<PAGE>
PRELIMINARY PROXY MATERIALS
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 1)
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ROCK BOTTOM RESTAURANTS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
N/A
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $.01 per share, of Rock Bottom Restaurants,
Inc.
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(2) Aggregate number of securities to which transaction applies:
8,045,796 shares of Common Stock based on the number of shares
outstanding on March 26, 1999.
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
The filing fee of $12,300 was calculated pursuant to Exchange Act Rule
0-11(c)(1), and is the product of multiplying (A) 1/50 of 1% by an
amount equal to (B) the sum of (x) the product of 8,045,796 shares of
Common Stock, less the 2,200,173 shares of Common Stock contributed by
certain persons to RB Capital, Inc. by, $10.00 per share, and (y) the
aggregate amount anticipated to be paid to certain persons holding
options to purchase shares of Common Stock in consideration of the
cancellation of such options.
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(4) Proposed maximum aggregate value of transaction:
$61,268,949.
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(5) Total fee paid:
$12,254.
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/ / Fee paid previously with preliminary materials.
/X/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
$12,254.
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(2) Form, Schedule or Registration Statement No.:
Schedule 13E-3.
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(3) Filing Party:
Rock Bottom Restaurants, Inc., RB Capital, Inc., RBR Acquisition Corp.,
Frank B. Day, Robert D. Greenlee, Arthur Wong and David M. Lux
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(4) Date Filed:
April 19, 1999.
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As filed with the Commission on June 4, 1999
<PAGE>
PRELIMINARY COPY SUBJECT TO COMPLETION, DATED JUNE 4, 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 JUNE 4, 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 June 14, 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
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER......... 1
SUMMARY........................................ 4
The Special Meeting.......................... 4
Special Factors.............................. 4
The Merger Agreement......................... 4
The Merger Consideration................... 4
Conditions to the Merger................... 5
Termination of the Merger Agreement........ 5
Acquisition Proposals...................... 5
Fees and Expenses.......................... 5
Dissenters' Rights of Appraisal.............. 5
Selected Consolidated Financial Data of the
Company.................................... 6
THE PARTIES.................................... 8
The Company.................................. 8
RB Capital................................... 8
RBR Acquisition.............................. 8
SPECIAL FACTORS................................ 8
Background of the Merger..................... 8
Recommendation of the Special Committee and
Board of Directors; Fairness of the
Merger..................................... 18
Special Committee.......................... 18
Board of Directors of the Company.......... 21
Opinion of Financial Advisor to the Special
Committee.................................. 22
Proposed Consideration..................... 24
Market Analysis............................ 24
Comparable Company Analysis................ 24
Comparable Transaction Analysis............ 25
Premiums Paid Analysis..................... 26
Discounted Cash Flow Analyses.............. 27
LBO Analysis............................... 27
Certain Projections.......................... 29
<CAPTION>
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<S> <C>
RB Capital's and RBR Acquisition's Purpose
and Reason for the Merger.................. 31
Interests of Certain Persons in the Merger;
Certain Relationships...................... 32
Retained Equity Interest................... 32
Directors and Management of the Surviving
Corporation.............................. 34
Management Employment Agreements........... 34
Restricted Stock........................... 35
Affiliated Leases.......................... 35
Other Arrangements with Affiliates......... 36
Certain Effects of the Merger................ 36
Plans for the Company after the Merger....... 37
Conduct of the Business of the Company if the
Merger is not Consummated.................. 38
Accounting Treatment......................... 38
Financing of the Merger...................... 38
Senior Secured Revolving Credit and Term
Loan Facility............................ 38
Subordinated Credit Facility and Junior
Equity................................... 40
Equity Contributions....................... 42
Sale-Leaseback Transactions................ 43
Regulatory Requirements; Third Party
Consents................................... 44
Material Federal Income Tax Consequences of
the Merger................................. 45
Treatment of Holders of Common Stock....... 45
Backup Withholding......................... 46
Fees and Expenses............................ 46
INFORMATION CONCERNING THE SPECIAL MEETING..... 47
Time, Place and Date......................... 47
Purpose of the Special Meeting............... 47
Record Date; Voting at the Meeting; Quorum... 48
</TABLE>
i
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Required Vote................................ 48
Voting and Revocation of Proxies............. 49
Action to be Taken at the Special Meeting.... 49
Proxy Solicitation........................... 49
THE MERGER AGREEMENT........................... 50
The Merger; Merger Consideration............. 50
Treatment of Certain Shares Held by the
Founders and Certain Other Individuals..... 51
The Exchange Fund; Payment for Shares of
Common Stock............................... 51
Transfers of Common Stock.................... 52
Treatment of Stock Options................... 52
Conditions................................... 53
Representations and Warranties............... 53
Covenants.................................... 55
Acquisition Proposals........................ 56
Termination.................................. 57
Fees and Expenses............................ 58
Amendment/Waiver............................. 60
THE VOTING AGREEMENT........................... 60
CERTAIN LITIGATION............................. 61
DISSENTERS' RIGHTS OF APPRAISAL................ 61
MARKET FOR THE COMMON STOCK.................... 65
Common Stock Market Price Information;
Dividend Information....................... 65
<CAPTION>
PAGE
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<S> <C>
Common Stock Purchase Information............ 65
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT............................... 66
DIRECTORS AND MANAGEMENT....................... 67
The Company.................................. 67
RB Capital and RBR Acquisition............... 68
CAUTIONARY STATEMENT REGARDING FORWARD--LOOKING
STATEMENTS................................... 69
INDEPENDENT AUDITORS........................... 70
STOCKHOLDER PROPOSALS.......................... 70
WHERE YOU CAN FIND MORE INFORMATION............ 70
OTHER BUSINESS................................. 71
AVAILABLE INFORMATION.......................... 71
LIST OF DEFINED TERMS.......................... 72
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>
ii
<PAGE>
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 8 to 22.
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 18 to 22.
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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 61 to 64 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 June 14, 1999 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
2
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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 45 to 46.
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.
3
<PAGE>
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 47)
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, June 14, 1999, 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 June 14,
1999, [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 32 to 36.
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 June 14, 1999) in favor of the merger
agreement and the transactions contemplated thereby.
SPECIAL FACTORS (SEE PAGE 8)
There are a number of factors that you should consider in connection with
voting your shares. They include:
- the background of the merger;
- the factors considered by the Special Committee and the board of
directors;
- the opinion of the financial advisor to the Special Committee;
- the recommendation of the Special Committee and the board of directors;
- the purpose and effect of the merger;
- the interests of certain persons in the merger; and
- the financing of the merger.
These factors, in addition to several other factors to be considered in
connection with the merger, are described in this proxy statement. For a
detailed discussion of each of these factors, see pages 8 to 47.
THE MERGER AGREEMENT (SEE PAGE 50)
THE MERGER CONSIDERATION (SEE PAGE 50)
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 53)
A number of conditions must be satisfied before any of Rock Bottom, RB
Capital or RBR
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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 involving the funding of the financing for the merger
and compliance with representations, warranties and covenants must be satisfied
by Rock Bottom or waived by RB Capital or RBR Acquisition before either RB
Capital or RBR Acquisition is obligated to complete the merger.
Additional conditions involving the compliance with representations,
warranties and covenants must be satisfied by RB Capital and RBR Acquisition or
waived by Rock Bottom before Rock Bottom is obligated to complete the merger.
TERMINATION OF THE MERGER AGREEMENT
(SEE PAGE 57)
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 without the agreement of
the other party under certain circumstances.
ACQUISITION PROPOSALS (SEE PAGE 56)
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 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 certain circumstances.
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 certain circumstances.
FEES AND EXPENSES (SEE PAGE 58)
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.
In addition, under certain circumstances, 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 by, or RB Capital's
expenses may be reimbursed by, Rock Bottom, see pages 58 to 60.
DISSENTERS' RIGHTS OF APPRAISAL (SEE PAGE 61)
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.
5
<PAGE>
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, and as of and for each of the fiscal quarters
ended March 29, 1998 and March 28, 1999. 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 the
consolidated financial statements of Rock Bottom which have been audited by
Arthur Andersen LLP. The financial information for Rock Bottom as of and for the
fiscal quarters ended March 29, 1998 and March 28, 1999, has been derived from
the unaudited consolidated financial statements of Rock Bottom which, in the
opinion of Rock Bottom's management, include all adjustments necessary for a
fair presentation of Rock Bottom's financial position and results of operations.
All such adjustments, except for acquisition transaction costs, are of a normal
recurring nature. The results of operations for the fiscal quarter ended March
28, 1999, is not necessarily indicative of the results that may be achieved for
the full fiscal year, and cannot be used to indicate financial performance for
the entire year. 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, and Quarterly Report on Form
10-Q for the fiscal quarter ended March 28, 1999, which are enclosed with this
proxy statement.
<TABLE>
<CAPTION>
AS OF OR FOR THE
AS OF OR FOR THE FISCAL YEAR ENDED FISCAL QUARTER ENDED
---------------------------------------------------------------------- ------------------------
DECEMBER 25, DECEMBER 31, DECEMBER 29, DECEMBER 28, DECEMBER 27, MARCH 29, MARCH 28,
1994 1995 1996 1997 1998 1998 1999
------------- ------------- ------------ ------------ ------------ ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
REVENUES:
Old Chicago
restaurants........... $ 22,201 $ 40,499 $ 58,328 $ 73,117 $ 74,131 $ 18,388 $ 18,359
Brewery restaurants..... 16,652 33,465 50,902 77,131 85,971 20,206 22,481
------------- ------------- ------------ ------------ ------------ ----------- -----------
Total revenues........ 38,853 73,964 109,230 150,248 160,102 38,594 40,840
------------- ------------- ------------ ------------ ------------ ----------- -----------
OPERATING EXPENSES:
Cost of sales........... 9,785 18,509 27,100 37,672 40,625 9,719 10,182
Restaurant salaries &
benefits.............. 12,727 24,739 35,552 51,086 53,632 12,819 13,842
Operating expenses...... 8,044 15,135 23,529 30,627 31,906 7,686 8,338
Selling expenses........ 1,272 2,855 4,272 5,773 5,099 1,274 1,244
General &
administrative........ 2,468 4,577 5,620 9,073 9,818 2,638 2,833
Depreciation &
amortization.......... 1,325 4,200 7,802 12,136 8,615 2,169 2,177
Start-up costs(1)....... -- -- -- -- 1,809 247 677
Restructuring charges
and other, net........ -- -- -- 9,707 (138) 234 115
------------- ------------- ------------ ------------ ------------ ----------- -----------
Total operating
expenses............ 35,621 70,015 103,875 156,074 151,366 36,786 39,407
------------- ------------- ------------ ------------ ------------ ----------- -----------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
AS OF OR FOR THE
AS OF OR FOR THE FISCAL YEAR ENDED FISCAL QUARTER ENDED
---------------------------------------------------------------------- ------------------------
DECEMBER 25, DECEMBER 31, DECEMBER 29, DECEMBER 28, DECEMBER 27, MARCH 29, MARCH 28,
1994 1995 1996 1997 1998 1998 1999
------------- ------------- ------------ ------------ ------------ ----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Income (Loss) From
Operations.............. $ 3,232 $ 3,949 $ 5,355 $ (5,826) $ 8,736 $ 1,808 $ 1,433
Equity in joint venture
earnings.............. -- -- 223 330 688 175 --
Gain on sale of
investment in joint
venture............... -- -- -- -- 728 -- --
Interest income
(expense), net........ (106) 831 (74) (1,763) (2,378) (583) (512)
Other income (expense),
net................... 8 40 (1) -- -- -- (985)
------------- ------------- ------------ ------------ ------------ ----------- -----------
Income (Loss) Before
Taxes................... 3,134 4,820 5,503 (7,259) 7,774 1,400 (64)
Income (Loss) Before
Cumulative Effect of
Accounting Change(1).... 1,924 3,270 4,025 (4,691) 5,248 945 (363)
Net Income (Loss)(1)(2)... $ 1,924 $ 3,270 $ 4,025 $ (4,691) $ 3,998 $ (305) $ (363)
------------- ------------- ------------ ------------ ------------ ----------- -----------
------------- ------------- ------------ ------------ ------------ ----------- -----------
DILUTED NET INCOME (LOSS)
PER SHARE:
Income (loss) before
cumulative effect of
accounting change..... $ .47 $ .45 $ .52 $ (.58) $ .65 $ .12 $ (.05)
Cumulative effect of
accounting change..... -- -- -- -- (.15) (.16) --
------------- ------------- ------------ ------------ ------------ ----------- -----------
Diluted Net Income (Loss)
Per Share............... $ .47 $ .45 $ .52 $ (.58) $ .50 $ (.04) $ (.05)
------------- ------------- ------------ ------------ ------------ ----------- -----------
Diluted Weighted Average
Shares Outstanding(3)... 4,072 7,264 7,725 8,027 8,056 8,056 8,046
------------- ------------- ------------ ------------ ------------ ----------- -----------
------------- ------------- ------------ ------------ ------------ ----------- -----------
BALANCE SHEET DATA
(AT END OF PERIOD):
Working Capital
(deficit)............. $ 1,113 $ 9,335 $ (732) $ (5,567) $ (26,747) $ (7,092) $ (44,163)
Total assets............ 26,359 64,169 84,948 107,413 102,497 105,020 103,939
Long-term debt
(including current
portion).............. 706 641 11,564 28,940 21,425 27,812 23,374
Obligations under
capital leases
(including current
portion).............. 1,794 1,667 1,372 2,079 2,481 3,043 2,450
Stockholders' equity.... 17,924 55,341 65,337 61,219 65,423 60,930 65,011
OTHER DATA:
Book Value per share.... $ 3.38 $ 7.53 $ 8.26 $ 7.60 $ 8.12 $ 7.57 $ 8.08
</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.
7
<PAGE>
FOR YOUR CONVENIENCE, WE HAVE INCLUDED ON PAGE 72 A LIST OF CERTAIN DEFINED
TERMS USED IN THIS PROXY STATEMENT.
THE PARTIES
THE COMPANY
Rock Bottom Restaurants, Inc. (the "Company") was incorporated in April 1994
and as of the date hereof 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, Inc. ("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 Corp. ("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 Inc. (formerly known as Piper Jaffray Inc.) ("U.S. Bancorp Piper
Jaffray") 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
8
<PAGE>
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.
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 of directors
of the Company (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." In light of the
continuing low prices for Rock Bottom's common stock and the failure of the
markets to respond favorably to Rock Bottom's change in expansion strategy and
improvement in financial results, the Board decided that it would consider an
affiliate-led proposal if such proposal were received. 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 a special
committee, consisting of Messrs. Cocroft and Hornbeck and Ms. Hacking (the
"Special Committee"), 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
9
<PAGE>
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 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.
The Special Committee also discussed its alternatives regarding solicitation
of other potential purchasers of the Company with U.S. Bancorp Piper Jaffray.
After considering the matter with its advisors, the Special Committee determined
that a public announcement of the proposals received from ConQuest and RB
Capital would be sufficient to notify the marketplace that the Company was
considering acquisition proposals and precipitate the disclosure of any
additional interest in the
10
<PAGE>
Company which might exist, particularly from parties which were already familiar
with the Company through the October 1997 process.
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 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
position, including the Company's relative performance in terms of same store
sales, relative profitability and inconsistent earnings history, and market
position, including actual earnings versus market expectations, large insider
holdings, limited trading volume and float and general contraction of price to
earnings multiples for restaurant companies which are not larger market
capitalization companies with a pattern of steady growth. U.S. Bancorp Piper
Jaffray provided a preliminary financial evaluation of the Company based on
analyses of acquisition transactions involving companies deemed similar to the
Company, premiums paid in recent public market transactions, publicly traded
companies similar to the Company, the value of implied future cash flows of the
Company discounted to present value and the feasibility of a leveraged buyout of
the Company. These analyses were substantially similar to those used by U.S.
Bancorp Piper Jaffray in the preparation of its fairness opinion delivered on
March 18, except for the absence of a specific transaction price, timing
differences in available stock market and financial data, and U.S. Bancorp Piper
Jaffray's reliance, in analyses dependent on forward looking Company
information, on Company management projections prepared in January, 1999, which
were subsequently revised as indicated below under "--Certain Projections." 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.
11
<PAGE>
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
informed 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. After discussing the matter, 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,
through Consolidated Restaurant Companies, Inc., a holding company formed by
CHSH to acquire and manage CHSH's portfolio of restaurant companies, 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 informed the Special
Committee 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 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
12
<PAGE>
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 including, among other things, the
differences in price, financing and certainty of financing sources, status of
due diligence and transaction timing. 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 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
13
<PAGE>
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 the meeting of
the Special Committee scheduled for 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"). Prior to the February 19 Meeting, the Special Committee,
anticipating the progress of negotiations with RB Capital, had requested U.S.
Bancorp Piper Jaffray to make a financial presentation to the Special Committee
at the February 19 Meeting and, in connection therewith, had instructed U.S.
Bancorp Piper Jaffray to be prepared to deliver its opinion as to the fairness,
from a financial point of view, of the $10.25 per share consideration being
proposed by RB Capital. However, at the outset of the February 19 Meeting,
Latham & Watkins informed the Special Committee that negotiations with respect
to the draft merger agreement had not yet been finalized. After discussing the
matter with its advisors, the Special Committee determined to receive and
analyze the financial presentation of U.S. Bancorp Piper Jaffray, but not to
request a fairness opinion.
At the February 19 Meeting, U.S. Bancorp Piper Jaffray summarized its
discussions and contacts with 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.
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U.S. Bancorp Piper Jaffray further indicated that it had not received any other
inquiries. U.S. Bancorp Piper Jaffray and Latham & Watkins also informed the
Special Committee that they had each reviewed a revised draft commitment letter
for the senior debt financing to be furnished by BankBoston. Although
negotiations between RB Capital and BankBoston with respect to the senior debt
commitment letter had not been completed, U.S. Bancorp Piper Jaffray and Latham
& Watkins each advised the Special Committee that they were generally satisfied
with the form and substance of the commitment. U.S. Bancorp Piper Jaffray
further indicated that revised commitments for the subordinated debt and equity
were to be forthcoming from BancBoston Robertson Stephens and, as a result, had
not yet been reviewed. Latham & Watkins reviewed with the Special Committee the
status of negotiations with Davis Graham and outlined for the Special Committee
the open issues, with respect to the draft merger agreement, 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. The Special Committee discussed these matters.
At the request of the Special Committee, U.S. Bancorp Piper Jaffray then
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, except for the $10.25 per share proposed
acquisition price, timing differences in available stock market and financial
data and U.S. Bancorp Piper Jaffray's reliance, in analyses dependent on
forward-looking Company information, on the January 1999 management projections,
which were subsequently revised as indicated below under "--Certain
Projections." At the Special Committee's request, U.S. Bancorp Piper Jaffray did
not deliver an opinion as to the fairness of RB Capital's $10.25 per share
proposal at the February 19 Meeting.
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 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
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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 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.
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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 Agreement and
Plan of Merger, dated as of March 18, 1999, by and among the Company, RB Capital
and RBR Acquisition, as heretofore and hereafter amended (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 cause the Company to execute and
deliver the Merger Agreement and the Voting Agreement dated as of March 18, 1999
(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
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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 stockholders' right to
receive $10.00 per share in cash, without interest, under the Merger Agreement
(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 of RBR Acquisition with and into the Company (the
"Merger"), with the Company as the surviving corporation (the "Surviving
Corporation"), 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 in the future and the
Company's overall value as a going concern.
- 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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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.
- INTERESTS OF CERTAIN PARTIES. The Special Committee also recognized that
the Founders would have an opportunity, subject to the risks of the
Surviving Corporation's business, to benefit from any increases in the
value of the Surviving Corporation following the Merger. The Special
Committee recognized that this represented a potential conflict between
the interests of the Founders and the Company's other stockholders.
However, the Special Committee considered its assessment of the risks
associated with the Company's future and recognized that under the terms
of the Merger Agreement, the Founders would reinvest substantially all of
their existing equity investment in the Company into an investment in the
Surviving Corporation, thereby assuming such risks. The Special Committee
considered that the assumption of risk involved in the proposed
transaction mitigated the potential conflict of interest.
The foregoing discussion of the information and factors discussed by the
Special Committee is not meant to be exhaustive, but includes all material
factors considered by the Special Committee to support their decision to
recommend the approval of the Merger Agreement and to determine that the
transactions contemplated thereby are fair to, and in the best interests of, the
Company and the holders of the Company's common stock (other than RB Capital,
RBR Acquisition and their affiliates). The Special Committee did not assign
relative weights or additional quantifiable values to the above factors; rather,
the Special Committee viewed its position and recommendations as being based on
the totality of the information presented to and considered by the members.
Certain factors which might be considered when evaluating a transaction similar
to the Merger were not considered by the Special Committee. These factors
include whether the Merger Consideration offered to the holders of the Company's
common stock (other than RB Capital, RBR Acquisition and their affiliates)
constitutes fair value in relation to (1) liquidation value or net book value,
which factors were not considered because these factors are not indicative of
the value of the Company as a going concern, or (2) the prices paid by the
Company or any of the Founders in connection with purchases of Company common
stock by any of such persons during the last two full fiscal years of the
Company, which factor was not considered because no significant purchases of
such kind were made during the last two full fiscal years.
BOARD OF DIRECTORS OF THE COMPANY
The Board unanimously formed the Special Committee to act solely on behalf
of the unaffiliated stockholders of the Company for purposes of negotiating the
Merger Agreement. The Special Committee, in turn, retained U.S. Bancorp Piper
Jaffray to prepare and deliver an opinion as to the fairness of the Merger
Consideration to the Company's stockholders (other than RB Capital, RBR
Acquisition and their affiliates) from a financial point of view.
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In reaching its determination referred to above, the Board considered,
relied upon and adopted 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.
In addition, the Company undertook the transaction with RB Capital at this
time as a result of (1) the Special Committee's consideration of the factors
outlined above relating to the limitations of the Company as a public company,
the inconsistent results of the Company's operations and its recent financial
performance and the impact of such performance on future prospects and the
long-standing concerns of the entire Board (including the disinterested members
comprising the Special Committee) regarding the continuing depressed stock price
of the Company's common stock, (2) the lack of interest in the Company on the
part of third parties, including those parties involved in the Company's
exploration of strategic alternatives in 1997, subsequent to the Company's
January 27, 1999 public announcement that the Company had received various
indications of interest and would consider other proposals and (3) each of the
other factors considered by the Special Committee and described above.
The Board believes that sufficient procedural safeguards to ensure fairness
of the transaction and to permit the Special Committee to effectively represent
the interests of the holders of the Company's common stock (other than RB
Capital, RBR Acquisition and their affiliates) were present, and therefore there
was no need for the majority of the directors who are not employees of the
Company to retain any additional unaffiliated representative to act on behalf of
the holders of the Company's common stock or to require the approval of at least
a majority of unaffiliated holders of the Company's common stock. The Board
reached this conclusion in view of (1) the unaffiliated status of the members of
the Special Committee whose sole purpose was to represent the interests of the
holders of the Company's common stock (other than RB Capital, RBR Acquisition
and their affiliates); (2) retention by the Special Committee of independent
legal counsel and financial advisors; and (3) the fact that the Special
Committee, even though consisting of directors of the Company and therefore not
completely unaffiliated with the Company, is a mechanism well recognized under
Delaware law to provide for fairness in transactions of this type.
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.
22
<PAGE>
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 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
23
<PAGE>
REFERENCE TO THE FULL TEXT OF SUCH OPINION. COPIES OF THE WRITTEN OPINION ARE
ALSO 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.
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 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. U.S. Bancorp Piper Jaffray also calculated for these
comparable companies valuation multiples equal to the quotient of selected
valuation data, such as company value and market capitalization, and selected
operating data, such as revenue and operating income. U.S. Bancorp Piper Jaffray
then calculated implied values for the Company equal to
24
<PAGE>
the product of the comparable company valuation multiples and the corresponding
operating data for the Company.
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 for these transactions valuation
multiples equal to the quotient of selected valuation data, such as company
value and equity value derived from the comparable transactions, and selected
operating data, such as revenue and operating income, for the acquired company
in the comparable transactions. U.S. Bancorp Piper Jaffray then compared these
multiples to the multiples derived from corresponding Company data and the
merger consideration, and also calculated implied values for the Company equal
to the product of the comparable transaction valuation multiples and the
corresponding operating data for the Company. U.S. Bancorp Piper Jaffray
25
<PAGE>
presented 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.
U.S. Bancorp Piper Jaffray presented 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,
26
<PAGE>
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>
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
27
<PAGE>
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
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
28
<PAGE>
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
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
29
<PAGE>
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 AN ACCURATE PREDICTION OF FUTURE EVENTS OR NECESSARILY
ACHIEVABLE. IN LIGHT OF THE UNCERTAINTIES INHERENT IN FORWARD LOOKING
INFORMATION OF ANY KIND, WE CAUTION UNDUE RELIANCE ON SUCH INFORMATION. WE DO
NOT INTEND TO UPDATE, REVISE OR CORRECT SUCH PROJECTIONS IF THEY BECOME
INACCURATE (EVEN IN THE SHORT TERM).
<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>
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.
30
<PAGE>
RB CAPITAL'S AND RBR ACQUISITION'S PURPOSE AND REASON FOR THE MERGER
The purpose of RB Capital, RBR Acquisition 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.
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. Obtaining financing for a tender offer would
require a pledge of substantially all of the Company's assets prior to ownership
of all of such assets. Until the completion of the merger, RB Capital would not
own all of the Company's assets and would not be able to pledge such assets to
support the borrowing.
Each of the Founders, RB Capital and RBR Acquisition 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, RBR Acquisition or the Founders, had
unanimously approved the Merger and recommended that stockholders approve
and adopt the Merger Agreement and the transactions contemplated thereby;
31
<PAGE>
- 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, which the Founders, RB Capital and RBR Acquisition
adopt (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 generally assisted the Founders in
this transaction and, in particular, advised the Founders' on bidding and
negotiating strategies and participated in negotiations with the Special
Committee and its representatives, BancBoston Robertson Stephens 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
106,907 shares of common stock at exercise prices ranging from $6.20 to $8.50
per share.
32
<PAGE>
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.
The Company expects to offer holders of stock options who will be either
employees or directors of the Surviving Corporation or RB Capital subsequent to
the Merger, the ability to convert the value of their options into newly issued
restricted stock of RB Capital. The conversion will be based on the relative
values of the securities on the date of exchange, assuming a $10 value for the
stock of each of the Company and RB Capital. RB Capital is not currently able to
quantify the number of stock options that will be exchanged for restricted stock
of RB Capital. However, commitments have been received from the Founders and one
executive officer for the exchange of options to purchase 106,907 and 58,100
shares of Company common stock, respectively, with an average exercise price of
$7.00 resulting in the issuance of 32,072 and 17,430 shares of RB Capital
restricted stock, respectively. RB Capital proposes to pay the resulting income
taxes for each exchanging holder, subject to the approval of the Company's
financing sources. Such tax payment is currently estimated to be approximately
$151,000 for the Founders in the aggregate.
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 restricted
or other stock of the Company to RB Capital in exchange for stock and/or
restricted stock of RB Capital. It is currently anticipated that one of Rock
Bottom's executive officers who is not one of the Founders will contribute to RB
Capital 32,554 shares of restricted stock and 1,087 shares of common stock. As a
result of all 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.
The value of Rock Bottom stock and stock options held by members of the
Special Committee to be received upon consummation of the Merger is as follows:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES VALUE NUMBER OF STOCK OPTIONS NET VALUE
- -------------------------------------------------- ----------------------- ----- ----------------------- ----------
<S> <C> <C> <C> <C>
Duncan H. Cocroft................................. 0 0 15,564 $ 44,082
Mary C. Hacking................................... 0 0 16,591 $ 55,233
Gerald A. Hornbeck................................ 0 0 36,968 $ 116,364
</TABLE>
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.
33
<PAGE>
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 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 management of the Company immediately prior to the Effective Time of the
Merger will be the management 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. In connection with
the Merger, the Company expects that two current executive officers, Mr. Hoppe
and Ms. Shelton, will receive severance payments of $325,650 ($232,500 and
$93,150, respectively). In addition, Mr. Hoppe will receive $214,210 in respect
of restricted stock owned by him with respect to which restrictions have lapsed
or will lapse as a result of the Merger, and will have the right to receive, in
respect of 11,500 additional shares of restricted stock as to which restrictions
will not have lapsed upon completion of the Merger, an additional $115,000 in
2006 when such restrictions lapse (unless rights thereto are otherwise
terminated). In addition, Mr. Hoppe and Ms. Shelton will receive $186,810 and
$113,277, respectively, in respect of the net exercise of stock options held by
them that will not be contributed to RB Capital.
RB Capital currently does not expect to enter into new employment or other
agreements with any officers prior to the Merger, although agreements currently
in effect will become obligations of the Surviving Corporation. It is expected
that current employment arrangements, including salaries and benefits, will
remain comparable with existing compensation. RB Capital has no arrangements or
understandings with respect to the future grant of stock options. 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
34
<PAGE>
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 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 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
35
<PAGE>
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.
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
36
<PAGE>
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."
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 has completed several
sale-leaseback transactions with respect to five operating properties and sold
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.
37
<PAGE>
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.
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 and equity contributions of certain of the
Founders. RB Capital does not currently have any plan or arrangement for
refinancing or repaying these borrowings, other than cash flow from operations.
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;
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- 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.
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);
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<PAGE>
- 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;
- 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 August 15, 1999. There can be no
assurance, however, that the closing of the Merger will occur prior to
August 15, 1999.
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 agent 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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- 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 has consummated
certain ancillary sale-leaseback transactions (the "Sale-Leaseback
Transactions"), as provided for in the Merger Agreement, and has used net sale
proceeds of approximately $8.5 million from such transactions to reduce the
Company's revolving credit facility with Norwest Bank Colorado, National
Association (the "Norwest Credit Facility"). 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 were 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 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 was entered into by the Company with
unaffiliated third party investment 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 terms of the Sale-Leaseback Transactions with respect to the Phoenix,
Arizona and the three Colorado properties provide for, among other things:
- the sale and lease by the Company of property located in Phoenix, Arizona
for $2,650,000 and $271,625 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 has a term of 12 years with two 10-year renewal
options and provides for increases in lease payments equal to 6.75% compounded
every third year.
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 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.
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MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion is a summary of the material federal income tax
consequences expected to result to stockholders whose shares of common stock are
converted to cash in the Merger. This summary 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 and, except as noted, does not address tax consequences to the Founders.
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 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
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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.
The Founders will transfer common stock of Rock Bottom to RB Capital in
exchange for shares of RB Capital (the "RB Capital Exchange"). See "--Interests
of Certain Persons in the Merger; Certain Relationships." It is intended that
the RB Capital Exchange will qualify as a transfer to a controlled corporation
in which gain or loss is not recognized under Section 351 of the Code. In
addition, no gain or loss will be recognized in the Merger by RB Capital, RBR
Acquisition or Rock Bottom.
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.
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."
INFORMATION CONCERNING THE SPECIAL MEETING
TIME, PLACE AND DATE
This proxy statement is furnished in connection with the solicitation by the
Board 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 Merger Agreement and the transactions
contemplated thereby. A copy of the Merger Agreement is attached to this proxy
statement as Annex A. 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 Merger Consideration.
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
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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, 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 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 June 14, 1999 as the record date (the "Record
Date") for the Special Meeting. Only stockholders of record as of the close of
business on June 14, 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. Approval of
the Merger Agreement does not require the affirmative vote of a majority of the
outstanding shares of common stock held by persons other than RB Capital, RBR
Acquisition or their affiliates. 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, 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
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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.
VOTING AND REVOCATION OF PROXIES
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.
ACTION TO BE TAKEN AT THE SPECIAL MEETING
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.
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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."
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;
- 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
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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 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.
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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 the Company and RB Capital to contribute such stock
options to RB Capital, 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.
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.
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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.
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.
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;
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- 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;
- 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.
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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 two-thirds of the entire board of directors of the
Company to approve certain matters, which transactions and amendment have been
completed. See "Special Factors--Financing of the Merger."
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;
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- 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
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
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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.
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
57
<PAGE>
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, 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
58
<PAGE>
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
- 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.
59
<PAGE>
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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<PAGE>
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. 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
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<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.
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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.
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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
Second Quarter, through May 28, 1999...................................... 9.06 8.44
</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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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of May 28, 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) ............................... 872,950 10.7
601 W. Main Ave., Suite 600
Spokane, Washington 99201
Dimensional Fund Advisors(2) ................................ 452,400 5.5
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Frank B. Day(3)(4) .......................................... 1,379,176 16.8
Duncan H. Cocroft(5) ........................................ 12,564 *
Robert D. Greenlee(3)(5) .................................... 536,041 6.6
Mary C. Hacking(5) .......................................... 13,591 *
Gerald A. Hornbeck(5) ....................................... 33,968 *
David M. Lux(3)(6) .......................................... 190,871 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) ............................................... 2,587,321 30.7
</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 March 31, 1999.
(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 May 28, 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 45,404 shares subject to stock options
exercisable as of or within 60 days from May 28, 1999.
(5) Includes shares subject to stock options exercisable as of or within 60 days
from May 28, 1999 as follows: Mr. Cocroft-- 12,564 shares; Mr.
Greenlee--16,905 shares; Ms. Hacking--13,591 shares; Mr. Hornbeck--33,968
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 9,806 shares subject to stock options
exercisable as of or within 60 days from May 28, 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 267,434 shares subject to stock options exercisable as
of or within 60 days of May 28, 1999, and 75,974 shares of restricted stock.
66
<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 1991, 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>
67
<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.
68
<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.
69
<PAGE>
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 enclosed with this proxy statement, 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.
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;
(2) The Company's Current Report on Form 8-K dated March 23, 1999; and
(3) The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 28, 1999.
The Company's Annual Report on Form 10-K for the fiscal year ended December
27, 1998, Current Report on Form 8-K dated March 23, 1999, and Quarterly Report
on Form 10-Q for the fiscal quarter ended March 28, 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 forward looking statements made in the incorporated
documents are not protected by the safe harbor for forward looking statements.
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.
70
<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
Robert D. Greenlee
SECRETARY
Louisville, Colorado
[Month Day], 1999
71
<PAGE>
LIST OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM PAGE
- ----------------------------------------------- -----
<S> <C>
Acquisition Proposal........................... 56
BankBoston Robertson Stephens.................. 9
BankBoston..................................... 13
Board.......................................... 9
Borrower....................................... 39
Bridge Loan.................................... 40
Certificate.................................... 50
CHSH........................................... 9
CHSH Proposal.................................. 12
Code........................................... 35
Company........................................ 8
ConQuest....................................... 10
Costs and Expenses............................. 58
Credit Agreement............................... 39
Davis Graham................................... 9
December 23 Meeting............................ 9
DGCL........................................... 61
Dissenting Stockholders........................ 47
Effective Time................................. 50
Employment Agreement........................... 34
Engagement Letter.............................. 29
Equity Contribution Letters.................... 42
Exchange Act................................... 37
Exchange Agent................................. 51
Exchange Fund.................................. 51
Executive...................................... 34
February 11 Meeting............................ 13
February 19 Meeting............................ 14
February 27 Meeting............................ 16
Founders....................................... 1
Guarantors..................................... 39
HSR Act........................................ 44
Initial ConQuest Proposal...................... 10
Initial RB Capital Proposal.................... 10
Issuer......................................... 41
<CAPTION>
TERM PAGE
- ----------------------------------------------- -----
<S> <C>
January 22 Meeting............................. 11
Junior Equity Securities....................... 40
Lenders........................................ 38
March 10 Meeting............................... 16
March 18 Meeting............................... 17
Merger......................................... 18
Merger Agreement............................... 17
Merger Consideration........................... 18
Norwest Credit Facility........................ 43
Outside Date................................... 53
RB Capital..................................... 8
RB Capital Exchange............................ 46
RBR Acquisition................................ 8
Record Date.................................... 48
Revised ConQuest Proposal...................... 13
Revised RB Capital Proposal.................... 13
Sale-Leaseback Transactions.................... 43
Senior Debt Commitment Letter.................. 38
Senior Debt Facilities......................... 38
Senior Subordinated Debt Securities............ 40
Special Committee.............................. 9
Special Meeting................................ 47
Stockholder Litigation......................... 12
Stock Option Consideration..................... 52
Subordinated Debt and Junior Equity Commitment
Letter....................................... 40
Subordinated Debt and Junior Equity
Facilities................................... 40
Superior Proposal.............................. 57
Surviving Corporation.......................... 18
Term Loan A.................................... 38
Term Loan B.................................... 38
U.S. Bancorp Piper Jaffray..................... 8
Voting Agreements.............................. 17
Warrants....................................... 42
</TABLE>
72
<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> <C> <C>
ARTICLE I. THE MERGER............................................................................ 1
1.1. The Merger............................................................................ 1
1.2. Closing............................................................................... 1
1.3. Effective Time........................................................................ 1
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......................................................................... 3
ARTICLE II. EXCHANGE OF CERTIFICATES.............................................................. 3
2.1. Exchange Fund......................................................................... 3
2.2. Exchange Procedures................................................................... 4
2.3. No Further Ownership Rights in Company Common Stock................................... 4
2.4. Termination of Exchange Fund; Unclaimed Funds......................................... 5
2.5. No Liability.......................................................................... 5
2.6. Lost Certificates..................................................................... 5
2.7. Withholding Rights.................................................................... 5
ARTICLE III. REPRESENTATIONS AND WARRANTIES........................................................ 5
3.1. Representations and Warranties of the Company......................................... 5
3.2. Representations and Warranties of Parent and Merger Sub............................... 10
ARTICLE IV. COVENANTS RELATING TO CONDUCT OF BUSINESS............................................. 13
4.1. Covenants of the Company.............................................................. 13
4.2. Covenants of Parent and Merger Sub.................................................... 15
4.3. Advice of Changes; Government Filings................................................. 15
ARTICLE V. ADDITIONAL AGREEMENTS................................................................. 16
5.1. Stockholders Meeting; Preparation of Disclosure Documents............................. 16
5.2. Access to Information; Confidentiality................................................ 17
5.3. Approvals and Consents; Cooperation................................................... 17
5.4. Financing............................................................................. 18
5.5. Acquisition Proposals................................................................. 18
5.6. Employee Benefits; Company Plans...................................................... 20
5.7. Fees and Expenses..................................................................... 20
5.8. Indemnification; Directors' and Officers' Insurance................................... 20
5.9. Public Announcements.................................................................. 21
5.10. Takeover Statutes..................................................................... 21
5.11. Supermajority Voting Requirement...................................................... 21
5.12. Voting Agreement; Certain Other Agreements............................................ 21
5.13. Further Assurances.................................................................... 22
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C> <C>
ARTICLE VI. CONDITIONS PRECEDENT.................................................................. 22
6.1. Conditions to Each Party's Obligation to Effect the Merger............................ 22
6.2. Conditions to the Obligation of Parent and Merger Sub to Effect the Merger............ 22
6.3. Conditions to the Obligation of the Company to Effect the Merger...................... 22
ARTICLE VII. TERMINATION AND AMENDMENT............................................................. 23
7.1. Termination........................................................................... 23
7.2. Effect of Termination; Termination Fee and Reimbursement of Expenses.................. 25
7.3. Amendment............................................................................. 26
7.4. Extension; Waiver..................................................................... 26
7.5. Procedure for Termination, Amendment, Extension or Waiver............................. 26
ARTICLE VIII. GENERAL PROVISIONS.................................................................... 27
8.1. Non-Survival of Representations, Warranties, Covenants and Agreements................. 27
8.2. Notices............................................................................... 27
8.3. Interpretation........................................................................ 28
8.4. Counterparts.......................................................................... 28
8.5. Entire Agreement; No Third Party Beneficiaries........................................ 28
8.6. Governing Law......................................................................... 28
8.7. Waiver of Jury Trial.................................................................. 29
8.8. Severability.......................................................................... 29
8.9. Assignment............................................................................ 29
8.10. Enforcement........................................................................... 29
8.11. Definitions........................................................................... 30
</TABLE>
ii
<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)
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)
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
LOCATION OF
DEFINITION DEFINED TERM
- -------------------------------------------------------------------------------------------- --------------------
<S> <C>
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.
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
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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:
(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.
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(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 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
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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 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
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shall thereby have any equity interest in the Surviving Corporation (other than
as set forth in Section 1.8(d)).
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.
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:
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(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 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
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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 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
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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 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
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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),
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.
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(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 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.
(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
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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) 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
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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 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.
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(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 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
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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, (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.
(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.
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(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 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
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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.
(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.
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(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.
(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
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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 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):
(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)
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(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 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
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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.
(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
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"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 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).
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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.
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.
(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
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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, 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
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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 (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.
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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 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
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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 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 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
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<PAGE>
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:
(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
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<PAGE>
(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
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
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<PAGE>
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 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
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<PAGE>
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:
(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]
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<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.
<TABLE>
<S> <C> <C>
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
</TABLE>
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<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;
B-1
<PAGE>
(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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<PAGE>
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
