FORM 8-K NOVEMBER 2006 MERGER AGREEMENT AND NON-RELIANCE
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
Date
of
Report (Date of earliest event reported) November
5, 2006
OSI
RESTAURANT PARTNERS, INC.
(Exact
name of registrant as specified in its charter)
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Delaware
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1-15935
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59-3061413
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(State
or other jurisdiction of incorporation)
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(Commission
File Number)
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(I.R.S.
Employer
Identification
No.)
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2202
North West Shore Boulevard, Suite 500, Tampa, Florida
33607
(Address
of principal executive offices) (Zip Code)
Registrant’s
telephone number, including area code (813)
282-1225
Not
applicable
(Former
name or former address, if changed since last report)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
¨
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
þ
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item
1.01 ENTRY
INTO A MATERIAL DEFINITIVE AGREEMENT
Merger
Agreement
On
November 5, 2006, OSI Restaurant Partners, Inc., a Delaware corporation (the
“Company”), entered into an Agreement and Plan of Merger (the “Merger
Agreement”) with Kangaroo Holdings, Inc., a Delaware corporation (“Parent”), and
Kangaroo Acquisition, Inc., a Delaware corporation and a wholly owned subsidiary
of Parent (“Merger Sub”). Parent and Merger Sub are owned by an investor group
comprised of affiliates of Bain Capital Partners, LLC and Catterton Partners
and
the Company’s founders, Robert D. Basham, J. Timothy Gannon and Chris T.
Sullivan.
Pursuant
to the terms of the Merger Agreement, Merger Sub will merge with and into the
Company, with the Company as the surviving corporation of the merger (the
“Merger”). In the Merger, each share of common stock of the Company, other than
those held by the Company, any subsidiary of the Company, Parent or Merger
Sub,
and other than those shares with respect to which dissenters rights are properly
exercised, will be converted into the right to receive $40.00 per share in
cash
(the “Merger Consideration”). In addition, except as otherwise agreed to by the
Company, Parent, Merger Sub and certain members of management of the Company,
each share of restricted stock will be converted into the right to receive
cash
in an amount equal to the Merger Consideration, with the cash amount payable
in
accordance with the original vesting schedule applicable to the converted
restricted stock; provided, however, that such cash amount will vest and be
paid
upon death, disability or termination other than for cause of the grantee.
Except as otherwise provided in the Merger Agreement, all outstanding options
to
acquire shares of Company common stock will vest at the effective time of the
Merger and holders of such options will receive an amount in cash equal to
the
excess, if any, of the Merger Consideration over the exercise price per share
subject to the option for each share subject to the option.
A
special
committee of the Company’s Board of Directors, consisting of all of the
independent members of the Company’s Board of Directors (the “Special
Committee”), has unanimously approved the Merger Agreement and determined that
the Merger Agreement and the Merger are advisable and both fair to and in the
best interest of the Company’s shareholders. Wachovia Securities LLC served as
financial advisor to the Special Committee, and Wachovia Securities LLC and
Piper Jaffray & Co. each rendered separate fairness opinions to the Special
Committee as to the fairness, from a financial point of view, of the
consideration to be received by the Company’s shareholders (other than the
founders and members of management who are expected to invest in Parent) in
the
Merger. Wachtell, Lipton, Rosen & Katz served as special counsel to the
Special Committee and Baker & Hostetler LLP served as counsel to the Company
and the Board of Directors.
The
founders of the Company and certain members of the Company’s senior management
have agreed to enter into arrangements with Parent to invest in Parent in
connection with the Merger.
Completion
of the Merger is subject to customary closing conditions including (i) approval
by the Company’s shareholders (excluding any shares owned by the founders of the
Company and certain members of senior management who have agreed to invest
in
Parent upon completion of the Merger) and (ii) regulatory approval. The
transaction is not subject to a financing condition. The parties currently
expect that the Merger will be completed by April 30, 2007.
The
Merger Agreement contains certain non-solicitation provisions but permits the
Company to encourage and solicit proposals for a competing transaction for
a
period of 50 days from November 5, 2006. Wachovia Securities LLC will be
assisting the Special Committee with respect to the solicitation of proposals
for a competing transaction.
The
Merger Agreement contains certain termination rights for both Parent and the
Company. If the Company terminates the Merger Agreement prior to the end of
the
solicitation period as a result of the Special Committee or the Board of
Directors concluding that in light of a superior
proposal, it would be inconsistent with the directors’ exercise of their
fiduciary obligations to the Company’s shareholders under applicable law to (i)
make or not withdraw the recommendation that the Company’s shareholders approve
the Merger Agreement or (ii) fail to effect a change in such recommendation
in a
manner adverse to Parent (a “Recommendation Change”), the Company is required to
pay to or as directed by Parent a termination fee of $25 million and reimburse
Parent for its out-of-pocket fees and expenses incurred with respect to the
transactions contemplated by the Merger Agreement, up to a maximum of $7.5
million. If the Company terminates the Merger Agreement as a result of the
effective time of the Merger not occurring on or before April 30, 2007 and
concurrently with or within nine months of such termination the Company enters
into a definitive agreement providing for an alternative transaction that
provides a value per share of not less than the Merger Consideration, the
Company is required to reimburse Parent for its out-of-pocket fees and expenses
incurred with respect to the transactions contemplated by the Merger Agreement,
up to a maximum of $7.5 million. In certain other circumstances, including
a
termination of the Merger Agreement by the Company after the end of the
solicitation period as a result of a Recommendation Change, the Company is
required to pay to or as directed by Parent a termination fee of $45
million.
If
(i)
the Company terminates the Merger Agreement as a result of the effective time
of
the Merger not occurring on or before April 30, 2007 and the Company is not
in
breach in any material respect of the Merger Agreement and (ii) the mutual
conditions to closing of the Merger, including approval of the Merger Agreement
by the Company’s shareholders, and Parent’s conditions to closing of the Merger
would have been satisfied had the closing been scheduled on April 30, 2007,
Parent is required to pay the Company a termination fee of $45 million. In
addition, if the Company terminates the Merger Agreement as a result of Parent
not (i) depositing with the paying agent cash in an aggregate amount sufficient
to pay amounts required to be paid pursuant to the Merger Agreement within
five
days after notice by the Company to Parent that the mutual conditions to closing
of the Merger and Parent’s conditions to closing of the Merger are satisfied or
would be satisfied as of an immediate closing and (ii) proceeding immediately
thereafter to give effect to the closing, Parent is required to pay the Company
a termination fee of $45 million; however, the Company has no right to terminate
the Merger Agreement under this provision prior to the final day of the
marketing period for Parent’s contemplated debt financing or if certain
financial information has not been furnished on or prior to April 2,
2007.
Parent
has obtained commitments for the equity portion of the financing for the Merger,
and Merger Sub has obtained commitments for the debt portion of the financing
for the Merger, each of which is subject to customary conditions.
The
Merger Agreement is attached as Exhibit 2.1 hereto and is incorporated by
reference herein. A press release issued November 6, 2006 relating to the Merger
Agreement and the Merger is attached as Exhibit 99.1 hereto and incorporated
by
reference herein. The foregoing description of the Merger Agreement and the
Merger is qualified in its entirety by reference to Exhibit 2.1.
Amendments
to Employment Agreements, Stock Option Agreements and Restricted Stock
Agreements
On
November 5, 2006, the Company entered into amendments (each, an “Amendment”) to
certain employment, stock option and restricted stock agreements with each
of A.
William Allen, III, the Chief Executive Officer of the Company, Paul E. Avery,
the Chief Operating Officer of the Company, Joseph J. Kadow, the Executive
Vice
President, Chief Officer - Legal and Corporate Affairs of the Company, and
Dirk
Montgomery, the Chief Financial Officer of the Company.
Pursuant
to the Amendments, in the event of a separation of service of the executive
by
the Company without cause or by the executive for good reason within two years
after a change of control, the executive will be paid a lump sum equal to two
times the sum of (i) his gross annual base salary at the rate in effect
immediately prior to the change of control and (ii) the aggregate cash bonus
compensation paid to him for the two fiscal years preceding the year in which
the change of control occurs divided by two. However, in the case of Mr.
Montgomery, if he is not employed for the two entire fiscal years preceding
the
year in which a change of control occurs, the amount for the purposes of clause
(ii) will be equal to his target bonus for the year in which the change of
control occurs.
Pursuant
to Mr. Allen’s Amendment, if a change of control and subsequent separation of
service cause the vesting of all restricted stock granted to Mr. Allen pursuant
to certain Restricted Stock Agreements, the Company will not be required to
pay
Mr. Allen severance compensation of $5,000,000, as previously required under
Mr.
Allen’s employment agreement in certain circumstances.
Pursuant
to the Amendments for each of Mr. Allen, Mr. Avery and Mr. Kadow, the options
owned by each of them will become fully vested and exercisable if, within two
years after a change of control, the executive is terminated by the Company
without cause, resigns for good reason, dies or suffers a disability.
Pursuant
to the Amendments for each of Mr. Allen, Mr. Kadow and Mr. Montgomery, the
restricted stock owned by each of them will become fully vested and all
restrictions will lapse if, within two years after a change of control, the
executive is terminated by the Company without cause, resigns for good reason,
dies or suffers a disability.
Each
Amendment provides a “conditional gross-up” for excise and related taxes in the
event the severance compensation and other payments or distributions to an
executive pursuant to an employment agreement, stock option agreement,
restricted stock agreement or otherwise would constitute “excess parachute
payments,” as defined in Section 280G of the Internal Revenue Code. The tax
gross up will be provided if the aggregate parachute value of all severance
and
other change in control payments to the executive is greater than 110% of the
maximum amount that may be paid under Section 280G of the Code without
imposition of an excise tax. If the parachute value of an executive’s payments
does not exceed the 110% threshold, the executive’s payments under the change in
control agreement will be reduced to the extent necessary to avoid imposition
of
the excise tax on “excess parachute payments.”
The
Amendments are attached as Exhibits 10.1, 10.2, 10.3 and 10.4 and are
incorporated by reference herein.
Amendments
to Amended and Restated Stock Plan, Amended and Restated Managing Partner Stock
Plan, Partner Equity Plan and Directors’ Deferred Compensation and Stock
Plan
Pursuant
to Amendments to the Outback Steakhouse, Inc. Amended and Restated Stock Plan
(the “Stock Plan”) and the Outback Steakhouse, Inc. Amended and Restated
Managing Partner Stock Plan (the “Managing Partner Stock Plan”), each dated
November 5, 2006, each option granted under the Stock Plan and the Managing
Partner Stock Plan that is outstanding immediately prior to the effective time
of the Merger (the “Effective Time”) will, as of the Effective Time, become
fully vested and be converted into an obligation to pay cash in an amount equal
to the product of (i) the total number of shares of common stock subject to
such
option and (ii) the excess, if any, of the Merger Consideration over the per
share option price. Additionally, pursuant to such amendments, at the Effective
Time, unless otherwise agreed to by the award recipient, each award of
restricted stock will be converted into a right to receive cash in an amount
equal to the product of (i) the Merger Consideration and (ii) the number of
shares of restricted stock in respect of such award. Such cash amount will
vest
and be paid in accordance with the original scheduled vesting dates applicable
to the converted restricted stock; provided, however, that such cash amount
will
vest and be paid upon the death, disability or termination other than for cause
of the holder of the restricted stock. Prior to the Effective Time, the Company
will establish an irrevocable grantor trust to provide for the payment of these
cash amounts in respect of such outstanding restricted stock awards.
Pursuant
to the Amendment to the Outback Steakhouse, Inc. Partner Equity Plan (the
“PEP”), dated November 5, 2006, phantom shares of Company stock credited to each
participant’s account will be converted into cash credits in an amount equal to
the product of (i) the Merger Consideration and (ii) the number of shares of
Company common stock credited to such participant’s account. Such cash amounts
will be credited to an account for each participant and will be eligible to
be
invested by participants in the investment alternatives available under the
Partner Equity Deferred Compensation Diversified Plan part of the
PEP and,
except for such administrative changes as may be necessary to effectuate the
foregoing, will be administered in accordance with the payment schedule and
consistent with the terms of the PEP.
Pursuant
to the Amendment to the Directors’ Deferred Compensation and Stock Plan (the
“Directors’ Plan”), dated November 5, 2006, each share unit credited to a
deferral account will be converted into the right to receive the Merger
Consideration immediately upon the Effective Time.
These
amendments are attached as Exhibits 10.5, 10.6, 10.7 and 10.8 and are
incorporated by reference herein
Item
4.02 NON-RELIANCE
ON PREVIOUSLY ISSUED FINANCIAL STATEMENTS OR A RELATED AUDIT REPORT OR COMPLETED
INTERIM REVIEW
In
a
press release dated October 25, 2006, the Company announced that it had
preliminarily determined that its liability for unearned revenue for unredeemed
gift cards and certificates was understated by approximately $20,000,000 to
$40,000,000. The preliminary estimate of the amount of the understatement
communicated on October 25, 2006 was based on an accounting method which the
Company anticipated using, under which the Company would recognize income in
proportion to redemptions as they occur for an estimate of the gift cards and
certificates that will never be redeemed.
On
November 5, 2006, the Company’s management and its Audit Committee concluded
that the Company will need to restate its consolidated financial statements
to
correct for errors in its liability for unearned revenue for unredeemed gift
cards and certificates as well as for certain other errors noted below. As
part
of the restatement, the Company has determined that it will recognize revenue
for those cards and certificates that will never be redeemed at the time at
which their redemption becomes remote, which is generally three years after
their sale. The use of this method of revenue recognition (in contrast to the
method of ratably recognizing revenue as noted above) changes the Company’s
original estimate and is expected to result in an adjustment to its unearned
revenue liability of approximately $50,000,000 to $70,000,000 at September
30,
2006. The actual amount of the understatement, the periods affected and the
related income tax effects are still being determined. Gift certificate sales
began in the early 1990’s and increased commensurate with the Company’s growth
in restaurants over the ensuing years.
In
connection with the restatement, the Company is also assessing the correction
of
other less significant errors in its financial statements, including deferred
rent, minority interests in consolidated entities and additional paid in
capital. The correction of these balances may affect multiple historical
periods, including 2006. Management has not yet completed its reassessment
of
the effectiveness of the Company’s disclosure controls and procedures as of
December 31, 2005, March 31, 2006 and June 30, 2006, including internal control
over financial reporting. It is possible that management will determine
that there were one or more material weaknesses in its disclosure controls
and
procedures as of those dates.
Management
and the Audit Committee also determined on November 5, 2006 that the
Company’s previously issued financial statements, including without limitation
the financial statements and summary financial data contained in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2005 and Quarterly
Reports on Form 10-Q during 2006 should no longer be relied upon.
The
Company intends to file its amended 2005 Annual Report on Form 10-K/A and its
Quarterly Report on Form 10-Q for the third quarter of 2006 as soon as possible,
although the Company currently expects that it will be late in filing its Form
10-Q for the third quarter of 2006. The Company intends to file amendments
to
its Quarterly Reports on Form 10-Q/A for the first two quarters of 2006 as
soon
as practicable.
The
Company’s management and Audit Committee have discussed the conclusions
disclosed in Item 4.02 of this Form 8-K with PricewaterhouseCoopers LLP, the
Company’s independent registered certified public accounting firm.
Item
9.01 FINANCIAL
STATEMENTS AND EXHIBITS
(d) Exhibits.
2.1
Agreement
and Plan of Merger, dated November 5, 2006, by and among OSI Restaurant
Partners, Inc., Kangaroo Holdings, Inc. and Kangaroo Acquisition,
Inc.*
10.1 Amendment,
dated November 5, 2006, between Dirk Montgomery and OSI Restaurant Partners,
Inc.
10.2 Amendment,
dated November 5, 2006, by and among A. William Allen, III, OSI Restaurant
Partners,
Inc. and OS Restaurant Services, Inc.
10.3 Amendment,
dated November 5, 2006, by and among Paul E. Avery, OSI Restaurant Partners,
Inc.
and
Outback Steakhouse of Florida, Inc.
10.4 Amendment,
dated November 5, 2006, by and among Joseph J. Kadow, OSI Restaurant Partners,
Inc.,
OS
Restaurant Services, Inc., OS Management, Inc. and Outback Steakhouse of
Florida, Inc.
10.5 Amendment
to Outback Steakhouse, Inc. Amended and Restated Stock Plan, dated November
5,
2006
10.6 Amendment
to Outback Steakhouse, Inc. Amended and Restated Managing Partner Stock Plan,
dated
November 5, 2006
10.7 Amendment
to Outback Steakhouse, Inc. Partner Equity Plan, dated November 5,
2006
10.8 Amendment
to Outback Steakhouse, Inc. Directors’ Deferred Compensation and Stock Plan,
dated November
5, 2006
99.1 Press
Release, dated November 6, 2006
*
Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The
Company hereby undertakes to furnish supplementally copies of any of the omitted
schedules upon request by the Securities and Exchange Commission.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
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OSI
RESTAURANT PARTNERS, INC.
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(Registrant)
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Date: November
6, 2006
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By:
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/s/
Dirk
A. Montgomery
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Dirk
A. Montgomery
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Chief
Financial Officer
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