if any, to the extent permitted by the
Organizational Documents or other pertinent agreements of such entity, to)
furnish promptly to the other party (a) a copy of each report, schedule,
registration statement and other document filed, published, announced or
received by it during such period pursuant to the requirements of Federal or
state securities laws, as applicable (other than reports or documents which such
party is not permitted to disclose under applicable law), and (b) consistent
with its legal obligations, all other information concerning its business,
properties and personnel as the other party may reasonably request; PROVIDED,
HOWEVER, each of the Company and Parent may restrict the foregoing access to the
extent that (i) a Governmental Entity requires such party or any of its
Subsidiaries to restrict access to any properties or information reasonably
related to any such contract on the basis of applicable laws and regulations, or
(ii) any law, treaty, rule or regulation of any Governmental Entity applicable
to such party or any of its Subsidiaries requires such party or any of its
Subsidiaries to restrict access to any properties or information. Except as the
Company may otherwise agree in writing, Parent and its representatives shall be
bound by the provisions of the letter agreement dated February 10, 1999, between
the Company and Parent (the "CONFIDENTIALITY AGREEMENT"), which Confidentiality
Agreement shall remain in full force and effect.
5.3 APPROVALS AND CONSENTS; COOPERATION. Each of the Company,
Parent and Merger Sub shall cooperate with each other and use (and shall cause
their respective Subsidiaries, if any, to use) their respective reasonable best
efforts to take or cause to be taken all actions, and do or cause to be done all
things, necessary, proper or advisable on their part to consummate and make
effective the Merger and the other transactions contemplated by this Agreement
(including the procurement of the Financing and the satisfaction of the
conditions set forth in Article VI) as soon as practicable, including (i)
preparing and filing as promptly as practicable all documentation to effect all
applications, notices, petitions, filings, tax ruling requests and other
documents and to obtain as promptly as practicable all consents, waivers,
licenses, orders, registrations, approvals, permits, tax rulings and
authorizations necessary to be obtained from any third party and/or any
Governmental Entity in order to consummate the Merger or any of the other
transactions contemplated by this Agreement, other than those as to which the
failure to so prepare and file such documentation would not have a Material
Adverse Effect on any of the Company, Parent or Merger Sub, as the case may be,
or would not prevent the consummation of the Merger by the Outside Date (the
"REQUIRED REGULATORY APPROVALS") and (ii) taking all reasonable steps as may be
necessary to obtain all such Required Regulatory
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Approvals. Without limiting the generality of the foregoing, each of the Company
and Parent agrees to make all necessary filings in connection with the Required
Regulatory Approvals as promptly as practicable after the date of this
Agreement, and to use its reasonable best efforts to furnish or cause to be
furnished, as promptly as practicable, all information and documents requested
with respect to such Required Regulatory Approvals and shall otherwise cooperate
with the applicable Governmental Entity in order to obtain any Required
Regulatory Approvals in as expeditious a manner as possible. Each of the Company
and Parent shall use its reasonable best efforts to resolve such objections, if
any, as any Governmental Entity may assert with respect to this Agreement and
the transactions contemplated hereby in connection with the Required Regulatory
Approvals. In the event that a suit is instituted by a person or Governmental
Entity challenging this Agreement and the transactions contemplated hereby as
violative of applicable antitrust or competition laws, each of the Company and
Parent shall use its reasonable best efforts to resist or resolve such suit. The
Company and Parent each shall, upon request by the other, furnish the other with
all information concerning itself, its Subsidiaries, directors, officers and
stockholders and such other matters as may reasonably be necessary or advisable
in connection with the Proxy Statement, the Schedule 13E-3 or any Required
Regulatory Approvals or other statement, filing, tax ruling request, notice or
application made by or on behalf of the Company, Parent or any of their
respective Subsidiaries to any third party and/or any Governmental Entity in
connection with the Merger or the other transactions contemplated by this
Agreement.
5.4 FINANCING. Parent shall use its reasonable best efforts (i) to
consummate the Financing on terms consistent with the Commitments or such other
financing or terms as shall be mutually and reasonably satisfactory to the
Company and Parent on or before the Closing Date, and (ii) to execute and
deliver definitive agreements with respect to the Financing upon the terms
provided in the Commitments or such other financing or terms as shall be
mutually and reasonably satisfactory to the Company and Parent (the "DEFINITIVE
FINANCING AGREEMENTS") on or before the Closing Date; provided that reasonable
best efforts of Parent as used in this Section 5.4 shall in no event require
Parent to agree to financing terms materially more adverse to Parent than those
provided for in the Commitments. Parent shall use its reasonable best efforts to
keep the Commitments in effect until the earlier of the Closing Date or the
termination of this Agreement (which shall include, but not be limited to,
obtaining any necessary extensions of the Commitments through such date) and to
satisfy on or before the Closing Date all requirements of the Commitments and
the Definitive Financing Agreements which are conditions to closing the
transactions constituting the Financing and to drawing the cash proceeds
thereunder. The Company shall use its reasonable best efforts to assist and
cooperate with Parent to satisfy on or before the Closing Date all of the
conditions to closing the transactions constituting the Financing which are
applicable to the Company.
5.5. ACQUISITION PROPOSALS. During the period from the date of this
Agreement and continuing until the Effective Time (except as expressly
contemplated or permitted by this Agreement or to the extent that Parent shall
otherwise consent in writing, which consent shall not be unreasonably withheld
or delayed):
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(a) The Company agrees that the directors constituting the
Special Committee shall not, and the Company shall use its reasonable best
efforts to cause the Company's other Representatives and the Special Committee's
Representatives not to, directly or indirectly, initiate, encourage or solicit
the making, submission or announcement of any Acquisition Proposal. As used
herein, the term "Acquisition Proposal" means and includes any offer, indication
of interest or proposal (other than by Parent, Merger Sub or any of the
Principals or any of them jointly with any other person) (i) to acquire 30% or
more of the Company's assets, or (ii) relating to a transaction which would upon
the consummation thereof result in any person beneficially owning 30% or more of
the capital stock of the Company, in either case whether by merger,
consolidation, share exchange, reorganization or other business combination,
purchase of assets, tender or exchange offer or otherwise.
(b) The Company agrees that the directors constituting the
Special Committee shall not, and the Company shall use its reasonable best
efforts to cause the Company's other Representatives and the Special Committee's
Representatives not to, directly or indirectly, engage in discussions, furnish
or provide any non-public information or data or afford reasonable access to the
properties, books, records and Representatives of the Company (other than
employees of the Company) to any person with respect to any Acquisition
Proposal. Notwithstanding the foregoing, the Company, the Company Board or the
Special Committee may (or may direct any Representative of the Company or the
Special Committee to) (i) engage in discussions with respect to furnishing such
information or affording such access, (ii) furnish or provide any such
information, or (iii) afford any such access, with or to any person that has
made and has pending a written Acquisition Proposal which the Special Committee
has determined in good faith is reasonably likely to lead to a Superior
Proposal; provided that, prior to taking any action described in any of the
foregoing clauses (i), (ii) or (iii), (A) such person has entered into a
confidentiality agreement for the benefit of the Company on substantially the
same terms as set forth in the Confidentiality Agreement or on terms more
favorable to the Company, and (B) the Company has notified Parent of the taking
of any such action which notice shall include the identity of the person making
such Acquisition Proposal and the terms thereof.
(c) The Company agrees that the directors constituting the
Special Committee shall not, and the Company shall use its reasonable best
efforts to cause the Company's other Representatives and the Special Committee's
Representatives not to, directly or indirectly, engage in any negotiations with
any person with respect to an Acquisition Proposal; PROVIDED, HOWEVER, nothing
contained in this Agreement shall prevent or otherwise restrict the Company, the
Company Board or the Special Committee from:
(i) complying with Rule 14e-2 and Rule 14d-9
promulgated under the Exchange Act with regard to an Acquisition
Proposal; or
(ii) engaging (or causing its Representatives to
engage) in negotiations with any person in response to an Acquisition
Proposal by any such person; or
(iii) withdrawing or modifying its recommendation of,
or refraining from recommending, the Merger and this Agreement,
approving any Superior Proposal or
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declaring such Superior Proposal advisable or recommending
such Superior Proposal to the Company's stockholders, or
terminating this Agreement in accordance with Section 7.1(e);
if and only to the extent that,
(A) prior to taking any action described
in either of the foregoing clauses (ii) or (iii), the Special
Committee determines in good faith, after consultation with
and giving due consideration to the advice of its legal and
financial advisors, that such Acquisition Proposal (x) is as
or more likely than the Merger to be consummated, taking into
account all legal, financial, regulatory, tax and other
aspects of such Acquisition Proposal and the conditions and
contingencies thereof, (y) is one as to which there has been
provided evidence of cash on hand or readily available under
existing lines of credit or written commitments for financing
sufficient to fund the consummation of such Acquisition
Proposal, and (z) would, if consummated, result in a
transaction more favorable to the Company's stockholders from
a financial point of view than the transactions contemplated
by this Agreement (any such Acquisition Proposal being
referred to in this Agreement as a "SUPERIOR PROPOSAL"); and
(B) prior to taking any action described
in clauses (i) or (ii) above, the Company shall notify Parent
that the Company intends to take such action and shall provide
Parent with a copy of the written Acquisition Proposal and, if
necessary to disclose the terms of such Acquisition Proposal,
a written description of the financial and other terms
thereof; and
(C) prior to taking any action described
in clause (iii) above, the Company and the Special Committee
shall have afforded Parent ten (10) Business Days from the
date of notice to Parent as provided in clause (B) above to
propose to the Company such modifications to the transactions
contemplated hereby as Parent may elect (as so modified, a
"MODIFIED PROPOSAL"); provided that, notwithstanding the
foregoing, the Special Committee (i) shall provide Parent
written notice of any material changes in the terms of the
applicable Superior Proposal during the pendency thereof, and
(ii) shall afford Parent five (5) Business Days after written
notification of the final material economic terms of the
Superior Proposal to make a Modified Proposal. During any time
within which Parent has the opportunity to make a Modified
Proposal, the Company agrees to negotiate in good faith with
Parent to enable Parent to negotiate a Modified Proposal such
that the subject Acquisition Proposal would no longer
constitute a Superior Proposal.
(d) The Company represents and warrants that, as of the date
hereof, it has ceased and has caused to be terminated all existing discussions
or negotiations with any parties conducted heretofore.
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(e) Notwithstanding anything to the contrary contained in
this Agreement, prior to the Effective Time, the Company may, in connection with
a possible Acquisition Proposal, refer any third party to this Section 5.5,
Section 7.1 and Section 7.2 and make a copy of this Section 5.5, Section 7.1 and
Section 7.2 available to a third party.
5.6 EMPLOYEE BENEFITS; COMPANY PLANS
(a) Subject to Section 5.6(b) below, for a period of at
least one (1) year immediately following the Closing Date, Parent shall or shall
cause the Surviving Corporation to maintain in effect employee benefit plans and
arrangements (not including equity incentive arrangements) which provide
benefits which have a value which is substantially comparable, in the aggregate,
to the benefits provided by the Company as of the date hereof.
(b) Unless otherwise agreed to in writing by the employee
party thereto, Parent shall cause the Surviving Corporation to honor all written
employment, bonus, severance and termination plans and agreements of employees
of the Company and its Subsidiaries in effect on or prior to the date of this
Agreement in accordance with their terms, including, without limitation, the
treatment of the transactions contemplated hereby as a "change of control"
thereunder.
5.7 FEES AND EXPENSES. All Expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such Expenses, except (a) if the Merger is consummated, the
Surviving Corporation shall pay, or cause to be paid, any real property transfer
tax imposed on any holder of shares of capital stock of the Company resulting
from the Merger, (b) the Expenses incurred in connection with the printing,
filing and mailing to stockholders of the Proxy Statement and the solicitation
of stockholder approvals shall be paid by the Company, and (c) as provided in
Section 7.2.
5.8 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. The
Surviving Corporation shall cause to be maintained in effect (a) for a period of
six (6) years after the Effective Time, the provisions regarding indemnification
of current or former officers and directors (the "INDEMNIFIED PARTIES")
contained in the Organizational Documents of the Company or its Subsidiaries and
in any agreements between an Indemnified Party and the Company or its
Subsidiaries as of the date hereof, and (b) for a period of six (6) years, the
current policies of directors' and officers' liability insurance and fiduciary
liability insurance maintained by the Company (provided that the Surviving
Corporation may substitute therefor policies with an insurer of equal claims
paying ratings and of at least the same coverage and amounts containing terms
and conditions which are, in the aggregate, no less advantageous to the insured)
with respect to claims arising from facts or events that occurred on or before
the Effective Time. This covenant is intended to be for the benefit of, and
shall be enforceable by, each of the Indemnified Parties and their respective
heirs and legal representatives.
5.9 PUBLIC ANNOUNCEMENTS. From and after the date hereof until the
Effective Time, the Company and Parent shall use all reasonable best efforts to
develop a joint communications plan and each party shall use all reasonable best
efforts (i) to ensure that all press releases and other public statements with
respect to the transactions contemplated hereby shall be consistent
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with such joint communications plan, and (ii) unless otherwise required by
applicable law or by obligations pursuant to any listing agreement with or rules
of Nasdaq or any securities exchange, to consult with each other before issuing
any press release or otherwise making any public statement with respect to this
Agreement or the transactions contemplated hereby.
5.10 TAKEOVER STATUTES. The Company and the Company Board or any
duly authorized committee thereof, including the Special Committee, subject to
its fiduciary duties, shall grant such approvals and take such actions as are
necessary to render Section 203 of the DGCL and any other applicable takeover
statute inapplicable to the Merger and the other transactions contemplated
hereby and by the Voting Agreement, so that the Merger and the other
transactions contemplated hereby and by the Voting Agreement may be consummated
as promptly as practicable on the terms contemplated hereby and thereby and
shall otherwise act to eliminate or minimize the effects of any such takeover
statute on the execution and delivery of this Agreement or the Voting Agreement
or the consummation of the transactions contemplated hereby or thereby.
5.11 SUPERMAJORITY VOTING REQUIREMENT. From the date hereof until
the earlier of the Effective Time or the termination of this Agreement pursuant
to Section 7.1, except as otherwise provided in this Section 5.11, (a) any
material matter or transaction not previously approved by the Company Board or
disclosed in any Report filed by the Company with the SEC prior to the date
hereof between the Company and any of Parent, Merger Sub, the Principals or
their respective Affiliates not expressly contemplated by this Agreement or the
Voting Agreement, (b) any amendment to any resolution of the Company Board
relating to the formation of or delegation of authority to the Special
Committee, and (c) any action proposed to be taken by the Company Board which
would or would be reasonably likely to result in the breach of any covenant of
the Company under this Agreement or the Voting Agreement, shall be presented to
the Special Committee or, if required by law, to the Company Board and, if
presented to the Company Board, approval thereof shall require the act of
two-thirds (2/3) of the entire Company Board. In furtherance thereof, the
Company's bylaws shall, upon action by the Company Board, be amended as of the
date hereof to read as set forth in EXHIBIT E attached hereto.
5.12 VOTING AGREEMENT; CERTAIN OTHER AGREEMENTS. Parent and Merger
Sub shall, and shall use their respective best efforts to cause the Principals
to, comply with the terms and provisions of the Voting Agreement. The Company
shall comply with the terms and provisions of the Voting Agreement. Neither the
Company nor any Subsidiary of the Company will waive or fail to enforce any
provision of any confidentiality or standstill or similar agreement to which it
is a party and entered into in connection with an Acquisition Proposal without
the prior written consent of Parent (which shall not be unreasonably withheld or
delayed).
5.13 FURTHER ASSURANCES. The proper officers of the Company, Parent
and Merger Sub shall take any reasonably necessary actions if, at any time after
the Effective Time, any further action is reasonably necessary to carry out the
purposes of this Agreement.
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ARTICLE VI.
CONDITIONS PRECEDENT
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligations of the Company, Parent and Merger Sub to effect the
Merger are subject to the satisfaction or waiver on or prior to the Closing Date
of the following conditions:
(a) STOCKHOLDER APPROVAL. The Company shall have obtained
all approvals of holders of shares of capital stock of the Company necessary to
approve this Agreement and all the transactions contemplated hereby, including
the Merger, under the DGCL.
(b) HSR ACT. The waiting period (and any extension thereof)
applicable to the Merger under the HSR Act shall have been terminated or shall
have expired.
(c) NO INJUNCTIONS OR RESTRAINTS, ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued by
a court or other Governmental Entity of competent jurisdiction shall be in
effect and have the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger; PROVIDED, HOWEVER, the party invoking this condition
shall use its reasonable best efforts to have any such order or injunction
vacated. The provisions of this Section 6.1(c) shall not be available to any
party whose failure to fulfill its obligations pursuant to Section 5.3 shall
have been the cause of, or shall have resulted in, such order or injunction.
6.2 CONDITIONS TO THE OBLIGATION OF PARENT AND MERGER SUB TO
EFFECT THE MERGER. In addition to the conditions set forth in Section 6.1, the
obligations of Parent and Merger Sub to effect the Merger are further subject to
the satisfaction or waiver by Parent, on or prior to the Closing Date, of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company set forth in this Agreement shall be true and correct
as of the date of this Agreement and as of the Closing Date as though made on
and as of the Closing Date, except to the extent (i) any inaccuracies in such
representations or warranties, individually or in the aggregate, would not have
a Material Adverse Effect on the Company (provided that, solely for purposes of
this Section 6.2(a), any representation or warranty of the Company that is
qualified by materiality or Material Adverse Effect shall be read as if such
language were not present) or would not prevent the consummation of the Merger
by the Outside Date, or (ii) such representations and warranties speak as of an
earlier date. Parent shall have received an officer's certificate executed on
behalf of the Company to such effect.
(b) PERFORMANCE OF OBLIGATIONS AND COVENANTS. The Company
shall have performed or complied with all of its obligations and covenants
required to be performed by the Company under this Agreement at or prior to the
Closing Date, except where the failure to so perform or comply would not have a
Material Adverse Effect on the Company or would not prevent the consummation of
the Merger by the Outside Date. Parent shall have received an officer's
certificate executed on behalf of the Company to such effect.
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(c) FINANCING. The funding of the financing under the
Definitive Financing Agreements shall have occurred or the proceeds thereof
shall be immediately available.
6.3 CONDITIONS TO THE OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. In addition to the conditions set forth in Section 6.1, the obligation
of the Company to effect the Merger is further subject to the satisfaction or
waiver by the Company, on or prior to the Closing Date, of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Parent and Merger Sub set forth in this Agreement shall be true
and correct as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date, except to the extent (i) any
inaccuracies in such representations or warranties, individually or in the
aggregate, would not have a Material Adverse Effect on Parent or Merger Sub
(provided that, solely for purposes of this Section 6.3(a), any representation
or warranty of Parent or Merger Sub that is qualified by materiality or Material
Adverse Effect shall be read as if such language were not present) or would not
prevent the consummation of the Merger by the Outside Date, or (ii) such
representations and warranties speak as of an earlier date. The Company shall
have received an officer's certificate executed on behalf of Parent and Merger
Sub to such effect.
(b) PERFORMANCE OF OBLIGATIONS AND COVENANTS. Parent and
Merger Sub shall have performed or complied with all of their respective
obligations and covenants required to be performed by them under this Agreement
at or prior to the Closing Date, except where the failure to so perform or
comply would not have a Material Adverse Effect on Parent or Merger Sub or would
not prevent the consummation of the Merger by the Outside Date. The Company
shall have received an officer's certificate executed on behalf of Parent and
Merger Sub to such effect.
ARTICLE VII.
TERMINATION AND AMENDMENT
7.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after any approval of the matters
presented in connection with the Merger by the stockholders of the Company:
(a) By mutual written consent of the Company and Parent, by
action of their respective Boards of Directors;
(b) By either the Company or Parent if the Merger shall not
have been consummated by the date which is six (6) months after the date of this
Agreement (the "OUTSIDE DATE"); PROVIDED, HOWEVER, the right to terminate this
Agreement under this Section 7.1(b) shall not be available to any party whose
material breach of any representation, warranty, covenant or agreement under
this Agreement has been the cause of, or resulted in, the failure of the Merger
to occur on or before the Outside Date; PROVIDED, FURTHER, that if on the
Outside Date any conditions to Closing set forth in Section 6.1(b) or Section
6.1(c) have not been fulfilled, but all other conditions to Closing have been
fulfilled or are capable of being fulfilled by the Outside Date,
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then the Outside Date shall be extended to the date which is nine (9) months
after the date of this Agreement;
(c) By either the Company or Parent if any Governmental
Entity shall have issued any judgment, injunction, order, decree or ruling or
taken any other action (with respect to which the parties shall have used their
reasonable best efforts to resist, resolve or lift, as applicable, subject to
the provisions of Section 5.3) permanently restraining, enjoining or prohibiting
Parent, Merger Sub or the Company from consummating the transactions
contemplated by this Agreement, including the Merger, and such judgment,
injunction, order, decree, ruling or other action shall have become final and
nonappealable;
(d) By either the Company or Parent if any approval by the
stockholders of the Company required for the consummation of the Merger and
the other transactions contemplated hereby shall not have been obtained at
the Stockholders Meeting or any adjournment thereof by reason of the failure
to obtain the Required Company Vote; provided that, the right to terminate
this Agreement under this Section 7.1(d) shall not be available to Parent if
the grantees of the irrevocable proxy set forth in Section 4 of the Voting
Agreement shall be unable to vote shares of Company Common Stock subject to
such proxy in favor of the Merger at the Stockholders Meeting and Parent,
Merger Sub or any of the Principals shall have failed to vote their shares of
Company Common Stock (or otherwise consented in writing with respect thereto)
in favor of the Merger at the Stockholders Meeting;
(e) By the Company or Parent, if, prior to the Effective
Time, the Company Board, based upon the recommendation of the Special Committee,
has resolved to accept a Superior Proposal;
(f) By Parent if, prior to the Effective Time, (i) the
Company Board, based upon the recommendation of the Special Committee, shall
have withdrawn or adversely modified its recommendation of this Agreement and
the Merger; (ii) the Company Board, based upon the recommendation of the Special
Committee, shall have recommended to the stockholders of the Company that they
approve an Acquisition Proposal other than the transactions contemplated by this
Agreement, including the Merger; (iii) an Acquisition Proposal made as a tender
offer or exchange offer which, if consummated, would result in any person
beneficially owning 30% or more of the outstanding shares of Company Common
Stock is commenced and the Company Board shall not have recommended rejection of
such tender offer or exchange offer by the date required for such recommendation
under Rule 14e-2 promulgated under the Exchange Act; (iv) the Company, based on
the recommendation of the Special Committee, fails to include in the Proxy
Statement (x) the Company Board's recommendation to the Company's stockholders
to approve and adopt this Agreement and the transactions contemplated hereby,
including the Merger, or (y) the fairness opinion of U.S. Bancorp Piper Jaffray
referred to in Section 3.1(k) (subject to such modifications thereto as do not
adversely modify the opinion of U.S. Bancorp Piper Jaffray as to the fairness of
the consideration to be received in the Merger from a financial point of view);
(v)(A) the Company, based upon the recommendation of the Special Committee, has
failed to mail the Proxy Statement in accordance with Section 5.1(b)(ii) or has
postponed or, without having obtained the Required Company Vote, adjourned the
Stockholders Meeting
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(unless such failure to mail, postponement or adjournment, as the case may be,
was necessitated by applicable law), and (B) an Acquisition Proposal was
publicly pending or was known to the Special Committee at the time of such
failure to mail, postponement or adjournment, as the case may be; or (vi) the
Company has resolved to take any of the actions specified in clause (i) or (ii)
or (v) above;
(g) By Parent if, prior to the Effective Time, there shall
be a breach in any representation, warranty, covenant or agreement on the part
of the Company set forth in this Agreement which would result in a failure of
any of the conditions set forth in Section 6.2, which breach cannot be or shall
not have been cured in all material respects on or before the Outside Date;
(h) By the Company if, prior to the Effective Time, there
shall be a breach in any representation, warranty, covenant or agreement on the
part of Parent or Merger Sub set forth in this Agreement which would result in a
failure of any of the conditions set forth in Section 6.3, which breach cannot
be or shall not have been cured in all material respects on or before the
Outside Date; or
(i) By Parent if the condition set forth in Section 6.2(c)
shall not have been satisfied by the Outside Date by reason of the failure of
any condition to closing set forth in the Definitive Financing Agreements or
upon the exercise by any person party to the Definitive Financing Agreements
(other than Parent, Merger Sub or any of the Principals) of any right to
terminate the Definitive Financing Agreements; PROVIDED, HOWEVER, the right to
terminate this Agreement under this Section 7.1(i) shall not be available if
Parent shall have breached its obligations under Section 5.4.
7.2 EFFECT OF TERMINATION; TERMINATION FEE AND REIMBURSEMENT OF
EXPENSES
(a) In the event of termination of this Agreement by either
the Company or Parent as provided in Section 7.1, this Agreement shall forthwith
become void and have no effect and there shall be no liability or obligation on
the part of the Company, Parent, Merger Sub or their respective Representatives
and Affiliates and all rights and obligations of the parties hereto shall cease,
except (i) with respect to Section 3.1(h) (Brokers and Finders), Section 3.2(g)
(Brokers and Finders), Section 5.2 (Access to Information; Confidentiality),
Section 5.7 (Fees and Expenses), this Section 7.2 (Effect of Termination;
Termination Fee and Reimbursement of Expenses) and Article VIII, and (ii) with
respect to any liabilities or damages incurred or suffered by a party as a
result of the willful breach by the other party of any of its covenants or other
agreements set forth in this Agreement. No termination of this Agreement at a
time when any amounts are then due Parent pursuant to Section 7.2(b) or Section
7.2(c) shall be effective until such amounts are paid.
(b) If:
(i) (A) this Agreement is terminated by the
Company or Parent pursuant to Section 7.1(d), and (B) a public
announcement or public disclosure of any Acquisition Proposal was made
prior to the date of the Stockholders Meeting and was
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publicly pending on or within the five (5) Business Days prior to the
date of the Stockholders Meeting; or
(ii) this Agreement is terminated by the
Company or Parent pursuant to Section 7.1(e); or
(iii) this Agreement is terminated by Parent
pursuant to Section 7.1(f) (except that if this Agreement is terminated
pursuant to clause (iv) thereof no Termination Fee shall be payable
unless an Acquisition Proposal was publicly pending or was known to the
Special Committee at the time the Company Board's recommendation
referred to in clause (iv) or the fairness opinion of U.S. Bancorp
Piper Jaffray, as the case may be, was not included in the Proxy
Statement; or
(iv) the Company willfully and materially
breaches the provisions of Section 5.5;
then the Company shall pay Parent a cash termination payment equal to $1,000,000
(the "TERMINATION FEE") (plus an additional amount, if, at the time such
Termination Fee is payable, Parent's Expenses shall be less than $1,750,000,
equal to the amount by which Parent's Expenses shall be less than $1,750,000,
but not to exceed $250,000), which amount shall be payable by wire transfer of
immediately available funds no later than two (2) Business Days after such
termination. Except as provided in Section 7.2(c) and Section 8.10, the
Termination Fee (provided the same shall be promptly paid) shall be the
exclusive remedy of Parent and Merger Sub as a result of (x) the termination of
this Agreement by the Company or Parent pursuant to Section 7.1(d) or Section
7.1(e) or by Parent pursuant to Section 7.1(f), or (y) the Company's breach of
the provisions of Section 5.5.
(c) If this Agreement is terminated other than (i) by the
Company or Parent pursuant to Section 7.1(b), (A) at a time when the Financing
is not then available for immediate funding due to a material breach by Parent
of Section 5.4, or (B) if the failure to consummate the Merger by the Outside
Date is due to the failure of the conditions set forth in Section 6.3; (ii) by
the Company or Parent pursuant to Section 7.1(c) if the judgment, injunction,
order, decree or ruling or other action referred to therein is due to the
failure of the conditions set forth in Section 6.3; (iii) by the Company
pursuant to Section 7.1(d) if the grantees of the irrevocable proxy set forth in
Section 4 of the Voting Agreement shall be unable to vote shares of Company
Common Stock subject to such proxy in favor of the Merger at the Stockholders
Meeting and Parent, Merger Sub or any of the Principals, as the case may be,
shall have failed to vote their shares of Company Common Stock (or otherwise
consented in writing with respect thereto) in favor of the Merger at the
Stockholders Meeting; or (iv) by the Company pursuant to Section 7.1(h), then,
in addition to any other amounts which may be payable to Parent pursuant to
Section 7.2(b), the Company shall reimburse Parent for all Expenses, including,
without limitation, commitment, appraisal and other fees relating to the
Financing and the reasonable fees and disbursements of accountants, attorneys
and investment bankers, whether retained by Parent or by any other person;
provided that in no event shall the Company be required to pay in excess of an
aggregate of $1,750,000 pursuant to this Section 7.2(c) (plus, in the event no
amounts then are or will be
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payable under Section 7.2(b), an additional amount not to exceed $500,000).
Payment of Expenses pursuant to this Section 7.2(c) shall be made not later than
two (2) Business Days after delivery to the Company of notice of demand for
payment and a documented itemization setting forth in reasonable detail such
Expenses of Parent.
(d) The parties hereto acknowledge and agree that the
provisions for payment of the Termination Fee and the reimbursement of Expenses
set forth in Section 7.2(b) and Section 7.2(c), respectively, are included in
this Agreement to reasonably induce Parent to enter into this Agreement and to
reimburse Parent for incurring the costs and expenses reasonably related to
entering into this Agreement, obtaining the Commitments and the Financing and
consummating the transactions contemplated hereby, including the Merger.
(e) Notwithstanding anything to the contrary set forth in
this Agreement, if the Company fails to pay Parent any amounts due under this
Section 7.2, Parent shall be entitled to payment or reimbursement by the Company
of all reasonable expenses, including attorneys' fees, incurred by Parent which
are directly related to the prosecution of any action with respect to a claim
under this Section 7.2, provided that Parent is the prevailing party (by final
nonappealable judgment of a court of competent jurisdiction) in such action with
respect to such claim.
7.3 AMENDMENT. This Agreement may be amended by the parties hereto
at any time before or after any required approval of the matters presented in
connection with the Merger by the stockholders of the Company; PROVIDED,
HOWEVER, after any such approval, no amendment shall be made which by law or in
accordance with the rules of Nasdaq requires further approval by such
stockholders without such further approval. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
7.4 EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties hereto may, to the extent permitted by applicable law, (a) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained in this Agreement or in any document delivered pursuant
hereto, or (c) subject to Section 7.3, waive compliance with any of the
agreements or conditions contained in this Agreement. Any agreement on the part
of a party hereto to any such extension or waiver shall be valid only if set
forth in a written instrument signed on behalf of such party. No delay or
failure on the part of any party hereto in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party hereto of any right, power or privilege hereunder operate
as a waiver of any other right, power or privilege hereunder, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege hereunder. Unless otherwise provided, the rights and remedies
herein provided are cumulative and are not exclusive of any rights or remedies
which the parties hereto may otherwise have at law or in equity.
7.5 PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER. A
termination of this Agreement pursuant to Section 7.1, an amendment of this
Agreement
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pursuant to Section 7.3, an extension or waiver pursuant to Section 7.4 or any
other approval or consent required or permitted to be given pursuant to this
Agreement or the exercise of any rights or satisfaction of any obligations of
the parties hereunder shall, in order to be effective and in addition to the
requirements of applicable law, require (a) in the case of the Company, the
action of the Special Committee or, if required by law, the action of the entire
Company Board in accordance with Section 5.11, which action shall be based on
the recommendation of the Special Committee, or (b) in the case of Parent or
Merger Sub, the action by the respective Boards of Directors thereof (or a duly
authorized committee thereof or a duly authorized designee of such board of
directors or committee thereof).
ARTICLE VIII.
GENERAL PROVISIONS
8.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. None of the representations, warranties, covenants and other
agreements set forth in this Agreement or in any instrument delivered pursuant
to this Agreement, including any rights arising out of any breach of such
representations, warranties, covenants and other agreements, shall survive the
Effective Time, except for those covenants and agreements contained herein and
therein which by their terms apply or are to be performed in whole or in part
after the Effective Time and this Article VIII. EACH PARTY HERETO AGREES THAT,
EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED IN THIS AGREEMENT, NONE
OF THE COMPANY, PARENT OR MERGER SUB MAKES ANY OTHER REPRESENTATIONS OR
WARRANTIES, AND EACH PARTY HEREBY DISCLAIMS ANY OTHER REPRESENTATIONS AND
WARRANTIES MADE BY ITSELF OR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
FINANCIAL AND LEGAL ADVISORS OR OTHER REPRESENTATIVES, WITH RESPECT TO THE
EXECUTION AND DELIVERY OF THIS AGREEMENT, THE DOCUMENTS AND THE INSTRUMENTS
REFERRED TO HEREIN, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY,
NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO THE OTHER PARTY OR THE OTHER
PARTY'S REPRESENTATIVES OF ANY DOCUMENTATION OR OTHER INFORMATION WITH RESPECT
TO ANY ONE OR MORE OF THE FOREGOING.
8.2 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed duly given (a) on the date of delivery if
delivered personally, (b) on the first Business Day following the date of
dispatch if delivered by a nationally recognized next-day courier service, (c)
on the fifth Business Day following the date of mailing if delivered by
registered or certified mail, return receipt requested, postage prepaid or (d)
if sent by facsimile transmission, when transmitted and confirmation of such
transmission is received. All notices hereunder shall be delivered as set forth
below, or pursuant to such other instructions as may be designated in writing by
the party to receive such notice:
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(a) if to Parent or Merger Sub, to:
RB Capital, Inc.
c/o Frank B. Day, President
1010 69th Street
Boulder, Colorado 80303
Facsimile No.: (303) 499-3738
with a copy to:
Davis, Graham & Stubbs LLP
370 Seventeenth Street, Suite 4700
Denver, Colorado 80201-0185
Attention: Paul Hilton
Facsimile No.: (303) 893-1379
(b) if to the Company, to:
Rock Bottom Restaurants, Inc.
c/o Special Committee of the Board of Directors
248 Centennial Parkway, Suite 100
Louisville, Colorado 80027
Attention: Duncan H. Cocroft, Chairman
Facsimile No.: (303) 664-4196
with a copy to:
Latham & Watkins
5800 Sears Tower
Chicago, Illinois 60606
Attention: Mark D. Gerstein
Facsimile No.: (312) 993-9767
8.3 INTERPRETATION. When a reference is made in this Agreement to
a Section or Exhibit, such reference shall be to a Section of or Exhibit 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." The parties have
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties and no
presumption or burden or proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement. Any
reference to any federal, state, local or foreign statute or law shall be deemed
also to refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise. It is understood and agreed that neither the
specifications of any dollar amount in this Agreement nor the inclusion of any
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specific item in the Exhibits is intended to imply that such amounts or higher
or lower amounts, or the items so included or other items, are or are not
material, and neither party shall use the fact of setting of such amounts or the
fact of the inclusion of such item in any Exhibit in any dispute or controversy
between the parties as to whether any obligation, item or matter is or is not
material for purposes hereof.
8.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that both
parties need not sign the same counterpart.
8.5 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES
(a) This Agreement and the other agreements referred to
herein constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, other than the Confidentiality Agreement, which shall
survive the execution and delivery of this Agreement.
(b) This Agreement is not intended to nor shall anything in
this Agreement confer upon any person, other than the parties hereto, any right,
benefit or remedy of any nature whatsoever under or by reason of this Agreement,
other than Section 5.8.
8.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE LAWS
THAT MIGHT BE APPLICABLE UNDER CONFLICTS OF LAWS PRINCIPLES. The parties hereby
(i) irrevocably submit to the exclusive jurisdiction of the Chancery Court of
the State of Delaware and the federal courts of the United States of America
located in the State of Delaware solely in respect of the interpretation and
enforcement of the provisions of this Agreement and in respect of the
transactions contemplated hereby and (ii) waive, and agree not to assert, as a
defense to any action, suit or proceeding for the interpretation or enforcement
hereof, that such party is not subject to such jurisdiction or that such action,
suit or proceeding may not be brought or is not maintainable in said courts or
that the venue thereof may not be appropriate or that this Agreement may not be
enforced in or by such courts, and the parties hereby irrevocably agree that all
claims with respect to such action, suit or proceeding shall be heard and
determined in such courts. The parties hereby consent to and grant any such
court jurisdiction over the person of such party and over the subject matter of
such dispute and agree that mailing of process or other papers in connection
with any such action, suit or proceeding in the manner provided in Section 8.2,
or in such other manner as may be permitted by applicable law, shall be valid
and sufficient service thereof.
8.7 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO ACKNOWLEDGES
AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY
TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A
TRIAL BY
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JURY IN RESPECT OF ANY LEGAL ACTION OR PROCEEDING DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY AND FOR ANY COUNTERCLAIM THEREIN. EACH PARTY ACKNOWLEDGES
THAT (i) NO REPRESENTATIVE OF SUCH PARTY HAS BEEN AUTHORIZED BY SUCH PARTY TO
REPRESENT OR, TO THE KNOWLEDGE OF SUCH PARTY, HAS REPRESENTED, EXPRESSLY OR
OTHERWISE, THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION SEEK TO ENFORCE
THE FOREGOING WAIVER, (ii) EACH PARTY UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY MAKES THIS WAIVER VOLUNTARILY, AND
(iv) EACH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
THINGS, THE PROVISIONS OF THIS SECTION 8.7.
8.8 SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any law or public policy,
all other terms and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner in order
that the transactions contemplated hereby are consummated as originally
contemplated to the greatest extent possible. Any provision of this Agreement
held invalid or unenforceable only in part, degree or in certain jurisdictions
will remain in full force and effect to the extent not held invalid or
unenforceable. To the extent permitted by applicable law, each party waives any
provision of law which renders any provision of this Agreement invalid, illegal
or unenforceable in any respect.
8.9 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto, in whole or in part (whether by operation of law or otherwise), without
the prior written consent of the other party, and any attempt to make any such
assignment without such consent shall be null and void. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
8.10 ENFORCEMENT. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to specific performance
of the terms and provisions of this Agreement (without requirement to post a
bond, if applicable), this being in addition to any other remedy to which the
parties are entitled at law or in equity.
8.11 DEFINITIONS. As used in this Agreement, the following terms
shall have the following definitions:
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(a) "AFFILIATE" shall have the meaning ascribed to such
terms under Rule 12b-2 of the General Rules and Regulations under the Exchange
Act.
(b) "BUSINESS DAY" means any day on which banks are not
required or authorized to close in the City of New York.
(c) "EXPENSES" means and includes all out-of-pocket costs
and expenses (including, without limitation, all fees and expenses of counsel,
accountants, banks, investment bankers, experts and consultants to a party
hereto and its Affiliates) incurred by a party or on its behalf, whenever
incurred, in connection with or related to the authorization, preparation,
negotiation, execution and performance of this Agreement and the transactions
contemplated hereby and the Financing.
(d) "MATERIAL ADVERSE EFFECT" means, with respect to any
entity, any adverse change, circumstance or effect that, individually or in the
aggregate with all other adverse changes, circumstances and effects, is or is
reasonably likely to be materially adverse to the business, operations, assets,
liabilities, condition (financial or otherwise) or results of operations of such
entity and its Subsidiaries taken as a whole.
(e) "ORGANIZATIONAL DOCUMENTS" means, with respect to any
entity, the certificate of incorporation, bylaws or other governing documents of
such entity.
(f) "OTHER PARTY" means, with respect to the Company, Parent
and, with respect to Parent or Merger Sub, the Company.
(g) "PERSON" means an individual, corporation, partnership,
limited liability company, joint venture, association, trust, unincorporated
organization, "group" (as defined in the Exchange Act) or other entity.
(h) "REPRESENTATIVES" means, collectively, the directors,
officers, employees, agents and other representatives (including any investment
bankers, financial advisors, attorneys or accountants) of any person.
(i) "SUBSIDIARY" when used with respect to any party means
any corporation or other organization, whether incorporated or unincorporated,
(i) of which such party or any other Subsidiary of such party is a general
partner (excluding partnerships, the general partnership interests of which held
by such party or any Subsidiary of such party do not have a majority of the
voting and economic interests in such partnership), or (ii) at least a majority
of the securities or other interests of which having by their terms ordinary
voting power to elect a majority of the board of directors or others performing
similar functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such party or by any one or more
of its Subsidiaries, or by such party and one or more of its Subsidiaries.
[SIGNATURE PAGE FOLLOWS]
37
<PAGE>
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have
caused this Agreement to be signed by their respective officers thereunto duly
authorized, as of the date first written above.
RB CAPITAL INC., a Delaware corporation
By: /s/ FRANK B. DAY
--------------------------------------------
Name: Frank B. Day
Title: President
RBR ACQUISITION CORP., a Delaware corporation
By: /s/ FRANK B. DAY
--------------------------------------------
Name: Frank B. Day
Title: President
ROCK BOTTOM RESTAURANTS, INC.
a Delaware corporation
By: /s/ WILLIAM S. HOPPE
--------------------------------------------
Name: William S. Hoppe
Title: Executive Vice President, Chief
Financial Officer and Chief
Administrative Officer
<PAGE>
ANNEX B
[LOGO]
March 18, 1999
Special Committee of the Board of Directors
Rock Bottom Restaurants, Inc.
248 Centennial Parkway
Louisville, CO 80027
Members of the Special Committee:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders (other than Parent, as defined below, and persons
affiliated with Parent) of the outstanding shares of Common Stock (the "Shares")
of Rock Bottom Restaurants, Inc. (the "Company"), of the $10.00 per Share in
cash into which each outstanding Share of the Company held by persons other than
Parent and persons affiliated with Parent (such other shareholders being herein
referred to as the "Unaffiliated Shareholders") is proposed to be converted
pursuant to the terms of the proposed merger (the "Merger") of the Company with
RB Acquisition Corp. ("Acquiror"), a wholly owned subsidiary of RB Capital, Inc.
("Parent"). The terms of the Merger are set forth in the Agreement and Plan of
Merger, to be dated as of March 18, 1999, by and among the Company, Acquiror and
Parent (the "Merger Agreement").
U.S. Bancorp Piper Jaffray Inc. ("U.S. Bancorp Piper Jaffray"), as a
customary part of its investment banking business, is regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, underwritings and secondary distributions of securities, private
placements, and valuations for estate, corporate and other purposes. U.S.
Bancorp Piper Jaffray is currently acting as financial advisor to the Special
Committee of the Board of Directors of the Company in connection with the
Merger, for which the Company will pay a fee that is contingent upon the
consummation of the Merger. For our services in rendering this opinion, the
Company will pay us a fee that is not contingent upon the consummation of the
Merger. The Company has also agreed to indemnify us against certain liabilities
in connection with this engagement. In the past, we have provided certain
investment banking services to the Company. U.S. Bancorp Piper Jaffray makes a
market in shares of the Company's common stock and provides research coverage on
the Company.
In arriving at our opinion, we have undertaken such reviews, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have:
(i) Reviewed the Merger Agreement;
(ii) Reviewed the Annual Reports on Form 10-K for the Company for the three
fiscal years ended December 28, 1997;
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(iii) Reviewed the Quarterly Reports on Form 10-Q for the Company for the
quarters ended September 27, 1998, June 28, 1998, and March 29, 1998;
(iv) Reviewed unaudited financial results and certain other operating data
for the Company for the fiscal year ended December 27, 1998, certain
unaudited financial results and other operating data for January and
February 1999 and five-year financial forecasts for the Company on a
stand-alone public company basis prepared by the Company's management
for the years ending 1999 through 2003;
(v) Conducted discussions with certain members of senior management of the
Company concerning topics such as the financial condition, operating
performance and balance sheet of the Company, and the prospects for the
Company;
(vi) Conducted discussions with members of the Special Committee of the
Board of Directors;
(vii) Reviewed information regarding the Company's owned/leased properties
and sale/leaseback agreements;
(viii) Reviewed the historical prices and trading activity for the Company
Common Stock;
(ix) Reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions which we deemed
relevant;
(x) Performed discounted cash flow analysis on the five-year financial
forecasts for the Company on a stand-alone public company basis
furnished by the Company's management;
(xi) Compared certain financial data of the Company with certain financial
and securities data of companies we deemed similar to the Company;
(xii) Compared premiums paid relative to recent public market
pre-announcement trading prices of certain selected merger and
acquisition transactions to the Company implied premium;
(xiii) Modified the five-year financial forecasts for the Company as a
stand-alone public company based on anticipated changes to be made as a
private company by Parent, analyzed the feasibility of a leveraged
buyout of the Company based on these changes and performed a discounted
cash flow analysis on these modified forecasts;
(xiv) Reviewed recent press releases and legal and accounting correspondence;
and
(xv) Evaluated, responded to and negotiated with respect to unsolicited
indications of interest from persons other than Parent both prior to and
after the Company's January 27, 1999 public announcement of its receipt
of indications of interest, including that of Parent.
We have relied upon and assumed the accuracy, completeness and fairness of
the financial statements and other information provided by the Company or
otherwise made available to us and have not assumed responsibility for
independently verifying such information. We have assumed, in reliance upon the
assurances of the Company management, that the information provided pertaining
to the Company has been prepared on a reasonable basis in accordance with
industry practice and, with respect to financial planning data, reflects the
best currently available estimates and judgment of the Company's management as
to the expected future financial performance of the Company, and that the
management of the Company is not aware of any information or facts that would
make the information provided to us incomplete or misleading. We have also
assumed that there have been no material changes in the Company's assets,
financial condition, results of operations, business or prospects since the date
of the last financial statements or information made available to us.
In arriving at our opinion, we have not performed any appraisals or
valuations of specific assets or liabilities of the Company, have not been
furnished with any such appraisals or valuations, have made
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<PAGE>
no physical inspection of the properties or assets of the Company and express no
opinion regarding the liquidation value of the Company.
Without limiting the generality of the foregoing, we have undertaken no
independent analysis of any pending or threatened litigation, possible
unasserted claims or other contingent liabilities, to which either the Company
or its affiliates is a party or may be subject and at the Company's direction
and with its consent, our opinion makes no assumption concerning and therefore
does not consider, the possible assertion of claims, outcomes or damages arising
out of any such matters.
Our opinion is necessarily based upon information available to us, facts and
circumstances and economic, market and other conditions as they exist and are
subject to evaluation on the date hereof; events occurring after the date hereof
could materially affect the assumptions used in preparing this opinion. We are
not expressing any opinion herein as to the prices at which shares of Company
Common Stock have traded or at which such shares may trade at any future time.
Although the Company publicly announced indications of interest in the Company
on January 27, 1999, and the Special Committee authorized us to evaluate,
respond to and negotiate with respect to such indications of interest, we have
not been authorized by the Special Committee to solicit, and did not solicit,
other entities for purposes of a business combination with the Company.
This opinion is furnished pursuant to our engagement letter dated December
22, 1998. Except with respect to the use of this opinion in connection with the
proxy statement or Schedule 13e-3 relating 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 shall not be
unreasonably withheld or delayed). This opinion does not address the basic
decision to proceed with or effect the Merger. This opinion is directed to the
Special Committee of the Board of Directors, except that the Board of Directors
of the Company is expressly authorized to rely on this opinion, and is not
intended to be and shall not be deemed to be a recommendation to any shareholder
of the Company as to how to vote with respect to the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the cash consideration to be received by Unaffiliated Shareholders
of the Company pursuant to the Merger Agreement is fair, from a financial point
of view, to the Unaffiliated Shareholders.
Sincerely,
/s/ U.S. Bancorp Piper Jaffray Inc.
U.S. BANCORP PIPER JAFFRAY INC.
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<PAGE>
ANNEX C
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
RELATING TO DISSENTERS' RIGHTS
262 APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the Effective Time of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of the stockholder's shares of stock under
the circumstances described in subsections (b) and (c) of this section. As used
in this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (i) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to Sections
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the Effective Time of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
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<PAGE>
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of such stockholder's shares shall deliver
to the corporation, before the taking of the vote on the merger or
consolidation, a written demand for appraisal of such stockholder's shares.
Such demand will be sufficient if it reasonably informs the corporation of
the identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of such stockholder's shares. A proxy or vote against
the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the Effective Time of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before
the Effective Time of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock
of such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the Effective
Time of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the Effective Time of the
merger or consolidation, shall, also notify such stockholders of the
Effective Time of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the Effective
Time of the merger or consolidation, either (1) each such constituent
corporation shall send a second notice before the
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Effective Time of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the Effective Time of the merger or
consolidation or (ii) the surviving or resulting corporation shall send such
a second notice to all such holders on or within 10 days after such
Effective Time; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either notice
that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation
may fix, in advance, a record date that shall be not more than 10 days prior
to the date the notice is given, provided, that if the notice is given on or
after the Effective Time of the merger or consolidation, the record date
shall be such Effective Time. If no record date is fixed and the notice is
given prior to the Effective Time, the record date shall be the close of
business on the day next preceding the day on which the notice is given.
(e) Within 120 days after the Effective Time of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the Effective Time of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the Effective Time of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the
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<PAGE>
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the Effective Time of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the Effective Time of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the Effective Time of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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<PAGE>
PRELIMINARY COPY SUBJECT TO COMPLETION, DATED APRIL 19, 1999
PROXY
ROCK BOTTOM RESTAURANTS, INC.
248 CENTENNIAL PARKWAY, SUITE 100
LOUISVILLE, COLORADO 80027
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF ROCK BOTTOM RESTAURANTS, INC.
The undersigned stockholder of ROCK BOTTOM RESTAURANTS, INC., a Delaware
corporation (the "Company"), hereby appoints DUNCAN H. COCROFT, GERALD A.
HORNBECK and MARY C. HACKING, and each of them, as proxies, each with the power
to appoint his or her substitute, and hereby authorizes each of them to
represent, and to vote as designated on the reverse side, all the shares of
common stock of the Company held of record by the undersigned on [Record Date]
at the Special Meeting of Stockholders of the Company, to be held at [Location],
on [Month Date], 1999 at [Time] and at all adjournments or postponements thereof
upon the following matters, as set forth in the Notice of Special Meeting of
Stockholders and Proxy Statement, each dated - , 1999, copies of which have
been received by the undersigned, hereby revoking any proxy heretofore given.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE APPROVAL OF THE AGREEMENT AND PLAN OF MERGER AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
(CONTINUED AND TO BE DATED AND SIGNED ON REVERSE SIDE)
<PAGE>
PLEASE MARK
YOUR VOTES
AS INDICATED /X/
IN THIS
EXAMPLE:
The board of directors of the Company recommends a vote for the Agreement and
Plan of Merger.
1. Proposal to approve and adopt the Agreement and Plan of Merger, dated as of
March 18, 1999, by and among RB Capital, Inc., RBR Acquisition Corp. and the
Company, as heretofore and hereafter amended, and the transactions
contemplated thereby:
/ / FOR / / AGAINST / / ABSTAIN
2. The proxies are hereby authorized to vote in their discretion upon all other
business as may properly come before the Special Meeting.
Please sign exactly as your name
appears on this proxy. If the shares
represented by this proxy are held by
joint tenants, both must sign. When
signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such. If
stockholder is a corporation, please
sign in full corporate name by
President or other authorized officer.
If stockholder is a partnership, please
sign in partnership name by authorized
person.
<TABLE>
<CAPTION>
Signature: Date:
<S> <C> <C> <C>
----------------------------------------------------------- ---------------------------------------
Signature: Date:
----------------------------------------------------------- ---------------------------------------
</TABLE>
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED POSTAGE PREPAID ENVELOPE
<PAGE>
FOR IMMEDIATE RELEASE
- ---------------------
Contact: William S. Hoppe
Rock Bottom Restaurants, Inc.
(303) 664-4000
ROCK BOTTOM RESTAURANTS ENTERS INTO MERGER AGREEMENT
LOUISVILLE, Colorado -- March 19, 1999 -- Rock Bottom Restaurants, Inc.
(Nasdaq: BREW) today announced that it has entered into a definitive
agreement to be acquired by RB Capital, Inc., a newly-formed corporation
organized by the Company's Chairman, President and Chief Executive Officer,
Frank B. Day, for $10.00 per share in cash. Mr. Day is also one of the
Company's co-founders and is a significant stockholder of the Company. The
investors in RB Capital, including Mr. Day, collectively own approximately
28% of the outstanding common stock of Rock Bottom.
The transaction, which is structured as a cash merger, was approved by Rock
Bottom's Board of Directors, acting upon the unanimous recommendation of a
Special Committee of the Board comprised of three disinterested directors. In
reaching its decision, the Special Committee was advised by its financial
advisor, U.S. Bancorp Piper Jaffray Inc., which rendered a written opinion
that the consideration being received by stockholders in the merger is fair
to the unaffiliated holders of common stock of Rock Bottom from a financial
point of view. RB Capital, which was advised by its financial advisor
BancBoston Robertson Stephens Inc., has obtained debt and equity financing
commitments from BankBoston, N.A., BancBoston Robertson Stephens Inc. and
its investors to provide, in the aggregate, approximately $80 million to
finance the acquisition. Funding under these commitments is subject to
customary conditions, as well as the consummation of certain ancillary
financing transactions.
The merger requires approval by the holders of a majority of all outstanding
shares of Rock Bottom. It is expected that the proposed merger will be voted
upon by Rock Bottom's stockholders at a special meeting to be held in the
company's third fiscal quarter. The transaction is also subject to the
receipt by RB Capital of funding to consummate the transaction and to other
customary conditions, including the receipt of any required regulatory
approvals.
Rock Bottom and the Special Committee also announced that an agreement in
principle had been reached to settle related shareholder class litigation.
Based in Louisville, Colorado, Rock Bottom Restaurants, Inc. owns and
operates 62 restaurants - 39 "Old Chicago" restaurants and 23 brewery
restaurants operating under the names "Rock Bottom Restaurant & Brewery,"
"Chop House & Brewery" and "Walnut Brewery." All of Rock Bottom's restaurants
are casual dining establishments featuring attentive customer service,
high-quality, moderately priced food and a distinctive selection of
micro-brewed and specialty beer served in a comfortable and entertaining
atmosphere.
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DENVER DISTRICT COURT, CITY AND COUNTY OF DENVER, COLORADO
Case No. 99 CV 0639
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SHAREHOLDER'S CLASS ACTION COMPLAINT AND JURY DEMAND
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ANDREW WOHLMAN,
Plaintiff,
v.
FRANK B. DAY; DUNCAN H. COCROFT; ROBERT D. GREENLEE; MARY C. HACKING; GERALD A.
HORNBECK; DAVID M. LUX; ARTHUR WONG; AND ROCK BOTTOM RESTAURANTS, INC.,
Defendants.
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Plaintiff, by his attorneys, for his complaint against defendants, alleges
upon personal knowledge as to himself, and upon information and belief based,
INTER ALIA, upon the investigation of counsel, as to all other allegations
herein, as follows:
NATURE OF THE ACTION
1. This is a stockholder's class action on behalf of the public
stockholders of Rock Bottom Restaurants, Inc. ("Rock Bottom" or the
"Company"), against certain of its officers and directors and the principal
shareholder of Rock Bottom to enjoin certain actions of defendants related to
the proposed acquisition of the outstanding shares of Rock Bottom common stock
by its principal shareholder, to the exclusion of other BONA FIDE bidders.
THE PARTIES
2. Plaintiff Andrew Wohlman is and at all relevant times has been an
owner of Rock Bottom common stock.
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3. (a) Rock Bottom maintains its principal executive offices
located at 248 Centennial Parkway, Suite 100, Louisville, Colorado 80027. Rock
Bottom operates restaurants and brewery restaurants.
(b) As of November 1998, Rock Bottom had approximately 8 million
shares of common stock outstanding, held by hundreds if not thousands of
shareholders of record. Rock Bottom common stock is listed and traded on the
NASDAQ National Market.
4. (a) At all relevant times, defendants Frank B. Day ("Day"),
Duncan H. Cocroft, Robert D. Greenlee, Mary C. Hacking, Gerald A. Hornbeck,
David M. Lux and Arthur Wong constitute the Board of Directors of Rock Bottom
(collectively, the "Individual Defendants").
(b) In addition, at all relevant times, defendant Day serves as
Chairman of the Board, President and Chief Executive Officer of the Company.
Defendant Day holds approximately 16% of the outstanding common stock of Rock
Bottom. As such, defendant Day and his hand-picked representatives on the Rock
Bottom Board are in a position to and do dominate Rock Bottom's affairs. Day,
therefore, as the Company's principal shareholder, owes fiduciary obligations of
good faith, candor, loyalty and fair dealing to the public shareholders of Rock
Bottom.
5. By virtue of their positions as directors and/or officers of Rock
Bottom and/or their exercise of control and dominant ownership over the business
and corporate affairs of Rock Bottom, each and every of the Individual
Defendants (especially Day) has, and at all relevant times had, the power to
control and influence, and did control and influence and cause Rock Bottom to
engage in the practices complained of herein. Each Individual Defendant owed
and owes Rock Bottom and its stockholders fiduciary obligations and was and is
required to: use his/her ability to control and manage Rock Bottom in a fair,
just and equitable manner; act in furtherance of the best interests of Rock
Bottom and its stockholders; govern Rock Bottom in such a manner as to heed the
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expressed views of its public shareholders; refrain from abusing his/her
positions of control; and not to favor his/her own interests at the expense of
Rock Bottom and its stockholders.
6. As discussed in detail below, Day, in concert with the Individual
Defendants, who together control the actions of Rock Bottom, have breached their
fiduciary duties to Rock Bottom's public stockholders by acting to cause or
facilitate Day's acquisition of the publicly-held shares of Rock Bottom, to the
exclusion of all other bidders, for unfair and inadequate consideration, and
colluding in Day's coercive tactics in accompanying such buy-out.
7. Each defendant herein is sued individually as a conspirator and
aider and abettor, as well as in the case of the Individual Defendants, in their
capacity as directors and/or officers of Rock Bottom and the liability of each
arises from the fact that they have engaged in all or part of the unlawful acts,
plans, schemes, or transactions complained of herein.
CLASS ACTION ALLEGATIONS
8. Plaintiff brings this action pursuant to C.R.C.P. 23, on
behalf of himself and all other shareholders of the Company, except the
defendants herein and any persons, firm, trust, corporation, or other entity
related to or affiliated with them and their successors in interest, who are
or will be threatened with injury arising from defendants' actions, as more
fully described herein (the "Class").
9. This action is properly maintainable as a class action for the
following reasons:
a. The Class is so numerous that joinder of all members is
impracticable. There are in excess of 8 million shares of Rock Bottom common
stock which are outstanding, held by hundreds if not thousands of stockholders
of Rock Bottom stock who are members of the Class.
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<PAGE>
b. Members of the Class are scattered throughout the United
States and are so numerous that it is impracticable to bring them all before
this Court.
c. There are questions of law and fact that are common to the
Class and that predominate over questions affecting any individual class member.
The common questions include, INTER ALIA, the following:
i) Whether defendants have engaged in and are continuing
to engage in conduct which unfairly benefits Day at the expense of the members
of the Class;
ii) Whether the Individual Defendants, as officers and/or
directors of the Company, and Day, the principal stockholder of Rock Bottom, are
violating their fiduciary duties to plaintiff and the other members of the
Class;
iii) Whether plaintiff and the other members of the Class
would be irreparably damaged were defendants not enjoined from the conduct
described herein;
iv) Whether defendants have initiated and timed their
buy-out of Rock Bottom shares to unfairly benefit Day at the expense of Rock
Bottom's public shareholders.
d. The claims of plaintiff are typical of the claims of the
other members of the Class in that all members of the Class will be damaged by
defendants' actions.
e. Plaintiff is committed to prosecuting this action and has
retained competent counsel experience in litigation of this nature. Plaintiff
is an adequate representative of the Class.
f. Plaintiff anticipates that there will not be any difficulty
in the management of this litigation as a class action.
10. For the reasons stated herein, a class action is superior to
other available methods for the fair and efficient adjudication of this action
and the claims asserted herein. Because
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of the size of the individual Class members' claims, few, if any, Class
members could afford to seek legal redress individually for the wrongs
complained of herein. Absent a class action, the Class members will continue
to suffer damage and Rock Bottom's violations of law will proceed without
remedy.
SUBSTANTIVE ALLEGATIONS
A. THE COMPANY
11. Rock Bottom operates 42 "Old Chicago" restaurants and 27 brewery
restaurants. The brewery restaurants operate under the names "Rock Bottom
Restaurant & Brewery," "ChopHouse & Brewery," "Walnut Brewery" and "Big River
Grille & Brewing Works."
12. Rock Bottom has recorded impressive financial results. In
this regard, on or about October 21, 1998, Rock Bottom reported its financial
results for the third quarter of 1998. Net income for the three months ended
September 27, 1998, increased 163% to $1.4 million, or $0.18 per share, as
compared to a loss of $2.2 million, or $.28 per share for the comparable
period in 1997.
B. ROCK BOTTOM RECEIVES
UNSOLICITED BIDS FOR THE COMPANY
13. Unknown to the public, on or about January 8, 1999, ConQuest
Partners ("ConQuest") made an offer to the Individual Defendants to acquire the
Company's outstanding shares for at least $10 per share in cash, representing
more than a 60% premium to the unaffected market price of the Company.
14. Thereafter, Consolidated Restaurant Cos. ("Consolidated") of
Dallas also informed Rock Bottom's Board that it was interested in acquiring the
Company's shares. That offer was also not made public.
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<PAGE>
C. DEFENDANT DAY ANNOUNCES A PROPOSED
MANAGEMENT LED BUY-OUT OF THE COMPANY
15. Instead of embracing these premium offers or initiating an
auction process, on or about January 27, 1999, Rock Bottom announced that it had
received a proposal from defendant Day, the Company's Chairman, President and
CEO, to effectuate a management-led buy-out of Rock Bottom's stock in a
going-private transaction. During such announcement, Rock Bottom disclosed that
it had received two other expressions of interest to acquire Rock Bottom's
shares. Rock Bottom also announced that it had formed a "special committee" of
purportedly independent directors to evaluate the proposed offers.
16. The management LBO proposal was prompted by the outside
expressions of interest and was designed to preclude those offers from
succeeding while reserving for management and its handpicked allies on the
Board the benefits to be derived from the Company's future growth and
prosperity while securing defendants in their jobs and perquisites.
Commenting on the timing and structure of the proposed leveraged buy-out
proposal, Scott W. Condon ("Condon"), ConQuest's Managing Director, stated:
ConQuest Partners has followed Rock Bottom closely over the last year.
We have undertaken considerable due diligence and carefully considered
our valuation of Rock Bottom's common-stock shares, as reflected in
our January 9, 1999 indication of interest . . . [W]ITH ROCK BOTTOM'S
NEWS RELEASE TODAY, WE HAVE SOME CONCERN THAT MR. DAY IS IN A POSITION
TO SIMPLY NEGOTIATE AND ANNOUNCE A DEFINITIVE AGREEMENT BETWEEN HIS
MANAGEMENT-LED GROUP AND THE SPECIAL COMMITTEE, AND THAT AGREEMENT
COULD INCLUDE 'TOPPING' OR 'BREAKUP' FEES AND OTHER DETERRENTS TO
THIRD-PARTY BIDS. . . [w]e hope and assume that ConQuest Partners will
be given an equal opportunity to conduct due diligence and negotiate
with the Special Committee before any decision is made.
[Emphasis added.]
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<PAGE>
17. On February 1, 1999, Rock Bottom's shares closed at $8 11/16
reflecting the uncertainty of the market as to whether ConQuest's $10 offer will
be considered seriously by defendants or whether defendants will proceed with
the LBO at an inadequate price.
FIRST CAUSE OF ACTION
(BREACH OF FIDUCIARY DUTY)
18. Day, by reason of his substantial ownership of Rock Bottom's
outstanding shares, is in a position to ensure effectuation of the management
led leveraged buy-out without regard to its fairness to Rock Bottom's public
shareholders. Day and his allies on Rock Bottom's Board are acting to force
Rock Bottom's public shareholders to relinquish their Rock Bottom share without
an adequate process to ensure that these shareholders receive the highest price
attainable under the circumstances for such shares.
19. Thus, Day has the power and is exercising his power to acquire
Rock Bottom's shares and dictate terms which are in Day's best interest, without
seriously exploring ConQuest's and Consolidated's competing bids and regardless
of the wishes or best interests of the class members or the intrinsic value of
Rock Bottom's stock.
20. Because Day is in possession of proprietary corporate information
concerning Rock Bottom's future financial prospects, the degree of knowledge and
economic power between Day and the class members is unequal, making it grossly
and inherently unfair for Day to obtain the remaining Rock Bottom's shares
without an adequate process.
21. By using his domination and control as a means to force the
consummation of the leveraged buy-out transaction. Day is violating his duties
as the Company's principal shareholder.
22. Defendants' purported review of the transaction by a special
committee of "independent directors" is a sham given Day's domination of the
Rock Bottom Board.
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<PAGE>
23. Defendants, acting in concert, are violating their fiduciary
duties owed to the public shareholders of Rock Bottom and are putting their own
personal interests ahead of the interests of Rock Bottom's public shareholders.
To act consistent with their fiduciary duties, the Individual Defendants should
evaluate all available alternatives, including negotiating with the third-party
bidders that have emerged and any other potential suitors, which they have
failed to do.
24. Defendants have initiated an active sales process and, thus,
have assumed enhanced duties to maximize shareholder value. In that regard,
defendants must adequately ensure that no conflict of interest exists between
their own interests and their fiduciary obligations to maximize stockholder
value and act in the shareholders' best interests or, if such conflicts
exist, to ensure that they will be resolved in the best interests of the
Company's public stockholders.
25. Plaintiff seeks preliminary and permanent injunctive relief and
declaratory relief preventing defendants from inequitably and unlawfully
depriving plaintiff and the Class of their rights to realize a full and fair
value for their stock at a substantial premium over the market price and to
compel defendants to carry out their fiduciary duties to maximize shareholder
value in selling Rock Bottom.
26. Defendants' fiduciary obligations require them to:
(a) act independently so that the interests of Rock Bottom's
public stockholders will be protected;
(b) adequately ensure that no conflicts of interest exist
between defendants' own interests and their fiduciary obligation of entire
fairness or, if such conflicts exist, to ensure that all the conflicts are
resolved in the best interests of Rock Bottom's public stockholders; and
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<PAGE>
(c) provide Rock Bottom's stockholders with truly independent
representation in the negotiations with Day and the other bidders for the
Company.
27. By reason of the foregoing, defendants have breached and will
continue to breach their duties to the public shareholders of Rock Bottom and
are engaging in improper, unfair dealing and wrongful and coercive conduct.
28. Plaintiff and the Class will suffer irreparable harm unless
defendants are enjoined from breaching their fiduciary duties and from carrying
out the aforesaid plan and scheme.
29. By reason of the foregoing, defendants have violated the
fiduciary duties which each of them owes to plaintiff and the other members of
the Class.
30. Each of the defendants has colluded in and rendered substantial
assistance in the accomplishment of the wrongdoing complained of herein. In
taking the actions, as particularized herein, to aid and abet and substantially
assist the wrongs complained of, all defendants acted with an awareness of the
primary wrongdoing and realized that their conduct would substantially assist
the accomplishment of that wrongdoing and were aware of their overall
contribution to the conspiracy, common scheme and course of wrongful conduct.
31. Unless enjoined by this Court, defendants will continue to breach
their fiduciary duties owed to plaintiff and the other members of the Class, and
are prepared to consummate a buy-out on unfair and inadequate terms which will
exclude the Class from its fair proportionate share of Rock Bottom's valuable
assets and businesses, all to the irreparable harm of the Class, as aforesaid.
32. Plaintiff and the other class members are immediately threatened
by the acts and transactions complained of herein, and lack an adequate remedy
at law.
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<PAGE>
WHEREFORE, plaintiff demands judgment and preliminary and permanent
relief, including injunctive relief, in his favor and in favor of the Class and
against defendants as follows:
1. Declaring that this action is properly maintainable as a
class action, and certifying plaintiff as a class representative;
2. Declaring that the defendants and each of them have
committed or participated in a gross abuse of trust and have breached their
fiduciary duties to plaintiff and other members of the Class or aided and
abetted such breaches;
3. Enjoining the leveraged buy-out transaction and, if such
transaction is consummated, rescinding the transaction;
4. Requiring defendants to abide by and uphold their fiduciary
responsibilities in selling the Company and to fully insulate themselves from
any conflicts of interest that interfere with that would interfere with their
duties;
5. Awarding plaintiff and the Class compensatory damages and/or
rescissory damages;
6. Awarding plaintiff the costs and disbursements of this
action, including allowance for plaintiff's attorneys' and experts' fees; and
7. Granting such other, and further relief as this Court may
deem to be just and proper.
JURY DEMAND
Plaintiff demands a trial on issues so triable.
DATED at Denver, Colorado this 2nd day of February, 1999.
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BADER & ASSOCIATES, P.C.
By: /s/ Gerald L. Bader, Jr.
------------------------------
Gerald L. Bader, Jr., No. 3625
1660 Wynkoop Street, Suite 1100
Denver, Colorado 80202-1160
Telephone: (303) 534-1700
Telecopier:(303) 534-0725
Attorneys for Plaintiff
OF COUNSEL:
Steven G. Schulman
U. Seth Ottensoser
MILBERG WEISS BERSHAD HYNES
& LERACH LLP
One Pennsylvania Plaza
New York, NY 10119
(212) 594-5300
Richard Kranich
LAW OFFICES OF RICHARD KRANICH
120 Broadway, Suite 1016
New York, NY 10172
(212.) 608-8965
Plaintiff's Address
- -------------------
308 Stewart Avenue
Kalamazoo, Michigan 49007
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